<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 MARCH 31, 1998
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: 24,420,221 shares
outstanding as of May 11, 1998
<PAGE> 2
MAGICWORKS ENTERTAINMENT INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income
Three Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings. 11
ITEM 2. Changes in Securities and Use of Proceeds. 11
ITEM 3. Defaults upon Senior Securities. 11
ITEM 4. Submission of Matters to a Vote of Security Holders. 11
ITEM 5. Other Information. 11
ITEM 6. Exhibits and Reports on Form 8-K. 11
Signatures 12
</TABLE>
1
<PAGE> 3
MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company have been
prepared in accordance with the instructions to Form 10-Q and therefore, omit or
condense certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results for the entire fiscal year ending December 31, 1998.
2
<PAGE> 4
MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------------- ------------------
ASSETS (UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,412,036 $ 5,410,837
Accounts and notes receivable, net 2,902,960 1,735,123
Inventories 1,001,291 486,954
Advances and temporary deposits 710,049 582,809
Prepaid show expenses 5,257,970 929,566
Other current assets 503,192 477,003
------------ ------------
TOTAL CURRENT ASSETS 14,787,498 9,622,292
PROPERTY AND EQUIPMENT, NET 2,129,042 2,098,785
INVESTMENTS IN PARTNERSHIPS 3,980,689 4,273,973
DEFERRED COSTS, NET 1,200,908 983,679
INTANGIBLE ASSETS, NET 386,667 399,167
OTHER ASSETS 67,500 67,500
------------ ------------
TOTAL ASSETS $ 22,552,304 $ 17,445,396
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under credit agreement $ 4,000,000 $ --
Current portion of long-term debt 303,906 299,557
Accounts payable 1,299,072 1,252,517
Accrued liabilities 1,191,786 532,648
Deferred income 3,739,950 3,479,469
Due to affiliates 38,053 357,451
------------ ------------
TOTAL CURRENT LIABILITIES 10,572,767 5,921,642
LONG-TERM DEBT, NET OF CURRENT PORTION 5,915,716 6,047,163
------------ ------------
TOTAL LIABILITIES 16,488,483 11,968,805
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 5,000,000
shares authorized; none issued -- --
Common stock, $.001 par value; 50,000,000
shares authorized; 24,420,221 and
24,404,300 issued and outstanding at
March 31, 1998 and December 31, 1997,
respectively 24,420 24,404
Additional paid-in capital 4,134,325 4,078,618
Retained earnings 1,905,076 1,373,569
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,063,821 5,476,591
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,552,304 $ 17,445,396
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE> 5
MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Promotion $ 4,974,990 $ 2,815,273
Merchandising 3,364,157 1,079,449
Income from investments in partnerships 286,124 948,104
Other 809,597 546,783
------------ ------------
TOTAL REVENUES 9,434,868 5,389,609
------------ ------------
OPERATING EXPENSES
Promotion 3,471,696 1,964,460
Salaries, wages and benefits 1,254,964 663,111
Merchandising 2,493,010 856,380
General and administrative 1,198,180 958,322
------------ ------------
TOTAL OPERATING EXPENSES 8,417,850 4,442,273
------------ ------------
INCOME FROM OPERATIONS 1,017,018 947,336
OTHER INCOME (EXPENSE)
Interest income 36,395 68,305
Interest expense (184,190) (158,093)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 869,223 857,548
PROVISION FOR INCOME TAXES (337,716) (334,444)
------------ ------------
NET INCOME $ 531,507 $ 523,104
============ ============
NET INCOME PER SHARE, BASIC AND DILUTED $ 0.02 $ 0.02
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC 24,411,730 24,394,300
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, DILUTED 24,411,730 27,586,328
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE> 6
MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1997
----------- -----------
<S> <C>(Unaudited) <C>(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 531,507 $ 523,104
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization 148,805 129,214
Deferred income tax provision -- (34,283)
Loss on sale of property and equipment -- 673
CHANGES IN OPERATING ASSETS AND LIABILITIES
Accounts and notes receivable, net (1,167,837) (251,029)
Inventories (514,337) 40,009
Advances and temporary deposits (127,240) (26,646)
