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 SEPTEMBER 30, 1996
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
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(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: 23,074,299 shares
outstanding as of September 30, 1996
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MAGICWORKS ENTERTAINMENT INCORPORATED
INDEX
PAGE
PART I. FINANCIAL INFORMATION
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ITEM 1. Financial Statements
Condensed consolidated balance sheets - September 30, 1996 and
December 31, 1995 3
Condensed consolidated statements of operations - Three
months ended September 30, 1996 and 1995; Nine
months ended September 30, 1996 and 1995 4
Condensed consolidated statements of cash flows - Nine months ended
September 30, 1996 and 1995 5
Notes to condensed consolidated financial statements 6-10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11-17
PART I. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
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 17
SIGNATURES 18
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Magicworks Entertainment Incorporated
Condensed Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------------ -----------------
(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents $ 5,338,278 $ 866,604
Accounts receivable 1,519,870 1,196,297
Inventories 234,505 160,930
Preproduction costs, net 1,105,974 1,508,314
Due from affiliates 11,214 665,419
Other current assets 332,888 354,663
------------------ -----------------
Total current assets 8,542,729 4,752,227
Property and equipment, net 1,533,187 1,299,304
Investments in unconsolidated entities 622,202 347,783
Advances and deposits 821,063 343,194
Deferred costs, net 1,154,645 564,032
Intangible assets, net 369,177 454,442
------------------ -----------------
Total assets $ 13,043,003 $ 7,760,982
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,442,068 $ 1,482,131
Current portion of long-term debt 212,288 137,870
Short-term debt 225,000 1,920,489
Deferred income taxes 391,000 -
Due to affiliates 38,150 828,977
------------------ -----------------
Total current liabilities 2,308,506 4,369,467
Long-term debt, net of current portion 5,699,248 392,699
Minority interests 722,245 1,470,457
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized; none issued and outstanding - -
Common stock, $.001 par value; 50,000,000
shares authorized, 23,074,299 and 20,199,999
issued and outstanding in 1996 and 1995,
respectively 23,074 20,199
Additional paid-in capital 4,151,759 110,139
Retained earnings 138,171 1,398,021
------------------ -----------------
Total stockholders' equity 4,313,004 1,528,359
------------------ -----------------
Total liabilities and stockholders' equity $ 13,043,003 $ 7,760,982
=================== =================
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THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
3
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Magicworks Entertainment Incorporated
Condensed Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- --------------------------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
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REVENUES:
Production $ 4,991,059 $ 5,943,857 $ 21,773,945 $ 20,665,310
Promotion 2,286,521 165,806 7,412,528 4,738,992
Merchandising 501,383 356,248 1,635,596 1,568,183
Other 703,276 234,220 1,391,261 729,616
------------ ----------- ------------ ------------
Total revenues 8,482,239 6,700,131 32,213,330 27,702,101
OPERATING EXPENSES:
Talent and other show 6,764,411 5,435,790 24,897,793 20,134,211
Salaries, wages and benefits 824,868 531,032 1,957,251 1,350,282
Cost of goods sold 272,959 249,294 1,149,876 1,099,714
General and administrative 591,186 398,719 1,931,268 1,297,327
------------ ----------- ------------ ------------
Total operating expenses 8,453,424 6,614,835 29,936,188 23,881,534
Income from operations 28,815 85,296 2,277,142 3,820,567
OTHER INCOME (EXPENSE):
Interest income 50,599 54,702 55,786 85,218
Interest expense (147,813) (26,082) (334,024) (47,572)
Income from investments in
nonconsolidated productions 656 (15,693) 27,821 255,119
------------ ----------- ------------ ------------
Total other income (expense) (96,558) 12,927 (250,417) 292,765
INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY
INTERESTS (67,743) 98,223 2,026,725 4,113,332
PROVISION FOR INCOME TAXES
OR PRO FORMA ADJUSTMENT
FOR INCOME TAXES 422,000 (505) 1,069,520 1,012,453
------------ ----------- ------------ ------------
Income (loss) before minority
interests (489,743) 98,728 957,205 3,100,879
MINORITY INTERESTS 198,613 (99,517) (289,935) (1,517,299)
------------ ----------- ------------ ------------
Net (loss) income $ (291,130) $ (789) $ 667,270 $ 1,583,580
