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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
[ ] 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 0-21711
THE MARQUEE GROUP, INC.
(Exact name of small business issues as specified in its charter)
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DELAWARE 13-3878295
(State of other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
888 SEVENTH AVENUE, NEW YORK, NY 10019
(Address of principal executive offices) (Zip Code)
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212-977-0300
(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, and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
At August 11, 1997, there were 8,769,162 shares outstanding of the
registrant's common stock, par value $.01 per share.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
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THE MARQUEE GROUP, INC.
TABLE OF CONTENTS
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PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1997 (unaudited) and
December 31, 1996 ............................................................. 3
Condensed Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1997 and 1996 (unaudited) ........................... 4
Condensed Consolidated Statements of Stockholders' Equity for the Six Months
Ended June 30, 1997 (unaudited) ............................................... 5
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996 (unaudited) ...................................... 6
Notes to Condensed Consolidated Financial Statements ........................... 7
Item 2. Management's Discussion and Analysis or Plan of Operation ...................... 9
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders .......................... 15
Item 6. Exhibits and Reports on Form 8-K................................................ 15
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2
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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JUNE 30, DECEMBER 31,
1997 1996
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(UNAUDITED) (NOTE)
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ASSETS
Curent assets:
Cash and cash equivalents...................................... $ 688,005 $ 7,230,526
Accounts receivable, net....................................... 2,902,001 1,295,894
Due from related parties....................................... 245,573 138,699
Due from Celebrity Golf Championship, Inc. .................... -- 169,100
Prepaid expenses and other current assets...................... 281,707 250,363
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Total current assets............................................ 4,117,286 9,084,582
Property and equipment, net..................................... 1,449,324 218,604
Loan receivable--non-current.................................... 335,112 --
Deposits and other costs related to pending acquisitions and
tender offer................................................... 2,045,000 --
Other assets ................................................... 757,612 57,612
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$ 8,704,334 $ 9,360,798
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......................... $ 1,863,095 $ 1,134,692
Distribution payable to certain stockholders................... 382,311 382,311
Loan payable to officer/stockholder............................ 121,615 --
Acquisition indebtedness--current portion...................... 332,500 332,500
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Total current liabilities....................................... 2,699,521 1,849,503
Loan payable to officer/stockholder............................. -- 121,615
Acquisition indebtedness--stockholders.......................... 1,137,500 1,637,500
Deferred taxes.................................................. 422,739 343,000
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized,
no shares issued ............................................. -- --
Common stock, $.01 par value; 25,000,000 shares authorized,
8,769,162 shares issued and outstanding ...................... 87,692 87,692
Additional paid-in capital..................................... 7,664,071 7,795,199
Deferred compensation.......................................... (15,838) (63,334)
Accumulated deficit............................................ (3,291,351) (2,410,377)
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4,444,574 5,409,180
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Total liabilities and stockholders' equity...................... $ 8,704,334 $ 9,360,798
============= ==============
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Note: The condensed consolidated balance sheet at December 31, 1996 has been
derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
3
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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1997 1996 1997 1996
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Revenues................................. $4,195,680 $ 800,895 $6,174,087 $ 800,895
Operating expenses....................... 1,957,576 666,796 2,900,732 666,796
General and administrative expenses ..... 2,332,627 462,754 4,152,511 707,600
------------ ------------- ------------ -------------
Loss from operations..................... (94,523) (328,655) (879,156) (573,501)
Interest expense, net.................... 8,588 -- 1,818 --
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Net loss................................. $ (103,111) $ (328,655) $ (880,974) $ (573,501)
============ ============= ============ =============
Net loss per share....................... $ (.01) $ (.16) $ (.12) $ (.28)
============ ============= ============ =============
Weighted average comon stock
outstanding............................. 7,494,162 2,066,662 7,494,162 2,066,662
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See accompanying notes to condensed consolidated financial statements.
4
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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TOTAL
NUMBER OF COMMON ADDITIONAL DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES STOCK PAID-IN CAPITAL COMPENSATION DEFICIT EQUITY
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Balance--December 31,
1996..................... 8,769,162 $87,692 $7,795,199 $(63,334) $ (2,410,377) $5,409,180
IPO offering costs........ -- -- (131,128) -- -- (131,128)
Amortization of deferred
compensation............. -- -- -- 47,496 -- 47,496
Net loss for period....... -- -- -- -- (880,974) (880,974)
----------- --------- --------------- -------------- --------------- ---------------
Balance--June 30, 1997 ... 8,769,162 $87,692 $7,664,071 $(15,838) $ (3,291,351) $4,444,574
=========== ========= =============== ============== =============== ===============
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See accompanying notes to condensed consolidated financial statements.
