AMENDMENT TWO
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
----------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- ---------------
Commission File Number 0-15413
-----------------------------------------
MARQUEE ENTERTAINMENT, INC.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 95-3480640
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
9044 Melrose Avenue, 3rd Floor, Los Angeles, CA 90069
- -----------------------------------------------------------------
(Address of principal executive offices)
(310) 859-8250
- -----------------------------------------------------------------
(Registrant's telephone number, including area code)
- -----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
The registrant had 1,398,716 shares of its $.04 par value
common stock outstanding as of February 5, 1997.
<PAGE>
PART I
ITEM I
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Consolidated Balance Sheets
December 31, 1996 and September 30, 1996 (Restated) 3
Consolidated Statement of Operations
for the three months ended December 31, 1996
and 1995 (Restated) 4
Consolidated Statements of Cash Flows for the three
months ended December 31, 1996 and 1995 (Restated) 5 to 6
Notes to Condensed Financial Statements 7 to 19
2
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(RESTATED)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
----------- -----------
<S> <C> <C>
ASSETS:
Cash $22,830 $28,821
Accounts receivable-trade 79,635 95,587
Film inventory (Note 1)
Furniture and fixtures, at cost, net of
accumulated depreciation of $72,695
and $71,780 at December 31, 1996 and
September 30, 1996 (Note 1) 256 1,171
Security deposit and other assets 34,050 31,830
----------- -----------
$136,771 $157,409
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable and accrued expenses $137,372 $151,789
Accrued Payroll 226,492 172,558
Deferred income (Note 1) 245,393 190,392
8% Convertible debenture (Note 1) 467,732 458,907
Notes Payable(Note 2) 50,000 50,000
----------- -----------
Total liabilities 1,126,989 1,023,646
----------- -----------
Commitments (Note 7)
Shareholders' deficit:
Preferred stock, $.01 par value;
10,000,000 shares authorized;
none outstanding
Common stock, $.04 par value;
25,000,000 shares authorized;
1,398,716 shares issued and
outstanding at December 31, 1996 and
September 30, 1996 (Note 1 and Note 6) 55,954 55,954
Additional paid-in capital 3,315,191 3,315,191
Accumulated deficit (4,361,363) (4,237,382)
----------- -----------
Total shareholders' deficit (990,218) (866,237)
----------- -----------
$136,771 $157,409
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
(RESTATED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Film revenue (Note 1) $59,173 $49,954
----------- -----------
Costs and expenses:
Operating costs and film amortization 16,713 5,327
(Note 1)
Selling, general and administration 156,688 148,807
----------- -----------
Operating profit (loss) (114,228) (104,180)
----------- -----------
Other income (expense):
Interest income 322 27
Interest expense (Note 1 and 2) (10,075) (1,250)
----------- -----------
(9,753) (1,223)
----------- -----------
Net (loss) ($123,981) ($105,403)
=========== ===========
Net (loss) per share (Note 3 and 5) ($0.09) ($0.08)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
(RESTATED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) ($123,981) ($105,403)
----------- -----------
Adjustments to reconcile net profit
(loss) to net cash provided (used) by
operating activities (Note 2):
Depreciation and amortization 915 3,980
Decrease (increase) in other assets (2,220) 7,245
Decrease(Increase) in accounts
receivable-trade 15,952 (38,400)
Increase (decrease) in accounts payable
and accrued expenses (14,417) 26,109
Increase (decrease) in accrued payroll 53,934 19,750
Increase (decrease) in deferred income 55,001 100,000
Increase in 8% covertible debenture 8,825
----------- -----------
Total adjustments 117,990 118,684
----------- -----------
Net cash provided (used) by (5,991) 13,281
operating activities ----------- -----------
Cash flows from investing activities: 0 0
Net cash provided (used) in investing ----------- -----------
activities 0 0
Cash flows from financing activities: 0 0
Net cash provided (used) ----------- -----------
in financing activities 0 0
----------- -----------
Net increase (decrease) in cash and cash
equivalents (5,991) 13,281
Cash and cash equivalents at beginning
of year 28,821 75,495
----------- -----------
Cash and cash equivalents at end of year $22,830 $88,776
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31 1996 AND 1995
(UNAUDITED)
(RESTATED)
(Continued)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers 140,218 173,466
Cash paid to suppliers and employees (146,531) (157,712)
Interest received 322 27
Income taxes paid 0 0
Interest paid 0 (2,500)
Net cash provided (used) by ----------- -----------
operating activities (5,991) 13,281
---------- -----------
Cash flows from investing activities:
Net cash used in investing activities 0 0
Cash flows from financing activities 0 0
----------- -----------
Net cash used by financing activities 0 0
----------- -----------
Net increase (decrease) in cash (5,991) 13,281
Cash at the beginning of the year 28,821 75,495
----------- -----------
Cash at end of year 22,830 88,776
=========== ===========
</TABLE>
Supplemental disclosures of cash flow information:
Disclosure of accounting policy:
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
See notes to consolidated financial statements.