============ =========== ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Primary $(.01) - $.03 $.08
============ =========== ============ ============
Fully Diluted $(.01) - $.03 $.08
============ =========== ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Primary 22,218,000 20,511,000 21,259,000 20,511,000
============ =========== ============ ============
Fully Diluted 22,218,000 20,511,000 21,688,000 20,511,000
============ =========== ============ ============
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THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
4
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Magicworks Entertainment Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 667,270 $ 1,583,580
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,848,149 1,180,847
Write-down of investment in partnerships - 49,994
Minority interests 289,935 1,517,299
Deferred income tax provision 391,000 -
Pro forma provision for income taxes 678,520 1,012,453
Changes in current assets and liabilities:
Accounts receivable (323,573) (115,385)
Inventories (73,575) 53,337
Other current assets 21,775 (285,052)
Preproduction costs (1,166,334) (1,779,716)
Advances and deposits (477,869) (114,301)
Accounts payable and accrued liabilities (40,063) (1,013,287)
------------------ -------------------
Net cash provided by operating activities 1,815,235 2,089,769
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in cultural facility (38,317) (16,452)
Due to affiliates (790,827) 94,930
Notes receivable from affiliates 654,205 (371,017)
Purchase of property and equipment (358,253) (179,592)
Investments in partnerships (274,419) (296,850)
Investments in management and booking agreements (69,840) (25,000)
------------------ -------------------
Net cash used in investment activities (877,451) (793,981)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of borrowings 6,113,963 1,072,238
Repayment of borrowings (2,428,485) (213,821)
Increase in offering costs (552,296) (114,052)
Issuance of common stock 21,869 405
Proceeds of issuance of stock 4,022,626 -
Contributions by minority interest 644,004 969,828
Distributions to minority interests (1,682,151) (2,507,065)
Distributions (2,605,640) (1,935,606)
------------------ -------------------
Net cash provided by (used in) financing 3,533,890 (2,728,073)
activities ------------------ -------------------
Net increase (decrease) in cash and cash equivalents 4,471,674 (1,432,285)
Cash and cash equivalents at beginning of period 866,604 1,955,315
------------------ -------------------
Cash and cash equivalents at end of period $ 5,338,278 $ 523,030
================== ===================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 247,926 $ 32,247
================== ===================
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THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
5
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Magicworks Entertainment Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) BUSINESS
Magicworks Entertainment Incorporated (the "Company"), through its wholly-owned
and majority-owned subsidiaries, produces and promotes live theatrical
entertainment and provides ancillary services including merchandising and
transportation.
On July 29, 1996, the Company consummated a simultaneous merger with certain
other affiliated businesses as more fully described in the Company's
Registrations Statement No. 333-13127. On the same date the Company issued and
sold 400.06 Units in a private placement (see note 2 ) from which it received
net proceeds in the amount of $8,919,350. On September 27, 1996, the Company
sold an additional 14.8 Units pursuant to the private placement from which it
received additional net proceeds in the amount $333,000.
On August 28, 1996, the Company acquired all of the outstanding capital stock of
Movietime in exchange for 1,199,999 shares of the Company's common stock. This
merger has been accounted for as a pooling of interests. In accordance with
generally accepted accounting principles, the financial statements included
herein have been restated to include the operations of Movietime for all periods
presented.
(B) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
All significant intercompany balances and transactions have been eliminated in
the condensed consolidated financial statements.
6
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Magicworks Entertainment Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(C) PREPRODUCTION COSTS
Preproduction costs consist mainly of rehearsal salaries, set design and
construction expenditures incurred prior to the first performance of the
theatrical productions. These costs are amortized over the terms of the
respective shows, which range from 12 to 24 months.
