<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-21711
THE MARQUEE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-3878295
(State of Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
888 Seventh Avenue, New York, NY 10019
(Address of Principal Executive Offices) (Zip code)
212-728-2000
(Registrant's Telephone Number, Including Area Code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
AT MAY 12, 1998, THERE WERE 17,912,676 SHARES OUTSTANDING OF THE REGISTRANT'S
COMMON STOCK, PAR VALUE $.01 PER SHARE.
TRANSITIONAL DISCLOSURE FORMAT. YES [ ] NO [X]
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THE MARQUEE GROUP, INC.
TABLE OF CONTENTS
PAGE NO.
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1998
(unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1997 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 (unaudited) 5
Condensed Consolidated Statements of Stockholders' Equity for
the Three Months Ended March 31, 1998 (unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation 10
Part II Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 16
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ITEM 1. FINANCIAL STATEMENTS
THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(UNAUDITED) (NOTE 1)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 7,580 $ 8,944
Cash escrow 5,249 704
Accounts receivable, net 9,365 6,930
Television and event costs 1,373 553
Prepaid expenses and other current assets 707 436
------- -------
Total current assets 24,274 17,567
Property and equipment, net 2,025 2,040
Receivables--non current 1,163 668
Notes receivable 1,882 1,887
Deposits 1,054 677
Intangible assets - net 23,648 23,951
------- -------
$54,046 $46,790
======= =======
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 5,241 $ 4,592
Acquisition indebtedness--current portion 775 775
Escrow payable 5,249 527
Deferred revenues 2,250 626
------- -------
Total current liabilities 13,515 6,520
Acquisition indebtedness -non-current 2,060 2,144
Deferred rent 704 696
Deferred income taxes 960 960
Common stock (545 shares) subject to put options 3,259 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, 17,913
shares issued and outstanding 174 174
Additional paid-in capital 37,204 36,885
Accumulated deficit (3,840) (3,781)
Cumulative translation adjustment 10 8
------- -------
33,548 33,286
------- -------
$54,046 $46,790
======= =======
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
3
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $11,468 1,979
Operating expenses 8,140 1,467
General and administrative expenses 2,595 1265
Deferred and other non-cash compensation 350 24
Depreciation and amortization 369 8
------- ------
Income (loss) from operations 14 (785)
Interest income, net 70 7
------- ------
Income (loss) before income taxes 84 (778)
Income taxes 68
------- ------
Net income (loss) 16 (778)
Accretion of obligation related to the put
option issued in connection with the ProServ
acquisition 75
------- ------
Net loss applicable to common stockholders ($59) ($778)
======= ======
Net loss per share applicable to common stockholders
- basic and dilutive ($.-) ($.10)
======= ======
Weighted average common shares outstanding 16,560 7,494
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
---- ----
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $(810) $(1,715)
INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements landlord contribution (52)
Deposits and other costs related to acquisitions (377)
----- -----
Net cash used in investing activities (429) (296)
----- -----
FINANCING ACTIVITIES
Proceeds from loans payable to related parties 66
Payment of acquisition indebtedness (125)
----- ------
Net cash provided by (used in) financing activities (125) 66
----- ------
NET DECREASE IN CASH (1,364) (1,945)
CASH AT BEGINNING OF PERIOD 8,944 7,231
----- ------
CASH AT END OF PERIOD $7,580 $5,286
====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
NUMBER OF COMMON PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance--December 31, 1997 17,913 $174 $36,885 $(3,781) $8 $33,286
QBQ Escrow Shares 319 319
Foreign currency translation 2 2
adjustment
Net loss for period (59) (59)
-------- ---- ------- -------- --- --------
Balance--March 31, 1998 17,913 $174 $37,204 $(3,840) $10 $33,548
====== ==== ======= ======== === =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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THE MARQUEE GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Item
310(b) of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for an interim period
are not necessarily indicative of the results that may be expected for a full
year. For further information, refer to the consolidated financial statements
and footnotes thereto included in The Marquee Group, Inc. (the "Company")
annual report on Form 10-KSB for the year ended December 31, 1997.
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 entertainment
industries.
