MARQUEE GROUP INC, 10KSB, 1998-03-30

MARQUEE GROUP INC
10KSB, 1998-03-30
MANAGEMENT CONSULTING SERVICES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.

For the fiscal year ended December 31, 1997 OR

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.

For the transition period from to

Commission file number: 0-21711

THE MARQUEE GROUP, INC.
(Name of small business issuer in its charter)

<TABLE>
<CAPTION>
<S> <C>
DELAWARE 13-3878295
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

888 SEVENTH AVENUE, 37TH FLOOR, NEW YORK, NEW YORK 10019
(Address of principal executive offices) (Zip code)

</TABLE>

(212) 977-0300
(Issuer's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------- --------------------------
<S> <C>
COMMON STOCK, $.01 PAR VALUE AMERICAN STOCK EXCHANGE
</TABLE>

Securities registered under Section 12(g) of the Exchange Act:

None

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]

Issuer's revenues for fiscal year ended December 31, 1997: $21,268,000

As of March 20, 1997, there were 17,912,677 shares of the Issuer's Common
Stock, $.01 par value per share, outstanding. The aggregate market value of
Common Stock held by non-affiliates of the Issuer, as of such date was
approximately $67,172,538 (based on the closing price of $3.75 per share as
reported by The American Stock Exchange).

Documents incorporated by reference: Definitive Proxy Materials to be
filed for the 1998 Annual Meeting of Stockholders--Part III, Items 9, 10, 11,
and 12.
<PAGE>
PART I

ITEM 1--BUSINESS

GENERAL

The Marquee Group, Inc. (the "Company") believes that it is one of the
leading providers of integrated event management, television programming and
production, marketing, talent representation and consulting services in the
sports, news and other entertainment industries. The Company's event
management, television programming and production and marketing services
involve managing sporting events, producing sports television programs and
marketing professional and collegiate athletic leagues and organizations. The
Company also arranges and negotiates sports and entertainment-related
television rights, advertising, corporate sponsorships and entitlements (or
naming rights) for its clients. The talent representation services provided
by the Company include negotiating employment agreements and creating and
evaluating various business opportunities for sports, news and entertainment
personalities. The Company also provides a variety of consulting services to
clients either engaged in, or seeking exposure in, sports and
entertainment-related industries.

In recent years, significant developments in mass media, including the
growth of satellite communications and cable television, have resulted in
expanded national and international exposure of sports, news and
entertainment events and programming. The increased exposure of sporting and
entertainment events and of high profile personalities has expanded the need
for the types of services provided by the Company and has given rise to
significant additional revenue sources, such as corporate sponsorships and
entitlements to events and venues. The Company seeks opportunities in these
markets through its existing contacts and resources.

The Company was organized in July 1995 by Robert M. Gutkowski and Robert
F.X. Sillerman. Mr. Gutkowski is the Company's President and Chief Executive
Officer and has over 20 years of experience in the television, sports and
entertainment industries. He served as President of Madison Square Garden
Corporation (which included overall responsibility for MSG Cable Network)
from November 1991 until September 1994. Mr. Sillerman is the Chairman of the
Company, and his principal occupation is Executive Chairman of the Board of
Directors of SFX Broadcasting, Inc. ("SFX Broadcasting"), a publicly-traded
company which owns and operates radio stations, and Executive Chairman of the
Board of Directors of SFX Entertainment, Inc. ("SFX Entertainment"), a
subsidiary of SFX Broadcasting which is engaged in the live entertainment
business. SFX Broadcasting intends to spin-off SFX Entertainment to its
stockholders and to merge with another company, at which time it is
anticipated that Mr. Sillerman will become principally employed by SFX
Entertainment.

From the time of its organization until its initial public offering in
December 1996 (the "IPO"), the Company developed its sports television
programming and production, marketing and consulting business and negotiated
its initial acquisitions. Simultaneously with the IPO, the Company acquired
Sports Marketing and Television International, Inc. ("SMTI"), a leading
provider of television programming and production and marketing services in
the sports and other entertainment industries since 1984, and Athletes &
Artists, Inc. ("A&A"), a sports and news talent representation firm founded
in 1977, which has a client list that includes premier athletes, sports and
news broadcasters and media executives (collectively, the "1996
Acquisitions"). Since the IPO, the Company has continued to grow by hiring
individuals whose businesses and expertise complement those of the Company
and by providing services to an increasing number of clients. In October
1997, the Company acquired ProServ, Inc. and ProServ Television, Inc.
(collectively, "ProServ"), an established provider of international sports
events management, television programming and production, marketing, talent
representation and consulting services, and substantially all of the assets
of QBQ Entertainment, Inc. ("QBQ"), a company that books tours and
appearances for a variety of entertainers (collectively, the "1997
Acquisitions"). The Company financed the 1997 Acquisitions with the proceeds
from its public offering of 8.5 million shares of Common Stock which was
completed in October and November of 1998 (the "Second Offering"). Through
both acquisitions and internal growth, the Company has developed or
substantially expanded its event management, television programming and
production, marketing, talent representation and consulting capabilities.

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1997 ACQUISITIONS

ProServ Acquisition. In October 1997, the Company acquired ProServ, an
established provider of international sports event management, television
programming and production, marketing, talent representation and consulting
services. ProServ was founded in 1969 by the then-Captain of the U.S. Davis
Cup team, Donald Dell, who also co-founded the Association of Tennis
Professionals ("ATP") and pioneered the commercial development of tennis as a
major international sport. Mr. Dell continues to serve as the chairman and
chief executive officer of ProServ and is also a director of the Company.
ProServ provides many of the same services that the Company provides and, as
a result, the Company anticipates sharing business development opportunities,
contacts and expertise. In addition, although the Company's primary
operations have been in the United States, the Company believes ProServ's
existing international operations will facilitate the Company's goal of
becoming a major competitor in the burgeoning business of international
sports, particularly in European and Pacific Rim markets. The aggregate
purchase price for ProServ was approximately $10.8 million in cash (excluding
the repayment of approximately $2.5 million in debt) and the issuance of
250,000 shares of Common Stock. The Company may also be obligated to make
additional payments of up to $2.5 million over the next four years based upon
ProServ's financial performance. See "Management's Discussion and Analysis or
Plan of Operation."

QBQ Acquisition. In October 1997, the Company, also acquired the assets of
QBQ, a company that books tours and appearances for a variety of
entertainers. Since its founding in 1986, QBQ has developed relationships
with, and has provided booking and touring representation services to, a
variety of musicians and groups, including Billy Joel, Metallica, Lynyrd
Skynyrd, Luther Vandross, Michael Bolton and Bruce Hornsby. The Company
believes that the music business offers commercial opportunities similar to
the sports business, such as corporate sponsorships and entitlements. Mr.
Gutkowski has significant expertise in the music concert business, having
served as President of Madison Square Garden Corporation, a premier indoor
concert venue, and has been actively involved in various aspects of the music
concert business, including production of televised concerts. Dennis Arfa,
the founder and chief executive officer of QBQ, will continue to serve as
the chief executive officer of QBQ. The aggregate purchase price for QBQ was
approximately $3.1 million in cash, $1.6 million payable in annual
installments over eight years and the issuance of 393,514 shares of Common
Stock, including 78,702 shares held in escrow and subject to forfeiture if
certain financial performance tests are not met. See "Management's Discussion
and Analysis or Plan of Operation."

TENDER OFFER

In September of 1997, the Company completed a tender offer (the "Tender
Offer") for 3,991,659 of the Company's warrants ("Warrants") at a cash
purchase price of $2.40 per Warrant. Each Warrant was exercisable for one
share of Common Stock at a purchase price of $7.50.

PENDING ACQUISITION

In March 1998, the Company entered into a non-binding letter of intent to
acquire Alphabet City Industries and Alphabet City Sports Records, Inc.
(collectively, the "Pending Acquisition"),both of which are sports and music
marketing companies which develop strategic alliances among sports leagues,
music companies and corporate sponsors. Alphabet City Industries produces
national television spots, in-arena video programming and radio advertising
campaigns for such clients as Foot Locker and Coca-Cola. Alphabet City Sports
Records, Inc. develops music compilation compact discs for sports teams such
as the Chicago Bulls, the Green Bay Packers and the Denver Broncos which it
distributes through retail chain stores. The aggregate purchase price for the
Pending Acquisition will be approximately $3.0 million in cash and $1.0 million
in shares of Common Stock. In addition, the Company may be obligated to make
additional payments based upon the financial performance of the acquired
businesses. In connection with entering into the letter of intent, the Company
advanced Alphabet City Industries $350,000. There can be no assurance that the
Pending Acquisition will be consummated as presently contemplated or at all.
The Company intends to continue to identify and negotiate acquisitions both
within its existing lines of businesses and within complementary lines of
businesses. See "--Risk Factors--Uncertainty Related to Acquisition Strategy."

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In order to capitalize on the opportunities available in the sports, news
and other entertainment industries, the Company has developed an operating
and acquisition strategy consisting of the following major elements:

OPERATING STRATEGY

Enhance Revenues by Offering Integrated Services. The Company intends to
continue to enhance its revenues from its event management, television
programming and production, marketing, talent representation and consulting
businesses by offering integrated sports and entertainment-related services.
The Company will continue to cross-promote its various services by offering
additional complementary services within its lines of business to new and
existing clients. For example, in connection with a particular event, the
Company may organize the event, provide the talent and/or broadcasters,
produce the television coverage, sell the corporate advertising and
sponsorships and negotiate the distribution and other ancillary rights. It is
the Company's intention to expand its involvement with current clients for
whom it provides less than a full complement of services, and to market its
full service capabilities to new clients by emphasizing its ability to
deliver integrated services, thereby relieving the client of the costly and
inefficient burden of sourcing multiple providers. Furthermore, where
possible, the Company intends to create and/or seek ownership interests in
sports and entertainment-related events in order to maximize its earnings
potential from such events.

Increase Breadth of Services. The Company intends to continue to expand
its current lines of business to provide a more comprehensive array of
services to its clients. As the needs of companies utilizing advertising and
marketing services become increasingly sophisticated, the Company believes
that its clients will require a broader range of the types of services it
provides. The Company will utilize its breadth of services, its financial
resources, its heightened visibility and its management's experience and
reputation to provide it with expanded opportunities. For example, the
Company's financial resources may enable it to create or purchase ownership
interests in sporting events and develop in-house television production
capabilities. In addition, the Company has began developing certain
speciality services such as the brokering of team franchise sales, the sale
of entitlements to sports stadiums and the representation of women in sports
and the marketing of women's sports events.

In addition, the Company intends to continue to expand its consulting
business in order to utilize management's substantial expertise in various
aspects of sports and entertainment event management, television programming
and production and marketing. Through its wide array of activities, the
Company is able to gain experience and insight into the overall economics and
developments in the sports and other entertainment industries, including such
issues as pricing, marketability, logistics and publicity. Various sports and
entertainment-related businesses require such expertise in order to maximize
revenues from activities such as team and event ticket sales, venue
management, sales of television rights, program development and obtaining and
maintaining sponsorships. The Company is also able to use its expertise in
advising businesses that are seeking exposure through sports and
entertainment events.

Increase International Market Penetration. The Company intends to continue
to pursue expansion opportunities in international markets, focusing on the
European and Pacific Rim markets. The Company believes that the sports, news
and entertainment industries in these markets are less developed than in the
United States and therefore present significant opportunities for the
Company. The Company also believes that, over the next few years, these
international markets will exhibit rapid growth, in which case there will be
significant opportunities to provide the types of services offered by the
Company. The Company currently has offices or representatives in England,
Australia and Japan and is negotiating with respect to acquisitions in
Europe. The Company is also negotiating with respect to a joint venture in
the People's Republic of China which would develop sports events and media
and entertainment projects in China.

ACQUISITION STRATEGY

As part of its strategy to provide comprehensive services to sports, news
and entertainment-related businesses, the Company intends to continue to
expand through the acquisition of companies and events

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and through attracting individuals with relevant expertise, both within its
existing lines of business and within complementary lines of business. The
Company believes that the highly fragmented nature of its industry offers
many attractive acquisition opportunities, and the Company intends to rely on
the experience of its management team to continue to identify acquisition
candidates whose businesses will complement the Company's existing operations
and whose operations may be constrained by lack of capital. In particular,
the Company intends to focus on consolidation opportunities presented by
privately-held competitors of moderate size. In the European and Asian
markets, the Company intends to focus on companies with an established
presence in their market and experienced management. The Company believes
that it is one of the few publicly-traded companies within its industry, and,
as a result, the Company will have certain advantages over many of its
smaller competitors in negotiating and consummating acquisitions. To date,
the Company has no agreements to acquire any companies other than the Pending
Acquisition. See "--Risk Factors--Uncertainty Related to Acquisition
Strategy."

