<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
-------- --------
Commission File Number 2-96624-D
MAGICWORKS ENTERTAINMENT INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 87-0425513
(State of incorporation) (IRS Employer Identification No.)
930 WASHINGTON AVENUE
MIAMI BEACH, FLORIDA 33139
- ---------------------------------------- ----------
(Address of principal executive offices) (zip code)
(305) 532-1566
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
--- ---
Common stock, par value $.001 per share: 24,404,300
outstanding as of November 5, 1997
<PAGE> 2
MAGICWORKS ENTERTAINMENT INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
- ------- ---------------------
<S> <C> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996 4
Condensed Consolidated Statements of Income - Three Months
and Nine Months Ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 6-7
Notes to Condensed Consolidated Financial Statements 8-10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-15
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 1. Legal Proceedings 16
ITEM 2. Changes in Securities 16
ITEM 3. Defaults upon Senior Securities 16
ITEM 4. Submission of Matters to a Vote of Security Holders 16
ITEM 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
<PAGE> 3
MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following condensed consolidated financial statements of the Company have
been prepared in accordance with the instructions to Form 10-Q and therefore
omit or condense certain footnotes and other information normally included in
financial statements prepared in accordance with generally accepted accounting
principles. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the three and nine months ended September 30, 1997 are not
necessarily indicative of the results for the entire fiscal year ending December
31, 1997.
3
<PAGE> 4
Magicworks Entertainment Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,851,046 $ 6,367,179
Accounts receivable, net 2,089,640 1,921,356
Inventories 299,041 268,959
Preproduction costs, net - 610,697
Advances and temporary deposits 141,922 525,975
Minority interests 894,400 42,534
Prepaid show expenses 6,066,775 178,352
Other current assets 613,457 513,931
------------------ -----------------
Total current assets 12,956,281 10,428,983
PROPERTY AND EQUIPMENT, net 1,851,345 2,076,310
INVESTMENTS IN PARTNERSHIPS 4,508,844 918,564
DEFERRED COSTS, net 1,016,470 1,105,114
INTANGIBLE ASSETS, net 411,667 325,745
------------------ -----------------
$ 20,744,607 $ 14,854,716
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 258,110 $ 302,956
Accounts payable 5,889,371 1,467,843
Accrued liabilities 427,925 1,043,553
Short term debt 660,000 -
Advance ticket sales 1,982,898 844,373
Deferred income taxes 137,132 137,131
Due to affiliates, net 246,448 -
------------------ -----------------
Total current liabilities 9,601,884 3,795,856
------------------ -----------------
DEFERRED INCOME TAXES 171,414 274,263
------------------ -----------------
LONG-TERM DEBT, net of current
maturities 5,868,505 6,177,492
------------------ -----------------
COMMITMENTS AND CONTINGENCIES (Note 6) - -
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000
shares authorized; none issued and outstanding - -
Common stock, $.001 par value; authorized
50,000,000 shares, issued and outstanding
24,404,300 and 24,394,300, respectively 24,404 24,394
Additional paid-in capital 4,078,618 4,151,026
Retained earnings 999,782 431,685
------------------ -----------------
Total stockholders' equity 5,102,804 4,607,105
------------------ -----------------
$ 20,744,607 $ 14,854,716
================== =================
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE> 5
Magicworks Entertainment Incorporated and Subsidiaries
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
---------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Production $ 2,644,307 $ 4,991,059 $ 17,355,092 $ 21,773,945
Promotion 12,448,360 9,380,577 26,867,436 30,462,222
Merchandising 888,505 501,383 3,403,832 1,635,596
Other 789,564 808,773 3,782,249 1,572,161
------------ ------------ ------------ ------------
Total revenues 16,770,736 15,681,792 51,408,609 55,443,924
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Production 1,367,011 4,649,714 14,822,817 20,021,359
Promotion 11,750,312 8,923,201 24,387,209 26,248,248
Salaries, wages and benefits 1,274,780 1,003,355 3,781,027 2,468,576
Cost of goods sold 767,440 272,959 2,501,424 1,149,876
General and administrative 1,948,335 652,508 5,309,742 2,156,976
------------ ------------ ------------ ------------
Total operating expenses 17,107,878 15,501,737 50,802,219 52,045,035
