**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION****Washington, DC 20549**

** **

**AMENDMENT NO. 1**

**FORM 10-QSB/A**

 

| **ý**                         |   | **QUARTERLY REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD  ENDED MARCH 31, 2001** |
|------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|
|                               |   |                                                                                                                                  |
| **OR**                             |
|                               |   |                                                                                                                                  |
| **o**                              |   | **TRANSITION REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                               |
|                               |   |                                                                                                                                  |
| **Commission File Number 0-29402** |

### ** **

**ON STAGE ENTERTAINMENT, INC.**(Exact Name of Small Business Issuer  asSpecified in its Charter)

 

| **Nevada**                                                        |   | **88-0214292**                       |
|-------------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of)  (incorporation or organization) |   | (IRS Employer)  (Identification No.) |

 

**4625 W. Nevso DriveLas Vegas, NV 89103(702) 252-1333**(Address of Principal Executive Offices and Telephone Number)

 

Check whether the issuer: (1) filed allreports required to be filed by Section 13 or 15(d) of the Exchange Act duringthe past 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements forthe past 90 days.      YES o      NO ý

 

As of May 11, 2001, On Stage had outstanding11,307,930 shares of common stock, par value $0.01 per share, and 1,200,000series A convertible preferred stock, par value $0.01 per share.

 

 

**ON STAGEENTERTAINMENT, INC. AND SUBSIDIARIES**

** **

**TABLE OF CONTENTS**

 
| Part I   | Financial Information                                                                  |   |
|----------|----------------------------------------------------------------------------------------|--------|
|     |                                                                                   |   |
| Item 1.  | Balance Sheets                                                                         |   |
|     | Statements of  Operations                                                              |   |
|     | Statements of  Cash Flows                                                              |   |
|     | Statements  of Stockohlders' Equity                                                    |   |
|     | Notes to  Financial Statements                                                         |   |
|     |                                                                                   |   |
| Item  2. | Management's  Discussion and Analysis of Financial Condition and Results of Operations |   |
|     |                                                                                   |   |
| Part II  | Other Information                                                                      |   |
|     |                                                                                   |   |
| Item 2.  | Changes in Securities                                                                  |   |
| Item  4. | Submission  of Matters to a Vote of Security Holders                                   |   |
| Item 6.  | Reports on  Form 8-K                                                                   |   |

 

This document contains certain forward-lookingstatements that are subject to risks and uncertainties. Forward-lookingstatements include certain information relating to potential new show openings,the potential markets for expansion of existing and potential gaming andtourist markets, our exposure to various trends in the gaming industry, ouracquisition plans and the benefits we anticipate from these acquisitions, ourbusiness strategy, our outstanding litigation matters and the defensesavailable to us, the seasonality of our business, and liquidity issues, as wellas information contained elsewhere in this report, where current statements arepreceded by, followed by or include the words “believes,” “expects,” “anticipates”or similar expressions. For these statements, On Stage claims the protection ofthe safe harbor for forward-looking statements contained in the PrivateSecurities Litigation Reform Act of 1995. The forward-looking statements inthis document are subject to risks and uncertainties that could cause theassumptions underlying the forward-looking statements and the actual results todiffer materially from those expressed in or implied by the statements.