6
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -
The Company deemed it necessary to restate and refile its Form 10-Q
for the three months ended December 31, 1996 and its Consolidated
Financial Statements. Accordingly, the following items were
restated as a result of adjustments to the restated Form 10-K/A, as
of September 30, 1996, and adjustments effecting the restated
Consolidated Financial Statements for the three month period ended
December 31, 1996.
Two adjustments were made to the September 30, 1996 Consolidated
Financial Statements. One for $441,259 increased interest expense
and increased additional paid in capital. This effected the
December 31, 1996 Consolidated Balance Sheet by increasing
additional paid in capital prior to restatement from $2,873,936 to
a restated amount of $3,315,191. This was required to adjust the
conversion price of $.25 per share of the 8% convertible debenture
to $.50 per share, the market value of the Company's common stock
at the time of issuance, March 31, 1996, of the 8% convertible
debenture.
The other adjustment to the September 30, 1996 Consolidated
Financial Statements was $22,308 increasing salary expense and
increasing accrued payroll. The total effect of these two
adjustments was to increase the net loss from operations from
$483,742 to $947,309 and increase the accumulated deficit from
$3,773,815 to $4,237,382.
Adjustments effecting the December 31, 1996 Consolidated Financial
Statements were two items of insurance cost. One in the amount of
$2,237 for auto insurance and the other of $1,000 for life
insurance. Both of these amounts are for future periods and
therefore reclassed from expense to a prepaid insurance account.
The net loss for the three months ended December 31, 1996 of
$127,218 decreased to $123,981; selling, general and administration
expense decreased from $159,925 to $156,688 and security deposit
and other assets on the balance sheet increased from $30,813 to
$34,050.
The following is a reconciliation of the accumulated deficit at
December 31, 1996:
Prior to restatement $<3,901,033>
Adjustments to September 30, 1996
10-K/A Consolidated Financial Statements <463,567>
Adjustments to December 31, 1996 10-Q
Consolidated Financial Statements 3,237
------------
Balance December 31, 1996 $<4,361,363>
============
7
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - cont...
Further the Consolidated Statements of Cash Flows for the period
ended December 31, 1996 have been reformatted to comply with FAS
95.
Basis of Presentation:
The accompanying condensed financial statements are unaudited, but
in the opinion of management include all adjustments (consisting
only of normal recurring adjustments) necessary to fairly state the
information included therein in accordance with generally accepted
accounting principles for interim financial information and with
instructions to Form 10Q and rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. The accompanying financial should be read in
conjunction with the more detailed financial statements and related
footnotes thereto which are incorporated by reference in the
restated Form 10K for the year ended September 30, 1996.
The results of operations for the three month period ended December
31, 1996 are not necessarily indicative of the results to be
expected for the full year.
The balance sheets are presented in an unclassified format in
accordance with FAS No. 53.
The Company's Board of Directors, on March 7, 1996, authorized a
reverse stock split of 1 for 40 of its issued and outstanding
common stock reducing the outstanding shares from 54,154,000 to
1,353,716. The reverse became effective for stockholders of record
on March 22, 1996. In addition, the authorized number of shares
was reduced from 250,000,000 to 25,000,000. On May 28, 1996, the
Company issued to a public relations firm 20,000 restricted shares
of its common stock in lieu of fees for May and June 1996. On
September 18, 1996 the Company issued to another public relations
firm 25,000 free trading shares of its common stock in lieu of fees
and options to purchase 105,000 shares at $1.00 per share and
130,000 shares at $1.50 per share. As of December 31, 1996, none
of the options were exercised and there were 1,398,716 shares of
the Company's common stock outstanding. In connection with the
25,000 free trading stock and 235,000 stock option the Company
filed a Form S-8 with the Securities and Exchange Commission that
became effective September 13, 1996.