5
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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SIX MONTHS ENDED
JUNE 30,
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1997 1996
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NET CASH USED IN OPERATING ACTIVITIES............................ $(1,492,637) $(503,001)
INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements, net of
landlord contribution.......................................... (1,249,556) --
Employee loan................................................... (424,200) --
Deposits and other costs related to acquisitions................ (1,550,000) --
Security deposits .............................................. (700,000) --
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Net cash used in investing activities............................ (3,923,756) --
FINANCING ACTIVITIES
Costs related to IPO............................................ (131,128) --
Costs related to Tender Offer................................... (495,000) --
Payment of acquisition indebtedness............................. (500,000) --
Proceeds from loans payable to related parties.................. -- 587,000
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Net cash provided by financing activities........................ (1,126,128) 587,000
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Net increase in cash............................................. (6,542,521) 83,999
Cash at beginning of period...................................... 7,230,526 19,980
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Cash at end of period............................................ $ 688,005 $ 103,979
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See accompanying notes to condensed consolidated financial statements.
6
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-QSB and Item 310(b) of Regulation S-B. 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 an interim period are not necessarily indicative of the results
that may be expected for a full year. For further information, refer to the
consolidated financial statements and footnotes thereto included in The
Marquee Group, Inc. (the "Company") annual report on Form 10-KSB for the year
ended December 31, 1996.
The Company, which began operations in 1996, was incorporated in the State
of Delaware on July 11, 1995 for the purpose of providing integrated event
management, televised production, marketing, talent representation and
consulting services in the sports, news and other entertainment industries.
In furtherance of its business strategy, on December 12, 1996, the Company
acquired by merger, concurrently with the closing of its initial public
offering ("IPO"), Sports Marketing & Television International, Inc. ("SMTI")
which provides production and marketing services to sporting events, sports
television shows and professional and collegiate leagues and organizations,
and Athletes and Artists, Inc. ("A&A"), a sports and media representation
firm. The acquisitions of SMTI and A&A are referred to as the "Recent
Acquisitions". Accordingly, the accompanying condensed consolidated financial
statements include the accounts of the Company and from December 12, 1996 the
Recent Acquisitions. All significant intercompany transactions and accounts
have been eliminated.
NOTE 2 -- PENDING ACQUISITIONS
In June and July 1997, the Company entered into agreements (the "ProServ
Acquisition Agreements") to acquire approximately 94% of ProServ, Inc. and
ProServ Television, Inc. (collectively, "ProServ") and is currently
negotiating to acquire the remaining minority interests in ProServ (the
"ProServ Acquisition"). If the Company is unable to acquire the remaining
minority interests in ProServ on satisfactory terms, the Company intends to
obtain full ownership of ProServ through a statutory merger. ProServ is an
established provider of international sports event management, television
production, marketing, talent representation and consulting services. The
aggregate purchase price pursuant to the ProServ Acquisition Agreements
consists of approximately $10.1 million in cash and 225,000 shares of common
stock (the "Common Stock") of the Company. The Company anticipates purchasing
the remaining minority interests for approximately $600,000. In connection with
the acquisition of ProServ the Company has deposited $1.5 million of the
purchase price in escrow.
The Company has also entered into an agreement pursuant to which Marquee
Music, Inc. ("Marquee Music"), a wholly-owned subsidiary of the Company, will
acquire the assets of QBQ Entertainment, Inc. ("QBQ"), a company that books
tours and appearances for a variety of entertainers. The aggregate purchase
price for the acquisition of QBQ consists of approximately $3.1 million in
cash, $1.6 million payable in annual installments over eight years and up to
$2.5 million payable in shares of Common Stock, of which shares relating to
up to $500,000 are subject to an escrow agreement.
NOTE 3 -- OTHER SUBSEQUENT EVENTS
In July 1997, the Company commenced a tender offer to purchase up to all
(but not less than 3,200,000, representing 70.8%) of the 4,519,162
outstanding warrants (the "Warrants") at a cash purchase price of $2.25 per
warrant. The Company, through its principal financial advisor, is currently
negotiating a short-term loan (the "Bridge Facility") to fund the purchase of
the Warrants which the Company intends to repay with a portion of the proceeds
from the Offering (as defined herein). There can be no assurance that the
Company will obtain such financing or complete the Offering.
7
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- OTHER SUBSEQUENT EVENTS (Continued)
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 in July 1997 in order to register for
sale 8,625,000 shares of its Common Stock including 1,125,000 shares for
Underwriter's over-allotment (the "Offering"). The proceeds of the proposed
stock offering will be used to fund the cash portion of the acquisitions
described in Note 2, repay certain debt, payment of the Bridge Facility,
working capital and other general corporate purposes. The offering is
conditional on the completion of the tender offer mentioned above and the
concurrent closing of the ProServ Acquisition.
