Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 130

                                        -209-                                         
          the Carolco securities had no value.  As explained below, we                
          agree with respondent.                                                      
               By November 1995, Carolco faced serious financial                      
          problems.155  Once a powerhouse in motion picture production, in            
          1995 and 1996 Carolco was insolvent and unable to continue movie            
          production.  Its 1993 financial restructuring had proven                    
          unsuccessful, and Carolco decided to sell its film library,                 
          certain projects, and its movie studio.  In the fall of 1995,               
          Carolco accepted a $47.5 million offer from Twentieth Century               
          Fox, foreclosing any possibility of Carolco’s continuing as a               
          going concern.  On November 10, 1995, Carolco filed a chapter 11            
          bankruptcy petition.156                                                     
               Prior to December 11, 1996, the Debtors’ and Creditors’                
          Committee had filed its first and second plans of                           




               155 For example, Carolco’s consolidated balance sheets for             
          1993 and 1994, show that liabilities exceeded assets, thereby               
          indicating negative net worth.  These balance sheets also show              
          that the total stockholders’ deficiency (negative net worth)                
          increased from $21.07 million in 1993 to $64,521,000 million in             
          1994.  Carolco’s consolidated statements of operations for 1993             
          and 1994, show net losses of $63,958,000 million in 1993 and                
          $43,451,000 million in 1994.  Carolco’s consolidated statements             
          of cashflows for 1993 and 1994, show that net operating cashflow            
          was negative $6,322,000 for 1993 and negative $47,113,000 for               
          1994.                                                                       
               156 In the bankruptcy proceedings, Canal+ made a $58 million           
          offer for Carolco’s assets, which the bankruptcy court                      
          subsequently approved on Mar. 21, 1996.                                     





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