8
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - cont...
On March 31, 1996, the Company entered into two 8% Convertible
Debentures due March 31, 1999, one in favor of Harold Brown in the
principal amount of $239,450 and the other in favor of Ralph Smith
in the principal amount of $201,807. The Debentures were issued as
of April 1, 1996 as evidence of past due salary owing to Messrs.
Brown and Smith through March 31, 1996. The Debentures are
convertible, in whole or in part, into common stock of the Company
at any time by delivery of written notice. The Conversion Price is
$0.25 per share, subject to adjustment upon certain changes in the
capital stock of the Company. The Company has the right to call
the Debentures for prepayment at any time, and the right to convert
shall expire upon the call date.
In addition at September 30, 1996, a significant nonrecurring
adjustment of $441,259 to interest expense representing additional
financing cost and credit to additional paid-in capital was
required to adjust the conversion price of $.25 of the 8%
convertible debenture to $.50, the market value at the time of
issuance of the 8% convertible debenture.
Going Concern:
During the year ended September 30, 1996, the Company prepared a
private placement memorandum in an attempt to raise from $250,000
to $750,000 with a 20% override provision. The use of this funding
was for the acquisition of two private companies that the Company
had letters of intent to acquire. One was KPAL TV, a low power
television station located in Palmdale, California and the other
was Barr Media, a film producer and distributor of educational and
specialty film product. As of the date of this report, November
25, 1996, these letters of intent to acquire these companies have
expired due to the Company's inability to raise the minimum of
$250,000 in the private placement. Approximately $70,000 had been
raised, but since this amount did not reach the minimum level
necessary, all monies have been returned to the individual
investors. Accordingly, the Company is not making any further
attempt, at this time, to acquire these companies.
The Company's Board of Directors and management continue to have
discussions with investment bankers. These discussions relate to
establishing acquisition or merger criteria that would benefit all
parties involved. The essential element is to add revenue
9
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - cont...
generating assets to the Company and to strengthen the balance
sheet. Currently, and management believes that over the next
twelve months, the Company's film library will continue to generate
the cash necessary to pay the Company's overhead excluding the full
salaries of the President and Chairman.
Sales activity has continued and the Company's personnel is
negotiating some major market licenses. There can be no assurance
of consummating these negotiations at this time.
The revenue from the library of films currently owned by the
Company were not adequate in fiscal 1996 to meet the expenses of
the Company and it is not anticipated that it will be adequate in
the long term. Management believes that the Company must acquire
additional motion pictures for distribution and is currently
seeking to make such acquisitions. However, there can be no
assurance as to the Company's ability to find such additional
motion pictures on terms favorable to the Company or, if found, as
to the Company's ability to finance the acquisition of any such
pictures, given the limited funds available to the Company and the
commercial lending and economic climate in general.
As of December 31, 1996 the Company had $22,830 available to meet
operating requirements. In addition, it had net accounts
receivable of $79,635. This cash position is not adequate to meet
the Company's operational needs. The Company's Chairman and
President continue to accrue their salaries and to receive cash
compensation only based on their determination that there are
adequate funds available. If the Chairman and President change
their position and demand full payment, the Company will be unable
to satisfy these liabilities.
The Company, with respect to its note payable to PEL, was unable to
meet its $50,000 principal payment at December 31, 1995 and
accordingly is in default under the terms of its agreement with
Peregrine Entertainment, Ltd. (See Note 2.)
Management believes that with maintaining reductions in operational
costs, and increased sales activity from the current library and
new acquired motion pictures, the Company may be able to continue
as a going concern. However, at this time, there is substantial
doubt that the Company will be able to continue as a going concern.
The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
10
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - cont...
