<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 16, 1998
(September 2, 1998)
-------------------
THE MARQUEE GROUP, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 0-21711 13-3878295
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
888 Seventh Avenue 37th Floor, New York, New York 10019
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 977 - 0300
------------------
N/A
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
This Form 8-K/A amends the Form 8-K of The Marquee Group, Inc.
("Marquee" or the "Company") filed on September 16, 1998 and supplies financial
statements and pro forma financial information regarding the acquisition of
Tony Stephens Associates Limited ("Tony Stephens") by the Company in September
of 1998.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The audited financial statements for Tony Stephens for the fiscal year
ended April 30, 1998 and for the unaudited financial information for the six
months ended June 30, 1998 and 1997 for Tony Stephens are set forth in Annex A,
and are incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma financial information of the Company, which
includes Tony Stephens, for the year ended December 31, 1997 and for the six
months ended June 30, 1998 is contained in Annex B, and is incorporated herein
by reference.
(c) Exhibits.
2.1 Share Purchase Agreement for the Sale and Purchase of all the Issued
Share Capital of Tony Stephens Associates Limited, dated as of
September 9, 1998, by and among Anthony Everett Stephens, Gillian Ann
Stephens and The Marquee Group, Inc.
<PAGE>
ANNEX A
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
ALPHABET CITY SPORTS RECORDS, INC. AND ALPHABET CITY INDUSTRIES, INC.
Report of Independent Auditors
Combined Balance Sheets as of December 31, 1997 and June 30, 1998 (unaudited)
Combined statements of income for the period from April 11, 1996 (inception) to
December 31, 1996 and for the year ended December 31, 1997 and for six months
ended June 30, 1998 and 1997 (unaudited)
Combined statements of cash flows for the period from April 11, 1996
(inception) to December 31, 1996 and for the year ended December 31, 1997 and
for six months ended June 30, 1998 and 1997 (unaudited)
CAMBRIDGE HOLDING CORPORATION, INC. AND SUBSIDIARY
Report of Independent Auditors
Consolidated balance sheets as of December 31, 1997 and June 30, 1998
(unaudited)
Consolidated statements of operations for the year ended December 31, 1997 and
for six months ended June 30, 1998 and 1997 (unaudited)
Consolidated statements of cash flows for the year ended December 31, 1997 and
for six months ended June 30, 1998 and 1997 (unaudited)
PARK ASSOCIATES LIMITED
Report of Independent Auditors
Balance sheet as of December 31, 1997
Statement of profit and loss account for the year ended December 31, 1997
Statement of cash flows for the year ended December 31, 1997
Balance Sheet as of June 30, 1998 (unaudited)
Statements of profit and loss account for the six months ended June 30, 1998
and 1997 (unaudited)
Statements of cash flows for the six months ended June 30, 1998 and 1997
(unaudited)
TOLLIN-ROBBINS ENTERTAINMENT
Report of Independent Auditors
Combined balance sheets as of December 31, 1997 and June 30, 1998 (unaudited)
Combined statements of operations for the years ended December 31, 1997 and
1996 and for six months ended June 30, 1998 and 1997 (unaudited)
Combined statements of stockholders' equity and for the years ended December
31, 1997 and 1996 and for six months ended June 30, 1998 (unaudited)
Combined statements of cash flows for the years ended December 31, 1997 and
1996 and for six months ended June 30, 1998 and 1997 (unaudited)
TONY STEPHENS ASSOCIATES LIMITED
Report of Independent Auditors
Balance Sheet as of April 30, 1998
Statement of profit and account loss for the year ended April 30, 1998
Statement of cash flows for the year ended April 30, 1998
Balance Sheet as of June 30, 1998 (unaudited)
Statements of profit and loss accounts for the six months ended June 30, 1998
and 1997 (unaudited)
Statements of cash flows for the six months ended June 30, 1998 and 1997
(unaudited)
A-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Alphabet City Sports Records, Inc. and
Alphabet City Industries, Inc.
We have audited the accompanying combined balance sheet of Alphabet City
Sports Records, Inc. and Alphabet City Industries, Inc. as of December 31,
1997, and the related combined statements of income and cash flows for the year
ended December 31, 1997 and for the period from April 11, 1996 (inception) to
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Alphabet City
Sports Records, Inc. and Alphabet City Industries, Inc. at December 31, 1997
and the combined results of their operations and their cash flows for the year
ended December 31, 1997 and for the period from April 11, 1996 (inception) to
December 31, 1996 in conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
May 21, 1998
A-2
<PAGE>
ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash .............................................. $ 651 $ 56,643
Accounts receivable ............................... 527,207 902,561
Prepaid expenses and other current assets ......... 444,684 627,992
---------- ----------
Total current assets ............................... 972,542 1,587,196
Property and equipment, net ........................ 31,340 31,920
Other assets ....................................... 10,669 17,191
---------- ----------
Total assets ....................................... $1,014,551 $1,636,307
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable ...................................... $ -- $ 350,000
Accounts payable .................................. 836,247 990,898
Accrued liabilities ............................... 56,627 254,217
---------- ----------
Total current liabilities .......................... 892,874 1,595,115
Stockholders' equity ............................... 121,677 41,192
---------- ----------
Total liabilities and stockholders' equity ......... $1,014,551 $1,636,307
========== ==========
</TABLE>
See accompanying notes.
A-3
<PAGE>
ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 11, 1996 SIX MONTHS ENDED
YEAR ENDED (INCEPTION) TO JUNE 30,
DECEMBER 31, DECEMBER 31, -----------------------------
1997 1996 1998 1997
-------------- --------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues ..................................... $2,976,331 $1,316,763 $1,476,069 $1,930,736
Cost of revenues ............................. 1,796,194 1,003,949 968,846 1,192,385
---------- ---------- ---------- ----------
Gross profit ................................. 1,180,137 312,814 507,223 738,351
Operating expenses:
Selling expenses ............................ 424,109 196,984 217,700 199,258
General and administrative expenses ......... 663,836 59,919 350,008 294,701
---------- ---------- ---------- ----------
Total operating expenses .................. 1,087,945 256,903 567,708 493,959
---------- ---------- ---------- ----------
Income from operations ....................... 92,192 55,911 (60,485) 244,392
Other income/(expenses) ...................... 10,944 -- -- (12,676)
---------- ---------- ---------- ----------
Income before income taxes ................... 103,136 55,911 (60,485) 231,716
Provision for income taxes ................... 23,000 14,370 20,000 14,789
---------- ---------- ---------- ----------
Net income ................................... $ 80,136 $ 41,541 $ (80,485) $ 216,927
========== ========== ========== ==========
</TABLE>
See accompanying notes.
A-4
<PAGE>
ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 11, 1996 SIX MONTHS ENDED
YEAR ENDED (INCEPTION) TO JUNE 30,
DECEMBER 31, DECEMBER 31, -----------------------------
1997 1996 1998 1997
-------------- --------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income ........................................ $ 80,136 $ 41,541 $ (80,485) $ 216,927
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization .................. 3,527 983 4,123 2,068
Changes in operating assets and liabilities:
Accounts receivable ........................... (256,870) (270,337) (375,354) (112,324)
Other current assets .......................... (414,684) (30,000) (183,308) (29,949)
Other assets .................................. (5,081) -- (6,522) (1,775)
Accounts payable .............................. 595,330 240,917 154,651 136,649
Accrued liabilities ........................... 2,472 54,155 197,590 57,256
---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities ....................................... 4,830 37,259 (289,305) 268,852
---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Purchases of fixed assets ......................... (30,617) (5,233) (4,703) (27,352)
Payment of security deposit ....................... (5,588) -- -- (5,588)
---------- ---------- ---------- ----------
Net cash used in investing activities ............. (36,205) (5,233) (4,703) (32,940)
---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from loan ................................ -- -- 350,000 --
---------- ---------- ---------- ----------
Net cash provided by financing activities ......... -- -- 350,000 --
---------- ---------- ---------- ----------
Net (decrease) increase in cash ................... (31,375) 32,026 55,992 235,912
Cash at beginning of year ......................... 32,026 -- 651 32,026
---------- ---------- ---------- ----------
Cash at end of year ............................... $ 651 $ 32,026 $ 56,643 $ 267,938
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Income taxes paid ................................. $ 53,740 $ -- $ 15,133 $ --
========== ========== ========== ==========
Interest paid ..................................... $ -- $ -- $ -- $ --
========== ========== ========== ==========
</TABLE>
See accompanying notes.
A-5
<PAGE>
ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
Alphabet City Sports Records, Inc. and Alphabet City Industries, Inc.
(collectively, the "Company") were organized in New York on April, 11, 1996 and
May 14, 1997, respectively. The Company's main purpose is creating, licensing,
marketing and distributing recorded music through non-music retail outlets in
association with a broad spectrum of professional and college sports teams and
leagues. The Company also provides non-traditional marketing and media services
to various corporations.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of
Alphabet City Sports Records, Inc. and Alphabet City Industries, Inc. The
companies are under common ownership. All significant intercompany transactions
have been eliminated in combination.
REVENUE RECOGNITION
Revenues from the sale of music CDs and cassettes are recognized upon
shipment to the customers. Marketing and media revenues are recognized as
services are provided or upon the delivery to the client of the materials
created for them by the Company.
ADVANCES AND RECOUPABLE COSTS
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 50, Financial Reporting in the Record and Music Industry, advances to
artists and producers are capitalized as an asset when the current popularity
and past performance of the artist or producer provides a sound basis for
estimating the probable future recoupment of such advances from sales. Any
portion of such advances not deemed to be recoupable from future sales is
reserved at the balance sheet date. All other advances which do not meet the
above criteria are expensed when incurred.
LICENSE AGREEMENTS
Certain of the Company's compilation products are master recordings under
license from various sports teams and organizations for the right to use the
names, logos and other material directly related to the team or organization.
Typically, minimum guarantees or non-returnable advances are required to obtain
the licenses and are realized through future sales of the product. The amounts
paid for minimum guarantees or non-returnable advances are charged to expense
over the license term. When anticipated sales appear to be insufficient to
fully recover the minimum guarantees or non-returnable advances, a provision
against current operations is made for anticipated losses.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over their estimated useful lives ranging from three to
seven years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A-6
<PAGE>
ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
INTERIM FINANCIAL STATEMENTS
The unaudited interim information as of June 30, 1998 and for the six
months ended June 30, 1997 and 1998 has been prepared on the same basis as the
annual financial statements and, in the opinion of the Company's management,
reflects normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. Interim results are not necessarily
indicative of results for a full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
INCOME TAXES
Income taxes are provided on the liability method as required by Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes.
Deferred income taxes (which are not material) reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
The shareholders of Alphabet City Industries, Inc. have elected under
Subchapter S of the Internal Revenue Code to include the Company's income in
their own income for Federal income tax purposes. Alphabet City Sports Records,
Inc. was incorporated as a "C Corporation."
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
-------------- -----------
<S> <C> <C>
Furniture and equipment ............... $ 35,850 $ 40,553
Less accumulated depreciation ......... (4,510) (8,633)
-------- --------
$ 31,340 $ 31,920
======== ========
</TABLE>
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
-------------- -----------
<S> <C> <C>
Project costs ................ $352,397 $441,322
Inventory .................... 33,161 50,161
Prepaid expenses ............. 34,076 40,881
Other current assets ......... 25,050 95,628
-------- --------
$444,684 $627,992
======== ========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company leases its office space. The lease provides for escalations of
rent based upon the increase in certain operating expenses.
A-7
<PAGE>
ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
Future minimum payments under operating leases consist of the following:
<TABLE>
<S> <C>
Year ending December 31:
1998 ........................ $51,200
1999 ........................ 9,200
-------
$60,400
=======
</TABLE>
There was no rent expense in 1996; rent expense was $36,084, $15,055 and
$21,197 for the year ended December 31, 1997 and for the six months ended June
30, 1997 and 1998, respectively.