Prepaid show expenses (4,328,404) --
Other current assets (26,189) (838,682)
Deferred costs (263,790) (27,875)
Accounts payable 46,555 (19,658)
Accrued liabilities 659,861 328,266
Deferred income 260,481 1,006,770
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (4,780,588) 829,863
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (120,001) (47,103)
Proceeds from sale of assets -- 143,500
Investments in partnerships 293,284 (3,925,545)
(Advance to) payments from affiliates (319,398) 39,507
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (146,115) (3,789,641)
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
(CONTINUED)
5
<PAGE> 7
MAGICWORKS ENTERTAINMENT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 4,000,000 --
Repayment of debt (72,098) (219,569)
Distributions -- (175,115)
Stock registration costs -- (56,481)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,927,902 (451,165)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (998,801) (3,410,943)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,410,837 5,936,611
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,412,036 $ 2,525,668
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 15,495 $ 28,449
============ ===========
Income taxes $ -- $ 96,706
============ ===========
SUPPLEMENTAL INFORMATION ON NONCASH FINANCING ACTIVITIES
Conversion of bonds to common stock $ 55,723 $ --
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
6
<PAGE> 8
MAGICWORKS ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF 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 corporation's annual report on Form 10-K for the
fiscal year ended December 31, 1997. For certain theatrical production
partnerships and concert joint ventures wherein the Company did not own in
excess of a 50% interest, their results were formerly consolidated into the
operations of the Company. Effective January 1, 1998, the net assets and results
of operations of and from these partnerships have been deconsolidated from the
current and historical financial statement presentation of the Company.
2. DEBT
The Company has a committed line of credit agreement expiring in May 1998 with a
bank that provides a revolving credit facility of $5.0 million. Borrowings under
this agreement bear interest at the London Interbank Offered Rate (LIBOR) plus
250 basis points. This agreement is collateralized by substantially all the
Company's assets. At March 31, 1998, $4.0 million was outstanding as compared to
no outstanding balance at December 31, 1997. The Company intends to renew this
line of credit and has received an indication of willingness to do so from its
senior lender.
3. COMMITMENTS AND CONTINGENCIES
There have been no material changes in commitments and contingencies from those
disclosed in the Company's December 31, 1997 Form 10-K.
4. NET INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." Statement of Financial Accounting Standards
("SFAS") No. 128 simplifies the current standards for computing earnings per
share ("EPS") under Accounting Principles Board Opinion ("APB") 15, "Earnings
per Share," by replacing the existing calculation of primary EPS with a basic
EPS calculation. It requires a dual presentation, for complex capital
structures, of basic and diluted EPS on the face of the income statement and
requires a reconciliation of basic EPS factors to diluted EPS factors. The
impact of adopting SFAS 128 in 1997 was immaterial.
Basic net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted net income per
common share assumes the maximum dilutive effect from stock options and
warrants, and conversion of the Company's convertible notes. For all periods
presented, basic and diluted net income per share are the same.
The following is the reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculations for the three month periods
ended March 31,
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Weighted average number of common shares 24,411,730 24,394,300
Impact of dilutive warrants, options and unsecured senior convertible notes (1) -- 3,192,028
---------- ----------
Weighted average number of shares of common stock and common stock equivalents
for fully diluted earnings per share 24,411,730 27,586,328
========== ==========
</TABLE>
(1) Warrants, options and unsecured senior convertible notes are
anti-dilutive at March 31, 1998.