NOTE 4 -- RELATED PARTY TRANSACTIONS
In February 1997, the Company paid $400,000 to The Sillerman Companies
("TSC"), a company controlled by Robert F. X. Sillerman, the Chairman of the
Company, as an advance against advisory services to be provided. The advance
will be applied against amounts which will be payable to TSC in connection
with the consummation of the Pending Acquisitions and the tender offer
mentioned in Notes 2 and 3 above.
In April 1997, in connection with the employment of an officer of the
Company, the Company loaned the officer $424,000 which loan by its terms may
be forgiven. In addition, the officer will over a three year period beginning
with his date of employment receive $100,000 payable in shares of Common
Stock.
NOTE 5 -- LOSS PER COMMON SHARE
Net loss per share is based upon net loss divided by the weighted average
number of shares of Common Stock outstanding during the year. Shares of
Common Stock placed in escrow upon completion of the IPO, which are Common
Stock equivalents, have been excluded from the calculation of earnings per
share. The conversion of securities convertible into Common Stock and the
exercise of stock options were not assumed in the calculation of loss per
common share because the effect would be antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("FAS 128"). FAS 128 establishes standards for computing and presenting
earnings per share ("EPS") and supersedes APB Opinion No. 15, "Earnings Per
Share". FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Early adoption is
not permitted and the statement requires restatement of all prior-period EPS
data presented after the effective date. The Company will adopt FAS 128
effective with its 1997 year end. Management does not believe the
implementation of FAS 128 will have a material effect on the Company's EPS
calculations.
8
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ITEM 2 -- MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
INTRODUCTION
The Marquee Group, Inc. (the "Company") was formed in July 1995 for the
purpose of providing integrated event management, television production,
marketing, talent representation and consulting services in the sports, news
and other entertainment industries. On December 12, 1996, the Company
acquired by merger, concurrently with the closing of its initial public
offering ("IPO"), Sports Marketing & Television International, Inc. ("SMTI")
which provides production and marketing services to sporting events, sports
television shows and professional and collegiate leagues and organizations,
and Athletes and Artists, Inc. ("A&A"), a sports and media representation
firm. The acquisitions of SMTI and A&A are referred to as the "Recent
Acquisitions". From the time of its formation until its IPO and the
acquisitions of SMTI and A&A, the Company was engaged in developing its
sports television production, marketing and consulting business.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements and notes thereto. For all periods presented, the discussion of
the combined results of operations on a pro forma basis for the Company and
the Recent Acquisitions include the activities of the Company, SMTI and A&A
as if they had always been members of the same operating group. The following
discussion also contains certain forward-looking statements that involve
risks and uncertainties. The Company's future results of operations could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, uncertainties
related to the Company's business and growth strategies, and difficulties in
achieving cost savings and revenue enhancements. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
The primary sources of the Company's revenues are fees from providing
event management, television production, sports marketing and consulting
services and commissions from representation of sports, news and
entertainment personalities. Revenues from event management services are
recognized when the events are held. Revenues from production services are
recognized when the programs are available for broadcast. Marketing revenues
are recognized for guaranteed amounts when contractual obligations are met.
Commissions from the Company's talent representation services are recognized
as revenue when they become payable to the Company under the terms of the
Company's agreements with its clients. Generally, such commissions are
payable by clients upon their receipt of payments for performance of
services. Commissions on profit or gross receipt participations are recorded
upon the determination of such amounts.
The Company's revenues may vary from quarter to quarter, due to the timing
of certain significant events and the resulting recognition of revenues from
such events. Historically, the fourth quarter produced the highest percentage
of revenues for the year, principally from the Company's management and
marketing of The Breeders' Cup Championship and from representation
agreements with professional hockey players, which results in revenue to the
Company upon the commencement of the National Hockey League season. As a
result of the Company's recent entry into the business of representing
professional football players and as a result of the additional operations
resulting from the ProServ Acquisition (as defined herein) and the QBQ
Acquisition (as defined herein) (collectively, the "Pending Acquisitions"),
it is anticipated that the Company's revenues and expenses will increase
significantly, and the Company expects that these increased revenues and
expenses will be recorded substantially in the third as well as the fourth
quarter. A significant portion of the Company's revenues to date has been
derived from a small number of events and clients. On a pro forma basis,
giving effect to the Recent Acquisitions as if they had occurred on January
1, 1996, the Company's agreement with respect to The Breeders' Cup
Championship would have accounted for approximately 30% of the Company's
revenues for the year ended December 31, 1996. Although the Company expects
that this agreement will be extended for an additional two-year period, it is
scheduled to terminate in December 1997.