5. STOCKHOLDERS' EQUITY
Stockholders' equity consists of the following:
<TABLE>
<CAPTION>
COMMON RETAINED DUE FROM
TOTAL STOCK EARNINGS STOCKHOLDERS
------------ ---------- ------------ -------------
<S> <C> <C> <C> <C>
Alphabet City Sports Records, Inc.:
Issuance of common stock--1996 ......... $ -- $ 1,000 $ -- $ (1,000)
Net income ............................. 41,541 -- 41,541 --
--------- ------- --------- ---------
Balance at December 31, 1996 ............ 41,541 1,000 41,541 (1,000)
Net income ............................. 40,781 -- 40,781 --
--------- ------- --------- ---------
Balance at December 31, 1997 ............ 82,322 1,000 82,322 (1,000)
--------- ------- --------- ---------
Alphabet City Industries, Inc.:
Issuance of common stock--1997 ......... -- 1,000 -- (1,000)
Net income ............................. 39,355 -- 39,355 --
--------- ------- --------- ---------
Balance at December 31, 1997 ............ 39,355 1,000 39,355 (1,000)
--------- ------- --------- ---------
Combined stockholders' equity at
December 31, 1997 ...................... $ 121,677 $ 2,000 $ 121,677 $ (2,000)
========= ======= ========= =========
</TABLE>
Alphabet City Sports Records, Inc. has 200 shares of no par value common
stock authorized and 20 shares are issued and outstanding. Alphabet City
Industries, Inc. has 200 shares of no par value common stock authorized and 20
shares are issued and outstanding.
6. MAJOR CUSTOMERS/SUPPLIER
For the period from April 11, 1996 to December 31, 1996, approximately 92%
of combined revenues were derived from one customer. For the year ended
December 31, 1997, three customers accounted for approximately 22%, 17%, and
13% of combined revenues, respectively. For the six months ended June 30, 1998
two customers accounted for approximately 52% and 19% of combined revenues,
respectively. For the six months ended June 30, 1997, three customers accounted
for approximately 26%, 23% and 21% of combined revenues respectively.
For the period from April 11, 1996 to December 31, 1996, 100% of the CDs
produced were manufactured by one vendor. For the year ended December 31, 1997,
86% of the CDs produced were manufactured by one vendor. For the six months
ended June 30, 1998, two vendors manufactured 53% and 32%, respectively, of the
CD's produced.
A-8
<PAGE>
ALPHABET CITY SPORTS RECORDS, INC.
ALPHABET CITY INDUSTRIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
7. IMPACT OF YEAR 2000 (UNAUDITED)
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and has developed an
implementation plan to resolve the issue. The Company presently believes that,
with modifications to existing software, the cost of which is not material to
the results of operations or financial condition of the Company, the Year 2000
problem will not pose significant operational problems for the Company's
computer systems.
8. SUBSEQUENT EVENT
On August 3, 1998, The Marquee Group, Inc. consummated its acquisition of
substantially all of the assets of Alphabet City Industries, Inc. and all of
the outstanding stock of Alphabet City Sports Records, Inc. (collectively, the
"Alphabet City Acquisition"). The aggregate purchase price for the Alphabet
City Acquisition was approximately $3.4 million in cash (excluding assumed
liabilities) and 200,000 shares of The Marquee Group, Inc. common stock.
A-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Cambridge Holding Corporation, Inc.
We have audited the accompanying consolidated balance sheet of Cambridge
Holding Corporation, Inc. and Subsidiary (the "Company") as of December 31,
1997 and the related consolidated statements of operations and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 31, 1997 and the consolidated results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
June 3, 1998
A-10
<PAGE>
CAMBRIDGE HOLDING CORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................ $ 162,781 $ 241,425
Accounts receivable ......................................... 767,204 773,613
Other current assets ........................................ 24,345 13,330
---------- ----------
Total current assets ......................................... 954,330 1,028,368
Property and equipment, net .................................. 4,537 2,186
Other assets ................................................. 62,878 62,878
---------- ----------
Total assets ................................................. $1,021,745 $1,093,432
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 883,411 $ 723,279
Accrued liabilities ......................................... 25,938 112,153
---------- ----------
Total current liabilities .................................... 909,349 835,432
---------- ----------
Stockholders' equity:
Common stock, $1 par; authorized 25,000 shares; 10,000 shares
issued .................................................... 10,000 10,000
Retained earnings ........................................... 123,552 269,156
---------- ----------
133,552 279,156
Less 6,666 shares held in treasury, at cost ................. (21,156) (21,156)
---------- ----------
Total stockholders' equity ................................... 112,396 258,000
---------- ----------
Total liabilities and stockholders' equity ................... $1,021,745 $1,093,432
========== ==========
</TABLE>
See accompanying notes.
A-11
<PAGE>
CAMBRIDGE HOLDING CORPORATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
DECEMBER 31, -------------------------
1997 1998 1997
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue ...................................... $1,318,763 $691,276 $874,692
Expenses:
Stockholders' salary expense ................ 487,974 182,576 173,880
Other salary expense ........................ 153,536 48,935 58,619
Travel and entertainment .................... 127,458 71,886 65,316
General and administrative expenses ......... 581,520 158,135 273,488
---------- -------- --------
Total expenses ............................... 1,350,488 461,532 571,303
(Loss) income from operations ................ (31,725) 229,744 303,389
Other income:
Interest income ............................. 12,746 860 1,656
Other income ................................ 2,000 -- --
---------- -------- --------
14,746 860 1,656
---------- -------- --------
(Loss) income before income taxes ............ (16,979) 230,604 305,045
Income tax provision ......................... -- 85,000 113,000
---------- -------- --------
Net loss ..................................... $ (16,979) $145,604 $192,045
========== ======== ========
</TABLE>
See accompanying notes.
A-12
<PAGE>
CAMBRIDGE HOLDING CORPORATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
DECEMBER 31, -------------------------
1997 1998 1997
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................ $ (16,979) $ 145,604 $ 192,045
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation ....................................... 9,405 2,351 4,702
Changes in operating assets and liabilities:
Accounts receivable .............................. (476,866) (6,409) 210,630
Other current assets ............................. (4,800) 11,015 8,615
Other assets ..................................... (2,444) -- --
Accounts payable and accrued liabilities ......... 616,394 (73,917) (11,847)
---------- --------- ---------
Net cash provided by operating activities ........... 124,710 78,644 404,145
---------- --------- ---------
INVESTING ACTIVITIES
Purchase of fixed assets ............................ (2,773) -- (2,773)
---------- --------- ---------
Net cash used in investing activities ............... (2,773) -- (2,773)
---------- --------- ---------
Net increase in cash ................................ 121,937 78,644 401,372
Cash at beginning of year ........................... 40,844 162,781 40,844
---------- --------- ---------
Cash at end of year ................................. $ 162,781 $ 241,425 $ 442,216
========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid ................................... $ 9,222 $ 8,219 $ --
========== ========= =========
Interest paid ....................................... $ -- $ -- $ --
========== ========= =========
</TABLE>
See accompanying notes.
A-13
<PAGE>
CAMBRIDGE HOLDING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company is a full service sports management and marketing firm,
specializing in both the representation of professional athletes and corporate
consulting. The accompanying consolidated financial statements include the
accounts of Cambridge Holding Corporation, Inc. and its wholly owned
subsidiary, Cambridge Sports International, Inc. All significant intercompany
accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company's revenues arise primarily from percentage fees or commissions
received for the negotiation of professional sporting contracts and marketing
and endorsement contracts. The Company recognizes revenue ratably over the
performance period of the associated contract.
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1997 and June 30, 1998 include
approximately $731,000 and $582,000, respectively, which represents amounts
billed on behalf of professional athletes relating to sporting contracts and
marketing and endorsement contracts. Such amounts are to be paid, net of the
Company's commission, to the professional athletes upon collection.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over their estimated useful lives ranging from five to
seven years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The unaudited interim information as of June 30, 1998 and for the six
months ended June 30, 1997 and 1998 has been prepared on the same basis as the
annual financial statements and, in the opinion of the Company's management,
reflects normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. Interim results are not necessarily
indicative of results for a full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
INCOME TAXES
Income taxes are provided on the liability method as required by Statement
of Financial Accounting Standard Statement No. 109, "Accounting for Income
Taxes." Deferred income taxes (which are not material), reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes.
A-14
<PAGE>
CAMBRIDGE HOLDING CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
-------------- ------------
<S> <C> <C>
Furniture and equipment ............... $ 13,734 $ 13,734
Computer equipment .................... 27,333 27,333
--------- ---------
41,067 41,067
Less accumulated depreciation ......... (36,530) (38,881)
--------- ---------
$ 4,537 $ 2,186
========= =========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company leases its office space. The lease provides for escalations of
rent based upon the increase in certain operating expenses.
Future minimum payments under noncancelable operating leases is as
follows:
<TABLE>
<S> <C>
Years ending December 31:
1998 .................. $25,000
1999 .................. 4,200
-------
$29,200
=======
</TABLE>
Rent expense was $32,878, $16,309, and $14,242 for the year ended December
31, 1997 and for the six months ended June 30, 1997 and 1998, respectively.
4. SIGNIFICANT CLIENTS
For the year ended December 31, 1997, three professional athletes
accounted for approximately 32%, 18% and 11% of consolidated revenue,
respectively.
For the six months ended June 30, 1998 and 1997, two professional athletes
accounted for approximately 12% and 12% and 34% and 6% of consolidated revenue,
respectively.
5. IMPACT OF YEAR 2000 (UNAUDITED)
The Company has conducted a review of its computer systems to identify the
systems that could be effected by the "Year 2000" issue and has developed an
implementation plan to resolve the issue. The Company presently believes that,
with modifications to existing software, the cost of which is not material to
the results of operations or financial condition of the Company, the Year 2000
problem will not pose significant operational problems for the Company's
computer systems.
6. SUBSEQUENT EVENT
On August 6, 1998, The Marquee Group, Inc. consummated its acquisition of
all of the outstanding stock of Cambridge Sports International, Inc. The
aggregate purchase price was approximately $3.5 million in cash and 89,536
shares of The Marquee Group, Inc.'s common stock.
A-15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and the Shareholders of Park Associates Limited.
We have audited the accompanying balance sheet of Park Associates Limited
("the Company") as of December 31, 1997 and the related statements of profit
and loss account and cash flows for the year ended December 31, 1997 all
expressed in pounds sterling, (together, "the financial statements") which, as
described in the financial statements (pages A-17 to A-27), have been prepared
on the basis of accounting principles generally accepted in the United Kingdom.
These financial statements are the responsibility of the Directors of the
Company. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United Kingdom, which are substantially the same as auditing
standards generally accepted in the United States. These standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Park Associates Limited as
of December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with accounting principles
generally accepted in the United Kingdom.
United Kingdom accounting principles vary in certain material respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of
shareholders' equity and financial position as of December 31, 1997, and the
determination of net profit for year ended December 31, 1997 to the extent
summarized in Note 22 to the financial statements.
Grant Thornton
Chartered Accountants
Nottingham
England
May 28, 1998 except for the information presented in the Cash Flow Statement,
notes 13, 14, 15 and 22 for which the date is September 22, 1998.
A-16
<PAGE>
PARK ASSOCIATES LIMITED
BALANCE SHEET
AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
NOTE (POUND STERLING)
------ ----------------
<S> <C> <C>
Fixed assets:
Tangible assets ........................................ 7 331,588
Investments ............................................ 8 194
-------
331,782
Current assets:
Debtors ................................................ 9 216,862
Cash at bank and in hand ............................... 87,806
-------
304,668
Creditors: amounts falling due within one year ......... 10 (323,189)
--------
Net current liabilities ................................ (18,521)
--------
Net assets ............................................. 313,261
========
Capital and reserves:
Called up share capital ................................ 11 10,000
Profit and loss account ................................ 12 303,261
--------
Shareholders' fund ..................................... 13 313,261
========
</TABLE>
The accompanying accounting policies and notes form an integral part of this
financial statement.
A-17
<PAGE>
PARK ASSOCIATES LIMITED
PROFIT AND LOSS ACCOUNT
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
NOTE (POUND STERLING)
------ ----------------
<S> <C> <C>
Commission and fees receivable ........................ 2,971,136
Commission and fees payable ........................... (2,294,181)
----------
676,955
Administrative expenses ............................... (523,039)
Other operating income ................................ 15,400
----------
Operating profit ...................................... 169,316
Net interest .......................................... 3 4,702
----------
Profit on ordinary activities before taxation ......... 174,018
Tax on profit on ordinary activities .................. 5 (44,706)
----------
Profit for the financial year ......................... 13 129,312
Dividends ............................................. 6 (60,000)
----------
Profit transferred to reserves ........................ 12 69,312
==========
</TABLE>
There were no recognized gains or losses other than the profit for the year.
The accompanying accounting policies and notes form an integral part of this
financial statement.