Principles of Consolidation:
The accompanying consolidated financial statements include the
accounts of Marquee Entertainment, Inc. and its wholly owned
subsidiary Delta-Gamma Film Distribution. All material
intercompany accounts and transactions have been eliminated in
consolidation and no adjustments with respect to the uncertainty
regarding going concern basis have been made.
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 statement and the reported
amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
The following is disclosure regarding the fair value as compared to
carrying value under the guidelines of FAS 107 and how it applies
to the financial instruments as presented on the Company's
September 30, 1996 and 1995 balance sheet. The assets of the
Company are carried at their net realizable value, namely cash,
accounts receivable and other, that are prepaids and rent deposit.
On the liability side, accounts payable and accrued expenses are
stated at fair value. Deferred income is at fair value. Notes
payable is at fair value. The 8% convertible debenture has a fair
value different than its stated value. The conversion of the 8%
convertible debenture at $.25 a share would yield 1,835,628 shares
of the Company's common stock. The market value of the common
stock at September 30, 1996 was $.44. The carrying value and fair
value of the 8% convertible debenture is as follows:
<TABLE>
<CAPTION>
1996
-----------------------
Carrying Fair
Amount Value
-------- --------
<S> <C> <C>
8% convertible debenture $458,907 $807,676
======== ========
</TABLE>
11
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - cont...
Statement of Financial Accounting Standards Nos. 123, which becomes
effective January 1, 1997, "Accounting for Stock-Based
Compensation" (SFAS 123) establishes financial accounting and
reporting standards for stock-based employee compensation plans as
well as transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees.
However, it also allows an entity to continue to measure
compensation cost based on APB Opinion No. 25, "Accounting for
Stock Issued to Employees." The Company has determined that the
fair value of stock transactions is similar to the issue price at
the time of granting and, accordingly, the adoption of this
statement would have no impact on reported earnings.
Film Revenue Recognition:
Revenues from television license agreements are recognized as each
film becomes available for telecasting by the licensee. Revenues
from other contractual agreements are recognized when the films
delivered are free of any conflicting licenses in respective
territory. Funds received prior to revenue recognition are
recognized as deferred income.
In addition to television license agreements, the Company receives
royalty revenue and other revenue participation in its films. This
revenue is reported quarterly, biannually and in some cases
annually by outside third parties. The Company is not able to
project, estimate, define, or determine revenue from these sources
until a report from these third parties is received indicating the
amount of revenue they have calculated is owed, if any, to the
Company and it is accompanied with a check for a like amount.
Accordingly, since revenue is not determinable or definable in a
future context, it cannot be accrued and is recorded on a cash
basis when received. The following table represents royalty
revenue for the three months ended December 31, 1996 and 1995.
1996 1995
------ ------
Royalty Revenue 8,423 37,579
12
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - cont...
Accounts Receivable:
Accounts receivable consist of the unpaid portion of license
agreements received from customers on a worldwide basis. The
Company's management performs credit evaluations of all customers
and reserves for any potential credit losses. The standard
procedure when entering into a licensing agreement requires 20%
payment upon signing and the 80% balance to be paid prior to
delivery of films licensed. Accordingly, uncollected amounts are
not a significant problem for the Company.
Furniture and Fixtures:
Depreciation of furniture and fixtures is being provided by
utilization of the straight-line method over the estimated useful
lines of the assets which range from 3 to 5 years.
Film Costs and Amortization:
As of September 30, 1994 the Company's film inventory was fully
amortized.
Note 2 - Notes Payable:
On March 12, 1991 the Company concluded an Acquisition Agreement
with Peregrine Entertainment, Ltd. (PEL) and its subsidiaries
resulting in the acquisition of certain assets, including 29 made-
for-television motion pictures. The purchase price for these
assets consisted of $475,000 in cash and $175,000 paid by the
delivery of three unsecured promissory notes bearing interest of
10% and due over a period of four years. The balance of $50,000 at
December 31, 1996, which was due December 31, 1995, has not been
paid and is therefore in default. At the request of PEL interest
on the note has been paid through December 31, 1996.
Note 3 - Net Loss Per Share:
Net loss per share is not computed using common stock equivalents
at December 31, 1996 and 1995 because they would be antidilutive.