In furtherance of its business strategy, on December 12, 1996, the Company
acquired by merger, concurrently with the closing of its initial public
offering ("IPO"), Sports Marketing & Television International, Inc. ("SMTI")
which provides production and marketing services to sporting events, sports
television shows and professional and collegiate leagues and organizations, and
Athletes and Artists, Inc. ("A&A"), a sports and media representation firm. The
acquisitions of SMTI and A&A are referred to as the "1996 Acquisitions". 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 (as defined herein) of 8,500,000 shares of
its Common Stock at $5.00 per share in the fourth quarter of 1997. Accordingly,
the accompanying condensed consolidated financial statements include the
accounts of the Company, the 1996 Acquisitions and the 1997 Acquisitions from
their dates of acquisition December 12, 1996 and October 14, 1997, respectively.
All significant intercompany transactions and accounts have been eliminated.
NOTE 2 -- EARNINGS PER COMMON SHARE
Basic earnings per share applicable to common stockholders is based upon the
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
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
Company's initial public offering have been excluded from the calculation of
basic earnings per share. The Company's outstanding options, warrants and
contingently issuable shares are not included for diluted earnings per share
because the effect would be anti-dilutive.
NOTE 3 - NON-CASH COMPENSATION CHARGE
In connection with the acquisition of QBQ Entertainment, Inc., in October
1997,the Company placed in escrow 78,702 shares of Common Stock issued to the
seller as a portion of the purchase price. As of March 31, 1998, the Company
has determined that it is probable that the financial thresholds required to be
met for the release of these escrowed share will be achieved in 1998, and,
accordingly has recorded a charge of $319,000 as non-cash compensation in the
accompanying condensed consolidated statements of operations. This compensation
charge will be adjusted based upon the changes in the fair market value of the
shares subject to the escrow arrangement through the actual release date.
7
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NOTE 4 - PROPOSED ACQUISITIONS
In March 1998, the Company entered into a non-binding letter of intent to
acquire Alphabet City Industries, Inc. and Alphabet City Sports Records, Inc.
(collectively, the "Alphabet City Acquisition"), both of which are sports and
music marketing companies which develop strategic alliances among sports
leagues, music companies and corporate sponsors. The aggregate purchase price
for the Alphabet City Acquisition will be approximately $3.0 million in cash
and $1.0 million in shares of Common Stock (based on the value of the Common
Stock during the twenty day period prior to the closing). The seller may, at
its option, elect to receive an additional 200,000 shares of Common Stock and
decrease the cash portion of the purchase price by an equivalent value (based
on the same valuation). In addition, the Company may be obligated to make
significant 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. The sellers are obligated
to repay the advance with interest at 10% per annum if the acquisition does not
take place. The repayment has been personally guaranteed by the sellers and
is secured by the stock of Alphabet City Sports Records, Inc. held by the
sellers.
In April 1998, the Company entered into another non-binding letter of intent to
acquire Park Associates Ltd. (the "PAL Acquisition"), a sports and media talent
representation firm in the United Kingdom, for an aggregate consideration
consisting of (pounds sterling) 1.6 million (approximately $2.6 million) in
cash and approximately (pounds sterling) 400,000 (approximately $660,000) in
Common Stock (based on the value of the Common Stock during the twenty day
period prior to the closing). In addition, the Company will pay an additional
(pounds sterling) 1.0 million (approximately $1.7 million) in cash and (pounds
sterling) 200,000 (approximately $330,000) in Common Stock (based on the value
of the Common Stock during the twenty days prior to the date of each payment)
in five equal annual installments.
The Alphabet City Acquisition and the PAL Acquisition are collectively referred
to as "the Pending Acquisitions".
NOTE 5 - SUBSEQUENT EVENT
In April 1998, the Company received a letter from SFX Entertainment, Inc.
("SFX"), a publicly traded company, proposing a possible acquisition of the
Company by SFX. The Company's Board of Directors has formed a Special Committee
to evaluate the proposed transaction with SFX, to examine other possible
strategic alternatives available to the Company and to make recommendations
regarding such matters to the full Board. The Special Committee has retained
independent legal counsel and financial advisors to assist with its
evaluations.
While the Board has authorized the Special Committee to evaluate and respond to
the SFX's proposal and to consider other strategic alternatives, there can be
no assurance that any acquisition by SFX or any other significant corporate
transaction involving the Company will occur. In addition, on May 5, 1998, a
class action complaint was filed alleging that the proposed acquisition of the
Company by SFX will be unfair to the Company's stockholders. Robert F.X.