SERVICES PROVIDED BY THE COMPANY

The Company believes that it is one of the leading integrated providers of
comprehensive event management, television programming and production,
marketing, talent representation and consulting services within the sports,
news and entertainment industries. The following are descriptions of the
Company's lines of business:

Event Management, Television Programming and Production and Marketing
Services

The Company manages sporting events, produces sports television programs
and markets professional and collegiate athletic leagues and organizations.
The Company also arranges and negotiates sports and entertainment-related
television rights, advertising, corporate sponsorships and entitlements for
its clients. The Company mainly derives its revenue for these services from
commissions and/or fees for managing sporting events, selling broadcast
rights to television networks and cable stations, packaging an event for a
particular corporate sponsor, producing and distributing television
programming or videos and selling entitlements and signage to sporting events
and venues. For an event in which the Company has ownership rights, the
Company derives revenues from the various revenue streams associated with the
event's operations.

Although they may vary from event to event, the Company's activities in
event management include site selection, recruitment of athletes or
personalities, procurement of television coverage, merchandising, sale of
corporate sponsorship, creation of corporate hospitality programs and general
administrative duties, including contract negotiation and scheduling. The
Company generally receives fixed fees and/or commissions, generally ranging
from 15% to 35% of the contracted amount, although these fees and commissions
are negotiated between the parties on an event-by-event basis. The Company's
corporate sponsorship projects are generally on a short-term basis and may
not be evidenced by written agreements in advance of Company expenditures or
at all, which the Company believes to be common in its industry. See "--Risk
Factors--Nature of Contracts."

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The Company provides event management, television programming and
production and/or marketing services to many clients or events, including the
following:

<TABLE>
<CAPTION>
FIRST YEAR OF
PROJECT SPORT/FOCUS SERVICES PROVIDED AFFILIATION
- ------------------------------- ------------------------ ---------------------- ---------------
<S> <C> <C> <C>
The Breeders' Cup Championship Thoroughbred horse Event management, 1984
racing television production
and marketing
The Hambletonian................ Harness horse racing Television production 1985
and marketing
Legg Mason Tennis Classic ...... Tennis Event management and 1969
marketing
AT&T Challenge*................. Tennis Event management, 1986
television production
and marketing
U.S. Open Tennis Championship . Tennis Television marketing 1989
French Open Tennis Tennis Television marketing 1991
Championship...................
Isuzu Celebrity Golf Event management and 1991
Championship*.................. Golf marketing
NCAA Championships ............. Collegiate sports Television marketing 1993
ESPN Boxing .................... Boxing Television production 1996
ESPN-Subaru American Outback ... Wilderness television Television production 1996
series
The PBA Tour.................... Bowling Television production 1996
and marketing
U.S. Open Professional Figure Figure skating Television production 1996
Skating Championship........... and marketing
More Than a Game ............... Sports television series Television production 1997
The Guardian Direct Cup......... Tennis Event management, 1997
television production
and marketing
Little League Baseball.......... Baseball Television production 1997
and marketing
Sale of Entitlements, Team Sale of entitlements, 1997
Sponsorships and Professional and team sponsorships and
Signage for Stadiums........... Collegiate Sports stadium and concourse
signage
</TABLE>

- ------------
* The Company has an ownership interest in these events.

The Breeders' Cup Championship. In 1984, SMTI, together with the
Thoroughbred Racing Association and NBC Sports, created The Breeders' Cup
Championship. This event consists of an annual series of thoroughbred horse
races held at a rotating series of racetracks, including Churchill Downs,
Santa Anita and Belmont Park. As co-creator of The Breeders' Cup
Championship, SMTI handles substantially every management, television
production, marketing and sponsorship aspect of the event. The Company has
entered into a marketing agreement (the "Breeders' Cup Agreement") with
Breeders'

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Cup Limited ("BCL"), pursuant to which the Company was granted the right to
provide general marketing consultation, sales of broadcast and sponsorship
rights, television advertising production, media placement, publicity, public
relations, television and video production, production of promotional
materials, merchandising and licensing of BCL in connection with The
Breeders' Cup Championship. The Company also supervises the televising of the
event and has sold the television rights to NBC-TV, with which it works to
create a four-hour broadcast. The Breeders' Cup Agreement terminates on
December 31, 2000, unless terminated earlier in accordance with the terms of
the agreement, including the termination, for any reason, of the Company's
employment of Michael Letis or Michael Trager or the unavailability of Mr.
Letis or Mr. Trager to perform the services necessary to enable the Company
to comply with the terms of the Breeders' Cup Agreement. Giving pro forma
effect to the 1997 Acquisitions as if such acquisitions had occurred on
January 1, 1997, the Breeders' Cup Agreement would have accounted for
approximately 17% of the Company's revenues for the year ended December 31,
1997. See "--Dependence upon a Limited Number of Clients and Events."

The Hambletonian. Since April 1995, the Company has acted as the exclusive
television agent for The Hambletonian, a premier event in harness horse
racing held annually at The Meadowlands. The Company's responsibilities
include negotiating all television contracts and producing the telecast of
the event. The agreement expired in March 1998 and The Hambletonian has
orally agreed to renew for an additional year.

Legg Mason Tennis Classic. Since July 1969, when this event was first
held, ProServ has operated all aspects of this event for the Washington
Tennis Foundation, a non-profit group which runs programs for "at-risk"
youths throughout the metropolitan Washington area. This event is a
Championship Series event on the ATP tour that features 56 singles players
and 28 doubles teams. ProServ's agreement to manage this event expires in
2005, although it can be terminated earlier under certain circumstances.

AT&T Challenge. In January 1986, ProServ created the AT&T Challenge, a
men's tennis tournament authorized by the ATP Tour that features 32 singles
players and 16 doubles teams. ProServ owns the rights to this event, which
serves as a major clay-court tune-up event for the French Open. ProServ
provides all event management and television production services relating to
the event, including ticket sales, sponsorship sales, player procurement,
site preparation, public relations, television rights and event management.

U.S. Open Tennis Championship. Since October 1990, ProServ has negotiated
the sale of U.S. cable television rights to the U.S. Open Tennis
Championship. This event is one of only four Grand Slam events on the
professional tennis tour. ProServ's agreement with respect to the U.S. Open
Tennis Championship expires in October 2002.

French Open Tennis Championship. Since 1991, ProServ has acted as the
exclusive consultant and representative for the distribution and sale of all
television rights to the French Open Tennis Championship in North America.
The French Open Tennis Championship is another of the four Grand Slam events
on the professional tennis tour. ProServ's agreement with the French Tennis
Federation expires in January 2001.

Isuzu Celebrity Golf Championship. In January 1995, the Company and NBC
formed Celebrity Golf Championship, LLC (in which the Company owns a 25%
interest) to conduct the Isuzu Celebrity Golf Championship. This event is an
annual celebrity professional golf tournament held in Lake Tahoe, Nevada,
where the competitors include well-known sports, entertainment and media
personalities. In partnership with NBC, the Company organizes all aspects of
the event, including event management, sponsorship sales and television
production.

NCAA Championships. Since December 1993, ProServ has had the right to
sell, on behalf of the NCAA, all television rights outside the United States
for most of the NCAA Championships, including the Final Four and the College
World Series. ProServ's agreement with the NCAA expires in July 1998.

ESPN Boxing. Since March 1996, the Company has produced all of the boxing
matches broadcast on ESPN and ESPN2. In 1997, the Company produced
approximately 50 such boxing matches. The

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Company's television production services in connection with these boxing
matches include reviewing sites, arranging for television cameras, lighting,
audio and video equipment and technical facilities and coordinating the use
of on-air broadcasters. The Company's agreement with ESPN expires in April
2000.

ESPN-Subaru American Outback. In October 1996, the Company agreed to
produce "Subaru America Outback," an outdoor television series featuring
adventurers who take on the challenges of the wilderness. Twenty-four
half-hour episodes aired on ESPN and ESPN2 in 1997.

The PBA Tour. Since September 1996, the Company has served as the
exclusive representative to the Professional Bowling Association's ("PBA")
Pro Bowlers Tour, one of the longest-running sports series on network and
cable television. In connection therewith, the Company handles sponsorship
sales, television rights negotiations and television production. The Company
receives a portion of the proceeds from the sale of television rights and
fees for television production and sponsorship sales. The Company's agreement
with the PBA expires in December 1999.

U.S. Open Professional Figure Skating Championship. Since December 1996,
the Company has licensed from the Professional Skaters Association the rights
to the United States Open Professional Figure Skating Championship. The
Company is the exclusive promoter of this event, with full financial and
management responsibility for the event's operation. The Company has also
agreed to produce two prime-time television specials annually featuring this
event for United Paramount Network ("UPN"), a television network. The
Company's licensing agreement expires in April 2001, subject to the right of
the Company to renew for an additional five years, and its agreement with UPN
expires in January 1999, subject to the right of UPN to renew for up to an
additional three years.

More Than a Game. In February 1997, the Company agreed with Raycom Sports,
a television syndication company, to produce 52 episodes of "More Than a
Game," a weekly syndicated sports magazine show featuring athletes and sports
personalities who present examples of the positive side of sports. The
episodes began airing in the third quarter of 1997.

The Guardian Direct Cup. In October 1997, the Company entered into a joint
venture to operate all aspects of The Guardian Direct Cup, a championship
series on the ATP tour. In March 1998, the event was held in London, England.
The agreement expires in 2000 and the Company has an option to renew for an
additional two years.

Sale of Entitlements, Team Sponsorships and Signage for Stadiums. The
Company has entered into agreements to sell signage at Jack Kent Cooke
Stadium in Washington D.C. and The Rose Bowl in Pasadena, California and to
sell team sponsorships for the San Francisco Giants. In addition, the Company
sold the entitlement to Staples Center in Los Angeles, California and has
entered into an agreement to sell the entitlement to the stadium to be used
by the Baltimore Ravens. The agreements to sell stadium signage and team
sponsorships are generally short-term.

Little League Baseball. In December 1997, the Company agreed to act as the
exclusive sponsorship agency for Little League Baseball. The Company is also
responsible for the television production for two of Little League's champion
events. The agreement expires in December 1998 but may be terminated earlier
at the Little League's option.

Talent Representation

The Company represents broadcasting, sports, news and entertainment
personalities. These representation services encompass the negotiation of
employment agreements and the creation and evaluation of endorsement,
promotional and other business opportunities for such personalities. Fees for
these services may be fixed, but ordinarily represent a percentage of income
realized by the Company's clients through its efforts. The Company's fees
generated from a particular client are not necessarily related to the
prominence of such client. The Company's written representation agreements
with its clients are generally terminable annually on 30 days' notice
(although the Company will continue to be entitled to revenue streams
generated during the remaining term of any contracts which the Company
negotiated) and the Company does not have written representation agreements
with certain of its clients, which the Company believes to be common in the
industry. In addition, the Company's relationship with the talent

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which it represents may be dependent upon the Company's continued
relationship with the particular agent who represents such talent. While the
Company has agreements with many of its agents, there can be no assurance
that they will continue to be employed by the Company during the term of such
agreements. See "--Risk Factors--Nature of Contracts."

The Company represents, or derives revenues from the representation of,
over 500 professional athletes, broadcasters, musicians and entertainers,
including:

SELECTED ATHLETES

<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOOTBALL HOCKEY MEN'S TENNIS WOMEN'S TENNIS BASKETBALL
Mark Chmura Ken Dryden Alex Corretja Lindsay Lee Kareem Abdul-Jabbar
Ben Coates Jody Hull Stefan Edberg Corina Morariu Marcus Camby
Irving Fryar Brian Leetch Petr Korda Gabriela Sabatini Avery Johnson
Joey Galloway Darren Turcotte Patrick Rafter Natasha Zvereva Shawn Kemp
Kevin Hardy Sergei Zubov Greg Rusedski Gheorghe Muresan
Billy Joe Hobert Stan Smith Nick Van Exel
</TABLE>

SELECTED BROADCASTERS

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Kenny Albert Christiane Amanpour Willow Bay Chris Berman
Len Berman Wolf Blitzer Vince Cellini Bud Collins
Dan Dierdorf John Donvan Mike Emrick Bill Geist
Jim Gray Kevin Harlan Leon Harris Fred Hickman
John Hockenberry Tom Jackson Craig James Brent Jones
Mark Jones Jim Lampley Steve Lyons Sean McDonough
Al Michaels Russ Mitchell Brad Nessler Eileen O'Connor
Judd Rose Forrest Sawyer Dick Schaap Claire Shipman
Hannah Storm Al Trautwig Mike Tirico Sam Wyche
</TABLE>

The Company, through QBQ, books tours and appearances for a variety of
musicians, entertainers and groups. As a booking representative, QBQ is
exclusively responsible for, among other things, evaluating and reserving
particular concert venues, planning and scheduling concert routes and
negotiating the entertainer's fees. In some instances, QBQ also negotiates
merchandising agreements in connection with a concert tour. QBQ generally
receives payment based upon a percentage of the entertainer's fees. QBQ has
provided such booking and touring representation services to a variety of
musicians, entertainers and groups including:

SELECTED MUSICIANS AND ENTERTAINERS

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Billy Joel Bruce Hornsby Def Leppard Duran Duran
Michael Bolton Luther Vandross Lynyrd Skynyrd Metallica
Joan Jett & the Blackhearts Richard Marx Rodney Dangerfield Styx
</TABLE>

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QBQ's revenues are dependent, to a large extent, on the caliber of talent
which it represents. Although many of the clients represented by QBQ have an
extended history with QBQ, touring periodically over a number of years,
generally, QBQ's agreements are for one-time tours or events and are not
evidenced by written agreements. QBQ's revenues will vary depending on the
timing, frequency and size of concert tours its clients conduct. QBQ's
agreements with clients and venues regarding specific performances are
generally not evidenced by written contracts until shortly prior to such
performances. See "--Risk Factors--Nature of Contracts."