13
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - cont...
Net loss per share is computed using the weighted average number of
shares retroactively adjusted for the 1 for 40 reverse stock split
for the three month periods ended December 31, 1996 and 1995 are as
follows:
1996 1,398,716
1995 1,353,714
Note 4 - Lease Commitment:
The Company entered into a lease agreement for 3,000 square feet of
office space; the term is 6 years 8 months, beginning May 1, 1991
and ending December 31, 1997. Rent expense over the next two
fiscal years is as follows:
1997 $74,480
1998 $18,609
Note 5 - Income Taxes:
The Company files its federal and state income tax returns each
year as of December 31 instead of its fiscal year end of September
30. The following table sets forth the Company net loss
carryforward for each tax year beginning December 31, 1987 through
December 31, 1995 and the expiration dates of each net loss
carryforward:
<TABLE>
<CAPTION>
FEDERAL
Tax Year Amount of Expiration
Ended Net Loss Date
December 31, Carryforward December 31,
- --------------------------------------------------------------------
<S> <C> <C>
1987 $< 167,461> 2002
1988 < 343,668> 2003
1989 < 289,685> 2004
1990 < 734,518> 2005
1991 < 414,108> 2006
1992 < 158,229> 2007
1993 < 800,189> 2008
1994 < 167,848> 2009
1995 < 250,182> 2010
- --------------------------------------------------------------------
Total NOL $<3,325,888>
============
</TABLE>
14
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - cont...
<TABLE>
<CAPTION>
STATE
Tax Year Amount of Expiration
Ended Net Loss Date
December 31, Carryforward December 31,
- --------------------------------------------------------------------
<S> <C> <C>
1991 $< 206,654> 1997
1992 < 78,715> 1998
1993 < 399,695> 1998
1994 < 83,559> 1999
1995 < 124,312> 2000
- --------------------------------------------------------------------
$< 892,935>
============
</TABLE>
If the net loss carryforward were to be realized, a deferred tax
asset of approximately $1,350,000 would be set forth. However, due
to the unlikely realization of such an asset, a valuation reserve
of $1,350,000 would be required and no benefit would be recorded
until the loss carryforward is realized.
Note 6 - Incentive Stock Option Plans:
Shares reserved for issuance: Shares of common stock were reserved
for the exercise of the following and are reflecting the effect of
the reverse stock split of 1 for 40:
<TABLE>
<CAPTION>
September 30,
1996 1995
--------- ---------
<S> <C> <C>
Incentive and nonqualified stock option plans:
Outstanding 35,000 75,000
Available for grant 1,215,000 1,225,000
--------- ---------
Totals 1,250,000 1,300,000
========= =========
</TABLE>
Effective April 30, 1993 the Company's shareholders adopted the
1993 Incentive Stock Option Plan. No further options will be
granted under the 1986 plan. Under the previous plan options were
granted to purchase 54,375 shares during fiscal year 1992; none
have been exercised, 54,375 have been terminated as of September
30, 1996.
15
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - cont...
The 1993 Incentive Plan is administered by the Board of Directors
of the Company, or a Committee of not less than two members
thereof, which, except as set forth below with respect to the
Directors themselves, has the authority to determine the persons to
whom the options may be granted, the number of shares to be covered
by each option, the time or times at which the options may be
granted or exercised and, for the most part, the terms and
provisions of the options. Under the 1993 Incentive Plan, the
option exercise price may not be less than 100% (or 110% if the
optionee owns 10% or more of the outstanding voting securities of
the Company) of the fair market value of the Common Stock on the
date of grant; the exercise price of options granted to Officers
and Directors will be 100%of fair market value on the date of
grant, or 110% if the Officer or Director owns 10% or more of the
outstanding voting securities of the Company. No option under the
1993 Incentive Plan may be exercised (i) within one year of the
date of grant, but must be exercisable at the rate of at least 20%
per year over five years from the date of grant, or (ii) more than
ten years from the date of grant except that options granted to
optionees owning 10% or more of the outstanding voting securities
of the Company may not be exercised more than five years from the
date of grant.
