SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) JULY 30, 1996
----------------------------
MAGICWORKS ENTERTAINMENT INCORPORATED
-------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
--------
(State or other jurisdiction of incorporation)
2-96614-D 87-0425513
------------------------- ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
930 WASHINGTON AVENUE, 5TH FLOOR
MIAMI BEACH, FLORIDA 33139
-------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 352-1566
--------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS
The audited combined financial statements of Magicworks
Entertainment Incorporated at December 31, 1995 and 1994 and
for each of the three years in the period ended December 31,
1995, the audited combined financial statements of Magic
Promotions, Inc. as of December 1994 and for each of the
three years in the period ended December 31, 1995, and the
audited financial statements of Diamond Bullet
Merchandising, Inc. as of December 31, 1995 and for the year
then ended, each together with auditors' reports thereon,
are attached hereto as Attachments 7(a)(i), 7(a)(ii) and
7(a)(iii), respectively, and are incorporated herein by this
reference.
The unaudited financial statements of each of Magicworks
Entertainment Incorporated, Magic Promotion, Inc. and
Diamond Bullet Merchandising, Inc., as of June 30, 1996 and
the six month period then ended are attached hereto as
Attachments 7(a)(iv), 7(a)(v) and 7(a)(vi), respectively,
and are incorporated herein by this reference.
(B) PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma combined financial statements of
Magicworks Entertainment Incorporated as of and for the year
ended December 31, 1995 and as of and for the six months
ended June 30, 1996 are attached hereto as Attachment 7(b)
and are incorporated herein by this reference.
- 2 -
<PAGE>
(C) EXHIBITS
EXHIBIT DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of
July 24, 1996 by and among the Registrant, the
Acquiree, Robert L. Wright and Mark Archibald.(1)
2.2 Plan and Articles of Merger of Magicworks
Entertainment Incorporated, a Florida
Corporation, with and into the Registrant (f/k/a
Shadow Wood Corporation) as filed with the
Secretaries of State of the States of Florida
and Delaware.2
-----------------------------
(1) Incorporated by reference
to Exhibit 2.1 to the
Company's Current Report on
Form 8-K, filed with the
Commission on August 15,
1996.
(2) Incorporated by reference
to Exhibit 2.2 to the
Company's Current Report on
Form 8-K, filed with the
Commission on August 15,
1996.
- 3 -
<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
Dated: October __, 1996 By:/S/BRAD KRASSNER
----------------
Brad Krassner,
Co-Chairman of the Board
and Chief Executive Officer
- 4 -
<PAGE>
<TABLE>
<CAPTION>
INDEX TO ATTACHMENTS
<S> <C> <C>
SEQUENTIAL
PAGE
ATTACHMENT DESCRIPTION NUMBER
- ----------------- ------------------------------------------------------------------------ ----------------
7(a)(i) Audited combined financial statements of Magicworks
Entertainment Incorporated at December 31, 1995 and 1994
and for each of the three years in the period ended
December 31, 1995.
7(a)(ii) Audited combined financial statements of Magic
Promotions, Inc. as of December 1994 and for each of the
three years in the period ended December 31, 1995 and for
the year then ended.
7(a)(iii) Audited financial statements of Diamond Bullet
Merchandising, Inc. as of December 31, 1995 and for the
year then ended.
7(a)(iv) Unaudited financial statements of Magicworks Entertainment
Incorporated as of and for the year ended December 31, 1995
and as of and for the six months ended June 30, 1996.
7(a)(v) Unaudited financial statements of Magic Promotions, Inc.
as of and for the year ended December 31, 1995 and as of
and for the six months ended June 30, 1996.
7(a)(vi) Unaudited financial statements of Diamond Bullet
Merchandising as of and for the year ended December 31,
1995 and as of and for the six months ended June 30, 1996.
7(b) Unaudited pro forma combined financial statements of
Magicworks Entertainment Incorporated as of and for the
year ended December 31, 1995 and as of and for the six
months ended June 30, 1996.
</TABLE>
- 5 -
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Principals of
Magicworks Entertainment
We have audited the accompanying combined balance sheets of the entities listed
in Note 1 (Magicworks Entertainment) as of December 31, 1995 and 1994, and the
related combined statements of income, changes in capital and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the entities' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Magicworks
Entertainment at December 31, 1995 and 1994, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
April 11, 1996
Miami, Florida
F-53
<PAGE>
MAGICWORKS ENTERTAINMENT
COMBINED BALANCE SHEETS
DECEMBER 31
1995 1994
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 862,127 $1,955,315
Accounts receivable 1,196,297 615,073
Inventories 160,930 144,641
Preproduction costs, net 1,508,314 1,058,681
Other current assets 354,663 72,328
---------- ----------
Total current assets 4,082,331 3,846,038
Property and equipment, net 1,153,096 259,373
Investments in partnerships 347,783 502,220
Advances and deposits 343,194 281,089
Notes receivable from affiliates 665,419 460,057
Deferred costs 564,032 319,373
Management and booking agreements, net 454,442 538,121
---------- ----------
$7,610,297 $6,206,271
========== ==========
LIABILITIES AND CAPITAL
Current liabilities:
Current maturities of long-term debt $ 137,870 $ 97,882
Accounts payable and accrued liabilities 1,480,979 2,223,060
Short-term debt 1,920,489 --
Due to affiliates 398,819 485,680
---------- ----------
Total current liabilities 3,938,157 2,806,622
Long-term debt, less current maturities 392,699 94,484
Minority Interests 1,470,457 1,404,860
Commitments and contingencies
Capital:
Common stock 8,000 8,000
Partners' capital/retained earnings 1,800,984 1,892,305
---------- ----------
1,808,984 1,900,305
---------- ----------
$7,610,297 $6,206,271
========== ==========
SEE ACCOMPANYING NOTES
F-54
<PAGE>
<TABLE>
<CAPTION>
MAGICWORKS ENTERTAINMENT
COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Production $ 31,638,078 $ 23,346,244 $ 18,250,149
Promotion 6,668,672 6,268,273 10,009,734
Merchandising 2,474,214 2,338,619 2,461,577
Other 1,953,135 1,463,057 1,445,791
----------- ----------- -----------
42,734,099 33,416,193 32,167,251
Operating expenses:
Talent and other show 32,945,744 25,449,871 23,254,751
Salaries, wages and benefits 1,890,938 1,529,300 1,333,330
Cost of goods sold 1,462,364 1,824,102 1,860,777
General and administrative 1,743,081 1,436,139 1,161,347
----------- ----------- -----------
38,042,127 30,239,412 27,610,205
Income from operations 4,691,972 3,176,781 4,557,046
Other income (expense):
Interest income 109,060 14,801 6,579
Interest expense (88,015) (20,011) (79,686)
From investments in productions 418,679 417,071 364,976
Minority interests (1,446,888) (1,460,444) (1,828,358)
----------- ----------- -----------
Net income 3,684,808 2,128,198 3,020,557
Pro forma adjustment for
income taxes (1,437,075) (829,997) (1,178,017)
----------- ----------- -----------
Pro forma net income $ 2,247,733 $ 1,298,201 $ 1,842,540
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
F-55
<PAGE>
MAGICWORKS ENTERTAINMENT
COMBINED STATEMENTS OF CHANGES IN CAPITAL
PARTNERS'
CAPITAL/
COMMON RETAINED
STOCK EARNINGS TOTAL
------ ----------- -----------
Balance at December 31, 1992 $8,000 $ 646,748 $ 654,748
Capital contributions -- 2,682 2,682
Distributions -- (2,289,002) (2,289,002
Net income -- 3,020,557 3,020,557
------ ---------- ----------
Balance at December 31, 1993 8,000 1,380,985 1,388,985
Distributions -- (1,616,878) (1,616,878)
Net income -- 2,128,198 2,128,198
------ ---------- ----------
Balance at December 31, 1994 8,000 1,892,305 1,900,305
Capital contributions -- 40,000 40,000
Distributions -- (3,816,129) (3,816,129)
Net income -- 3,684,808 3,684,808
------ ---------- ----------
Balance at December 31, 1994 $8,000 $ 1,800,984 $ 1,808,984
====== ========== ==========
SEE ACCOMPANYING NOTES
F-56
<PAGE>
<TABLE>
<CAPTION>
MAGICWORKS ENTERTAINMENT
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $3,684,808 $2,128,198 $3,020,557
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 219,894 163,391 141,870
Write-down of investment in partnerships 101,994 68,715 -
Minority interests 1,446,888 1,460,444 1,828,358
(Increase) decrease in:
Accounts receivable (581,224) 15,032 (478,661)
Inventories (16,289) 2,598 29,217
Other current assets (282,335) (35,601) (11,064)
Preproduction costs (449,633) (1,058,681) 1,038,426
Advances and deposits (62,105) 76,344 34,958
Increase (decrease) in:
Accounts payable and accrued liabilities (742,081) 1,315,195 468,588
--------- --------- ---------
Net cash provided by operating activities 3,319,917 4,135,635 6,072,249
INVESTING ACTIVITIES
Investment in cultural facility (82,634) (20,054) (51,894)
Due to affiliates (86,861) 24,247 38,296
Notes receivable from affiliates (205,362) (57,464) (66,756)
Purchase of property and equipment (966,024) (46,260) (216,292)
Investments in partnerships 52,443 (132,941) (309,500)
Investment in management and
booking agreements (63,914) (160,289) -
--------- --------- ---------
Net cash used by investing activities (1,352,352) (392,761) (606,146)
FINANCING ACTIVITIES
Proceeds of borrowings 2,523,677 142,027 -
Repayment of borrowings (264,985) (326,054) (331,608)
Increase in public offering costs (162,025) (94,462) -
Distributions to minority interests (2,507,065) (1,882,764) (2,675,110)
Capital contributions from minority interests 1,125,774 1,691,200 70,000
Distributions (3,816,129) (1,616,878) (2,289,002)
Capital contributions 40,000 - 2,682
--------- --------- ---------
Net cash used by financing activities (3,060,753) (2,086,931) (5,223,038)
--------- --------- ---------
Net (decrease) increase in cash and
cash equivalents (1,093,188) 1,655,943 243,065
Cash and cash equivalents at
beginning of year 1,955,315 299,372 56,307
--------- --------- ---------
Cash and cash equivalents at end of year $ 862,127 $1,955,315 $ 299,372
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 66,905 $ 28,726 $ 58,200
========= ========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Distribution of notes receivable to affiliates $ 666,288 $ - $ -
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES
F-57
<PAGE>
MAGICWORKS ENTERTAINMENT
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of certain wholly-owned
and majority-owned partnerships, joint ventures and corporations owned by
Messrs. Marsh, Marshall, Krassner, Turk and Bechdel (collectively the
"Principals"). The principal businesses include Magic Promotion Inc., Diamond
Bullet Merchandising, Inc., Touring Artists Group, Inc., Performing Arts
Management of North Miami, Inc., The Judas Company, Dolliko, The Impossible
Touring Company and certain affiliated entertainment production and promotion
related entities (collectively "Magicworks Entertainment" or the "Company"). The
Company's fiscal year ends on December 31. All significant intercompany balances
and transactions have been eliminated in the combined financial statements.