 
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Item 1.  Consolidated Financial Statements
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On Stage Entertainment, Inc. and Subsidiaries
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```
Consolidated Balance Sheets
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|                                                                                                                                                                |   | **December 31,** |      | **March 31,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|-----------|---------------|--------|
|                                                                                                                                                                |   | **2000**         |      | **2001**      |   |
| Assets                                                                                                                                                              |   |             |      |          |   |
| Current assets                                                                                                                                                      |   |             |      |          |   |
| Cash and cash equivalents                                                                                                                                           |   | $                | 517,353   |          | $      | 3,543,203 |   |
| Accounts receivable, net                                                                                                                                            |   | 561,239          |      | 516,007       |   |
| Inventory                                                                                                                                                           |   | 89,996           |      | 102,086       |   |
| Deposits                                                                                                                                                            |   | 166,092          |      | 233,383       |   |
| Prepaid and other assets                                                                                                                                            |   | 291,652          |      | 356,631       |   |
| Note receivable from officer                                                                                                                                        |   | -                |      | 15,000        |   |
| Total  current assets                                                                                                                                               |   | 1,626,332        |      | 4,766,310     |   |
| Property, equipment and  leasehold improvements                                                                                                                     |   | 6,185,424        |      | 6,261,778     |   |
| Less:  Accumulated depreciation and amortization                                                                                                               |   | (5,346,133       | )         | (5,575,084    | )      |
| Property, equipment and  leasehold improvements, net                                                                                                                |   | 839,291          |      | 686,694       |   |
| Direct acquisition costs                                                                                                                                            |   | 100,000          |      | -             |   |
| Show rights, net of  accumulated amortization of $20,910                                                                                                            |   | -                |      | 3,742,821     |   |
|                                                                                                                                                                |   | $                | 2,565,623 |          | $      | 9,195,825 |   |
| Liabilities and  Stockholders' Deficit                                                                                                                              |   |             |      |          |   |
|                                                                                                                                                                |   |             |      |          |   |
| Current liabilities                                                                                                                                                 |   |             |      |          |   |
| Accounts payable                                                                                                                                                    |   | $                | 1,625,040 |          | $      | 1,163,651 |   |
| Accrued payroll and other liabilities                                                                                                                               |   | 1,316,329        |      | 1,446,267     |   |
| Convertible debentures, net of beneficial conversion of $76,978                                                                                                     |   | 700,000          |      | 1,273,022     |   |
| Short-term note                                                                                                                                                     |   | -                |      | 2,800,000     |   |
| Current maturities of long-term debt                                                                                                                                |   | 600,000          |      | 600,000       |   |
| Total current liabilities                                                                                                                                           |   | 4,241,369        |      | 7,282,940     |   |
| Long-term debt, less  current maturities                                                                                                                            |   | 551,798          |      | 400,298       |   |
| Total liabilities                                                                                                                                                   |   | 4,793,167        |      | 7,683,238     |   |
| Commitments and  contingencies                                                                                                                                      |   |             |      |          |   |
| Series A Convertible  Preferred Stock, par value $.01 per share, 10,000,000 shares authorized;  1,200,000 issued and outstanding, liquidation preference $6,000,000 |   | -                |      | 4,700,000     |   |
|                                                                                                                                                                |   |             |      |          |   |
| Stockholders' equity  (deficit)                                                                                                                                     |   |             |      |          |   |
| Common stock; par value $0.01 per share; authorized 100,000,000  shares; and 11,307,930 shares issued and outstanding                                               |   | 113,079          |      | 113,079       |   |
|                                                                                                                                                                |   |             |      |          |   |
| Additional paid-in capital                                                                                                                                          |   | 12,652,111       |      | 15,552,886    |   |
| Accumulated deficit                                                                                                                                                 |   | (14,992,734      | )         | (18,853,378   | )      |
| Total stockholders'  deficit                                                                                                                                        |   | (2,227,544       | )         | (3,187,413    | )      |
|                                                                                                                                                                |   | $                | 2,565,623 |          | $      | 9,195,825 |   |
```
 
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See notes to consolidated financial statements.
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```
On Stage Entertainment, Inc. and Subsidiaries
```

```
Consolidated Statements of Operations
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|                                                                |   | **Three months ended** |       |
|---------------------------------------------------------------------|--------|------------------------|------------|
|                                                                |   | **March 31,**          |       |
|                                                                |   | **2000**               |       | **2001** |   |
|                                                                |   | **(Unaudited)**        |       | **(Unaudited)** |   |
| Net revenues                                                        |   | $                      | 6,105,757  |   | $ | 4,026,295 |   |
| Costs of revenues                                                   |   | 5,217,904              |       | 4,114,262 |   |
| Gross profit (loss)                                                 |   | 887,853                |       | (87,967 | ) |
| Operating expenses                                                  |   |                   |       |   |   |
| Selling, general &administrative                                |   | 595,015                |       | 541,129 |   |
| Depreciation and amortization                                       |   | 941,471                |       | 248,985 |   |
| Operating loss                                                      |   | (648,633               | )          | (878,081 | ) |
| Interest expense, net                                               |   | 697,805                |       | 139,763 |   |
| Loss before extraordinary  item                                     |   | $                      | (1,346,438 | ) | $ | (1,017,844 | ) |
|                                                                |   |                   |       |   |   |
| Extraordinary item –  troubled debt restructuring loss         |   | $                      | 6,861,719  |   | $ | - |   |
| Net loss                                                            |   | $                      | (8,208,157 | ) | $ | (1,017,844 | ) |
| Deemed dividends accrued  for preferred stock                       |   | -                      |       | (2,812,800 | ) |
| Dividends accrued for  preferred stock                              |   | -                      |       | (30,000 | ) |
| Net loss applicable to  common shares                               |   | $                      | (8,208,157 | ) | $ | (3,860,644 | ) |
|                                                                |   |                   |       |   |   |
| Basic and diluted loss per  common share from continuing operations |   | $                      | (.19       | ) | $ | (0.34 | ) |
| Basic and diluted loss per  common share from extraordinary item    |   | $                      | (.95       | ) | $ | - |   |
| Basic and diluted loss per  common share                            |   | $                      | (1.14      | ) | $ | (0.34 | ) |
| Basic and diluted average  number of common shares outstanding      |   | 7,226,808              |       | 11,307,930 |   |
```
 
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```
See notes to consolidated financial statements.
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```
On Stage Entertainment, Inc. and Subsidiaries
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```
Consolidated Statements of Cash Flows
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|                                                                         |   | **Increase  (Decrease) in Cash and Cash Equivalents** |       |
|------------------------------------------------------------------------------|--------|-------------------------------------------------------|------------|
|                                                                         |   |                                                  |       |   |   |
|                                                                         |   | **Three months ended**                                |       |
|                                                                         |   | **March 31,**                                         |       |
|                                                                         |   | **2000**                                              |       | **2001** |   |
|                                                                         |   | **(Unaudited)**                                       |       | **(Unaudited)** |   |
| Cash flows from operating activities                                         |   |                                                  |       |   |   |
| Net loss                                                                     |   | $                                                     | (8,208,157 | ) | $ | (1,017,844 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |   |                                                  |       |   |   |
| Depreciation and amortization                                                |   | 941,471                                               |       | 248,985 |   |
| Loss on trouble debt restructuring                                           |   | 6,861,719                                             |       | - |   |
| Amortization of beneficial conversion                                        |   | -                                                     |       | 10,997 |   |
| Loss on disposal of property plant and equipment                             |   |                                                  |       |   |   |
| Accounts receivable                                                          |   | 68,738                                                |       | 45,232 |   |
| Inventory                                                                    |   | 19,157                                                |       | (12,090 | ) |
| Deposits                                                                     |   | (204,161                                              | )          | (31,021 | ) |
| Prepaid and other assets                                                     |   | (63,756                                               | )          | (64,979 | ) |
| Accounts payable and accrued expenses                                        |   | 247,828                                               |       | (461,383 | ) |
| Accrued payroll and other liabilities                                        |   | 713,162                                               |       | 99,931 |   |
| Total adjustments                                                            |   | 8,584,158                                             |       | (164,328 | ) |
| Net cash provided by (used in) operating activities                          |   | 376,001                                               |       | (1,182,172 | ) |
| Cash flows from investing activities                                         |   |                                                  |       |   |   |
| Advances on notes receivable from officer                                    |   | (108,981                                              | )          | (15,000 | ) |
| Acquisition of show rights                                                   |   | -                                                     |       | (250,000 | ) |
| Capital expenditures                                                         |   | (63,387                                               | )          | (75,478 | ) |
| Net cash provided by (used in) investing activities                          |   | (172,368                                              | )          | (340,478 | ) |
|                                                                         |   |                                                  |       |   |   |
| Cash used in financing activities                                            |   |                                                  |       |   |   |
| Payments under working capital line                                          |   | (162,836                                              | )          | - |   |
| Proceeds received from convertible debentures                                |   | -                                                     |       | 650,000 |   |
| Proceeds of issuing Series A Convertible Preferred Stock                     |   | -                                                     |       | 4,700,000 |   |
| Payment on long- term note                                                   |   | (4,411                                                | )          | (151,500 | ) |
| Payment on short-term borrowing                                              |   | -                                                     |       | (650,000 | ) |
| Cash received on notes payable from officer                                  |   | 20,000                                                |       | - |   |
| Net cash provided by (used in) financing activities                          |   | (147,247                                              | )          | 4,548,500 |   |
| Net increase in cash and cash equivalents                                    |   | 56,386                                                |       | 3,025,850 |   |
| Cash and cash equivalents at beginning of period                             |   | 374,587                                               |       | 517,353 |   |
| Cash and cash equivalents at end of period                                   |   | $                                                     | 430,973    |   | $ | 3,543,203 |   |
|                                                                              |        |                                                       |            |  |  |  |  |  |

 
```
See notes to consolidated financial statements.
```