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CHANGE IN BASIS OF PRESENTATION
Results of operations for the three months ended March 31, 1997 have been
reclassified to deconsolidate the revenue and expense from certain partnerships
wherein the Company did not own a greater than 50% interest. Such
reclassification of prior period components of operations has no net impact on
the Company's results for the period ended March 31,1997, but allows for
consistency in presentation of prior period results with those of the current
period. Statements of position used to prepare the consolidated statements of
cash flows for the three month periods ended March 31, 1998 and 1997 have been
adjusted accordingly to take into account the deconsolidation of the
aforementioned partnerships.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997
Revenues increased by $4.0 million to $9.4 million for the three months ended
March 31, 1998, from $5.4 million in the three months ended March 31, 1997,
primarily due to increases in revenues from promotion and merchandising
activities which were partially offset by a decrease in income from investments
in partnerships. See discussion below.
Promotion revenues showed an increase of $2.2 million, to $5.0 million during
the three months ended March 31, 1998 from $2.8 million for the corresponding
1997 period. The Company's promotion of the tours of Riverdance, Les Miserables,
and Grease have increased revenues during the 1998 period as compared to the
same period in 1997. Expenses directly relating to the Company's promotion
revenues, expressed as a percentage of such revenue, remained constant at 69.8%.
Merchandising revenues increased by $2.3 million, or 211.7%, to $3.4 million in
the three months ended March 31, 1998 from $1.1 million in the corresponding
period of 1997. 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 1998 is due to an increase of approximately 30 performance weeks in
the first quarter of 1998 compared to the corresponding period in 1997. Revenues
from the merchandising division were further enhanced by the tours of Rugrats
and Scotland the Brave which primarily played in arenas rather than smaller
capacity theaters.
Merchandising costs, expressed as a percentage of merchandising revenue,
decreased by 5.2% to 74.1% for the three months ended March 31, 1998 from 79.3%
for the comparable period of 1997. Increased volume resulted in the realization
of efficiencies with regard to certain costs related to the manufacturing,
warehousing, and handling of merchandise.
Income from investments in partnerships decreased $0.6 million to $0.3 million
for the three months ended March 31, 1998 from $0.9 million in the corresponding
period in 1997 primarily due a decrease in sponsorship fees received by the
partnerships in the prior year period.
8
<PAGE> 10
Other revenues increased by $0.3 million, or 48.1%, to $0.8 million in the three
months ended March 31, 1998 from $0.5 million in the corresponding period of
1997 largely as a result of $0.2 million received from the Company's Touring
Artist subsidiary in connection with its management of the tour of The
Preservation Hall Jazz Band, and increased transportation division activity in
the first quarter of 1998 as the result of servicing the Rugrats Tour.
Salaries, wages and benefits increased by $0.6 million to $1.3 million in the
three month period ended March 31, 1998 from $0.7 million during the
corresponding period in 1997, as a result of expanding the corporate financial
staff, establishing a corporate legal function, the start up of the Company's
401(k) Plan, which includes matching contributions by the Company, and the
operations of the Company's recently formed sports division. Increased expenses
of $0.1 million were incurred by the transportation division as a result of the
Rugrats Tour.
General and administrative expenses increased $0.2 to $1.2 million from $1.0
million in the corresponding period in the prior year primarily due to expenses
related to the management services performed by the Company's Touring Artist
subsidiary in connection with its management of the tour of The Preservation
Hall Jazz Band as mentioned above in the discussion of other revenue. Additional
expenses were also incurred as a result of opening an additional office in Miami
Beach to house the merchandising and sports divisions.
Interest expense increased slightly due to the Company's utilization of its line
of credit agreement to fund significant artist advances paid in connection with
the upcoming Janet Jackson Tour.
LIQUIDITY AND SOURCES OF CAPITAL
At March 31, 1998, the Company had working capital of $4.2 million compared to
$3.7 million at December 31, 1997. The increase in working capital at March 31,
1998 as compared to the prior year period, is comprised of an increase in
current assets of $5.0 million and an increase in current liabilities of $4.5
million. The increase in current assets is primarily attributable to increases
in prepaid show expenses, receivables, and inventory. The increase in current
liabilities is primarily due to the $4.0 million borrowed against the bank line
of credit in the first quarter of 1998, as well as increases in accrued
liabilities and deferred income. See more detailed discussion of these items
below.
