SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1998
----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-15413
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Marquee Entertainment, Inc.
- ------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 95-3480640
- ----------------------------------------- ------------------
State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
6404 Wilshire Blvd., #550, Los Angeles, CA 90048
- ------------------------------------------ ------------------
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (323) 782-0090
----------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $0.04 per share par value
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(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (229.405 of this chapter) is not
contained herein, and will not 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-K [X]
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
---- ----
The number of shares outstanding of the Registrant's common stock
as of December 15, 1998 was 2,321,793 shares. The aggregate market
value of the voting stock held by non-affiliates of the Registrant
as of December 15, 1998 was approximately $232,000.
1
<PAGE>
PART I
ITEM 1. BUSINESS
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Background of the Company
- -------------------------
Marquee Entertainment, Inc., formerly Lway Productions, (the
"Company") was incorporated on June 26, 1979, as a wholly-owned
subsidiary of Exacta, Inc. ("Exacta") under the laws of the State
of Nevada and was inactive from 1981 until February 1987 when it
completed a public offering of its common stock. Exacta retained
a 50% ownership in the outstanding shares of the Company after the
public offering. In December 1987, Exacta transferred its shares
of Common Stock in the Company to an affiliated company, Peregrine
Entertainment, Ltd. ("PEL"), formerly EMI Television. From
February, 1987 to January, 1989, the Company engaged in the
funding, as a co-producer, of the development and production of
television programming for domestic and foreign exhibition.
On November 2, 1990 the Company entered into an agreement (the
"Acquisition Agreement") with PEL and its subsidiaries to acquire,
for $650,000 and the assumption of certain liabilities,
substantially all of the assets of PEL and its subsidiaries. Among
other things the Company acquired was foreign distribution rights
in twenty nine films and certain accounts receivable from Peregrine
Producers Group ("PPG"), a PEL subsidiary. The consummation of the
Acquisition Agreement was on March 12, 1991. The Acquisition
Agreement required the payment of $475,000 in cash and the delivery
of notes for the balance of $175,000 payable over four years. The
note is fully paid as of September 30, 1998.
In connection with the consummation of the Acquisition Agreement
the Company repurchased and retired 30,000,000 shares of its common
stock owned by PEL. Concurrently, the Company sold to Mr. Harold
Brown and Mr. Ralph T. Smith, officers and directors of the
Company, 15,700,100 and 8,453,900 newly issued shares respectively,
representing an aggregate of 45% of the Company's outstanding
shares of common stock.
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
2
<PAGE>
and options to purchase 105,000 shares at $1.00 per share and
130,000 shares at $1.50 per share. As of September 30, 1998, none
of the options were exercised and there were 2,321,793 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.
The following table identifies the third parties that have been
issued the Company's common stock in lieu of cash for services:
<TABLE>
<CAPTION>
Name of Date of Number of Value of Nature of
Individual Issue Shares Shares Services Provided
- --------------------- ------- --------- -------- ------------------
<S> <C> <C> <C> <C>
(1) Francesca Daniels 5/28/96 20,000 $ 7,000 Public relations/
Investor relations
(2) Barry M. Ross 9/18/96 25,000 $12,500 Public relations/
Investor relations/
Financial consulting
</TABLE>
<TABLE>
<CAPTION>
Date of Value of
Services Services Received
----------------------- -----------------
<S> <C>
(1) May, June 1996 $ 7,000
(2) June-September 1996 $12,500
</TABLE>
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.
Since the consummation of the Acquisition Agreement the Company's
primary business activity has been film distribution, of the
acquired films, and the Company is no longer solely engaged in the
funding of development and production of television programming for
domestic and foreign exhibition.
On July 29, 1998, Ralph Smith died and Harold Brown is Acting Chief
Financial Officer of the Company.
3
<PAGE>
Business of the Company:
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Film Distribution. The Company continues operating as a film
distributor, licensing the PPG films acquired from PEL in 1991.
Licensing of the PPG Films is limited to the available foreign
territories only and since many of these territories had been
previously licensed, the Company is re-licensing these territories
when they become available.
The Company's revenue remains inadequate to sustain its operations.
Although certain major territories remain available for licensing,
there can be no assurances that revenue will increase during fiscal
year 1999. Most of the rights owned by the Company are already
licensed and market conditions will dictate the outcome as to the
unlicensed territories. (see ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for
further discussion) The Company is currently seeking to acquire
additional motion pictures for distribution. 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.
There were three customers representing greater than 10 percent of
film revenue for fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
Percent of
Customer Territory Amount Sales
- -------- --------- ------ ----------
<S> <C> <C> <C>
Daro Film Distribution Eastern Europe $70,000 17%
Vensold de Venezuela French-Speaking $90,000 22%
Karshan Entertainment Spain/Portugal $78,300 19%
</TABLE>
Competition and Markets. Competition in the television and motion
picture industry is intense. There are several major film studios
and independent distribution companies with which the Company must
compete for the acquisition of distribution rights and distribution
of products.
Nearly all of the Company's competitors have far greater financial
and creative resources than the Company and this places the Company
at a competitive disadvantage in most areas.
Regulation. Television networks and stations impose restrictions
on the content of television programming. In addition, foreign
governments often restrict exhibition and/or edit the contents of
television programming. The Company has experienced no significant
impact on sales as a result of these restrictions.
4
<PAGE>
Labor Relations. The Company employs two persons, one in sales and
one in administration, is not a party to any collective bargaining
agreements and believes its relationship with employees to be
excellent.
ITEM 2. PROPERTIES
- -------------------
The Company presently occupies approximately 2,500 square feet of
office space at 6404 Wilshire Blvd., Los Angeles, California,
pursuant to an 60 month lease, (through December 31, 2002). The
office space is located in a well maintained twelve-story office
building.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
No material legal proceedings to which the Company is a party or of
which any of its property is subject are pending or known to be
contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Company did not submit any matter to a vote of security holders
in the fourth quarter of its 1998 fiscal year.
5
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCK HOLDER MATTERS
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The Company's Common Stock is traded over-the-counter and is
currently reported by The National Quotation Bureau, Inc. (MQUE).
The following table sets forth the range of high and low bid
quotations for the Company's common stock for the periods indicated
as reported by The National Quotation Bureau Inc. The Company's
common stock was reverse split 1 to 40 effective March 22, 1996 and
such change is reflected in the table below.