**Supplemental Schedule of Non-Cash Investing and FinancingActivities**

The issuance of $4,700,000 Series A ConvertiblePreferred Stock resulted in a deemed dividend of $2,812,800 during the periodended March 31, 2001.

Accrued dividends of $30,000 on Series A ConvertiblePreferred Stock were recognized.

Issuance of $1,350,000 convertible debenturesresulted in a beneficial conversion of $87,975.

Issuance of short-term note of $3,450,000 (and cashof $350,000) to acquire intangible show rights.

 
```
On Stage Entertainment, Inc. and Subsidiaries
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```
Consolidated Statements of Stockholders' Equity (Deficit)
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|                                                      |   | **Common  Stock** |       |       |   | **Additional**Paid in |   | **Accumulated** |       |       |   |
|-----------------------------------------------------------|--------|-------------------|------------|------------|--------|-----------------------|--------|-----------------|------------|------------|--------|
|                                                      |   | **Shares**        |       | **Amount** |   | **Capital**           |   | **Deficit**     |       | **Total**  |   |
|                                                      |   |              |       |       |   |                  |   |            |       |       |   |
| Balance, December 31, 2000                                |   | $                 | 11,307,930 |       | $      | 113,079               |   | $               | 12,652,111 |       | $      | (14,992,734 | ) | $ | (2,227,544 | ) |
| Deemed dividends recognized                               |   |              |       |       |   |                  |   |            |       |       |   |
| On Series A Convertible preferred stock                   |   | -                 |       | -          |   | 2,812,800             |   | (2,812,800      | )          | -          |   |
| Accrued dividends on Convertible Series A preferred stock |   | -                 |       | -          |   | -                     |   | (30,000         | )          | (30,000    | )      |
| Beneficial conversion on convertible debentures           |   | -                 |       | -          |   | 87,975                |   | -               |       | 87,975     |   |
| Net loss                                                  |   | -                 |       | -          |   | -                     |   | (1,017,844      | )          | (1,017,844 | )      |
| Balance March 31, 2001                                    |   | $                 | 11,307,930 |       | $      | 113,079               |   | $               | 15,552,886 |       | $      | (18,853,378 | ) | $ | (3,187,413 | ) |