The Company's most significant costs and expenses are salaries and
production expenditures. Historically, general and administrative expenses
were impacted by the levels of compensation and related benefits that the
stockholders of SMTI and A&A received from their respective businesses during
the periods when the companies were privately owned.
9
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The Company has recorded and will continue to record substantial
compensation charges to operations in connection with the issuance of
securities to certain officers, directors and consultants, including the
release from escrow of 1,275,000 shares of common stock (the "Common Stock")
of the Company placed in escrow by certain officers, directors and
consultants of the Company in connection with the IPO (the "IPO Escrow
Shares"). In the event that the IPO Escrow Shares are released from escrow,
the Company may recognize, during the period in which the thresholds for
release are probable of being met, a substantial non-cash compensation
charge, which will not be deductible for income tax purposes and which will
have the effect of significantly increasing the Company's losses or reducing
or eliminating earnings, if any, at such time. In addition, in connection
with the issuance of Common Stock in 1996 to a non-founding officer in
partial consideration of such officer entering into an employment agreement
with the Company, the Company will recognize a non-cash compensation charge
of approximately $119,000 over the 15-month vesting period (which began in
July 1996) and, in connection with an advance paid to another officer in
April 1997 pursuant to his employment agreement, the Company will recognize a
compensation charge of $542,000 over the next five years. In connection with
the Recent Acquisitions, the Company will also incur charges to operations
aggregating $530,000 over the five-year period which commenced on the date of
the Recent Acquisitions related to the imputed interest on the indebtedness
to the stockholders of SMTI and A&A.
RESULTS OF OPERATIONS
The Company's consolidated financial statements are not directly
comparable from period to period because the Company commenced operating
activities in January 1996 and the Recent Acquisitions did not occur until
December 1996.
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
For the three months ended June 30, 1997, the Company generated revenues
of approximately $4.2 million compared to $801,000 for the three months ended
June 30, 1996. The increase in revenues of approximately $3.4 million is
principally related to the inclusion of the operations of the Recent
Acquisitions and revenues generated through the Company's production and
programming activities for ESPN, Outdoor Life Network, and Lifetime Network.
Additionally, the Company provided consulting services for Americast, a
partnership of certain telephone companies, to assist in the creation of
local sports networks for cable TV. Subsequent to June 30, 1997, the Company
was notified that the partners in Americast had agreed to disband their
programming and development department and would be terminating the Company's
contract as of September 27, 1997. On a pro forma basis giving effect to the
Recent Acquisitions as if they had occurred as of January 1, 1996, the
Company's revenues in the 1997 quarter decreased approximately $549,000 from
the prior year period. During 1996, the Company provided services to the
sponsor of the Major League Baseball All-Star Balloting Program. The sponsor
did not renew its participation in the 1997 program which was the principal
cause for the revenue decrease offset by the increase in the 1997 revenues
discussed above.
The Company's operating expenses of approximately $2.0 million for the
1997 quarter consisted principally of television production costs related to
projects delivered, event management costs associated with The Breeders' Cup
Championship, and talent agent compensation expense. Operating expenses
declined approximately $687,000 in the 1997 period as compared to 1996 on a
pro forma basis for the Recent Acquisitions due to the discontinuance of the
Company's event management for the former sponsor of the Major League
All-Star Balloting Program offset by the increased expenses attributable to
the television production and programming in the 1997 period.
General and administrative expenses were approximately $2.3 million for
the three months ended June 30, 1997 as compared to $463,000 for the prior
year period. The increase of $1.9 million was a result of the inclusion of
costs associated with the operations of the Recent Acquisitions and increased
staffing and occupancy costs required to support the increase in the
corporate infrastructure required for the Company's expanded business
operations. General and administrative expenses in the quarter increased
approximately $914,000 compared to the 1996 quarter on a pro forma basis
giving effect to the Recent
10
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Acquisitions. This increase which is expected to continue in subsequent
quarters, is attributable to salary and occupancy related costs, which the
Company has added to support the increase in existing business operations and
the anticipated Pending Acquisitions.
The Company's loss from operations for the three months ended June 30,
1997 was approximately $95,000 compared to an operating loss of approximately
$329,000 for the same period in 1996. On a pro forma basis, giving effect to
the Recent Acquisitions as if they had occurred on January 1, 1996 the
Company had an operating loss of $95,000 compared to operating income of
$682,000 for the 1996 quarter. The decline in operating income is principally
a result of increased general and administrative expenses and the loss of the
operating income from the event management of the Major League Baseball
All-Star Balloting Program.