(D) DEFERRED COSTS
Deferred costs consist mainly of legal and professional fees incurred in
connection with The Performing Arts Center of North Miami and the private
offerings of securities by the Company on July 29 and September 27, 1996. The
costs relating to the Performing Arts Center, which totaled $345,862 and
$307,545 at September 30, 1996 and December 31, 1995, respectively, will be
amortized over a maximum period of three years, upon commencement of the
facility's operations. The costs associated with the private offerings which
totaled $835,840 and $256,487 at September 30, 1996 and December 31, 1995,
respectively, were deducted from the gross proceeds of the offerings or
accounted for as deferred financing costs based on the type of securities sold.
Amortization expense relating to the deferred private placement offering costs
amounted to $27,057 for the nine months ended September 30, 1996.
(E) INCOME TAXES
As a result of the merger, the Company and its subsidiaries became subject to
state and U.S. corporate income tax. The Company and its stockholders will be
filing short year S- Corporation tax returns for the period ended July 29, 1996.
As such, the stockholders or partners include their proportionate share of the
Company's income for that period in their respective tax returns.
The accompanying condensed consolidated statements of operations include pro
forma adjustments for income taxes due for the period ended July 29, 1996 which
would have been recorded had the company been subject to Federal and state
corporate income taxes, based on the tax laws in effect during those periods and
statutory rates applied to pre-tax accounting income.
In addition, the accompanying condensed consolidated statements of operations
include income taxes due from July 30, 1996 through September 30, 1996, the
period of operation as a C-Corporation, as well as a deferred tax provision in
the amount of $391,000 to record deferred taxes resulting from the conversion
from S-Corporation to C-Corporation status.
7
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Magicworks Entertainment Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(F) INVESTMENTS IN PARTNERSHIPS
The Company has interests in certain partnerships and joint ventures, ranging
from 1% to 20%, in various theatrical productions, Such investments are carried
in the accompanying condensed consolidated balance sheets at cost and income is
only recognized when received in the form of distributions.
2. PRIVATE PLACEMENT:
On July 29, 1996, the Company issued and sold 400.06 Units in connection with
which it received net proceeds of $8,919,350. On September 27, 1996 the Company
sold an additional 14.8 Units pursuant to the private placement in connection
with which it received additional net proceeds of $333,000.
Each Unit consists of an unsecured senior convertible note (the "Notes") in the
principal amount of $12,500 bearing interest at the rate of 10% per annum, and
5,000 shares of common stock. The Notes will pay interest semi-annually on June
30 and December 31 (commencing December 31, 1996). The Notes contain mandatory
sinking fund requirements which are calculated to retire 75% of the face amount
of the Notes after payment of seven consecutive equal quarterly contributions,
the first such contribution to occur on October 1, 1999 and every ninety days
thereafter, provided that such day is a business day.
The principal amount and accrued and unpaid interest on each Note is convertible
(in whole but not in part), at any time prior to the Maturity Date, at a
conversion price of $3.50 per share (subject to adjustment in certain
circumstances). The Notes may be prepaid by the Company at its option at the
principal amount plus accrued but unpaid interest.
The Company has issued 500,000 placement agent warrants and has authorized up to
1,481,643 Redeemable Warrants that may be issued upon the prepayment of the
Notes in certain circumstances.
8
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Magicworks Entertainment Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. SHORT-TERM DEBT:
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------------------------------
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Various notes payable with interest ranging from
9.90% to 10.15%, principal due monthly
through January 1997. Collateralized by vehicles. 225,000 352,000
$100,000 unsecured commercial demand note,
converted to DBM stock in January of 1996. - 100,000
$350,000 unsecured demand promissory note,
interest at prime plus 3/4% interest due monthly.
