** **

**U.S.SECURITIES AND EXCHANGE COMMISSION****WASHINGTON, DC 20549**

----

# **Amendment No. 1**

**to**

#### **FORM 10-QSB**

**(MarkOne)**

| ý                                           | **Quarterly report under Section 13 or 15 (d)  of the Securities Exchange Act of 1934** |
|--------------------------------------------------|-----------------------------------------------------------------------------------------|
|                                             |                                                                                    |   |
| **For the quarterly period ended June 30, 2001** |
|                                             |                                                                                    |   |
| o                                                | **Transition  report under Section 13 or 15 (d) of the Exchange Act**                   |
|                                             |                                                                                    |   |

# **For the Transition period from to**

**Commission file number 0-29402**

 

**ON STAGE ENTERTAINMENT, INC****.**

(Exact Name of SmallBusiness Issuer as Specified in Its Charter)

 

| **NEVADA**                                                      |   | **88-0214292**                     |
|-----------------------------------------------------------------|--------|------------------------------------|
| (State or Other  Jurisdiction of Incorporation or Organization) |   | (IRS Employer  Identification No.) |
|                                                            |   |                               |
| **4625 W. NEVSO DRIVE, LAS VEGAS,  NEVADA**                     |   | **89103**                          |
| (Address of Principal  Executive Offices)                       |   | (Zip Code)                         |
|                                                            |   |                               |

**(702) 253-1333**

Issuer’s TelephoneNumber, Including Area Code 

 

|                                                                                |
|-------------------------------------------------------------------------------------|
| (Former Name, Former  Address and Former Fiscal Year, if Changed Since Last Report) |

 

Checkwhether the issuer: (1) filed all reports required to be filed by Section 13 or15 (d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes ýNo o

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

The number of shares outstanding of the issuer's common stock, parvalue $0.01 per share, as of August 13, 2001, was 11,307,930.

 

 

**ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES**

** **

**TABLE OF CONTENTS**
|                                 |          |                                                                                        |   |
|--------------------------------------|---------------|---------------------------------------------------------------------------------------------|--------|
| **Part I. Financial  Information**   |          |
|                                 | Item 1.       | Consolidated  Financial Statements                                                          |   |
|                                 |          | Balance sheets                                                                              |   |
|                                 |          | Statements of  operations                                                                   |   |
|                                 |          | Statements of  cash flows                                                                   |   |
|                                 |          | Statements of stockholders’  equity                                                    |   |
|                                 |          | Notes to  financial statements                                                              |   |
|                                 |  Item 2. | Management’s  Discussion and Analysis Of Financial Condition and Results of Operations |   |
|  **Part II. Other Information** |          |
|                                 | Item 1.       | Legal Proceedings                                                                           |   |
|                                 | Item 2.       | Changes in Securities                                                                       |   |
|                                 | Item 3.       | Defaults Upon  Senior Securities                                                            |   |
|                                 | Item  4.      | Submission  of Matters to a Vote of Security Holders                                        |   |
|                                 | Item 5.       | Other Information                                                                           |   |
|                                 | Item 6.       | Exhibits  and Reports on Form 8-K                                                           |   |
| Signatures                           |          |                                                                                        |
|                                      |               |                                                                                             |        |  |  |

 

Thisdocument contains certain forward-looking statements that are subject to risksand uncertainties.  Forward–lookingstatements include certain information relating to potential new show openings,the potential markets for On Stage’s expansion of existing and potential gamingand tourist markets, exposure to various trends in the gaming industry, OnStage’s acquisition plans and the benefits anticipated from these acquisitions,business strategy, outstanding litigation matters and the defenses available,the seasonality of business, and liquidity issues, as well as informationcontained elsewhere in this report, where current statements are preceded by,followed by or include the words “believes,” “expects,” “anticipates” orsimilar 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.

 

**PARTI.   FINANCIAL INFORMATION**

 

**Item1.    Consolidated Financial Statements**

 

**On Stage Entertainment, Inc. andSubsidiariesConsolidated Balance Sheets**

 
|                                                                                                                                                           |   | **December 31,  2000** |      | **June 30,   2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|-----------|---------------------|--------|
|                                                                                                                                                           |   |                   |      | **(Unaudited)**     |   |
| Assets                                                                                                                                                         |   |                   |      |                |   |
| Current assets                                                                                                                                                 |   |                   |      |                |   |
| Cash and cash  equivalents                                                                                                                                     |   | $                      | 517,353   |                | $      | 2,398,977 |   |
| Accounts  receivable, net                                                                                                                                      |   | 561,239                |      | 680,955             |   |
| Inventory                                                                                                                                                      |   | 89,996                 |      | 126,040             |   |
| Deposits                                                                                                                                                       |   | 166,092                |      | 219,877             |   |
| Prepaid and  other assets                                                                                                                                      |   | 291,652                |      | 340,112             |   |
| Note receivable  from officer                                                                                                                                  |   | —                 |      | 154,030             |   |
| Total current  assets                                                                                                                                          |   | 1,626,332              |      | 3,919,991           |   |
|                                                                                                                                                           |   |                   |      |                |   |
| Property,  equipment and leasehold improvements                                                                                                                |   | 6,185,424              |      | 6,644,533           |   |
| Less:  Accumulated depreciation and amortization                                                                                                               |   | (5,346,133             | )         | (5,808,300          | )      |
|                                                                                                                                                           |   |                   |      |                |   |
| Property,  equipment and leasehold improvements, net                                                                                                           |   | 839,291                |      | 836,233             |   |
|                                                                                                                                                           |   |                   |      |                |   |
| Direct  acquisition costs                                                                                                                                      |   | 100,000                |      | —              |   |
| Show rights, net  of accumulated amortization of $83,638                                                                                                       |   | —                 |      | 3,680,090           |   |
|                                                                                                                                                           |   |                   |      |                |   |
|                                                                                                                                                           |   | $                      | 2,565,623 |                | $      | 8,436,314 |   |
|                                                                                                                                                           |   |                   |      |                |   |
| Liabilities and  Stockholders’ Deficit                                                                                                                    |   |                   |      |                |   |
| Current  liabilities                                                                                                                                           |   |                   |      |                |   |
| Accounts payable                                                                                                                                               |   | $                      | 1,625,040 |                | $      | 368,515 |   |
| Accrued payroll  and other liabilities                                                                                                                         |   | 1,316,329              |      | 2,091,959           |   |
| Convertible  debentures, net of beneficial conversion of $9,969                                                                                                |   | 700,000                |      | 140,031             |   |
| Short-term note                                                                                                                                                |   | —                 |      | 2,800,000           |   |
| Current  maturities of long-term debt                                                                                                                          |   | 600,000                |      | 600,000             |   |
|                                                                                                                                                           |   |                   |      |                |   |
| Total current  liabilities                                                                                                                                     |   | 4,241,369              |      | 6,000,505           |   |
| Long-term debt,  less current maturities                                                                                                                       |   | 551,798                |      | 233,798             |   |
|                                                                                                                                                           |   |                   |      |                |   |
| Total  liabilities                                                                                                                                             |   | 4,793,167              |      | 6,234,303           |   |
| Commitments and  contingencies                                                                                                                                 |   |                   |      |                |   |
| Series A  Convertible Preferred Stock, par value $.01 per share, 10,000,000 shares  authorized; 1,452,632 issued and outstanding, liquidation price $6,000,000 |   | —                 |      | 5,991,014           |   |
| 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             |      | 15,754,991          |   |
| Accumulated  deficit                                                                                                                                           |   | (14,992,734            | )         | (19,657,073         | )      |
|                                                                                                                                                           |   |                   |      |                |   |
| Total  stockholders’ deficit                                                                                                                              |   | (2,227,544             | )         | (3,789,003          | )      |
|                                                                                                                                                           |   | $                      | 2,565,623 |                | $      | 8,436,314 |   |

 

See notes to consolidatedfinancial statements.