The Company's net loss for the quarter was approximately $103,000 compared
to approximately $329,000 for the 1996 quarter and to net income of $667,000
for the 1996 quarter on a pro forma basis giving effect to the Recent
Acquisitions as if they had occurred on January 1, 1996.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
For the six months ended June 30, 1997, the Company generated revenues of
approximately $6.2 million compared to $801,000 for the period ended June 30,
1996. The increase in revenues of approximately $5.4 million is principally
related to the inclusion of the operations of the Recent Acquisitions and
revenues generated through the Company's production and programming
activities for ESPN, Outdooor Life Network, and Lifetime Network.
Additionally, the Company provided consulting services for Americast. On a
pro forma basis, giving effect to the Recent Acquisitions as if they had
occurred as of January 1, 1996, the Company's revenue was $6.2 million for
the period ended June 30, 1997 compared to $6.3 million for the period ended
June 30, 1996. The decrease in revenues was the result of the sponsor not
renewing its participation in the Major League Baseball All-Star Balloting
Program offset by increased programming and production and consulting
revenues and increased fees from talent representation.
The Company's operating expenses of approximately $2.9 million for the
period ended June 30, 1997 consisted principally of television production
costs. In addition, the Company incurred event management costs associated
with The Breeder's Cup Championship and talent agent compensation expense.
Operating expenses declined approximately $698,000 in 1997 as compared to
1996 on a pro forma basis for the Recent Acquisitions due to the
discontinuance of the Company's event management for the former sponsor of
the Major League Baseball All-Star Balloting Program offset by the increased
television production and programming costs in the 1997 period.
General and administrative expenses were approximately $4.2 million for
the period ended June 30, 1997 as compared to $708,000 for the prior year
period. The increase of $3.4 million was a result of the inclusion of costs
associated with the operations of the Recent Acquisitions and increased
staffing and occupancy costs required to support the increase in the
corporate infrastructure required for the Company's expanded business
operations. General and administrative expenses for the period ended June 30,
1997 increased approximately $1.6 million compared to the 1996 period on a
pro forma basis giving effect to the Recent Acquisitions. This increase,
which is expected to continue in subsequent quarters, is attributable to
staffing and related occupancy costs and miscellaneous expenses incurred to
support the increased business operation and anticipated Pending
Acquisitions.
The Company's operating loss for the six months ended June 30, 1997 was
approximately $879,000 compared to approximately $574,000 for the same period
in 1996. On a pro forma basis, giving effect to the Recent Acquisitions as if
they had occurred on January 1, 1996 the Company had an operating loss of
approximately $879,000 compared to operating income of approximately $113,000
for the same period in 1996. This decrease is principally a result of
increased general and administrative expenses and the loss of operating
income from event management of the Major League Baseball All-Star Balloting
Program.
The Company's net loss for the period was approximately $881,000 compared
to a net loss of $574,000 for the prior period and net income of $32,000 on a
pro forma basis giving effect to the Recent Acquisitions as if they had
occurred on January 1, 1996.
11
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LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital have been net proceeds
of approximately $1,363,000 from the sale of debentures (the "Debentures") in
August 1996, in the aggregate principal amount of $20 million, advances by
stockholders aggregating $767,000 and net proceeds of approximately $15,586,000
from the IPO, which was completed in December 1996. At June 30, 1997, the
Company had working capital of approximately $1,796,000.
Of the net proceeds of approximately $15,586,000 that the Company received
from the IPO, an aggregate of $9,000,000 was paid to the stockholders of SMTI
and A&A. In addition, the Company has agreed to pay such stockholders
installment payments aggregating $2,500,000 over the four-year period which
commenced April 1, 1997. On April 1, 1997, the Company made the first
installment payment of $500,000 to such stockholders. Further, the agreement
relating to the acquisition of SMTI (the "SMTI Acquisition") provided that
SMTI is to distribute to its stockholders, by means of a dividend, an amount
equal to 40% of the accumulated adjustments account of SMTI. It is
contemplated that a distribution of approximately $382,000 will be paid in
September 1997. In connection with the conversion of the Debentures into
units, each unit comprised of one share of Common Stock and one Warrant
(as defined herein), upon the closing of the IPO in December 1996, the Company
paid interest of approximately $254,000.