Personally guaranteed by certain stockholders
of the Company. - 340,982
$500,000 unsecured commercial demand note, interest
at prime rate plus 1.0%, payment of interest to be
paid quarterly. Personally guaranteed by certain
stockholders of the Company. - 435,156
$750,000 revolving credit line was paid off and
closed in August of 1996. - 692,351
----------------------------------------
Total short-term debt $ 225,000 $ 1,920,489
========================================
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Magicworks Entertainment Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. LONG-TERM DEBT:
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------------------------
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Various notes payable with interest ranging from
9.90% to 10.9%, principal due monthly
through March 2001. Collateralized by vehicles. $ 701,617 $ 489,791
Convertible notes (see note 2) 5,185,750 -
Capital lease obligation payable in monthly
installments through September 1997
including interest imputed at a rate of 10%,
collaterized by a vehicle. 24,169 40,778
----------------------------------
5,911,536 530,569
Less current portion 212,288 137,870
----------------------------------
Total long-term debt $ 5,699,248 $ 392,699
===================================
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5. CONTINGENCIES:
In October 1994, a former independent contractor filed a complaint against a
subsidiary 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. A court date has not been set. Management believes that the
lawsuit is without merit, and that the outcome of this suit will not have a
material adverse effect on the Company's financial condition or results of
operations.
Litigation has been commenced by an individual with respect to an alleged
contract with the Company that provided that such individual would receive the
right to purchase 5% of the insider equity of the original companies, Magic,
TAG, DBM and PAM, at a discount upon consummation of a public financing. The
Company believes that the claims are without merit and it was fraudulently
induced to enter into the alleged contract, and that, in any event, the alleged
contract was terminated under circumstances in which the individual is not
entitled to any compensation. The Company intends to vigorously defend this
action and may pursue its own action for declaratory judgment and damages.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's revenues are derived principally from its production and
promotion activities, which, during the nine months ended September 30, 1996,
accounted for approximately 67.6% and 23.0%, respectively, of the Company's
total revenues. Additional revenues are generated through the Company's
merchandising division, transportation division and its management and booking
operations, which, in the nine month period ended September 30, 1996, accounted
for 5.1%, 1.6% and 1.5% of revenues, respectively.
Production revenue results from the sale to local promoters of shows
produced by the Company, in exchange for a guaranteed weekly fee, plus a
percentage of box office receipts and other revenues. In cases where the Company
participates in the promotion of a show it is producing, it becomes involved in
the local presentation, enhancing its opportunity for profits and exposing
itself to greater risk. In addition, the Company has derived significant
percentage of its revenues and profits from one production, "The Magic of David
Copperfield." This situation results in part from the successful expansion of
the "David Copperfield" production in Europe and Asia, where the Company
participates as a producer and a non-managing promoter. When it is the
non-managing promoter, the Company records its share of the net profits, but
does not record the related revenues or expenses.
The majority of the Company's operating expenses consist of preproduction and
operating costs of its theatrical productions and concert tours. Preproduction
costs include pre-opening advertising, publicity and promotions, set
construction, props, costumes, and salaries and fees paid to the cast, crew and
musicians and creative participants during rehearsals. Preproduction costs
incurred prior to the opening performance are capitalized to the balance sheet,
net of amounts received from investors. These costs are then amortized over the
guaranteed terms of the respective shows, which range from 12 to 24 months.
Operating costs are expensed as incurred. As discussed above, with respect to
revenues from promotions, when the Company participates in the promotion of a
profitable production, the managing promoter remits to the Company its share of
the net profits; accordingly, the Company's revenues are enhanced without any
charge to expenses. When the Company is the managing promoter, it records both
the associated revenues and expenses.
The Company's operating results have fluctuated significantly from quarter to
quarter and year to year, primarily as a result of the number of shows or events
in production, the timing and staging of its productions, and its involvement in
promotion as well as production in certain instances. In addition, the season
for most of the Company's theatrical productions runs from September to June.
While the Company engages in other business and productions, including summer
music tours, during the rest of the year, its operating results have fluctuated
significantly from quarter to quarter and year to year, and may be expected to
continue to do so in future.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SEPTEMBER 30, 1995
Revenues increased by $1.8 million, or 26.6%, to $8.5 million in the three
months ended September 30, 1996, from $6.7 million in the three months ended
September 30, 1995, primarily because of a significant increase in promotion
revenue, partially offset by a decline in production revenue.