 

**On Stage Entertainment, Inc. andSubsidiaries**

**Consolidated Statements of Operations**

 
|                                                           |   | **Three months ended June 30,** |      |
|----------------------------------------------------------------|--------|---------------------------------|-----------|
|                                                           |   | **2000**                        |      | **2001** |   |
|                                                           |   | **(Unaudited)**                 |      | **(Unaudited)** |   |
| Net revenues                                                   |   | $                               | 7,151,490 |   | $ | 6,469,916 |   |
| Costs of  revenues                                             |   | 5,674,062                       |      | 5,696,542 |   |
| Gross profit  (loss)                                           |   | 1,477,428                       |      | 773,374 |   |
|                                                           |   |                            |      |   |   |
| Operating  expenses                                            |   |                            |      |   |   |
| Selling, general  & administrative                         |   | 737,772                         |      | 654,028 |   |
| Depreciation and  amortization                                 |   | 260,351                         |      | 295,814 |   |
| Total operating  expenses                                      |   | 998,123                         |      | 949,842 |   |
|                                                           |   |                            |      |   |   |
| Operating loss                                                 |   | 479,305                         |      | (176,468 | ) |
| Interest  expense, net                                         |   | (1,159,924                      | )         | (200,622 | ) |
| Loss on  disposition of fixed assets                           |   | (5,856                          | )         | -0- |   |
|                                                           |   |                            |      |   |   |
| Net loss                                                       |   | $                               | (686,475  | ) | $ | (377,090 | ) |
| Deemed dividends  accrued for preferred stock                  |   | —                          |      | (202,105 | ) |
| Dividends  accrued for preferred stock                         |   | —                          |      | (192,000 | ) |
|                                                           |   |                            |      |   |   |
| Net loss  applicable to common shares                          |   | $                               | (686,475  | ) | $ | (771,195 | ) |
|                                                           |   |                            |      |   |   |
| Basic and  diluted loss per common share                       |   | $                               | (0.10     | ) | $ | (0.07 | ) |
|                                                           |   |                            |      |   |   |
| Basic and  diluted average number of common shares outstanding |   | 7,226,808                       |      | 11,307,930 |   |

 

See notes to consolidatedfinancial statements.

 

**On Stage Entertainment, Inc. andSubsidiariesConsolidated Statements of Operations**

 
|                                                           |   | **Six months ended June 30,** |       |
|----------------------------------------------------------------|--------|-------------------------------|------------|
|                                                           |   | **2000**                      |       | **2001** |   |
|                                                           |   | **(Unaudited)**               |       | **(Unaudited)** |   |
| Net revenues                                                   |   | $                             | 13,257,247 |   | $ | 10,496,211 |   |
| Costs of  revenues                                             |   | 10,891,966                    |       | 9,810,804 |   |
|                                                           |   |                          |       |   |   |
| Gross profit  (loss)                                           |   | 2,365,281                     |       | 685,407 |   |
|                                                           |   |                          |       |   |   |
| Operating  expenses                                            |   |                          |       |   |   |
| Selling, general  & administrative                         |   | 1,332,787                     |       | 1,195,157 |   |
| Depreciation and  amortization                                 |   | 1,201,822                     |       | 544,799 |   |
|                                                           |   |                          |       |   |   |
| Total operating  expenses                                      |   | 2,534,609                     |       | 1,739,956 |   |
|                                                           |   |                          |       |   |   |
| Operating loss                                                 |   | (169,328                      | )          | (1,054,549 | ) |
| Interest  expense, net                                         |   | (1,857,728                    | )          | (340,385 | ) |
| Loss on  disposition of assets                                 |   | (5,856                        | )          | -0- |   |
|                                                           |   |                          |       |   |   |
| Loss before  extraordinary item                                |   | $                             | (2,032,912 | ) | $ | (1,394,934 | ) |
| Extraordinary  item – troubled debt restructuring loss    |   | 6,861,718                     |       | — |   |
| Net Loss                                                       |   | (8,894,631                    | )          | (1,394,934 | ) |
| Deemed dividends  accrued for preferred stock                  |   | —                        |       | (3,014,905 | ) |
| Dividends  accrued for preferred stock                         |   | —                        |       | (222,000 | ) |
|                                                           |   |                          |       |   |   |
| Net loss  applicable to common shares                          |   | $                             | (8,894,631 | ) | $ | (4,631,839 | ) |
|                                                           |   |                          |       |   |   |
| Basic and  diluted loss per share from continuing operations   |   | $                             | (0.28      | ) | (0.41 | ) |
|                                                           |   |                          |       |   |   |
| Basic and  diluted per share from extraordinary item           |   | (0.95                         | )          | __ |   |
|                                                           |   |                          |       |   |   |
| Basic and  diluted loss per common share                       |   | $                             | (1.23      | ) | $ | (0.41 | ) |
| Basic and  diluted average number of common shares outstanding |   | 7,226,808                     |       | 11,307,930 |   |

 

See notes to consolidatedfinancial statements.

 

**On Stage Entertainment, Inc. andSubsidiaries**

**Consolidated Statements of Cash Flows**

** **

**Increase (Decrease) in Cash and CashEquivalents**

 
|                                                                         |   | **Six months ended June 30,** |       |
|------------------------------------------------------------------------------|--------|-------------------------------|------------|
|                                                                         |   | **2000**                      |       | **2001** |   |
|                                                                         |   | **(Unaudited)**               |       | **(Unaudited)** |   |
| Cash flows from  operating activities                                        |   |                          |       |   |   |
| Net loss                                                                     |   | $                             | (8,894,631 | ) | $ | (1,394,934 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                          |       |   |   |
| Depreciation and  amortization                                               |   | 1,201,822                     |       | 544,799 |   |
| Loss on troubled  debt restructuring                                         |   | 6,861,719                     |       | — |   |
| Write off of  deferred financing charges costs                               |   | 927,190                       |       | — |   |
| Loss on disposal  of fixed assets                                            |   | 5,856                         |       | — |   |
| Amortization of  Beneficial Conversion                                       |   | —                        |       | 78,006 |   |
| Loss on disposal  of property plant and equipment                            |   |                          |       |   |   |
| Accounts  receivable                                                         |   | 298,448                       |       | (119,716 | ) |
| Inventory                                                                    |   | 16,462                        |       | (36,044 | ) |
| Deposits                                                                     |   | (173,102                      | )          | (17,516 | ) |
| Prepaid and  other assets                                                    |   | (134,445                      | )          | (47,448 | ) |
| Accounts payable  and accrued expenses                                       |   | (145,485                      | )          | (1,256,525 | ) |
| Accrued payroll  and other liabilities                                       |   | 732,527                       |       | 553,630 |   |
|                                                                         |   |                          |       |   |   |
| Total  adjustments                                                           |   | 9,590,992                     |       | (300,814 | ) |
|                                                                         |   |                          |       |   |   |
| Net cash  provided by (used in) operating activities                         |   | 696,361                       |       | (1,695,748 | ) |
| Cash flows from  investing activities                                        |   |                          |       |   |   |
| Advances on  notes receivable from officer                                   |   | (77,085                       | )          | (154,030 | ) |
| Acquisition of  show rights                                                  |   | —                        |       | (250,000 | ) |
| Capital  expenditures                                                        |   | (75,993                       | )          | (459,112 | ) |
|                                                                         |   |                          |       |   |   |
| Net cash  provided by (used in) investing activities                         |   | (153,078                      | )          | (863,142 | ) |
|                                                                         |   |                          |       |   |   |
| Cash used in  financing activities                                           |   |                          |       |   |   |
| Borrowing/payments  under working capital line                               |   | (319,823                      | )          | — |   |
| Conversion of  Debentures                                                    |   | —                        |       | 58,514 |   |
| Proceeds  received from convertible debentures                               |   | —                        |       | 650,000 |   |
| Proceeds of  issuing Series A preferred stock                                |   | —                        |       | 4,700,000 |   |
| Repayment on  long-term borrowing                                            |   | (3,118                        | )          | (318,000 | ) |
| Repayment on  short-term borrowing                                           |   | —                        |       | (650,000 | ) |
| Notes payable to  officer                                                    |   | 20,841                        |       | — |   |
|                                                                         |   |                          |       |   |   |
| Net cash  provided by (used in) financing activities                         |   | (302,100                      | )          | 4,440,514 |   |
|                                                                         |   |                          |       |   |   |
| Net increase in  cash and cash equivalents                                   |   | 241,183                       |       | 1,881,624 |   |
| Cash and cash  equivalents at beginning of period                            |   | 374,587                       |       | 517,353 |   |
|                                                                         |   |                          |       |   |   |
| Cash and cash  equivalents at end of period                                  |   | $                             | 615,770    |   | $ | 2,398,977 |   |
|                                                                         |   |                          |       |   |   |
| Supplemental  disclosure of cash flow information                            |   |                          |       |   |   |
| Cash paid during  the period for:                                            |   |                          |       |   |   |
| Interest                                                                     |   | $                             | 460,827    |   | $ | 142,249 |   |
| Income Tax                                                                   |   | $                             | —     |   | $ | — |   |

 

See notes to consolidatedfinancial statements.