On October 30th of each year while the 1993 Incentive Plan is in
effect, all eligible Directors of the Company will receive options
to purchase 2,500 shares of Common Stock if they served as a
Director during the previous fiscal year (or a pro-ratable amount
if they served for less than all of the fiscal year) which shall
expire five years from the date of grant. Options granted to
Directors will be exercisable at the rate of 50% in each of the
second and third years from the date of grant on a cumulative
basis. All grants of options to Directors under the 1993 Incentive
Plan will be automatic without any discretion on the part of the
Board or the Committee, as the case may be, with respect to the
grantee, the number of shares of Common Stock subject to options to
be granted, the term of the options, and the exercise price of the
options.
The 1993 Incentive Plan provides for the granting of incentive
stock options to purchase a maximum of 625,000 shares. The 1993
Incentive Plan limits the percentage of the total number of options
which may be granted to Officers and Directors to 50% or 312,500
shares.
16
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - cont...
The 1993 Incentive Plan provides that no options shall be granted
thereunder after March 7, 2003. The Board of Directors may amend,
suspend or terminate the 1993 Incentive Plan at any time.
1993 Non-Qualified Stock Option Plan
Shareholders adopted the Marquee Entertainment 1993 Non-Qualified
Stock Option Plan ("1993 Non-Qualified Plan") on April 30, 1993.The
1993 Non-Qualified Plan is administered by the Board of Directors
of the Company, or a committee of not less than two members
thereof, which, except as set forth below with respect to the
Directors themselves, has the authority to determine the persons to
whom the options may be granted, the number of shares to be covered
by each option, the time or times at which the options may be
granted or exercised and, for the most part, the terms and
provisions of the options. Under the 1993 Non-Qualified Plan, the
exercise price may not be less than 85% (or 110% if the optionee
owns 10% or more of the outstanding voting securities of the
Company) of the fair market value of the Common Stock on the date
of grant; the exercise price of options granted to Officers and
Directors will be 100% of the fair market value on the date of
grant, or 110% if the Officer or Director owns 10% or more of the
outstanding voting securities of the Company. Options under the
1993 Non-Qualified Plan cannot be exercised within one year or
later than five years from the date of grant and must be
exercisable at the rate of 50% in each of the second and third
years from the date of grant on a cumulative basis.
Upon their election as a Director and on October 30th of each
subsequent year while in the 1993 Non-Qualified Plan is in effect,
all Directors (including employee-Directors) of the Company will
receive options to purchase 2,500 shares of common stock if they
served as a Director during the previous fiscal year (or a pro-
ratable amount if they served for less than all of the fiscal year)
which shall expire five years from the date of grant. All grants
of options to Directors under the 1993 Non-Qualified Plan will be
automatic without any discretion on the part of the Board or the
Committee, as the case may be, with respect to the grantee, the
number of shares of Common Stock subject to options to be granted,
the term of the options, and the exercise price of the options.
The 1993 Non-Qualified Plan provides for the granting of non-
qualified stock options to purchase a maximum of 625,000 shares.
The 1993 Non-Qualified Plan limits the percentage of the total
number of options which may be granted to Officers and Directors to
50% or 312,500 shares.
17
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - cont...
The 1993 Non-Qualified Plan provides that no options shall be
granted thereunder after March 7, 2003. The Board of Directors may
amend, suspend or terminate the 1993 Non-Qualified Plan at any
time. Changes in options outstanding under the stock options plans
are summarized below:
<TABLE>
<CAPTION>
Non- Per Share
Incentive qualified Exercise Price
--------- --------- --------------
<S> <C> <C> <C>
Outstanding at October 1, 1993 54,375 --- $.80 to $.88
Automatic grant to Directors --- 5,000 $.88
Exercised --- --- ---
Canceled <1,875> --- $.80
------ ------ -------------
Outstanding at September 30, 1994 52,500 5,000 $.80 to $.88
Automatic grant to Directors 5,000 5,000 $.44
Exercised --- --- ---
Canceled <2,500> --- $.80
------ ------ ------------
Outstanding at September 30, 1995 55,000 10,000 $.80 to $.88
Automatic grant to Directors 5,000 5,000 $.44
Exercised --- --- ---
Canceled <50,000> --- ---
------- ------ --------------
Outstanding at September 30, 1996 15,000 20,000 $.44 to $.88
====== ====== ==============
</TABLE>
<TABLE>
<CAPTION>
Other Options:
Other options granted during fiscal year ended September 30, 1996 are as
follows:
Other Per Share
Options Exercise Price
--------- --------------
<S> <C> <C>
Directors 50,000 $0.50
Consultants 235,000 $1.00 to $1.50
---------
285,000
=========
</TABLE>
18
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Commitment:
Pursuant to employment agreements between the company and Harold
Brown and Ralph T. Smith, respectively, dated March 12, 1991,
annual compensation is $150,000 and $140,000 respectively. The
term of the agreements is one year; the term is automatically
extended until terminated by ninety days written notice given by
either party to the other.
