**U.S.SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**AMENDMENTNO. 2**

**FORM 10-QSB**

 

**(MarkOne)**

 

**ý****Quarterly report under Section 13 or 15 (d) of the Securities ExchangeAct of 1934**

 

**For the quarterly period ended June30, 2000**

** **

o**Transition report under Section 13 or 15 (d) of the Exchange Act**

 

**For the Transition period from________ to __________**

 

Commission filenumber  0-29402

 

**ON STAGEENTERTAINMENT, INC.**

(Exact Name of Small Business Issuer as Specified in Its Charter)

 

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

 

**(702)253-1333**

Issuer’s Telephone Number, Including Area Code

 

**____________________________________________________________________________________________________________**

(Former Name, Former Address and Former Fiscal Year, if Changed

Since Last Report)

 

                Check whether the issuer:  (1) filed all reports required to be filed by Section 13 or 15(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  ý      No o

 

**APPLICABLEONLY TO CORPORATE ISSUERS**

 

                State the number of shares outstanding of each of theissuer’s classes of common equity, as of the latest practicable date.

 

 

 

| Class                             |   | Outstanding at  August 11, 2000 |
|-----------------------------------|--------|---------------------------------|
| **Common Stock, $0.01 par value** |   | **7,226,808**                   |

 

 

 

**ON STAGE ENTERTAINMENT, INC. ANDSUBSIDIARIES**

 

**TABLE OF CONTENTS**

** **

 
|                               |                                                                                        |   |
|------------------------------------|---------------------------------------------------------------------------------------------|--------|
| **Part I. Financial  Information** |                                                                                        |
|                               |                                                                                        |   |
|                               |                                                                                        |   |
| **Item 1.**                        | **Consolidated  Financial Statements**                                                      |   |
|                               | Balance sheets                                                                              |   |
|                               | Statements  of operations                                                                   |   |
|                               | Statements  of cash flows                                                                   |   |
|                               | Notes to  financial statements                                                              |   |
| **Item  2.**                       | Management’s  Discussion and Analysis Of Financial Condition and Results of Operations |   |
|                               |                                                                                        |   |
|                               |                                                                                        |   |
|                               |                                                                                        |   |
|                               |                                                                                        |   |
|                               |                                                                                        |   |
| **Part II. Other Information**     |                                                                                        |
|                               |                                                                                        |   |
| **Item 1.**                        | **Exhibits and Reports  on Form 8-K**                                                       |   |
|                               |                                                                                        |   |
|                               |                                                                                        |   |
| Signatures                         |                                                                                        |
|                               |                                                                                        |   |
|                               |                                                                                        |   |
| Index of Exhibits                  |                                                                                        |
|                               |                                                                                        |   |

 

**PARTI. FINANCIAL INFORMATION**

 

This document contains certainforward-looking statements that are subject to risks and uncertainties.Forward–looking statements include certain information relating to potentialnew show openings, markets for On Stage productions, the expansion of existingand potential gaming and tourist markets, our exposure to various trends in thegaming industry, our acquisition plans and the benefits we anticipate fromthose acquisitions, our business strategy, our outstanding litigation mattersand the defenses available to us, the seasonality of our business, and theliquidity 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 expression. For thesestatements, On Stage claims the protection of the safe harbor for forward-lookingstatements contained in the Private Securities Litigation Reform act of 1995.The forward-looking statements in this document are subject to risks anduncertainties that could cause the assumptions underlying the forward-lookingstatements and the actual results to differ materially from those expressed inor implied by the statements