<TABLE>
<CAPTION>
High Low
---- ---
Fiscal 1998
-----------
<S> <C> <C>
First Quarter $.44 $.19
Second Quarter .44 .10
Third Quarter .30 .10
Fourth Quarter .20 .15
Fiscal 1997
-----------
First Quarter $.75 $.37
Second Quarter .63 .32
Third Quarter .57 .32
Fourth Quarter .63 .19
</TABLE>
The forgoing quotations reflect inter-dealer prices without retail
mark-up, mark-down or commissions, and may not necessarily
represent actual transactions.
As of December 15, 1998, the Company had approximately 700 holders
of record of its common stock.
The Company has not paid any dividends since its inception and
presently anticipates that all earnings will be retained.
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
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The following information has been derived from the Company's
consolidated financial statements. The selected consolidated
financial data should be read in conjunction with the Consolidated
Financial Statements and the notes thereto and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" elsewhere in this report.
<TABLE>
<CAPTION>
Years Ended September 30,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total Assets $ 79,031 $ 94,097 $ 157,409 $228,941 $334,601
Total
Liabilities 1,344,481 1,174,257 1,023,646 608,628 494,659
Stockholders
Equity (Deficit) (1,265,450) (1,080,160) (866,237) (379,687) (160,058)
Revenues
Film Lic. Fee 416,492 469,115 239,857 498,476 595,030
Income (Loss) (341,290) (213,923) (947,309) (219,629) (258,310)
Income (Loss)
Per Share* ($0.15) ($0.15) ($0.70) ($0.16) ($0.19)
Cash Dividends
Per Share --- --- ---
- --------------------
*Income (Loss) Per Share was retroactively adjusted to reflect the reverse
stock split of 1 to 40 effective March 22, 1996.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
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Fiscal Year Ended September 30, 1998 versus Fiscal Year Ended
September 30, 1997
- -----------------------------------------------------------------
The Company experienced a loss of $341,290 for the fiscal year
ended September 30, 1998 resulting in an increased accumulated
deficit to $1,265,450. The loss reflects the Company's films
continuing diminishing revenue generating capacity. Fiscal 1998
also includes a bad debt write-off of $100,000 and a $36,000
increase in professional fees relative to financing activities.
7
<PAGE>
The cash position of the Company at September 30, 1998 was $61.931,
an increase of $38,105 as compared to September 30, 1997. Accounts
receivable at September 30, 1998 were $12,600, a decrease of
$25,000 as compared to September 30, 1997.
Liabilities increased by $170,000 as of September 30, 1998
principally due to additional accruals for payroll and convertible
debenture interest due the Company's officers.
Results of Operations
- ---------------------
For the year ended September 30, 1998, film revenue was $416,492,
a decrease of $53,000 (11%) as compared to September 30, 1997. The
operating loss of $307,048 at September 30, 1998 is due to a
continuing lack of sales to cover the Company's overhead. The
Company is continuing to negotiate licensing of certain major
territories that are or will be available during fiscal year 1999.
However, there can be no assurances that these sales will be made
or that they will be adequate to cover the total cost of operations
(for further comments see "Capital Resources and Liquidity" in this
report).
Fiscal Year Ended September 30, 1997 versus Fiscal Year Ended
September 30, 1996
- -----------------------------------------------------------------
Film revenue for fiscal year ended September 30, 1997 was $469,115
representing an increase of $229,257 as compared to September 30,
1996. This increase was primarily due to one major territory,
United Kingdom, film license of $243,750, whereas during fiscal
1996 no major territories were sold.
Operating cost decreased by $13,974, or 27%, during fiscal year
ended September 30, 1997 as compared to fiscal year 1996. There
are certain offsetting factors: print cost increased by $2,000 due
to prints provided to licensees on loan at the Company's expense;
freight cost increased by $2,000 due to the higher volume of sales;
depreciation expense decreased by $7,200 due to all fixed assets
becoming fully depreciated; and development cost decreased by
$10,000 in 1997 as one abandoned project was written off in 1996
and none in 1997.
Selling, general and administration costs decreased by $67,508 for
fiscal year ended September 30, 1997 as compared to fiscal year
ended 1996. The primary reason for the decrease was that in 1996
the Company attempted a private placement that turned out to be
unsuccessful. However, the Company still incurred the related
legal and public relations costs associated with this private
placement.
8
<PAGE>
Professional fees for public relations decreased for fiscal year
1997 by $19,500 as compared to 1996 due to the private placement
costs in 1996; legal fees for fiscal year 1997 decreased by $38,000
as compared to fiscal year 1996 also due to private placement costs
in 1996; shareholder related expenses decreased by $2,500 during
fiscal year 1997 as compare to 1996 due to a need in 1996 to obtain
several shareholders lists deemed necessary during our private
placement efforts; auto lease expense decreased for fiscal year
1997 by $9,000 as compared to 1996 as a result of leases of lesser
valued automobiles; advertising and promotion expense in fiscal
year 1997 decreased by $1,700 as compared to fiscal year 1996 due
to less print and art material needed for marketing efforts; travel
and entertainment during 1997 decreased by $2,100 as compared to
1996 due to less travel; insurance expense in fiscal year 1997
decreased by $2,100 as compared to fiscal year 1996 due to lesser
premium cost on auto insurance, lesser valued cars, and reduction
in the cost of errors and omissions insurance on the Company's
films due to their age; and a decrease in bad debt expense in
fiscal year 1997 of $10,600 as compared to fiscal year 1996 due to
a write off of a note in 1996 of $25,000 offset in 1997 of a write
off of one license of $14,400 as a result of the licensee not
taking delivery of its films and non-payment. The grand total of
decrease costs in fiscal year 1997 as compared to fiscal year 1996
was $85,500. These decreases were offset by certain increases in
costs in fiscal year 1997 over 1996 as follows: salary expense
increased by $1,900 in fiscal year 1997 as compared to 1996 due to
a bonus and salary increase to one employee; accounting expense in
fiscal year 1997 increased by $5,500 over fiscal year 1996 due to
the Company refiling and restating its 1996 Form 10-K, December 31,
1996 Form 10-Q and March 31, 1997 Form 10-Q as a result of
accounting adjustments and additional financial disclosures deemed
necessary for proper reporting and to be in compliance with the
Security and Exchange Acts of 1933 and 1934 as amended; auto
expense in fiscal year 1997 increased by $3,900 over fiscal year
1996 due to one older auto needing to replace its cooling system
and a new set of tires; payroll tax increased by $1,300 in fiscal
year 1997 over 1996 due to salary increases and a higher social
security base in 1997; postage expense increased by $1,600 during
fiscal year 1997 over fiscal year 1996 as a result of higher sales
activity; telephone expenses increased by $1,500 in fiscal year
1997 over fiscal year 1996 due to increased sales and film delivery
activity; tax expense increased by $600 due to a redevelopment tax
imposed by the city; dues and subscriptions increased by $800 due
to Internet services new in 1997; and other expenses increased by
$900 during fiscal year 1997 over fiscal year 1996.
