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 June 30, 1998
----------------------------------
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)
6404 Wilshire Blvd., Suite 550, Los Angeles, CA 90048
- -----------------------------------------------------------------
(Address of principal executive offices)
(323) 782-0090
- -----------------------------------------------------------------
(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 2,321,793 shares of its $.04 par value
common stock outstanding as of August 12, 1998.
<PAGE>
PART I
ITEM I
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Consolidated Balance Sheets for
June 30, 1998 (unaudited) and
September 30, 1997 3
Consolidated Statement of Operations
for the three months ended June 30, 1998
and 1997 4
Consolidated Statements of Operations
for the nine months ended June 30, 1998
and 1997 5
Consolidated Statements of Cash Flows for the
nine months ended June 30, 1998 and 1997 6 to 7
Notes to Condensed Financial Statements 8 to 17
2
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Unaudited Audited
June 30, September 30,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS:
Cash $ 72,533 $23,826
Accounts receivable-trade 80,260 38,103
Security deposit and other assets 12,447 32,168
----------- -----------
$165,240 $94,097
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable and accrued expenses $ 69,190 $80,056
Accrued Payroll 571,151 404,761
Deferred income (Note 1) 156,425 144,173
8% Convertible Debenture (Note 1) 513,976 495,267
Notes Payable(Note 2) 40,000 50,000
----------- -----------
Total liabilities $1,350,742 $1,174,257
----------- -----------
Commitments (Note 6)
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 June 30, 1998 and
September 30, 1997 (Note 1) 92,872 55,954
Additional paid-in capital (Note 1) 3,434,273 3,315,191
Accumulated deficit (4,712,647) (4,451,305)
----------- -----------
Total shareholders' deficit (1,185,502) (1,080,160)
----------- -----------
$165,240 $94,097
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Film revenue (Note 1) $198,620 $36,501
----------- -----------
Costs and expenses:
Operating costs (Note 1) 21,457 15,103
Selling, general and administration 211,289 144,041
----------- -----------
Operating loss (34,126) (122,643)
----------- -----------
Other income (expense):
Interest income 7 18
Interest expense(Note 1 and Note 2) (13,300) (10,065)
----------- -----------
(13,293) (10,587)
----------- -----------
Net loss ($46,419) ($133,230)
=========== ===========
Net loss per share (Note 3) ($0.03) ($0.10)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Film revenue (Note 1) $398,614 $433,426
----------- -----------
Costs and expenses:
Operating costs (Note 1) 58,770 36,528
Selling, general and administration 461,705 459,829
Bad debt expense (Note 1) 100,000
----------- -----------
Operating loss (221,861) (62,931)
----------- -----------
Other income (expense):
Interest income 33 561
Interest expense(Note 1 and Note 2) (39,514) (30,755)
----------- -----------
(39,481) (30,194)
----------- -----------
Net loss ($261,342) ($93,125)
=========== ===========
Net loss per share (Note 3) ($0.14) ($0.07)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers 86,000 537,882
Cash paid to suppliers and employees (62,293) (552,424)
Interest received 26 561
Income taxes paid 0 (1,600)
Interest paid 0 0
----------- -----------
Net cash provided (used) by
operating activities 23,707 (15,581)
Cash flows from investing activities:
Note receivable loan (100,000) 0
----------- -----------
Net cash used in investing activities (100,000) 0
Cash flows from financing activities
Issuance of 8% Convertible Debenture-M.P. 135,000
Payment on Note Payable (10,000) 0
----------- -----------
Net cash used by financing activities 125,000 0
----------- -----------
Net increase (decrease) in cash 48,707 (15,581)
Cash at the beginning of the year 23,826 28,821
----------- -----------
Cash at end of year $72,533 $13,240
=========== ===========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
Reconciliation of net loss to net cash used by operating
activities
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) ($261,342) ($93,125)
----------- -----------
Adjustments to reconcile net profit
(loss) to net cash provided (used) by
operating activities:
Note receivable-OSM deemed a bad debt
and not included in operating loss 100,000
Issuance cost of Convertible Debenture-MP 15,000
Depreciation and amortization 1,171
Decrease (increase) in other assets 19,721 (2,429)
Decrease(Increase) in accounts
receivable-trade (42,571) 11,252
Increase (decrease) in accounts payable
and accrued expenses (10,866) (52,663)
Increase (decrease) in accrued payroll 172,804 152,027
Increase (decrease) in deferred income 12,252 (58,819)
Increase (decrease) in 8%
convertible debenture 18,709 27,005
----------- -----------
Total adjustments 285,049 77,544
----------- -----------
Net cash provided (used) by
operating activities $23,707 ($15,581)
=========== ===========
</TABLE>
Supplemental disclosures of cash flow information:
Disclosure of accounting policy:
For purposes of the statement of cash flows, the Company
considers
any highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
During the third quarter the $150,000 convertible debt and $6,000
in related interest was converted to 923,077 shares of common
stock.