 
```
See notes to consolidated financial statements.
```

 

**On StageEntertainment, Inc. and SubsidiariesNotes to Consolidated FinancialStatementsMarch 31, 2001**

**Basis ofPresentation**

The financial statements included in this reportinclude the accounts of On Stage Entertainment, Inc., a publicly traded Nevadacorporation and its subsidiaries: Legends in Concert, Inc., a Nevadacorporation; On Stage Marketing, Inc., a Nevada corporation; On Stage Theaters,Inc., a Nevada corporation; Wild Bill's California, Inc., a Nevada corporation;On Stage Merchandise, Inc., a Nevada corporation; On Stage Events, Inc., aNevada corporation; On Stage Casino Entertainment, Inc., a Nevada corporation;On Stage Productions, Inc., a Nevada corporation; On Stage Theaters NorthMyrtle Beach, Inc., a Nevada corporation; and On Stage Theaters Surfside Beach,Inc., a Nevada corporation.

In the opinion of the management of On StageEntertainment, Inc. and its subsidiaries, the accompanying unauditedconsolidated financial statements include all normal adjustments considerednecessary to present fairly the financial position as of March 31, 2001, andthe results of operations and cash flows for the three months ended March 31,2001 and 2000. Interim results are not necessarily indicative of results forthe full year. The consolidated financial statements and notes are presented aspermitted by Form 10-QSB and should be read in conjunction with Management'sDiscussion and Analysis and audited consolidated financial statements and notesthereto included in our Form 10-KSB for the fiscal year ended December 31,2000. Certain reclassifications have been made for consistent presentation.

**(1) PrivatePlacement**

During late 2000 and early 2001, On Stage raised$700,000 and $650,000, respectively, from accredited private investors toassist us with meeting our capital requirements, paying for expenses associatedwith our debt restructuring and making deposits for the acquisition of CountryTonite and the live licensing rights for Ripley’s. This private placement wasissued in the form of convertible debentures, which accrue interest at the rateof ten percent (10%) per annum and feature a conversion rate of $0.79. Themarket price of the stock in relation to the conversion price of theseconvertible debentures created a beneficial conversion amount of $87,975, whichis amortized over two years. The maturity dates for $700,000 of the debenturesare November and December 2001, and the maturity dates for $650,000 of thedebentures are January and February 2003.

**(2)Acquisition of Country Tonite**

In February 2001, On Stage acquired substantiallyall the assets of CRC of Branson, Inc. and Country Tonite Enterprises, Inc.which primarily consisted of all their rights and title in and to CountryTonite for a purchase price of $3,800,000. Country Tonite is an award-winningtheatrical production, which has been presented in Las Vegas, Nevada, Branson,Missouri and Pigeon Forge, Tennessee.

The terms of the agreement call for initial paymentsof $100,000 on November 21, 2000, $250,000 on January 29, 2001, $150,000 onFebruary 15, 2001 and $500,000 on March 15, 2001, with the balance of$2,800,000 plus interest due on July 31, 2001. The show opened under On Stage’smanagement and control on March 7, 2001. On Stage also acquired the right tooversee the Country Tonite production in Pigeon Forge, Tennessee for qualitycontrol purposes. However, the rights to present the Pigeon Forge show werepreviously licensed to an unrelated third party and were not included in thisacquisition.

The acquisition has been accounted for as a purchaseand, accordingly, the operating results of Country Tonite have been included inour consolidated financial statements since the date of acquisition. The showrights acquired were valued at $3,764,000 and are being amortized on astraight-line basis over 15 years.

 

The following unaudited pro forma consolidatedresults of operations for the quarters ended March 31, 2000 and 2001 assume theacquisition occurred as of January 1, 2000 and 2001, respectively, (inthousands, except per share data):

 
|                                |   | **Three Months Ended** |      |
|-------------------------------------|--------|------------------------|-----------|
|                                |   | **March 31, 2001**     |      | **March 31, 2000** |   |
| Net revenues                        |   | $                      | 4,026,295 |   | $ | 6,866,785 |   |
| Net loss from continuing operations |   | (1,146,031             | )         | (348,985 | ) |
| Loss per common share:              |   |                   |      |   |   |
| Basic and diluted                   |   | (0.35                  | )         | (0.05 | ) |
|                                     |        |                        |           |  |  |  |  |  |  |
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The foregoing unaudited results are not necessarilyindicative of the results which would have been obtained had the acquisitionoccurred as of the indicated dates nor are they indicative of the results whichmay be obtained in the future.

Country Tonite had no revenue for the months ofJanuary 2000 and 2001, as the show was closed during the off-season months.

The assets acquired were transferred to CountryTonite Branson, LLC, a wholly-owned subsidiary of On Stage Entertainment, Inc.

**(3)Convertible Preferred Stock**

On February 28, 2001, On Stage entered into anagreement with McCown De Leeuw & Co., Inc., a private equityinvestment firm ("MDC"), pursuant to which MDC agreed to invest up to$20,000,000 in On Stage in the form of convertible preferred securities.According to the terms of the MDC investment, MDC will have the opportunity to stageits funding in four separate investments of $6.0 million, $4.0 million, $5.0million, and $5.0 million, respectively. The second and third tranches of theinvestment are in the form of warrants exercisable during the next10 years at the option of On Stage, contingent on, among other things, itsachieving certain EBITDA levels. The fourth tranche is exercisable by On Stageduring the next 10 years only after funding of the third tranche. Theconvertible preferred securities bear dividends at the rate of 12% per annum(10% cash plus 2% paid-in-kind), carry a liquidation preference of $5.00 pershare, and are convertible into common stock of On Stage at a conversion priceof $0.50 or $0.75 per share, depending on certain factors. A change in controlprovision could, under certain circumstances, require the redemption of thepreferred stock.  There are no othermandatory redemption terms.

The first $6,000,000 investment was made onMarch 13, 2001 with the issuance of 1,200,000 shares of Series AConvertible Preferred Stock with a face value of $6,000,000, which was issuedat a 5% discount of the face value.  Inconnection with the transaction, On Stage agreed to reimburse MDC for fees andexpenses incurred with the transaction in the amount of $500,000 and agreed topay MDC a transaction fee of $500,000. These fees were deducted from the grossproceeds of the first investment funding resulting in net proceeds from theSeries A Convertible Preferred Stock of $4,700,000. For accounting purposes,the discount, fees and expenses are being accreted over a 10-year period andwill result in the Series A Convertible Preferred Stock accreting to itsliquidation value. The conversion terms of the Series A Convertible PreferredStock resulted in a deemed dividend of $2,812,800.