9
<PAGE>
Fiscal Year Ended September 30, 1996 versus Fiscal Year Ended
September 30, 1995
- -----------------------------------------------------------------
Film revenue for fiscal year ended September 30, 1996 was $239,857
representing a decrease of $210,050, or 42%, as compared to
September 30, 1995. The decline in film sales is the result of no
new product to augment the Company's aging film library.
Operating costs and film amortization decreased by $48,569, or 48%,
in fiscal year 1996 as compared to fiscal year 1995. This decrease
was due to a decrease in print cost of $21,000, a result of less
digital remastering in fiscal 1996 of the Company's films; a
decrease in depreciation expense of $7,000 in fiscal 1996 as assets
became fully depreciated; commission expense decrease by $11,000 in
fiscal 1996 as the Company only had nominal outside sales help
during the period; development cost decrease by $9,500 in fiscal
1996 as three abandoned projects were written off in fiscal 1995
and only one in fiscal 1996.
Selling, general and administration costs increased by $60,103 in
fiscal 1996 as compared to fiscal 1995. There were offsetting
factors that caused this increase in fiscal 1996; salary expense
decreased by $3,700 due to having two administrative assistants
during part of fiscal 1995 and an adjustment to payroll taxes as a
result of an over accrual of tax on Mr. Brown and Mr. Smith's gross
beyond social security wage base; professional fees increased
by$48,539 due to the legal and public relations fees incurred in
association with an attempted private placement and a Form S-8
filing; auto expense decreased by $5,000 due to fewer repairs;
copier expense decreased by $3,200 as the Company purchased the
copier after the lease ended in June of 1995; car lease expense
decreased by $2,200 due to the expiration of the old leases and the
new leases are for lesser amounts; advertising and promotion
expense decreased by $2,470 due to less sales activity; temporary
help cost decreased by $1,750 due to the Company not hiring any
additional part-time help; travel and entertainment expense
increased by $3,000 due to an increase in business lunches
associated with the Company's efforts to raise capital for
acquisitions; insurance expense increased by $5,400 due to the cost
of an errors and omission policy; foreign remittance tax expense
decreased by $3,500 due to no sales being made subject to
remittance tax; bad debt expense increased by $25,000 due to the
Company entering into a note receivable that matured on June 20,
1996 that was not paid.
In regard to the $25,000 note receivable, it was entered into with
Four Pals Community Broadcasters, Inc. and its President,
individually, on March 20, 1996, due no later than June 20, 1996.
It was unsecured and bore interest at 10 percent. Four Pals
10
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Community Broadcasters, Inc. owns KPAL-TV, (see Capital Resources
and Liquidity for further discussion regarding KPAL-TV) and the
loan was made based on a potential future relationship that did not
materialize. Since there has been no effort on the part of Four
Pals Community Broadcasters, Inc. and its President to satisfy this
obligation, the matter has been turned over the Company attorney
for evaluation and the Company wrote off the $25,000 as bad debt
expense.
Capital Resources and Liquidity
- -------------------------------
As of September 30, 1998 the Company had $61,931 available to meet
operating requirements. In addition, it had net accounts
receivable of $12,600. This cash position is not adequate to meet
the Company's operational needs.
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.
During the year ended September 30, 1997, the Company's Board of
Directors (the "Board") and management continued the mandate of
investigating for strategic companies for potential acquisition or
merger that would add asset value and revenue to the Company. In
July and August of 1997 discussions were held with a company Of
Sound Mind, Inc. ("OSM"). On October 21, 1997, subsequent to the
Company's September 30, 1997 year end, the Company and OSM signed
a more definitive purchase agreement that was outlined in a Form 8-
K filed by the Company on October 31, 1997. The transaction was
aborted in early 1998 and the Company wrote off a $100,000 advance
made to OSM.
On October 21, 1997, the Company also closed an offering of
$150,000 principal amount convertible subordinated debentures (the
"Debentures") and 150,00 Common Stock Purchase Warrants exercisable
at $.50 (the "Warrants"). Each Debenture bears interest at the
rate of 8% per annum and matures on November 1, 1998. Each Warrant
is exercisable into the Registrant's common stock at a price of
$.50 per share at any time on or after October 31, 1997 and
expiring on October 31, 1999. The debentures were converted in May
1998 to 923,077 shares of common stock.
The capital raised, through the convertible debenture, of $150,000
is not adequate for the overall needs of the Company. The
Company's Board and management continue to have discussions with
11
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investment bankers to raise funds for expansion of the Company and
additional possible acquisitions. 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 1998 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.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The financial statements required by this item are set forth as
indicated in Item 14 (a) 1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ---------------------------------------------------------
There are no changes in, or disagreements with, the Company's
accountant.
12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Set forth below is certain information relating to the Directors of
the Company. This information includes these persons' current
principal occupation and five-year employment history, as well as
the year in which they were first elected to the Board of
Directors. The business address of each of them is Marquee
Entertainment, Inc., 6404 Wilshire Blvd., #550, Los Angeles,
California 90048. Each is a citizen of the United States of
America.
RALPH T. SMITH, age 60, served as President, Chief Financial
Officer and as a Director of the Company since January 1988; he
served as Chief Financial Officer of PEL from 1987 to August 1991
(see Item 1 - BUSINESS - Background of the Company). Mr. Smith
died on July 29, 1998.