** **

** **

**Item1.  Consolidated Financial Statements**

** **

**On Stage Entertainment, Inc. andSubsidiaries**

**ConsolidatedBalance Sheets**

** **
|                                                                                                            |   | **December 31,  1999** |       | **June 30,  2000** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|--------------------|--------|
|                                                                                                            |   |                   |       | **(Unaudited)**    |   |
| **Assets**                                                                                                      |   |                   |       |               |   |
| Current assets                                                                                                  |   |                   |       |               |   |
| Cash and cash equivalents                                                                                       |   | $                      | 374,587    |               | $      | 615,770 |   |
| Accounts receivable, net                                                                                        |   | 1,249,619              |       | 951,171            |   |
| Inventory                                                                                                       |   | 234,579                |       | 218,117            |   |
| Deposits                                                                                                        |   | 198,523                |       | 371,625            |   |
| Prepaid and other assets                                                                                        |   | 238,274                |       | 372,719            |   |
| Notes receivable from officers                                                                                  |   | 117,906                |       | 193,899            |   |
| Total current assets                                                                                            |   | 2,413,488              |       | 2,723,301          |   |
| Property, equipment and leasehold improvements                                                                  |   | 23,720,804             |       | 16,553,319         |   |
| Less:  Accumulated  depreciation and amortization                                                          |   | (5,176,244             | )          | (5,368,335         | )      |
| Property, equipment and leasehold improvements, net                                                             |   | 18,544,560             |       | 11,184,984         |   |
| Direct acquisition costs                                                                                        |   | 597,328                |       | -                  |   |
| Deferred financing costs, net of amortization of $192,810                                                       |   | 927,190                |       | -                  |   |
|                                                                                                            |   | $                      | 22,482,566 |               | $      | 13,908,285 |   |
|                                                                                                            |   |                   |       |               |   |
| **Liabilities and Stockholders’ Equity**                                                                   |   |                   |       |               |   |
| Current liabilities                                                                                             |   |                   |       |               |   |
| Working capital line                                                                                            |   | $                      | 459,146    |               | $      | 139,315 |   |
| Accounts payable and accrued expenses                                                                           |   | 1,444,878              |       | 1,334,809          |   |
| Accrued  payroll and other liabilities                                                                          |   |  3,937,951        |       |  4,670,478    |   |
| Current maturities of long-term debt                                                                            |   | 15,398,282             |       | 15,395,164         |   |
| Note payable to officer                                                                                         |   | -                      |       | 20,841             |   |
| Total current liabilities                                                                                       |   | 21,240,257             |       | 21,560,607         |   |
| Long-term debt, less current maturities                                                                         |   | 30,773                 |       | 30,773             |   |
| Total liabilities and long-term debt                                                                            |   | 21,271,030             |       | 21,591,380         |   |
| Commitments and contingencies                                                                                   |   |                   |       |               |   |
| Stockholders’ equity   (deficiency)                                                                   |   |                   |       |               |   |
| Preferred stock, par value $1 per share, 1,000,000 sharesauthorized; none issued and  outstanding               |   | -                      |       | -                  |   |
| Common stock, par value $0.01 per share; authorized  25,000,000Shares;  7,226,808 shares issued and outstanding |   | 72,268                 |       | 72,268             |   |
| Additional paid-in-capital                                                                                      |   | 11,430,336             |       | 11,430,336         |   |
| Accumulated deficit                                                                                             |   | (10,291,068            | )          | (19,185,699        | )      |
| Total stockholders’ equity (deficiency)                                                                    |   | 1,211,536              |       | (7,683,095         | )      |
|                                                                                                            |   | $                      | 22,482,566 |               | $      | 13,908,285 |   |

 

See notes to consolidated financial statements.

 