In March 2001, On Stage entered into an AdvisoryServices Agreement with MDC Management IV, L.P. to assist On Stage in obtainingequity, debt, lease and acquisition financing. The agreement has a five-year term and provides for an annual fee of $250,000,payable quarterly, for the first year. For the remainder of the term, the quarterly fee will be the greater of$62,500 or 1⁄4 of 1% of On Stage's gross revenues for the four most recent fiscalquarters but not more than $95,000.

**(4) OsmondFamily Theater**

In March 2001, On Stage entered into a 33-monthlease with OFT, Ltd. for the Osmond Family Theatre in Branson, Missouri. Theannual rental is $400,000 payable in monthly installments of approximately$33,333 beginning in April 2001 and continuing through December 31, 2003.

**(5) Lossper share**

Statement of Financial Accounting Standard No. 128,Earnings per Share, provides for the calculation of Basic and Diluted earningsper share. Basic earnings per share includes no dilution and is computed bydividing income available to common shareholders by the weighted average numberof common shares outstanding for the period. Diluted earnings per share reflectthe potential dilution of securities that could share in the earnings of theentity, similar to fully diluted earnings per share.

For the three months ended March 31, 2000, potentialdilutive securities representing 896,550 outstanding stock options and2,724,917 outstanding warrants are not included, since their effect would beanti-dilutive. For the three months ended March 31, 2001, potential dilutivesecurities representing 1,464,850 outstanding stock options and 4,410,155outstanding warrants and 1,200,000 shares of preferred stock, which areconvertible into 12,000,000 shares of common stock, are not included, sincetheir effect would be anti-dilutive.

**(6)Commitments and contingencies**

We are a party to various legal proceedings in whichthe adverse parties are seeking damages from us. While there can be noassurance that any of the instituted or threatened lawsuits will be settled ordecided in our favor, our management does not believe the final resolution ofthese matters will have a material adverse effect upon our financial conditionand results of operations.

**(7) SegmentInformation**

The following information is presented in accordancewith SFAS No. 131.

The Company derives its net revenues from fivebusiness units categorized by three reportable segments:

•      Casinos. The Casinos segment primarilysells live theatrical productions to casinos worldwide for fixed fees. Inaddition, this segment operates our *Legends in Concert*show at the ImperialPalace in Las Vegas, Nevada and at Bally’s Park Place in Atlantic City, NewJersey.

•      Theaters. The Theaters segment owns and/or rents live theaters and dinner theaters in urban and resort touristlocations primarily in the United States. The Theaters segment derives revenuesfrom the sale of tickets along with food and beverages to patrons who attendour live theatrical productions.

•      Events. The Events segment sells livetheatrical productions to commercial clients, which include corporations, themeand amusement parks and cruise lines, for fixed fees. Revenues generated fromthe Events segment are included in the Casinos segment.

•      Merchandise. The Merchandise segment sellsmerchandise and souvenir photography products to patrons who attend ourCasinos, Theaters, and Events productions. Revenues generated from theMerchandise segment are included in the Theaters segment.

•      Production Services. The ProductionServices segment sells technical equipment and services to commercial clients.However, the Production Services segment’s primary focus is to providetechnical support for all of the Casinos, Theaters, Events and Merchandisesegments.

The accounting policies of the reportable operatingsegments are the same as those described in the Summary of Accounting Policiescontained in our annual report on Form 10-KSB. On Stage’s management evaluatesthe performance of its operating segments based upon the profit or loss fromoperations.

On Stage reportable segments are strategic businessunits because each business unit services a different market or performs aspecialized function in support of a given market.

The following table sets forth the segmentprofit/(loss) and asset information:
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|                                            |   | **For the three months ended March 30, 2000** |      |
|-------------------------------------------------|--------|-----------------------------------------------|-----------|
|                                            |   |                                          |      | **Production** |   |   |   |   |   | **Total** |   |
|                                            |   | **Casino**                                    |      | **Services** |   | **Theatres** |   | **OSE** |   | **Consolidated** |   |
| Revenues from external customers                |   | $                                             | 2,512,437 |   | $ | 10,670 |   | $ | 3,582,650 |   | $ | -- |   | $ | 6,105,757 |   |
| Interest expense                                |   | $                                             | 1,964     |   | $ | -- |   | $ | 669,032 |   | $ | 26,809 |   | $ | 697,805 |   |
| Depreciation and amortization                   |   | $                                             | 100,085   |   | $ | 27,010 |   | $ | 157,169 |   | $ | 657,207 |   | $ | 941,471 |   |
| Segment profit (loss) before extraordinary item |   | $                                             | 670,012   |   | $ | (202,243 | ) | $ | (828,324 | ) | $ | (985,883 | ) | $ | (1,346,438 | ) |
| Segment fixed assets                            |   | $                                             | 3,258,853 |   | $ | 887,626 |   | $ | 10,538,841 |   | $ | 1,856,895 |   | $ | 16,542,215 |   |
| Additions to long lived assets                  |   | $                                             | 61,575    |   | $ | 532 |   | $ | 431 |   | $ | 849 |   | $ | 63,387 |   |
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|                              |   | **For the three months ended March 30, 2001** |      |
|-----------------------------------|--------|-----------------------------------------------|-----------|
|                              |   |                                          |      | **Production** |   |   |   |   |   | **Total** |   |
|                              |   | **Casino**                                    |      | **Services** |   | **Theatres** |   | **OSE** |   | **Consolidated** |   |
| Revenues from external  customers |   | $                                             | 1,818,024 |   | $ | 4,145 |   | $ | 2,204,126 |   | $ | -- |   | $ | 4,026,295 |   |
| Interest expense                  |   | $                                             | 778       |   | $ | -- |   | $ | 66,637 |   | $ | 72,348 |   | $ | 139,763 |   |
| Depreciation and  amortization    |   | $                                             | 99,978    |   | $ | 28,212 |   | $ | 71,366 |   | $ | 49,429 |   | $ | 248,985 |   |
| Segment profit (loss)             |   | $                                             | 496,018   |   | $ | (228,876 | ) | $ | (686,384 | ) | $ | (598,601 | ) | $ | (1,017,844 | ) |
| Segment fixed assets              |   | $                                             | 2,997,373 |   | $ | 856,598 |   | $ | 1,317,807 |   | $ | 1,090,000 |   | $ | 6,265,778 |   |
| Additions to long lived  assets   |   | $                                             | 28,774    |   | $ | 463 |   | $ | 36,620 |   | $ | 9,921 |   | $ | 75,478 |   |
```
 