A-18
<PAGE>
PARK ASSOCIATES LIMITED
CASH FLOW STATEMENT
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
NOTE (POUND STERLING)
------ ----------------
<S> <C> <C>
Net cash inflow from operating activities .............................. 14 249,887
Returns on investments and servicing of finance:
Interest received ...................................................... 4,702
-------
Net cash inflow from returns on investments and servicing of finance ... 4,702
-------
Taxation ............................................................... (47,370)
-------
Capital expenditure and financial investment:
Purchase of tangible fixed assets ...................................... (54,995)
Sale of tangible fixed assets .......................................... 13,700
-------
Net cash outflow from capital expenditure and financial investment ..... (41,295)
-------
Acquisitions and disposals:
Purchase of investments ................................................ (194)
-------
Net cash outflow from acquisitions and disposals ....................... (194)
-------
Equity dividends paid .................................................. (104,000)
--------
Increase in cash ....................................................... 15 61,730
========
</TABLE>
The accompanying accounting policies and notes form an integral part of this
financial statement.
A-19
<PAGE>
PARK ASSOCIATES LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
1. PRINCIPAL ACCOUNTING POLICIES
BASIS OF PREPARATION
The financial statements have been prepared under the historical cost
convention.
The principal accounting policies of the company have remained unchanged
from the previous year and are set out below.
TURNOVER
Turnover is the gross amount receivable by the company, invoiced on behalf
of the clients when the company acts as agents and for other services provided,
excluding VAT and trade discounts.
INCOME FROM INVESTMENTS
Investment income comprises interest receivable on bank deposits.
DEPRECIATION
Depreciation is calculated to write down the cost less estimated residual
value of all tangible fixed assets other than freehold land and buildings by
the reducing balance method. The rates generally applicable are:
<TABLE>
<S> <C>
Motor vehicles ................ 25%
Fixtures and fittings ......... 10%
Computer equipment ............ 33%
</TABLE>
No depreciation is provided on freehold land and buildings as it is the
company's policy to maintain these assets in a continual state of sound repair.
The useful lives of these assets are thus so long and residual values so high
that any depreciation would not be material. Residual values are based on
prices prevailing at the date of acquisition or subsequent valuation. Provision
is made in the profit and loss account for any permanent diminution in value.
INVESTMENTS
Investments are included at cost less amounts written off. Profits or
losses arising from disposals of fixed asset investments are treated as part of
the result from ordinary activities.
DEFERRED TAXATION
Deferred tax is provided using the tax rates estimated to arise when the
timing differences reverse and is accounted for to the extent that it is
probable that a liability or asset will crystallize. Unprovided deferred tax is
disclosed as a contingent liability.
Debit balances arising in respect of advance corporation tax on dividends
payable or proposed are carried forward to the extent that they are expected to
be recoverable.
FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the exchange rate
ruling at the date of the transaction. Monetary assets and liabilities in
foreign currencies are translated at the rates of exchange
A-20
<PAGE>
PARK ASSOCIATES LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
ruling at the balance sheet date. Where exchange differences result from the
translation of foreign currency borrowings raised to acquire foreign assets
they are taken to reserves and offset against the differences arising from the
translation of those assets. All other exchange differences are dealt with
through the profit and loss account.
CONTRIBUTIONS TO PENSION FUNDS
DEFINED CONTRIBUTION SCHEME
The pension costs charged against profits represent the amount of the
contributions payable to the scheme in respect of the accounting period.
LEASED ASSETS
All other leases are regarded as operating leases and the payments made
under them are charged to the profit and loss account on a straight-line basis
over the lease term.
2. TURNOVER AND PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
The profit on ordinary activities is stated after:
Auditors' remuneration ......................................... 2,000
Depreciation and amortization:
Tangible fixed assets, owned ................................... 13,990
Other operating lease rentals .................................. 3,000
Rent receivable in respect of:
Operating leases including rents of land and buildings ......... 15,400
</TABLE>
3. NET INTEREST
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Other interest receivable and similar income ......... 4,702
=====
</TABLE>
4. DIRECTORS AND EMPLOYEES
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Staff costs during the year were as follows:
Wages and salaries ......................... 253,818
Social security costs ...................... 26,317
Other pension costs ........................ 76,791
-------
356,926
=======
</TABLE>
A-21
<PAGE>
PARK ASSOCIATES LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
The average number of employees of the company during the year was nine.
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Emoluments ...................................................... 112,760
Pension contributions to money purchase pension schemes ......... 57,765
-------
170,525
=======
</TABLE>
During the year two directors participated in money purchase pension schemes.
5. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
UK Corporation tax at 21.75% ......... 44,706
======
</TABLE>
6. DIVIDENDS
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Ordinary shares -- first interim dividend of (pound sterling)6 per share ......... 60,000
======
</TABLE>
7. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FREEHOLD FIXTURES
LAND AND MOTOR AND COMPUTER
BUILDINGS VEHICLES FITTINGS EQUIPMENT TOTAL
(POUND STERLING) (POUND STERLING) (POUND STERLING) (POUND STERLING) (POUND STERLING)
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Cost:
At January 1, 1997 ....................... 261,382 22,375 34,343 8,146 326,246
Additions ................................ -- 42,250 9,367 3,378 54,995
Disposals ................................ -- (22,375) -- -- (22,375)
------- ------- ------ ----- -------
At December 31, 1997 ..................... 261,382 42,250 43,710 11,524 358,866
Depreciation:
At January 1, 1997 ....................... -- 9,778 12,106 2,008 23,892
Provided in the year ..................... -- 8,787 2,565 2,638 13,990
Eliminated on disposals .................. -- (10,604) -- -- (10,604)
------- ------- ------ ------ -------
At December 31, 1997 ..................... -- 7,961 14,671 4,646 27,278
------- ------- ------ ------ -------
Net book amount at December 31, 1998 ..... 261,382 34,289 29,039 6,878 331,588
======= ======= ====== ====== =======
</TABLE>
8. FIXED ASSETS INVESTMENTS
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Cost:
Additions .................................... 194
---
Net book amount at December 31, 1997 ......... 194
===
</TABLE>
A-22
<PAGE>
PARK ASSOCIATES LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
9. DEBTORS
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Trade debtors .......................... 199,783
Other debtors .......................... 13,871
Prepayments and accrued income ......... 3,208
-------
216,862
=======
</TABLE>
10. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Trade creditors ......................... 196,000
Advance corporation tax ................. 15,000
Corporation tax ......................... 17,036
Social security and other taxes ......... 34,106
Other creditors ......................... 22,606
Loans from directors .................... 25,435
-------
Accruals and deferred income ............ 323,189
=======
</TABLE>
11. SHARE CAPITAL
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Authorized:
10,000 ordinary shares of (pound sterling)1 each ......... 10,000
======
Allotted, called up and fully paid:
10,000 ordinary shares of (pound sterling)1 each ......... 10,000
======
</TABLE>
Allotments during the year:
On July 31, 1997, the company by passing Resolutions at an Extraordinary
General Meeting increased its authorized share capital to (pound sterling)10,000
ordinary shares of (pound sterling)1 each. The company capitalized
(pound sterling)9,900 standing to the credit of accumulated reserves and
applied these funds to take up the allotment of 9,900 (pound sterling)1
ordinary shares at par to its existing shareholders.
12. RESERVES
<TABLE>
<CAPTION>
PROFIT AND
LOSS ACCOUNT
(POUND STERLING)
----------------
<S> <C>
At January 1, 1997 ................... 243,849
Retained profit for the year ......... 69,312
Bonus issue of shares ................ (9,900)
-------
At December 31, 1997 ................. 303,261
=======
</TABLE>
A-23
<PAGE>
PARK ASSOCIATES LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
13. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Profit for the financial year .................... 129,312
Dividends ........................................ (60,00)
-------
Net increase in shareholders' funds .............. 69,312
Shareholders' funds at January 1, 1997 ........... 243,949
-------
Shareholders' funds at December 31, 1997 ......... 313,261
=======
</TABLE>
14. NET CASH INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Operating profit ............................................. 169,316
Depreciation ................................................. 13,990
Profit on sale of tangible fixed assets- ..................... (1,929)
Increase in debtors .......................................... (84,759)
Increase in creditors ........................................ 153,269
-------
Net cash inflow from continuing operating activities ......... 249,887
=======
</TABLE>
15. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Increase in cash in the year ............. 61,730
------
Movement in net debt in the year ......... 61,730
Net funds at January 1, 1997 ............. 26,076
------
Net funds at December 31, 1997 ........... 87,806
======
</TABLE>
16. ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
AT AT
JANUARY 1, 1997 CASH FLOW DECEMBER 31, 1997
(POUND STERLING) (POUND STERLING) (POUND STERLING)
---------------- ---------------- ------------------
<S> <C> <C> <C>
Cash in hand, at bank ......... 26,076 61,730 87,806
====== ====== ======
</TABLE>
17. CAPITAL COMMITMENTS
The company had no capital commitments at December 31, 1997.
18. CONTINGENT LIABILITIES
There were no contingent liabilities at December 31, 1997.
A-24
<PAGE>
PARK ASSOCIATES LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
19. PENSIONS
Defined Contribution Scheme
The company operates a defined contribution pension scheme for the benefit
of the directors and senior employees. The assets of the scheme are
administered by trustees in a fund independent from those of the company.
20. LEASING COMMITMENTS
Operating lease payments amounting to (pound sterling)7,750 are due
within one year. The leases to which these amounts relate expire as follows:
<TABLE>
<CAPTION>
1997
LAND AND
BUILDINGS
(POUND STERLING)
----------------
<S> <C>
Between one and five years ......... 7,750
=====
</TABLE>
21. TRANSACTIONS WITH DIRECTORS AND RELATED PARTIES
(a) Transactions with directors
Amounts due in respect of loans, quasi-loans and credit transactions by
directors were as follows:
<TABLE>
<CAPTION>
AMOUNT MAXIMUM
OUTSTANDING LIABILITY
1997 DURING YEAR
(POUND STERLING) (POUND STERLING)
---------------- ----------------
<S> <C> <C>
J R Holmes ......... -- 496
P McGarvey ......... -- 69
</TABLE>
(b) Transactions with other related parties were as follows:
J R Holmes and P McGarvey are partners in Benson McGarvey Henderson and
the inter business transactions in the year were rent receivable and management
charges amounting to (pound sterling)15,400 and (pound sterling)8,709.
J R Holmes is a director of both Gary Lineker Promotions Limited and
David Gower Promotions Limited. Park Associates Limited was involved in
normal trading activities with both companies during the year. Commission
and fees receivable in respect of Gary Lineker Promotions Limited being
(pound sterling)128,175 and David Gower Promotions Limited
(pound sterling)31,222 with debtors due at the period end of
(pound sterling)8,842 and (pound sterling)2,181.
22. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US
GAAP)
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK
GAAP"), which differ in certain material respects from generally accepted
accounting principles in the United States ("US GAAP"). Such differences
involve methods for measuring the amounts shown in the financial statements, as
well as additional disclosures required by US GAAP.
A-25
<PAGE>
PARK ASSOCIATES LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
The following is a summary of the material adjustment to profit on
ordinary activities and shareholders' equity which would have been required in
applying the significant differences between UK and US GAAP.
(a) Reconciliation of profit and loss accounts:
<TABLE>
<CAPTION>
1997
(POUND STERLING)
----------------
<S> <C>
Profit for financial year reported under:
UK GAAP ........................................................... 69,312
Depreciation expense .............................................. (5,420)
------
Net income in accordance with US GAAP ............................. 63,892
======
Earnings per share -- basic and dilutive .......................... 15.12
=======
Weighted average shares outstanding -- basic and dilutive ......... 4,225
=======
(b) Reconciliation of shareholders' equity
Shareholders' equity per GAAP ..................................... 313,261
Depreciation expense .............................................. (42,005)
========
Shareholders' equity in accordance with US GAAP ................... 271,256
========
(c) Changes in shareholders' equity on a US GAAP basis
Shareholders' equity at beginning of year ......................... 207,364
Net income ........................................................ 63,892
========
Shareholders' equity at end of year ............................... 271,256
========
</TABLE>
In preparing the summary of differences between UK and US GAAP, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities,
and the estimates of revenue and expenses. Accounting estimates have been
employed in these financial statements to determine reported amounts, including
realizability, useful lives of tangible assets, income taxes and other areas.
Actual results could differ from those estimates.
The following is a description of the US GAAP reconciling item:
Under UK GAAP no depreciation has been provided on freehold buildings as
it is the company's policy to maintain these assets in a continual state of
sound repair. The useful lives of these assets are thus so long and residual
values so high that any depreciation would not be material. Residual value is
based on prices prevailing at the date of acquisition or subsequent valuation.
For US GAAP purposes the acquisition cost of the freehold buildings is
depreciated over 39 years from the original date of purchase.