Revenues from production declined by $.9 million, or 16.0%, from $5.9 million
to $5.0 million, as a result of a reduction in revenues from "Jesus Christ
Superstar" and "Hello Dolly!", both of which were on hiatus during most of the
quarter, partially offset by the commencement of concert productions of "The
Styx/Kansas" and "The Lynryd Skynryd/Doobie Brothers" tours, and alternative
productions of "Cufolk Dance Troupe"and "The Night in New Orleans Tour."
Promotion revenues increased by $2.1 million, from $0.2 million to $2.3
million, largely as a result of the commencement of concert promotions. The
Company did not promote concerts in the prior corresponding period. During May
1996, the Company's "The Styx/Kansas" and "The Lynryd Skynryd/Doobie Brothers"
tours commenced a 17 week tour. A portion of the increase was also attributable
to increased promotional revenues from David Copperfield compared to the prior
period.
Merchandising revenues increased by $0.1 million, to $0.5 million in the
three months ended September 30, 1996 from $0.4 million in the three months
ended September 30, 1995. The Company's merchandising revenue is largely
dependent on the number of performance weeks of a production with respect to
which the Company has acquired merchandising rights. The Company maintains such
rights for all of its own productions and negotiates for merchandising rights to
other touring shows. The Company handled 17 more performance weeks in the third
quarter of 1996 than it did in the corresponding period in 1995.
Other revenues increased by $0.5 million to $0.7 million in the three months
ended September 30, 1996 from $0.2 million in the three months ended September
30, 1995 largely as a result of a non-recurring fee of $0.6 million received by
the Company of which $0.3 million was earned in the third quarter and the
balance will be recorded in the 4th quarter, as a result of the merger of the
Company's booking operations with those of another booking company and, in
addition, an increase in the number of booking events compared to the
corresponding period of 1995.
Operating expenses increased by $1.8 million to $8.5 million for the three
months ended September 30, 1996 from $6.7 million in the corresponding period of
1995, primarily because of increased expenses at Movietime Entertainment, the
added staffing and overhead
12
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relating to being a publicly held company, and additional employees in the
booking, busing and promotion divisions who were hired in anticipation of future
growth. Although no assurance can be given to that effect, Management expects
operating expenses as a percentage of revenues to decrease in the future.
Talent and other show expenses increased $1.4 million, or 24.4%, to $6.8
million in the 1996 period from $5.4 million in the corresponding period in
1995, primarily because of the additional promoter expenses associated with the
"The Styx/Kansas" and "The Lynryd Skynryd/Doobie Brothers" tours in the 1996
period. As a percentage of revenues, talent and other show expenses decreased to
79.7% for the three month period ended September 30, 1996 from 81.1% in the
corresponding period in 1995.
Salaries, wages and benefits during the three month period ended September
30, 1996 increased by $0.3 million, or 55.3%, to $0.8 million from $0.5 million
during the corresponding period in 1995 due to a non-recurring pension expense
charge of $0.1 million in connection with the termination of the Company's
status as an S-Corporation, the hiring of five additional employees in the
transportation division, two additional marketing employees, and six additional
administrative employees due to anticipated future growth and public company
expenses. As a percentage of revenues, salaries, wages and benefits increased to
9.7% for the three months ended September 30, 1996 from 7.9% in the
corresponding period in 1995.
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 54.4% in the three
months ended September 30, 1996 from 70.0% in the corresponding period in 1995,
primarily because of a decrease in the amount of merchandise write downs related
to overstocked merchandise on shows that ceased in the third quarter of 1996 as
compared to 1995.
General and administrative expenses increased by $0.2 million, or 48.3%, to
$0.6 million in the 1996 period from $0.4 million in the corresponding prior
period. The primary reason for the increase was additional depreciation on the
Company's buses, five of which were acquired in the fourth quarter of 1995 and
additional repairs and maintenance. As a percentage of revenues, general and
administrative expenses increased to 7.0% in the three month period ended
September 30, 1996 from 6.0% in the corresponding period of 1995.