------------ ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATIONS (337,142) 180,055 606,390 3,398,889
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 11,016 87,814 109,987 192,123
Interest expense (177,515) (147,813) (489,547) (352,266)
Income from investments
in partnerships 100,777 656 830,158 27,821
------------ ------------ ------------ ------------
Income (loss) before minority interests
and provision for income
taxes (402,864) 120,712 1,056,988 3,266,567
MINORITY INTERESTS 99,389 198,613 179,577 (289,935)
------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes (303,475) 319,325 1,236,565 2,976,632
PROVISION FOR INCOME TAXES 107,263 (391,000) (493,353) (391,000)
------------ ------------ ------------ ------------
Income (loss) before pro forma
income taxes for periods
prior to July 29, 1996 (196,212) (71,675) 743,212 2,585,632
PRO FORMA INCOME TAXES -- (160,559) -- (1,196,906)
------------ ------------ ------------ ------------
Pro forma net income (loss) $ (196,212) $ (232,234) $ 743,212 $ 1,388,726
============ ============ ============ ============
PRO FORMA NET INCOME (LOSS)
PER COMMON SHARE $ (.01) $ (.01) $ .03 $ .06
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 24,400,929 23,511,042 24,427,464 22,412,780
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE> 6
Magicworks Entertainment Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
1997 1996
---------------- ----------------
(UNAUDITED)
----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 743,212 $ 1,388,726
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,121,441 1,769,658
Proforma income taxes -- 1,196,906
Deferred income tax provision (102,848) 391,000
Gain on sale of property and equipment (24,685) --
Minority interests (179,577) 289,935
Changes in operating assets and liabilities:
Accounts receivable (168,284) (352,048)
Inventories (30,082) (73,575)
Preproduction costs (33,544) (1,166,334)
Prepaid show expenses (5,888,423) --
Advances and temporary deposits 384,053 (320,845)
Other current assets (99,526) (87,165)
Deferred costs (72,088) 119,969
Accounts payable 4,421,528 (994,374)
Accrued liabilities (615,628) 1,047,174
Advance ticket sales 1,138,525 (2,565,724)
----------- -----------
Net cash provided by operating activities 594,074 643,303
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (98,485) (307,762)
Proceed from sale of assets 143,500 --
Investments in partnerships (3,617,049) (274,419)
Payments from (to) affiliates 246,448 (135,284)
Intangible assets (170,986) (69,840)
----------- -----------
Net cash used in investing activities (3,496,572) (787,305)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 3,760,000 928,213
Repayment of debt (3,453,833) (2,428,485)
Proceeds from private placement -- 9,328,640
Distributions to minority interests in excess of
contributions by minority interests (672,289) (1,038,147)
Stock registration costs (72,398) --
Deferred debt issuance costs -- (836,034)
Distributions (175,115) (2,755,640)
----------- -----------
Net cash (used in) provided by in financing
activities (613,635) 3,198,547
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS.
6
<PAGE> 7
Magicworks Entertainment Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Continued
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
1997 1996
---------------- ----------------
(UNAUDITED)
----------------------------------
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents $(3,516,133) $ 3,054,545
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 6,367,179 5,097,588
----------- -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 2,851,046 $ 8,152,133
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 359,903 $ 266,168
=========== ===========
Income taxes $ 997,105 $ --
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS.
7
<PAGE> 8
Magicworks Entertainment Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies followed for the quarterly financial reporting are the
same as those disclosed in Note 1 of the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
(2) INVESTMENTS IN PARTNERSHIPS:
The Company has limited partnership interests, ranging from 2% to 12%, 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 at cost, $1,024,716 and $397,331 at
September 30, 1997 and December 31, 1996, respectively, and income is only
recognized when received in the form of distributions.
The Company has nine joint venture interests ranging from 25% to 50%, in various
seasonal productions. Because the Company exercises influence over the operating
and financial policies of these productions, these investments are accounted for
under the equity method. The carrying value of such investments was $3,484,128
and $521,233 at September 30 ,1997 and December 31, 1996, respectively.