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**(8)Subsequent Events**

On March 30, 2001, our Board of Directors authorizedOn Stage to make an advance of $150,000 to John W. Stuart, our Chairman andfounder, which is to be repaid within two years, bears interest at the rate of12% per annum and is evidenced by a promissory note in favor of On Stage. Inconsideration for this loan, Mr. Stuart agreed to use the funds to regaincertain shares of his stock in On Stage, which he previously pledged in connectionwith a margin loan. Once the shares were regained, they were delivered to OnStage as additional security for the repayment of the advance. In furtherconsideration for the advance, Mr. Stuart entered into a post-employmentnon-competition agreement in favor of On Stage.

On March 30, 2001, the compensation committeerecommended that the stockholders approve a 2,500,000 increase to the optionpool, which options shall be issued at the discretion of our Board of Directorsas an incentive to our management, employees and Board members. Thisrecommendation will be submitted to our stockholders for their approval at ourAnnual Meeting.

On May 1, 2001, we hiredMargaret Ann Freman to serve as our chief financial officer, effective May 21,2001.

**Item 2.Management's Discussion and Analysis of Financial Condition and Results ofOperations**

This document contains certain forward-lookingstatements that are subject to risks and uncertainties. Forward-lookingstatements include certain information relating to potential new show openings,the potential markets for On Stage’s productions, the expansion of existing andpotential gaming and tourist markets, our exposure to various trends in thegaming industry, our acquisition plans and the benefits we anticipate fromthese acquisitions, our business strategy, our outstanding litigation mattersand the defenses available to us, the seasonality of our business, andliquidity issues, as well as information contained elsewhere in this reportwhere current statements are preceded by, followed by or include the words“believes,” “expects,” “anticipates” or similar expressions. For thesestatements, On Stage claims the protection of the safe harbor forforward-looking statements contained in the Private Securities LitigationReform Act of 1995. The forward-looking statements in this document are subjectto risks and uncertainties that could cause the assumptions underlying theforward-looking statements and the actual results to differ materially fromthose expressed in or implied by the statements.

The most important factors that could prevent OnStage from achieving our goals and cause the assumptions underlying theforward-looking statements and the actual results to differ materially fromthose expressed in or implied by those forward-looking statements include theinformation provided under the heading “Description of Business-Risk Factors”in Item 1 of our Annual Report on Form 10-KSB for the year ended December 31,2000, as well as the following:

 

•      The dependence on our flagship *Legends inConcert* production and our principal production venues;

•      The ability to successfully produce andmarket new productions and to manage the growth associated with any newproductions;

•      Risks associated with our acquisitionstrategy, including our ability to successfully identify, complete andintegrate strategic acquisitions;

•      The ability to meet our commitments andobtain alternative and additional financing on commercially reasonable terms;

•      The competitive nature of the leisure andentertainment industry and the ability to continue to distinguish our services;

•      Fluctuations in quarterly operatingresults and the highly seasonal nature of our business;

•      The ability to reproduce the performance,likeness and voice of various celebrities without infringing on the publicityrights of those celebrities or their estates, as well as our ability to protectour intellectual property rights;

•      The ability to successfully manage thelitigation pending against us and to avoid future litigation; and

•      The results of operations which depend onnumerous factors, including the commencement and expiration of contracts, thetiming and amount of new business generated by us, our revenue mix, the timingand level of additional selling, general and administrative expense and thegeneral competitive conditions in the leisure and entertainment industry aswell as the overall economy.

**Results ofOperations**

The following tables set forth the results ofoperations for the reportable segments indicated:
|                                               |   | **For the  quarter ended March 31, 2000** |      |
|----------------------------------------------------|--------|-------------------------------------------|-----------|
|                                               |   | **Casino**                                |      | **Production  Services** |   | **Theaters** |   | **Sub-Total  Operating   Segments** |   | **OSE** |   | **Total  Consolidated** |   |
| Net revenue                                        |   | $                                         | 2,512,437 |   | $ | 10,670 |   | $ | 3,582,650 |   | $ | 6,105,757 |   | $ | - |   | $ | 6,105,757 |   |
| Cost of revenues                                   |   | 1,579,317                                 |      | 185,903 |   | 3,452,684 |   | 5,217,904 |   | - |   | 5,217,904 |   |
| Gross profit (loss)                                |   | 933,120                                   |      | (175,233 | ) | 129,966 |   | 887,853 |   | - |   | 887,853 |   |
| Selling, general & administrative              |   | 161,059                                   |      | - |   | 132,089 |   | 293,148 |   | 301,867 |   | 595,015 |   |
| Depreciation & amortization                    |   | 100,085                                   |      | 27,010 |   | 157,169 |   | 284,264 |   | 657,207 |   | 941,471 |   |
| Operating income (loss)                            |   | 671,976                                   |      | (202,243 | ) | (159,242 | ) | 310,441 |   | (959,074 | ) | (648,633 | ) |
| Interest expense, net                              |   | 1,964                                     |      | - |   | 669,032 |   | 670,996 |   | 28,809 |   | 697,805 |   |
| Net income (loss) before extraordinary item        |   | $                                         | 670,012   |   | $ | (202,243 | ) | $ | (828,324 | ) | $ | (360,555 | ) | $ | (987,883 | ) | $ | (1,346,438 | ) |
| Extraordinary item-trouble debt restructuring loss |   | -                                         |      | - |   | 6,861,719 |   | 6,861,719 |   | - |   | 6,861,719 |   |
| Net income (loss)                                  |   | $                                         | 670,012   |   | (200,243 | ) | (7,690,043 | ) | (7,222,274 | ) | (985,883 | ) | (8,208,157 | ) |