The Company believes that transactions between personalities it represents
and entities for which it produces events generally have been conducted at
arms' length and on terms no less favorable to the personalities and entities
than could be obtained from independent third parties. However, there can be
no assurance that the Company will not have a conflict of interest between
personalities and entities that it represents in differing capacities.

Consulting

The Company offers specialized consulting services to clients either
engaged in, or seeking exposure in, the sports and entertainment-related
industries. The Company's employees have substantial experience in all
aspects of sports, news and entertainment event management, marketing, sales
and television production. The Company's employees also have numerous
personal contacts within the sports, news and other entertainment industries
with individuals who work for companies that are in need of consulting
services or are in a position to refer clients to the Company.

Sports, news and entertainment-related businesses often require expertise
in areas that are outside of their principal line of business. Such
businesses may seek consultants to advise them in connection with team and
event ticket sales, venue management of concert halls and sporting arenas,
sales of television rights, program development, public relations and
obtaining and maintaining sponsorships. In addition, businesses that are
seeking exposure within the sports and entertainment industries may seek
consultants to advise them on the most efficient way to reach their target
audiences. The Company will seek to enter into agreements with businesses
pursuant to which it will provide customized services in these and other
areas. The Company provides consulting services to certain clients to which
it also provides event management, television production and/or marketing
services.

The Company provides the following consulting services:

Hershey Foods Corporation. Hershey Foods Corporation manufactures,
distributes and sells a broad line of chocolate and non-chocolate
confectionary, pasta and grocery products. Since October 1993, ProServ has
provided consulting services to Hershey Foods Corporation. ProServ's
consulting duties include strategic consulting regarding Hershey Foods
Corporation's investments in sports and entertainment. ProServ provides such
services pursuant to an oral understanding.

Major League Baseball. Since September 1993, the Company has consulted
with Major League Baseball Properties, Inc. in its negotiations with current
and potential corporate sponsors. The Company also consults on the creation
and management of sponsorship campaigns and derives fees for such services.
The Company's representation of Major League Baseball Properties, Inc. is not
evidenced by a formal agreement.

Schering-Plough Corporation. Schering-Plough Corporation produces
Claritin, a drug used in alleviating allergies and sinus problems. Since
March 1997, ProServ has assisted in the promotion of Claritin by developing
and implementing sponsorships of PGA Tour events and by creating a wide range
of opportunities for consumers to sample Claritin. ProServ's agreement with
Schering-Plough Corporation expires on December 31, 1998.

Staples, Inc. Staples, Inc. owns and operates a chain of office products
superstores. Since January 1994, ProServ has assisted Staples, Inc. in
developing and implementing sponsorships of major league sports teams.
ProServ's agreement with Staples, Inc. may be terminated by Staples, Inc. at
its discretion.

9
<PAGE>
DEPENDENCE ON A LIMITED NUMBER OF CLIENTS AND EVENTS; REVENUE RECOGNITION

A significant portion of the Company's revenues to date has been derived
from a small number of clients and events. On a pro forma basis, giving
effect to the 1997 Acquisitions as if they had occurred on January 1, 1997,
The Breeders' Cup Championship would have accounted for approximately 17% of
the Company's revenues for the year ended December 31, 1997. Moreover, a
limited number of clients and events represent a significant portion of the
Company's revenues. The loss of any of these clients or events without a
replacement could have a material adverse effect on the business and
operations of the Company. See "--Risk Factors--Nature of Contracts."

The Company's revenues vary throughout the year. Historically, the fourth
quarter produced the highest percentage of revenues for the year, principally
from the Company's management and marketing of The Breeders' Cup Championship
and from representation agreements with professional hockey players, which
results in revenue to the Company upon the commencement of the National
Hockey League season. However, as a result of the Company's recent entry into
the business of representing professional football players and the 1997
Acquisitions, it is anticipated that the Company's revenues will be recorded
substantially in the third as well as the fourth quarter.

COMPETITION

The business of providing services in the sports, news and other
entertainment industries is highly competitive. The Company's competitors
include several large companies, such as Advantage International Inc. (part
of the Interpublic Group of Companies, Inc.) and International Management
Group in the sports industry and Creative Artists Agency, Inc., ICM Artists,
Ltd. and the William Morris Agency, Inc. in the entertainment industry,
certain of which have substantially greater financial and other resources
than the Company. In addition, the Company competes with many smaller
entities. The success of the Company will be dependent upon its ability to
obtain additional event management, television production, marketing, talent
representation and consulting opportunities and to generate revenues from
such activities. The Company believes that it competes with other companies
primarily on the basis of the experience of its management and the breadth of
the services that it offers.

EMPLOYEES

As of March 6, 1998, the Company had 132 full-time employees, none of whom
was covered by a collective bargaining agreement. The Company considers its
relations with its employees to be good. In addition, from time-to-time, the
Company engages independent contractors to provide certain of the services
required by its business.

RISK FACTORS

Many of the statements, estimates, predictions and projections contained
in this "Business" section and the "Management's Discussion and Analysis or
Plan of Operation" section of this Annual Report on Form 10-K, in addition to
certain statements contained elsewhere in this annual report, are
"forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. These forward-looking
statements are prospective, involving risks and uncertainties. While these
forward-looking statements, and any assumptions on which they are based, are
made in good faith and reflect the Company's current judgment regarding the
direction of its business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections, assumptions or
other future performance suggested herein. The following risk factors should
be considered carefully by the Company's stockholders and prospective
investors in evaluating the Company and its business. The Company does not
undertake to release publicly any revisions to forward-looking statements
that may be made to reflect events or circumstances after the date of this
annual report or to reflect the occurrence of unanticipated events.

Limited Operating History; History of Losses; Future Charges to
Operations. Although the Company was formed July 1995, it did not commence
operations until January 1996 and did not complete the 1996 Acquisitions
until December 11, 1996. For the period from July 11, 1995 (inception)
through

10
<PAGE>
December 31, 1995, the Company had no revenues or expenses. For the years
ended December 31, 1996 and 1997, the Company had net losses applicable to
common stockholders of $2.4 million and $1.3 million, respectively. On a pro
forma basis, giving effect to the Second Offering and the 1997 Acquisitions
as if they had occurred on January 1, 1997, the Company would have had a net
loss applicable to common stockholders of $521,000 for the year ended
December 31, 1997. There can be no assurance that these losses will not
continue or that the Company will become profitable in the future. See
"Management's Discussion and Analysis or Plan of Operation" and the Company's
financial statements and the notes related thereto included herein.

The Company has recorded and will continue to record substantial
compensation and other non-cash charges to operations in connection with the
1997 Acquisitions and the issuance of securities to certain officers,
directors and consultants. In connection with the 1997 Acquisitions, the
Company recorded as intangibles, the excess of the purchase price over the
net tangible assets acquired of approximately $24.0 million which will be
amortized over twenty years. In addition, the Company will record charges to
operations over the next two years aggregating $616,000 related to the
Company's potential obligation to repurchase the shares of Common Stock
issued in connection with the acquisition of ProServ and the Company will
record charges to operations aggregating $696,000 over the next three to
eight years related to imputed interest on certain indebtedness to the
stockholders of SMTI, A&A and QBQ. Further, in connection with an employment
agreement with one of its officers, the Company will recognize charges to
operations aggregating $463,000 over the next four years. The Company has
also placed in escrow (i) 1,275,000 shares of Common Stock in connection with
its IPO (the "IPO Escrow Shares") which will be released to certain officers,
directors and consultants of the Company if the Company meets certain
financial thresholds and (ii) 78,702 shares of the Common Stock in connection
with the acquisition of QBQ (the "QBQ Escrow Shares") which will be released
if QBQ meets certain financial thresholds. In the event that the IPO Escrow
Shares or the QBQ Escrow Shares are released from escrow, the Company may
recognize, during the period in which the thresholds for release are
probable of being met, a substantial non-cash compensation charge to
operations, which will not be deductible for income tax purposes and which
will have the effect of significantly increasing the Company's losses or
reducing or eliminating earnings, if any, at such time. The recognition of
these charges to operations may depress the market price of the Company's
Common Stock. See "Management's Discussion and Analysis or Plan of
Operation."

Ability to Manage Growth and Integrate Acquisitions. The Company has grown
rapidly since its formation in 1995, primarily as a result of acquiring the
independently managed businesses of SMTI, A&A, ProServ and QBQ. The Company's
growth may place a significant strain on the Company's management and
operations. The Company's acquisitions (including the Pending Acquisition)
could involve a number of risks, including the diversion of management's
attention to the assimilation of the companies to be acquired, unforeseen
difficulties in acquired operations, difficulties in integrating the
operations of acquired businesses and potential conflicts of interest. See
"--Potential Conflicts of Interest with SFX Entertainment." In addition, the
Company's planned international expansion is likely to involve additional
increased costs and risks, including those related to foreign regulation,
currency fluctuations and exchange controls. There can be no assurance that
the growth experienced by the Company will continue or that the Company will
be able to manage any future expansion successfully. Furthermore, the
Company's plans with respect to its acquisitions involve, to a substantial
degree, strategies to increase revenue and to reduce operating expenses as a
percentage of revenue. There can be no assurances that the Company will be
able to implement its plans or that, if implemented, they will accomplish the
desired objectives of increasing revenue or reducing operating expenses as a
percentage of revenue. See "Management's Discussion and Analysis or Plan of
Operation."

Uncertainty Related to Acquisition Strategy. There can be no assurance
that the Company will be able to identify and acquire additional suitable
businesses or obtain the financing necessary to complete such acquisitions.
Future acquisitions may involve debt financing (which would require payments
of principal and interest on such indebtedness and would adversely impact the
Company's cash flows) and/or the issuance of equity securities (which may be
dilutive to the ownership interests of the Company's then

11
<PAGE>
existing stockholders). Any such acquisitions may result in charges to
operations relating to interest expense or the recognition and amortization
of goodwill, which would have the effect of increasing the Company's losses
or reducing or eliminating earnings, if any.

Nature of Contracts. Written representation agreements with clients are
generally terminable annually on 30 days' notice (although the Company will
continue to be entitled to revenue streams generated during the remaining
term of any contracts which the Company negotiated), and written contracts
for corporate sponsorship projects are generally of a short-term nature. The
termination or expiration of the Company's contracts with certain clients
could have a material adverse effect on the Company's operations. See
"Business--Dependence on a Limited Number of Clients and Events; Revenue
Recognition."

Potential Conflicts of Interest. SFX Entertainment is a company that,
among other things, is engaged in the live entertainment business, including
the ownership of venues. Mr. Sillerman is the executive chairman of the board
of directors, and Mr. Tytel is an executive vice president and a director of,
SFX Entertainment. The Company anticipates that, from time to time, it will
enter into transactions and arrangements (particularly, booking arrangements)
with SFX Entertainment. In any transaction or arrangement with SFX
Entertainment, Messrs. Sillerman and Tytel are likely to have conflicts of
interest as officers and directors of the Company. These transactions or
arrangements will be subject to the approval of the independent committees of
the Company and SFX Entertainment, except that booking arrangements in the
ordinary course of business will be subject to periodic review but not the
approval of each particular arrangement.

Dependence on Key Personnel. The Company's success depends, to a large
extent, upon the continued contributions of certain key personnel. The
Company's ability to obtain new event management, television production,
marketing, talent representation and consulting agreements is dependent, to a
large extent, on the strength of certain key personnel's relationships within
the sports, news and other entertainment industries. The loss of any such key
personnel would adversely affect the business of the Company.

Influence by Management; Effects of Anti-takeover Provisions. The
Company's officers and directors control approximately 26% of the total
voting power of the Company (without giving effect to the exercise of
Warrants and options held by such persons to purchase shares of Common
Stock). As a result, such stockholders will be able to exert substantial
influence over the election of the Company's Board of Directors and all other
issues submitted to the Company's stockholders. The Company and certain of
its principal stockholders have entered into a stockholders' agreement (the
"Stockholders' Agreement") that places certain restrictions on the sale of
shares by such stockholders and grants to such stockholders certain rights
with respect to matters affecting corporate governance, including an
agreement by such stockholders to vote for the nominees of such stockholders
to the Company's Board of Directors. The existence of such restrictions and
rights will solidify the control over the Company by existing officers and
directors. The Company is also subject to a Delaware statute regulating
business combinations, which could discourage, hinder or preclude an
unsolicited acquisition of the Company and could make it less likely that
stockholders receive a premium for their shares as a result of any such
attempt.