These entities have been combined for purposes of ultimately consummating a
financing transaction.
NATURE OF OPERATIONS OF CONSOLIDATED SUBSIDIARIES
Magic Promotion Inc. and Magic Promotions Inc. (collectively "Magic") were
formed in 1984 and 1993, in the states of Ohio and Florida, respectively, as
S-Corporations to produce and promote live theatrical entertainment and to
provide ancillary services including merchandising and transportation. Magic is
wholly-owned by the Principals. Magic owns a 50.0% interest in The Judas Company
("Judas"), a 57.1% interest in Dolliko, a 77.88% interest in the Impossible
Touring Company ("Impossible") and a 33.33% interest in the Ain't Misbehavin'
Company ("Ain't Misbehavin"), four general partnerships involved in equity and
non-equity theatrical production which commenced operations during 1993 and
1994. In October 1995, the Impossible Touring Company commenced a new show with
Magic owning a 77.88% interest. The Company has included the accounts of Judas,
Dolliko and Impossible in its combined financial statements as the Principals
exercise significant control over operating and financial policies of these
general partnerships. The interests of Ain't Misbehavin, Judas, Dolliko and
Impossible not owned by Magic are presented as minority interests in the
combined financial statements. Promotion revenues from Ain't Misbehavin, Judas,
Dolliko and Impossible included in the combined statements of income were
$4,930,471, $3,075,627 and $5,081,851 in 1995, 1994 and 1993, respectively.
F-58
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
NATURE OF OPERATIONS (CONTINUED)
Touring Artists Group, Inc. ("TAG") was formed in 1993, in the states of Ohio
and Florida as an S-Corporation to promote live theatrical performances and
other entertainment related events throughout the United States on behalf of the
Company and third parties. TAG is wholly-owned by the Principals.
In March 1992, TAG, acquired certain assets and assumed certain liabilities of
National Artists Management Company, Inc. ("NAMCO"). The acquisition has been
accounted for by the purchase method of accounting. The purchase price of
$395,000 approximated the fair value of the net assets acquired, which primarily
consisted of management contracts. The operating results of this acquisition are
included in the Company's combined results of operations from the date of
acquisition.
Performing Arts Management of North Miami, Inc. ("PAM") was formed in January
1991 in the state of Florida as an S-Corporation to operate, manage and engage
in the business of development, management and promotion of cultural performance
centers. The Principals own 59.5% of PAM.
Diamond Bullet Merchandising, Inc. ("DBM") was formed in 1988 in the state
of Florida as an S-Corporation to sell souvenir related merchandise for Company
produced and third party theatrical productions. DBM is wholly-owned by the
Principals.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments in short-term highly
liquid financial instruments, primarily time deposits and money market accounts,
with original maturities of three months or less. Due to the short maturity
period of the cash equivalents, the carrying amount of these instruments
approximates their fair values.
INVENTORIES
Inventories are valued at the lower of cost, determined on a first-in first-out
basis, or net realizable value.
F-59
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of 10 years for leasehold improvements, 3 to 7 years for
furniture and equipment and 10 years for buses.
Repairs of property and equipment and minor replacements and renewals are
charged to maintenance expense, which is included in general and administrative
expenses, as incurred.
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.
DEFERRED COSTS
Deferred costs consist mainly of pre-opening legal and professional fees
incurred in connection with The Performing Art Center of North Miami (see Note
5) and the proposed private offering by the Company discussed in Note 10. The
costs relating to the Performing Arts Center which totaled $307,545 and $224,911
at December 31, 1995 and 1994, respectively, will be amortized over a maximum
period of three years, upon commencement of the facility's operations which is
anticipated to be in late 1997. The costs associated with the private offering
which totaled $256,487 and $94,462 at December 31, 1995 and 1994, respectively,
will be deducted from the net proceeds of the private offering which is
anticipated to occur in 1996.
F-60
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
MANAGEMENT AND BOOKING AGREEMENTS
Management and booking agreements consist primarily of the cost to acquire
certain booking rights and the rights to develop, construct, manage and operate
a cultural facility, as discussed in Note 5. Those costs are being amortized
over the terms of the respective agreements. Amortization expense related to
these agreements amounted to $147,593, $93,951 and $69,761, for 1995, 1994 and
1993, respectively. Accumulated amortization was $359,067 and $233,473 at
December 31, 1995 and 1994, respectively.
REVENUES
Revenues are recognized when earned, which is generally at the time of the
theatrical performance or entertainment events. Cash received in advance of a
performance is reflected in other current liabilities in the accompanying
balance sheets.
The Company provides an allowance for losses on accounts receivable based on a
monthly review of the outstanding receivables and evaluation of their
collectibility.
A substantial portion of the Company's revenues are derived from the production
and promotion of live theater throughout the United States, Canada and Mexico.
Changes in the entertainment preferences of the general populations could affect
the Company's future revenues.
INCOME TAXES
The Company and its shareholders have elected to be treated as either
S-Corporations under Subchapter S of the Internal Revenue Code or are general
partnerships. As such, the stockholders or partners include their proportionate
share of the Company's income in their respective tax returns.
Upon completion of the transaction discussed in Note 10, the Company will become
subject to state and U.S. corporate income tax.
F-61
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES (CONTINUED)
The accompanying combined statements of operations include pro forma adjustments
for income taxes 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the combined financial statements and
accompanying notes. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash, receivables, accounts payable, accrued liabilities and short-term debt
- carrying amounts of these items are a reasonable estimate of their fair
value.
Long-term debt - interest rates currently available to the Company either
fluctuate with the prime rate of the lending institution or are comparable to
current market rates, and thus their carrying value approximates fair value.
INVESTMENTS IN PARTNERSHIPS
The Company has limited partnership and joint venture interests, ranging from 1%
to 10%, in various theatrical productions. Because the Company does not exercise
significant influence over the operating and financial policies of these
productions, these investments are carried in the accompanying combined balance
sheets at cost and income is only recognized when received in the form of
distributions.
F-62
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INVESTMENTS IN PARTNERSHIPS (CONTINUED)
The Company has four joint venture interests ranging from 25% to 35%, in various
seasonal productions. Because of the short-term nature of these productions, the
investments are carried in the accompanying combined balance sheets at cost and
revenue is recognized using the cost recovery method, whereby no income is
recognized until the investment is recouped.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
approximately $5,200,000, $4,000,000 and $8,100,000 in advertising expense for
the years ended December 31, 1995, 1994 and 1993, respectively, which is
included in talent and other show operating expenses in the accompanying
combined statements of income.
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 consist of the following:
1995 1994
--------- -------
Leasehold improvements $ 65,868 $ 65,868
Furniture and equipment 176,092 80,115
Vehicles 1,254,646 384,600
Vehicle under capital lease 198,500 198,500
--------- -------
1,695,106 729,083
Less accumulated depreciation
and amortization 542,010 469,710
--------- -------
Property and equipment, net $1,153,096 $259,373
========= =======
F-63
<PAGE>
3. SHORT-TERM DEBT
Short-term debt consists of the following at December 31, 1995:
$750,000 revolving credit line, interest at
30-day commercial paper rate charged
by Merrill Lynch plus 2.9% payable monthly
through August 31, 1996 at which time the
principal balance is due. Outstanding
borrowings are collateralized by certain
assets of the Company and are guaranteed
by certain Principals of the Company. $ 692,351
$350,000 unsecured demand promissory note,
interest at prime rate charged by
Society National Bank plus 3/4%,
interest due monthly. Personally
guaranteed by certain Principals
of the Company. 340,982
$500,000 unsecured commercial demand note,
interest at prime rate charged by
National City Bank plus 1.0%, payment
of interest to be paid quarterly.
Personally guaranteed by certain
Principals of the Company. 435,156
$400,000 note payable, interest at 10%
principal due monthly, collateralized
by vehicles. 352,000
$100,000 unsecured convertible note,
interest at 8.5%, principal and
interest convertible to 24% of stock
in DBM, due in November, 1996. 100,000
------------
Total short-term debt $ 1,920,489
============
F-64
<PAGE>
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1995 1994
-------- ---------
10.90% note payable, principal due monthly
through May 2000. Collateralized by vehicle $120,627 $ --
10.75% note payable, principal due monthly
through August 1999. Collateralized by
vehicle 148,610 --
10.75% note payable, principal due monthly
through October 2000. Collateralized
by vehicle
166,807 --
7.5% unsecured note payable, principal due
monthly through December 1994
Personally guaranteed by certain
Principals of the Company
-- 50,000
9.0% note payable, principal due monthly
through October 1997. Collateralized
by a vehicle 53,747 81,286
Capital lease obligation payable in
monthly installments through
September 1997 including interest
imputed at a rate of 10%,
collateralized by a vehicle
40,778 61,080
-------- --------
530,569 192,366
Less current maturities 137,870 97,882
-------- --------
Total long-term debt $392,699 $ 94,484
======== ========
F-65
<PAGE>
4. LONG-TERM DEBT (CONTINUED)
Scheduled maturities of long-term debt are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
1996 $ 137,870
1997 136,874
1998 105,710
1999 100,275
2000 49,840
--------
Total maturities of long-term debt $ 530,569
========
5. MANAGEMENT AGREEMENTS
GENERAL MANAGER AGREEMENTS
The Company entered into management agreements with Niko Associates ("Niko") for
daily general operations management during the entire periods of production of
Dolliko, Judas and Impossible. Management fees are calculated based on fixed
weekly fees ranging from $2,000 to $5,000 per performance week plus the
reimbursement of certain overhead related costs. Management fees paid by the
Company to Niko amounted to $309,498, $238,408, and $191,300 in 1995, 1994 and
1993, respectively, and are reflected in talent and other show expenses in the
accompanying statements of income.