CASH FLOW INFORMATION
Under UK GAAP, the Cash Flow Statement is presented in accordance with UK
Financial Reporting Standard No. 1, as revised ("FRS 1"). The Statement
prepared under FRS 1 presents substantially the same information as that
required under US GAAP as interpreted by Statement of Financial Accounting
Standard No. 95.
Under UK GAAP, cash flows are presented for operating activities; returns
on investments and servicing of finance; taxation; capital expenditure and
financial investment acquisitions and disposals and equity dividends paid. US
GAAP requires the classification of cash flows as resulting from operating,
investing and financing activities.
A-26
<PAGE>
PARK ASSOCIATES LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
Cash flows under UK GAAP in respect of interest received and taxation
would be included within the operating activities. Capital expenditure and
financial investment and cash flows from acquisitions and disposals would be
included within investing activities under US GAAP. Equity dividends paid would
be included within financing activities under US GAAP.
A-27
<PAGE>
PARK ASSOCIATES LIMITED
UNAUDITED INTERIM BALANCE SHEET
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------
1998 1997
NOTE (POUND STERLING) (POUND STERLING)
------ ---------------- ----------------
<S> <C> <C> <C>
Fixed assets:
Tangible assets ........................................ 2 23,994 330,622
Investments ............................................ -- 194
------ -------
23,994 330,816
------ -------
Current assets:
Debtors ................................................ 274,167 202,572
Cash at bank and in hand ............................... 104,354 98,686
------- -------
378,521 301,258
------- -------
Creditors: amounts falling due within one year ......... (306,437) (305,303)
-------- --------
Net current assets/(liabilities) ....................... 72,084 (4,045)
-------- --------
Total assets less current liabilities .................. 96,078 326,771
Provisions for liabilities and charges ................. (2,437) --
-------- --------
93,641 326,771
======== ========
Capital and reserves:
Called up share capital ................................ 10,000 100
Profit and loss account ................................ 83,641 326,671
-------- --------
Shareholders' funds .................................... 3 93,641 326,771
======== ========
</TABLE>
The accompanying notes form an integral part of these financial statements.
A-28
<PAGE>
PARK ASSOCIATES LIMITED
UNAUDITED INTERIM PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------------
1998 1997
NOTE (POUND STERLING) (POUND STERLING)
------ ---------------- ----------------
<S> <C> <C> <C>
Commission and fees receivable ............................... 1,558,380 1,348,246
Commission and fees payable .................................. (1,189,489) (1,069,103)
---------- ----------
368,891 279,143
---------- ----------
Administrative expenses ...................................... 2 (554,533) (179,863)
Other operating income ....................................... 7,260 8,140
---------- ----------
Operating (loss)/profit ...................................... (178,382) 107,420
Net interest ................................................. 4,691 1,856
---------- ----------
(Loss)/profit on ordinary activities before taxation ......... (173,691) 109,276
Tax on (loss)/profit on ordinary activities .................. 18,071 (26,454)
---------- ----------
(Loss)/profit for the financial period ....................... 3 (155,620) 82,822
Dividends .................................................... 3 (64,000) --
---------- ----------
(Loss)/profit transferred to reserves ........................ (219,620) 82,822
========== ==========
</TABLE>
There were no recognized gains or losses other than the (loss)/profit for the
financial periods.
The accompanying notes form an integral part of these financial statements.
A-29
<PAGE>
PARK ASSOCIATES LIMITED
UNAUDITED INTERIM CASH FLOW STATEMENT
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------
1998 1997
NOTE (POUND STERLING) (POUND STERLING)
------ ---------------- ----------------
<S> <C> <C> <C>
Net cash inflow from operating activities ......................... 4 78,625 158,118
Return on investments and servicing of finance:
Interest received ................................................. 4,691 1,856
------ -------
Net cash inflow from returns on investments and servicing of
finance .......................................................... 4,691 1,856
------ -------
Taxation .......................................................... (31,000) (11,000)
------- -------
Capital expenditure and financial investment:
Purchase of tangible fixed assets ................................. (487) (45,870)
Sale of tangible fixed assets ..................................... 28,525 13,700
------- -------
Net cash inflow/(outflow) from capital expenditure and
financial investment ............................................. 28,038 (32,170)
------- -------
Acquisition and disposals:
Purchase of investments ........................................... -- (194)
Sale of investments ............................................... 194 --
------- -------
Net cash inflow/(outflow) from acquisitions and disposals ......... 194 (194)
------- -------
Equity dividends paid ............................................. (64,000) (44,000)
------- -------
Increase in cash .................................................. 5 16,548 72,610
======= =======
</TABLE>
The accompanying notes form an integral part of these financial statements.
A-30
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 AND JUNE 30 1997
1. BASIS OF ACCOUNTING
The interim financial statements for the six months to June 30, 1998 and
1997 are unaudited and have been prepared in accordance with the accounting
policies adopted in the financial statements for the year ended December 31,
1997.
2. STAFF COSTS AND DISPOSAL OF FREEHOLD PROPERTY
(a) On June 17, 1998 the company voted to directors, J R Holmes and P
McGarvey, bonuses in equal share by way of transfer of the freehold property at
open market value at that date.
The following amounts are included in Administrative expenses in respect
of the above transaction:
<TABLE>
<CAPTION>
(POUND STERLING)
----------------
<S> <C>
Directors' bonuses ............................. 200,000
Loss on disposal of freehold property .......... 61,382
</TABLE>
The net book value of tangible fixed assets at June 30, 1998 has been
reduced by (pound sterling)261,382 as a result of the above disposal.
(b) Additional costs relating to other staff in respect of bonuses,
pension contributions and redundancy amounting to (pound sterling)77,365 were
paid in the six months ended June 30, 1998 for which there were no equivalent
costs in the six-month period to June 30, 1997.
3. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING) (POUND STERLING)
---------------- ----------------
<S> <C> <C>
(Loss)/profit for the financial period ................. (155,620) 82,822
Dividends .............................................. (64,000) --
-------- ------
Net (decrease)/increase in shareholders' funds ......... (219,620) 82,822
Shareholders' funds at January 1 ....................... 313,261 243,949
-------- -------
Shareholders' funds at June 30 ......................... 93,641 326,771
======== =======
</TABLE>
4. NET CASH INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING) (POUND STERLING)
---------------- ----------------
<S> <C> <C>
Operating (loss)/profit ...................................... (178,382) 107,420
Depreciation ................................................. 6,428 5,831
Directors' bonuses by transfer of property ................... 200,000 --
Loss/(profit) on sale of tangible fixed assets ............... 73,128 (1,929)
Increase in debtors .......................................... (22,395) (70,469)
(Decrease)/increase in creditors ............................. (154) 117,265
-------- -------
Net cash inflow from continuing operating activities ......... 78,625 158,118
======== =======
</TABLE>
A-31
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 AND JUNE 30 1997
5. ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
AT AT
JANUARY 1 JUNE 30
1998 CASH FLOW 1998
(POUND STERLING) (POUND STERLING) (POUND STERLING)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash in hand, at bank ......... 87,806 16,548 104,354
====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
AT AT
JANUARY 1 JUNE 30
1997 CASH FLOW 1998
(POUND STERLING) (POUND STERLING) (POUND STERLING)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash in hand, at bank ......... 26,076 72,610 98,686
====== ====== ======
</TABLE>
6. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(US GAAP)
The US GAAP reconciliations of net profit/(loss) and shareholders' equity
included herein is unaudited. Certain information and disclosures, normally
included in financial statements prepared in accordance with US GAAP, have been
omitted as permitted by such requirements. However, the company believes that
the disclosures made are adequate to make the information presented not
misleading.
SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP")
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK
GAAP"), which differ in certain material respects from generally accepted
accounting principle in the United States ("US GAAP"). Such differences involve
methods for measuring the amounts shown in the financial statements, as well as
additional disclosures required by US GAAP.
The following is a summary of the material adjustments to profit/(loss) on
ordinary activities and shareholders' equity which would have been required in
applying the significant differences between UK and US GAAP.
(a) Reconciliation of profit and loss accounts for the six months ended
June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING) (POUND STERLING)
---------------- ----------------
<S> <C> <C>
Net (loss)/profit per UK GAAP ..................................... (219,620) 82,822
Depreciation expense .............................................. (2,258) (2,710)
Difference in loss on disposal .................................... 44,263 --
-------- ------
Net (loss)/income in accordance with US GAAP ...................... (177,615) 80,112
======== ======
(Loss)/earnings per share --basic and dilutive .................... (17.76) 801.12
======== ======
Weighted average shares outstanding -- basic and dilutive ......... 10,000 100
======== ======
</TABLE>
A-32
<PAGE>
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 AND JUNE 30 1997
6. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(US GAAP) (CONTINUED)
(b) Reconciliation of shareholders' equity at June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING) (POUND STERLING)
---------------- ----------------
<S> <C> <C>
Shareholders' equity per UK GAAP ........................ 93,641 326,771
Depreciation expense .................................... (44,263) (39,295)
Difference in loss on disposal .......................... 44,263 --
------- -------
Shareholders' equity in accordance with US GAAP ......... 93,641 287,476
======= =======
</TABLE>
(c) Changes in Shareholders' equity on a US GAAP basis:
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING) (POUND STERLING)
---------------- ----------------
<S> <C> <C>
Shareholders' equity at beginning of period ......... 271,256 ) 207,364
Net (loss)/profit ................................... (177,615) 80,112
-------- -------
Shareholders' equity at end of period ............... 93,641 287,476
======== =======
</TABLE>
In preparing the summary of differences between UK and US GAAP, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities,
and the estimates of revenue and expenses. Accounting estimates have been
employed in these financial statements to determine reported amounts, including
realizability, useful lives of tangible assets, income taxes and other areas.
Actual results could differ from those estimates.
The following is a description of the US GAAP reconciling item:
Under UK GAAP no depreciation has been provided on freehold buildings as
it is the company's policy to maintain these assets in a continual state of
sound repair. The useful lives of these assets are thus so long and residual
values so high that any depreciation would not be material. Residual value is
based on prices prevailing at the date of acquisition or subsequent valuation.
For US GAAP purposes the acquisition cost of the freehold buildings is
depreciated over 39 years from the original date of purchase.
CASH FLOW INFORMATION
Under UK GAAP, the Cash Flow Statement is presented in accordance with UK
Financial Reporting Standard No. 1, as revised ("FRS 1"). The Statement
prepared under FRS 1 presents substantially the same information as that
required under US GAAP as interpreted by SFAS No. 95.
Under UK GAAP, cash flows are presented for operating activities; returns
on investments and servicing of finance; taxation; capital expenditure and
financial investment acquisitions and disposals and equity dividends paid. US
GAAP requires the classification of cash flows as resulting from operating,
investing and financing activities.
Cash flows under UK GAAP in respect of interest received and taxation
would b included within the operating activities. Capital expenditure and
financial investment and cash flows from acquisitions and disposals would be
included within investing activities under US GAAP. Equity dividends paid would
be included within financing activities under US GAAP.
A-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Marquee Group, Inc.
We have audited the accompanying combined balance sheets of Tollin-Robbins
Entertainment as of December 31, 1997 and 1996, and the related combined
statements of operations and comprehensive income, stockholders' equity
(deficit), and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of
Tollin-Robbins Entertainment at December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
July 6, 1998
A-34
<PAGE>
TOLLIN-ROBBINS ENTERTAINMENT
COMBINED BALANCE SHEETS
(000'S OMITTED)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30
1997 1996 1998
--------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 102 $ 712 $ 2,243
Marketable securities ....................................... -- -- 723
Producer fee receivable ..................................... -- -- 130
Management fee receivable ................................... 60 -- --
Advances to stockholders .................................... -- -- 132
Deferred income tax ......................................... -- 80 --
Other ....................................................... 8 -- 59
------ ------- -------
Total current assets ......................................... 170 792 3,287
Property and equipment, net .................................. 310 321 298
------ ------- -------
Total assets ................................................. $ 480 $ 1,113 $ 3,585
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ....................... $ 73 $ 68 $ 99
Payable to stockholders ..................................... 388 840 1,536
Deferred revenue ............................................ 152 762 77
------ ------- -------
Total current liabilities .................................... 613 1,670 1,712
Stockholders' equity (deficit):
Capital stock ............................................... 4 4 4
Accumulated equity (deficit) ................................ (137) (561) 1,880
Accumulated other comprehensive income (loss) ............... -- -- (11)
------ ------- -------
Total stockholders' equity (deficit) ......................... (133) (557) 1,873
------ ------- -------
Total liabilities and stockholders' equity (deficit) ......... $ 480 $ 1,113 $ 3,585
====== ======= =======
</TABLE>
See accompanying notes.