Shares Eligible for Future Sale. The Company has 17,912,677 shares of
Common Stock outstanding and 527,503 Warrants outstanding as of March 20,
1998. Of the outstanding shares of Common Stock, a total of 12,658,550 shares
are freely tradeable without restriction or further registration under the
Securities Act, unless purchased or held by "affiliates" as that term is
defined in Rule 144 under the Securities Act. Of the remaining 4,254,126
shares, 2,900,423 shares are "restricted securities" as that term is defined
in Rule 144 and approximately 1,353,703 shares are held in escrow and subject
to forfeiture. An aggregate of 2,261,539 of the shares that constitute
restricted shares are eligible for sale subject to the manner of sale, volume
and similar limitations of Rule 144, however, these shares are subject to the
Lock-Up Agreements (as defined below). An additional 643,514 shares will
become eligible for sale subject to the limitations of Rule 144 in October
1998. The Company's executive officers and directors, who own an aggregate of
4,453,596 shares of Common Stock and 253,496 Warrants, have entered into

12
<PAGE>
agreements (the "Lock-Up Agreements") with the underwriters in the IPO
pursuant to which they have agreed not to sell or otherwise dispose of any
shares of Common Stock, Warrants or other capital stock of the Company until
December 5, 1998 without the prior written consent of the underwriter, except
for certain limited exceptions. The underwriters in the IPO may, in their
sole discretion, at any time and without notice release all or any portion of
the shares of Common Stock subject to such agreements. In addition, the
holders of the shares of Common Stock issued in the 1997 Acquisitions have
agreed to restrictions on the sale or other disposition of such shares but
have been granted registration rights for such shares. Sales of substantial
amounts of Common Stock, or the possibility of such sales, could adversely
affect the prevailing market price for the Common Stock and could impair the
Company's ability to raise capital through a public offering of equity
securities.

Possible Adverse Effects of Authorization of Preferred Stock. The
Company's Amended and Restated Certificate of Incorporation (the "Certificate
of Incorporation") authorizes the issuance of 5,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"), on terms to be fixed by
the Company's Board of Directors without further stockholder action. The
terms of any series of Preferred Stock, which may include priority claims to
assets and dividends and special voting rights, could adversely affect the
rights of holders of the Common Stock. The issuance of the Preferred Stock,
while providing flexibility in connection with possible acquisitions,
financing transactions and other corporate transactions, could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring capital stock of the Company, which
may adversely affect the market price of the Common Stock.

ITEM 2--DESCRIPTION OF PROPERTY

The Company's executive offices are located at 888 Seventh Avenue, New
York, New York, and are occupied pursuant to a lease which expires in October
2007. The Company also leases office space in Greenwich, Connecticut;
Washington, D.C.; Los Angeles, California; Atlanta, Georgia; Scottsdale,
Arizona; and Richmond upon Thames, England.

The Company believes that its facilities will be sufficient for its
current operations for the foreseeable future. However, the Company's
expansion plans may require the Company to obtain the use of additional
office space or other facilities in the future. The Company anticipates that
such facilities will be available at a reasonable cost.

ITEM 3--LEGAL PROCEEDINGS

The Company is a defendant in various legal actions, involving breach of
contract and various other claims, which are incidental to the conduct of its
business. In the opinion of management, there are no material threatened or
pending legal proceedings against the Company which if adversely decided,
would have a material effect on the financial condition or prospects of the
Company.

ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to the Company's stockholders during the fourth
quarter of 1997.

13
<PAGE>
PART II

ITEM 5--MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Since September 11, 1997, the Common Stock has been listed on the AMEX
under the symbol "MRT." Prior to that date, the Common Stock was quoted on
The Nasdaq Stock Market's SmallCap Market (the "Nasdaq SmallCap Market")
under the symbol "MRQE" and was listed on the Boston Stock Exchange under the
symbol "MRT."

From December 6, 1996 (the first trading day after the effective date of
the registration statement relating to the Company's IPO) until December 13,
1996, the shares of Common Stock and the Warrants traded only as units ("IPO
Units") on the Nasdaq SmallCap Market and did not trade separately. On
December 13, 1996, the IPO Units were separated into their constituent parts
and began trading separately on the Nasdaq SmallCap Market. On March 13,
1997, the Common Stock and Warrants each commenced trading on the Boston
Stock Exchange. On September 10, 1997, the Nasdaq SmallCap Market and the
Boston Stock Exchange ceased trading the Common Stock and Warrants.

The following table sets forth the high and low closing bid information
for the shares of Common Stock of the Company, as reported by the Nasdaq
SmallCap Market through September 10, 1997 and includes the closing sales
price information on the AMEX subsequent to such date. Bid quotations reflect
interdealer prices, without retail mark-up, mark-down or commissions, and may
not represent actual transactions.

<TABLE>
<CAPTION>
COMMON STOCK
----------------
YEAR ENDED DECEMBER 31, 1996 HIGH LOW
- ----------------------------------------- ------- -------
<S> <C> <C>
Fourth Quarter (since December 13, 1996) $ 6.00 $ 6.00
YEAR ENDED DECEMBER 31, 1997
- -----------------------------------------
First Quarter ............................ $ 7.25 $ 6.00
Second Quarter ........................... 6.375 5.50
Third Quarter............................. 7.125 4.50
Fourth Quarter ........................... 6.938 3.125
</TABLE>

On March 20, 1998, the last reported sales price of the Common Stock as
reported by the AMEX was $3.75 per share. The Company had 163 record holders
of its Common Stock at such date.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on its Common
Stock since inception and does not anticipate declaring or paying any in the
foreseeable future. The Board of Directors intends to retain future earnings,
if any, to support the growth of the Company's business. The declaration and
payment of future dividends, if any, will be at the sole discretion of the
Board of Directors and will depend upon the Company's profitability,
financial condition, cash requirements and other factors deemed relevant by
the Board of Directors.

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<PAGE>
ITEM 6--MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

INTRODUCTION

The Company was formed in July 1995 for the purpose of providing
integrated event management, television programming and production,
marketing, talent representation and consulting services in the sports, news
and other entertainment industries. From the time of its formation until the
consummation of the 1996 Acquisition, in December 1996, the Company was
engaged in developing its sports television production, marketing and
consulting business. In October 1997, the Company acquired ProServ (the
"ProServ Acquisition") and QBQ (the "QBQ Acquisition") (collectively the
"1997 Acquisitions"). The Company also completed the Second Offering of
8,500,000 shares of its Common Stock at $5.00 per share in October and
November 1997.

For all periods presented, the supplemental discussion and analysis of the
results of operations on a pro forma basis include the Company, SMTI, A&A,
ProServ and QBQ, as if they had always been members of the same operating
group. The following discussion also contains certain forward-looking
statements that involve risks and uncertainties. The Company's future results
of operations could differ materially from those discussed herein.
Stockholders and prospective investors should see "Business -- Risk Factors"
for a discussion of factors that could cause or contribute to such
differences. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made
to reflect any future events or circumstances.

The primary sources of the Company's revenues are fees from providing
event management, television programming and production, sports marketing and
consulting services and commissions from representation of sports, news and
entertainment personalities. Revenues from events are recognized when the
events are held. Revenues from television programming and production services
are recognized when the programs are available for broadcast. Marketing
revenues are recognized for guaranteed amounts when contractual obligations
are met (subsequent royalties are recorded when received). Revenues from
advertising services are recognized in the month the advertisement is
broadcast or printed. Commissions based on profit or gross receipt
participations are recorded upon the determination of such amounts.
Consulting revenue is recognized as services are provided. Commissions from
the Company's talent representation services are recognized as revenue when
they become payable to the Company under the terms of the Company's
agreements with its clients. Generally, such commissions are payable by
clients upon their receipt of payments for performance of services.

A significant portion of the Company's revenues to date has been derived
from a small number of events and clients. On a pro forma basis, The
Breeders' Cup Championship would have accounted for approximately 17% of the
Company's revenues for the year ended December 31, 1997. The Breeders' Cup
Agreement terminates on December 31, 2000, with an automatic renewal under
certain circumstances, unless terminated earlier in accordance with the terms
of the agreement, including the termination, for any reason, of the Company's
employment of Michael Letis or Michael Trager or the unavailability of Mr.
Letis or Mr. Trager to perform the services necessary to enable the Company
to comply with the terms of The Breeders' Cup Agreement.

The Company's most significant costs and expenses are salaries and
television programming and production expenditures. Historically, general and
administrative expenses were impacted by the levels of compensation and
related benefits that the stockholders of SMTI, A&A, ProServ and QBQ received
from their respective businesses during the periods when the companies were
privately owned. ProServ has undergone an internal restructuring focused on
reducing its operating expenses and eliminating business activities that do
not provide adequate financial returns. The pro forma adjustments for the
1997 Acquisitions reflect contractually required reductions in personnel,
officers' salaries and employee benefits, but do not reflect the effects of
the ProServ restructuring since they are not directly attributable to the
ProServ Acquisition.

15
<PAGE>
intangibles the excess of the purchase price over the net tangible assets
acquired of approximately $24 million which will be amortized over twenty
years. In the event that shares of the Company's Common Stock subject to
escrow agreements entered into in connection with the Company's IPO and the
QBQ Acquisition are to be released from escrow, the Company may recognize,
during the period in which the thresholds for release are probable of being
met, a substantial non-cash compensation charge, which will not be deductible
for income tax purposes and which will have the effect of significantly
increasing the Company's losses or reducing or eliminating earnings, if any,
at such time. In addition, the Company will record charges to operations over
the next two years aggregating $616,000 related to the Company's potential
obligation to repurchase the shares of Common Stock issued in connection with
the ProServ Acquisition and the Company will also record charges to
operations aggregating $696,000 over the remaining three to eight years
related to imputed interest on the indebtedness to the former stockholders of
SMTI, A&A and QBQ. Further, in connection with an officer's employment
agreement, the Company will recognize a non-cash compensation charge of
$463,000 over the next four years.

RESULTS OF OPERATIONS

The Company's consolidated financial statements are not directly
comparable from period to period because the Company consummated the 1996
Acquisitions and the 1997 Acquisitions in December 1996 and October 1997,
respectively.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

For the year ended December 31, 1997, the Company generated revenues of
approximately $21.3 million compared to $2.9 million for the year ended
December 31, 1996. The increase in revenues of approximately $18.4 million
was principally attributable to the inclusion of the operations of the 1996
Acquisitions ($12.0 million) for the year and the 1997 Acquisitions ($1.6
million) from the date of acquisition. The balance of the increase in
revenues was principally attributable to increases in the Company's
television production and programming activities ($3.3 million) and
consulting services ($1.0 million). The increase in television revenues
included production of the US Open Professional Figure Skating Championship,
the Senior Pro Tour for the PBA, a syndicated series -- "More Than A Game"
and programming for various cable networks. The increase in consulting
revenues was principally attributable to services rendered to Americast, a
partnership of certain telephone companies, to assist in the creation of
local sports networks for cable TV. The partners in Americast disbanded their
programming development department and terminated the Company's contract as
of September 27, 1997. Increases in talent representation revenues, which
includes revenues from the new football division, were offset by a reduction
in marketing revenues as result of two sponsors not renewing their
participation in promotional programs for 1997.

The increase in pro forma revenues of $5.0 million, or 17%, for the year
ended December 31, 1997 as compared to the year ended December 31, 1996, is
attributable to the matters discussed above as well as the increased revenues
from the AT&T Challenge Cup (an ATP tennis tournament). Pro forma revenues
include revenues from the Canon Shoot-Out for both periods; however, the
sponsorship agreement for this event expired in December 1997 and the Company
will not continue its participation in this event. The decrease in marketing
was the result of the two sponsors not renewing promotional programs in 1997
as mentioned above as well as ProServ's loss of marketing programs partially
offset by revenues from the sale of sponsorships for the PBA and others in
1997.

The Company's operating expenses of $14.5 million for 1997 increased $11.9
million from $2.6 million in the prior year, principally, as a result of the
inclusion of the operations of the 1996 Acquisitions

16
<PAGE>
($6.6 million) for the entire year and the 1997 Acquisitions ($1.1 million)
from the date of acquisition and the costs related to the increased
television production and programming in 1997. On a pro forma basis, the
Company's operating expenses increased approximately $2.8 million, or 13.6%
in 1997 as compared to 1996, principally as a result of the increased
television production and programming costs. Pro forma cost savings of
approximately $600,000 related to contractually required reductions in
personnel costs were included in both periods.