MANAGEMENT OPERATING AGREEMENT
In May 1992, the Company and the City of North Miami, Florida (the "City")
entered into an agreement to develop, construct, manage and operate a cultural
facility for the performing and visual arts exclusively on behalf of the City.
The project will be owned by the City and is expected to be funded through the
issuance of 40 year industrial development revenue bonds without recourse to the
City. The term of the agreement will commence on the date of occupancy (expected
to be November 1997) and will continue for a period of 30 years.
F-66
<PAGE>
5. MANAGEMENT AGREEMENTS (CONTINUED)
Pursuant to the agreement, the Company will receive gross revenues, as defined,
generated by the facility and has agreed to pay to the City; (i) an annual
minimum return of $200,000 adjusted annually to reflect changes in the consumer
price index, but not to exceed $500,000 per annum, (ii) a use fee charge
equivalent to 5% of box office ticket sale revenue, and (iii) 5% of the gross
monies actually received by the Company for concessions and parking. In
addition, the Company has agreed to deposit with the City upon the approval by
all federal, state, county and local regulatory and administrative agencies with
jurisdiction over the project the refundable sum of $1,500,000, which is to be
applied toward the payment of construction, operation and monitoring costs of
the facility. In the event the cash flow generated by the facility is not
sufficient to pay the interest and principal on the bonds, the management rights
will revert to the City.
The Company's investment in this project which includes legal, feasibility and
architectural costs and the cost related to acquiring the management agreement
totaled approximately $600,000 and $500,000 at December 31, 1995 and 1994,
respectively. The recoverability of these costs is dependent on the resolution
of certain entitlement and permitting issues which have prevented development
and construction of the project.
6. EMPLOYEE BENEFIT PLANS
Effective January 1, 1988, Magic initiated a Money Purchase Plan and Trust (the
"Plan") for all full-time employees who have completed one year of service and
are at least 21 years of age. Magic contributes an amount not to exceed 25% of
the participating employee's compensation or $30,000. In addition, the Plan
permits Magic to make additional discretionary contributions to the Plan. Total
contributions to the Plan by Magic were $69,000, $70,446, and $68,815 in 1995,
1994 and 1993, respectively. Employees vest in the Company's discretionary
contributions at the rate of 20% per year upon completion of two years of
service.
F-67
<PAGE>
7. LEASES
The Company leases a bus under a capital lease. Future minimum rentals under
this capital lease at December 31, 1995 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
1996 $ 25,497
1997 19,123
----------
Total minimum lease payments 44,620
Less amount representing interest 3,842
----------
Net obligation 40,778
Less current portion 22,428
----------
Long-term portion $ 18,350
==========
The capital lease obligation is included in long-term debt in the accompanying
balance sheets.
The Company leases office space from affiliated (See Note 8) and non-affiliated
entities under operating lease agreements which extend through December 31,
1997. The following is a schedule of approximate future minimum lease payments
required under such non-cancelable operating leases at December 31, 1995:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
1996 $ 86,032
1997 37,515
----------
Total minimum lease payments $ 123,547
==========
Rent expense amounted to $137,200, $137,021 and $98,250 for the years ended
December 31, 1995 , 1994 and 1993, respectively, and is included in general and
administrative expenses in the accompanying combined statements of income.
F-68
<PAGE>
8. RELATED PARTY TRANSACTIONS
In the normal course of its business, the Company conducts business with its
Principals and their respective affiliates.
Fees paid by the Company for accounting, general management, office and other
administrative services to entities controlled by the Principals were $53,218,
$75,378, and $78,984 in 1995, 1994 and 1993, respectively, and are reflected in
general and administrative expenses in the accompanying combined statements of
income.
In 1991 and 1993, the Company entered into two three-year noncancellable
operating leases for office space with related entities. The Company is required
to pay taxes, maintenance, insurance and utility costs. Payments under these
leases totalled $71,824, $74,726, and $59,488 in 1995, 1994 and 1993,
respectively.
The Company has notes receivable from entities controlled by certain Principals
with an outstanding balance, including accrued interest, of $665,419 and
$460,057 at December 31, 1995 and 1994, respectively. Interest income related to
these receivables totaled $84,520, $28,589 and $-0- in 1995, 1994 and 1993,
respectively. These unsecured notes bear interest at prime plus 2.9% and are due
in 1996.
The Company has payables due to certain Principals with an outstanding balance,
including accrued interest, of approximately $398,819 and $485,680 at December
31, 1995 and 1994, respectively. Interest expense related to these payables
totaled $83,518, $62,408 and $45,200 in 1995, 1994 and 1993, respectively. These
payables have no stated repayment terms.
9. COMMITMENTS AND CONTINGENCIES
The Company has royalty and employment agreements with certain authors, actors,
directors and choreographers and their respective unions. These agreements are
generally one to three years in length and provide for minimum compensation
levels. These agreements may include incentive bonuses based upon specified
goals. The aggregate commitment for future salaries and royalties, excluding
bonuses, as of December 31, 1995 was approximately $2,288,000, which will be
paid during 1996.
F-69
<PAGE>
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In October 1994, a former independent contractor filed a complaint against Judas
in the Common Pleas Court of Philadelphia County seeking consequential damages
of $5,000,000 arising from the termination of an employment contract by Judas. A
court date has not been set. Management of Judas 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 combined financial condition or results of
operations.
Litigation has been threatened by a former financial advisor to the Company with
respect to an alleged contract with the Company that provided that such
individual would receive the right to purchase 5% of the equity in the Company
at a discount upon consummation of a public financing. The Company believes that
it was fraudulently induced to enter into such 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 believes that if the individual
commences an action, his claims will be without merit. The Company intends to
vigorously defend any suit that the defendant might bring in the future based on
the contract and the Company may pursue its own action for declaratory judgment.
10. SUBSEQUENT EVENTS
The Company intends to consummate a $10 million private placement offering of
units consisting of unsecured senior convertible notes and the Company's common
stock. Management expects to use the proceeds from the offering, after deducting
offering expenses, to repay certain loans and to provide working capital for
expanding the Company's operations and for general corporate purposes.
Immediately after the closing of the offering, the Company intends to merge with
and into a corporation whose stock is publicly tradeable.
F-70
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Magic Promotion, Inc.
We have audited the accompanying combined balance sheets of Magic Promotion,
Inc. (the Company) as of December 31, 1995 and 1994, and the related combined
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Magic Promotion, Inc.
at December 31, 1995 and 1994, and the combined results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
September 13, 1996
Miami, Florida
F-3
<PAGE>
MAGIC PROMOTION, INC.
COMBINED BALANCE SHEETS
DECEMBER 31
1995 1994
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 734,945 $1,903,936
Accounts receivable 1,107,451 525,172
Preproduction costs, net 1,508,314 1,058,681
Notes receivable from affiliates 159,520 460,057
Other current assets 353,463 71,128
---------- ----------
Total current assets 3,863,693 4,018,974
Property and equipment, net 1,091,010 195,233
Investments in partnerships 199,677 452,336
Advances and deposits 293,850 219,318
Deferred costs 207,823 94,462
Management agreements, net 364,415 385,834
========== ==========
Total assets $6,020,468 $5,366,157
========== ==========
LIABILITIES AND CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $1,111,590 $2,063,931
Current maturities of long-term debt 137,870 97,882
Short-term debt 1,128,138 --
Due to affiliates 265,243 86,500
---------- ----------
Total current liabilities 2,642,841 2,248,313
Long-term debt, less current maturities 392,699 94,484
Commitments and contingencies
Minority interests 1,496,453 1,422,306
Stockholders' equity:
Common stock, $1 par value; 100 shares
authorized; 100 shares issued and
outstanding 100 100
Additional paid-in capital 50,174 50,174
Retained earnings 1,438,201 1,550,780
---------- ----------
Total stockholders' equity 1,488,475 1,601,054
========== ==========
Total liabilities and stockholders' equity $6,020,468 $5,366,157
========== ==========
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC.
COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Production $ 31,638,078 $ 23,313,026 $ 18,151,149
Promotion 6,668,672 6,268,273 10,009,734
Merchandising 1,160,519 687,755 876,740
Other 1,237,126 873,032 475,630
------------ ------------ ------------
40,704,395 31,142,086 29,513,253
Operating expenses:
Talent and other show 33,346,544 25,871,621 23,561,001
Salaries, wages and benefits 1,185,911 975,400 877,983
Cost of goods sold 408,697 470,775 589,356
General and administrative 1,160,873 801,361 551,888
------------ ------------ ------------
36,102,025 28,119,157 25,580,228
Income from operations 4,602,370 3,022,929 3,933,025
Other income (expense):
Interest income 108,427 32,076 3,835
Interest expense (60,488) (19,590) (16,369)
From investments in noncombined
productions
418,679 417,071 364,976
Minority interests (1,688,531) (1,535,495) (2,108,791)
------------ ------------ ------------
Net income 3,380,457 1,916,991 2,176,676
Pro forma adjustment for income taxes (1,318,378) (747,626) (848,904)
------------ ------------ ------------
Pro forma net income $ 2,062,079 $ 1,169,365 $ 1,327,772
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances, December 31, 1992 $ 100 $ 50,174 $ 562,640 $ 612,914
Distributions -- -- (1,748,626) (1,748,626)
Net income -- -- 2,176,676 2,176,676
----------- ----------- ----------- -----------
Balances, December 31, 1993 100 50,174 990,690 1,040,964
Distributions -- -- (1,356,901) (1,356,901)
Net income -- -- 1,916,991 1,916,991
----------- ----------- ----------- -----------
Balances, December 31, 1994 100 50,174 1,550,780 1,601,054
Distributions -- -- (3,493,036) (3,493,036)
Net income -- -- 3,380,457 3,380,457
=========== =========== =========== ===========
Balances, December 31, 1995 $ 100 $ 50,174 $ 1,438,201 $ 1,488,475
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,380,457 $ 1,916,991 $ 2,176,676
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,367,598 707,464 1,492,077
Write-down of investment in partnerships 101,994 16,500 --
Minority interests 1,688,531 1,535,495 2,108,791
(Increase) decrease in:
Accounts receivable (582,279) 63,655 (402,868)
Other current assets (282,335) (35,601) (25,427)
Preproduction costs (2,690,538) (1,676,245) (389,540)
Advances and deposits (74,532) (230) (10,136)
Increase (decrease) in:
Accounts payable and accrued liabilities (952,341) 1,595,421 240,946
----------- ----------- -----------
Net cash provided by operating activities 2,956,555 4,123,450 5,190,519
INVESTING ACTIVITIES
Purchase of property and equipment (959,137) (41,227) (184,009)
Investments in partnerships 150,665 (153,342) (234,000)
Notes receivable from affiliates 300,537 (78,289) (169,552)
Investment in management agreements (41,914) (130,000) --
----------- ----------- -----------
Net cash used by investing activities (549,849) (402,858) (587,561)
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC.