13
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The Company incurred interest expense of $147,813 during the three months
period compared to $26,082 in the corresponding period primarily due to the
addition of the convertible notes sold during the private placement on July 29,
1996, the increase of outstanding debt from three lines of credit, which were
paid off in August of 1996 and five bus purchases which were financed in the
fourth quarter of 1995.
Minority interests decreased by $0.3 million to ($0.2) million in the three
months ended September 30, 1996, from $0.1 million in the corresponding prior
period primarily due to the losses from the production of "Jesus Christ
Superstar" and "Hello Dolly" as discussed above.
As a result of the foregoing, the Company posted an operating profit before a
provision for income taxes and pro forma income taxes of $130,870 in the three
months ended September 30, 1996 as compared to a net loss of $1289 in the
corresponding period in 1995. The Company incurred provision for income taxes
and pro forma adjustment for income taxes of $422 thousand in the three months
ended September 30, 1996, of which $391 thousand is attributable to the
Company's conversion from S-Corporation to C-Corporation status, and a $505 tax
benefit in the corresponding period.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SEPTEMBER 30, 1995
Revenues increased by $4.5 million, or 16.3%, to $32.2 million in the nine
months ended September 30, 1996, from $27.7 million in the nine months ended
September 30, 1995, primarily because of increases in promotion and production
revenue.
Revenues from production increased by $1.1 million (5.4%), to $21.8 million
in the nine months ended September 30, 1996, from $20.7 million, largely as a
result of the commencement of the concert productions of "The Styx/Kansas" and
"The Lynryd Skynryd/Doobie Brothers" tours in the second quarter of 1996 and an
increase in production revenues attributable to "Ain't Misbehavin" and "She
Loves Me," as compared to the corresponding period in 1995, offset in part by
the reduction in production revenues from each of "Jesus Christ Superstar,"
which had generated significant production revenues in the 1995 period in
connection with certain dates placed at Madison Square Garden, and "Hello
Dolly!"
Promotion revenues increased by $2.7 million, from $4.7 million to $7.4
million, largely as a result of the commencement of concert promotional activity
which did not exist in the prior corresponding period. During May 1996, the
Company's "The Styx/Kansas" and "The Lynryd Skynryd/Doobie Brothers" tours
commenced a 17 week tour. A portion of the increase was also attributable to
increased promotional revenues from David Copperfield as compared to the prior
period.
14
<PAGE>
Merchandising revenues remained relatively constant for the nine months ended
September 30, 1996 primarily due to the Company handling the same number of
performance weeks in 1996 compared to the corresponding period in 1995.
Other revenues increased by $0.7 million, or 90.7%, to $1.4 million in the
nine months ended September 30, 1996 from $0.7 million in the nine months ended
September 30, 1995 largely as a result of the non-recurring fee, from the
merging of its booking operations with another booking company and increased
bookings discussed above.
Operating expenses increased by $6.0 million to $29.9 million for the nine
months ended September 30, 1996 from $23.9 million in the corresponding period
of 1995, primarily because of the commencement of the "The Styx/Kansas" and "The
Lynryd Skynryd/Doobie Brothers" tours in May of 1996. There were also expenses
at Movietime Entertainment which commenced in May 1995, added staffing and
overhead relating to being a publicly held company, and additional employees in
the booking, busing and promotion divisions anticipated future growth.
Talent and other show expenses increased $4.8 million, or 23.7%, to $24.9
million in the 1996 period from $20.1 million in the corresponding period in
1995, primarily because of the additional promoter expenses associated with the
"The Styx/Kansas" and "The Lynryd Skynryd/Doobie Brothers" tours in the 1996
period. As a percentage of revenues, talent and other show expenses increased to
77.3% for the nine months ended September 30, 1996 from 72.7% in the
corresponding period in 1995.