(3) ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
September 30, December 31,
1997 1996
------------- ------------
Accrued royalties $ -- $ 574,103
Accounting expenses 62,775 --
Closing costs 55,550 --
Payroll-related accruals 17,713 190,495
Show expenses 120,823 --
Accrued interest 129,644 --
Other 41,420 278,955
---------- ----------
Total accrued liabilities $ 427,925 $1,043,553
========== ==========
(4) MINORITY INTERESTS:
Minority interests asset/(liability) consists of the following:
September 30, December 31,
1997 1996
------------- ------------
Concerts, JV $ 841,950 $ 238,688
Judas Company (63,763) (151,158)
Other entities 116,213 (44,996)
--------- ---------
Total Minority interest asset/(liability) $ 894,400 $ 42,534
========= =========
8
<PAGE> 9
Magicworks Entertainment Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(5) RELATED PARTY TRANSACTIONS:
Included in due from affiliates and due to affiliates are the net balances of
receivables and payables due from entities controlled by certain stockholders
and minority partners and due to certain stockholders. Receivables with an
outstanding balance, including accrued interest, totaled $-0- and $75,945 at
September 30, 1997 and December 31, 1996, respectively. Payables due to certain
stockholders with an outstanding balance, including accrued interest, totaled
$246,448 and $72,732 at September 30, 1997 and December 31 ,1996, respectively.
(6) COMMITMENTS AND CONTINGENCIES:
LITIGATION
In October 1994, a former independent contractor filed a complaint against a
partnership and each of the partners, including the Company, in the Common Pleas
Court of Philadelphia County seeking consequential damages of $5,000,000 arising
from the termination of an employment contract. The Company believes that the
claim is without merit and that the matter will be resolved without a material
adverse effect to the Company's financial position.
In January 1997, the Company filed suit against the City of North Miami Beach
("the City") for failure to perform under an operating management agreement
related to the construction and operation of a performing arts amphitheater. The
City filed a counterclaim alleging the Company had breached the management
agreement. The Company intends to continue to vigorously defend its position in
the counter suit and believes that the matter will be resolved without a
material adverse effect to the Company's financial position.
On March 25, 1997, the Company entered into a settlement agreement with a former
financial advisor concluding and dismissing all claims. Pursuant to the
settlement agreement, the Company agreed to issue to the financial advisor
500,000 shares of the Company's common stock valued at the market price as of
the date of the settlement agreement in exchange for the advisor's note payable.
The note will be secured by the shares of stock acquired. The settlement
agreement has been executed by the parties and is subject to the preparation and
execution of definitive documents embodying the terms of the settlement. The
parties are reviewing and revising the definitive agreements for execution. The
Company expects the matter to be resolved in the near future.
9
<PAGE> 10
Magicworks Entertainment Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(7) STOCK OPTIONS:
At the discretion of the Board of Directors, the Company may grant options to
purchase the Company's stock to employees, directors, consultants, and other
unrelated parties. In 1997, the Company granted an aggregate of the following
options:
OPTIONS EXERCISE PRICE
------- --------------
Balance, December 31, 1996 216,500 $2.50 - $3.50
Grants 337,750 $2.62 - $3.56
Exercises - -
Cancellations - -
------------- -----------------
Balance, September 30, 1997 554,250 $2.50 - $3.56
============= =================
The Company applies APB 25 and its related interpretations in accounting for
options granted to employees. Accordingly, no compensation cost has been
recognized related to such grants. Had compensation cost for the Company's stock
options been based on fair value at the grant dates for awards granted,
consistent with the provisions of SFAS 123, the Company's 1997 pro forma net
income and pro forma income per share would have been reduced to the amounts
indicated below:
<TABLE>
<CAPTION>
September 30, 1997
Three Months Nine Months
Ended Ended
------------------------------
<S> <C> <C>
Pro forma net income
As reported ($196,212) $743,212
Pro forma for the impact of SFAS 123 ($218,087) $709,707
Pro forma income per share
As reported ($0.01) $0.03
Pro forma for the impact of SFAS 123 ($0.01) $0.03
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: expected
volatility of 25%, risk-free interest rate of 6.5%, expected dividends of $0 and
expected terms of 3 years.