HAROLD BROWN, age 70, has served as Vice President and as a
Director of the Company since August 1986, and as Chairman of the
Board and Chief Executive Officer since March 1991. (see Item 1 -
BUSINESS - Background of the Company) Mr. Brown was Vice President
of PEL and PPG, and President of PFD from 1984 to August 1991 and
served as President and a Director of National Peregrine, Inc.
(formerly American National Enterprises, Inc.) from April, 1986, to
August 1991. Mr. Brown has been employed in the motion picture
industry since 1956. Mr. Brown is Acting Chief Financial Officer
as of September 30, 1998.
Harvey Seslowsky, age 56, was appointed a Director of the Company
as of March 31, 1996. Mr. Seslowsky is the Vice President,
National Sales and Partnership Marketing, of Blockbuster
Entertainment Group since 1995; Mr. Seslowsky has been active as a
Consultant/New Business Development since 1991; he served as
President and a Director of Scat Hovercraft, Inc. from 1990 to 1991
and served as President and a Director of Media Merchandising
Corporation from 1988 to 1990.
David DeShay, age 44, was appointed a Director of the Company as of
August 3, 1998. Mr. DeShay is the founder and President of First
Assurance Trust Deed Services, Inc., a company engaged in real
estate and foreclosure management. Prior to forming First
Assurance, Mr. DeShay ran DBD Investments and Horizon Home Loans.
The Board of Directors does not have an Audit, Compensation or
Nominating Committee.
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ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Management and Enumeration
- --------------------------
The following table shows all cash compensation for services
rendered during the last three (3) fiscal years ended September 30,
paid by the Registrant to (i) each of the Registrant's executive
officers whose cash compensation exceeded $60,000 and (ii) to all
officers and directors as a group:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long Term
Annual Compensation Compensation
----------------------------------- ------------
Name Other Annual
and Principal Compensation
Position Year Salary($) ($) Options (#)
(1) (2)
- -------------------------------------------------------- ------------
<S> <C> <C> <C> <C>
Harold Brown
CEO 1996 35,000 13,860 5,000
1997 37,500 19,235 5,000
1998 52,500 19,000 5,000
Ralph T. Smith
President, CFO
1996 38,000 5,000
1997 37,500 5,000
1998 37,500 6,364 5,000
All executive officers as a group 1998 (2 persons)(3) $90,000
- ------------------------------------------------------------------------
(1) 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.
(2) Other annual compensation for Mr. Brown represents the dollar value
paid by the Company for premiums with respect to his life insurance
policy and certain payments made on behalf of Mr. Smith.
(3) Subsequent to September 30, 1998 Mr. Brown's cash compensation
continues to be reduced until such time that the Company liquidity
problems are resolved.
</TABLE>
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Compensation and Stock Option Plans
- -----------------------------------
1986 and 1993 Incentive Stock Option Plan
- -----------------------------------------
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.
15
<PAGE>
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. As of
September 30, 1998, 28,750 options have been granted under the
plan, none have been exercised.
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 at least 20% per year over five years
from the date the option is granted. 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.
Upon their election as a Director and on October 30th of each
subsequent year while 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.
16
<PAGE>
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. As of September 30, 1998, 28,750 options have been granted
under the plan, none have been exercised.
Option Grants. The following table summarizes pertinent
information concerning individual grants of Options, including the
potential realizable dollar value of grants of Options made during
the fiscal year ended September 30, 1998, to each Named Executive,
assuming that the market value of the underlying security
appreciates in value, from the date of grant to the end of the
Option term, at the assumed rates indicated in the following table.
<TABLE>
<CAPTION>
FISCAL YEAR 1998 OPTION GRANTS
------------------------------
Potential Realizable
Value at Assumed
Rates of Stock Price
Appreciation for
Individual Grants Option Term (1)
- ------------------------------------------------------------------------------
Percent of
Total Options
Granted to
Options Employees/ Exercise Expira-
Granted Directors Price (2) tion
Name (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Harold Brown 5,000 33% $0.44 10/30/02 $ 385 $1,000
Ralph T. Smith 5,000 33% $0.44 10/30/02 $ 385 $1,000
Harvey Seslowsky 5,000 33% $0.44 10/30/02 $ 385 $1,000
- -------------------------------------------------------------------------------
(1) The dollar amounts under these columns are the result of calculations at
annualized rates of 5% and 10%, respectively, which were established by
rules promulgated by the Securities and Exchange Commission and therefore
are not intended to forecast possible future appreciation, if any, of
Marquee Entertainment's Common Stock price.
(2) As both Mr. Brown and Mr. Smith each own greater than 10% of the
outstanding voting securities of the Company, all grants were made at 110%
of market at the date of grant.
</TABLE>
17
<PAGE>
Option Exercises and Fiscal Year-End Values. Shown below is
information with respect to the exercise of Options to purchase
Common Stock of Marquee Entertainment during the last fiscal year
by each of the Named Executives and the value of unexercised
Options held by each of them as of the end of fiscal 1998. None of
the Named Executives exercised any Options during fiscal 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
Number of Values of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired Value at Fiscal Year- at Fiscal Year-
on Exercise Realized End (#) Exercisable/ End ($) Exercisable/
Name (#) (#) Unexercisable Unexercisable (1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harold Brown ---- ---- 15,000/10,000 $0/$0
Ralph T. Smith ---- ---- 15,000/10,000 $0/$0
- ------------------------------------------------------------------------------
(1) Based on the closing price of $0.20 for Marquee Entertainment's Common
Stock as traded over-the-counter on September 30, 1998.
</TABLE>
18
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- -------------------------------------------------------------
The following table sets forth certain information known to the
Company regarding beneficial ownership of the Company's Common
Shares as of December 15, 1998 of (i) each present Director, (ii)
all Directors and Officers as a group, and (iii) each beneficial
owner of more than five percent of the Company's Common Shares.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Fully Diluted Basis
Name Amount and Nature Percent
Beneficial Owner (1) of Beneficial Ownership (2) of Class
- -------------------------------------------------------------------
<S> <C> <C> <C>
Ralph T. Smith 255,097 (3) 11.0%
Harold Brown 407,502 (4) 17.6%
Harvey Seslowsky 57,500 (5) 2.5%
Officers and Directors
as a Group (3 Persons) 720,099 31.1%
- -------------------------------------------------------------------
(1) The address of Messrs. Smith, Brown and Seslowsky is 6404
Wilshire Blvd., #550, Los Angeles, California 90048.