Sillerman is Chairman of the Board of both SFX and the Company and owns
approximately 9.0% of the outstanding common stock of the Company. See "Part II
Item 2. Legal Proceedings."
8
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ITEM 2 -- MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 consummation of
the 1996 Acquisitions, in December 1996, the Company was engaged in developing
its sports television programming and production, marketing and consulting
businesses. In October 1997, the Company acquired ProServ (the "ProServ
Acquisition") and QBQ Entertainment, Inc (the "QBQ Acquisition") (collectively
the "1997 Acquisitions"). The Company also completed its secondary public
offering of 8,500,000 shares of its common stock at $5.00 per share in October
and November 1997 (the "Second Offering").
For all periods presented, the supplemental discussion and analysis of the
results of operations on a pro forma basis include the Company, SMTI and 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. Factors that
could cause or contribute to such differences include, but are not limited to,
uncertainties related to the Company's business and growth strategies,
difficulties in achieving cost savings and revenue enhancements and
difficulties in integrating the acquired companies. 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 event management services 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.
The Company's revenues may vary from quarter to quarter, due to the timing of
certain significant events and the resulting recognition of revenues from such
events. Historically, the fourth quarter produced the highest percentage of
revenues for the year, principally from the Company's management and marketing
of The Breeders' Cup Championship and from representation agreements with
professional hockey players, which results in revenue to the Company upon the
commencement of the National Hockey League season. As a result of the Company's
recent entry into the business of representing professional football players
and the 1997 Acquisitions, it is anticipated that the Company's revenues and
expenses will increase, and the Company expects that these increased revenues
and expenses will be recorded substantially in the third
9
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as well as the fourth quarter.
A significant portion of the Company's revenues to date has been derived from a
small number of events and clients. On a pro forma basis, 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 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 reflect contractually required reductions in
personnel, officers' salaries and employee benefits, but do not reflect the
effects of the restructuring since they are not directly attributable to the
ProServ Acquisition.
The Company has recorded and will continue to record substantial compensation
charges 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 has recorded
as 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 first quarter of 1998, the Company recorded a charge to
operations of $319,000, as non-cash compensation, in recognition of the
probability of QBC achieving certain financial threshholds requiring the
release of shares of the Company's common stock subject to an escrow agreement
entered into in connection with the Company's QBQ Acquisition. This
compensation charge will be adjusted based upon the changes in the fair market
value of the shares subject to the escrow arrangement through the actual
release date. (See Note 2 to the Condensed Consolidated Financial Statements.)
The Company may also record additional non-cash compensation expense during the
period that shares of the Company's Common Stock subject to an escrow agreement
entered into in connection with the Company's IPO are probable of being met.
These charges are not deductible for income tax purposes and may 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.
RECENT DEVELOPMENT
In April 1998, the Company received a letter from SFX Entertainment, Inc.
("SFX"), a publicly traded company, proposing a possible acquisition of the
Company by SFX. The Company's Board of Directors has formed a Special Committee
to evaluate the proposed transaction with SFX, to examine other possible
strategic alternatives available to the Company and to make recommendations
regarding such matters to the full Board. The Special Committee has retained
independent legal counsel and financial advisors to assist with its
evaluations.
While the Board has authorized the Special Committee to evaluate and respond to
the SFX's proposal and to consider other strategic alternatives, there can be
no assurance that any acquisition by SFX or any other significant corporate
transaction involving the Company will occur. In addition, on May 5, 1998, a
class action complaint was filed alleging that the proposed acquisition of the
Company by SFX will be unfair to the Company's stockholders. Robert F.X.
Sillerman is Chairman of the Board of both SFX and the Company and owns
approximately 9.0% of the outstanding common stock of the Company. See "Part II
Item 2. Legal Proceedings."
10
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QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
RESULTS OF OPERATIONS
The Company's consolidated financial statements are not directly comparable
from period to period because the Company consummated the 1997 Acquisitions
in October 1997.