(8) EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings per share", which
establishes and simplifies the standards for computing and presenting earnings
per share as previously dictated by Accounting Principles Board Opinion ("APB")
No. 15, "Earnings per share". Upon adoption, the Company will be required to
restate previously reported earnings per share data to conform with the
requirements of SFAS No. 128 in its annual financial statements for the year
ending December 31, 1997. Had the provisions of SFAS No. 128 been applicable to
the accompanying condensed consolidated financial statements, basic and diluted
earnings per share, as calculated in accordance with the provisions of SFAS No.
128 would not have been materially different than the historical earnings per
share amounts reported herein.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues increased by $1.1 million to $16.8 million from $15.7 million
primarily as a result of increases in promotion and merchandising revenues
offset by decreases in production and other revenues as discussed below.
Production revenues decreased by $2.4 million, or 47.0%, to $2.6 million
from $5.0 million because the number of shows running during the period in which
the Company held greater than a 50% ownership interest decreased from eight in
the prior period to five. Generally accepted accounting principles require that
gross revenues and expenses be presented for shows in which the Company holds a
majority interest while only the net income or loss be presented for shows in
which the Company has less than a 50% ownership. The net income of all active
theatrical investments for the Company is shown within Other Income in "Income
from investments in partnerships."
Promotion revenues increased by $3.1 million, or 32.7%, to $12.5 million
from $9.4 million. The increase was primarily due to the commencement of the
Fleetwood Mac tour and the Barry Manilow tour during the third quarter of 1997.
Merchandising revenues increased by $0.4 million, or 77.2%, to $0.9
million from $0.5 million. The Company's merchandising revenue is largely
dependent on the number of performance weeks of a production for which the
Company has acquired merchandising rights. The Company maintains such rights for
all of its productions and negotiates for merchandising rights to other touring
shows. The increase in 1997 is due largely to the merchandising of "Annie" on
Broadway, as well as the Company's handling of, in the aggregate, 16 more
performance weeks than in the prior period.
Other revenues decreased by $19,000, or 2.4%, to $790,000 from $809,000
largely as a result of the concert division's receipt of $0.3 million in
management income in 1997 offset by a decrease in transportation revenues and
the Company's inability to continue to consolidate gross revenues from its
booking agency, in which the Company had formerly owned a 100% interest. As of
January 1, 1997, the booking agency's operations ceased to be consolidated with
the Company's operations due to a business combination in which the Company's
ownership interest in the combined operations decreased to 33.3%.
Operating expenses increased by $1.6 million, or 10.4%, to $17.1 million
from $15.5 million primarily as a result of increases in promotion, salaries,
wages and benefits, cost of goods sold and general and administrative expenses,
offset by decreases in production expenses as discussed below.
Production expenses decreased by $3.3 million, or 70.6%, to $1.4 million
from $4.7 million as a result of the changes discussed above in production
revenues. As a percentage of production revenues, production expenses decreased
to 51.7% from 93.2%. The increase in gross profit for the three months ended
September 30, 1997 was attributable to the Company's successful production of
the Copperfield tour in Russia.
11
<PAGE> 12
Promotion expenses increased by $2.9 million, or 31.7%, to $11.8 million
from $8.9 million, primarily as a result of the changes discussed above in
promotion revenues. As a percentage of promotion revenues, promotion expenses
decreased to 94.4% from 95.1%.
Salaries, wages and benefits increased by $0.3 million, or 27.1%, to $1.3
million from $1.0 million primarily as a result of the hiring of four additional
employees in the merchandising division, and 17 additional employees in the
concerts division, two additional employees at corporate headquarters and the
commencement of a sports management division employing two employees, offset in
part by the non-consolidation of salaries from the newly merged booking agency
operations. The Company increased its executive talent base to expand the
Company's existing operations as well as to create new divisions discussed
below. As a percentage of total revenues, salaries, wages and benefits increased
to 7.6% from 6.4%.