Salaries, wages and benefits during the nine months ended September 30, 1996
increased by $0.6 million, or 45.0%, to $2.0 million from $1.4 million during
the corresponding period in 1995 due to the non-recurring pension charge
discussed above, the hiring of five additional employees in the transportation
division, two additional marketing employees, and six additional administrative
employees. As a percentage of revenues, salaries, wages and benefits increased
to 6.1% for the nine months ended September 30, 1996 from 4.9% in the
corresponding period in 1995.
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 remained relatively constant with
a slight increase from 70.3% for the nine months ended September 30, 1996 from
70.1% in the corresponding period in 1995.
15
<PAGE>
General and administrative expenses increased by $0.6 million, or 48.9%, to
$1.9 million in the 1996 period from $1.3 million in the corresponding prior
period. The primary reason for the increase was due to the Movietime operations
commencing in May of 1995 and incurring only $65 thousand in the nine months
ended September 30, 1995 and $0.3 million in the nine months ended September 30,
1996, additional depreciation on the Company's buses, five of which were
acquired in the fourth quarter of 1995, and repairs and maintenance. As a
percentage of revenues, general and administrative expenses increased to 6.0% in
the nine months ended September 30, 1996 from 4.7% in the corresponding period
of 1995.
The Company incurred interest expense of $0.3 million during the nine months
ended September 30, 1996 compared to $48.0 thousand during the corresponding
period primarily due to the interest accrued on the convertible notes sold in
the Private Placement, borrowings under a line of credit to support the
operations of Movietime and preproduction expenses in connection with the "She
Loves Me," "The Styx/Kansas" and "The Lynryd Skynryd/Doobie Brothers" tours, the
"Deathtrap" productions and the write down of accrued interest receivable during
the period.
Minority interests decreased by $1.2 million to $0.3 million in the nine
months ended September 30, 1996, from $1.5 million in the corresponding prior
period primarily to the losses from the production of "Jesus Christ Superstar"
and "Hello Dolly", as discussed above.
As a result of the foregoing, the Company posted net income of $0.7 million
in the nine months ended September 30, 1996 as compared to net income of $1.6
million in the corresponding period in 1995. The Company incurred provision for
income taxes and pro forma adjustment for income taxes of $1.1 million in the
nine months ended September 30, 1996, of which $0.4 million is attributable to
the Company converting from an S-Corporation to a C-Corporation status, compared
to $1.0 million in the corresponding prior period.
LIQUIDITY AND SOURCES OF CAPITAL
At September 30, 1996, the Company had working capital of $6.2 million compared
to $.4 million at December 31, 1995. 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 the sale of the Units in the Private Placement.
16
<PAGE>
During 1996, the Company made S-Corporation distributions aggregating
$2,600,052, as compared to $3,816,129 in 1995, to the stockholders of the
Companies that became subsidiaries of Magicworks Entertainment Incorporated. On
July 29, 1996, the Company converted its corporate income tax status from
S-Corporation to C-Corporation. No further S Corporation distributions will be
made.
The Company has two lines of credit and other short-term borrowings which are
payable on demand (the "Credit Lines"). The Credit Lines provide for short-term
borrowings of up to $1.6 million in the aggregate, with interest ranging from
prime plus 3/4% to prime plus 1%. The Credit Lines are collateralized by
substantially all of the Company's assets and are guaranteed by certain
executive officers to the Company. At September 30, 1996, no amount was
outstanding under the Credit Lines and the full amount thereof was available for
borrowing. The Company's remaining indebtedness consists of $0.9 million,
collateralized by buses used in the Company's business and $5.2 million of
convertible notes sold in the Private Placement.
The Company's principal anticipated capital expenditures over the next
several years will relate to investments in equipment for Movietime,
acquisitions, if suitable opportunities arise, and the production of additional
theatrical productions.
Part II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Refer to Note 5 of the Notes to Condensed Consolidated Financial
Statements.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
There are no exhibits to this Quarterly Report on
Form 10-Q.
(b) Reports on Form 8-K:
During the quarter for which this Quarterly Report on
Form 10-Q is filed, the Registrant filed a current
report on form 8-K for the Shadow Wood Merger and the
Movietime acquisition.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act 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
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