General and administrative expenses were approximately $6.3 million for
the 1997 as compared to $2.2 million for the prior year. The increase was
principally the result of the inclusion of the operations of the 1996
Acquisitions for the year and the 1997 Acquisitions from the acquisition date
and increased staffing and occupancy costs required to support the Company's
expanded business operations. On a pro forma basis, general and
administrative expenses decreased $400,000, or 4%, in 1997 from approximately
$9.4 million in the prior year. The decrease is attributable to the
restructuring program begun by ProServ in 1996. Pro forma cost savings of
$1.0 million related to contractually required reductions in personnel,
officers' salaries and benefits and other costs applicable to ProServ and QBQ
were included in both periods.

The Company's loss from operations for the year ended 1997 was
approximately $23,000 compared to approximately $2.0 million for the prior
year. On a pro forma basis, the Company would have reported income from
operations of approximately $1.2 million in 1997 versus a loss of $1.9
million in 1996. The pro forma operating results include non-cash charges of
approximately $1.4 million of depreciation and amortization (principally
representing amortization of the intangibles arising from the 1997
Acquisitions) and deferred compensation charges of $145,000 and $6,000 in
1997 and 1996, respectively. The 1996 pro forma operating loss also includes
a one-time charge related to the closing of ProServ's Paris office of
$565,000.

The Company's net loss was $1.3 million in 1997 versus a net loss of $2.4
million in 1996. The 1997 net loss includes one-time charges resulting from
financing costs of approximately $868,000, including interest related to the
bridge facility with respect to the Company's Tender Offer for its
outstanding Warrants and a provision for loss on the abandonment of a lease
of $466,000. The 1996 net loss includes a one-time financing charge of
$193,000 related to the Company's sale of debentures in a private placement.
The net loss applicable to common stockholders in 1997 and the pro forma net
loss applicable to common stockholders for 1997 and 1996 includes charges of
$59,000 and $301,000, respectively, related to the accretion of the Company's
potential obligation under the put option on common stock issued in
connection with the ProServ Acquisition.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of working capital has been from the net
proceeds of the sale of securities, including net proceeds of approximately
$15.6 million from its IPO in December 1996 and net proceeds of approximately
$38.6 million from the Second Offering in October and November 1997. Of the
net proceeds of the IPO and the Second Offering, approximately $29.1 was paid
in connection with the 1996 and 1997 Acquisitions and approximately $10.5
million was used to repay the borrowings under the bridge facility, as
further described below. Working capital as of December 31, 1997, was
approximately $11.0 million.

The Company purchased ProServ for an aggregate purchase price of $10.8
million in cash and the issuance of 250,000 shares of Common Stock and repaid
approximately $2.5 million of the outstanding indebtedness of ProServ. The
shares issued in connection with the purchase of ProServ are subject to
certain put and call options. The holder of the put option, at any time
between October 14, 1999 and December 13, 1999, may elect to transfer to the
Company up to all of the remaining Common Stock held by the option holder at
a price per share of $7.70 (up to approximately $1.9 million in the
aggregate). In addition, at any time between December 14, 1999 and January
13, 2000, the Company may purchase 50% of the common stock held by option
holder at a price per share of $7.70 (up to $962,500 in the aggregate). The
Company may also be obligated to make additional earn-out payments of up to
$2.5 million over the next 4 years based on the financial performance of
ProServ.

17
<PAGE>
The Company also purchased certain assets of QBQ for an aggregate purchase
price of approximately $6.7 million, of which $2.0 million was paid by the
issuance of 314,812 shares of Common Stock, $1.0 million will be payable in
equal annual installments over eight years, subject to acceleration in
certain circumstances and $615,000 will be payable in annual installments
over five years. In addition, the Company deposited 78,702 shares of Common
Stock into an escrow account, to be released to QBQ in the event that certain
financial performance goals are achieved with respect to the acquired assets
in any of the first four full fiscal years following the consummation of the
QBQ Acquisition. In connection with the QBQ Acquisition, the Company loaned
$1.5 million to the sole shareholder of QBQ, on a non-recourse basis, secured
by the common stock issued in the QBQ Acquisition. The acquisition agreement
also provides that, at any time within the 30-day period following the first
to occur of (i) October 14, 1999 or (ii) an Acceleration Event (as defined in
the acquisition agreement), QBQ may, at its option, elect to transfer to the
Company up to 75% of the shares it received in connection with the QBQ
Acquisition for an aggregate purchase price of up to $1.5 million. In
addition, at any time within the 30-day period following the first to occur
of October 14, 1999 or a Pledge Event (as defined in the acquisition
agreement), the Company may, at its option, elect to purchase 50% of such
shares from QBQ for an aggregate of $1.5 million. In addition, if the QBQ
Escrow Shares are released from escrow at any time within the first 30 days
after October 14, 1999 or an Acceleration Event, (i) QBQ may, at its option,
elect to transfer up to 75% of the QBQ Escrow Shares to the Company for an
aggregate purchase price of up to $375,000 and (ii) the Company may, at its
option, elect to purchase up to 50% of the QBQ Escrow Shares for an aggregate
purchase price of up to $750,000.

On September 11, 1997, the Company borrowed $10.5 million pursuant to a
bridge facility in order to purchase 3,991,659 Warrants pursuant to the
Tender Offer. On October 14, 1997 the Company repaid the amount borrowed from
the proceeds of the Second Offering. In connection with the bridge facility,
the Company paid the lender fees and expenses of $362,000 and issued to the
lender immediately exercisable options to acquire an aggregate of 105,000
shares of Common Stock, at an exercise price per share of $2.25, subject to
adjustment in certain circumstances which will expire in 2007. The Company
also paid $112,000 to the lender for interest for the period the loan was
outstanding.

In connection with the 1996 Acquisitions, the Company paid $9.0 million
and agreed to pay $2.5 million to the former stockholders of SMTI and A&A in
five equal annual installments, which began on April 1, 1997. In addition,
the agreement relating to the acquisition of SMTI provided that SMTI is to
distribute to its former stockholders, by means of a dividend, an amount
equal to 40% of the accumulated adjustments account of SMTI (approximately
$350,000) which was paid during 1997.

It is the Company's intention to continue to expand its operations through
further acquisitions of companies, events and employees. In March 1998, the
Company entered into a non-binding letter of intent with respect to the
Pending Acquisition. The aggregate purchase price for the Pending Acquisition
will be approximately $3.0 million in cash and $1.0 million in shares of Common
Stock. In addition, the Company may be required to make additional earn-out
payments based upon the financial performance of the acquired businesses. In
connection with entering into the letter of intent, the Company advanced
Alphabet City Industries $350,000. There can be no assurance that the Pending
Acquisition will be consummated as presently contemplated or at all. See
"Business--Pending Acquisition."

In October 1996, the Company entered into a lease for new facilities,
which requires initial annual rent of $537,000, subject to certain increases.
The Company has incurred capital expenditures of approximately $1.5 million
(net of landlord contribution) to furnish its new office space, complete
leasehold improvements and install a computer network. The Company intends to
expend approximately $500,000 to expand its computer network and make
additional leasehold improvements for ProServ and QBQ. The Company does not
expect to incur any material costs in order to become Year 2000 compliant.

Management believes that the Company's working capital and cash flow
generated from operations are sufficient to meet the Company's working
capital requirements for the foreseeable future, including the purchase price
of the Pending Acquisition. However, the Company intends to continue to
identify and negotiate acquisitions both within its existing lines of
businesses and within complementary lines of

18
<PAGE>
businesses the Company may require additional financing to fund such
acquisitions. After the utilization of available cash on hand, acquisitions
may involve debt financing (which would require payments of principal and
interest on such indebtedness and would adversely impact the Company's cash
flows) and/or the issuance of equity securities (which may be dilutive to the
ownership interests of the Company's then existing stockholders). Any such
acquisitions may result in charges to operations relating to interest expense
or the recognition and amortization of intangibles, which would have the
effect of increasing the Company's losses or reducing or eliminating
earnings, if any. In addition, if the Company is required to repurchase
shares issued in connection with the 1997 Acquisitions or make the earn-out
payments described above, there can be no assurance that the Company will
have funds available for such payments.

ITEM 7--FINANCIAL STATEMENTS

See Index to Consolidated Financial Statements on page F-1.

ITEM 8--CHANGES OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

There have been no changes or disagreements with the Company's accountants
on accounting matters or financial disclosure.

19
<PAGE>
PART III

ITEM 9--DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The information called for by this item is incorporated by reference to
the Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.

ITEM 10--EXECUTIVE COMPENSATION

The information called for by this item is incorporated by reference to
the Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.

ITEM 11--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The information called for by this item is incorporated by reference to
the Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.

ITEM 12--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this item is incorporated by reference to
the Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.

ITEM 13--EXHIBITS, LISTS AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report.

EXHIBITS

<TABLE>
<CAPTION>
NO. DESCRIPTION OF EXHIBIT
- ------------ ------------------------------------------------------------------------------------------------
<S> <C>
1.1 Underwriting Agreement, dated October 7, 1997, among The Marquee Group, Inc., Prudential Securities
Incorporated and Cowen & Company, as representatives of the several underwriters (incorporated by
reference to Exhibit 10.1 to the Report on Form 8-K (Comm. File No. 0-21711) filed with the Commission
on October 29, 1997). 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 to the Registration Statement on Form SB-2 (Reg. No. 333-11287) filed
with the Commission on September 3, 1996).
3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 to the Registration Statement on Form SB-2 (Reg. No. 333-11287) filed with the
Commission on September 3, 1996).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to Amendment
No. l to the Registration Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission on
October 25, 1996).
10.1 1996 Stock Option Plan (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Registration
Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission on October 25, 1996).
10.2 Employment Agreement, dated as of March 21, 1996, between The Marquee Group, Inc. and Robert M. Gutkowski
(incorporated by reference to Exhibit 10.2 to the Registration Statement on Form SB-2 (Reg. No. 333-11287)
filed with the Commission on September 3, 1996).
10.3 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and Michael Trager
(incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-KSB for the year ended
December 31, 1996).
10.4 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and Michael Letis
(incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-KSB for the year ended
December 31, 1996).

20
<PAGE>
NO. DESCRIPTION OF EXHIBIT
- ------------ ------------------------------------------------------------------------------------------------
10.5 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and Arthur Kaminsky
(incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-KSB for the year ended
December 31, 1996).
10.6 Employment Agreement, dated as of December 11, 1996, between The Marquee Group, Inc. and Louis J.
Oppenheim (incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-KSB for the year
ended December 31, 1996).
10.7A Shareholders' Agreement, dated as of March 21, 1996, by and among The Sillerman Companies, Inc., Robert
M. Gutkowski, Arthur Kaminsky, Louis J. Oppenheim, Michael Trager, Michael Letis and The Marquee Group,
Inc. (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form SB-2 (Reg. No.
333-11287) filed with the Commission on September 3, 1996).
10.7B Form of Amendment No. 1 to the Shareholders' Agreement, by and among The Sillerman Companies, Inc.,
Robert M. Gutkowski, Arthur Kaminsky, Louis J. Oppenheim, Michael Trager and Michael Letis (incorporated
by reference to Exhibit 10.7B to Amendment No. 1 to the Registration Statement on Form SB-2 (Reg.
No. 333-11287) filed with the Commission on September 15, 1996).
10.8 Escrow Agreement, dated as of August 15, 1996, by and between The Marquee Group, Inc., Continental
Stock Transfer & Trust Company, The Sillerman Companies, Inc., Robert M. Gutkowski, Arthur Kaminsky,
Louis J. Oppenheim, Michael Trager and Michael Letis (incorporated by reference to Exhibit 10.8 to
the Registration Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission on September
3, 1996).
10.8A Amendment No. 1 to Escrow Agreement (incorporated by reference to Exhibit 10.8A to the Annual Report
on Form 10-KSB for the year ended December 31, 1996).
10.8B Amendment No. 2 to Escrow Agreement (incorporated by reference to Exhibit 10.8B to the Annual Report
on Form 10-KSB for the year ended December 31, 1996).
10.9 Financial Consulting Agreement, dated August 1, 1996, between The Marquee Group, Inc. and Sillerman
Communications Management Corporation (incorporated by reference to Exhibit 10.9 to the Registration
Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission on September 3, 1996).
10.10 Amended and Restated Acquisition Agreement, dated as of March 21, 1996, by and among The Marquee Group,
Inc., Athletes and Artists, Inc., Arthur C. Kaminsky, Louis J. Oppenheim, Robert M. Gutkowski and
The Sillerman Companies, Inc (incorporated by reference to Exhibit 10.10 to the Annual Report on Form
10-KSB for the year ended December 31, 1996).
10.11 Amended and Restated Acquisition Agreement, dated as of March 21, 1996, by and among The Marquee Group,
Inc., Sports Marketing & Television International, Inc., Michael Trager, Michael Letis, Robert M.
Gutkowski and The Sillerman Companies, Inc. (incorporated by reference to Exhibit 10.11 to the Annual
Report on Form 10-KSB for the year ended December 31, 1996).
10.12 Marketing Agreement, dated as of July 29, 1994, by and between Sports Marketing & Television International,
Inc. and Breeders' Cup Limited (incorporated by reference to Exhibit 10.12 of Amendment No. 1 to the
Registration Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission on October 25,
1996). Portions of this agreement are subject to confidential treatment.
10.13 Subscription Agreement, dated August 15, 1996, between The Marquee Group, Inc. and Robert Gutkowski
(incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-KSB for the year ended
December 31, 1996). The Registrant has entered into substantially similar agreements with other parties.
10.13A Amendment to Subscription Agreement (incorporated by reference to Exhibit 10.13A to the Annual Report
on Form 10-KSB for the year ended December 31, 1996). The Registrant has entered into substantially
similar agreements with other parties.