 

**SupplementalSchedule of Non-Cash Investing and Financing Activities**

 

The issuance of $5,958,514 of Series A Convertible Preferred Stockresulted in a deemed dividend of $3,014,905.

 

Accretion of discount and fees on Series A Convertible Preferred Stockof $32,500.

 

Accrued dividends of $222,000 on Series A Convertible Preferred Stockwere recognized.

 

Issuance of $1,350,000 convertible debentures resulted in a beneficialconversion of $87,975.

 

Issuance of short-term note of $3,450,000 (and cash of $350,000) toacquire intangible show rights.

 

**On Stage Entertainment, Inc. andSubsidiariesConsolidated Statements ofStockholders’ Equity (Deficit)**

 
|                                                                 |   | **Common Stock** |   |       |    |                              |   |                    |   |
|----------------------------------------------------------------------|--------|------------------|--------|------------|---------|-----------------------------------|--------|-------------------------|--------|
|                                                                 |   | **Shares**       |   | **Amount** |    | **Additional  Paid in   Capital** |   | **Accumulated 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 Series A Convertible 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 | ) |
|                                                                 |   |             |   |       |    |                              |   |                    |   |   |   |
| Deemed dividends  recognized on Series A Convertible Preferred Stock |   | —           |   | —     |    | 202,105                           |   | (202,105                | )      | — |   |
| Accrued  dividends on Series A Convertible Preferred Stock           |   | —           |   | —     |    | —                            |   | (192,000                | )      | (192,000 | ) |
| Deemed dividend  on accretion of Convertible Preferred Stock         |   | —           |   | —     |    | —                            |   | (32,500                 | )      | (32,500 | ) |
| Net loss                                                             |   | —           |   | —     |    | —                            |   | (377,090                | )      | (377,090 | ) |
| Balance June 30,  2001                                               |   | 11,307,930       |   | $          | 113,079 |                              | $      | 15,754,991              |   | $ | (19,657,073 | ) | $ | (3,789,003 | ) |

 

See notes to consolidatedfinancial statements.

 

**On Stage Entertainment, Inc. andSubsidiariesNotes to Consolidated FinancialStatementsJune 30, 2001**

 

**Basis ofPresentation**

 

The financial statements included in this report include the accountsof On Stage Entertainment, Inc., a publicly traded Nevada corporation and itssubsidiaries (the “Company,” “On Stage”): 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 Stage Entertainment, Inc. andits subsidiaries, the accompanying unaudited consolidated financial statementsinclude all normal adjustments considered necessary to present fairly thefinancial position as of June 30, 2001, and the results of operations and cashflows for the six months ended June 30, 2001 and 2000. Interim results are notnecessarily indicative of the results for the full year. The consolidatedfinancial statements and notes are presented as permitted by Form 10-QSB andshould be read in conjunction with Management’s Discussion and Analysis,audited consolidated financial statements and notes included in our Form 10-KSBfor the fiscal year ended December 31, 2000.

 

**(1)           Private Placement**

 

During late 2000 and early 2001, On Stage raised $700,000 and $650,000,respectively, from accredited private investors to assist with meeting itscapital requirements, paying for expenses associated with its restructuring,and making deposits for the acquisition of Country Tonite and the livelicensing rights for Ripley’s. This private placement was issued in the form ofconvertible debentures, which accrue interest at the rate of ten percent (10%)per annum and feature a conversion rate of $0.79. The market price of the stockin relation to the conversion price of these convertible debentures created abeneficial conversion amount of $87,975, which is amortized over 2 years. Thematurity dates for $700,000 of the convertible debentures are November andDecember 2001, and the maturity dates for $650,000 of the convertibledebentures are January and February 2003.

 

In May 2001, the Board of Directors of On Stage offered the holders ofthe debentures convertible into common stock the choice to either (a) maintainthe original agreement with respect to the notes, or (b) exchange thedebentures for Series A Convertible Preferred Stock which contains the right toconvert the Series A Convertible Preferred Stock into common stock at $0.50 pershare, and receive preferential dividends, payable quarterly in arrears at arate of 12% per annum, until conversion. On June 1, 2001, $1,200,000 of the$1,350,000 in convertible debentures were exchanged for Series A ConvertiblePreferred Stock. The market price of the 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 $202,105.

 

**(2)           Acquisition of Country Tonite**

 

In February 2001, On Stage acquired substantially all the assets of CRCof Branson, Inc. and Country Tonite Enterprises, Inc., which primarilyconsisted of all of their rights and title in and to Country Tonite, for apurchase price of $3,800,000. The assets acquired were transferred to CountryTonite Branson, LLC, a wholly-owned subsidiary of On Stage. Country Tonite isan award-winning theatrical production, which has been presented in Branson,Missouri and Pigeon Forge, Tennessee.

 

The terms of the agreement call for initial payments of $100,000 onNovember 21, 2000, $250,000 on January 29, 2001, $150,000 on February 15, 2001and $500,000 on March 15, 2001, with the balance of $2,800,000 due on July 31,2001, with interest at 10% payable monthly. On Stage took over management andcontrol of the show in Branson, Missouri on or about March 7, 2001. On Stagealso acquired the right to oversee the Country Tonite production in PigeonForge, Tennessee for quality control purposes. However, the rights to presentthe Pigeon Forge show were previously licensed to an unrelated third party andwere not included in this acquisition.

 

The acquisition has been accounted for as a purchase and, accordingly,the operating results of Country Tonite have been included in our consolidatedfinancial statements since the date of acquisition. The show rights acquired(approximately $3,764,000) are being amortized on a straight-line basis over 15years.

 

The following unaudited pro forma consolidated results of operationsfor the quarter ended June 30, 2000 and 2001 assume the acquisition occurred asof January 1, 2000:

 

|                                              |   | **Quarter ended   June 30, 2001** |      | **Quarter ended   June 30, 2000** |   |
|---------------------------------------------------|--------|-----------------------------------|-----------|-----------------------------------|--------|
| Net revenues                                      |   | $                                 | 6,469,916 |                              | $      | 8,842,000 |   |
| Net loss from  continuing operations              |   | (377,090                          | )         | (220,430                          | )      |
| Loss per common share from continuing operations: |   |                              |      |                              |   |
| Basic and  diluted                                |   | (0.07                             | )         | (0.03                             | )      |
|                                                   |        |                                   |           |                                   |        |  |  |

 

 

|                                              |   | **Six months  ended   June 30, 2001** |             | **Six months  ended  June 30, 2000** |   |
|---------------------------------------------------|--------|---------------------------------------|------------------|--------------------------------------|--------|
| Net revenues                                      |   | $                                     |  10,496,211 |                                 | $      |  15,421,171 |   |
| Net loss from  continuing operations              |   | (1,561,754                            | )                | (8,811,580                           | )      |
| Loss per common share from continuing operations: |   |                                  |             |                                 |   |
| Basic and  diluted                                |   | (0.42                                 | )                | (1.22                                | )      |
|                                                   |        |                                       |                  |                                      |        |  |  |

 

CountryTonite had no revenue for the months of January and February 2000 and 2001, asthe show was closed during the off-season months.