The Company has recently entered into agreements (the "ProServ Acquisition
Agreements"), pursuant to which it has agreed to acquire approximately 94% of
ProServ, and is currently negotiating to acquire the remaining minority
interests in ProServ (collectively the "ProServ Acquisition"). If the Company
is unable to acquire the remaining minority interests in ProServ on
satisfactory terms, the Company intends to obtain full ownership of ProServ
through a statutory merger. Pursuant to one of the agreements, the Company
has agreed to purchase 70.4% of ProServ for an aggregate purchase price of
$6.5 million in cash and the issuance of 225,000 shares of Common Stock
("Dell Consideration Stock"), subject to certain put and call options,
payable to Mr. Dell, the chief executive officer and majority stockholder of
ProServ. Mr. Dell has the option to elect to receive in lieu of cash at
closing a $3.0 million promissory note payable on January 2, 1998, secured by
an irrevocable letter of credit. The agreement with Mr. Dell also provides
that, at any time within the 60 day period following the second anniversary
of the consummation of the ProServ Acquisition, Mr. Dell may elect to
transfer to the Company up to all of the remaining Dell Consideration Stock
held by Mr. Dell at a price per share of $7.70 (up to approximately $1.7
million in the aggregate). In addition, at any time between the 61st and 90th
day following the second anniversary of the consummation of the transactions
contemplated by the ProServ Acquisition Agreements, the Company may purchase
50% of the Dell Consideration Stock held by Mr. Dell at a price per share of
$7.70 (up to $866,250 in the aggregate). In addition, the Company will enter
into an employment agreement with Mr. Dell providing for a base salary of not
less than $300,000 per year. Pursuant to the other ProServ Acquisition
Agreements, the Company has agreed to purchase an aggregate of 300 shares of
the common stock of ProServ, Inc. and options to purchase an aggregate of 20
shares of the common stock of ProServ, Inc. for an aggregate purchase price
of approximately $3.6 million. The Company anticipates purchasing the
remaining minority interests for approximately $609,000. The Company has
deposited into escrow an aggregate of $1.5 million in connection with the
ProServ Acquisition, and anticipates depositing an additional $500,000 by
August 15, 1997 to extend the date of the ProServ Acquisition to be
concurrent with the consummation of the Offering (as defined herein). If the
Company fails to consummate the ProServ Acquisition within certain time
periods (specified in the ProServ Acquisition Agreements) for any reason
other than certain breaches by Mr. Dell or ProServ, the Company may be forced
to forfeit any amounts deposited.
The Company has also entered into an agreement (the "QBQ Acquisition
Agreement") to purchase certain assets of QBQ Entertainment, Inc. ("QBQ") for
an aggregate purchase price of approximately $6.7 million (the "QBQ
Acquisition"), of which $2.0 million will be payable in shares of Common
Stock, $1.0 million will be payable in equal annual installments over eight
years, subject to acceleration in certain circumstances and $615,000 will be
payable in annual installments over five years. In addition, the Company has
agreed to deposit shares of Common Stock with a value of approximately
$500,000 into an escrow account, to be released to QBQ in the event that
certain financial performance goals are achieved with respect to the acquired
assets in any of the first four full fiscal years following the consummation
of
12
<PAGE>
the QBQ Acquisition. The Company has made a cash deposit of $400,000 which
will be applied to the purchase price of QBQ. In connection with the QBQ
Acquisition, the Company anticipates entering into an employment agreement
with Mr. Arfa, the chief executive officer and sole stockholder of QBQ, which
will provide for a non-recourse loan by the Company of $1.5 million secured
by the Common Stock to be issued in the QBQ Acquisition. The QBQ Acquisition
Agreement also provides that, at any time within the 30-day period following
the first to occur of (i) the second anniversary of the consummation of the
QBQ Acquisition or (ii) an Acceleration Event (as defined in the QBQ
Acquisition Agreement), QBQ may, at its option, elect to transfer to the
Company up to 75% of the shares it receives in connection with the QBQ
Acquisition for an aggregate purchase price of up to $1.5 million. In
addition, at any time within the 30-day period following the first to occur
of the second anniversary of the closing of the QBQ Acquisition or a Pledge
Event (as defined in the Pledge Agreement between the Company and Mr. Arfa),
the Company may, at its option, elect to purchase 50% of such shares from QBQ
for an aggregate of $1.5 million. In addition, if the QBQ Escrow Shares are
released from escrow at any time within the first 30 days after the second
anniversary of the consummation of the QBQ Acquisition or an Acceleration
Event, (i) QBQ may, at its option, elect to transfer up to 75% of the QBQ
Escrow Shares to the Company for an aggregate purchase price of up to
$375,000 and (ii) the Company may, at its option, elect to purchase up to 50%
of the QBQ Escrow Shares for an aggregate purchase price of up to $750,000.
If the QBQ Acquisition Agreement is terminated due to the Company's material
breach of a representation, warranty or covenant, the Company shall pay QBQ
$1.0 million as liquidated damages (of which $400,000 may be offset against
the cash deposit previously paid by the Company).