Cost of goods sold relates to expenses involved in the generation of
merchandising revenue, including costs of merchandise, producer, venue and
vendor commissions, and shipping and other similar costs. As a percentage of
merchandising revenue, the cost of goods sold increased to 86.4% from 54.4%
primarily as a result of the amount of merchandise write downs in 1997 due to
overstocked merchandise on shows that ended their runs in the third quarter of
1997.
General and administrative expenses increased by $1.3 million to $2.0
million in the three months ended September 30, 1997 from $0.7 million in the
corresponding period of 1996. As a percentage of total revenues, general and
administrative expenses increased to 11.6% from 4.2%. The primary reasons for
the increase include the expenses associated with implementation of the
Concerts, Sports, Talent Management and International divisions and a write-off
of unrecouped show expenses of $0.8 million from Warner Brothers on Ice in
Southeast Asia. The Warner Brothers on Ice Show was significantly impacted by a
typhoon which hit the area during the run of the tour.
Interest income decreased to $11,016 due to a decrease in cash balances.
Interest expense increased to $0.2 million due to the commencement of a
$5.0 million revolving credit line during the second quarter of 1997 which had
an outstanding balance of $0.7 million at September 30, 1997.
Income from investments in partnerships increased by $0.1 million largely
due to revenue earned primarily from the commencement of the production of "A
Chorus Line" during the third quarter in which the Company owns 37.5%.
Minority interests decreased by $0.1 million due primarily to the closing
of "Jesus Christ Superstar" and "Hello Dolly" which ended their respective runs
during the first quarter of 1997. Such decrease was offset by the Company's
minority interest in the $0.2 million in net loss accrued in the Concerts
division during the three months ended September 30, 1997.
The Company booked a provision for income taxes and pro forma adjustment for
income taxes of $551,559 in the three months ended September 30, 1996, of which
$391,000 was attributable to the Company's conversion from S-Corporation to
C-Corporation status.
12
<PAGE> 13
As a result of the foregoing, income before provision for income taxes and
proforma taxes decreased by $0.6 million to a loss of $0.3 million from $0.3
million in the prior period and the Company posted a net loss of $196,212 versus
a net loss of $232,234.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues decreased by $4.0 million to $51.4 million from $55.4 million
primarily as a result of decreases in production and promotion revenues,
partially offset by increases in merchandising and other revenues as discussed
below.
Production revenues decreased by $4.4 million, or 20.3%, to $17.4 million
from $21.8 million because the number of shows in which the Company holds
greater than a 50% ownership interest decreased from eight to five as discussed
above.
Promotion revenues decreased by $3.6 million, or 11.8%, to $26.9 million
from $30.5 million. The decrease was due to the non-recurring expenses
associated with the promotion of the Phantom of the Opera production during the
second quarter of 1996 offset in part by the commencement of the Fleetwood Mac
tour during the third quarter of 1997.
Merchandising revenues increased by $1.8 million to $3.4 million from $1.6
million. The increase was due largely to the merchandising of "Annie" on
Broadway, as well as the Company's handling of, in the aggregate, 89 more
performance weeks.
Other revenues increased by $2.2 million to $3.8 million from $1.6 million
largely as a result of the Company's concert division's receipt of $0.3 million
in management income in 1997, $1.7 million in sponsorship income was offset by
the fact that the Company no longer consolidated gross revenues from its booking
agency, as discussed above.
Operating expenses decreased by $1.2 million, or 2.4%, to $50.8 million
from $52.0 million primarily because of decreases in production and promotion
expenses partially offset by increases in salaries, wages and benefits, cost of
goods sold and general and other operating expenses as discussed below.
Production expenses decreased by $5.2 million, or 26.0%, to $14.8 million
from $20.0 million primarily because of the reasons discussed under production
revenues discussed above. As a percentage of production revenues, production
expenses decreased to 85.4% from 92.0%. The primary reasons for the gross profit
increase in 1997, related to the successful productions of David Copperfield in
South America and Russia.
Promotion expenses decreased by $1.9 million, or 7.1%, to $24.4 million
from $26.3 million primarily as a result of the reasons discussed above with
respect to promotion revenues. As a percentage of promotion revenues, promotion
expenses increased to 90.8% from 86.2% largely as a result of promoter losses
from "A Chorus Line," "Les Miserables" and " Gospel at Colonus" in 1997 which
were not offset by the additional promotion revenue discussed above.