 

**(3)           Convertible Preferred Stock**

 

On February 28, 2001, On Stage entered into an agreement with McCown DeLeeuw & Co., Inc., a private equity investment firm (“MDC”), pursuant towhich MDC agreed to invest up to $20,000,000 in On Stage in the form ofconvertible preferred securities. According to the terms of the MDC investment,MDC will have the opportunity to stage its funding in four separate investmentsof $6.0 million, $4.0 million, $5.0 million, and $5.0 million, respectively.The second and third tranches of the investment are in the form of warrantsexercisable during the next ten (10) years at the option of On Stage contingenton, among other things, its achieving certain EBITDA levels.  The fourth tranche is exercisable by OnStage during the next ten (10) years only after funding of the thirdtranche.  The convertible preferredsecurities bear dividends at the rate of twelve percent (12%) per annum (10%cash plus 2% paid in kind), carry a liquidation preference of $5.00 per share,and are convertible into common stock of On Stage at a conversion price of$0.50 or $0.75 per share, depending on certain factors.  A change in control provision could under certaincircumstances require the redemption of the preferred stock.

 

The first $6,000,000 investment was made on March 13, 2001, with theissuance of 1,200,000 shares of Series A Convertible Preferred Stock with aface value of $6,000,000 which was issued at a 5% discount of the facevalue.  In connection with thetransaction, the Company agreed to reimburse MDC for fees and expenses incurredwith the transaction in the amount of $500,000, and agreed to pay MDC a transactionfee of $500,000.  These fees werededucted from the gross proceeds of the first investment funding resulting innet proceeds from the Series A Convertible Preferred Stock of $4,700,000.  For accounting purposes, the fees andexpenses are being accreted over a 10-year period and will result in the SeriesA Convertible Preferred Stock accreting to its liquidation value. Theconversion terms of the Series A Convertible Preferred Stock resulted in adeemed dividend of $2,812,800.

 

On March 13, 2001, On Stage entered into an advisory services agreementwith MDC. On Stage agreed to pay MDC a fee of $250,000 for services renderedthrough March 30, 2002, and, thereafter, a fee for each fiscal quarter equal tothe greater of $62,500 or one-fourth of one percent (0.25%) of On Stage’s grossrevenues reported for the four most recent fiscal quarters then ended.  In no event shall the fee exceed $95,000 forany one fiscal quarter.  This agreementexpires on March 13, 2006.

 

**(4)           Osmond Family Theater**

 

In March 2001, On Stage entered into a 33-month lease with OFT, LTD, tolease the Osmond Family Theater in Branson, Missouri. The annual rental is$400,000 payable in monthly installments of approximately $33,333 beginning inApril 2001 and continuing through December 31, 2003.

 

**(5)           Loss per 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 six months ended June 30, 2000, potential diluted securitiesrepresenting 1,224,850 outstanding stock options and 3,660,155 outstandingwarrants are not included, since their effect would be anti-dilutive. For thesix months ended June 30, 2001, potential dilutive securities representing1,464,850 outstanding stock options and 4,410,155 outstanding common stockwarrants and 1,452,632 shares of preferred stock, which are convertible into14,526,316 of common shares, are not included, since their effect would beanti-dilutive. Furthermore, On Stage has warrants that are convertible into14,000,000 shares of preferred stock which further convert into 28,000,000shares of common stock contingent upon On Stage achieving certain EBITDAlevels. These potential dilutive securities are not included, since theireffect would be anti-dilutive.

 

**(6)           Segment information**

 

The following information is presented in accordance with SFAS No. 131.

 

On Stage derives its net revenues from five business units categorizedby three reportable segments:

•      *Casinos.* TheCasinos segment primarily sells live theatrical productions to casinosworldwide. In addition, this segment also operates the Legends in Concert showat the Imperial Palace in Las Vegas, Nevada, and at Bally’s Park Place inAtlantic City, New Jersey.

•      *Theaters.* TheTheaters segment presents live productions in theaters and dinner theaters inurban and resort tourist locations. The Theaters segment derives revenues fromthe sale of tickets, food and beverages to patrons who attend the livetheatrical productions.

•      *Events.* TheEvents segment sells live theatrical productions to commercial clients, whichinclude corporations, theme and amusement parks and cruise lines, for fixedfees. Revenues generated from the Events segment are included in the Casinossegment.

•      *Merchandise.* TheMerchandise segment sells merchandise and souvenir photography products topatrons who attend the Casinos, Theaters, and Events productions. Revenuesgenerated from the Merchandise segment are included in the Theaters segment.

•      *ProductionServices.* The Production Services segment sells technicalequipment and services to commercial clients. However, the Production Servicessegment’s primary focus is to provide technical support for all of the Casinos,Theaters, Events and Merchandise segments.

The accounting policies of the reportable operating segments are thesame as those described in the Summary of Accounting Policies contained in theAnnual Report on Form 10-KSB. On Stage’s management evaluates the performanceof its operating segments based upon the profit or loss from operations.

 

On Stage reportable segments are strategic business units because eachbusiness unit services a different market or performs a specialized function insupport of a given market.

 

The following table sets forth the segment profit/(loss) and assetinformation:

 
|                              |   | **For the quarter ended June 30, 2000** |      |
|-----------------------------------|--------|-----------------------------------------|-----------|
|                              |   | **Casino**                              |      | **Production Services** |   | **Theaters** |   | **OSE** |   | **Total Consolidated** |   |
| Revenues from  external customers |   | $                                       | 2,447,245 |   | $ | 13,405 |   | $ | 4,690,840 |   | $ | — |   | $ | 7,151,490 |   |
| Interest expense                  |   | $                                       | 64        |   | $ | — |   | $ | 1,140,483 |   | $ | 19,377 |   | $ | 1,159,924 |   |
| Depreciation                      |   | $                                       | 99,972    |   | $ | 27,136 |   | $ | 84,705 |   | $ | 48,538 |   | $ | 260,351 |   |
| Segment profit  (loss)            |   | $                                       | 638,409   |   | $ | (210,274 | ) | $ | (609,007 | ) | $ | (505,603 | ) | $ | (686,475 | ) |
| Segment fixed  assets             |   | $                                       | 3,216,367 |   | $ | 899,897 |   | $ | 10,572,140 |   | $ | 1,865,215 |   | $ | 16,553,319 |   |
| Additional to  fixed assets       |   | $                                       | (53,511   | ) | $ | 11,439 |   | $ | 48,299 |   | $ | 6,379 |   | $ | 12,606 |   |

 
|                              |   | **For the quarter ended June 30, 2001** |      |
|-----------------------------------|--------|-----------------------------------------|-----------|
|                              |   | **Casino**                              |      | **Production Services** |   | **Theaters** |   | **OSE** |   | **Total Consolidated** |   |
| Revenues from  external customers |   | $                                       | 1,731,029 |   | $ | 75 |   | $ | 4,738,612 |   | $ | — |   | $ | 6,469,916 |   |
| Interest expense                  |   | $                                       | 231       |   | $ | — |   | $ | 72,085 |   | $ | 128,306 |   | $ | 200,622 |   |
| Depreciation                      |   | $                                       | 98,720    |   | $ | 28,372 |   | $ | 118,362 |   | $ | 50,360 |   | $ | 295,814 |   |
| Segment profit  (loss)            |   | $                                       | 563,982   |   | $ | (289,244 | ) | $ | 111,092 |   | $ | (762,920 | ) | $ | (377,090 | ) |
| Segment fixed  assets             |   | $                                       | 3,002,743 |   | $ | 863,033 |   | $ | 1,644,660 |   | $ | 1,134,097 |   | $ | 6,644,533 |   |
| Additional to  fixed assets       |   | $                                       | 6,246     |   | $ | 6,436 |   | $ | 326,855 |   | $ | 44,097 |   | $ | 383,634 |   |