See notes to consolidated financial statements.
7
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - 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 Form 10K for the year
ended September 30, 1997.
The results of operations for the nine month period ended June
30, 1998 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.
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. 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.
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"). OSM was a private company involved
in picture and sound post production in the motion picture and
television industry. 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
8
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - cont...
signed a more definitive purchase agreement that was outlined in
a Form 8-K filed by the Company on October 31, 1997. A term of
the purchase agreement required the Company to advance OSM the
sum of $100,000, that was done in October 1997 and was set forth
on the December 31, 1997 balance sheet as a note receivable.
Subsequent to December 31, 1997, on January 30, 1998, the Company
unilaterally terminated and rescinded the acquisition of Of Sound
Mind, Inc. due to the inability to complete the audit of OSM's
books and records and the discovery of previously undisclosed
liabilities. As a result of the rescission, the Company canceled
the 700,000 shares of the Company's common stock that were to be
issued to the shareholders of OSM. The Company also converted
its investments in OSM into loans. As of the date of the
rescission, OSM was indebted to the Company in the amount of
$100,000.00.
In February 1998, the Company received a notice, dated February
11, 1998, from the United States Bankruptcy Court, Central
District of California informing the Company that Of Sound Mind,
Inc. had filed Chapter 7 under the bankruptcy code effective
February 9, 1998. Accordingly, as the note receivable repayment
from OSM of $100,000 was extremely doubtful, the note receivable
was written off as a bad debt effective March 31, 1998.
On October 21, 1997, the Company also closed an offering of
$150,000 principal amount convertible subordinated debentures
(the "Debentures") and 150,000 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 Debenture is convertible into shares of the
Registrant's common stock at the lesser of a thirty five percent
discount to the average high closing bid price of the
Registrant's common stock on the five consecutive trading days
ending two days before the date of conversion or a thirty five
percent discount to the average high closing bid price of the
common stock on the date of Closing. 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.
In May 1998, the debenture and related accrued interest was
converted to 923,077 common shares.
As of June 30, 1998 the Company had $72,000 available to meet
operating requirements. In addition, it had net accounts
9
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - cont...
receivable of $80,000. 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.
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.
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.
10
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - cont...
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.
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.
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.
Film Costs and Fixed Assets:
As of June 30, 1998 the cost of the Company's film inventory and
fixed assets were fully amortized.
11
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. The balance of $50,000 at
December 31, 1997, which was due December 31, 1995, has not been
paid and is therefore in default. Prior to June 30, 1998, on
April 23, 1998, the Company made a principal payment of $10,000
on this note, however, it is still considered in default.
Note 3 - Net Loss Per Share:
Net loss per share is not computed using common stock equivalents
(approximately 330,000 shares) for the three- and nine-month
period ended June 30, 1998 because they would be antidilutive.
Net loss per share is computed using the weighted average number
of shares for the three- and nine-month period ended June 30,
1998 at 1,860,000 and 1,398,716 shares, respectively.
Note 4 - 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:
12
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - cont...
<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>
1991 $< 206,654> 1997
1992 < 78,715> 1998
1993 < 399,695> 1998
1994 < 83,559> 1999
1995 < 124,312> 2000
1996 < 240,463> 2001
1997 < 151,025> 2002
- --------------------------------------------------------------------
$<1,284,423>
============
</TABLE>
If the net loss carryforward were to be realized, a deferred tax
asset of approximately $1,500,000 would be set forth. However,
due to the unlikely realization of such an asset, a valuation
reserve of $1,500,000 would be required and no benefit would be
recorded until the loss carryforward is realized.