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Due to affliates $ 178,743 $ 52,600 $ (80,000)
Proceeds of borrowings 1,731,326 239,909 115,320
Repayment of borrowings (264,985) (413,979) --
Payment of deferred costs (113,361) (94,462) --
Distributions to minority interests (2,740,158) (1,950,932) (2,949,710)
Capital contributions from minority
interests 1,125,774 1,691,200 70,000
Distributions (3,493,036) (1,356,901) (1,748,626)
----------- ----------- -----------
Net cash used by financing activities (3,575,697) (1,832,565) (4,593,016)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents (1,168,991) 1,888,027 9,942
Cash and cash equivalents at
beginning of year 1,903,936 15,909 5,967
=========== =========== ===========
Cash and cash equivalents at
end of year $ 734,945 $ 1,903,936 $ 15,909
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for interest $ 60,488 $ 19,590 $ 16,369
=========== =========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES
Distribution of notes receivable
from Stockholders $ 809,563 $ -- $ --
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-8
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS OF COMBINED SUBSIDIARIES
Magic Promotion, Inc. and Magic Promotions Inc. (collectively, Magic or the
Company) were formed in 1984 and 1993, in the states of Ohio and Florida,
respectively, as S-Corporations to produce and promote live theatrical
entertainment and to provide ancillary services including merchandising and
transportation. Magic is owned by Messrs. Marsh, Marshall and Bechdel
(collectively, the Stockholders). Magic owns a 50.0% interest in The Judas
Company (Judas), a 57.1% interest in Dolliko and a 77.88% interest in the
Impossible Touring Company (Impossible) and a 33.33% interest in the Ain't
Misbehavin' Company (Ain't Misbehavin), each of which is a general partnership
involved in equity and non-equity theatrical production which commenced
operations during 1993 and 1994. In October 1995, Impossible commenced a new
show with Magic owning a 77.88% interest. The Company has included the accounts
of Judas, Dolliko, Ain't Misbehavin and Impossible in its combined financial
statements as the Stockholders exercise significant control over operating and
financial policies of these general partnerships. The interests of Ain't
Misbehavin, Judas, Dolliko and Impossible not owned by Messrs. Marsh, Marshal
and Bechdel are presented as minority interests in the combined financial
statements. Promotion revenues from Ain't Misbehavin, Judas, Dolliko and
Impossible included in the combined statements of income were $4,930,471,
$3,075,627, and $5,081,851 in 1995, 1994 and 1993, respectively. All significant
intercompany balances and transactions have been eliminated in the combined
financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments in short-term highly
liquid financial instruments, primarily time deposits and money market accounts,
with original maturities of three months or less. Due to the short maturity
period of the cash equivalents, the carrying amount of these instruments
approximates their fair values.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of 10 years for leasehold improvements, 3 to 7 years for
furniture and equipment and 10 years for vehicles.
F-9
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
Repairs of property and equipment and minor replacements and renewals are
charged to maintenance expense, which is included in general and administrative
expenses, as incurred.
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.
DEFERRED COSTS
Deferred costs consist mainly of professional fees incurred in connection with
the proposed private offering of securities by the Company (see Note 10). The
costs associated with the private offering which totaled $207,823 and $94,462 at
December 31, 1995 and 1994, respectively, will be deducted from the net proceeds
of the private securities offering or accounted for as deferred financing costs
based on the types of securities sold.
MANAGEMENT AGREEMENTS
Management and booking agreements consist primarily of the cost to acquire
certain booking rights. Those costs are being amortized over the terms of the
respective agreements. Amortization expense related to these agreements amounted
to $63,333, $29,166 and $7,500, for 1995, 1994 and 1993, respectively.
Accumulated amortization was $99,999 and $36,666 at December 31, 1995 and 1994,
respectively.
REVENUES
Revenues are recognized when earned, which is generally at the time of the
theatrical performance or entertainment events. Cash received in advance of a
performance is reflected in other current liabilities in the accompanying
balance sheets.
F-10
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REVENUES (CONTINUED)
The Company provides an allowance for losses on accounts receivable based on a
monthly review of the outstanding receivables and evaluation of their
collectibility.
The Company's revenues are primarily derived from the production and promotion
of live theater throughout the United States, Canada and Mexico. Changes in the
entertainment preferences of the general populations could affect the Company's
future revenues.
INCOME TAXES
The Company and its shareholders have elected to be treated as either
S-Corporations under Subchapter S of the Internal Revenue Code or are general
partnerships. As such, the stockholders or partners include their proportionate
share of the Company's income in their respective tax returns.
Upon completion of the transaction discussed in Note 10, the Company will become
subject to state and U.S. corporate income tax.
The accompanying combined statements of income include pro forma adjustments for
income taxes 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the combined financial statements and
accompanying notes. Actual results could differ from those estimates.
F-11
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and short-term debt - the carrying amounts of these items are a
reasonable estimate of their fair value.
Long-term debt - interest rates currently available to the Company either
fluctuate with the prime rate of the lending institution or are comparable to
current market rates, and thus the carrying value of long-term debt
approximates fair value.
INVESTMENTS IN PARTNERSHIPS
The Company has limited partnership and joint venture interests, ranging from 1%
to 10%, in various theatrical productions. Because the Company does not exercise
significant influence over the operating and financial policies of these
productions, these investments are carried in the accompanying combined balance
sheets at cost and income is only recognized when received in the form of
distributions.
The Company has four joint venture interests ranging from 25% to 35%, in various
seasonal productions. Because of the short-term nature of these productions, the
investments are carried in the accompanying combined balance sheets at cost and
revenue is recognized using the cost recovery method, whereby no income is
recognized until the investment is recouped.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
approximately $5,200,000, $4,000,000 and $8,100,000 in advertising expense for
the years ended December 31, 1995, 1994 and 1993, respectively, which is
included in talent and other show expenses in the accompanying combined
statements of income.
F-12
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 consist of the following:
1995 1994
---------- ----------
Leasehold improvements $ 64,444 $ 64,444
Furniture and equipment 48,898 44,949
Vehicles 1,254,646 299,458
Vehicle under capital lease 198,500 198,500
---------- ----------
1,566,488 607,351
Less accumulated depreciation 475,478 412,118
========== ==========
Property and equipment, net $1,091,010 $ 195,233
========== ==========
3. SHORT-TERM DEBT
Short-term debt consists of the following at December 31, 1995:
$350,000 unsecured demand promissory note,
interest at prime rate charged by
Society National Bank plus 3/4%,
interest due monthly. Guaranteed by
certain Stockholders of the Company. $ 340,982
$500,000 unsecured commercial demand note,
interest at prime rate charged by
National City Bank plus 1.0%, interest
due quarterly. Guaranteed by certain
Stockholders of the Company. 435,156
$400,000 note payable, interest at 10%,
interest due monthly, collateralized
by vehicles. 352,000
----------
Total short-term debt $1,128,138
==========
The weighted average interest rate on the short-term debt was 9.58% as of
December 31, 1995.
F-13
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1995 1994
-------- --------
10.90% note payable, principal and interest
due monthly through May 2000.
Collateralized by vehicle. $120,627 $ --
10.75% note payable, principal and interest
due monthly through August 1999 .
Collateralized by vehicle. 148,610 --
10.75% note payable, principal and interest
due monthly through October 2000.
Collateralized by vehicle. 166,807 --
7.5% unsecured note payable, principal and
interest due monthly through December
1994. Guaranteed by certain Stockholders
of the Company. -- 50,000
9.0% note payable, principal and interest
due monthly through October 1997.
Collateralized by a vehicle. 53,747 81,286
Capital lease obligation payable in monthly
installments through September 1997
including interest imputed at a rate of
10%, collateralized by a vehicle. 40,778 61,080
-------- --------
530,569 192,366
Less current maturities 137,870 97,882
======== ========
Total long-term debt $392,699 $ 94,484
======== ========
F-14
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
Scheduled maturities of long-term debt are as follows:
Year Ending December 31:
1996 $137,870
1997 136,874
1998 105,710
1999 100,275
2000 49,840
--------
Total maturities of long-term debt $530,569
========
5. MANAGEMENT AGREEMENTS
The Company entered into management agreements with Niko Associates (Niko) for
daily general operations management during the entire periods of production of
Dolliko, Judas and Impossible. Management fees are calculated based on fixed
weekly fees ranging from $2,000 to $5,000 per performance week plus the
reimbursement of certain overhead related costs. Management fees paid by the
Company to Niko amounted to $309,498, $238,408 and $191,300 in 1995, 1994 and
1993, respectively, and are reflected in talent and other show expenses in the
accompanying statements of income.
6. EMPLOYEE BENEFIT PLANS
Effective January 1, 1988, Magic initiated a Money Purchase Plan and Trust (the
Plan) for all full-time employees who have completed one year of service and are
at least 21 years of age. Magic contributes an amount not to exceed 25% of the
participating employee's compensation or $30,000. In addition, the Plan permits
Magic to make additional discretionary contributions to the Plan. Total
contributions to the Plan by Magic were $65,000, $66,446, and $20,268 in 1995,
1994 and 1993, respectively. Employees vest in the Company's discretionary
contributions at the rate of 20% per year upon completion of two years of
service.