 
|                                             |   | **For the six months ended June 30,  2000** |      |
|--------------------------------------------------|--------|---------------------------------------------|-----------|
|                                             |   | **Casino**                                  |      | **Production Services** |   | **Theaters** |   | **OSE** |   | **Total Consolidated** |   |
| Revenues from  external customers                |   | $                                           | 4,959,682 |   | $ | 24,075 |   | $ | 8,273,490 |   | $ | — |   | $ | 13,257,247 |   |
| Interest expense                                 |   | $                                           | 2,028     |   | $ | — |   | $ | 1,809,515 |   | $ | 46,185 |   | $ | 1,857,728 |   |
| Depreciation and  amortization                   |   | $                                           | 200,057   |   | $ | 54,146 |   | $ | 241,874 |   | $ | 705,745 |   | $ | 1,201,822 |   |
| Segment profit  before extraordinary item (loss) |   | $                                           | 1,308,421 |   | $ | (412,517 | ) | $ | (1,437,331 | ) | $ | (1,491,485 | ) | $ | (2,032,912 | ) |
| Segment fixed  assets                            |   | $                                           | 3,216,367 |   | $ | 899,897 |   | $ | 10,572,140 |   | $ | 1,865,215 |   | $ | 16,553,319 |   |
| Additions to  long-lived assets                  |   | $                                           | 8,064     |   | $ | 11,971 |   | $ | 48,730 |   | $ | 7,228 |   | $ | 75,993 |   |

 
|                              |   | **For the six months ended June 30,  2001** |      |
|-----------------------------------|--------|---------------------------------------------|-----------|
|                              |   | **Casino**                                  |      | **Production Services** |   | **Theaters** |   | **OSE** |   | **Total Consolidated** |   |
| Revenues from  external customers |   | $                                           | 3,549,053 |   | $ | 4,220 |   | $ | 6,942,938 |   | $ | — |   | $ | 10,496,211 |   |
| Interest expense                  |   | $                                           | 1,009     |   | $ | — |   | $ | 138,722 |   | $ | 200,654 |   | $ | 340,385 |   |
| Depreciation and  amortization    |   | $                                           | 198,698   |   | $ | 56,584 |   | $ | 189,728 |   | $ | 99,789 |   | $ | 544,799 |   |
| Segment profit  (loss)            |   | $                                           | 1,060,000 |   | $ | (518,120 | ) | $ | (575,293 | ) | $ | (1,361,521 | ) | $ | (1,394,934 | ) |
| Segment fixed  assets             |   | $                                           | 3,002,743 |   | $ | 863,033 |   | $ | 1,644,660 |   | $ | 1,134,097 |   | $ | 6,644,533 |   |
| Additions to  long-lived assets   |   | $                                           | 35,020    |   | $ | 6,899 |   | $ | 363,475 |   | $ | 53,718 |   | $ | 459,112 |   |

 

**(7)           Subsequent Events**

 

On August 1, 2001, MDC funded its second investment in On Stage byexercising warrants (per the terms of the prior MDC investment) for 400,000shares of Series A Convertible Preferred Stock in the amount of$2,000,000.  The conversion terms of theSeries A Convertible Preferred Stock resulted in a deemed dividend of$1,000,000.  At the time, On Stage’s financialperformance failed to meet the minimum EBITDA thresholds set forth in theagreement as a condition to MDC’s obligation to fund the secondinvestment.   However, MDC agreed toconsummate the funding on the condition that MDC receive a warrant to purchasean additional 400,000 shares of On Stage’s Series A  Convertible Stock at an exercise price of $0.00001 exercisablefor a 10-year period.  The warrant mayonly be exercised if On Stage fails to meet its cumulative EBITDA targets forthe 2002 and 2003 calendar years.  Thus,MDC’s $2,000,000 investment will be convertible into either 4,000,000 commonshares, or, if On Stage fails to achieve certain EBITDA targets, 8,000,000common shares.  On Stage used theinvestment to fund the last $2,800,000 payment for the acquisition of CountryTonite due on July 31, 2001.

**(8)           New Accounting Pronouncements**

 

In June 2001, the Financial Accounting Standards Board finalized FASBStatements No. 141, *Business Combinations* (SFAS 141)*,*and No. 142, *Goodwill and Other Intangible Assets* (SFAS 142)*.*SFAS 141 requires the use of the purchase method of accounting and prohibitsthe use of the pooling-of-interests method of accounting for businesscombinations initiated after June 30, 2001. SFAS 141 also requires that theCompany recognize acquired intangible assets apart from goodwill if theacquired intangible assets meet certain criteria. SFAS 141 applies to allbusiness combinations initiated after June 30, 2001 and for purchase businesscombinations completed on or after July 1, 2001. It also requires, uponadoption of SFAS 142, that the Company reclassify the carrying amounts ofintangible assets and goodwill based on the criteria in SFAS 141.

 

SFAS 142 requires, among other things, that companies no longeramortize goodwill, but instead test goodwill for impairment at least annually.In addition, SFAS 142 requires that the Company identify reporting units forthe purposes of assessing potential future impairments of goodwill, reassessthe useful lives of other existing recognized intangible assets, and ceaseamortization of intangible assets with an indefinite useful life. An intangibleasset with an indefinite useful life should be tested for impairment inaccordance with the guidance in SFAS 142. SFAS 142 is required to be applied infiscal years beginning after December 15, 2001 to all goodwill and otherintangible assets recognized at that date, regardless of when those assets wereinitially recognized. SFAS 142 requires the Company to complete a transitionalgoodwill impairment test six months from the date of adoption. The Company isalso required to reassess the useful lives of other intangible assets withinthe first interim quarter after adoption of SFAS 142.

 

On Stage’s previous business combinations were accounted for using thepurchase method. As of June 30, 2001, the net carrying amount of show rights is$3,680,090. Amortization expense during the six-month period ended June 30,2001 was $83,638. Currently, On Stage is assessing but has not yet determinedhow the adoption of SFAS 141 and SFAS 142 will impact its financial positionand results of operations.

 

**(9)           Loan to Chairman and Founder**

 

On March 30, 2001, the Board of Directors authorized On Stage to makean advance of $150,000 to John W. Stuart, the Chairman and founder, which is tobe repaid within two (2) years, bears interest at the rate of twelve percent(12%) 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 inconnection with a margin loan. Once the shares were regained, they weredelivered to On Stage as additional security for the repayment of the advance.In further consideration for the advance, Mr. Stuart entered into apost-employment non-compete agreement in favor of On Stage.

 

**(10)         Option Pool**

 

On March 30, 2001, the compensation committee recommended that thestockholders approve a 2,500,000 increase to the option pool, which optionsshall be issued at the discretion of our Board of Directors as an incentive tomanagement, employees and Board members. This recommendation has been approvedby the stockholders at the Annual Meeting.

 

**(11)         Chief Financial Officer**

 

On May 1, 2001, On Stage hired Margaret Ann Freman toserve as the Company’s Senior Vice President and Chief Financial Officer,effective May 21, 2001. Her compensation package includes an annual base salaryof $135,000, and options to purchase 150,000 shares of the Company’s commonstock at an exercise price of $0.58.

 

**(12)         Compensation Committee**

 

At the Special Meeting of the Board of Directors for On Stage, heldMarch 30, 2001, the Board elected Robert Hellman to serve as the Chairman ofthe compensation committee, with Greg McIntosh and Chris Frigon serving asadditional members. The compensation committee held its first meeting on March30, 2001, and approved the following transactions; (a) the salary of Timothy J.Parrott, Board Member, President and Chief Executive Officer, was increasedfrom $120,000 per annum to $250,000, effective April 1, 2001; and (b) JeffreyVictor, Executive Vice President and Chief Operating Officer, was granted aone-year employment contract.