The Company has a committed line of credit agreement expiring in May 1998 with a
bank that provides a revolving credit facility of $5.0 million. Borrowings under
this agreement bear interest at the London Interbank Offered Rate (LIBOR) plus
250 basis points. This agreement is collateralized by substantially all the
Company's assets. At March 31, 1998, $4.0 million was outstanding as compared to
no outstanding balance at December 31, 1997. The Company intends to renew this
line of credit and has received an indication of willingness to do so from its
senior lender.
The Company's indebtedness consists of $1.2 million collateralized by buses used
in the Company's business, and $5.2 million of Convertible Notes sold in a
private placement in the third quarter of 1996.
The Company's principal anticipated capital expenditures over the next several
years are expected to relate primarily to acquisitions, if suitable
opportunities arise, and the production of additional theatrical productions.
Net cash used by operating activities during the three months ended March 31,
1998 was $4.8 million as compared to cash provided by operations of $0.8 million
in the corresponding period of 1997. The increase in net cash used by operating
activities in 1998 related to increases in prepaid show expenses principally
arising from artist advances made
9
<PAGE> 11
in connection with the upcoming Janet Jackson tour, increases in inventory
relating the Rugrats Tours, and increases in receivables relating to various of
the Company's activities. The increase in cash used was partially offset by
increases in deferred income and accrued liabilities.
Net cash used by investing activities totaled $0.1 million during the three
months ended March 31, 1998 as compared to $3.8 million in the corresponding
period of 1997. Cash used in investing activities in 1998 primarily related to
capital expenditures and payments of amounts due to affiliates, with such
amounts being offset by distributions received from partnerships wherein the
Company holds investments. The increase in cash used in investing activities for
1997 related primarily to the Company's investment in theatrical and concert
productions and promotions.
Net cash provided by financing activities totaled $3.9 million during the three
months ended March 31, 1998 as compared to net cash used in financing activities
of $0.5 million in the corresponding period of 1997. The increase in cash
provided for 1998 related principally to the amounts borrowed against the
Company's line of credit during the first quarter of 1998. The cash used in
financing activities for the corresponding period in 1997 was primarily due to
the repayment of bus loans and final S-Corp distribution payments made to
original shareholders of Space Agency, Inc.
FORWARD LOOKING STATEMENTS
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.
10
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
Refer to Note 3 of the Notes to the Consolidated Financial
Statements.
ITEM 2. Changes in Securities and Use of Proceeds.
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.
There were no Reports filed on Form 8-K.
Exhibits
Exhibit 27.0 Financial Data Schedule
11
<PAGE> 13
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.
Dated: May 15, 1998
MAGICWORKS ENTERTAINMENT INCORPORATED
By /s/ Brad L. Krassner
-------------------------------------
Brad L. Krassner
Co-Chairman of the Board of Directors
and Chief Executive Officer
By /s/ David H. Galpern
-------------------------------------
David H. Galpern
Executive Vice President
and Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MAGICWORKS ENTERTAINMENT INCORPORATED FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,412,036
<SECURITIES> 0
<RECEIVABLES> 3,574,563
<ALLOWANCES> 671,603
<INVENTORY> 1,001,291
<CURRENT-ASSETS> 14,787,498
<PP&E> 2,702,813
<DEPRECIATION> 573,771
<TOTAL-ASSETS> 22,552,304
<CURRENT-LIABILITIES> 10,572,767
<BONDS> 0
0
0
<COMMON> 24,420
<OTHER-SE> 6,039,401
<TOTAL-LIABILITY-AND-EQUITY> 22,552,304
<SALES> 9,434,868
<TOTAL-REVENUES> 9,434,868
<CGS> 5,964,706
<TOTAL-COSTS> 8,417,850
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184,190
<INCOME-PRETAX> 869,223
<INCOME-TAX> 337,716
<INCOME-CONTINUING> 531,507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 531,507
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