F-15
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. LEASES
The Company leases office space from affiliated (See Note 8) and non-affiliated
entities under operating lease agreements which extend through December 31,
1997. The following is a schedule of approximate future minimum lease payments
required under such non-cancelable operating leases at December 31, 1995:
Year Ending December 31:
1996 $37,515
1997 37,515
=======
Total minimum lease payments $75,030
=======
Rent expense amounted to $41,111, $36,914 and $21,676 for the years ended
December 31, 1995, 1994 and 1993, respectively, and is included in general and
administrative expenses in the accompanying combined statements of income.
8. RELATED PARTY TRANSACTIONS
In the normal course of its business, the Company conducts business with
entities related through common ownership.
The Company has entered into two three-year noncancellable operating leases for
office space with related entities. The Company is required to pay taxes,
maintenance, insurance and utility costs. Payments under these leases totaled
$41,111, $36,914 and $21,676 in 1995, 1994 and 1993, respectively.
The Company has notes receivable from entities controlled by certain
Stockholders with an outstanding balance, including accrued interest, of
$159,520 and $460,057 at December 31, 1995 and 1994, respectively. Interest
income related to these receivables totaled $84,520, $28,589 and $-0- in 1995,
1994 and 1993, respectively. These unsecured notes, which bear interest at prime
plus 2.9%, are due on demand.
The Company has payables due to certain Stockholders with an outstanding balance
(including accrued interest), of approximately $265,243 and $86,500 at December
31, 1995 and 1994, respectively. These payables bear no interest and have no
stated repayment terms.
F-16
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has entered into an agreement with an entity controlled by certain
Stockholders which provided for the exclusive booking during the entire periods
of production of Judas, Impossible, Dolliko and Ain't Misbehavin. Booking
expense related to these agreements was approximately $400,800, $403,000 and
$306,250 for 1995, 1994 and 1993, respectively, and is reflected in talent and
other show expenses in the accompanying statement of income.
9. COMMITMENTS AND CONTINGENCIES
The Company has royalty and employment agreements with certain authors, actors,
directors and choreographers and their respective unions. These agreements are
generally one to three years in length and provide for minimum compensation
levels. These agreements may include incentive bonuses based upon specified
goals. The aggregate commitment for future salaries and royalties, excluding
bonuses, as of December 31, 1995 was approximately $2,288,000, which will be
paid during 1996.
In October 1994, a former independent contractor filed a complaint against Judas
in the Common Pleas Court of Philadelphia County seeking consequential damages
of $5,000,000 arising from the termination of an employment contract by Judas. A
court date has not been set. Management of Judas 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 combined financial condition or results of
operations.
Litigation has been threatened by a former financial advisor to the Company with
respect to an alleged contract with the Company that provided that such
individual would receive the right to purchase 5% of the equity in the Company
at a discount upon consummation of a public financing. The Company believes that
it was fraudulently induced to enter into such 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 believes that if the individual
commences an action, his claims will be without merit. The Company intends to
vigorously defend any suit that the defendant might bring in the future based on
the contract and the Company may pursue its own action for declaratory judgment.
F-17
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS
On July 30, 1996, the Company, along with other entities affiliated through
common ownership, became wholly-owned subsidiaries of Magicworks Entertainment
Incorporated (Magicworks) through a stock exchange transaction. Contemporaneous
with this transaction, Magicworks consummated a $10 million private placement
offering of units consisting of unsecured senior convertible notes and common
stock. Also, contemporaneous with these transactions, Magicworks merged with and
into Shadow Wood Corporation, an inactive public company.
F-18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Diamond Bullet Merchandising, Inc.
We have audited the accompanying balance sheet of Diamond Bullet Merchandising,
Inc. (the Company) as of December 31, 1995, and the related statements of
income, stockholders' deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Diamond Bullet Merchandising,
Inc. at December 31, 1995, and the results of its operations and its cash flows
for the year the ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
September 11, 1996
Miami, Florida
F-19
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Current assets:
Cash $ 58,331
Accounts receivable 11,290
Inventories 160,930
Other current assets 44,781
---------
Total current assets 275,332
Furniture and equipment, net of accumulated
depreciation of $34,701 4,858
Due from affiliates 827,571
----------
Total assets $1,107,761
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 315,645
Short-term debt 792,351
Due to stockholders 95,338
----------
Total current liabilities 1,203,334
Contingency
Stockholders' deficit:
Common stock, $1 par value;
100 shares authorized; 100 shares issued and outstanding 100
Additional paid-in capital 900
Accumulated deficit (96,573)
----------
Total stockholders' deficit (95,573)
==========
Total liabilities and stockholders' deficit $1,107,761
==========
SEE ACCOMPANYING NOTES.
F-20
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
Merchandising revenues $1,313,695
Operating expenses:
Cost of goods sold 1,053,667
Salaries, wages and benefits 85,795
General and administrative 140,036
-----------
1,279,498
-----------
Income from operations 34,197
Interest expense (6,417)
-----------
Net income 27,780
Pro forma adjustment for income taxes (10,834)
-----------
Pro forma net income $ 16,946
===========
SEE ACCOMPANYING NOTES.
F-21
<PAGE>
<TABLE>
<CAPTION>
DIAMOND BULLET MERCHANDISING, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1995
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1994
$ 100 $ 900 $(124,353) $(123,353)
Net income -- -- 27,780 27,780
--------- --------- --------- ---------
Balance at December 31, 1995
$ 100 $ 900 $ (96,573) $ (95,573)
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
F-22
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
OPERATING ACTIVITIES
Net income $ 27,780
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 107,913
Increase in:
Accounts receivable (11,290)
Inventories (16,289)
Other current assets (100,000)
Increase in:
Accounts payable and accrued liabilities 51,455
---------
Net cash provided by operating activities 59,569
INVESTING ACTIVITIES
Purchase of equipment (4,893)
Notes receivable from affiliates (715,620)
---------
Net cash used in investing activities (720,513)
FINANCING ACTIVITIES
Proceeds of borrowings 792,351
Repayments of advances from stockholders (78,684)
---------
Net cash provided by financing activities 713,667
---------
Net increase in cash 52,723
Cash at beginning of year 5,608
---------
Cash at end of year $ 58,331
=========
SEE ACCOMPANYING NOTES.
F-23
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Diamond Bullet Merchandising, Inc. (DBM) was formed in 1988 in the state of
Florida to sell souvenir related merchandise to theatrical productions produced
by an affiliate and to third parties throughout the United States.
INVENTORIES
Inventories consist of goods held for sale which are valued at the lower of
cost, determined on a first-in first-out basis, or net realizable value.
FURNITURE AND EQUIPMENT
Furniture and equipment are carried at cost less accumulated depreciation.
Furniture and equipment are depreciated using the straight-line method over the
estimated useful lives of 3 to 7 years.
Repairs and minor replacements and renewals are charged to maintenance expense,
which is included in general and other administrative expenses, as incurred.
INCOME TAXES
The Company has elected to be treated as an S-Corporation under Subchapter S of
the Internal Revenue Code. As such, the stockholders include their proportionate
share of the Company's income in their respective tax returns.
Upon completion of the transaction discussed in Note 5, the Company will become
subject to state and U.S. corporate income tax.
The accompanying statement of income includes a pro forma adjustment for income
taxes 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 the year
and statutory rates applied to pre-tax accounting income.
F-24
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash, short term debt, due from affiliates
and due to stockholders approximate their fair market values.
2. SHORT-TERM DEBT
Short-term debt consisted of a $750,000 revolving credit line, of which $692,351
was outstanding at December 31, 1995. The line of credit accrued interest at a
30-day commercial paper rate charged by Merrill Lynch plus 2.9% (8.7% at
December 31, 1995) payable monthly through August 31, 1996, at which time the
principal balance was due. The line of credit was collateralized by certain
assets of the Company and was guaranteed by certain stockholders of the Company.
On August 5, 1996 the Company repaid the entire outstanding balance of this
revolving credit line with proceeds from the private placement as discussed in
Note 5.
Short-term debt also includes a $100,000 unsecured convertible note payable to
one of the Company's stockholders which accrues interest at 8.5% and matures in
November 1996. On January 1, 1996 the stockholder exercised his option to
convert the outstanding balance of the note to 10 shares of the Company's common
stock.
3. RELATED PARTY TRANSACTIONS
In the normal course of its business, the Company conducts business with its
stockholders and their respective affiliates.
The Company has amounts due to certain stockholders with an aggregate
outstanding balance, including accrued interest, of approximately $95,338 at
December 31, 1995. These amounts bear interest at 8.5% and have no stated
repayment terms.
F-25
<PAGE>
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Fees paid by the Company for accounting, general management, office and other
administrative services to affiliates were $53,218 and are included in general
and administrative expenses in the accompanying statement of income.
The Company has advanced $552,772 of proceeds received from the Company's
revolving credit line to certain affiliates. The Company allocated interest
expense to these affiliates related to these advances of $6,417 in 1995.
Additionally, the Company has advanced funds aggregating $274,799 to certain
affiliates. These advances do not bear interest and have no stated repayment
terms.
4. CONTINGENCY
Litigation has been threatened by a former financial advisor to the Company with
respect to an alleged contract with the Company that provided that such
individual would receive the right to purchase 5% of the equity in the Company
at a discount upon consummation of a public financing. The Company believes that
it was fraudulently induced to enter into such 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 believes that if the individual
commences an action, his claims will be without merit. The Company intends to
vigorously defend any suit that the defendant might bring in the future based on
the contract and the Company may pursue its own action for declaratory judgment.
5. SUBSEQUENT EVENTS
On July 30, 1996, the Company, along with other companies affiliated through
common ownership, became wholly-owned subsidiaries of Magicworks Entertainment
Incorporated, (Magicworks) through a stock exchange transaction. Contemporaneous
with this transaction, Magicworks consummated a $10 million private placement
offering of units consisting of unsecured senior convertible notes and the
Company's common stock. Also, contemporaneous with these transactions,
Magicworks merged with and into Shadow Wood Corporation, an inactive public
company.