(2) Sole voting and investment control.
(3) Includes 15,000 Common Shares issuable under currently
exercisable stock options held by Mr. Smith's estate.
(4) Includes 15,000 Common Shares issuable under currently
exercisable stock options held by Mr. Brown.
(5) Includes 57,500 Common Shares issuable under currently
exercisable stock options held by Mr. Seslowsky.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Not applicable.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
- -----------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements:
--------------------
For a list of financial statements filed as part of this
report, see Index to Financial Statements and Financial
Statement Schedules on page F-1.
2. There are no financial schedules required with this
report.
3. Exhibits:
--------
3.1 Copy of Registrant's Articles of Incorporation and
Amendments thereto -- incorporated by reference to
Form S-18 filed November 10, 1986, SEC File
#33-10084-LA.
3.2 Copy of Registrant's By-Laws -- incorporated by
reference to Form S-18 filed November 10, 1986, SEC
File #33-10084-LA.
4.1 Specimen Share Certificate -- incorporated by
reference to Form S-18 filed November 10, 1986, SEC
File #33-1108-LA.
4.2 Specimen Warrant Certificate -- incorporated by
reference to Form S-18 filed November 10, 1986, SEC
File #33-10084-LA.
4.3 Underwriter's Warrant -- incorporated by reference
to Form S-18 filed November 10, 1986, SEC File #33-
10084-LA.
9 Not applicable.
10.1 Memorandum of Agreement re "Double Takes" --
incorporated by reference to Form S-18 filed
November 10, 1986, SEC File #33-10084-LA.
10.2 Agreement with Peregrine Entertainment, Ltd.
regarding "Spectacular World of Guinness Records"--
incorporated by reference to Form 10-K for
September 30, 1988, SEC File #0-15413.
20
<PAGE>
10.3 Agreement and Plan of merger by and among Peregrine
Entertainment, Ltd., Peregrine - TAP, Inc., Lway
Productions and Exacta, Inc. -- incorporated by
reference to Form 10-K for September 30, 1988, SEC
File #0-15413.
10.4 Settlement and Support Agreement dated as of August
29, 1990, between Lway Productions, Exacta, Inc.
Neil Rosenstein --- incorporated by reference
to Form 8-K filed November 15, 1990, SEC File
#0-15413.
10.5 Amendment dated October 31, 1990 to Settlement
Agreement dated August 29, 1990 between Lway
Productions, Exacta, Inc. and Neil Rosenstein
incorporated by reference to Form 8-K filed
November 15, 1990, SEC File #0-15413.
10.6 Form of Stock Subscription Agreement between Lway
Productions and Harold Brown and Ralph T. Smith --
incorporated by reference to Form 8-K filed
November 15, 1990, SEC File #0-15413.
10.7 Amendment No. 1 dated November 13, 1990 to
Acquisition Agreement dated November 2, 1990
between Peregrine Entertainment, Ltd., the
Peregrine Producers Group, Peregrine Film
Distribution, Inc. and Lway productions --
incorporated by reference to Form 8 filed
February 22, 1991, SEC File #0-15413.
10.8 Amendment No. 2 dated January 13, 1991 to
Acquisition Agreement dated November 2, 1990
between Peregrine Entertainment, ltd., the
Peregrine Producers Group, Peregrine Film
Distribution, Inc. and Lway productions --
incorporated by reference to Form 8 filed
February 22, 1991, SEC File #0-15413.
10.9 Amendment No. 3 dated February 20, 1991 to
Acquisition Agreement dated November 2, 1990
between Peregrine Entertainment, Ltd., the
Peregrine Producers Group, Peregrine Film
Distribution, Inc. and Lway Productions --
incorporated by reference to Form 8 filed
February 22, 1991, SEC File #0-15413.
10.10 Amendment dated October 31, 1990 to Settlement
Agreement dated August 29, 1990 between Lway
Productions, Exacta Inc. and Neil Rosenstein
incorporated by reference to Form 8 filed.
21
<PAGE>
10.11 Amendment dated January 10, 1991 to Settlement
Agreement dated August 29, 1990 between Lway
Productions, Exacta Inc. and Neil Rosenstein
incorporated by reference to Form 8 filed
February 22, 1991, Sec File #0-15413.
10.12 Amendment dated January 13, 1991 to Settlement
Agreement dated August 29, 1990 between Lway
Productions, Exacta, Inc. and Neil Rosenstein
February 22, 1991, SEC File #0-15413.
10.13 Amendment dated February 5, 1991 to Settlement
Agreement dated August 29, 1990 between Lway
Productions, Exacta Inc. and Neil Rosenstein
incorporated by reference to Form 8 filed
February 22, 1991, SEC File #0-15413.
10.14 Amendment dated February 20, 1991 to Settlement
Agreement dated August 29, 1990 between Lway
Productions, Exacta Inc. and Neil Rosenstein
incorporated by reference to Form 8 filed
February 22, 1991, SEC File #0-15413.
10.15 Office lease agreement dated April 12, 1991 between
Fox & Fields, a partnership and Lway Productions --
incorporated by reference to Form 10-K for
September 30, 1991, Sec File #0-15413.
10.16 Employment Agreement by and between Lway and Harold
Brown dated as of march 12, 1991, with the
Indemnity Agreement by and between Lway and Harold
Brown dated as of March 12, 1991 -- incorporated by
reference to Form 10-K for September 30, 1991, SEC
File #0-15413.
10.17 Employment Agreement by and between Lway and Ralph
T. Smith dated as of March 12, 1991, with the
Indemnity Agreement by and between Lway and Ralph
T. Smith dated as of March 12, 1991 -- incorporated
by reference to Form 10-K for September 30, 1991,
SEC File #0-15413.
10.18 1986 Incentive Stock Option Plan -- incorporated by
reference to Form S-18 filed November 10, 1986
SEC File #33-10084-LA.
10.19 1993 Incentive Stock Option Plan -- incorporated by
reference to Exhibit B to Proxy Statement dated
April 2, 1993, SEC File #0-15413.
22
<PAGE>
10.20 1993 Non-Qualified Stock Option Plan -- incorporated
by reference to Exhibit C to Proxy Statement dated
April 2, 1993, SEC File #0-15413.