A-35
<PAGE>
TOLLIN-ROBBINS ENTERTAINMENT
COMBINED STATEMENTS OF OPERATIONS
(000'S OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31 JUNE 30
--------------------- ---------------------
1997 1996 1998 1997
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Producer fees .......................... $4,284 $3,133 $3,955 $2,270
Post-production revenue ................ 595 490 247 268
Management services .................... 60 -- 40 --
Other .................................. 134 52 50 15
------ ------ ------ ------
Total revenues .......................... 5,073 3,675 4,292 2,553
Operating expenses:
Compensation to stockholders and related
benefits ............................. 3,223 3,551 1,600 1,612
Post-production expenses ............... 374 274 111 166
General and administrative ............. 846 482 529 363
Depreciation expense ................... 75 50 35 35
Other expenses ......................... 51 60 -- --
------ ------ ------ ------
Total operating expenses ................ 4,569 4,417 2,275 2,176
Income (loss) before income tax provision
(benefit) .............................. 504 (742) 2,017 377
Income tax provision (benefit) .......... 80 (80) -- 52
------ ------ ------ ------
Net income (loss) ....................... $ 424 $ (662) $2,017 $ 325
====== ====== ====== ======
</TABLE>
See accompanying notes.
A-36
<PAGE>
TOLLIN-ROBBINS ENTERTAINMENT
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
COMMON EARNINGS COMPREHENSIVE
STOCK (DEFICIT) INCOME TOTAL
-------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 ................... $ 4 $ 101 $ -- $ 105
Net loss .................................... -- (662) (662)
--- ------- -------
Balance at December 31, 1996 ................. 4 (561) -- (557)
Net income .................................. -- 424 -- 424
--- ------- ------ -------
Balance at December 31, 1997 ................. 4 (137) -- (133)
Net income (unaudited) ...................... -- 2,017 -- 2,006
Other comprehensive income (loss)
(unaudited) ............................... -- -- (11) (11)
--- ------- ------ -------
Balance at June 30, 1998 (unaudited) ......... $ 4 $ 1,880 $ (11) $ 1,873
=== ======= ====== =======
</TABLE>
See accompanying notes.
A-37
<PAGE>
TOLLIN-ROBBINS ENTERTAINMENT
COMBINED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
----------------------- -------------------------
1997 1996 1998 1997
---------- ---------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) .................................. $ 424 $ (662) $ 2,017 $ 325
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization ..................... 75 50 35 35
Loss on disposal of fixed assets .................. 51 60 -- --
Deferred income tax ............................... 80 (80) -- 52
Changes in operating assets and liabilities:
Producer fee receivable ......................... -- -- (130) --
Management fee receivable ....................... (60) -- 60 --
Advances to stockholders ........................ -- -- (132) (330)
Other assets .................................... (8) 4 (51) --
Accounts payable and accrued expenses ........... 5 (104) 26 23
Payable to stockholders ......................... (452) 681 1,148 772
Deferred revenue ................................ (610) 903 (75) (469)
------- ------ ------- -------
Net cash provided by (used in) operating
activities ........................................ (495) 852 2,898 (392)
INVESTING ACTIVITIES
Purchases of marketable securities ................. -- -- (734) --
Purchases of equipment ............................. (115) (336) (23) (101)
------- ------ ------- -------
Net cash used in investing activities .............. (115) (336) (757) (101)
------- ------ ------- -------
Increase (decrease) in cash ........................ (610) 516 2,141 307
Cash and cash equivalents at beginning of
period ............................................ 712 196 102 712
------- ------ ------- -------
Cash and cash equivalents at end of period ......... $ 102 $ 712 $ 2,243 $ 1,019
======= ====== ======= =======
</TABLE>
See accompanying notes.
A-38
<PAGE>
TOLLIN-ROBBINS ENTERTAINMENT
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION FOR THE PERIOD ENDED JUNE 30, 1997
AND SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION AND BUSINESS ACTIVITIES
The combined financial statements of Tollin-Robbins Entertainment are
comprised of the following entities: Tollin-Robbins Productions; Halcyon Days
Productions, Inc. (Halcyon); Robbins Entertainment Group, Inc. (Robbins); and
Tollin-Robbins Management (TRM) (collectively referred to herein as the
Company). All significant intercompany accounts and transactions have been
eliminated.
Tollin-Robbins Productions, a California General Partnership (the
Partnership), was formed in November 1993. Halcyon and Robbins are the equal
partners of the Partnership. Profit and losses are allocated equally to each
partner. The Partnership is engaged in the business of providing executive
producer, director, writer, post-production, and other creative services to
owners and distributors of entertainment programming.
Halcyon was incorporated in California in November 1990, and is an S
Corporation under the Internal Revenue Code; Mr. Tollin is the sole stockholder
of this entity. Robbins was initially incorporated in California in May 1991 as
a C Corporation and elected, effective January 1, 1998, an S Corporation status
under the Internal Revenue Code. Mr. Robbins is the sole stockholder of this
entity. These two entities each receive their 50% share of the results of
operations generated by the Partnership.
TRM, a California limited liability company which was formed in April
1997, is engaged in the business of providing management services to artists.
Messrs. Tollin and Robbins are the sole members of TRM. TRM typically receives
a percentage of the compensation paid to the artists it represents.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited combined financial statements at June 30, 1998
and for the six month periods ended June 30, 1998 and 1997 have been prepared
on the same basis as the audited combined financial statements and, in the
opinion of management, include all adjustments (consisting only of normal and
recurring accruals) necessary to present fairly the combined financial
information set forth therein, in accordance with generally accepted accounting
principles. The results of operations for the six month period ended June 30,
1998 are not necessarily indicative of the results to be expected for the
entire fiscal year.
SIGNIFICANT CUSTOMER
Approximately 79% in 1997 and 87% in 1996 of the Company's total producer
fees and post-production revenues shown in the accompanying combined statement
of operations was received from Nickelodeon/MTV Networks and affiliated
companies.
REVENUE RECOGNITION
Executive producer and other creative services revenue is recognized as
the related production services are rendered. Pursuant to a two-year production
services agreement with Nickelodeon/MTV Networks (Agreement) which commenced as
of February 1, 1996, the Partnership will receive $1,750,000 per year in
guaranteed payments (payable in equal bi-monthly installments over the term).
Such revenue is recognized ratably over the Agreement's term. In addition to
the guaranteed payments, the Partnership received a signing bonus of $500,000,
which is being recognized ratably over the original two year term. Both parties
to the Agreement have agreed to extend the term to a third year (February 1,
1998 -- January 31, 1999). The Partnership will receive a guaranteed minimum
payment of $2,500,000 for its services over the third year.
A-39
<PAGE>
TOLLIN-ROBBINS ENTERTAINMENT
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD ENDED JUNE 30, 1997
AND SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
Management fee commissions are recognized as services are rendered by the
related artists who are represented by TRM.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less and investments in money market
accounts to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities are accounted for using Statement of Financial
Account Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." At June 30, 1998, the Company's marketable securities,
all of which are classified as available-for sale as defined by SFAS 115,
consist primarily of municipal securities. Pursuant to SFAS 115, such
investments are stated at market value, and unrealized gains and losses on such
securities are reflected, net of tax, in other comprehensive income or loss.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method, generally ranging from
seven to ten years.
INCOME TAXES
Income taxes are accounted for using Statement of Financial Account
Standards No. 109, "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
COMPREHENSIVE INCOME
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS 130
established new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. SFAS 130 requires unrealized
gains and losses on the Company's available-for-sale securities to be included
in other comprehensive income.
For the six month period ended June 30, 1998, the Company's comprehensive
income was $2,006,000. The comprehensive income differs from the net income in
the first six months of 1998 due to the inclusion of the Company's unrealized
loss on marketable securities in its comprehensive income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
A-40
<PAGE>
TOLLIN-ROBBINS ENTERTAINMENT
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD ENDED JUNE 30, 1997
AND SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
2. MARKETABLE SECURITIES (UNAUDITED)
At June 30, 1998, the Company has classified all investments as
available-for-sale.
The amortized cost, gross unrealized loss and fair value of the marketable
securities are as follows (in 000's):
<TABLE>
<CAPTION>
GROSS
AMORTIZED UNREALIZED FAIR
COST LOSS VALUE
----------- ------------ ------
<S> <C> <C> <C>
Municipal obligations ......... $734 $ (11) $723
</TABLE>
Contractual maturities of marketable debt securities at June 30, 1998 are
as follows (in 000's):
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- ------
<S> <C> <C>
Due in one year or less ....................... $102 $100
Due after one year through five years ......... 160 156
Due after 10 years ............................ 472 467
---- ----
Total debt securities ......................... $734 $723
==== ====
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1996 1998
--------- --------- ------------
(Unaudited)
<S> <C> <C> <C>
Equipment ............................. $ 185 $ 167 $ 208
Furniture and fixtures ................ 306 279 306
------ ------ ------
491 446 514
Less accumulated depreciation ......... (181) (125) (216)
------ ------ ------
$ 310 $ 321 $ 298
====== ====== ======
</TABLE>
4. STOCKHOLDERS' EQUITY (DEFICIT)
The Company's capital stock consists of the common stock of Halcyon and
Robbins. The partners' equity of the Partnership has been eliminated.
At December 31, 1997 and 1996, there were 1,000 shares of common stock
authorized, issued and outstanding of Halcyon, and 3,000 shares of common stock
authorized, issued and outstanding of Robbins. All shares of common stock were
issued at $1 per share.
5. INCOME TAXES
Partnerships and limited liability companies are not subject to federal or
state income taxes and, accordingly, no provision for income taxes has been
provided for the Partnership and TRM. The partners of the Partnership and
members of TRM are required to report their proportional share of gains,
losses, credits and deductions on their respective income tax returns.
A-41
<PAGE>
TOLLIN-ROBBINS ENTERTAINMENT
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD ENDED JUNE 30, 1997
AND SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
Halcyon is an S Corporation under Section 1361 of the Internal Revenue
Code. Under the provisions of the Internal Revenue Code, federal and state
taxes based on income for S Corporations are generally the direct liability of
the stockholders. Therefore, no federal and state tax provision has been
provided on S Corporation earnings other than certain state minimum taxes based
on income.
Robbins was a C Corporation as of December 31, 1997 and 1996 and,
accordingly, was subject to federal and state taxes. Robbins elected S
Corporation status effective January 1, 1998; accordingly, no federal and state
tax provision has been provided for the three months ended June 30, 1998 other
than certain state minimum taxes based on income.
The Company's provision for income taxes (benefit) consists of the
applicable amounts based on Robbins' result of operations and was as follows
(in 000's):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
------------------ JUNE 30,
1997 1996 1997
------ --------- ------------
(Unaudited)
<S> <C> <C> <C>
Deferred ..........
Federal ............ $50 $ (50) $33
State .............. 30 (30) 19
--- ----- ---
$80 $ (80) $52
=== ===== ===
</TABLE>
A reconciliation from the provision for income taxes based on the federal
statutory rate of 15% to the actual rate follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS
---------------------- ENDED
1997 1996 JUNE 30, 1997
---------- --------- --------------
(Unaudited)
<S> <C> <C> <C>
Statutory rate applied to income before income taxes...... 15.0% 15.0% 15.0%
State income taxes, net of federal income tax benefit..... 7.5 7.5 7.5
Income from non-taxable entities ......................... (12.6) (8.4) (11.9)
Other non-deductible expenses ............................ 0.5 0.5 0.4
Other, net ............................................... 5.5 (3.8) 2.8
----- ---- -----
15.9% 10.8% 13.8%
===== ==== =====
</TABLE>
The Company's deferred tax assets as of December 31, 1996 was principally
comprised of deferred revenue.
6. DEFERRED REVENUE
Deferred revenue consists of advances from television networks and
production companies for services not yet rendered.
7. COMMITMENT AND CONTINGENCIES
The Company rents its office facilities on a month-to-month basis from an
entity controlled by Messrs. Tollin and Robbins, the owners of the building.
The monthly rent is $3,750.
A-42
<PAGE>
TOLLIN-ROBBINS ENTERTAINMENT
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE PERIOD ENDED JUNE 30, 1997
AND SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
8. YEAR 2000 (UNAUDITED)
Until recently, computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data.
Such programs are unable to properly distinguish between the year 1900 and the
year 2000. This situation is frequently referred to as the "Year 2000 problem."
The Company believes that all of its own computer software is year 2000
compliant and that it will not need to make significant modifications or
replacements to its software so that its computer systems will function
properly with respect to dates in the year 2000 and beyond.