19
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Company deemed it necessary to restate and refile its Form 10-Q
for the three months ended December 31, 1996 and its Consolidated
Financial Statements. Accordingly, the following items were
restated as a result of adjustments to the restated Form 10-K/A, as
of September 30, 1996, and adjustments effecting the restated
Consolidated Financial Statements for the three month period ended
December 31, 1996.
Two adjustments were made to the September 30, 1996 Consolidated
Financial Statements. One for $441,259 increased interest expense
and increased additional paid in capital. This effected the
December 31, 1996 Consolidated Balance Sheet by increasing
additional paid in capital prior to restatement from $2,873,936 to
a restated amount of $3,315,191. This was required to adjust the
conversion price of $.25 per share of the 8% convertible debenture
to $.50 per share, the market value of the Company's common stock
at the time of issuance, March 31, 1996, of the 8% convertible
debenture.
The other adjustment to the September 30, 1996 Consolidated
Financial Statements was $22,308 increasing salary expense and
increasing accrued payroll. The total effect of these two
adjustments was to increase the net loss from operations from
$483,742 to $947,309 and increase the accumulated deficit from
$3,773,815 to $4,237,382.
Adjustments effecting the December 31, 1996 Consolidated Financial
Statements were two items of insurance cost. One in the amount of
$2,237 for auto insurance and the other of $1,000 for life
insurance. Both of these amounts are for future periods and
therefore reclassed from expense to a prepaid insurance account.
The net loss for the three months ended December 31, 1996 of
$127,218 decreased to $123,981; selling, general and administration
expense decreased from $159,925 to $156,688 and security deposit
and other assets on the balance sheet increased from $30,813 to
$34,050.
The following is a reconciliation of the accumulated deficit at
December 31, 1996:
Prior to restatement $<3,901,033>
Adjustments to September 30, 1996
10-K/A Consolidated Financial Statements <463,567>
Adjustments to December 31, 1996 10-Q
Consolidated Financial Statements 3,237
------------
Balance December 31, 1996 $<4,361,363>
============
20
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
ITEM 2. (Continued)
Further the Consolidated Statements of Cash Flows for the period
ended December 31, 1996 have been reformatted to comply with FAS
95.
For the three months ended December 31, 1996, the Company had a
loss of $123,981. The Company's net worth deficit increased to
$990,218. The Company's cash position decreased by $5,991 since
September 30, 1996.
Results of Operations
- ---------------------
Revenue for the three month period ended December 31, 1996 was
$59,173, an increase of $9,219, or 18%, as compared to the three
month period ended December 31, 1995. This increase was due to an
increase in licenses during the period. Deferred income increased
by $55,001 to $245,393 representing income to be recognized in
future periods.
Operating expense for the three month period ended December 31,
1996 was $16,713, an increase of $11,386 as compared to the same
period in the prior year. There were offsetting factors that
caused this increase: print cost increased by $14,000 due to the
conversion expense in making new NTSC masters and there was a
decrease in depreciation expense of $3,000 as most of the Company's
furniture and fixtures have been fully depreciated.