On July 23, 1997, the Company commenced a tender offer to purchase up to
all (but not less than 3,200,000, representing approximately 70.8%) of the
4,519,162 outstanding warrants (the "Warrants") of the Company at a cash
purchase price of $2.25 per Warrant ("Tender Offer"). Each Warrant is
exercisable at $7.50 for one share of Common Stock. The Company is negotiating,
through its principal financial advisor, bridge financing (the "Bridge
Facility") for the Tender Offer. The proposed financing is likely to be in the
form of a short-term loan. The Company anticipates that the Bridge Facility
will be repaid with a portion of the net proceeds of the Offering. Assuming a
price of $2.25 per Warrant, the aggregate consideration for Warrants tendered
in the Tender Offer and related expenses could range from $7.4 million (with
the tender of 70.8% of the outstanding Warrants) to approximately $9.8 million
(with the tender of all of the outstanding Warrants not held by directors or
executive officers of the Company). At the Company's request, its directors and
executive officers have stated that they do not currently intend to tender their
Warrants unless the Company is unable to purchase the minimum number of
Warrants. Notwithstanding the foregoing, such directors and executive officers
may tender or not tender their Warrants at their discretion. The consummation
of the Offering is conditioned upon the closing of the Tender Offer.
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 in July 1997 in order to register for
sale 8,625,000 shares of Common Stock including 1,125,000 shares for
underwriter's over-allotment (the "Offering"). The net proceeds from the
Offering are estimated to be approximately $41.3 million, of which
approximately $17.4 million will be paid in connection with the Pending
Acquisitions and approximately $9.8 million will be paid in connection with
the Tender Offer (assuming the tender of all Warrants not held by directors
or executive officers of the Company) or to repay the Bridge Facility. The
timing and consummation of the Pending Acquisitions and the Tender Offer are
subject to a number of conditions, certain of which are beyond the Company's
control, and there can be no assurance that any of these will be consummated.
However, the consummation of the Offering is conditioned upon the closing of
the Tender Offer and the concurrent closing of the ProServ Acquisition.
Although the Offering is not conditioned upon the closing of the QBQ
Acquisition, the Company anticipates closing the QBQ Acquisition promptly
following the consummation of this Offering. If the QBQ Acquisition is not
consummated, the Company intends to apply the proceeds of the Offering
allocated for the QBQ Acquisition to working capital or other general
corporate purposes, including future acquisitions.
While the Company has not entered into agreements relating to any
acquisitions other than the Pending Acquisitions, it intends to continue to
expand its operations through further acquisitions of companies, events and
employees. In the event the Company identifies attractive acquisition
candidates,
13
<PAGE>
the Company intends to use a portion of the net proceeds from the Offering
allocated to working capital to finance such acquisitions. In addition, to
the extent funds generated from operations are not sufficient, the Company
will use a portion of the proceeds from this Offering to pay compensation to
its executive officers, consulting fees to The Sillerman Companies ("TSC"), a
company controlled by R.F.X. Sillerman, Chairman of the Company, and the
installment payments to certain officers and directors of the Company related
to the Recent Acquisitions and the Pending Acquisitions.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of the Offering based on the current status of its business.
Future events, including changes in competitive conditions, the ability of
the Company to identify appropriate acquisition candidates, the availability
of other financing and funds generated from operations and the status of the
Company's business from time to time, may make changes in the allocation of
the net proceeds of this Offering necessary or desirable.
The Offering is conditioned upon, among other things, the consummation of
the Tender Offer, however, there can be no assurance that the Company will be
able to obtain the proposed Bridge Facility or alternative financing for the
Tender Offer. In the event the Company is able to consummate the Tender
Offer, there can be no assurance the the Offering will be consummated timely,
as presently contemplated or at all. In the event the Company is unable to
consummate the Offering, it may be required to raise additional capital
through a new credit arrangement, the sale of securities or the disposition
of assets in order to repay the Bridge Facility and to consummate the Pending
Acquisitions. There can be no assurance that the Company will be able to
raise such additional capital on terms acceptable to the Company. In the
event the Company does not consummate the Pending Acquisitions, it would
forfeit an aggregate of $1.9 million in deposits related thereto and would be
subject to damage provisions of an additional $600,000.