A-43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and the shareholders of Tony Stephens Associates
Limited
We have audited the accompanying balance sheet of Tony Stephens Associates
Limited ("the Company") as of April 30, 1998 and the related statements of
profit and loss account and cash flows for the year ended April 30, 1998 all
expressed in pounds sterling, (together, "the financial statements") which, as
described in the financial statements (pages A-45 to A-50), have been prepared
on the basis of accounting principles generally accepted in the United Kingdom.
These financial statements are the responsibility of the Directors of the
Company. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the
United Kingdom, which are substantially the same as auditing standards
generally accepted in the United States. These standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tony Stephens Associates
Limited as of April 30, 1998, and the results of its operations and its cash
flows for the year ended April 30, 1998, in conformity with accounting
principles generally accepted in the United Kingdom.
United Kingdom accounting principles vary in certain respects from
accounting principles generally accepted in the United States. The application
of the latter would have affected the determination of shareholders' equity and
financial position as of April 30, 1998 and the determination of net profit for
year ended April 30, 1998 to the extent summarised in Note 11 to the financial
statements.
Richard E Woodhall
Chartered Accountants and Registered Auditors
Birmingham
England
July 14, 1998 except for information presented in the Cash Flow Statement, and
notes 10 and 11 which the date is October 2, 1998.
A-44
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
ABBREVIATED BALANCE SHEET
AT 30 APRIL 1998
<TABLE>
<CAPTION>
1998
NOTES (POUND STERLING)000
------- -------------------
<S> <C> <C>
FIXED ASSETS ...........................................
Tangible assets ........................................ 4 31
--
CURRENT ASSETS
Debtors ................................................ 235
Cash at bank ........................................... 97
---
332
CREDITORS: amounts falling due within one year ......... 5 (326)
----
NET CURRENT ASSETS ..................................... 6
----
TOTAL ASSETS LESS CURRENT LIABILITIES .................. 37
====
CAPITAL AND RESERVES
Called up share capital ................................ 6 1
Profit and loss account ................................ 7 36
----
8 37
====
</TABLE>
The accompanying notes form an integral part of the financial statements.
A-45
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 APRIL 1998
<TABLE>
<CAPTION>
1998
NOTES (POUND STERLING)000
------- -------------------
<S> <C> <C>
TURNOVER .............................................. 3,106
Cost of sales ......................................... (2,646)
------
GROSS PROFIT .......................................... 460
Administrative expenses ............................... (206)
------
OPERATING PROFIT ...................................... 2 254
Interest received ..................................... 9
------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION ......... 263
Taxation .............................................. 3 (70)
------
PROFIT FOR THE FINANCIAL YEAR AFTER TAXATION .......... 193
Retained profit brought forward ....................... 7 33
------
226
Dividends paid ........................................ (190)
------
RETAINED PROFIT CARRIED FORWARD ....................... 7 36
======
</TABLE>
There were no recognised gains or losses other than the profit for the
financial period.
The accompanying notes form an integral part of the financial statements.
A-46
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 APRIL 1998
<TABLE>
<CAPTION>
1998
NOTES (POUND STERLING)000
----------- -------------------
<S> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 10(a) 261
-----
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received ................................. 9
-----
TAXATION
Corporation tax paid .............................. (76)
-----
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets ......... (17)
-----
EQUITY DIVIDENDS PAID
(190)
-----
DECREASE IN CASH .................................. 10(b) (13)
=====
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
1998
(POUND STERLING)000
-------------------
Decrease in cash in the year ...................... 10(b) (13)
-----
MOVEMENT IN NET FUNDS IN THE YEAR ................. (13)
NET FUNDS AT 1 MAY 1997 ........................... 110
-----
NET FUNDS AT 30 APRIL 1998 ........................ 97
=====
</TABLE>
The accompanying notes form an integral part of the financial statements.
A-47
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
NOTES TO THE ACCOUNTS
AT 30 APRIL 1998
1. ACCOUNTING POLICIES
ACCOUNTING CONVENTION
The accounts have been prepared under the historical cost convention and
in accordance with the Financial Reporting Standard for Small Entities.
TURNOVER
Turnover represents net invoiced services, excluding VAT.
DEPRECIATION
Depreciation is provided on all tangible fixed assets, at rates calculated
to write off the cost evenly over a period which does not exceed anticipated
useful life.
Equipment and vehicles -- over 4 years.
PENSION COSTS
The Company operates a money purchase pension scheme and contributions are
charged to the profit and loss account in the year in which they are paid.
OPERATING LEASES
Rentals applicable to operating leases where substantially all of the
benefits and risks of ownership remain with the lessor are charged to profit
and loss account as incurred.
2. OPERATING PROFIT
This is stated after charging:
<TABLE>
<CAPTION>
1998
(POUND STERLING)000
-------------------
<S> <C>
Depreciation of tangible fixed assets ......... 13
Auditors' remuneration ........................ 2
Directors' remuneration ....................... 109
Operating lease rentals ....................... 8
Pension costs ................................. 40
===
</TABLE>
During the year retirement benefits were accruing to 2 directors (1997 --
2) in respect of money purchase pension schemes.
3. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998
(POUND STERLING)000
-------------------
<S> <C>
UK corporation tax ......... 70
==
</TABLE>
A-48
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
NOTES TO THE ACCOUNTS
AT 30 APRIL 1998
4. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
VEHICLES AND
EQUIPMENT
(POUND STERLING)000
-------------------
<S> <C>
Cost:
At 1 May 1997 ........................... 43
Additions ............................... 17
--
At 30 April 1998 ........................ 60
--
Depreciation:
At 1 May 1997 ........................... 16
Provided in the year .................... 13
--
At 30 April 1998 ........................ 29
--
Net book value at 30 April 1998 ......... 31
==
</TABLE>
5. CREDITORS: amounts falling due within one year
<TABLE>
<CAPTION>
1998
(POUND STERLING)000
-------------------
<S> <C>
Trade creditors .................... 272
Corporation tax .................... 24
Tax and National Insurance ......... 30
---
326
===
</TABLE>
6. SHARE CAPITAL
<TABLE>
<CAPTION>
1998 1998
NO. (POUND STERLING)000
----- -------------------
<S> <C> <C>
Authorised ordinary shares of (pound sterling)1 each ......... 1,000 1,000
===== =====
</TABLE>
<TABLE>
<CAPTION>
1998 1998
NO. (POUND STERLING)
----- ----------------
<S> <C> <C>
Allotted, called up and fully paid ordinary shares of (pound sterling)1 each ........ 500 500
=== ===
</TABLE>
7. RESERVES
<TABLE>
<CAPTION>
PROFIT AND
LOSS ACCOUNT
(POUND STERLING)000
-------------------
<S> <C>
At 1 May 1997 ........................ 33
Retained profit for the year ......... 3
--
At 30 April 1998 ..................... 36
==
</TABLE>
A-49
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
NOTES TO THE ACCOUNTS
AT 30 APRIL 1998
8. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998
(POUND STERLING)000
-------------------
<S> <C>
Profit for the year .......................... 193
Dividends .................................... (190)
----
Net increase in shareholders' funds .......... 3
Shareholders' funds at 1 May 1997 ............ 34
----
Shareholders' funds at 30 April 1998 ......... 37
====
</TABLE>
9. LEASING COMMITMENTS
As at 30 April 1998 the company had annual commitments of
(pound sterling)8,319 and on a non con-cancellable operating lease which
expires in January 2000.
10. NOTES TO THE STATEMENT OF CASH FLOWS
a) Reconciliation of operating profit to net cash inflow from operating
activities
<TABLE>
<CAPTION>
1998
(POUND STERLING)000
-------------------
<S> <C>
Operating profit .................................. 254
Depreciation of tangible fixed assets ............. 13
Increase in debtors ............................... (210)
Increase in creditors ............................. 204
----
Net cash inflow from operating activities ......... 261
====
</TABLE>
b) Analysis of changes in net funds
<TABLE>
<CAPTION>
AT 1 MAY AT 30 APRIL
1997 CASH FLOW 1998
(POUND STERLING)000 (POUND STERLING)000 (POUND STERLING)000
------------------- ------------------- -------------------
<S> <C> <C> <C>
Cash at bank and in hand ......... 110 (13) 97
=== == ==
</TABLE>
11. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK
GAAP"), which differ in certain respects from generally accepted accounting
principles in the United States ("US GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements as well as
additional disclosures required by US GAAP.
There are no material adjustments to profit for the year, cash flows and
shareholders' equity in applying the significant differences between UK and US
GAAP.
A-50
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
UNAUDITED INTERIM BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------
1998 1997
NOTES (POUND STERLING)000 (POUND STERLING)000
------- ------------------- --------------------
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets ........................................ 6 32 25
-- --
CURRENT ASSETS
Debtors ................................................ 7 334 84
Cash at bank and in hand ............................... 28 263
--- ---
362 347
CREDITORS: amounts falling due within one year ......... 8 (308) (331)
---- ----
NET CURRENT ASSETS ..................................... 54 16
---- ----
TOTAL ASSETS LESS CURRENT LIABILITIES .................. 86 41
==== ====
CAPITAL AND RESERVES
Called up share capital ................................ 9 1 1
Profit and loss account ................................ 10 85 40
---- ----
SHAREHOLDERS' FUNDS .................................... 11 86 41
==== ====
</TABLE>
The accompanying notes form an integral part of these financial statements.
A-51
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
UNAUDITED INTERIM PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------
1998 1997
NOTES (POUND STERLING)000 (POUND STERLING)000
----- ------------------- -------------------
<S> <C> <C> <C>
COMMISSIONS AND FEES RECEIVABLE .............. 1,891 1,118
Commissions and fees payable ................. (1,612) (881)
------ -----
279 237
Administrative expenses ...................... (102) (89)
------ -----
OPERATING PROFIT ............................. 2 177 148
Bank interest receivable ..................... 5 3
------ -----
PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION .................................... 182 151
Tax on profit on ordinary activities ......... 5 (52) (38)
------ -----
PROFIT FOR THE PERIOD ........................ 130 113
Dividends .................................... (64) (83)
------ -----
PROFIT RETAINED FOR THE PERIOD ............... 66 30
====== =====
</TABLE>
There were no recognised gains or losses other than the profit for the
financial period.
The accompanying notes form an integral part of these financial statements.
A-52
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
UNAUDITED INTERIM STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------
1998 1997
NOTES (POUND STERLING)000 (POUND STERLING)000
----- ------------------- -------------------
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES ............ 14(a) 86 110
--- ---
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE
Interest received .................................... 5 3
--- ---
TAXATION
Corporation tax paid ................................. (54) (46)
--- ---
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets ............ (18) (6)
Receipts from sales of tangible fixed assets ......... --- 19
--- ---
(18) 13
--- ---
EQUITY DIVIDENDS PAID ................................ (120) (120)
--- ---
DECREASE IN CASH ..................................... 14(b) (101) (40)
=== ===
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
1998 1997
(POUND STERLING)000 (POUND STERLING)000
------------------- -------------------
Decrease in cash in period ........................... 14(b) (101) (40)
--- ---
MOVEMENTS IN NET FUNDS IN THE YEAR ................... (101) (40)
NET FUNDS AT 1 JANUARY ............................... 129 303
--- ---
NET FUNDS AT 30 JUNE ................................. 28 263
=== ===
</TABLE>
The accompanying notes form an integral part of these financial statements.
A-53
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
NOTES TO THE UNAUDITED INTERIM ACCOUNTS
AT 30 JUNE 1998
1. ACCOUNTING POLICIES
BASIS FOR PREPARATION
The financial statements have been prepared under the historical cost
convention.
The principal accounting policies of the company are set out below.
TURNOVER
Turnover is gross amount receivable by the company, invoiced on behalf of
clients when the company acts as agents and for other services provided,
excluding VAT and trade discounts.
DEPRECIATION
Depreciation is provided on all tangible fixed assets, at rates calculated
to write off the cost, less estimated residual value based on prices prevailing
at the date of acquisition, of each asset evenly over its expected useful life,
as follows:
Equipment and vehicles - over 4 years
DEFERRED TAXATION
Deferred taxation is provided using the liability method on all timing
differences which are expected to reverse in the future without being replaced,
calculated at the rate at which it is anticipated the timing differences will
reverse. Advance corporation tax which is expected to be recoverable in the
future is deducted from the deferred taxation balance.
Deferred tax assets are only recognised if recovery without replacement by
equivalent debit balances is reasonably certain.
CONTRIBUTIONS TO PENSION FUNDS
The pension costs for the money purchase scheme charged against profits
represent the amount of the contributions payable to the scheme in respect of
the accounting period.