13
<PAGE> 14
Salaries, wages and benefits increased by $1.3 million, or 53.2%, to $3.8
million from $2.5 million primarily as a result of the hiring of four additional
employees in the merchandising division, and 15 additional employees in the
concerts division, two additional employees at corporate headquarters and the
commencement of a sports management division employing two employees, offset in
part by the non-consolidation of salaries from the newly merged booking
operations. The Company increased its executive talent base to expand the
Company's existing operations as well as to create new divisions discussed
below. As a percentage of total revenues, salaries, wages and benefits increased
to 7.4% from 4.5%.
As a percentage of merchandising revenue, the cost of goods sold increased
to 73.5% from 70.3% primarily as a result of the amount of merchandise write
downs in 1997 due to overstocked merchandise on shows that ended their runs in
the third quarter of 1997.
General and administrative expenses increased by $3.1 million to $5.3
million from $2.2 million. As a percentage of total revenues, general and
administrative expenses increased to 10.3% from 3.9%. The primary reasons for
the increase include the expenses associated with the implementation of the
Concerts, Sports, Talent Management and International divisions, a one time
write-off of uncollectible receivables and a write-down of investments of $1.3
million as discussed above.
Interest income decreased to $0.1 million due to a decrease in cash
balances.
Interest expense increased to $0.5 million due primarily to the
commencement of a $5.0 million revolving credit line during the second quarter
of 1997 which had an outstanding balance of $0.7 million at September 30, 1997.
Income from investments in partnerships increased to $0.8 million from
$28,000 largely as a result of revenue earned primarily from the commencement of
the productions of "A Chorus Line" and "Singin' in the Rain" in which the
Company owns 12.5% and 50% interests, respectively, and the 33.3% interest owned
by the Company in a booking agency as discussed above.
Minority interests increased to $0.2 million from a loss of $0.3 million
due primarily to the closing of the productions of " Jesus Christ Superstar" and
"Hello Dolly!, and the accrued net loss from the concerts division.
The Company booked a provision for income taxes and pro forma adjustment
for income taxes of $1.6 million in the nine months ended September 30, 1996, of
which $391,000 was attributable to the Company converting from an S-Corporation
to a C-Corporation status.
As a result of the foregoing, income before provision for income taxes and
proforma taxes decreased by $1.8 million to $1.2 million from $3.0 million and
the Company posted net income of $0.7 million versus $1.4 million.
LIQUIDITY AND SOURCES OF CAPITAL
At September 30, 1997, the Company had working capital of $3.4 million
compared to $6.6 million at December 31, 1996 primarily due to the increase of
accounts payable related to the Fleetwood Mac tour. Since inception, the Company
has financed its operations primarily through borrowings and cash flow from
operations. During the third quarter of 1996, the Company received net proceeds
of $9.2 million from a private placement.
14
<PAGE> 15
The Company has a revolving line of credit (the "Credit line") which
commenced on May 29, 1997 and provides for short-term borrowings of up to $5.0
million with interest at a variable daily rate based on libor. The Credit line
matures in one year and is collateralized by substantially all of the Company's
assets. At September 30, 1997, $660,000 was outstanding under the Credit line,
with $750,000 reserved as collateral for a letter of credit. The Company's
remaining indebtedness consists of $0.9 million, collateralized by buses used in
the Company's business, and $5.2 million of convertible notes sold in a private
placement.
The Company's principal anticipated capital expenditures over the next
several years will relate to acquisitions, if suitable opportunities arise, and
additional theatrical productions.
Net cash provided by operating activities was $0.6 million during the nine
months ended September 30, 1997 and in the corresponding period of 1996. The net
cash provided by operating activities in 1997 related to an increase in prepaid
show expenses from the commencement of the concerts and international divisions
offset by the decrease in advances and deposits and the increase in accounts
payable and advanced ticket sales for shows that will commence the fourth
quarter of 1997. The net cash provided by operating activities in 1996 related
primarily to the decrease in accounts payable and net receipts collected.