F-26
<PAGE>
<TABLE>
<CAPTION>
MAGICWORKS ENTERTAINMENT
CONDENSED COMBINED BALANCE SHEETS
JUNE 30 DECEMBER 31
1996 1995
------------------------------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,415,718 $ 862,127
Accounts receivable 2,109,007 1,196,297
Inventories 159,497 160,930
Preproduction costs, net 227,164 1,508,314
Due from affiliates 653,127 665,419
Other current assets 104,009 354,663
------------------------------------
Total current assets 4,668,522 4,747,750
Property and equipment, net 1,126,158 1,153,096
Investments in partnerships 801,603 347,783
Advances and deposits 1,048,041 343,194
Deferred costs 783,730 564,032
Intangible assets, net 416,717 454,442
------------------------------------
Total assets $8,844,771 $7,610,297
====================================
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $1,463,447 $1,480,979
Current maturities of long-term 208,080 137,870
debt
Short-term debt 2,230,394 1,920,489
Due to affiliates 503,575 398,819
------------------------------------
Total current liabilities 4,405,496 3,938,157
------------------------------------
Long-term debt, less current
maturities 565,500 392,699
Commitments and contingencies
Minority interest 600,971 1,470,457
Stockholders' equity:
Common stock,, $1 par value; 100
shares authorized; 100 share
issued and outstanding 800 800
Additional paid-in capital 59,974 59,974
Retained earnings 3,212,030 1,748,210
------------------------------------
Total stockholders' equity 3,272,804 1,808,984
------------------------------------
Total liabilities and stockholders' equity 8,844,771 $7,610,297
====================================
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by GAAP for complete financial
statements
SEE ACCOMPANYING NOTES
F-71
<PAGE>
MAGICWORKS ENTERTAINMENT, INC.
CONDENSED COMBINED STATEMENTS OF INCOME
JUNE 30
1996 1995
--------------------------------------
(Unaudited)
Revenues:
Production $ 16,361,156 $ 14,721,453
Promotion 5,126,007 4,573,186
Merchandising 1,134,213 1,211,935
Other 1,098,078 495,396
--------------------------------------
Total revenues 23,719,454 21,001,970
--------------------------------------
Operating expenses:
Talent and other show 17,925,381 14,698,421
Salaries, wages and benefits 1,032,670 819,250
Cost of goods sold 876,917 847,952
General and other operating expenses 1,259,556 901,076
--------------------------------------
21,094,524 17,266,699
--------------------------------------
Income from operations 2,624,930 3,735,271
Other income (expense):
Interest income 5,187 30,516
Interest expense (168,911) (21,490)
From investments in noncombining
productions 27,165 270,812
Minority interests (488,548) (1,417,782)
--------------------------------------
Net income 1,999,823 2,597,327
Pro forma adjustments for income taxes (779,931) (1,012,958)
--------------------------------------
Pro forma net income $ 1,219,892 $ 1,584,369
======================================
SEE ACCOMPANYING NOTES.
F-72
<PAGE>
<TABLE>
<CAPTION>
MAGICWORKS ENTERTAINMENT, INC
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30
1996 1995
----------------------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,999,823 $ 2,597,327
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,456,740 717,583
Write-down of investment in partnerships -- 49,994
Minority interest 488,548 1,417,782
(Increase) decrease in:
Accounts receivable (912,710) 192,981
Inventories 1,433 92,904
Other current assets 250,654 (193,764)
Preproduction costs -- (399,685)
Advances and deposits (704,847) (14,191)
(Decrease) in:
Accounts payable and accrued liabilities (17,532) (1,024,317)
----------------------------------------
Net cash provided from operating activitie 2,562,109 3,436,614
INVESTING ACTIVITIES
Investment in cultural facility (21,714) (16,452)
Due to affiliates 104,756 (67,401)
Notes receivable from affilates 12,292 (246,682)
Purchase of property and equipment (39,098) (138,443)
Investments in partnerships (453,820) 85,958
Investments in management and
booking agreements (71,829) (25,000)
----------------------------------------
Net cash used in investment activities (469,413) (408,020)
FINANCING ACTIVITIES
Proceeds of borrowings 879,905 301,608
Repayment of borrowings (326,989) (74,989)
Increase in offering costs (197,984) (118,076)
Distributions to minority interests (1,358,034) (2,015,696)
Distributions (536,003) (1,892,471)
----------------------------------------
Net cash used by financing activities (1,539,105) (3,799,624)
----------------------------------------
Net increase (decrease) in cash
and cash equivalents 553,591 (771,030)
Cash and cash equivalents at
beginning of period 862,127 1,955,315
----------------------------------------
Cash and cash equivalents at
end of period $ 1,415,718 $ 1,184,285
========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for inte$est 78,843 $ 17,705
========================================
</TABLE>
SEE ACCOMPANYING NOTES
F-73
<PAGE>
MAGICWORKS ENTERTAINMENT, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed combined 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 six month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
2. CONTINGENCIES
In October 1994, a former independent contractor filed a complaint against Judas
in the Common Pleas Court of Philadelphia County seeking consequential damages
of $5,000,000 arising from the termination of an employment contract by Judas. A
court date has not been set. Management of Judas believes that the lawsuit is
without merit, and that the outcome of this suit will not have a material
adverse effect on Judas' financial condition or results of operations.
Litigation has been threatened by a former financial advisor to the Company with
respect to an alleged contract with the Company threat provided that such
individual would receive the right to purchase 5% of the equity in the Company
at a discount upon consummation of a public financing. The Company believes that
it was fraudulently induced to enter into such 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 believes that if the individual
commences an action, his claims will be without merit. The Company intends to
vigorously defend any suit that the defendant might bring in the future based on
the contract and the Company may pursue its own action for declaratory judgment.
F-74
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC.
CONDENSED COMBINED BALANCE SHEETS
JUNE 30 DECEMBER 31
1996 1995
--------------------------------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,142,039 $ 734,945
Accounts receivable 2,010,062 1,107,451
Preproduction costs, net 227,164 1,508,314
Notes receivable from affiliates 75,000 159,520
Other current assets 102,809 353,463
--------------------------------------
Total current assets 3,557,074 3,863,693
Property and equipment, net 1,044,416 1,091,010
Investments in partnerships 691,382 199,677
Advances and deposits 997,278 293,850
Deferred costs 341,040 207,823
Management agreements, net 342,255 364,415
--------------------------------------
Total assets $6,973,445 $6,020,468
======================================
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $1,061,248 $1,111,590
Current maturities of long-term debt 208,080 137,870
Short-term debt 1,518,133 1,128,138
Due to affiliates 211,719 265,243
--------------------------------------
Total current liabilities 2,999,180 2,642,841
Long-term debt, less current
maturities 565,500 392,699
Commitments and contingencies
Minority interest 628,992 1,496,453
Stockholders' equity:
Common stock, $1 par value; 100
shares authorized; 100 shares
issued and outstanding 100 100
Additional paid-in capital 50,174 58,174
Retained earnings 2,729,499 1,438,201
--------------------------------------
Total stockholders' equity 2,779,773 1,488,475
--------------------------------------
Total liabilities and stockholders'
equity $6,973,445 $6,020,468
======================================
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financials statements at that date but does not include all of the
information and footnotes required by GAAP for complete financial
statements.
SEE ACCOMPANYING NOTES.
1
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC
CONDENSED COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED
JUNE 30
1996 1995
--------------------------------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Production $ 16,361,156 $ 14,721,453
Promotion 5,126,007 4,573,186
Merchandising 297,632 518,745
Other 357,693 212,503
--------------------------------------
22,142,488 20,025,887
--------------------------------------
Operating expenses:
Talent and other show 17,974,772 14,922,179
Salaries, wages and benefits 647,698 474,335
Cost of goods sold 249,937 306,811
General and administrative 830,288 606,083
--------------------------------------
19,702,695 16,309,408
--------------------------------------
Income from operations 2,439,793 3,716,479
Other income (expense):
Interest income 4,786 30,148
Interest expense (156,870) (8,394)
From investments in non combined
productions 27,165 270,812
Minority interests (513,137) (1,654,605)
--------------------------------------
Net income 1,801,737 2,354,440
Pro forma adjustments for income taxes (702,677) (918,232)
--------------------------------------
Pro forma net income $ 1,099,060 $ 1,436,208
======================================
</TABLE>
SEE ACCOMPANYING NOTES
2
<PAGE>
<TABLE>
<CAPTION>
MAGIC PROMOTION, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
1996 1995
---------------------------------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,801,737 $ 2,354,440
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,380,481 674,426
Write-down of investment in partnerships -- 49,994
Minority interest 513,137 1,654,605
(Increase) decrease in:
Accounts receivable (902,611) 162,741
Other current assets 250,654 (193,764)
Preproduction costs -- (399,685)
Advances and deposits (703,428) (60,650)
Decrease in:
Accounts payable and accrued liabilities (50,342) (939,009)
---------------------------------------
Net cash provided from operating activities 2,289,628 3,303,098
INVESTING ACTIVITIES
Notes receivable from affiliates 84,520 (246,682)
Purchase of property and equipment (14,198) (136,449)
Investments in partnerships (491,705) 85,958
Investments in management and
booking agreements (16,379) (24,998)
---------------------------------------
Net cash used in investment activities (437,762) (322,171)
FINANCING ACTIVITIES
Due to affiliates (53,524) --
Proceeds of borrowings 859,995 301,608
Repayment of borrowings (226,989) (137,989)
Increase in offering costs (133,217) (88,054)
Distributions to minority interests (1,380,598) (2,248,789)
Capital contributions from minority interests -- --
Distributions (510,439) (1,569,378)
Capital contributions -- --
---------------------------------------
Net cash used by financing activities (1,444,772) (3,742,602)
---------------------------------------
Net increase (decrease) in cash
and cash equivalents 407,094 (761,675)
Cash and cash equivalents at
beginning of period 734,945 1,903,936
---------------------------------------
Cash and cash equivalents at
end of period $ 1,142,039 $ 1,142,261
=======================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest 72,350 $ 8,394
=======================================
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
MAGIC PROMOTION, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed combined 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 six month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
2. CONTINGENCIES
In October 1994, a former independent contractor filed a complaint against Judas
in the Common Pleas Court of Philadelphia County seeking consequential damages
of $5,000,000 arising from the termination of an employment contract by Judas. A
court date has not been set. Management of Judas believes that the lawsuit is
without merit, and that the outcome of this suit will not have a material
adverse effect on Judas' financial condition or results of operations.
