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 March 31, 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)
(212) 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 1,398,716 shares of its $.04 par value
common stock outstanding as of May 12, 1998.
<PAGE>
PART I
ITEM I
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Consolidated Balance Sheets
March 31, 1998 and September 30, 1997 3
Consolidated Statement of Operations
for the three months ended March 31, 1998
and 1997 4
Consolidated Statements of Operations
for the six months ended March 31, 1998
and 1998 5
Consolidated Statements of Cash Flows for the six
months ended March 31, 1998 and 1997 6 to 7
Notes to Condensed Financial Statements 8 to 17
2
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS:
Cash $127,177 $23,826
Accounts receivable-trade 54,389 38,103
Film inventory (Note 1)
Furniture and fixtures (Note 1)
Security deposit and other assets 8,317 32,168
----------- -----------
$189,883 $94,097
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable and accrued expenses $110,976 $80,056
Accrued Payroll 566,651 404,761
Deferred income (Note 1) 193,373 144,173
8% Convertible Debenture (Note 1) 513,976 495,267
8% Convertible Debenture-Mary Park (Note 1) 150,000
Notes Payable(Note 2) 50,000 50,000
----------- -----------
Total liabilities 1,584,976 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;
1,398,716 shares issued and
outstanding at March 31, 1998 and
September 30, 1997 (Note 1) 55,954 55,954
Additional paid-in capital (Note 1) 3,315,191 3,315,191
Accumulated deficit (4,766,238) (4,451,305)
----------- -----------
Total shareholders' deficit (1,395,093) (1,080,160)
----------- -----------
$189,883 $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 MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Film revenue (Note 1) $186,884 $337,752
----------- -----------
Costs and expenses:
Operating costs and film amortization 37,313 4,712
(Note 1)
Selling, general and administration 142,014 159,100
Bad debt expense (Note 1) 100,000
----------- -----------
Operating loss (92,443) 173,940
----------- -----------
Other income (expense):
Interest income 8 221
Interest expense(Note 1 and Note 2) (13,605) (10,075)
----------- -----------
(13,597) (9,854)
----------- -----------
Net loss ($106,040) $164,086
=========== ===========
Net loss per share (Note 3) ($0.08) $0.09
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Film revenue (Note 1) $199,994 $396,925
----------- -----------
Costs and expenses:
Operating costs and film amortization 50,881 21,425
(Note 1)
Selling, general and administration 337,857 315,788
Bad debt expense (Note 1) 100,000
----------- -----------
Operating loss (288,744) 59,712
----------- -----------
Other income (expense):
Interest income 26 543
Interest expense(Note 1 and Note 2) (26,215) (20,150)
----------- -----------
(26,189) (19,607)
----------- -----------
Net loss ($314,933) $40,105
=========== ===========
Net loss per share (Note 3) ($0.23) $0.02
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers 210,485 341,222
Cash paid to suppliers and employees (142,160) (350,594)
Interest received 26 543
Income taxes paid 0 (1,600)
Interest paid 0 0
----------- -----------
Net cash provided (used) by
operating activities 68,351 (10,429)
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
----------- -----------
Net cash used by financing activities 135,000 0
----------- -----------
Net increase (decrease) in cash 103,351 (10,429)
Cash at the beginning of the year 23,826 28,821
----------- -----------
Cash at end of year 127,177 18,392
=========== ===========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Reconciliation of net loss to net cash used by operating activities
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss) ($314,933) $40,105
----------- -----------
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 23,851 (1,344)
Decrease(Increase) in accounts
receivable-trade (16,286) (107,173)
Increase (decrease) in accounts payable
and accrued expenses 30,920 19,247
Increase (decrease) in accrued payroll 161,890 100,911
Increase (decrease) in deferred income 49,200 (80,996)
Increase in 8% convertible debenture 18,709 17,650
----------- -----------
Total adjustments 383,284 (50,534)
----------- -----------
Net cash provided (used) by
operating activities 68,351 (10,429)
=========== ===========
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.
</TABLE>
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 six month period ended March 31,
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 signed a more
8
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - cont...
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. The purchase was subject
to OSM being able to provide audited financial statements.
Subsequent to December 31, 1997, on January 30, 1998, the Company
unilaterally terminated and rescinded the acquisition of Of Sound
Mind, Inc. The Company rescinded the transaction 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. In
addition, the Company was informed in the notice that at this time
OSM had no assets available from which payment would be made to
unsecured creditors. 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.
As of March 31, 1998 the Company had $127,177 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 $54,389. 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.
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.
11
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - cont...
Film Costs and Amortization:
Amortization is based on the income forecast method utilizing the
relationship revenue realized in the period bears to estimated
future revenue. As of September 30, 1994 the Company's film
inventory was fully amortized.
Note 2 - Notes Payable:
On March 12, 1991 the Company concluded an Acquisition Agreement
with Peregrine Entertainment, Ltd. (PEL) and its subsidiaries
resulting in the acquisition of certain assets, including 29 made-
for-television motion pictures. The purchase price for these
assets consisted of $475,000 in cash and $175,000 paid by the
delivery of three 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. Subsequent to March 31, 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
for the three- and six-month period ended March 31, 1998 because
they would be antidilutive. Net loss per share is computed using
the weighted average number of shares for the three- and six-month
period ended March 31, 1998 at 1,398,716 shares. Common stock
equivalents were used for the three- and six-month period ended
March 31, 1998 at 1,731,216.