 

**Item2.    Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

This document contains certain forward-looking statements that aresubject to risks and uncertainties. Forward-looking statements include certaininformation relating to potential new show openings, the potential markets forOn Stage’s productions, the expansion of existing and potential gaming andtourist markets, exposure to various trends in the gaming industry, acquisitionplans and the benefits anticipated from these acquisitions, business strategy,outstanding litigation matters and the available defenses, the seasonality ofits business, and liquidity issues, as well as information contained elsewherein this report where current statements are preceded by, followed by or includethe words “believes,” “expects,” “anticipates” or similar expressions. Forthese statements, 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 On Stage from achievingits goals and cause the assumptions underlying the forward-looking statementsand the actual results to differ materially from those expressed in or impliedby those forward-looking statements include the information provided under theheading “Description of Business—Risk Factors” in Item 1 of its Annual Reporton Form 10-KSB for the year ended December 31, 2000, as well as the following:

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

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

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

•      The ability to meet its commitments,obtain alternative and additional financing on commercially reasonable terms;

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

•      Fluctuations in quarterly operatingresults and the highly seasonal nature of its 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 its ability to protectits intellectual property rights;

•      The ability 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, its revenue mix, the timing and level ofadditional selling, general and administrative expense and the generalcompetitive conditions in the leisure and entertainment industry as well as theoverall economy.

**Resultsof Operations**

 

The following tables set forth the results of operations for thereportable segments indicated:

 
|                                   |   | **For the quarter ended June 30, 2000** |      |
|----------------------------------------|--------|-----------------------------------------|-----------|
|                                   |   | **Casino**                              |      | **Production Services** |   | **Theaters** |   | **Sub-Total Operating Divisions** |   | **OSE** |   | **Total Consolidated** |   |
| Net revenue                            |   | $                                       | 2,486,233 |   | $ | 13,405 |   | $ | 4,651,852 |   | $ | 7,151,490 |   | $ | — |   | $ | 7,151,490 |   |
| Cost of revenues                       |   | 1,657,216                               |      | 196,543 |   | 3,820,303 |   | 5,674,062 |   | — |   | 5,674,062 |   |
|                                   |   |                                    |      |   |   |   |   |   |   |   |   |   |   |
| Gross profit  (loss)                   |   | 829,017                                 |      | (183,138 | ) | 831,549 |   | 1,477,428 |   | — |   | 1,477,428 |   |
| Selling, general  & administrative |   | 115,257                                 |      | — |   | 194,827 |   | 310,084 |   | 427,688 |   | 737,772 |   |
| Depreciation  & amortization       |   | 99,977                                  |      | 27,137 |   | 84,729 |   | 211,843 |   | 48,508 |   | 260,351 |   |
|                                   |   |                                    |      |   |   |   |   |   |   |   |   |   |   |
| Operating income  (loss)               |   | 613,783                                 |      | (210,275 | ) | 551,993 |   | 955,501 |   | (476,196 | ) | 479,305 |   |
| Interest  expense, net                 |   | (399                                    | )         | — |   | (1,140,147 | ) | (1,140,546 | ) | (19,378 | ) | (1,159,924 | ) |
| Loss on disposal  of Fixed assets      |   | —                                  |      | — |   | (5,856 | ) | (5,856 | ) | — |   | (5,856 | ) |
|                                   |   |                                    |      |   |   |   |   |   |   |   |   |   |   |
| Net income  (loss)                     |   | $                                       | 613,384   |   | $ | (210,275 | ) | $ | (594,010 | ) | $ | (190,901 | ) | $ | (495,574 | ) | $ | (686,475 | ) |

 

 
|                                   |   | **For the quarter ended June 30, 2001** |      |
|----------------------------------------|--------|-----------------------------------------|-----------|
|                                   |   | **Casino**                              |      | **Production Services** |   | **Theaters** |   | **Sub-Total Operating Segments** |   | **OSE** |   | **Total Consolidated** |   |
| Net revenues                           |   | $                                       | 1,731,029 |   | $ | 75 |   | $ | 4,738,812 |   | $ | 6,469,916 |   | $ | — |   | $ | 6,469,916 |   |
| Cost of revenues                       |   | 1,034,964                               |      | 260,935 |   | 4,400,643 |   | 5,696,542 |   | — |   | 5,696,542 |   |
|                                   |   |                                    |      |   |   |   |   |   |   |   |   |   |   |
| Gross profit  (loss)                   |   | 696,065                                 |      | (260,860 | ) | 338,169 |   | 773,374 |   | — |   | 773,374 |   |
| Selling, general  & administrative |   | 33,128                                  |      | — |   | 36,646 |   | 69,774 |   | 584,254 |   | 654,028 |   |
| Depreciation  & amortization       |   | 98,719                                  |      | 28,382 |   | 118,352 |   | 245,453 |   | 50,361 |   | 295,814 |   |
|                                   |   |                                    |      |   |   |   |   |   |   |   |   |   |   |
| Operating income  (loss)               |   | 564,218                                 |      | (289,242 | ) | 183,171 |   | 458,147 |   | (634,615 | ) | (176,468 | ) |
| Interest  expense, net.                |   | (231                                    | )         | — |   | (72,085 | ) | (72,316 | ) | (128,306 | ) | (200,622 | ) |
|                                   |   |                                    |      |   |   |   |   |   |   |   |   |   |   |
| Net Income (loss)                      |   | $                                       | 563,987   |   | $ | (289,242 | ) | $ | 111,086 |   | $ | 385,831 |   | $ | (762,921 | ) | $ | (377,090 | ) |

 
|                                                       |   | **For the six months ended June 30,  2000** |      |
|------------------------------------------------------------|--------|---------------------------------------------|-----------|
|                                                       |   | **Casino**                                  |      | **Production  Services** |   | **Theaters** |   | **Sub-Total  Operating Divisions** |   | **OSE** |   | **Total  Consolidated** |   |
| Net revenue                                                |   | $                                           | 4,959,682 |   | $ | 24,075 |   | $ | 8,273,490 |   | $ | 13,257,247 |   | $ | — |   | $ | 13,257,247 |   |
| Cost of revenues                                           |   | 3,207,288                                   |      | 382,446 |   | 7,302,232 |   | 10,891,966 |   | — |   | 10,891,966 |   |
|                                                       |   |                                        |      |   |   |   |   |   |   |   |   |   |   |
| Gross profit  (loss)                                       |   | 1,752,394                                   |      | (358,371 | ) | 971,258 |   | 2,365,281 |   | — |   | 2,365,281 |   |
| Selling, general  & administrative                     |   | 241,888                                     |      | — |   | 351,344 |   | 593,232 |   | 739,555 |   | 1,332,787 |   |
| Depreciation  & amortization                           |   | 200,057                                     |      | 54,146 |   | 241,874 |   | 496,077 |   | 705,745 |   | 1,201,822 |   |
|                                                       |   |                                        |      |   |   |   |   |   |   |   |   |   |   |
| Operating income  (loss)                                   |   | 1,310,449                                   |      | (412,517 | ) | 378,040 |   | 1,275,972 |   | (1,445,300 | ) | (169,328 | ) |
| Interest  expense, net                                     |   | (2,028                                      | )         | — |   | (1,809,515 | ) | (1,811,543 | ) | (46,185 | ) | (1,857,728 | ) |
| Loss on disposal  of Fixed assets                          |   | —                                      |      | — |   | (5,856 | ) | (5,856 | ) | — |   | (5,856 | ) |
|                                                       |   |                                        |      |   |   |   |   |   |   |   |   |   |   |
| Net income  (loss) before extraordinary item               |   | $                                           | 1,308,421 |   | $ | (412,517 | ) | $ | (1,437,331 | ) | $ | (541,427 | ) | $ | (1,491,485 | ) | $ | (2,032,912 | ) |
| Extraordinary  item – trouble debt restructuring loss |   | —                                      |      | — |   | (6,861,719 | ) | (6,861,719 | ) | — |   | (6,861,719 | ) |
|                                                       |   |                                        |      |   |   |   |   |   |   |   |   |   |   |
| Net income  (loss)                                         |   | $                                           | 1,308,421 |   | $ | (412,517 | ) | $ | (8,299,050 | ) | $ | (7,403,146 | ) | $ | (1,491,485 | ) | $ | (8,894,631 | ) |