Litigation has been threatened by a former financial advisor to the Company with
respect to an alleged contract with the Company threat provided that such
individual would receive the right to purchase 5% of the equity in the Company
at a discount upon consummation of a public financing. The Company believes that
it was fraudulently induced to enter into such 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 believes that if the individual
commences an action, his claims will be without merit. The Company intends to
vigorously defend any suit that the defendant might bring in the future based on
the contract and the Company may pursue its own action for declaratory judgment.
SEE ACCOMPANYING NOTES.
4
<PAGE>
<TABLE>
<CAPTION>
DIAMOND BULLET MERCHANDISING, INC.
CONDENSED BALANCE SHEETS
JUNE 30 DECEMBER 31
1996 1995
----------------------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38,485 $ 58,331
Accounts receivable 10,958 11,290
Inventories 159,497 160,930
Other current assets 58,922 44,781
----------------------------
Total current assets 267,862 275,332
Furniture and equipment, net of
accumulated depreciation of
$ 37,718 24,048 4,858
Due from affiliates 899,177 827,571
----------------------------
Total assets $ 1,191,08 $ 1,107,761
============================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued
liabilities 332,593 315,645
Short-term debt 712,261 792,351
Due to stockholders 177,389 95,338
----------------------------
Total current liabilities 1,222,243 1,203,334
Contingency
Stockholders' deficit:
Common stock, $1 par value:
100 shares authorized; 100 shares
issued and outstanding 100 100
Additional paid-in capital 900 900
Accumulated deficit (32,156) (96,573)
----------------------------
Total stockholders' deficit (31,156) (95,573)
----------------------------
Total liabilities and stockholders'
deficit $ 1,191,08 $ 1,107,761
============================
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financials statements at that date but does not include all of the
information and footnotes required by GAAP for complete financial
statements.
SEE ACCOMPANYING NOTES.
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED
JUNE 30,
1996 1995
-------------------------------
(UNAUDITED)
Merchandising Revenues $ 836,581 $ 693,190
Operating expenses:
Cost of goods sold 626,980 541,141
Salaries, wages and benefits 63,120 32,068
General and other 75,571 71,466
-------------------------------
765,671 644,675
-------------------------------
Income from operations 70,910 48,515
Interest expense 6,493 3,771
-------------------------------
Net income 64,417 44,744
Pro forma adjustments for income taxes 25,123 17,450
-------------------------------
Pro forma net income $ 39,294 $ 27,294
===============================
SEE ACCOMPANYING NOTES.
2
<PAGE>
<TABLE>
<CAPTION>
DIAMOND BULLET MERCHANDISING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
1996 1995
---------------------------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 64,417 $ 44,744
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 76,599 46,612
(Increase) decrease in:
Accounts receivable 332 (27,821)
Inventory 1,433 92,904
Other current assets (75,001) --
Increase (decrease) in:
Accounts payable and accrued liabilities 16,948 (120,135)
---------------------------------
Net cash provided from operating activities 84,728 36,304
INVESTING ACTIVITIES
Purchase of furniture and equipment (22,207) --
Notes receivable from affiliates (71,606) 40,449
---------------------------------
Net cash provided (used) in investment activities (93,813) 40,449
FINANCING ACTIVITIES
Increase in offering costs (12,722) --
Proceeds (payments) of advances from
stockholders 82,051 (76,726)
Proceeds (payments) of borrowings (80,090) --
---------------------------------
Net cash used (provided) by financing activities (10,761) (76,726)
Net increase (decrease) in cash (19,846) 27
Cash at beginning of period 58,331 5,608
---------------------------------
Cash at end of period 38,485 $ 5,635
=================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year fo$ interest 6,493 $ 3,771
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
DIAMOND BULLET MERCHANDISING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed 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 six month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
2. CONTINGENCY
Litigation has been threatened by a former financial advisor to the Company with
respect to an alleged contract with the Company threat provided that such
individual would receive the right to purchase 5% of the equity in the Company
at a discount upon consummation of a public financing. The Company believes that
it was fraudulently induced to enter into such 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 believes that if the individual
commences an action, his claims will be without merit. The Company intends to
vigorously defend any suit that the defendant might bring in the future based on
the contract and the Company may pursue its own action for declaratory judgment.
SEE ACCOMPANYING NOTES.
4
<PAGE>
MAGICWORKS ENTERTAINMENT INCORPORATED
PRO FORMA COMBINED FINANCIAL STATEMENTS
The Consolidation complies with the requirements of SAB Topic 5:G (SAB 48)
and should therefore be accounted for at the historical cost basis of the
transferors. The following unaudited pro forma condensed combined financial
statements present the Consolidation accounted for as a purchase at book value
by MPIO, which will begin to consolidate the other Constituent Corporations.
The pro forma condensed combined financial statements also present the
Movietime Acquisition accounted for as a pooling of interests in accordance
with APB No. 16. The pro forma information assumes that the Consolidation and
Movietime Acquisition had occurred as of the beginning of the respective periods
presented in the Pro Forma Condensed Combined Statements of Operations.
The pro forma condensed combined financial statements also give effect to
the Merger and the Private Placement as if these transactions occurred as of the
beginning of the respective periods presented in the Pro Forma Condensed
Combined Statements of Operations.
The unaudited pro forma condensed combined financial information as set
forth is derived from, and should be read in conjunction with, the combined
financial statements of the Company. The following pro forma financial data is
presented for informational purposes only and is not necessarily indicative of
the results of the future operations of the Company or the actual results that
would have been achieved had the transactions been consummated prior to the
periods presented.
P-1
<PAGE>
<TABLE>
<CAPTION>
MAGICWORKS ENTERTAINMENT INCORPORATED
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1996
MAGIC/ DIAMOND TOURING PERFORMING
MOVIETIME SHADOW WOOD BULLET ARTISITS ARTS
POOLED (G) CORPORATION MERCHANDISING GROUP MANAGEMENT SUBTOTAL(A) TOTAL(B)
---------- ----------- ------------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents $1,149,294 $0 $38,485 $234,815 $379 $273,679 $1,422,973
Accounts receivable 2,016,018 0 10,958 87,987 0 98,945 2,114,963
Preproduction
costs, net 227,164 0 0 0 0 0 227,164
Inventories 0 0 159,497 0 0 159,497 159,497
Notes receivable
from affiliates 75,000 0 899,177 0 0 899,177 974,177
Other current assets 102,809 0 46,200 0 0 46,200 149,009
--------------------------------------------------------------------------------------
Total current assets 3,570,285 0 1,154,317 322,802 379 1,477,498 5,047,783
Property and
equipment, net 1,174,674 0 24,048 57,694 0 81,742 1,256,416
Investments in
partnerships 691,382 0 0 110,221 0 110,221 801,603
Advances and deposits 997,278 0 0 5,763 0 5,763 1,003,041
Deferred costs, net 341,040 0 12,722 50,973 378,995 442,690 783,730
Management and booking
agreements, net 342,255 0 0 74,462 0 74,462 416,717
--------------------------------------------------------------------------------------
$7,116,914 $0 $1,191,087 $621,915 $379,374 $2,192,376 $9,309,290
======================================================================================
Liabilities and Equity
Current liabilities:
Accounts payable and
accrued liabilities $1,111,785 $21,047 $332,593 $52,646 $108,026 $514,312 $1,626,097
Current maturities of
long-term debt 208,080 0 0 0 0 0 208,080
Short-term debt 1,518,133 0 712,261 0 0 712,261 2,230,394
Due to affiliates 979,179 0 177,389 45,330 301,121 523,840 1,503,019
--------------------------------------------------------------------------------------
Total current liabilities 3,817,177 21,047 1,222,243 97,976 409,147 1,750,413 5,567,590
--------------------------------------------------------------------------------------
Long-term debt, less
current maturities 565,500 0 0 0 0 0 565,500
Minority interests 628,992 0 0 0 0 0 628,992
Commitments and
contingencies 0 0 0 0 0 0 0
Capital:
Common stock 100 389 100 100 500 1,089 1,189
Preferred stock 0 0 0 0 0 0 0
Additional paid-in-
capital 1,056,489 117,637 900 900 0 119,437 1,175,926
Partners' capital/
retained earnings 1,048,656 (139,073) (32,156) 522,939 (30,273) 321,437 1,370,093
--------------------------------------------------------------------------------------
2,105,245 (21,047) (31,156) 523,939 (29,773) 441,963 2,547,208
--------------------------------------------------------------------------------------
$7,116,914 $0 $1,191,087 $621,915 $379,374 $2,192,37 $9,309,290
======================================================================================
0 0 0 0 0 0 0
<CAPTION>
PROFORMA
ADJUSTMENTS COMBINED
----------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash
equivalents $8,919,350 (F)$10,319,461
333,000 (J)
($355,862)(K)
Accounts receivable 2,114,963
Preproduction
costs, net 227,164
Inventories 159,497
Notes receivable
from affiliates (321,050)(I) 653,127
Other current assets (45,000)(I) 104,009
-------------------------
Total current assets 8,530,438 13,578,221
Property and
equipment, net 1,256,416
Investments in
partnerships 801,603
Advances and deposits 45,000 (I) 1,048,041
Deferred costs, net 1,082,150 (F) 1,116,069
(768,311)(F)
37,000 (J)
(18,500)(J)
Management and booking
agreements, net 416,717
-------------------------
$8,907,777 $18,217,067
=========================
Liabilities and Equity
Current liabilities:
Accounts payable and
accrued liabilities ($91,066)(I) $1,535,031
Current maturities of
long-term debt 208,080
Short-term debt 2,230,394
Due to affiliates (231,984)(I) 1,271,035
-------------------------
Total current liabilities (323,050) 0 5,244,540
-------------------------
Long-term debt, less
current maturities 5,000,750 (F) 5,751,250
185,000 (J)
Minority interests (28,021)(I) 600,971
Commitments and
contingencies 0
Capital:
Common stock 19,000 (C) 23,074
2,000 (H)
811 (E)
74 (I)
Preferred stock 0 (D) 0
Additional paid-in-
capital 4,998,750 (F) 5,197,118
(19,000)(C)
(768,311)(F)
(811)(E)
184,926 (K)
(355,862)(J)
(18,500)(I)
Partners' capital/
retained earnings 30,021 (I) 1,400,114
-------------------------
4,073,098 6,620,306
-------------------------
$8,907,777 $18,217,067
=========================
0 0
</TABLE>
Pro Forma Adjustments
---------------------
(A) Total of ShadowWood, Diamond Bullet Merchandising, Touring Artists
Group, and Performing Arts Management.