Selling, general and administrative expenses for the three month
period ended December 31, 1996 were $156,688, an increase of
$7,881, or 5%, as compared to the three month period ended December
31, 1995. This increase was due to certain offsetting factors
between the periods, such as an increase in salaries and employee
benefits of $4,500 due to one employee salary increase and higher
payroll tax; professional fees increased by $1,100 due to an
increase in audit cost; messenger/courier expense increased by
$1,100 due to an increase in overnight mailings overseas; auto
expense increased by $700 auto repair and new tires; postage
expense increased $1,000 due to an increase in marketing activity
and related mailings; car lease expense decreased by $2,900 due to
new car leases at lesser cost; dues and subscription expense
increased by $700 due to ordering certain marketing publications;
telephone expense increased by $400 due to increased activity.
Capital Resources and Liquidity
- -------------------------------
As of December 31, 1996, the Company had $22,830 available to meet
operating requirements. In addition, it had net accounts
receivable of $79,635. This cash position is not adequate to meet
the Company's operational needs.
21
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
ITEM 2. (Continued)
The Company has no significant immediate liabilities that it is
unable to satisfy, because at the present time the Company's
Chairman and President continue to accrue their full salaries and
to receive cash compensation only based on their determination that
there are adequate funds available. If the Chairman and President
change their position and demand full payment, the Company will be
unable to satisfy these liabilities. In addition, the principal
payment of $50,000 due on December 31, 1995 on the PEL note has not
been paid and is in default, however interest on the note has been
prepaid through December 31, 1996.
During the year ended September 30, 1996, the Company prepared a
private placement memorandum in an attempt to raise from $250,000
to $750,000 with a 20% override provision. The use of this funding
was for the acquisition of two private companies that the Company
had letters of intent to acquire. One was KPAL TV, a low power
television station located in Palmdale, California and the other
was Barr Media, a film producer and distributor of educational and
specialty film product. As of the date of this report, these
letters of intent to acquire these companies have expired due to
the Company's inability to raise the minimum of $250,000 in the
private placement. Approximately $70,000 had been raised but it
was unavailable and has been returned to the individual investors.
There has been no further discussions with KPAL TV or Barr Media.
The Company's Board of Directors and management continue to have
discussions with investment bankers. These discussions relate to
establishing acquisition or merger criteria that would benefit all
parties involved. The essential element is to add revenue
generating assets to the Company and to strengthen the balance
sheet. Currently, and management believes that over the next
twelve months, the Company's film library will continue to generate
the cash necessary to pay the Company's overhead excluding the full
salaries of the President and Chairman.
The revenues from the library of films currently owned by the
Company were not adequate in fiscal 1996 to meet the expenses of
the Company and it is not anticipated that they will be adequate in
the long term. Management believes that the Company must acquire
additional motion pictures for distribution and is currently
seeking to make such acquisitions. However, there can be no
assurance as to the Company's ability to find such additional
motion pictures on terms favorable to the Company or, if found, as
to the Company's ability to finance the acquisition of any such
pictures, given the limited funds available to the Company and the
commercial lending and economic climate in general.
22
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
ITEM 2. (Continued)
Management believes that with maintaining reductions in operational
costs, and continuing sales activity from the current library and
new acquired motion pictures, the Company will be able to continue
as a going concern. However, at this time, there can be no
assurances that the Company will be able to continue as a going
concern.
23
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Items 1 through 5 are not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 is included in this report. No reports on Form 8-K were
filed by the Company during the quarter covered by this report.
24
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
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.
MARQUEE ENTERTAINMENT, INC.
Date May 16, 1997 By /s/ Ralph T. Smith
---------------------- -----------------------------
Ralph T. Smith, President and
Principal Accounting Officer
25
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000806277
<NAME> MARQUEE ENTERTAINMENT, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 22,830
<SECURITIES> 0
<RECEIVABLES> 79,635
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 72,951
<DEPRECIATION> (72,695)
<TOTAL-ASSETS> 136,771
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 55,954
<OTHER-SE> (1,046,172)
<TOTAL-LIABILITY-AND-EQUITY> 136,771
<SALES> 0
<TOTAL-REVENUES> 59,173
<CGS> 16,713
<TOTAL-COSTS> 173,401
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (10,075)
<INCOME-PRETAX> (123,981)
<INCOME-TAX> 0
<INCOME-CONTINUING> (123,981)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (123,981)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Registrant's balance sheet is presented on an unclassified
format in accordance with FAS No. 53.
</FN>
</TABLE>