21
<PAGE>
NO. DESCRIPTION OF EXHIBIT
- ------------ ------------------------------------------------------------------------------------------------

10.14 Promissory Note from The Marquee Group, Inc. to Robert M. Gutkowski (incorporated by reference to
Exhibit 10.14 of Amendment No. I to the Registration Statement on Form SB-2 (Reg. No. 333-11287) filed
with the Commission on October 25, 1996).
10.15 Underwriting Agreement, dated December 5, 1996, between The Marquee Group, Inc. and Royce Investment
Group, Inc. (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-KSB for the
year ended December 31, 1996).
10.16 Agreement, dated as of November 26, 1996, between The Marquee Group, Inc. and Unlimited Paramount
Network (incorporated by reference to Exhibit 10.16 to the Quarterly Report on Form 10-QSB for the
period ended March 31, 1997).
10.17 Warrant Agreement, dated as of December 5, 1996, among The Marquee Group, Inc., Continental Stock
Transfer & Trust Company, Royce Investment Group, Inc. and Continental Broker-Dealer Corporation
(incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-KSB for the year ended December
31, 1996).
10.18 Unit Purchase Option, dated December 11, 1996, issued by The Marquee Group, Inc. to Royce Investment
Group, Inc (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-KSB for the year
ended December 31, 1996).
10.19 Purchase and Sale Agreement, dated as of June 25, 1997, by and among ProServ, Inc., ProServ Television,
Inc., Donald L. Dell and The Marquee Group, Inc. (incorporated by reference to Exhibit 10.19 to Amendment
No. 1 to the Registration Statement on Form SB-2 (Reg. No. 333-31879) filed with the Commission on
September 15, 1997).
10.19A Amendment to Purchase and Sale Agreement, dated August 19, 1997, by and among ProServ, Inc., ProServ
Television, Inc., Donald L. Dell and The Marquee Group, Inc. (incorporated by reference to Exhibit
10.19A to the Registration Statement on Form SB-2 (Reg. No. 333-31879) filed with the Commission on
July 23, 1997).
10.20 Asset Purchase and Sale Agreement, dated as of July 21, 1997, by and among QBQ Entertainment, Inc.,
Marquee Music, Inc., Dennis Arfa and The Marquee Group, Inc. (incorporated by reference to Exhibit
10.20 to Amendment No. 1 to the Registration Statement on Form SB-2 (Reg. No. 333-31879) filed with
the Commission on September 15, 1997).
10.21 Non-Employee Stock Purchase Agreement dated July 2, 1997 (incorporated by reference to Exhibit 10.21
to Amendment No. 1 to the Registration Statement on Form SB-2 (Reg. No. 333-31879) filed with the
Commission on September 15, 1997).
10.22 Agreement, dated as of July 18, 1997, by and between William Allard and the Company (incorporated
by reference to Exhibit 10.22 to the Registration Statement on Form SB-2 (Reg. No. 333-31879) filed
with the Commission on July 23, 1997).
10.22A Amendment to Agreement, dated as of September 9, 1997, by and between William Allard and by the Company
(incorporated by reference to Exhibit 10.22A to the Registration Statement on Form SB-2 (Reg. No.
333-31879) filed with the Commission on July 23, 1997).
10.23 Assignment and Assumption Agreement by and between Sillerman Communications Management Corporation
and The Sillerman Companies, Inc. (incorporated by reference to Exhibit 10.23 to Amendment No. 1 to
the Registration Statement on Form SB-2 (Reg. No. 333-31879) filed with the Commission on September
15, 1997).
10.24 Agreement, dated September 12, 1997, between Jeff Knapple and The Marquee Group, Inc.(incorporated
by reference to Exhibit 10.24 to the Registration Statement on Form SB-2 (Reg. No. 333-31879) filed
with the Commission on July 23, 1997).

22
<PAGE>
NO. DESCRIPTION OF EXHIBIT
- ------------ ------------------------------------------------------------------------------------------------

10.25 Agreement, dated September 12, 1997, between Ivan Blumberg and The Marquee Group, Inc. (incorporated
by reference to Exhibit 10.125 to the Registration Statement on Form SB-2 (Reg. No. 333-31879) filed
with the Commission on July 23, 1997).
10.26 Bridge Financing Agreement, dated as of August 26, 1997, by and among The Marquee Group, Inc., the
Subsidiary Guarantors and The Huff Alternative Income Fund, L.P. (incorporated by reference to Exhibit
99.(a)(1) to Schedule 13E-3/A filed with the Commission on August 26, 1997).
10.27 Option Agreement, dated August 26, 1997, between The Marquee Group, Inc. and The Huff Alternative
Income Fund, L.P. (incorporated by reference to Exhibit 99.(a)(4) to Schedule 13E-3/A filed with the
Commission on August 26, 1997).
10.28 Employment Agreement, dated October 14, 1997 betweem The Marquee Group, Inc. and Donald Dell (incorporated
by reference to Exhibit 10.2 to the Report on Form 8-K (Comm. File No. 0-21711) filed with the Commission
on October 29, 1997).
10.29 Employment Agreement, dated October 14, 1997, between The Marquee Group, Inc. and William Allard
(incorporated by reference to Exhibit 10.3 to the Report on Form 8-K (Comm. File No. 0-21711) filed
with the Commission on October 29, 1997).
10.30 Empoloyment Agreement, dated October 14, 1997, between The Marquee Group, Inc. and Dennis Arfa (incorporated
by reference to Exhibit 10.4 to the Report on Form 8-K (Comm. File No. 0-21711) filed with the Commission
on October 29, 1997).
21* List of subsidiaries of the Registrant.
27* Financial Data Schedule.
</TABLE>
[FN]
- ------------
* Filed herewith.

(b) Reports on Form 8-K.

On October 29, 1997, the Company filed a Report on Form 8-K disclosing the
consummation of the ProServ and QBQ Acquisitions pursuant to Item 2 and the
consummation of the Second Offering and the repayment of the bridge facility
pursuant to Item 5.

23
<PAGE>
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

THE MARQUEE GROUP, INC.
/s/ Robert Gutkowski
-----------------------------------
Name: Robert Gutkowski
Title: President and Chief
Executive Officer
Dated: March 30, 1998

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- ------------------------------ ------------------
<S> <C> <C>
/s/ Robert M. Gutkowski President, Chief Executive March 30, 1998
----------------------------- Officer and Director
Robert M. Gutkowski (principal executive officer)

/s/ Robert F.X. Sillerman Chairman March 30, 1998
-----------------------------
Robert F.X. Sillerman

/s/ Arthur Kaminsky Executive Vice President March 30, 1998
----------------------------- and Director
Arthur Kaminsky

/s/ Michael Letis Executive Vice President March 30, 1998
----------------------------- and Director
Michael Letis

/s/ Louis J. Oppenheim Executive Vice President March 30, 1998
----------------------------- and Director
Louis J. Oppenheim

/s/ Michael Trager Executive Vice President March 30, 1998
----------------------------- and Director
Michael Trager

/s/ Jan Chason Chief Financial Officer March 30, 1998
----------------------------- (principal financial and
Jan Chason accounting officer)

/s/ Howard J. Tytel Director March 30, 1998
-----------------------------
Howard J. Tytel

/s/ Donald L. Dell Director March 30, 1998
-----------------------------
Donald L. Dell

/s/ William J. Allard Director March 30, 1998
-----------------------------
William J. Allard

/s/ Arthur R. Barron Director March 30, 1998
-----------------------------
Arthur R. Barron

/s/ Myles W. Schumer Director March 30, 1998
-----------------------------
Myles W. Schumer
</TABLE>

<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND 1997

CONTENTS

<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors ...................... F-2
Consolidated Balance Sheet .......................... F-3
Consolidated Statements of Operations ............... F-4
Consolidated Statements of Stockholders' Equity .... F-5
Consolidated Statements of Cash Flows ............... F-6
Notes to Consolidated Financial Statements ......... F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Stockholders of
The Marquee Group, Inc.

We have audited the accompanying consolidated balance sheet of The Marquee
Group, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the two years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly in
all material respects, the consolidated financial position of the Company at
December 31, 1997, and the consolidated results of its operations and its
cash flows for the two years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

Ernst & Young LLP

New York, New York
March 5, 1998

F-2
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 8,944
Cash escrow................................................................... 704
Accounts receivable--net...................................................... 6,930
Television and event costs.................................................... 553
Prepaid expenses and other current assets..................................... 436
---------
Total current assets........................................................ 17,567
Property and equipment, net.................................................... 2,040
Noncurrent receivables......................................................... 668
Notes receivable............................................................... 1,887
Deposits....................................................................... 677
Intangible assets--net......................................................... 23,951
---------
$46,790
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities...................................... $ 4,592
Acquisition indebtedness--current portion..................................... 775
Escrow payable................................................................ 527
Deferred revenues............................................................. 626
---------
Total current liabilities................................................... 6,520
Acquisition indebtedness--non-current.......................................... 2,144
Deferred rent.................................................................. 696
Deferred income taxes.......................................................... 960
Common stock (545 shares) subject to put options............................... 3,184
Stockholders' equity
Preferred stock, $.01 par value, 5,000 shares authorized, no shares issued
Common stock, $.01 par value; 25,000 shares authorized, 8,769 and 17,913
shares issued and outstanding................................................ 174
Additional paid-in capital.................................................... 36,885
Accumulated deficit........................................................... (3,781)
Cumulative translation adjustment............................................. 8
---------
Total stockholders' equity.................................................. 33,286
---------
$46,790
=========
</TABLE>

See accompanying notes.

F-3
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues................................................................... $21,268 $ 2,869
Operating expenses......................................................... 14,459 2,563
General and administrative expenses........................................ 6,316 2,199
Deferred compensation...................................................... 145 56
Depreciation and amortization.............................................. 371 5
---------- ----------
Loss from operations....................................................... (23) (1,954)
Interest expense, net...................................................... 22 283
Loss on abandonment of lease............................................... 466 --
Financing expense.......................................................... 756 193
---------- ----------
Loss before income taxes................................................... (1,267) (2,430)
Income tax benefit (provision)............................................. (45) 20
---------- ----------
Net loss................................................................... (1,312) (2,410)
Accretion of obligation related to the put option issued in connection
with the ProServ acquisition.............................................. 59 --
---------- ----------
Net loss applicable to common stockholders................................. $(1,371) $(2,410)
========== ==========
Net loss per share applicable to common stockholders-basic and dilutive .. $ (0.15) $ (1.03)
========== ==========
Weighted number of shares outstanding...................................... 9,377 2,347
========== ==========
</TABLE>

See accompanying notes.

F-4
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
CUMULATIVE
NUMBER OF COMMON ADDITIONAL DEFERRED ACCUMULATED TRANSLATION
SHARES STOCK PAID-IN CAPITAL COMPENSATION DEFICIT ADJUSTMENT TOTAL
----------- -------- --------------- -------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--December 31, 1995.......... 1,938 $ 19 $ -- $ -- $ -- -- $ 19

Issuance of common stock:
Issuance to employee............... 50 -- 119 (119) -- -- --

Conversion of Debentures........... 667 7 1,993 -- -- -- 2,000

Initial public offering, net of
offering costs.................... 3,852 39 15,547 -- -- -- 15,586

Acquisitions....................... 2,262 23 1,488 -- -- -- 1,511

Distribution to acquired companies'
former stockholders................ -- -- (10,970) -- -- -- (10,970)
"S" Corporation dividend............ -- -- (382) -- -- -- (382)
Amortization of deferred
compensation....................... -- -- -- 56 -- -- 56

Net loss for the year ended
December 31, 1996.................. -- -- -- -- (2,410) -- (2,410)
----------- -------- --------------- -------------- ------------- ------------- ----------
Balance--December 31, 1996.......... 8,769 88 7,795 (63) (2,410) -- 5,410

Initial public offering costs ...... -- -- (131) -- -- -- (131)
Issuance of common stock:
Second offering, net of offering
costs............................. 8,500 85 38,470 -- -- -- 38,555

Acquisitions....................... 644 1 624 -- -- -- 625

Tender Offer........................ -- -- (10,280) -- -- -- (10,280)
Issuance of options:
In connection with financing of
Tender Offer...................... -- -- 394 -- -- -- 394

In connection with acquisitions ... -- -- 13 -- -- -- 13

Amortization of deferred
compensation....................... -- -- -- 63 -- -- 63

Foreign currency translation
adjustment......................... -- -- -- -- -- 8 8

Net loss for the year ended
December 31, 1997.................. -- -- -- -- (1,371) -- (1,371)
----------- -------- --------------- -------------- ------------- ------------- -----------
17,913 $174 $ 36,885 $ -- $(3,781) $ 8 $ 33,286
=========== ======== =============== ============== ============= ============= ===========
</TABLE>

See accompanying notes.