LEASED ASSETS
All other leases are regarded as operating leases and the payments made
under them are charged to the profit and loss account on a straight-line basis
over the lease term.
2. OPERATING PROFIT
This is stated after charging:
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING)000 (POUND STERLING)000
------------------- -------------------
<S> <C> <C>
Auditors' remuneration ..................... 1 1
Depreciation of owned fixed assets ......... 7 5
Other operating lease rentals .............. 4 4
======= ======
</TABLE>
A-54
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
NOTES TO THE UNAUDITED INTERIM ACCOUNTS (CONTINUED)
AT 30 JUNE 1998
3. STAFF COSTS
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING)000 (POUND STERLING)000
------------------- -------------------
<S> <C> <C>
Wages and salaries ............ 49 31
Social security costs ......... 6 3
Other pension costs ........... 15 25
-- --
70 59
== ==
</TABLE>
The average number of employees of the company during the period was 5
(1997 - 4).
4. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING)000 (POUND STERLING)000
------------------- -------------------
<S> <C> <C>
Emoluments ...................................................... 35 27
Pension contributions to money purchase pension schemes ......... 14 24
-- --
49 51
== ==
</TABLE>
During the period 2 directors (1997 -2 directors) participated in money
purchase pension schemes.
5. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING)000 (POUND STERLING)000
------------------- -------------------
<S> <C> <C>
UK corporation tax ......... 52 38
== ==
</TABLE>
6. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES
MOTOR AND COMPUTER
VEHICLES FITTINGS EQUIPMENT TOTAL
(POUND STERLING)000 (POUND STERLING)000 (POUND STERLING)000 (POUND STERLING)000
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Cost
At 1 January 1998 ................... 16 10 17 43
Additions ........................... 18 -- -- 18
-- -- -- --
At 30 June 1998 ..................... 34 10 17 61
-- -- -- --
Depreciation
At 1 January 1998 ................... 10 4 8 22
Provided in the period .............. 4 1 2 7
-- -- -- --
At 30 June 1998 ..................... 14 5 10 29
-- -- -- --
Net book amount at 30 June 1998 ..... 20 5 7 32
== == == ==
Net book amount at 30 June 1997 ..... 7 7 11 25
== == == ==
</TABLE>
A-55
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
NOTES TO THE UNAUDITED INTERIM ACCOUNTS (CONTINUED)
AT 30 JUNE 1998
7. DEBTORS
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING)000 (POUND STERLING)000
------------------- -------------------
<S> <C> <C>
Trade debtors .......................... 234 74
Loans to directors ..................... 100 --
Prepayments and accrued income ......... -- 10
--- --
334 84
=== ==
</TABLE>
8. CREDITORS: amounts falling due within one year
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING)000 (POUND STERLING)000
------------------- -------------------
<S> <C> <C>
Trade creditors ......................... 221 254
Corporation tax ......................... 39 29
Social security and other taxes ......... 45 32
Other creditors ......................... 3 --
Dividend payable ........................ -- 16
--- ---
308 331
=== ===
</TABLE>
9. SHARE CAPITAL
<TABLE>
<CAPTION>
1998 1997
NO. NO.
------- ------
<S> <C> <C>
Authorised ordinary shares of (pound sterling)1 each ......... 1,000 1,000
===== =====
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1998 1997
NO. NO. (POUND STERLING) (POUND STERLING)
------ ------ ---------------- ----------------
<S> <C> <C> <C> <C>
Allotted, called up and full paid ordinary shares of
(pound sterling)1 each ............................... 500 500 500 500
=== === === ===
</TABLE>
10. RESERVES
<TABLE>
<CAPTION>
PROFIT AND
LOSS ACCOUNT
(POUND STERLING)000
-------------------
<S> <C>
At 1 January 1998 ...................... 19
Retained profit for the period ......... 66
--
At 30 June 1998 ........................ 85
==
</TABLE>
11. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING)000 (POUND STERLING)000
------------------- -------------------
<S> <C> <C>
Profit for the period ....................... 130 113
Dividends ................................... (64) (83)
--- ---
Net increase in shareholders' funds ......... 66 30
Shareholders' funds at 1 January ............ 20 11
--- ---
Shareholders' funds at 30 June .............. 86 41
=== ===
</TABLE>
A-56
<PAGE>
TONY STEPHENS ASSOCIATES LIMITED
NOTES TO THE UNAUDITED INTERIM ACCOUNTS (CONTINUED)
AT 30 JUNE 1998
12. LEASING COMMITMENTS
Operating lease payments amounting to (pound sterling)8,319 (1997 -
(pound sterling)8,719) are due within one year. The leases to which these
amounts relate expire as follows:
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING)000 (POUND STERLING)000
------------------- -------------------
<S> <C> <C>
Between one and five years ......... 8 8
======= ======
</TABLE>
13. PENSIONS
Money Purchase Scheme
The company operates a money purchase pension scheme for the benefit of
the directors and senior employees. The assets of the scheme are administered
by trustees in a fund independent from those of the company.
14. NOTES TO THE STATEMENT OF CASH FLOWS
a) Reconciliation of operating profit to net cash inflow from operating
activities
<TABLE>
<CAPTION>
1998 1997
(POUND STERLING)000 (POUND STERLING)000
------------------- -------------------
<S> <C> <C>
Operating profit ................................................. 177 148
Depreciation of tangible fixed assets ............................ 7 5
Profit on sale of tangible fixed assets .......................... (2) --
(Increase)/decrease in operating debtors and prepayments ......... (93) (23)
Increase/(decrease) in operating creditors and accruals .......... (3) (20)
---- ---
Net cash inflow from operating activities ........................ 86 110
==== ===
</TABLE>
b) Reconciliation of operating profit to net cash inflow from operating
activities
<TABLE>
<CAPTION>
AT AT
1 JANUARY 30 JUNE
1998 CASH FLOW 1998
(POUND STERLING)000 (POUND STERLING)000 (POUND STERLING)000
------------------- ------------------- -------------------
<S> <C> <C> <C>
Cash at bank and in hand ......... 129 (101) 28
=== ==== ==
</TABLE>
15. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(US GAAP)
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK
GAAP"), which differ in certain respects from generally accepted accounting
principles in the United States ("US GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements as well as
additional disclosures required by US GAAP.
There are no material adjustments to profit for the year, cash flows and
shareholders' equity in applying the significant differences between UK and US
GAAP.
A-57
<PAGE>
ANNEX B
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1997 gives effect to the following transactions and
adjustments as if they had occurred as of January 1, 1997: (a) the completion
of the acquisitions of (i) ProServ Inc. and ProServ Television, Inc.
(collectively "ProServ") and (ii) QBQ Entertainment, Inc. ("QBQ")
(collectively, the "Marquee 1997 Acquisitions") and the related contractually
required reductions in personnel, officers' salaries and other costs; (b) the
completion of the acquisitions of (i) Alphabet City Records, Inc and Alphabet
City Industries, Inc. (collectively, "Alphabet City Acquisition"), (ii)
Cambridge Holding Corporation, Inc. ("Cambridge Acquisition"), (iii) Park
Associates, Ltd. ("PAL Acquisition"), (iv) Halcyon Days, Productions, Inc.
Robbins Entertainment Group, Inc. and Tollin/Robbins Management, LLC
(collectively, "Tollin/Robbins Acquisition") and (v) Tony Stephens Associates,
Ltd. ("Tony Stephens Acquisition") (collectively, the "Marquee Recent
Acquisitions") and the related impact of compensation arrangements with the
former officer/stockholders; and (c) the application of net proceeds from the
Credit Agreement with BankBoston, N.A. (the "Marquee Credit Facility").
The following unaudited pro forma condensed combined financial statements
as at and for the six months ended June 30, 1998 gives effect to the following
transactions and adjustments as if they had occurred as of January 1, 1998: (a)
the Marquee Recent Acquisitions and the related impact of compensation
arrangements with the former officer/shareholders and (b) the Marquee Credit
Facility.
The unaudited pro forma condensed combined financial statements are based
upon, and should be read in conjunction with: (i) the Company's Consolidated
Financial Statements as of and for the year ended December 31, 1997 (included
in the Company's Form 10-K); (ii) the Company's Condensed Consolidated
Financial Statements as of and for the six months ended June 30, 1998 (included
in the Company's Form 10-Q); the historical financial statements of the
companies included in the Marquee 1997 Acquisitions (included in the Company's
Registration Statement No. 333-31879) and the historical financial statements
of the companies included in the Marquee Recent Acquisitions (included in Annex
A herein). The Marquee 1997 Acquisitions and the Marquee Recent Acquisitions
have been reflected in the unaudited pro forma condensed combined financial
statements using the purchase method of accounting. In the opinion of
management, all adjustments necessary to fairly present this pro forma
information have been made. The pro forma information does not purport to be
indicative of the results that would have been reported had such events
actually occurred on the dates specified, nor is it indicative of the Company's
future results if the transactions are completed. The Company cannot predict
whether the consummation its acquisitions will conform to the assumptions used
in the preparation of the unaudited pro forma condensed combined financial
statements. The unaudited pro forma statements of operations data include
adjustments to operating expenses to reflect anticipated savings that
management believes it will be able to achieve through the implementation of
its operating strategy. However, there can be no assurance that the Company
will be able to achieve such savings.
The following financial statements and notes thereto contain
forward-looking statements that involve risks and uncertainties. The actual
results of the Company may differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, risks and uncertainties relating to the revenues of the businesses
owned and acquired, the integration of the businesses acquired and management
of growth and the ability of the Company to achieve strong savings. 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.
B-1
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARQUEE
MARQUEE 1997 PRO FORMA
AS REPORTED ACQUISITIONS(1) ADJUSTMENTS
------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues ..................... $ 21,268 $13,685
Operating expenses ........... 14,459 9,375 $ (680)(2)
General and
administrative expenses 6,316 3,678 (1,003)(2)
-------- ------- ----------
EBITDA ....................... 493 632 1,683
Deferred compensation
and other non-cash
expenses .................... 145 110 (110)(2)
Depreciation and
amortization ................ 371 105 953 (3)
-------- ------- ----------
Income/(loss) from
operations .................. (23) 417 840
Interest expense (income),
net ......................... 22 120 (120)(4)
Financing expense ............ 756 --
Loss on abandonment of
lease ....................... 466 --
-------- -------
Income/(loss) before
income taxes ................ (1,267) 297 960
Income taxes ................. 45 45
-------- -------
Net income/(loss) ............ (1,312) 252 960
Accretion of obligation
related to the put option
issued in connection
with the ProServ
acquisition ................. 59 -- 242 (5)
-------- ------- ----------
Net income/(loss)
applicable to common
stockholders ................ $ (1,371) $ 252 $ 718
======== ======= ==========
Net loss per share
applicable to common
stockholders -- basic ....... $ (0.15)
========
Weighted average common
stock outstanding ........... 9,377
========
<CAPTION>
PRO FORMA
FOR THE
MARQUEE
1997
ACQUISITIONS,
MARQUEE
PRO FORMA RECENT
FOR THE ACQUISITIONS
MARQUEE MARQUEE AND THE
1997 RECENT PRO FORMA MARQUEE
ACQUISITIONS ACQUISITIONS(6) ADJUSTMENTS CREDIT FACILITY
-------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Revenues ..................... $34,953 $18,371 $ 53,324
Operating expenses ........... 23,154 13,795 $ (2,716)(7) 34,233
General and
administrative expenses 8,991 3,179 75 (7) 12,245
------- ------- --------- --------
EBITDA ....................... 2,808 1,397 2,641 6,846
Deferred compensation
and other non-cash
expenses .................... 145 -- 145
Depreciation and
amortization ................ 1,429 132 3,000 (8) 4,561
------- ------- --------- --------
Income/(loss) from
operations .................. 1,234 1,265 (359) 2,140
Interest expense (income),
net ......................... 22 (32) 233 (9) 0
3,100 (10) 0
Financing expense ............ 756 -- 756
Loss on abandonment of
lease ....................... 466 -- 466
------- ------- --------
Income/(loss) before
income taxes ................ (10) 1,297 (3,692) (2,405)
Income taxes ................. 90 287 (324)(11) 53
------- ------- --------- --------
Net income/(loss) ............ (100) 1,010 (3,368) (2,458)
Accretion of obligation
related to the put option
issued in connection
with the ProServ
acquisition ................. 301 301
------- --------
Net income/(loss)
applicable to common
stockholders ................ $ (401) $1,010 $ (3,368) $ (2,759)
======= ======= ========= ========
Net loss per share
applicable to common
stockholders -- basic ....... $ (0.03) $ (0.16)
======= ========
Weighted average common
stock outstanding ........... 16,559 17,108
======= ========
</TABLE>
B-2
<PAGE>
1997 STATEMENT OF OPERATIONS PRO FORMA ADJUSTMENTS
(1) Marquee acquired ProServ and QBQ in October 1997 and included the results
of their operations only from the acquisition date in its consolidated
results of operations for the year ended December 31, 1997. Therefore, for
pro forma purposes, the results of operations of the Marquee 1997
Acquisitions for the period prior to the acquisition date are presented
separately and are as follows:
<TABLE>
<CAPTION>
PROSERV QBQ TOTAL
----------- --------- ----------
<S> <C> <C> <C>
Revenues ................................................... $11,987 $1,698 $13,685
Operating expenses ......................................... 8,926 449 9,375
General and administrative expenses ........................ 3,240 438 3,678
------- ------ -------
EBITDA ..................................................... (179) 811 632
Deferred compensation and other non-cash expenses .......... 110 -- 110
Depreciation and amortization .............................. 105 -- 105
------- ------ -------
Income/(loss) from operations .............................. (394) 811 417
Interest expense (income), net ............................. 152 (32) 120
------- ------ -------
Income/(loss) before income taxes .......................... (546) 843 297
Income taxes ............................................... 45 45
------- -------
Net income/(loss) .......................................... $ (591) $ 843 $ 252
======= ====== =======
</TABLE>
(2) To reduce expenses to reflect contractually agreed to reductions in
personnel, officers' salaries, employee benefits and other costs in
connection with the Marquee 1997 Acquisitions for the period prior to the
acquisitions.