 
|                                   |   | **For the six months ended June 30,  2001** |      |
|----------------------------------------|--------|---------------------------------------------|-----------|
|                                   |   | **Casino**                                  |      | **Production Services** |   | **Theaters** |   | **Sub-Total Operating Segments** |   | **OSE** |   | **Total Consolidated** |   |
| Net revenues                           |   | $                                           | 3,549,053 |   | $ | 4,220 |   | $ | 6,942,938 |   | $ | 10,496,211 |   | $ | — |   | $ | 10,496,211 |   |
| Cost of revenues                       |   | 2,221,665                                   |      | 465,756 |   | 7,123,383 |   | 9,810,804 |   | — |   | 9,810,804 |   |
|                                   |   |                                        |      |   |   |   |   |   |   |   |   |   |   |
| Gross profit  (loss)                   |   | 1,327,388                                   |      | (461,536 | ) | (180,445 | ) | 685,407 |   | — |   | 685,407 |   |
| Selling, general  & administrative |   | 67,681                                      |      | — |   | 66,398 |   | 134,079 |   | 1,061,078 |   | 1,195,157 |   |
| Depreciation  & amortization       |   | 198,698                                     |      | 56,584 |   | 189,728 |   | 445,010 |   | 99,789 |   | 544,799 |   |
|                                   |   |                                        |      |   |   |   |   |   |   |   |   |   |   |
| Operating income  (loss)               |   | 1,061,009                                   |      | (518,120 | ) | (436,571 | ) | 106,318 |   | (1,160,867 | ) | (1,054,549 | ) |
| Interest  expense, net.                |   | (1,009                                      | )         | — |   | (138,722 | ) | (139,731 | ) | (200,654 | ) | (340,385 | ) |
|                                   |   |                                        |      |   |   |   |   |   |   |   |   |   |   |
| Net Income  (loss)                     |   | $                                           | 1,060,000 |   | $ | (518,120 | ) | $ | (575,293 | ) | $ | (33,413 | ) | $ | (1,361,521 | ) | $ | (1,394,934 | ) |

 

**QuarterEnded June 30, 2000 versus Quarter Ended June 30, 2001**

 

***Net Revenues.*** Revenues were approximately $6,470,000for the quarter ended June 30, 2001 compared to $7,151,000 for the quarterended June 30, 2000, a decrease of $681,000, or 9.5%. Revenue is derived fromfive principal operating segments: Casinos, Events, Merchandise, ProductionServices, and Theaters. Revenues from Events are included in the Casinossegment. Revenues from Merchandise are included in the Theaters segment.Casinos revenues were approximately $1,731,000 for the quarter ended June 30,2001 compared to $2,486,000 for the quarter ended June 30, 2000, a decrease of$755,000, or 30.4%. This decrease was primarily attributable to a decrease inlimited engagements and corporate events.

 

Production Services revenues were approximately $75 for the quarterended June 30, 2001 compared to $13,000 for the quarter ended June 30, 2000, adecrease of $12,925, or 99.4%. The decrease was primarily attributable to areduction in equipment rental revenues.

 

Theaters revenues were approximately $4,739,000 for the quarter endedJune 30, 2001 compared to $4,652,000 for the quarter ended June 30, 2000, anincrease of $87,000, or 1.9%. The increase was primarily attributable to thenew shows, Country Tonite and Ripley’s, opening in Branson, Missouri, partiallyoffset by the discontinuation of the shows in Orlando, Florida.******

***Costs of Revenues.*** Total costs of revenues were $5,697,000for the quarter ended June 30, 2001 compared to $5,674,000 for the quarterended June 30, 2000, an increase of $23,000, or .4%. Costs of revenuesincreased to 88.0% of net revenues for the quarter ended June 30, 2001, ascompared to 79.3% for the quarter ended June 30, 2000. This increase in costsof revenues as a percentage of revenues was primarily attributable to thediscontinuation of shows in Orlando, Florida (which ran in 2000 but not in2001), and the inclusion of Country Tonite operations.

 

***Selling, General and Administrative.*** Selling, general and administrativecosts were approximately $654,000 for the quarter ended June 30, 2001 ascompared to $738,000 for the quarter ended June 30, 2000, a decrease of$84,000, or 11.4%. Selling, general and administrative costs remained fairlyconstant at 10.0% of net revenues for both quarters.

 

***Depreciation and Amortization.*** Depreciation and amortization for thequarter ended June 30, 2001 increased by $35,000, or 13.5%, as compared to thequarter ended June 30, 2000. The increase was primarily due to capitaladditions to current shows and amortization of show rights.

 

***Operating Income (Loss).*** Operating loss was approximately$176,000 for the quarter ended June 30, 2001 compared to an operating gain of$479,000 for the quarter ended June 30, 2000, a decrease of $655,000, or136.7%. The increase in operating loss was primarily attributable to a decreasein limited engagements, corporate events and Theaters segment.

 

***Interest Expense, Net.*** Interest expense for the quarter endedJune 30, 2001 decreased by $959,000, as compared to the quarter ended June 30,2000. The decrease was primarily due to the restructuring of the ICCMIC andFirst Security Bank debts.

 

***Income Taxes.*** Federal income taxes for the quarterended June 30, 2001 have not been accrued. At June 30, 2001, the Company hadfederal net operating loss carryforwards of approximately $19,202,889. UnderInternal Revenue Code Section 382, certain significant changes in ownershipthat On Stage is currently undertaking may restrict the future utilization ofthese tax loss carryforwards. Because On Stage cannot determine that it is morelikely than not to recognize the deferred tax assets, it has provided for afull allowance against the deferred tax assets.

 

**SixMonths Ended June 30, 2000 versus six Months Ended June 30, 2001**

 

***Net Revenues.*** Revenues were approximately $10,496,000for the six months ended June 30, 2001 compared to $13,257,000 for the sixmonths ended June 30, 2000, a decrease of $2,761,000, or 20.8%. Revenue isderived from five principal operating segments: Casinos, Events, Merchandise,Production Services, and Theaters. Revenues from Events are included in theCasinos segment. Revenues from Merchandise are included in the Theaterssegment. Casinos revenues were approximately $3,549,000 for the six monthsended June 30, 2001 compared to $4,960,000 for the six months ended June 30,2000, a decrease of $1,411,000, or 28.4%. This decrease was primarilyattributable to a decrease in limited engagements and corporate events.

 

Production Services revenues were approximately $4,000 for the sixmonths ended June 30, 2001 compared to $24,000 for the six months ended June30, 2000, a decrease of $20,000, or 83.3%. The decrease was primarilyattributable to a reduction in equipment rental revenues.

 

Theaters revenues were approximately $6,943,000 for the six monthsended June 30, 2001 compared to $8,273,000 for the six months ended June 30,2000, a decrease of $1,330,000, or 16.1%. The decrease was primarily attributable to the discontinuation of theshows in Orlando, Florida.

*** ***

***Costs of Revenues.*** Total costs of revenues were $9,811,000for the six months ended June 30, 2001 compared to $10,892,000 for the sixmonths ended June 30, 2000, a decrease of $1,081,000, or 9.9%. Costs ofrevenues increased to 93.5% of net revenues for the six months ended June 30,2001, as compared to 82.2% for the six months ended June 30, 2000. Thisincrease in costs of revenues as a percentage of revenues was primarilyattributable to the discontinuation of shows in Orlando, Florida (which ran in2000 but not in 2001), and the inclusion of Country Tonite which had norevenues for the months of January and February.

***Selling, General and Administrative.*** Selling, general and administrativecosts were approximately $1,195,000 for the six months ended June 30, 2001 ascompared to $1,332,000 for the six months ended June 30, 2000, a decrease of$137,000, or 10.3%. Selling, general and administrative costs increased to11.3% of net revenues for the six months ended June 30, 2001 as compared to10.1% for the six months ended June 30, 2000.

 

***Depreciation and Amortization.*** Depreciation and amortization for thesix months ended June 30, 2001 decreased by $657,000, or 54.7%, as compared tothe six months ended June 30, 2000. The decrease was primarily due to thediscontinuation of shows in Orlando, Florida and related foreclosures ofcertain assets.