10.21 Office lease agreement dated December 9, 1997 between
6404 Wilshire Boulevard Building and Marquee
Entertainment, Inc. - included with Form 10-K for
September 30, 1998.
11 Statements re computation of per share earnings
12 Not applicable.
13 Not applicable.
16 Not applicable.
18 Not applicable.
22 Not applicable.
23 Not applicable.
24 Not applicable.
25 Not applicable.
28 Not applicable.
29 Not applicable.
(b) A Form 8-K was filed by the Company on August 10, 1998.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MARQUEE ENTERTAINMENT
Date: December 23, 1998 By: /s/ Harold Brown
------------------------ ------------------------------
Harold Brown, Chief Executive
Officer and Acting Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
/s/ Harold Brown December 23, 1998
- --------------------------- -----------------
Harold Brown Chairman of the Board Date
/s/ Harvey Seslowsky December 23, 1998
- --------------------------- -----------------
Harvey Seslowsky Director Date
/s/ David DeShay December 23, 1998
- --------------------------- -----------------
David DeShay Director Date
24
<PAGE>
MARQUEE ENTERTAINMENT
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Independent Auditor's Report - 1998, 1997 F-2
and 1996
Balance Sheet
September 30, 1998 and 1997 F-3
Statement of Operations for the years ended
September 30, 1998, 1997, 1996 F-4
Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996 F-5 & F-6
Statements of Shareholders' Deficit for the
years ended September 30, 1998, 1997
and 1996 F-7
Notes to Financial Statements F-8 to F-22
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Board of Directors and Shareholders
Marquee Entertainment, Inc.:
I have audited the accompanying consolidated balance sheet of
Marquee Entertainment, Inc. as of September 30, 1998 and 1997 and
the related consolidated statements of operations, shareholders'
deficit, and cash flows for each of the years in the three-year
period ended September 30, 1998. These financial statements are
the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my
audits.
I conducted my audits in accordance with generally accepted
auditing standards. Those standards require that I 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. I believe that my audits provide
a reasonable basis for my opinion.
In my opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Marquee Entertainment, Inc. as of September
30, 1998 and 1997, and results of its operations and its cash flows
for each of the years ended in the three-year period ended
September 30, 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company has incurred significant losses for each of the years ended
September 30, 1998. The Company has a current cash position which
may be inadequate to meet its future operating needs and additional
financial support will be required during fiscal 1999. Given these
factors, there is substantial doubt concerning the Company's
ability to continue as a going concern. Management's plans in
regard to these matters are discussed in Note 1. The accompanying
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Jay J. Shapiro
---------------------------
December 23, 1998 JAY J. SHAPIRO, C.P.A.
Encino, California a professional corporation
F-2
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS:
Cash $61,931 $23,826
Accounts receivable-trade 12,600 38,103
Film inventory (Note 1)
Furniture and fixtures, at cost, net of
accumulated depreciation of $72,952
and $71,841 at September 30, 1997 and
September 30, 1996 (Note 1)
Security deposit and other assets 4,500 32,168
----------- -----------
$79,031 $94,097
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable and accrued expenses $44,695 $80,056
Accrued Payroll 589,786 404,761
Deferred income (Note 1) 180,000 144,173
8% Convertible Debenture (Note 1) 530,000 495,267
Notes Payable (Note 2) 0 50,000
----------- -----------
Total liabilities 1,344,481 1,174,257
----------- -----------
Commitments (Note 8)
Shareholders' deficit:
Preferred stock, $.01 par value;
10,000,000 shares authorized;
none outstanding
Common stock, $.04 par value;
25,000,000 shares authorized;
2,321,793 shares issued and
outstanding at September 30, 1998 and
September 30, 1997 (Note 1 and Note 7) 92,872 55,954
Additional paid-in capital (Note 1) 3,434,273 3,315,191
Accumulated deficit (4,792,595) (4,451,305)
----------- -----------
Total shareholders' deficit (1,265,450) (1,080,160)
----------- -----------
$79,031 $94,097
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Film revenue (Note 1) $416,492 $469,115 $239,857
----------- ----------- -----------
Costs and expenses:
Operating costs and film 68,524 38,007 51,981
amortization
Selling, general and 555,008 589,856 646,764
administration (Note 5)
Bad debt expense (Note 9) 100,000 14,400 25,000
----------- ----------- -----------
Operating loss (307,040) (173,148) (483,888)
----------- ----------- ------------
Other income (expense):
Interest income 0 585 488
Interest expense (Note 1 and Note 2) (34,250) (41,360) (463,909)
----------- ----------- -----------
(34,250) (40,775) (463,421)
----------- ----------- -----------
Net loss ($341,290) ($213,923) ($947,309)
=========== =========== ===========
Net basic loss per share (Note 3) ($0.20) ($0.15) ($0.70)
=========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers 583,475 636,889 642,342
Cash paid to suppliers and employees (649,503) (640,869) (655,404)
Interest received 0 585 488
Income taxes paid (1,600) (1,600) (1,600)
Interest paid 0 0 (7,500)
----------- ----------- ------------
Net cash provided (used) by
operating activities (67,628) (4,995) (21,674)
Cash flows from investing activities:
Note receivable loan (25,000)
Sale of Convertible Debenture (Net) 120,733
----------- ----------- ------------
Net cash used in investing activities 120,733 0 (25,000)
Cash flows from financing activities:
Principal payment on note payable (15,000)
----------- ----------- ------------
Net cash used by financing activities (15,000) 0 0
----------- ----------- ------------
Net increase (decrease)in cash 38,105 (4,995) (46,674)
Cash at the beginning of the year 23,826 28,821 75,495
----------- ----------- ------------
Cash at end of year $61,931 $23,826 $28,821
=========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
Reconciliation of net loss to net cash used by operating activities:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($341,290) ($213,923) ($947,309)
----------- ----------- ------------
Adjustments to reconcile net
loss to net cash provided (used) by
operating activities:
Discount adjustment to Convertible
Debenture (Note 1) 441,259
Bad debt expense 25,000
Depreciation and amortization 1,171 8,415
Decrease (increase) in other assets 27,668 (338) 6,770
Decrease (increase) in accounts
receivable-trade 25,503 57,484 9,673
Increase (decrease) in accounts
payable and accrued expenses (35,361) (71,733) 1,974
Increase (decrease) in accrued 185,025 232,203 (206,612)
payroll
Increase (decrease) in deferred 35,827 (46,219) 160,749
income
Increase in 8% Convertible Debenture 35,000 36,360 458,907
Issuance of common stock for
services 19,500
----------- ----------- ------------
Total adjustments 273,662 208,928 925,635
----------- ----------- ------------
Net cash provided (used) by
operating activities (67,628) (4,995) (21,674)
=========== =========== ============
</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.