 

 
|                                 |   | **For the  quarter ended March 31, 2001** |      |
|--------------------------------------|--------|-------------------------------------------|-----------|
|                                 |   |                                      |      |   |   |   |   | **Sub-Total** |   |   |   |   |   |
|                                 |   |                                      |      | **Production** |   |   |   | **Operating** |   |   |   | **Total** |   |
|                                 |   | **Casino**                                |      | **Services** |   | **Theaters** |   | **Segments** |   | **OSE** |   | **Consolidated** |   |
| Net revenues                         |   | $                                         | 1,818,024 |   | $ | 4,145 |   | $ | 2,204,126 |   | $ | 4,026,295 |   | $ | - |   | $ | 4,026,295 |   |
| Cost of revenues                     |   | $                                         | 1,186,697 |   | $ | 204,819 |   | $ | 2,722,746 |   | $ | 4,114,262 |   | $ | - |   | $ | 4,114,262 |   |
| Gross profit (loss)                  |   | $                                         | 631,327   |   | $ | (200,674 | ) | $ | (518,620 | ) | $ | (87,967 | ) | $ | - |   | $ | (87,967 | ) |
| Selling, general& administrative |   | $                                         | 34,553    |   | $ | - |   | $ | 29,752 |   | $ | 64,305 |   | $ | 476,824 |   | $ | 541,129 |   |
| Depreciation & amortization      |   | $                                         | 99,978    |   | $ | 28,202 |   | $ | 71,376 |   | $ | 199,556 |   | $ | 49,429 |   | $ | 248,985 |   |
| Operating income (loss)              |   | $                                         | 496,796   |   | $ | (228,876 | ) | $ | (619,748 | ) | $ | (351,828 | ) | $ | (526,253 | ) | $ | (878,081 | ) |
| Interest expense, net                |   | $                                         | 778       |   | $ | - |   | $ | 66,637 |   | $ | 67,415 |   | $ | 72,348 |   | $ | 139,763 |   |
| Net Income (loss)                    |   | $                                         | 496,018   |   | $ | (228,876 | ) | $ | (686,385 | ) | $ | (419,243 | ) | $ | (598,601 | ) | $ | (1,017,844 | ) |
```
 
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**QuarterEnded March 31, 2000 versus Quarter Ended March 31, 2001**

***Net Revenues***. Revenues wereapproximately $4,026,000 for the quarter ended March 31, 2001 compared to$6,106,000 for the quarter ended March 31, 2000, a decrease of $2,080,000, or34.1%. Our revenue is derived from five principal operating segments: Casinos,Events, Merchandise, Production Services, and Theaters. Revenues from Eventsare included in the Casinos segment. Revenues from Merchandise are included inthe Theaters segment.

Casinos revenues were approximately $1,818,000 forthe quarter ended March 31, 2001 compared to $2,512,000 for the quarter endedMarch 31, 2000, a decrease of $694,000, or 27.6%. This decrease was primarilyattributable to a decrease in limited engagements and corporate events.

Production Services revenues were approximately$4,000 for the quarter ended March 31, 2001 compared to $11,000 for the quarterended March 31, 2000, a decrease of $7,000, or 63.6%. The decrease wasprimarily attributable to a reduction in equipment rental revenues.

Theaters revenues were approximately $2,204,000 forthe quarter ended March 31, 2001 compared to $3,583,000 for the quarter endedMarch 31, 2000, a decrease of $1,379,000, or 38.5%. The decrease was primarilyattributable to the discontinuation of our shows in Orlando, Florida. Thisdecrease was partially offset by inclusion of the Country Tonite acquisition.

***Costs of Revenues***. Total costsof revenues were $4,114,000 for the quarter ended March 31, 2001 compared to$5,218,000 for the quarter ended March 31, 2000, a decrease of $1,104,000, or21.2%. Costs of revenues increased to 102.2% of net revenues for the quarterended March 31, 2001, as compared to 85.5% for the quarter ended March 31,2000. This increase in costs of revenues, as a percentage of revenues wasprimarily attributable to the discontinuation of our shows in Orlando, Florida(which ran in 2000, but not in 2001) and the inclusion of Country Toniteoperations, which had no revenues in January and February.

***Selling, General andAdministrative. ***Selling,general and administrative costs were approximately $541,000 for the quarterended March 31, 2001 as compared to $595,000 for the quarter ended March 31,2000, a decrease of $54,000, or 9.1%. Selling, general and administrative costsincreased to 13.4% of net revenues for the quarter ended March 31, 2001, ascompared to 9.7% for the quarter ended March 31, 2000, which was primarilyattributable to a decrease in sales.

***Depreciation and Amortization***. Depreciationand amortization for the quarter ended March 31, 2000 decreased by $692,000, or73.6%, as compared to the quarter ended March 31, 2000. The decrease wasprimarily due to the discontinuation of our shows in Orlando, Florida and therelated foreclosure of certain of our assets.

***Operating Income (Loss)***. Our operatingloss was approximately $878,000 for the quarter ended March 31, 2001 comparedto an operating loss of $649,000 for the quarter ended March 31, 2000, anincrease of $229,000, or 26%.

***Interest Expense, Net***. Interestexpense for the quarter ended March 31, 2001 decreased by $558,000, or 80.0%, ascompared to the quarter ended March 31, 2000. The decrease was primarily due toour restructuring of the ICCMIC and First Security Bank debts.

***Income Taxes***. We have notaccrued any federal income tax for the quarter ended March 31, 2001. At March31, 2001, we had federal net operating loss carryforwards of approximately$15,589,000. Under Internal Revenue Code Section 382, certain significantchanges in ownership that On Stage is currently undertaking may restrict thefuture utilization of these tax loss carryforwards. Because On Stage cannotdetermine that it is more likely than not to recognize the deferred tax assets,On Stage has provided a full valuation allowance on the deferred tax assets.

**Seasonalityand Quarterly Results**

On Stage’s business has been, and is expected toremain, highly seasonal, with the majority of our revenue being generatedduring the months of April through October. Part of our business strategy is toincrease sales in tourist markets that experience their peak seasons from Novemberthrough March, so as to offset this seasonality in revenues.

The following table sets forth On Stage's netrevenue for each of the last five quarters ended March 31, 2001:
|        |   | **March 31,** |   | **June 30,** |   | **September 30,** |   | **December 31,** |   |
|-------------|--------|---------------|--------|--------------|--------|-------------------|--------|------------------|--------|
| Fiscal 2000 |   | $             | 6,106  |         | $      | 7,151             |   | $                | 6,393  |   | $ | 4,487 |   |