PERIOD ENDED MARCH 31, 1998 COMPARED TO PERIOD ENDED MARCH 31, 1997
For the period ended March 31, 1998, the Company generated revenues of
approximately $11.5 million compared to $2.0 million for the period ended March
31, 1997. The increase in revenues of approximately $9.5 million is principally
attributable to the inclusion of $7.6 million related to the operations of the
1997 Acquisitions. The balance of the increase in revenues is attributable to
increases in the Company's television programming and production activities
($.9 million), sales and marketing services ($.4 million), and talent
representation ($.7 million). The increase in television revenue included the
production of the Professional Bowlers Association ("PBA") Tour broadcast on
ESPN, a syndicated series "More Than A Game", and increased production of
boxing broadcasts on ESPN. Increases in talent representation fees includes
revenues from the new football division and the increased sales and marketing
revenue is associated with services provided to the PBA tour.
The increase in revenues of $7.7 million, or 207%, for the period ended March
31, 1998, as compared to the period ended March 31, 1997 on a pro forma basis,
is attributable to the matters discussed above as well as increased revenues
for the Guardian Cup an ATP tennis tournament ($3.0 million) which was held for
the first time in the United Kingdom in February 1998, revenues generated for
securing the naming rights for a new arena being built in Los Angeles and the
procurement of various endorsements ($1.0 million), increased talent
representation fees attributable to the concert bookings, principally the Billy
Joel tour ($.3 million), and increased television programming of production
revenues associated with the Boston Marathon, ATP Tennis events, and the NCAA
foreign rights distribution ($1.4 million).
The Company's operating expenses of $8.1 million for the period ended March 31,
1998 increased $6.6 million from $1.5 million in the prior year, principally,
as a result of the inclusion of the operations of the 1997 Acquisitions ($5.3
million), increased costs associated with the production of the PBA tour,
boxing and the syndicated series More Than a Game ($.5 million), advertising
time purchased for the PBA tour and increased sales staffing expense ($.4
million), increased talent representation compensation expense associated with
the addition of the football division and increased commissions ($.4 million).
The Company's operating expenses increased approximately $5.3 million for the
period ended March 31, 1998 compared to the same period in 1997 on a pro forma
basis. The increase is principally the result of costs associated with the
Guardian Cup tournament in the United Kingdom ($3.0 million), increased
television production and distribution expenses for the NCAA, ATP tennis
events, and the Boston Marathon ($1.0 million).
General and administrative expenses were approximately $2.6 million for the
period ended March 31, 1998 as compared to $1.3 million for the same period in
1997. The increase was principally the result of the inclusion of the
operations of the 1997 Acquisitions ($.9 million) and increased staffing and
occupancy costs required to support the Company's expanded business operations.
General and administrative expenses increased $.6 million or 27%, for the
period ended March 31, 1998 from approximately $2.0 million in the prior year
period on a pro forma basis. The increase is the result of higher occupancy and
staffing costs required to support the Company's expanded business operations.
The Company's income from operations was $16,000 for the period ended March 31,
1998 compared to the reported operating loss of $.8 million and an operating
loss of $1.5 million on a pro forma basis for the same period in 1997.
Operating income for the 1998 quarter was impacted by a non cash compensation
charge of $.3 million as a result of the determination that it is probable that
the financial thresholds required to be met for the release of the QBQ Escrow
Shares will be achieved in 1998. This compensation charge will be adjusted
based upon the change in the fair value of the shares subject to the escrow
arrangement through the actual release date. Operating results for the 1998
quarter and the 1997 quarter, on a pro forma basis, also include $.3 million
of depreciation and amortization principally representing amortization of the
intangibles arising from the 1997 Acquisitions.
The Company's net loss for the period ended March 31, 1998 was $59,000 compared
to a net loss of $.8 million for the same period in 1997. On a pro forma basis,
the net loss would have been $1.5 million for the same period in 1997.
11
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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 a bridge facility used to finance the
Company's 1997 tender offer for its then outstanding warrants. Working capital
as of March 31, 1998 was $10.8 million.
In 1997, 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 $2.4 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 within the 60
day period following the second anniversary of the consummation of the ProServ
Acquisition, 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
the 61st and 90th day following the second anniversary of the consummation of
the ProServ Acquisition, 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.