In early 1998 the Company funded OSM, a potential merger company,
with a $100,000 advance and subsequently wrote off the collection
thereof.
In May 1998, the Company converted a $150,000 debenture to
923,077 shares of common stock.
See notes to consolidated financial statements.
F-6
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Paid-in Accumulated
Shares Stock Capital (deficit)
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, September 30, 1995 1,353,716 $54,154 $2,856,232 ($3,290,073)
------------ --------- ----------- ------------
Reverse split March 31, 1996
1 to 40 (Note 1)
Issuance of common stock 45,000 1,800 17,700
(Note 5)
Adjustment to discount on
convertible debenture (Note 1) 441,259
Net loss (947,309)
------------ --------- ----------- ------------
Balance, September 30, 1996 1,398,716 55,954 3,315,191 (4,237,382)
------------ --------- ----------- ------------
Net loss (213,923)
------------ --------- ----------- ------------
Balance, September 30, 1997 1,398,716 55,954 3,315,191 (4,451,305)
------------ --------- ----------- ------------
Net loss (341,290)
Conversion of debenture to
common stock (Note 10) 923,077 36,918 119,082
------------ --------- ----------- ------------
Balance, September 30, 1998 2,321,793 $92,872 $3,434,273 ($4,792,595)
============ ========= =========== ============
</TABLE>
The reverse stock split of 1 to 40, on March 31, 1996, has been
reflected retroactively in all periods presented (Note 1).
See notes to consolidated financial statements.
F-7
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 1 - Organization and Summary of Significant Accounting
Policies:
Organization:
Marquee Entertainment, Inc., formerly Lway Productions, (the
"Company") was incorporated on June 26, 1979, as a wholly-owned
subsidiary of Exacta, Inc. ("Exacta") under the laws of the State
of Nevada and was inactive from 1981 until February 1987 when it
completed a public offering of its common stock. Exacta retained
a 50% ownership in the outstanding shares of the Company after the
public offering. In December 1987, Exacta transferred its shares
of Common Stock in the Company to an affiliated company, Peregrine
Entertainment, Ltd. ("PEL"), formerly EMI Television. From
February, 1987 to January, 1989, the Company engaged in the
funding, as a co-producer, of the development and production of
television programming for domestic and foreign exhibition.
On November 2, 1990 the Company entered into an agreement (the
"Acquisition Agreement") with PEL and its subsidiaries to acquire
substantially all of the assets of PEL and its subsidiaries. Among
other things the Company acquired was foreign distribution rights
in twenty nine films and certain accounts receivable from Peregrine
Producers Group ("PPG"), a PEL subsidiary. The consummation of the
Acquisition Agreement was on March 12, 1991. In connection with
the consummation of the Acquisition Agreement the Company
repurchased and retired 30,000,000 shares of its common stock owned
by PEL.
Since the consummation of the Acquisition Agreement the Company's
primary business activity has been film distribution, of the
acquired films.
Company Business:
Effective with the consummation of the PEL asset acquisition the
Company commenced licensing acquired film rights in all currently
available territories. The Company's customers consist of foreign
subdistributors with long standing reputations in their respective
markets.
F-8
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 1 - cont. . .
Basis of Presentation:
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. 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 September 30, 1998, none
of the options were exercised.
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, 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.
F-9
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 1 - cont. . .
Going Concern:
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 (see Note 9, Bad Debt Expense). 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 1998 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 September 30, 1998 the Company had $61,931 available to meet
operating requirements. In addition, it had net accounts
receivable of $12,600. This cash position is not adequate to meet
the Company's operational needs. The Company's Chairman and
President continue to accrue their salaries (at September 30, 1998,
$589,786) 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.
F-10
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 1 - cont...
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.
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 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. 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 2,120,000 and
1,981,068 shares of the Company's common stock at September 30,
1998 and 1997, respectively. The market value of the common stock
at September 30, 1998 and 1997 was $.10 and $.44, respectively.
The carrying value and fair value of the 8% convertible debenture
is as follows:
F-11
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 1 - cont...
<TABLE>
<CAPTION>
8% Convertible Debenture
- -----------------------------------------------------------
1997 1998
- ------------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------- -------- -------- --------
<S> <C> <C> <C>
$495,267 $871,670 $530,000 $212,000
======== ======== ======== ========
</TABLE>
Statement of Financial Accounting Standards Nos. 123, that became
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 has 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. Film revenue for fiscal years ended
September 30 from the following customers and geographic areas
representing greater than 10 percent are as follows:
F-12
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 1 - cont...
<TABLE>
<CAPTION>
1998
- ----
Percent of
Customer Territory Amount Sales
- -------- --------- ------- ----------
<S> <C> <C> <C>
Daro Film Distribution Eastern Europe $70,000 17%
Vensold de Venezuela French-Speaking $90,000 22%
Karshan Entertainment Spain/Portugal $78,300 19%
</TABLE>
<TABLE>
<CAPTION>
1997
- ----
Percent of
Customer Territory Amount Sales
- -------- --------- ------- ----------
<S> <C> <C> <C>
Daro Film Distribution United Kingdom $243,750 52%
Daro Film Distribution Germany $ 50,000 11%
</TABLE>
<TABLE>
<CAPTION>
1996
- ----
Percent of
Customer Territory Amount Sales
- -------- --------- ------ ----------
<S> <C> <C> <C>
Vensold de Venezuela France $30,000 14%
</TABLE>
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 over fiscal years ended September 30, 1998, 1997 and 1996.
1998 1997 1996
------- ------- -------
Royalty Revenue 144,814 71,921 115,107
F-13
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
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. As of September
30, 1997, all fixed assets were fully depreciated.
Film Library and Amortization:
Amortization was based on the income forecast method utilizing the
relationship revenue realized in the period bears to estimated
future revenue and the new cost basis (Note 2). As of September
30, 1994 the Company's film library was fully amortized. However,
the Company continues to own a film library generating
approximately $415,000 a year in revenue.