F-5
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Operating activities
Net loss...................................................................... $ (1,371) $(2,410)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................ 385 5
Deferred compensation........................................................ 145 56
Deferred income taxes........................................................ -- (40)
Noncash financing expense ................................................... 394 --
Accretion of put option and imputed interest................................. 189 --
Loss on abandonment of lease................................................. 335 --
Changes in operating assets and liabilities:
Cash escrow................................................................. (461) --
Accounts receivable......................................................... (2,297) 906
Television and event costs.................................................. (553) --
Prepaid expenses ........................................................... 100 (178)
Accounts payable and accrued liabilities.................................... (1,551) (173)
Escrow payable.............................................................. 323 --
Deferred revenues .......................................................... 573 --
---------- ----------
Net cash used in operating activities......................................... (3,789) (1,834)
---------- ----------
Investing activities
Purchase of equipment and leasehold improvements, net of landlord
contribution.............................................................. (1,473) (122)
Employee loan ............................................................. (446) --
Security deposits.......................................................... (527) (45)
---------- ----------
Net cash used in investing activities......................................... (2,446) (167)
---------- ----------
Financing activities
Proceeds from loans payable--related parties............................... -- 767
Repayments of loans payable to related parties ............................ (122) (200)
Proceeds of private placement.............................................. -- 1,555
Proceeds from IPO, net of offering costs................................... (131) 15,586
Distribution to subsidiaries' former stockholders ......................... -- (9,000)
Cash acquired through acquisition of subsidiaries ......................... -- 504
Proceeds from bridge financing ............................................ 10,500 --
Costs related to Tender Offer.............................................. (10,280) --
Proceeds from second offering, net of offering costs....................... 38,555 --
Payment of acquisition indebtedness........................................ (882) --
Acquisitions, net of cash acquired......................................... (15,223) --
Loan to seller of business acquired ....................................... (1,500) --
Payment of acquired indebtedness........................................... (2,469) --
Repayment of bridge financing ............................................. (10,500) --
---------- ----------
Net cash provided by financing activities..................................... 7,948 9,212
---------- ----------
Increase in cash and cash equivalents ........................................ 1,713 7,211
Cash at beginning of period .................................................. 7,231 20
---------- ----------
Cash at end of period ........................................................ $ 8,944 $ 7,231
---------- ----------
Supplemental disclosure of non-cash financing activities:
Exchange of loans payable to related parties for Debentures .................. -- $ 445
========== ==========
Conversion of debentures to common stock...................................... -- $ 2,000
========== ==========
Issuance of acquisition indebtedness.......................................... $ 1,319 $ 1,970
========== ==========
S Corporation dividend payable................................................ -- $ 382
==========
Issuance of common stock in connection with acquisitions...................... $ 3,750 --
==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes ................................................................ $ 313 $ --
========== ==========
Interest..................................................................... $ 285 $ 254
========== ==========
</TABLE>

See accompanying notes.

F-6
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS AND ORGANIZATION

The Marquee Group, Inc. (the "Company"), which began operations in 1996,
provides integrated event management, television programming and production,
marketing, talent representation and consulting services in the sports, news
and other entertainment industries.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of all intercompany
accounts and transactions.

REVENUE RECOGNITION

CASH EQUIVALENTS

The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents.

TELEVISION AND EVENT COSTS

Television and event costs are recorded as incurred and are expensed when
the programs are available for use or when the event is held.

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. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the remaining lease term.

INTANGIBLES

Intangibles represent the excess of the purchase price of acquisitions
over the tangible net assets acquired and are amortized over twenty years
using the straight-line method. The Company periodically reviews the
recoverability of the carrying value of these assets and the period of
amortization based on the current and expected future non-discounted income
from operations of the entities giving rise to these intangibles to determine
whether events and circumstances warrant revised estimates of carrying value
or useful lives.

F-7
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

DEFERRED RENT

The Company leases premises under leases which provide for periodic
increases over the lease term. Pursuant to Statement of Financial Accounting
Standards No. 13, "Accounting for Leases," the Company records rent expense
on a straight-line basis. The effect of these differences is recorded as
deferred rent.

INCOME TAXES

The Company accounts for income taxes under the liability method as
required by Statement of Financial Accounting Standards Board Statement No.
109 ("FAS 109"), "Accounting for Income Taxes." FAS 109 requires an asset and
liability approach to financial accounting and reporting for income taxes.
Under this approach, differences between financial statement and tax bases of
assets and liabilities are determined, and deferred income tax assets and
liabilities are recorded for those differences that have future tax
consequences. Valuation allowances are established, if necessary, to reduce
any deferred tax asset recorded to an amount that will more likely than not
be realized in future periods. Income tax expense is composed of the current
tax payable or refundable for the period plus or minus the net change in
deferred tax assets and liabilities.

EARNINGS PER SHARE

In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented in conformity with the Statement No. 128 requirements.

Basic earnings per share applicable to common stockholders is based upon
net loss after reduction of amounts, if any, for accretion of the obligation
related to the put option issued in connection with the ProServ Acquisition
(see Note 3) divided by the weighted average number of shares of common stock
outstanding during the year. Shares of common stock placed in escrow upon
completion of the Initial Public Offering ("IPO") described in Note 2 and in
connection with the QBQ Acquisition described in Note 3 have been excluded
from the calculation of basic earnings per share. The shares of common stock
issued upon the automatic conversion of the debentures (see Note 5) are
considered outstanding for all periods presented.

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.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash investments and
trade accounts receivable.

At December 31, 1997 and 1996, approximately 90% of the Company's cash and
cash equivalents was invested with one financial institution.

F-8
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the year ended December 31, 1997, one client represented
approximately 28% of reported revenues.

Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of entities comprising the Company's client
base.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company estimates that the carrying amounts of its financial
instruments, principally noncurrent receivables and liabilities, approximates
the fair value.

RECLASSIFICATIONS

Certain reclassifications have been made in the 1996 financial statements
to conform to the 1997 presentation.

2. PUBLIC OFFERINGS AND TENDER OFFER

In December 1996, the Company closed its initial public offering ("IPO")
of 3,852,500 units (the "Units"), each unit consisting of one share of common
stock and one redeemable warrant, at a price of $5.00 per Unit. Each warrant
entitles the holder to purchase one share of common stock at an exercise
price of $7.50, subject to adjustment, at any time until December 4, 2001.
The warrants are redeemable by the Company under certain circumstances at a
redemption price of $.05 per warrant. (See below.)

The Company also granted to the underwriters, or their designees, options
(the "IPO Options") to purchase up to 335,000 Units. The Units purchasable
upon exercise of the IPO Options are identical to the Units described above,
except that the underlying warrants are redeemable only by the Company under
limited circumstances. The IPO Options are exercisable during a three-year
period commencing December 12, 1998 at an exercise price of $8.25, subject to
adjustment in certain events.

Certain of the Company's officer/stockholders have placed an aggregate of
1,275,000 of their shares of common stock in escrow. These shares will not be
assignable or transferable (but may be voted) until such time as they are
released from escrow based upon the Company meeting certain annual earnings
levels or the common stock attaining certain price levels. All reserved
shares remaining in escrow on March 31, 2000 will be forfeited and
contributed to the Company's capital. In the event the Company attains any of
the earnings thresholds or stock prices providing for the release of the
escrow shares to the stockholders, the Company will recognize compensation
expense at such time based on the then fair market value of the shares.

In September 1997, the Company purchased in a tender offer approximately 4
million of the 4.5 million outstanding warrants at a cash purchase price of
$2.40 per warrant. In order to consummate its purchase of the Warrants, the
Company borrowed $10.5 million pursuant to a loan agreement (the "Bridge
Facility"). The Company repaid such borrowing with a portion of the net
proceeds of its second public offering described below. In connection with
the Bridge Facility, the Company paid the lender fees and expenses of
$362,000 and issued to the lender immediately exercisable options to acquire
an aggregate of 105,000 shares of common stock, at an exercise price of
$2.25, subject to adjustment in certain circumstances. The options will
expire in 2007. As a result of the issuance of the options, the Company
recorded financing expense of $394,000 in 1997.

On October 14, 1997 and November 12, 1997, the Company consummated a
second public offering (the "Second Offering") of 8.5 million shares
(including the Underwriters' overallotment) of the Company's common stock at
$5.00 per share. The proceeds to the Company after deducting the underwriting
discount and commissions and other expenses was approximately $39 million.

F-9
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. ACQUISITIONS

1996 ACQUISITIONS

On December 12, 1996, the Company acquired by merger, concurrently with
the closing of its IPO, Sports Marketing & Television International, Inc.
("SMTI") which provides production and marketing services to sporting events,
sports television shows and professional and collegiate leagues and
organizations and, Athletes and Artists, Inc. ("A&A"), a sports and media
talent representation firm, collectively the "1996 Acquisitions". The SMTI
stockholders received cash of $6,500,000 from the proceeds of the IPO, an
additional $1,500,000 payable in five equal installments over five years and
1,292,307 shares of the Company's common stock. The A&A stockholders received
cash of $2,500,000 from the proceeds of the IPO, miscellaneous reimbursements
of $80,000, an additional $1,000,000 payable in five equal installments over
five years and 969,231 shares of the Company's common stock.

The 1996 Acquisitions were accounted for as a consolidation at historical
cost due to the significance of the equity interests in the Company held by
the former stockholders of SMTI and A&A following completion of the
acquisitions. Accordingly, the acquired assets and liabilities were recorded
at their historical amounts. The capital stock of SMTI and A&A was included
in additional paid-in capital. In addition, the cash paid to the former
stockholders of SMTI and A&A was recorded as a dividend charged to additional
paid-in capital.

SMTI was an S Corporation prior to the merger. The SMTI stockholders
received a distribution of approximately $350,000 during 1997, which
represents 40% of the taxable earnings of SMTI prior to the merger.

The accompanying consolidated financial statements include the accounts of
SMTI and A&A from December 12, 1996.

ACQUISITION OF PROSERV

On October 14, 1997, the Company acquired all of the outstanding stock of
ProServ, Inc. and ProServ Television, Inc. (collectively, "ProServ"), an
established provider of international sports event management, television
production, marketing, talent representation and consulting. The aggregate
purchase price for ProServ was approximately $10.8 million in cash and
250,000 shares of the Company's common stock. The Company may be obligated to
make additional earn-out payments over the next four years of up to $2.5
million based upon ProServ achieving, during this period, certain levels of
revenues and earnings before interest, taxes, depreciation and amortization.
The Company also repaid approximately $2.5 million of ProServ's outstanding
indebtedness at the acquisition date. The Company used a portion of the
proceeds of the Second Offering to finance the acquisition and the repayment
of the outstanding indebtedness. Under certain circumstances, the Company may
be required to repurchase up to all of the 250,000 shares of the common stock
issued in connection with the acquisition for an aggregate purchase price of
up to $1.9 million.

The acquisition was accounted for using the purchase method, with the
aggregate puchase price allocated to the tangible net assets based upon
estimated fair market values. The total purchase price of $13.4 million,
which includes costs incurred in connection with the acquisition, exceeded
the tangible net asset deficiency acquired by approximately $17 million,
which has been recorded as an intangible. ProServ's results of operations for
the period from the October 14, 1997 have been included in the accompanying
consolidated financial statements. The potential earn-out will be recorded as
additional purchase price when earned.

ACQUISITION OF QBQ

On October 14, 1997, the Company acquired substantially all of the assets
of QBQ Entertainment, Inc. ("QBQ"), a company that books tours and
appearances for a variety of entertainers. The aggregate

F-10
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

purchase price for QBQ was approximately $3.1 million in cash, $1.6 million
payable in annual installments payable over eight years and 393,514 shares of
common stock, including 78,702 shares held in escrow and subject to
forfeiture if certain financial performance tests are not met. In connection
with an employment agreement with the chief executive officer and sole
stockholder of QBQ, the Company granted a five-year, non-recourse loan of
$1.5 million, secured by the common stock issued in connection with the QBQ
acquisition. The Company used a portion of the proceeds of the Second
Offering to finance the acquisition and the loan. Under certain
circumstances, the Company may be required to repurchase up to 295,135 shares
of common stock issued in connection with the acquisition for an aggregate
purchase price of up to $1.9 million.

The QBQ acquisition was accounted for using the purchase method of
accounting and the results of its operations have been included in the
accompanying financial statements from October 14, 1997. The total purchase
price of approximately $7.2 million, which includes costs incurred in
connection with the acquisition, exceeded the tangible net assets acquired by
approximately the same amount and has been recorded as intangibles.