The Company also purchased certain assets of QBQ, in 1997, 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 with a
value of approximately $500,000 into an escrow account. During the first
quarter of 1998, the Company determined that it was probable that shares would
be released from the escrow agreement, and, accordingly recorded a charge to
operations of $320,000 as non-cash compensation (see Note 2 to the Condensed
Consolidated Financial Statements). 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) the second anniversary of the consummation
of the QBQ Acquisition or (ii) an Acceleration Event (as defined in the QBQ
acquisition agreement), QBQ may, at its option, elect to transfer to the
Company up to 75% of the shares it 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 the second
anniversary of the closing of the QBQ Acquisition or a Pledge Event (as defined
in the QBQ 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 the second anniversary of the consummation of
the QBQ Acquisition or an Acceleration Event, (i) QBQ may, at its option, elect
to transfer up to 75% of the QBQ Escrow Shares to the Company for an aggregate
purchase price of up to $375,000 and (ii) the Company may, at its option, elect
to purchase up to 50% of the QBQ Escrow Shares for an aggregate purchase price
of up to $750,000.
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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. The second installment
of $500,000 was paid in April 1998.
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 to acquire Alphabet City.
The aggregate purchase price for the Alphabet City Acquisition will be
approximately $3.0 million in cash and $1.0 million in shares of Common Stock
(based on the value of the Common Stock during the twenty day period prior to
the closing). The seller may, at its option, elect to receive an additional
200,000 shares of Common Stock and decrease the cash portion of the purchase
price by an equivalent value (based on the same valuation). In addition, the
Company may be obligated to make significant additional payments based upon
the financial performance of the acquired businesses. The sellers are
obligated to repay the advance with interest at 10% per annum if the
acquisition does not take place. The repayment has been personally guaranteed
by the sellers and is secured by the stock of Alphabet City Sports Records,
Inc. held by the sellers.
In April 1998, the Company entered into a non-binding letter of intent to
acquire PAL, a sports and media talent representation firm in the United
Kingdom, for an aggregate consideration consisting of (pounds sterling) 1.6
million (approximately $2.6 million) in cash and approximately (pounds
sterling) 400,000 (approximately $660,000) in Common Stock (based on the value
of the Common Stock during the twenty day period prior to the closing). In
addition, the Company will pay an additional (pounds sterling) 1.0 million
(approximately $1.7 million) in cash and (pounds sterling) 200,000
(approximately $330,000) in Common Stock (based on the value of the Common
Stock during the twenty days prior to the date of each payment) in five equal
annual installments.
The Company intends to utilize funds on hand and the proceeds from a loan it
is negotiating with a bank to finance the Pending Acquisitions. There can be no
assurance that the Company will be able to secure the financing which will be
required to complete the Pending Acquisitions or whether the Pending
Acquisitions will be consummated as presently contemplated or at all.
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, exclusive of the purchase price of the
Pending Acquisitions. In addition, the Company's strategy involves continued
expansion through additional acquisitions both within its existing lines of
businesses and within complementary lines of businesses. The Company believes
that it will require additional financing to fund such acquisitions. After the
utilization of the 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 goodwill, 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 repurchases.
13
<PAGE>
PART II OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS
On May 5, 1998, a class action complaint was filed in Chancery Court in the
State of Delaware, New Castle County, CA #16355NC against the Company, certain
of its directors and SFX. The complaint alleges that SFX has proposed an
acquisition of the Company and that the proposed acquisition will be unfair
to Marquee's public stockholders. The complaint seeks an order enjoining
the proposed transaction to date or, in the alternative, awarding rescissory
and compensatory damages. To date, there have been no other proceedings in the
case and the Company intends to defend the action vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On March 4, 1998, the Company entered into a non-binding letter of intent to
acquire Alphabet City for an aggregate purchase price of $3.0 million in cash
and $1.0 million in shares of common stock.
On April 21, 1998, the Company entered into a non-binding letter of intent to
acquire PAL for an aggregate purchase price of (pound sterling)3.0 million
(approximately $5.0 million) in cash and shares of common stock.
All of the above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
of 1933 pursuant to Section 4(2) thereof. The sale of securities was without
the use of an underwriter, and the shares bear a restrictive legend permitting
the transfer thereof only upon registration of the shares or an exemption under
the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form SB-2 (Reg. No. 333-11287) filed with the Commission
on September 3, 1996).
3.2 Amended and Restated By-laws of the Company (incorporated by reference
to Exhibit 3.2 to Amendment No. 1 to the Registration Statement on
Form SB-2 (Reg. No. 333-11287) filed with the Commission on October
25, 1996).
27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MARQUEE GROUP, INC.
/s/ Jan E. Chason
-----------------
Jan E. Chason
Chief Financial Officer and Treasurer
May 14, 1998
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