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 promissory notes bearing interest of 10% and due
over a period of four years. This obligation was settled in full
for $15,000 in August 1998.
F-14
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 3 - Net Basic Loss Per Share:
Net loss per share is not computed using common stock equivalents
because they would be antidilutive. 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 years ended September
30 are as follows:
1998 1,706,000
1997 1,398,716
1996 1,361,421
Note 4 - Lease Commitment:
The Company entered into a lease agreement for 3,000 square feet of
office space which ended December 31, 1997. Rent expense until the
completion of this lease is $18,609. The new lease for sixty
months on 2,500 square feet of office space had fiscal 1998 rent
expense of $34,000 and minimum annual payments of:
1999 $49,000
2000 $51,000
2001 $52,000
2002 $54,000
Note 5 - Selling, general and administration expenses:
<TABLE>
<CAPTION>
ACCOUNT 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Compensation $328,516 $358,073 $356,146
Professional Fees 53,396 16,734 68,733
Car Lease 14,011 14,641 23,688
Payroll Tax 20,447 18,200 16,894
Travel/Entertainment 28,953 24,993 27,149
Office Expense 75,769 85,365 83,800
Insurance 13,485 18,408 20,487
Other Expenses 20,432 53,442 49,867
-------- -------- --------
$555,009 $589,856 $646,764
======== ======== ========
</TABLE>
F-15
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 6 - 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, 1997 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
1996 < 493,082> 2011
1997 < 309,000> 2012
- --------------------------------------------------------------------
Total NOL $<4,127,970>
============
</TABLE>
<TABLE>
<CAPTION>
STATE
Tax Year Amount of Expiration
Ended Net Loss Date
December 31, Carryforward December 31,
- --------------------------------------------------------------------
<S> <C> <C>
1992 < 78,715> 1998
1993 < 399,695> 1998
1994 < 83,559> 1999
1995 < 124,312> 2000
1996 < 240,463> 2001
1997 < 151,025> 2002
- --------------------------------------------------------------------
$<1,077,769>
============
</TABLE>
F-16
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 6 - cont...
If the net loss carryforward were to be realized, a deferred tax
asset of approximately $1,600,000 would be set forth. However, due
to the unlikely realization of such an asset, a valuation reserve
of $1,600,000 would be required and no benefit would be recorded
until the loss carryforward is realized.
Note 7 - 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,
1998 1997
--------- ---------
<S> <C> <C>
Incentive and nonqualified stock option plans:
Outstanding 57,500 47,500
Available for grant 1,187,500 1,202,500
--------- ---------
Totals 1,245,000 1,250,000
========= =========
</TABLE>
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
F-17
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 7 - cont...
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.
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
F-18
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 7 - cont...
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 620,000 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.
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:
F-19
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 7 - cont...
<TABLE>
<CAPTION>
Non- Per Share
Incentive qualified Exercise Price
--------- --------- --------------
<S> <C> <C> <C>
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
Automatic grant to Directors 6,250 6,250 $.44 to $.48
Exercised --- --- ---
Canceled --- --- ---
Outstanding at September 30, 1997 21,250 26,250 $.44 to $.88
Automatic grant to Directors 7,500 7,500 $.44
Exercised --- --- ---
Canceled --- (5,000) $.88
------ ------- --------------
Outstanding at September 30, 1998 28,750 28,750 $.44 to $.48
====== ====== ===============
</TABLE>
<TABLE>
<CAPTION>
Other Options:
Other options granted during fiscal year ended September 30, 1996 are as
follows:
Other Per Share
Options Exercise Price
--------- --------------
<C> <C> <C>
Directors 50,000 $0.50
Consultants 235,000 $1.00 to $1.50
---------
285,000
=========
</TABLE>
F-20
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 8 - 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. Mr.
Smith died on July 29, 1998, and his fiscal 1998 compensation
earned under his agreement was $116,000. The term of Mr. Brown's
agreement is one year; the term is automatically extended until
terminated by ninety days written notice given by either party.
Note 9 - Bad Debt Expense:
During the year ended September 30, 1998, the Company's Board of
Directors (the "Board") and management continued the mandate of
investigating for strategic companies for potential acquisition or
merger that would add asset value and revenue to the Company. In
August of 1997 discussions were held with a company Of Sound Mind,
Inc. ("OSM"). After several meetings and exchanges of information,
the Company entered into a letter of intent on September 19, 1997
proposing a purchase of 100% of the outstanding stock of OSM in
exchange for 700,000 shares of the Company's common stock. On
October 21, 1997, the Company and OSM signed a more definitive
purchase agreement that was outlined in a Form 8-K filed by the
Company on October 31, 1997. The purchase is subject to OSM being
able to provide audited financial statements. In early 1998, the
transaction was aborted and the Company wrote off a $100,000
advance to OSM.
Note 10 - Convertible Debenture Sale and Conversion:
On October 21, 1997, the Company also closed an offering of
$150,000 principal amount convertible subordinated debenture (the
"Debenture") and 150,000 Common Stock Purchase Warrants exercisable
at $.50 (the "Warrants"). The Debenture bears interest at the rate
of 8% per annum and matures on November 1, 1998. In May 1998, the
Debenture was converted into 923,077 shares of the Company's common
stock.
F-21
<PAGE>
MARQUEE ENTERTAINMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, 1996
Note 11 - Subsequent Events:
In November 1998, the Company granted 475,000 Common Stock Purchase
Warrants exercisable at $.25 through November 20, 2003 to all three
directors, an employee, and a consultant. No compensation was
recognized as common stock was trading at $.20 per share as of the
date of grant.
F-22
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000806277
<NAME> MARQUEE ENTERTAINMENT, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 61,931
<SECURITIES> 0
<RECEIVABLES> 12,600
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 72,952
<DEPRECIATION> (72,952)
<TOTAL-ASSETS> 79,031
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 92,872
<OTHER-SE> (1,358,322)
<TOTAL-LIABILITY-AND-EQUITY> 79,031
<SALES> 0
<TOTAL-REVENUES> 416,492
<CGS> 68,524
<TOTAL-COSTS> 723,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (34,250)
<INCOME-PRETAX> (341,290)
<INCOME-TAX> 0
<INCOME-CONTINUING> (341,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (341,290)
<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>