(B) Total of (A) and (G).
(C) To record the effect of the reverse merger agreement between,
Magic Promotions, Diamond Bullet Merchandising, Touring Artists Group,
and Performing Arts Management and ShadowWood Corporation which
transpired on July 30, 1996. The transaction has been accounted for as
a reverse acquisition using the purchase method of accounting.
(D) After the merger, 5,000,000 shares of preferred stock will be
authorized, par value $.001 per share, no shares issued and outstanding.
(E) After the reverse merger, acquistion of Movietime and the private
placements, 50,000,000 shares of common stock authorized, par value
$.001 per share, 23,074,299 shares issued and outstanding.
(F) To record the effect of the private placement transaction which sold
400.06 units at a price per unit of $25,000 ($12,500 debt and $12,500
stock at $2.50/share). The transaction, which closed on 07/30/96,
grossed $10,001,500 less $1,082,150 in commissions and closing costs. In
addition, 50% of the closing costs relating to the private placement
have been netted against additional paid-in capital and 50% have been
capitalized as deferred financing costs to be amortized over five years.
(G) Magic Promotions, Inc. and Movietime Entertainment, Inc. combined using
the pooling method of accounting.
(H) To record the effect of the Movietime merger with Magic Promotions which
transpired on August 26, 1996. The transaction has been accounted for
as an acquisition using the pooling method of accounting.
(I) To eliminate intercompany transactions between Magic, TAG, DBM, and PAM.
(J) To record the effect of the private placement transaction which sold
14.8 units at a price per unit of $25,000 ($12,500 debt and $12,500
stock at $2.50/share). The transaction, which closed on 09/27/96,
grossed $370,000 less $37,000 in commissions and closing costs.In
addition, 50% of the closing costs relating to the private placement
have been netted against additional paid-in capital and 50% have been
capitalized as deferred financing costs to be amortized over five years.
(K) To record aditional costs relating to the registering of the stock.
All costs are to be netted against additional paid-in capital.
P-2
<PAGE>
<TABLE>
<CAPTION>
MAGICWORKS ENTERTAINMENT, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
MAGIC/ DIAMOND TOURING PERFORMING
MOVIETIME SHADOW WOOD BULLET ARTISITS ARTS
POOLED (G) CORPORATION MERCHANDISING GROUP MANAGEMENT SUBTOTAL(A) TOTAL(B)
---------- ----------- ------------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Production $16,361,156 $0 $0 $0 $0 $0 $16,361,156
Promotion 5,126,007 0 0 0 0 0 5,126,007
Merchandising 297,632 0 836,581 0 0 836,581 1,134,213
Other 369,330 0 0 1,070,885 0 1,070,885 1,440,215
-----------------------------------------------------------------------------------------
22,154,125 0 836,581 1,070,885 0 1,907,466 24,061,591
Operating Expenses:
Talent and
other show 17,974,772 0 0 175,459 0 175,459 18,150,231
Salaries, wages
and benefits 747,411 0 63,120 329,011 0 392,131 1,139,542
Cost of goods sold 249,937 0 626,980 0 0 626,980 876,917
General and
administrative 1,118,815 11,874 75,571 452,188 0 539,633 1,658,448
-----------------------------------------------------------------------------------------
20,090,935 11,874 765,671 956,658 0 1,734,203 21,825,138
Income from operations 2,063,190 (11,874) 70,910 114,227 0 173,263 2,236,453
Other income(expense):
Interest income 4,786 0 0 401 0 401 5,187
Interest expense (174,170) 0 (6,493) 0 (5,548) (12,041) (186,211)
From investments
in production 27,165 0 0 0 0 0 27,165
Minority interests (513,137) 0 0 0 0 0 (513,137)
---------------------------------------------------------------------------------------
Net income 1,407,834 (11,874) 64,417 114,628 (5,548) 161,623 1,569,457
Pro forma adjustment
for income (702,677) 4,631 (25,123) (44,705) 2,164 (63,033) (612,088)
---------------------------------------------------------------------------------------
Pro forma net
income (loss) $705,157 ($7,243) $39,294 $69,923 ($3,384) $98,590 $957,369
=======================================================================================
Per share data:
Primary earnings
per share
Weighted average
common shares
outstanding
Fully dilutive
earnings per share
Weighted average
common shares &
common stock
equivalents
outstanding
<CAPTION>
PROFORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
Revenues:
Production $16,361,156
Promotion 5,126,007
Merchandising 1,134,213
Other (330,500)(E) 1,109,715
-----------------------
(330,500) 23,731,091
Operating Expenses:
Talent and
other show (224,850)(E) 17,925,381
Salaries, wages
and benefits (7,159)(E) 1,132,383
Cost of goods sold 876,917
General and
administrative 77,819 (B) 1,637,776
(98,491)(E)
-----------------------
(252,681) 21,572,457
Income from operations (77,819) 2,158,634
Other income(expense):
Interest income 5,187
Interest expense (259,288)(C) (445,499)
From investments
in production 27,165
Minority interests 24,589 (E) (488,548)
-----------------------
Net income (312,518) 1,256,939
Pro forma adjustment
for income 121,882 (D) (490,206)
------------------------
Pro forma net
income (loss) ($190,636) $766,733
=======================
Per share data:
Primary earnings
per share $0.03
Weighted average
common shares
outstanding 23,074,299
Fully dilutive
earnings per share $0.04
Weighted average
common shares &
common stock
equivalents
outstanding 25,055,942
</TABLE>
(A) Includes the historical financial information of Magicworks Entertainment,
Inc. and Movietime Entertainment, Inc.
(B) To reflect amortization of deferred finance costs for the six months
ended June 30, 1996.
(C) To reflect interest expense on the debt portion of the securities issued
in the private placement for the six month period ended June 30, 1996.
(D) Tax adjustment due to (B) and (C).
(E) To eliminate the intercompany transactions between Magic, TAG, DBM and PAM.
P-3
<PAGE>
<TABLE>
<CAPTION>
MAGICWORKS ENTERTAINMENT, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
MAGIC/ DIAMOND TOURING PERFORMING
MOVIETIME SHADOW WOOD BULLET ARTISITS ARTS
POOLED(G) CORPORATION MERCHANDISING GROUP MANAGEMENT SUBTOTAL(A) TOTAL(B)
---------- ----------- ------------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Production $31,638,078 $0 $0 $0 $0 $0 $31,638,078
Promotion 6,668,672 0 0 0 0 0 6,668,672
Merchandising 1,160,519 0 1,313,695 0 0 1,313,695 2,474,214
Other 1,237,126 0 0 1,186,809 0 1,186,809 2,423,935
-------------------------------------------------------------------------------------------------
40,704,395 0 1,313,695 1,186,809 0 2,500,504 43,204,899
Operating Expenses:
Talent and other show 33,346,544 0 0 0 0 0 33,346,544
Salaries, wages and benefits 1,351,312 0 85,795 627,294 0 713,089 2,064,401
Cost of goods sold 408,697 0 1,053,667 0 0 1,053,667 1,462,364
General and administrative 1,393,605 6,029 140,036 504,110 0 650,175 2,043,780
-------------------------------------------------------------------------------------------------
36,500,158 6,029 1,279,498 1,131,404 0 2,416,931 38,917,089
Income from operations 4,204,237 (6,029) 34,197 55,405 0 83,573 4,287,810
Other income(expense):
Interest income 108,427 0 0 633 0 633 109,060
Interest expense (65,318) 0 (6,417) 0 (21,110) (27,527) (92,845)
From investments in production 418,679 0 0 0 0 0 418,679
Minority interests (1,688,531) 0 0 0 0 0 (1,688,531)
-------------------------------------------------------------------------------------------------
(1,226,743) 0 (6,417) 633 (21,110) (26,894) (1,253,637)
Net income 2,977,494 (6,029) 27,780 56,038 (21,110) 56,679 3,034,173
Pro forma adjustment for income (1,318,378) 2,351 (10,834) (21,855) 8,233 (22,105) (1,183,327)
-------------------------------------------------------------------------------------------------
Pro forma net income (loss) $1,659,116 ($3,678) $16,946 $34,183 ($12,877) $34,574 $1,850,846
=================================================================================================
Primary earnings per share
Weighted average common shares outstanding
Fully dilutive earnings per share
Weighted average common shares & common stock equivalents outstanding
<CAPTION>
PROFORMA
ADJUSTMENTS COMBINED
----------- --------
<S> <C> <C>
Revenues:
Production $31,638,078
Promotion 6,668,672
Merchandising 2,474,214
Other (470,800)(E) 1,953,135
-----------------------
(470,800) 42,734,099
Operating Expenses:
Talent and other show (400,800)(E) 32,945,744
Salaries, wages and benefits (8,062)(E) 2,056,339
Cost of goods sold 1,462,364
General and administrative 155,637 (B) 2,137,479
(61,938)(E)
-----------------------
(315,163) 0 38,601,926
Income from operations (155,637) 4,132,173
Other income(expense):
Interest income 109,060
Interest expense (518,575)(C) (611,420)
From investments in production 418,679
Minority interests 241,643 (E) (1,446,888)
-----------------------
(276,932) (1,530,569)
Net income (432,569) 2,601,604
Pro forma adjustment for income 168,702 (D) (1,014,626)
-----------------------
Pro forma net income (loss) ($263,867) $1,586,978
=======================
Per share data:
Primary earnings per share $0.07
Weighted average common shares 23,074,299
Fully dilutive earnings per share $0.08
Weighted average common shares &
common stock equivalents outstanding 25,055,942
</TABLE>
(A) Includes the historical financial information of Magicworks Entertainment,
Inc. and Movietime Entertainment, Inc.
(B) To reflect deferred private placement cost amortization through
December 31, 1995, as if the acquistion took place on January 1, 1995.
(C) To reflect interest expense on the debt portion of the securities issued
in the private placement for the period ended December 31, 1995.
(D) Tax adjustment due to (B) and (C).
(E) To eliminate the intercompany transactions between Magic, TAG, DBM and PAM.
P-4