(3) To reflect full year amortization of intangibles arising from the Marquee
1997 Acquisitions.
(4) To reduce ProServ interest expense to reflect the reduction in debt as a
result of the acquisition.
(5) To reflect full year expense related to the accretion of the put option.
(6) The Marquee Recent Acquisitions column includes the historical results of
operations for 1997 as follows:
<TABLE>
<CAPTION>
ALPHABET CITY CAMBRIDGE PAL TOLLIN/ROBBINS TONY STEPHENS TOTAL
--------------- ----------- ------------ ---------------- --------------- ----------
NOTE (A) NOTE (A)
<S> <C> <C> <C> <C> <C> <C>
Revenues ........................... $2,976 $1,319 $4,889 $5,073 $4,114 $18,371
Operating expenses ................. 2,216 768 3,775 3,648 3,388 13,795
General and administrative
expenses ......................... 653 571 813 846 296 3,179
------ ------ ------ ------ ------ -------
EBITDA ............................. 107 (20) 301 579 430 1,397
Depreciation and amortization ...... 4 9 23 75 21 132
------ ------ ------ ------ ------ -------
Income/(loss) from operations ...... 103 (29) 278 504 409 1,265
Interest expense (income), net ..... -- (12) (8) -- (12) (32)
------ ------ -------- ------ ------ -------
Income/(loss) before income
taxes ............................ 103 (17) 286 504 421 1,297
Income taxes ....................... 23 -- 74 80 110 287
------ ------ ------- ------ ------ -------
Net income/(loss) .................. $ 80 $ (17) $ 212 $ 424 $ 311 $ 1,010
====== ====== ======= ====== ====== =======
</TABLE>
Note (a)--Translated from British Pounds at the average exchange rate for
the year.
B-3
<PAGE>
(7) To adjust expenses to reflect compensation agreements entered into in
connection with the Marquee Recent Acquisitions.
(8) To record the amortization of the intangibles arising from the Marquee
Recent Acquisitions (over 10 --15 years).
(9) To record imputed interest expense on the obligations to certain sellers
in connection with the Marquee Recent Acquisitions.
(10) To reflect interest expense including the amortization of deferred
financing costs associated with the Marquee Credit Facility used to
finance the Marquee Recent Acquisitions.
(11) To record the impact of the Marquee Recent Acquisitions pro forma
adjustments, net of the benefit of consolidated net operating loss
carryforwards.
B-4
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
MARQUEE
RECENT
ACQUISITIONS
MARQUEE AND THE
MARQUEE RECENT PRO FORMA MARQUEE
AS REPORTED ACQUISITIONS(1) ADJUSTMENTS CREDIT FACILITY
------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Revenues .................................... $21,272 $12,161 $33,433
Operating expenses .......................... 14,987 7,831 $ (1,123)(2) 21,695
General and administrative expenses ......... 5,374 2,096 (181)(2) 7,125
(164)(3)
------- ---------
EBITDA ...................................... 911 2,234 1,468 4,613
Deferred compensation and other
non-cash expenses .......................... 524 -- 524
Depreciation and amortization ............... 803 51 1,500 (4) 2,354
------- ------- --------- -------
Income/(loss) from operations ............... (416) 2,183 (32) 1,735
Interest expense (income), net .............. (107) (17) 116 (5) 1,542
1,550 (6)
------- ---------
Income/(loss) before income taxes ........... (309) 2,200 (1,698) 193
Income taxes ................................ 118 161 (99)(7) 180
------- ------- --------- -------
Net income/(loss) ........................... (427) 2,039 (1,599) 13
Accretion of obligation related to the put
option issued in connection with the
ProServ acquisition ........................ 158 158
------- -------
Net income/(loss) applicable to common
stockholders ............................... $ (585) $2,039 $ (1,599) $ (145)
======= ======= ========= =======
Net loss per share applicable to common
stockholders -- basic ...................... $ (0.04) $ (0.01)
======= =======
Weighted average common stock
outstanding ................................ 16,559 17,108
======= =======
</TABLE>
B-5
<PAGE>
1998 PRO FORMA ADJUSTMENTS FOR STATEMENT OF OPERATIONS
(1) The Marquee Recent Acquisitions column includes the historical results of
operations for the six months ended June 30, 1998 as follows:
<TABLE>
<CAPTION>
ALPHABET CITY CAMBRIDGE PAL TOLLIN/ROBBINS TONY STEPHENS TOTAL
--------------- ----------- ------------ ---------------- --------------- ----------
NOTE (A) NOTE (A)
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................... $1,476 $691 $2,576 $4,292 $3,126 $12,161
Operating expenses ..................... 1,186 303 1,966 1,711 2,665 7,831
General and administrative
expenses ............................. 346 156 906 529 159 2,096
------ ---- ------ ------ ------ -------
EBITDA ................................. (56) 232 (296) 2,052 302 2,234
Depreciation and amortization .......... 4 2 -- 35 10 51
------ ---- ------ ------ ------ -------
Income/(loss) from operations .......... (60) 230 (296) 2,017 292 2,183
Interest expense (income), net ......... (1) (8) (8) (17)
------ -------- -------- -------
Income/(loss) before income
taxes ................................ (60) 231 (288) 2,017 300 2,200
Income taxes ........................... 20 85 (30) 86 161
------ ----- ------- ------- -------
Net income/(loss) ...................... $ (80) $146 $(258) $2,017 $ 214 $ 2,039
====== ===== ======= ====== ======= =======
</TABLE>
Note (a)--Translated from British Pounds at the average translation rate for
the period.
(2) To adjust expenses to reflect compensation agreements entered into in
connection with the Marquee Recent Acquisitions.
(3) To reduce expenses for loss on transfer of property to former owners of
Park and other nonrecurring costs.
(4) To record the amortization of the excess of the purchase price over the net
assets acquired associated with the Marquee Recent Acquisitions (over 10
--15 years).
(5) To record imputed interest expense on the indebtedness to certain sellers
in connection with the Marquee Recent Acquisitions.
(6) To reflect interest expense including the amortization of deferred
financing costs associated with the Marquee Credit Facility used to
finance the Marquee Recent Acquisitions.
(7) To record the impact of the Marquee Recent Acquisitions pro forma
adjustments, net of the benefit of consolidated net operating loss
carryforwards.
B-6
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
MARQUEE
RECENT
ACQUISITIONS
MARQUEE AND THE
MARQUEE RECENT PRO FORMA MARQUEE
AS REPORTED ACQUISITIONS(1) ADJUSTMENTS CREDIT FACILITY
------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets ........................................ $20,957 $7,138 $ 32,350 (2) $28,309
(32,136)(3)
Intangibles -- net .................................... 22,716 36,266 (3) 58,982
Noncurrent assets ..................................... 6,974 505 750 (2) 7,668
(561)(3)
------- ------ ---------- -------
Total assets ....................................... $50,647 $7,643 $ 36,669 $94,959
======= ====== ========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ................................... $11,254 $5,168 666 (3) $17,502
(350)(3)
764 (3)
Long-term debt ........................................ 1,482 33,100 (2) 36,951
2,369 (3)
Deferred credits ...................................... 1,590 1,590
Common stock subject to put option .................... 3,341 3 3,344
Stockholders' equity .................................. 32,980 2,472 2,592 (3) 35,572
350 (3)
(2,822)(3)
------- ------ ---------- -------
Total liabilities and stockholders' equity ......... $50,647 $7,643 $ 36,669 $94,959
======= ====== ========== =======
</TABLE>
B-7
<PAGE>
THE MARQUEE GROUP, INC.
PRO FORMA ADJUSTMENTS -- BALANCE SHEET
(1) The Marquee Recent Acquisitions column includes the historical amounts as
of June 30, 1998 for the assets and liabilities acquired as follows:
<TABLE>
<CAPTION>
ALPHABET CITY CAMBRIDGE TOLLIN/ROBBINS PAL TONY STEPHENS COMBINED
--------------- ----------- ---------------- ------- --------------- ---------
(NOTE A)
-----------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets ................... $1,587 $1,028 $3,287 $632 $604 $7,138
Noncurrent assets ................ 49 65 298 40 53 505
------ ------ ------ ---- ---- ------
Total assets .................. $1,636 $1,093 $3,585 $672 $657 $7,643
====== ====== ====== ==== ==== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .............. $1,595 $ 835 $1,712 $512 $514 $5,168
Noncurrent liabilities ........... -- -- -- 3 -- 3
Stockholders' equity ............. 41 258 1,873 157 143 2,472
------ ------ ------ ---- ---- ------
Total liabilities and
stockholders' equity ......... $1,636 $1,093 $3,585 $672 $657 $7,643
====== ====== ====== ==== ==== ======
</TABLE>
- ----------
Note (A) -- Translated from British Pounds at the exchange rate at June 30,
1998 of 1.6685.
(2) To reflect net proceeds received under the Credit Facility:
<TABLE>
<S> <C>
Total borrowings ($28.5 in Dollars and $4.6 in British Pounds) ........ $33,100
Fees and expenses ..................................................... 750
-------
$32,350
=======
</TABLE>
(3) To reflect the Marquee Recent Acquisitions and the preliminary allocation
of the purchase price including expenses of $975:
<TABLE>
<S> <C> <C>
Cash portion of purchase price:
Alphabet City (a) ............................................. $ 3,350
Cambridge ..................................................... 3,500
Tollin/Robbins ................................................ 20,500
PAL ........................................................... 2,636
Tony Stephens ................................................. 2,500
-------
32,486
-------
Issuance of common stock:
Alphabet City (200,000 shares) ................................ 1,025
Cambridge (89,536 shares) ................................... 436
PAL (117,440 shares) ...................................... 580
Tony Stephens (142,291 shares) ................................ 551
-------
2,592
-------
Obligations to make additional payments and issue additional shares:
Tollins/Robbins -- ($400,000 per year -- 4 years).............. 1,318
PAL -- ((pound sterling)800,000 -- cash, (pound sterling)200,000
common stock per year -- 5 years) ............................ 1,312
Tony Stephens -- ((pound sterling)200,000 -- cash,
(pound sterling)50,000 common stock per year -- 5 years) ..... 405
-------
(includes current portion -- ($666,000).................... 3,035
-------
Fees and expenses (a) ........................................... 975
-------
Total acquisition cost .................................... 39,088
-------
Net assets acquired ............................................. $2,472
Adjustment for working capital advance to Alphabet City ......... 350 2,822
------ -------
Excess of purchase price over net assets acquired ............... $36,266
-------
</TABLE>
- ----------
(a) Prior to June 30, 1998, the Company advanced $350,000 to Alphabet
City for working capital and incurred expenses related to the
acquisitions of $211,000
B-8
<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 thereto duly authorized.
THE MARQUEE GROUP, INC.
By: /s/ Jan E. Chason
--------------------------------------
Name: Jan E. Chason
Title: Chief Financial Officer and Treasurer
Date: October 15, 1998