In August 1996 the Company entered into a six-year consulting agreement
with Sillerman Communications Management Corporation ("SCMC"), a company
controlled by Robert F.X. Sillerman, the Chairman of the Company. The
consulting agreement provides for the payment by the Company of a monthly fee
of $30,000, commencing in September 1997 for regular periodic financial
consulting services. Such monthly fee will increase annually by the
percentage increase in the Consumer Price Index. If SCMC performs advisory
services in the nature of investment banking services, it is entitled to a
fee (a "Special Advisory Fee") for such services, the exact amount of which
will be negotiated between the parties to the consulting agreement. In
February 1997, the Company advanced to SCMC the sum of $400,000 as an advance
against future Special Advisory Fees. In March 1997, SCMC assigned its
rights, obligations and duties under the consulting agreement to TSC. In
connection with the Pending Acquisitions, TSC will receive Special Advisory
Fees of $450,000 (of which $400,000 will be offset against the amount
previously advanced) and, in connection with the Tender Offer, TSC will
receive an immediately exercisable option to purchase 200,000 shares of
Common Stock at a price per share equal to the closing price of the Common
Stock on the date of consummation of the Tender Offer.
In October 1996, the Company entered into a lease for new facilities which
requires initial annual rent of $537,000 commencing October 1997, subject to
certain increases. The Company intends to incur capital expenditures of
approximately $1.4 million (net of landlord contribution) to furnish its new
office space, complete leasehold improvements and install television edit
facilities. As of June 30, 1997, the Company has expended approximately $1.2
million in connection with its new headquarters and took occupancy in early
July 1997.
14
<PAGE>
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders (the "Annual Meeting") was
held on August 5, 1997. On June 27, 1997, the record date for the Annual
Meeting, there were 8,769,162 outstanding shares of Common Stock (the
"Shares"). The Shares present at the Annual Meeting represented 96.0% of the
voting power of the outstanding Shares as of the record date.
In the election of directors, the first proposal voted upon, the following
persons received the number of votes set opposite their respective names:
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
- --------------------- ----------- --------------
<S> <C> <C>
Robert M. Gutkowski 8,399,530 18,250
Robert F.X. Sillerman 8,399,530 18,250
Arthur C. Kaminsky 8,398,980 18,800
Michael Letis 8,398,030 19,750
Louis J. Oppenheim 8,398,980 18,800
Michael Trager 8,398,030 19,750
Howard J. Tytel 8,399,530 18,250
Arthur R. Barron 8,399,530 18,250
Myles W. Schumer 8,399,530 18,250
</TABLE>
Such nominees received the highest number of the votes cast at the Annual
Meeting for the directors and, therefore, such persons were duly elected as
directors of the Company.
The second matter voted upon was a proposal to approve the Company's 1997
Stock Option Plan and the performance goal included therein. The proposal
received the affirmative vote of 8,350,226 Shares, the negative vote of
44,200 Shares, 18,315 Shares abstained and there were 5,039 broker non-votes.
The votes in favor of the proposal represented 99.2% of the voting power of
the Shares represented in person or by proxy at the Annual Meeting and voting
on the proposal and, therefore, the proposal was approved.
The third matter voted upon was a proposal to ratify the appointment of
Ernst & Young LLP as independent auditors of the Company for the fiscal year
ending December 31, 1997. The proposal received the affirmative vote of
8,408,740 Shares, the negative vote of 2,640 Shares, 6400 Shares abstained
and there were no broker non-votes . The votes in favor of the proposal
represented 99.9% of the voting power of the Shares represented in person or
by proxy at the Annual Meeting and, therefore, the proposal was approved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form SB-2 (Reg. No. 333-11287) filed with the
Commission on September 3, 1996).
3.2 Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.2 to Amendment No. 1 to the Registration
Statement on Form SB-2 (Reg. No. 333-11287) filed with the
Commission on October 25, 1996).
10.1 Purchase and Sale Agreement, dated as of June 25, 1997, by and among
ProServ, Inc., ProServ Television, Inc., Donald L. Dell and The
Marquee Group, Inc. (incorporated by reference to Exhibit 10.19 to
the Registration Statement on Form SB-2 (Reg. No. 333-31879) filed
with the Commission on July 23, 1997).
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter for
which this report is filed.
15
<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.
The Marquee Group, Inc.
August , 1997
/s/ Jan E. Chason
Jan E. Chason
Chief Financial Officer and
Treasurer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 688,005
<SECURITIES> 0
<RECEIVABLES> 2,947,000
<ALLOWANCES> 45,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,117,286
<PP&E> 1,449,324
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,704,334
<CURRENT-LIABILITIES> 2,699,521
<BONDS> 0
0
0
<COMMON> 87,692
<OTHER-SE> 4,356,882
<TOTAL-LIABILITY-AND-EQUITY> 8,704,334
<SALES> 6,174,087
<TOTAL-REVENUES> 6,174,087
<CGS> 0
<TOTAL-COSTS> 7,053,243
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,818
<INCOME-PRETAX> (880,974)
<INCOME-TAX> 0
<INCOME-CONTINUING> (880,974)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (880,974)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