 

***Operating Loss.*** Operating loss was approximately$1,055,000 for the six months ended June 30, 2001 compared to an operating lossof $169,000 for the six months ended June 30, 2000, an increase of $886,000, or84%. The increase in operating loss was primarily attributable to a decrease incorporate events and limited engagements.

 

***Interest Expense, Net.*** Interest expense for the six monthsended June 30, 2001 decreased by $1,517,000, as compared to the six monthsended June 30, 2000. The decrease was primarily due to the restructuring of theICCMIC and First Security Bank debts.

 

***Income Taxes.*** Federal income taxes for the quarterended June 30, 2001 have not been accrued. At June 30, 2001, the Company hadfederal net operating loss carryforwards of approximately $19,202,889. UnderInternal Revenue Code Section 382, certain significant changes in ownershipthat On Stage is currently undertaking may restrict the future utilization ofthese tax loss carryforwards. Because On Stage cannot determine that it is morelikely than not to recognize the deferred tax assets, it has provided for afull allowance against the deferred tax assets.

 

**Seasonalityand Quarterly Results**

 

On Stage’s business has been, and is expected to remain, highlyseasonal, with the majority of its revenue being generated during the months ofApril through October. Part of its business strategy is to increase sales intourist markets that experience their peak seasons from November through March,so as to offset this seasonality in revenues.

 

The following table sets forth On Stage’s net revenue for each of thelast six quarters ended March 31, 2001:

 

**Net Revenues**

**($ in thousands)**
|        |   |          |   |        |   |             |   |            |   |
|-------------|--------|---------------|--------|-------------|--------|------------------|--------|-----------------|--------|
|        |   | **March  31** |   | **June 30** |   | **September 30** |   | **December 31** |   |
| Fiscal 2000 |   | $             | 6,106  |        | $      | 7,151            |   | $               | 6,393  |   | $ | 4,487 |   |
| Fiscal 2001 |   | $             | 4,026  |        | $      | 6,470            |   | $               | — |   | $ | — |   |

 

**Liquidityand Capital Resources**

 

***General***

 

On Stage has historically met its working capitalrequirements through a combination of cash flow from operations, equity anddebt offerings and traditional bank financing. On Stage anticipates, based onits proposed plans and assumptions relating to its operations, that its currentcash, cash equivalent balances, and anticipated revenue from operations aresufficient to fund its ongoing operations.

***Cash Flow***

 

For the six months ended June 30, 2000, On Stage had net cash providedby operations of approximately $696,000. As of June 30, 2000, On Stage hadapproximately $616,000 in cash and cash equivalents. The cash provided byoperations was primarily attributable to the troubled debt restructuring lossand write off deferred financing costs.

 

For the six months ended June 30, 2001, On Stage had net cash used inoperations of approximately $1,696,000. As of June 30, 2001, On Stage had approximately$2,399,000 in cash and cash equivalents. The cash used in operations for thesix months ended June 30, 2001 was primarily attributable to the decrease ofaccounts payable and accrued expenses.

 

The net cash used in investing activities for the six months ended June30, 2000 of $153,000 was primarily attributable to capital expenditures andadvances on notes receivable from stockholders. The net cash used in investingactivities for the six months ended June 30, 2001 of $863,000 was primarilyattributable to the acquisition of show rights, in addition to capitalexpenditures and advances on a note receivable from an officer.

 

Net cash used in financing activities for the six months ended June 30,2000 of $302,000, was primarily attributable to repayment of line of credit andlong-term debt. Net cash provided by financing activities for the six monthsended June 30, 2001 of $4,440,500, was primarily attributable to the proceedsfrom convertible debentures and proceeds from the issuance of Series A ConvertiblePreferred Stock, partially offset by payment on long-term debt.

 

***Working Capital***

 

At June 30, 2000, On Stage had a working capital deficit ofapproximately $18,837,000 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 June 30, 2001, On Stage had a working capital deficit ofapproximately $2,080,000, which resulted primarily from an increase inshort-term debt associated with the purchase of Country Tonite. This increasewas partially offset by an increase in cash and cash equivalents.

 

**PARTII. OTHER INFORMATION**

 

**Item 1.    Legal Proceedings**

 

None.

 

**Item2.    Changes in Securities**

 

During the six months ended June 30, 2001, On Stage made the followingprivate placements of unregistered securities to accredited investors:

 

During late 2000 and early 2001, On Stage raised $700,000 and $650,000,respectively, from accredited private investors to assist with meeting capitalrequirements, paying for expenses associated with 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 convertible debentures,which accrue interest at the rate of ten percent (10%) per annum and feature aconversion rate of $0.79. The market price of the stock in relation to theconversion price of these convertible debentures created a beneficialconversion amount of $87,975, which is amortized over two (2) years. Thematurity dates for $700,000 of the debentures are November and December 2001,and the maturity dates for $650,000 of the debentures are January and February2003.

On February 28, 2001, On Stage entered into an agreement with McCown DeLeeuw & Co., Inc., a private equity investment firm (“MDC”), pursuant towhich MDC agreed to invest up to $20,000,000 in On Stage in the form ofconvertible preferred securities. According to the terms of the MDC investment,MDC will have the opportunity to stage its funding in four separate investmentsof $6.0 million, $4.0 million, $5.0 million, and $5.0 million, respectively.The second and third tranches of the investment are in the form of warrantsexercisable during the next ten (10) years at the option of the Companycontingent on, among other things, its achieving certain EBITDA levels. TheCompany is currently not in compliance with such EBITDA requirements. Thefourth tranche is exercisable by On Stage during the next ten (10) years onlyafter funding of the third tranche. The convertible preferred securities beardividends at the rate of twelve percent (12%) per annum (10% cash plus 2% paidin kind), carry a liquidation preference of $5.00 per share, and are convertibleinto common stock of On Stage at a conversion price of $0.50 or $0.75 pershare, depending on certain factors. A change in control provision could undercertain circumstances require the redemption of the Series A ConvertiblePreferred Stock. The first $6,000,000 investment was made on March 13, 2001with the issuance of 1,200,000 shares of Series A Convertible Preferred Stockwith a face value of $6,000,000 which was issued at a 5% discount of the facevalue. In connection with the transaction, the Company agreed to reimburse MDCfor fees and expenses incurred with the transaction, in the amount of $500,000and agreed to pay MDC a transaction fee of $500,000. These fees were deductedfrom the gross proceeds of the first investment funding resulting in netproceeds from the Series A Convertible Preferred Stock of $4,700,000. Foraccounting purposes, the fees and expenses are being accreted over a 10-yearperiod and will result in the Series A Convertible Preferred Stock accreting toits liquidation value. The market price of the Series A Convertible PreferredStock resulted in a deemed dividend of $2,812,800.

 

In May 2001, the Board of Directors of On Stage offered the holders ofthe debentures convertible into common stock the choice to either (a) maintainthe original agreement with respect to the notes, or (b) exchange thedebentures for Series A Convertible Preferred Stock which contains the right toconvert the Series A Convertible Preferred Stock into common stock at $0.50 pershare, and receive preferential dividends, payable quarterly in arrears at arate of 12% annum, until conversion. On June 1, 2001, $1,200,000 of the$1,350,000 in convertible debentures were exchanged for Series A ConvertiblePreferred Stock. The market price of the 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 $202,105.

 

The sales of the above securities were considered to be exempt fromregulations under the Securities Act of 1933, as amended, in reliance onSection 4 (2) and Regulation D promulgated thereunder as a transaction by anissuer not involving a public offering.

 

**Item3.    Defaults Upon Senior Securities**

 

None.

 

**Item4.    Submission of Matters to a Vote ofSecurity Holders.**

 

None.

** **

**Item 5.    Other Information**

 

None.

 

**Item6.    Exhibits & Reports on Form 8-K**

(1)  Currentreport on Form 8-K dated February 1, 2001 filed with the Securities andExchange Commission on May 29, 2001.

 

**SIGNATURES**

 

In accordance with the requirements of the Securities Exchange Act of1934, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                    |   | 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 FREMAN 

 
 

 

 Margaret Ann  Freman *Senior  Vice President and Chief Financial Officer*

  |