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, 1996 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
- --------------------------------------------------------------------
Total NOL $<3,818,970>
============
</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
- --------------------------------------------------------------------
$<1,133,398>
============
</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 as a
14
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - cont...
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 Company. Options under the
15
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - cont...
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
====== ====== ===============
</TABLE>
<TABLE>
<CAPTION>
Other Options:
Other options granted during fiscal year ended September 30, 1996 are as
follows:
Other Per Share
Options Exercise Price
--------- --------------
<S> <C> <C>
Directors 50,000 $0.50
Consultants 235,000 $1.00 to $1.50
---------
285,000
=========
</TABLE>
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 six months ended March 31, 1998, the Company had
a loss of $106,040 and $314,933, respectively. The Company's
shareholders' deficit increased from $1,080,160 at September 30,
1997 to $1,395,093 at March 31, 1998. The Company's cash position
increased by $103,351 since September 30, 1997.
Results of Operations
- ---------------------
Revenue for the three- and six-month periods ended March 31, 1998
was $186,884 and $199,994, respectively, a decrease of $150,868 and
$196,931 as compared to the three- and six-month periods ended
March 31, 1997. This decrease was due primarily to one license of
films in the United Kingdom of $243,750 that occurred during the
three months ended March 31, 1997.
Operating expenses for the three- and six-month periods ended March
31, 1998 was $37,313 and $50,881, respectively, an increase of
$32,601 and $29,456 as compared to the same periods in the prior
year. This was due from the purchase of Spanish language audio
tracks, films previously dubbed by licensees, and repurchased by
the Company for approximately $29,000 during the three-month period
ended March 31, 1998.
Selling, general and administrative expenses for the three- and
six-month periods ended March 31, 1998 were $142,014 and $337,857,
respectively, a decrease of $17,086 and an increase of $22,069 as
compared to the three- and six-month periods ended March 31, 1997.
The decrease of $17,086 for the three-month period ended March 31,
1998 as compared to the same three-month period in 1993 was due to
a reduction in rent expense of $6,336, the result of moving the
office and entering into a new lease effective January 1, 1998; the
other item was bad debt expense that decreased by $8,400. The
increase of $22,069 for the six-month period ended March 31, 1998
as compared to the same six-month period in 1997 is comprised of
off-setting items. The primary cause for the increase between the
periods was the costs associated with the 8% convertible debenture-
Mary Park and the costs of our attempt to acquire Of Sound Mind,
Inc. ("OSM"). Salaries, related benefits and payroll taxes
decreased by $5,660 primarily due to less payroll taxes as Mr.
Brown and Mr. Smith had reached the maximum on social security of
$62,700 and only medicare of .0145 was charged whereas in 1997 a
small portion to reach the social security maximum and medicare was
charged; professional fees increased by $26,629 due to fees for
placement of the 8% convertible debenture-Mary Park of $15,000 and
18
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
ITEM 2. (Continued)
additional legal fees associated with the 8% convertible debenture-
Mary Park and Of Sound Mind, Inc., and there were no comparable
fees in 1997; rent expense was the other significant increase, it
increased by $8,079 due to the landlord charging late payment fees
over the entire term of the lease and the Company was never
notified of these charges prior to the expiration of the lease on
December 31, 1997; courier expense decreased by $2,100 due to less
sales activity; auto expense decreased by $2,400 and parking
expense decreased by $1,800 as a result of moving and previously
paying for 8 spaces and now only 3.
For the three- and six-month periods ended March 31, 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.
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 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. The purchase was subject
to OSM being able to provide audited financial statements.
Subsequent to December 31, 1997, on January 30, 1998, the Company
unilaterally terminated and rescinded the acquisition of Of Sound
Mind, Inc. The Company rescinded the transaction 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.
19
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
ITEM 2. (Continued)
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. In
addition, the Company was informed in the notice that at this time
OSM had no assets available from which payment would be made to
unsecured creditors. 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.
Capital Resources and Liquidity
- -------------------------------
As of March 31, 1998, the Company had $127,177 available to meet
operating requirements. In addition, it had net accounts
receivable of $54,389. 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. Subsequent to March 31, 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
20
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
ITEM 2. (Continued)
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.
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.
21
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Items 1 through 5 are not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 is included in this report. A report on Form 8-K was
filed by the Company during the quarter covered by this report on
February 4, 1998.
22
<PAGE>
MARQUEE ENTERTAINMENT, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MARQUEE ENTERTAINMENT, INC.
Date May 13, 1998 By /s/ Ralph T. Smith
---------------------- -----------------------------
Ralph T. Smith, President and
Principal Accounting Officer
23
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000806277
<NAME> MARQUEE ENTERTAINMENT, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 127,177
<SECURITIES> 0
<RECEIVABLES> 54,389
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 189,883
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 55,954
<OTHER-SE> (1,451,047)
<TOTAL-LIABILITY-AND-EQUITY> 189,883
<SALES> 0
<TOTAL-REVENUES> 199,994
<CGS> 50,881
<TOTAL-COSTS> 488,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (26,215)
<INCOME-PRETAX> (314,933)
<INCOME-TAX> 0
<INCOME-CONTINUING> (314,933)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (314,933)
<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>