Net cash used by investing activities totaled $3.5 million during the nine
months ended September 30, 1997 as compared to $0.8 million in the corresponding
period of 1996. The cash used in investing activities for 1997 related primarily
to the Company's investment in theatrical productions. The cash used in
investing activities for 1996 related primarily to the purchase of property and
equipment, investments in intangible assets and theatrical partnerships offset
by payments to affiliates.
Net cash used in financing activities totaled $0.6 million during the nine
months ended September 30, 1997 as compared to net cash provided of $3.2 million
in the corresponding period of 1996. The cash used in financing activities for
1997 related primarily to the repayment of bus loans, final S-Corp distribution
payments made to former shareholders of Space Agency, Inc. and distributions
made to minority partners of the shows "Deathtrap" and "Hello Dolly!" The cash
provided in financing activities for 1996 related primarily to $9.2 million in
proceeds received from the issuance of stock and debt during the third quarter
of 1996 offset by distributions made to minority partners of "Jesus Christ
Superstar"and the equity touring show of "Ain't Misbehavin", S-Corp
distributions made to former shareholders of the Company's predecessors in
interest, and the repayment of $2.4 million in debt.
The foregoing Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which
represent the Company's expectations or beliefs concerning future events, future
liquidity and capital resource needs. These forward looking statements are
further qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements.
15
<PAGE> 16
Part II. OTHER INFORMATION
Item 1. Legal proceedings
Refer to Note 3 of the Notes to the Condensed Consolidated
Financial Statements.
Item 2. Changes in securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11.0 Statement Regarding Computation of Earnings Per
Share
Exhibit 27.0 Financial Data Schedule
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Acto of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAGICWORKS ENTERTAINMENT INCORPORATED
Date: November 14, 1997 By /s/ BRAD KRASSNER
-----------------------------------------------------
Brad Krassner, Co-Chairman of the Board of
Directors and Chief Executive Officer
Date: November 14, 1997 By /s/ STEVEN CHABY
-----------------------------------------------------
Steven Chaby, Chief Financial Officer
and Treasurer
17
<PAGE> 1
Exhibit 11.0
MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED September 30, 1997 and 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
Net Income (loss) $ (196,212) $ (232,234) $ 743,212 $ 1,388,726
Weighted average common shares
outstanding 24,400,929 23,511,042 24,396,461 22,395,221
Impact of dilutive warrants and options - - 30,003 17,559
------------ ------------ ------------- ------------
Weighted average number of common
stock and common stock equivalents
for primary earnings per share 24,400,929 23,511,042 24,427,464 22,412,780
------------ ------------ ------------- ------------
Net income per share $ (.01) $ (.01) $ .03 $ .06
============ ============ ============= ============
FULLY DILUTED:
Net Income (loss) $ (196,212) $ (232,234) $ 743,212 $ 1,388,726
Interest expense, net of tax benefit, on
convertible notes - - - -
Weighted average common shares
outstanding 24,400,929 23,511,042 24,396,461 22,395,221
Impact of dilutive warrants and options - - 30,003 18,414
Impact of convertible notes - - - -
------------ ------------ ------------- ------------
Weighted average number of common
stock and common stock equivalents
for fully diluted earnings per share 24,400,929 23,511,042 24,427,464 22,413,635
Net income per share $ (.01) $ (.01) $ .03 $ .06
============ ============ ============= ============
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,851,046
<SECURITIES> 0
<RECEIVABLES> 2,605,917
<ALLOWANCES> 516,277
<INVENTORY> 299,041
<CURRENT-ASSETS> 12,956,281
<PP&E> 2,396,432
<DEPRECIATION> 545,087
<TOTAL-ASSETS> 20,744,607
<CURRENT-LIABILITIES> 9,601,884
<BONDS> 0
0
0
<COMMON> 24,404
<OTHER-SE> 5,078,400
<TOTAL-LIABILITY-AND-EQUITY> 5,102,804
<SALES> 3,403,832
<TOTAL-REVENUES> 51,408,609
<CGS> 2,501,424
<TOTAL-COSTS> 50,802,219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 489,547
<INCOME-PRETAX> 1,236,565
<INCOME-TAX> 493,353
<INCOME-CONTINUING> 743,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 743,212
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