The following unaudited pro forma information is presented as if the
Company had completed the acquisition of ProServ, QBQ, SMTI and A&A and the
Secondary Offering at the beginning of the respective periods and gives
effect to the related contractually required reductions in personnel,
officers' salaries and employee benefits:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1997 1996
--------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Pro forma revenues .................................. $34,953 $29,932
Pro forma net loss applicable to common
stockholders........................................ $ (521) $(2,814)
Pro forma net loss per share applicable to common
stockholders--basic and dilutive.................... $ (.03) $ (.17)
Pro forma weighted average shares ................... 16,559 16,559
</TABLE>

Aggregate maturities for the indebtedness related to the Company's
acquisitions, exclusive of the put options, as of December 31, 1997 is as
follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1998..................................... $ 775
1999..................................... 775
2000..................................... 730
2001..................................... 730
2002..................................... 230
Thereafter............................... 375
--------------
3,615
Less: amounts representing interest ..... 696
--------------
Total, including current portion of
$775.................................... $2,919
--------------
</TABLE>

F-11
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. PROPERTY AND EQUIPMENT

At December 31, 1997, property and equipment consists of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Furniture and fixtures .................... $ 952
Leasehold improvements .................... 1,190
Vehicles .................................. 27
--------------
2,169
Accumulated depreciation and amortization 129
--------------
$2,040
==============
</TABLE>

5. PRIVATE PLACEMENT

In August 1996, the Company issued debentures (the "Debentures"), in the
aggregate principal amount of $2 million, each Debenture consisted of $50,000
principal amount of 10% Convertible Debentures. Interest on the Debentures of
$254,000 was calculated for the period from the final closing of the Private
Placement to a date one year from the effective date of the Company's IPO.
The Debentures were automatically converted into units (see Note 2) identical
in all respects to those offered in the IPO at a rate of one unit for each
$3.00 principal amount of Debentures.

Stockholders of the Company and stockholders of SMTI and A&A purchased an
aggregate of $750,000 principal amount of Debentures, of which $445,103 was
in exchange for existing indebtedness of the Company to the stockholders. In
addition, the Company repaid $125,000 to one of the officer/ stockholders
from the proceeds of the private placement.

6. INCOME TAXES

The income tax expense (benefit) consists of:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal ........ $-- $ --
State and local 45 (20)
------ ------
45 (20)
------ ------
Deferred:
Federal ........ -- 30
State and local -- 10
------ ------
-- 40
------ ------
$45 $ 20
====== ======
</TABLE>

F-12
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A reconciliation of the federal statutory tax rate to the actual
effective rate is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Statutory rate ....................................... (34.0)% (34.0)%
State and local income taxes, net of federal benefit 2.3 .4
Valuation allowance .................................. 26.3 31.8
Permanent differences ................................ 8.9 1.0
--------- ---------
Effective rate........................................ 3.5% (.8)%
========= =========
</TABLE>

The deferred tax assets and liabilities is comprised of the following:

<TABLE>
<CAPTION>
DECEMBER, 31,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cumulative effect of change in tax accounting
basis.............................................. $ (228) $ (343)
Deferred compensation expense ...................... (67) (29)
Deferred rent ...................................... (48) --
Net operating losses ............................... 1,494 1,051
ProServ tax audits ................................. (617) --
Valuation allowance ................................ (1,494) (1,022)
--------- ---------
Net deferred tax liabilities........................ $ (960) $ (343)
========= =========
</TABLE>

At December 31, 1997, the Company had net operating loss carryforwards of
approximately $3.3 million which will begin to expire in 2011. ProServ had
net operating losses of approximately $2.6 million at the time of the
acquisition. These losses are subject to limitations under the Internal
Revenue Code and will begin to expire in 2010.

In connection with examinations of the consolidated federal tax returns of
ProServ for years 1993 through 1995, the Internal Revenue Service has
challenged the tax treatment of certain significant transactions. The French
taxing authorities are conducting an audit of ProServ's former subsidiary,
located in France, for the same period. Although ProServ's management
believes that there are valid defenses to defeat any tax assessment, the
Company has provided for these contingencies. Such amounts have been included
in deferred tax liabilities at December 31, 1997.

The Company recorded an increase in the valuation allowance of $472,000
for the year ended December 31, 1997.

7. STOCKHOLDERS' EQUITY

On July 17, 1996, the Board of Directors and stockholders of the Company
approved an increase in the authorized capitalization of the Company to 25
million shares of common stock, par value $.01 per share, and 5 million
shares of preferred stock, par value $.01 per share. In addition, in August
1996 the Board of Directors and the stockholders of the Company approved a
stock split whereby 999 shares of the 1,000 shares of common stock
outstanding at that time were split on the basis of approximately 1,940-for-1
and the remaining one share of common stock outstanding at that time was
split on the basis of 50,000-for-1. All share information in the financial
statements reflect the stock split.

COMMON STOCK RESERVED FOR ISSUANCE

As of December 31, 1997, the Company has 1,197,503 shares of common stock
reserved for issuance upon the exercise of the warrants and the IPO Options
(see Note 2), 800,000 shares of common stock

F-13
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

reserved for issuance upon exercise of options pursuant to the 1996 and 1997
Stock Option Plans and 315,000 shares reserved for issuance under other
options and warrants of the Company.

8. STOCK OPTION PLAN

The Company's Board of Directors has adopted and the stockholders have
approved the Company's 1996 and 1997 Stock Option Plans (the "Plan"). The
Plan provides for the grant, at the discretion of the Board of Directors, of
(i) options that are intended to qualify as incentive stock options within
the meaning of Section 422A of the Internal Revenue Code to certain employees
and consultants and (ii) options not intended to so qualify. The aggregate
number of shares of common stock for which options may be granted under the
Plan is 800,000 shares.

The Plan is administered by a Stock Option Committee (the "Committee")
which is appointed by the Board of Directors. The Committee determines who
among those eligible will be granted options, the time or times at which
options will be granted, the terms of the options, including the exercise
price, the number of shares subject to the options and the terms and
conditions of exercise.

A summary of the activity in the Plan is as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- ----------------
<S> <C> <C>
Granted--1996.................... 230,000 $5.71
Granted--1997.................... 7,500 $5.875
Forfeited--1997.................. (4,000) $5.00
----------- ----------------
Outstanding at December 31,
1997............................ 233,500 $5.72
=========== ================
Exercisable at December 31,
1996............................ -- --
=========== ================
Exercisable at December 31,
1997............................ 23,575 $5.69
=========== ================
</TABLE>

Options outstanding as of December 31, 1997 have exercise prices ranging
from $5 to $6.25 per share. The options vest in annual installments over the
three to five year period commencing one year from the date of grant.

The Company has elected to follow Accounting Principles Board opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires
use of options valuation models that were not developed for use in valuing
employee stock options. The exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant
and, therefore, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997 and 1996:

<TABLE>
<CAPTION>
ASSUMPTION 1997 1996
- --------------------------------------------------------- ----------- ------------------
<S> <C> <C>
Risk-free rate............................................ 5.47% 5.45% to 6.18%
Dividend yield............................................ 0% 0%
Volatility factor of the expected market price of the
Company's common stock................................... .54 .72
Average life.............................................. 3 years 4 years
</TABLE>

F-14
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Pro forma net loss applicable to common stockholders $(2,454) $(1,547)
Pro forma net loss per share applicable to common
stockholders--basic and dilutive..................... $ (1.05) $ (0.16)
</TABLE>

The weighted average fair value of options granted during the years ended
December 31, 1997 and 1996 was $2.43 and $2.57, respectively. The weighted
average remaining contractual life of options outstanding at December 31,
1997 is 4.8 years.

9. RELATED PARTY TRANSACTIONS

In December 1997, the Company repaid an officer/stockholder the $121,615
outstanding at December 31, 1996. Interest on the loan accrued at 12%.

The Company provided services as a subcontractor for SMTI aggregating
$724,000, for the period from January 1, 1996 to December 12, 1996 (see Note
3), which are included in 1996 revenues in the accompanying consolidated
statement of operations.

During August 1996, the Company entered into a six-year consulting
agreement with Sillerman Communications Management Corporation ("SCMC"),
which is controlled by Robert F.X. Sillerman, the Chairman of the Company and
the controlling stockholder of The Sillerman Companies, Inc. ("TSC"), a
principal stockholder of the Company, that provides for a monthly fee of
$30,000 commencing in September 1997. In March 1997, SCMC assigned its
rights, obligations, and duties under the consulting agreement to The
Sillerman Companies, Inc. In October 1997, TSC waived its right to future
monthly payments under the consulting agreement.

In February 1997, the Company paid $400,000 to SCMC as an advance against
special advisory services to be provided. In connection with the ProServ
Acquisition and the QBQ Acquisition, TSC received Special Advisory Fees of
$450,000 (of which $400,000 was offset against the amounts previously
advanced), and, in connection with the Tender Offer, an immediately
exercisable option to purchase 200,000 shares of common stock at $7.00 per
share. In addition, the Company paid $75,000 to TSC for expenses.

In consideration for Mr. Sillerman's guarantee of a portion of the $1.5
million letter of credit issued to replace the escrow in connection with the
ProServ Acquisition, the Company, in November 1997, granted Mr. Sillerman an
immediately exercisable, five-year option to purchase 10,000 shares of common
stock at an exercise price per share of $5.00 and paid Mr. Sillerman $75,000,
including $25,000 for his related legal fees and expenses.

F-15
<PAGE>
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In April 1997, in connection with the employment of an officer of the
Company, the Company loaned the officer $446,000 which loan by its terms may
be forgiven. In addition, the officer will over a three year period beginning
with his date of employment receive $100,000 payable in shares of Common
Stock.

10. INVESTMENT IN JOINT VENTURE

SMTI and NBC formed a limited liability corporation, Celebrity Golf
Championship, LLC ("CGC") to conduct the annual golfing tournament known as
The Celebrity Golf Championship. Earnings are allocated 75% to NBC and 25% to
SMTI in accordance with the LLC agreement. All profits from CGC are
distributed annually.

Condensed financial information for CGC is as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
(IN THOUSANDS)
<S> <C>
Cash ............... $ 232
=======
Due to SMTI ........ $ 232
=======

YEAR ENDED DECEMBER 31,
1997 1996
------ ---------
(IN THOUSANDS)
Revenues ........... $3,529 $2,743
Operating expenses 2,699 2,067
------ --------
Net income ......... $ 830 $ 676
====== ========
</TABLE>

11. COMMITMENTS AND CONTINGENCIES

The Company leases office space under operating leases that expire through
2008. These operating leases provide for basic annual rents plus escalation
charges. The aggregate future minimum lease payments (including the deferred
rent liability of $696,000) required under these leases, net of noncancelable
sublease income of $2,370,000 as of December 31, 1997 are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998.......... $1,223
1999 ......... 1,124
2000 ......... 1,173
2001 ......... 1,078
2002 ......... 999
Thereafter .. 3,862
--------------
$9,459
==============
</TABLE>

The Company also rents office space on a month-to-month basis. Rent
expense amounted to $45,000 and $303,000, respectively, for the years ended
December 31, 1996 and 1997.

The Company has notified the landlord for space previously occupied by one
of the Company's subsidiaries that the space has been abandoned. The Company
has recorded a loss of $466,000 for the year ended December 31, 1997 related
to the settlement with the landlord and to write-off the related abandoned
fixed assets.

The Company has entered into employment agreements with key executives for
periods ranging from three to five years.

The Company is subject to certain legal proceedings and claims, which have
arisen, in the ordinary course of its business. In the opinion of management,
settlement of these actions, when ultimately concluded, will not have a
material adverse effect on the Company's financial condition.

F-16
<PAGE>

12. SUBSEQUENT EVENT

F-17

<PAGE>
LIST OF THE SUBSIDIARIES OF
THE MARQUEE GROUP, INC.

1. Athletes and Artists, Inc. (a New York corporation)
2. Sports Marketing & Television, Inc. (a Connecticut corporation)
3. QBQ Entertainment, Inc. (Delaware)
4. ProServ, Inc. (Delaware)
5. ProServ U.K. Inc. (Delaware)

<PAGE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,944,000
<SECURITIES> 0
<RECEIVABLES> 6,930,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,567,000
<PP&E> 2,169,000
<DEPRECIATION> 129,000
<TOTAL-ASSETS> 46,790,000
<CURRENT-LIABILITIES> 6,520,000
<BONDS> 0
0
0
<COMMON> 174,000
<OTHER-SE> 33,112,000
<TOTAL-LIABILITY-AND-EQUITY> 46,790,000
<SALES> 21,268,000
<TOTAL-REVENUES> 21,268,000
<CGS> 0
<TOTAL-COSTS> 21,291,000
<OTHER-EXPENSES> 756,000
<LOSS-PROVISION> 466,000
<INTEREST-EXPENSE> 22,000
<INCOME-PRETAX> (1,267,000)
<INCOME-TAX> 45,000
<INCOME-CONTINUING> (1,312,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,312,000)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)

</TABLE>