13
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - 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,
1997 1996
--------- ----------
<S> <C> <C>
Incentive and nonqualified stock option plans:
Outstanding 47,500 35,000
Available for grant 1,202,500 1,215,000
--------- ---------
Totals 1,250,000 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 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
14
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - cont...
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 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
15
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - cont...
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.
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:
16
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - cont...
<TABLE>
<CAPTION>
Non- Per Share
Incentive qualified Exercise Price
--------- --------- --------------
<S> <C> <C> <C>
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
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
====== ====== ===============
Other Options:
Other options granted during fiscal year ended September 30,
1996 are as follows:
</TABLE>
<TABLE>
<CAPTION>
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>
Note 6 - 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.
17
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
For the three and nine months ended June 30, 1998, the Company
had a loss of $46,419 and $261,342, respectively.
Results of Operations
- ---------------------
Revenue for the three- and nine-month periods ended June 30, 1998
was $198,260 and $398,614, respectively, reflecting an increase
of $162,000 from 1997 due to several license fees recognized per
SFAS #53 in the third quarter 1998.
Operating expenses for the three- and nine-month periods ended
June 30, 1998 was $21,457 and $58,770, respectively, an increase
compared to the same periods in the prior year due from the
purchase of Spanish language audio tracks and films previously
dubbed by licensees and print costs associated with third-quarter
licenses.
Selling, general and administrative expenses for the three- and
nine-month periods ended June 30, 1998 were $211,278 and
$461,705, respectively, reflecting a reduction in rent expense of
$6,336, the result of moving the office and entering into a new
lease effective January 1, 1998; an increase associated with the
8% convertible debenture-Mary Park and related interest
(converted May 1998) and the costs of our attempt to acquire Of
Sound Mind, Inc. ("OSM"). Professional fees increased by $26,629
due to fees for placement of the 8% convertible debenture-Mary
Park of $15,000 and additional legal fees associated with the 8%
convertible debenture-Mary Park and Of Sound Mind, Inc., and
there were no comparable fees in 1997. Salaries and related
benefits ($79,000) relative to the two officers are greater in
third quarter 1998 due to changes in payroll accrual policy since
the comparable quarter. For the nine-month period ended June 30,
1998, there is a line item bad debt expense of $100,000 that has
no comparable item for these periods in 1997. This bad debt is a
non-operational note receivable made to Of Sound Mind, Inc. (see
Note 1).
18
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
ITEM 2. (Continued)
Capital Resources and Liquidity
- -------------------------------
As of June 30, 1998, the Company had $72,000 available to meet
operating requirements. In addition, it had net accounts
receivable of $80,000. This cash position is not adequate to
meet the Company's operational needs and no immediate change is
anticipated at this time.
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. Prior
to June 30, 1998, on April 23, 1998, the Company made a principal
payment of $10,000 on this note, however, it is still considered
in default.
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.
On October 21, 1997, the Company closed an offering of $150,000
principal amount convertible subordinated debentures (the
"Debentures") and 150,000 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 (see note 1). In May 1998 the debenture and related accrued
interest were converted to 923,077 common shares.
19
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
ITEM 2. (Continued)
The revenues from the library of films currently owned by the
Company were not adequate in fiscal 1997 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.
20
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Items 1 through 5 are not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FROM 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.
21
<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 August 12, 1998 By /s/ Harold Brown
---------------------- -----------------------------
Harold Brown, Chief Executive
Officer and Acting Principal
Accounting Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000806277
<NAME> MARQUEE ENTERTAINMENT, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 72,533
<SECURITIES> 0
<RECEIVABLES> 80,260
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 165,240
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 92,872
<OTHER-SE> (1,278,374)
<TOTAL-LIABILITY-AND-EQUITY> 165,240
<SALES> 0
<TOTAL-REVENUES> 398,614
<CGS> 58,770
<TOTAL-COSTS> 620,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (39,514)
<INCOME-PRETAX> (261,342)
<INCOME-TAX> 0
<INCOME-CONTINUING> (261,342)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (261,342)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Registrant's balance sheet is presented on an unclassified
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</FN>
</TABLE>