| Fiscal 2001 |   | $             | 4,026  |         | $      | -                 |   | $                | -      |   | $ | - |   |
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**Liquidityand Capital Resources**

***General***

We have historically met our working capitalrequirements through a combination of cash flow from operations, equity anddebt offerings and traditional bank financing. We anticipate, based on ourproposed plans and assumptions relating to our operations, that our currentcash, cash equivalent balances, anticipated revenue from operations and ourworking capital line are sufficient to fund our ongoing operations.

***Cash Flow***

For the three months ended March 31, 2000, On Stagehad net cash provided by operations of approximately $376,000. As of March 31,2000, On Stage had approximately $431,000 in cash and cash equivalents. Theoperating deficit for the quarter ending March 31, 2000 was primarilyattributable to business seasonality. For the three months ended March 31,2001, On Stage had net cash used in operations of approximately $1,182,000. Asof March 31, 2001, On Stage had approximately $3,543,000 in cash and cashequivalents. The operating deficit for the quarter ending March 31, 2001 wasprimarily attributable to a reduction in accounts payable and a $1,000,000loss.

The net cash used in investing activities for thethree months ended March 31, 2000 of $172,000 was primarily attributable to anadvance on a note receivable from a stockholder and capital expenditures. Thenet cash used in investing activities for the three months ended March 31, 2001of $340,000, was primarily attributable to an advance on a note receivable froma stockholder, capital expenditures and direct acquisition costs.

Net cash used in financing activities for the threemonths ended March 31, 2000 of $147,000, was attributable to repayment of lineof credit and long-term debt. Net cash provided by financing activities for thethree months ended March 31, 2001 of $4,549,000 was primarily attributable tothe proceeds from convertible debentures and proceeds from issuance of theSeries A Convertible Preferred Stock, partially offset by payment on long-termdebt.

***Working Capital***

At March 31, 2000, we had a working capital deficitof approximately $19,267,000, which resulted primarily from an increase in theaccrued expenses, accrued payroll and other liabilities, a note payable to anofficer, and the reclassification of the ICCMIC mortgage loan to currentliabilities. At March 31, 2001 we had working capital deficit of approximately$2,517,000, which resulted primarily from an increase in convertible debenturesand short-term debt. This increase was partially offset by an increase in cashand cash equivalents.

**PART II. OTHER INFORMATION**

**Item 2.Changes in Securities**

During the quarter ended March 31, 2001, On Stagemade the following private placements of unregistered securities to accreditedinvestors.

During early 2001, On Stage raised $650,000 fromaccredited private investors to assist us with meeting our capitalrequirements, paying for expenses associated with our restructuring and makingdeposits for the acquisition of Country Tonite and the live licensing rightsfor Ripley’s. This private placement was issued in the form of convertibledebentures, which accrue interest at the rate of ten percent (10%) per annumand feature a conversion rate of $0.79. The maturity dates for the debenturesare January and February 2003.

On February 28, 2001, On Stage entered into anagreement with McCown De Leeuw & Co., Inc., a private equity investmentfirm (“MDC”), pursuant to which MDC agreed to invest up to $20,000,000 in OnStage in the form of convertible preferred securities. The transaction wascompleted on March 13, 2001. According to the terms of the MDC investment,MDC will have an opportunity to stage its funding in four separate investmentsof $6.0 million, $4.0 million, $5.0 million, and $5.0 million, respectively.Each of the investments will bear interest at the rate of twelve percent (12%)per annum (10% in cash plus 2% paid in kind) and are convertible into thecommon stock of On Stage at a conversion price of $0.50 or $0.75 per share,depending on certain factors redeemable at the option of the holder. The first$6,000,000 investment was made on March 13, 2001 with the issuance of1,200,000 shares of Series A Convertible Preferred Stock with a face value of$6,000,000 issued at a 5% discount of the face value. Additionally, theagreement called for a $500,000 transaction fee and a $500,000 fee to reimburseMDC for expenses incurred with the transaction. These costs were applied to theface value resulting in net proceeds from the Series A Convertible PreferredStock of $4,700,000. The market price of our common stock on the day of thetransaction in relation to the conversion price of the Series A ConvertiblePreferred Stock resulted in a deemed dividend of $2,812,800.

The sales of the above securities were considered tobe exempt from regulations under the Securities Act of 1933, as amended, inreliance on Section 4(2) and Regulation D promulgated thereunder astransactions by an issuer not involving a public offering.

**Item 4.Submission of Matters to a Vote of Security Holders**

On March 12, 2001, On Stage held a Special Meetingof Stockholders at which our stockholders approved amendments to On Stage'sArticles of Incorporation to:

•      increase the number of authorized sharesof common stock from 25,000,000 to 100,000,000;

•      increase the number of authorized sharesof preferred stock from 1,000,000 to 10,000,000; and

•      amend the par value of the preferred stockfrom $1.00 per share to $0.01 per share.

FOR 7,638,266, AGAINST 0, ABSTAIN 0, BROKERNON-VOTES 3,669,664

**Item 6.Exhibits & Reports on Form 8-K**

            None.
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**SIGNATURE**

In accordance with the requirements of theSecurities Exchange Act of 1934, the registrant caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.
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|                    | ON STAGE ENTERTAINMENT, INC. |
|-------------------------|------------------------------|
|                    |                         |   |
|                    |                         |   |
|                    |                         |   |
| Date: November 30, 2001 |                         | By: /s/ Timothy J. Parrott |
|                    |                         | Timothy J. Parrott |
|                    |                         | President and Chief Executive Officer |
|                    |                         |   |
|                    |                         |   |
|                    |                         |   |
| Date: November 30, 2001 |                         | By: /s/ Margaret Ann Freeman |
|                    |                         | Margaret Ann Freeman |
|                    |                         | Executive Vice President and |
|                    |                         | Chief Financial Officer |
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