**OnStage Entertainment, Inc. and Subsidiaries**

**Consolidated Statementsof Operations**

 
|                                                           |   | **Three months endedJune 30,** |
|----------------------------------------------------------------|--------|--------------------------------|
|                                                           |   | **1999**                       |   | **2000** |   |
|                                                           |   | **(Unaudited)**                |   | **(Unaudited)** |   |
|                                                           |   |                           |   |   |   |
| Net revenues                                                   |   | $                              | 7,403,008 |   | $ | 7,151,490 |   |
|                                                           |   |                           |   |   |   |
| Costs of revenues                                              |   | 5,379,324                      |   | 5,674,062 |   |
|                                                           |   |                           |   |   |   |
| Gross profit                                                   |   | 2,023,684                      |   | 1,477,428 |   |
|                                                           |   |                           |   |   |   |
| Selling, general & administrative                          |   | 1,035,952                      |   | 737,772 |   |
|                                                           |   |                           |   |   |   |
| Depreciation and amortization                                  |   | 353,534                        |   | 260,351 |   |
|                                                           |   |                           |   |   |   |
| Restructuring charges                                          |   | 262,793                        |   | - |   |
|                                                           |   |                           |   |   |   |
| Operating income                                               |   | 371,405                        |   | 479,305 |   |
|                                                           |   |                           |   |   |   |
| Interest expense, net                                          |   | (1,019,838                     | ) | (1,159,924 | ) |
|                                                           |   |                           |   |   |   |
| Loss on disposition of fixed assets                            |   | -                              |   | (5,856 | ) |
|                                                           |   |                           |   |   |   |
| Net loss                                                       |   | $                              | (648,433 | ) | $ | (686,475 | ) |
|                                                           |   |                           |   |   |   |
| Basic and diluted loss per share                               |   | $                              | (0.09 | ) | $ | (0.10 | ) |
|                                                           |   |                           |   |   |   |
| Basic and diluted average number of common shares  outstanding |   | 7,354,676                      |   | 7,226,808 |   |

 

See notes to consolidated financial statements.

 

**OnStage Entertainment, Inc. and Subsidiaries**

**Consolidated Statements of Operations**

 
|                                                           |   | **Six months endedJune 30,** |
|----------------------------------------------------------------|--------|------------------------------|
|                                                           |   | **1999**                     |   | **2000** |   |
|                                                           |   | **(Unaudited)**              |   | **(Unaudited)** |   |
|                                                           |   |                         |   |   |   |
| Net revenues                                                   |   | $                            | 13,675,247 |   | $ | 13,257,247 |   |
|                                                           |   |                         |   |   |   |
| Costs of revenues                                              |   | 10,829,833                   |   | 10,891,966 |   |
|                                                           |   |                         |   |   |   |
| Gross profit                                                   |   | 2,845,414                    |   | 2,365,281 |   |
|                                                           |   |                         |   |   |   |
| Selling, general & administrative                          |   | 2,081,868                    |   | 1,332,787 |   |
|                                                           |   |                         |   |   |   |
| Depreciation and amortization                                  |   | 603,601                      |   | 1,201,822 |   |
|                                                           |   |                         |   |   |   |
| Restructuring charges                                          |   | 262,793                      |   | - |   |
|                                                           |   |                         |   |   |   |
| Operating loss                                                 |   | (102,848                     | ) | (169,328 | ) |
|                                                           |   |                         |   |   |   |
| Interest expense, net                                          |   | (1,429,149                   | ) | (1,857,729 | ) |
|                                                           |   |                         |   |   |   |
| Loss on disposition of fixed assets                            |   | -                            |   | (5,856 | ) |
|                                                           |   |                         |   |   |   |
| Net income (loss) before extraordinary item                    |   | (1,531,997                   | ) | (2,032,913 | ) |
|                                                           |   |                         |   |   |   |
| Extraordinary item – troubled debt restructuring loss     |   | -                            |   | 6,861,718 |   |
|                                                           |   |                         |   |   |   |
| Net loss                                                       |   | $                            | (1,531,997 | ) | $ | (8,894,631 | ) |
|                                                           |   |                         |   |   |   |
| Basic and diluted loss per share from continuing  operations   |   | $                            | (0.21 | ) | $ | (0.28 | ) |
|                                                           |   |                         |   |   |   |
| Basic and diluted loss per share from extraordinary item       |   | -                            |   | $ | (0.95 | ) |
|                                                           |   |                         |   |   |   |
| Basic and diluted loss per common share                        |   | $                            | (0.21 | ) | $ | (1.23 | ) |
|                                                           |   |                         |   |   |   |
| Basic and diluted average number of common shares  outstanding |   | 7,459,597                    |   | 7,226,808 |   |

 

See notes to consolidatedfinancial statements.

 

**On Stage Entertainment, Inc. and Subsidiaries**

**Consolidated Statementsof Cash Flows**

 

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

 
|                                                                         |   | **Six months ended****June 30,** |       |
|------------------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                                         |   | **1999**                         |       | **2000** |   |
|                                                                         |   | **(Unaudited)**                  |       | **(Unaudited)** |   |
| Cash flows from operating  activities                                        |   |                             |       |   |   |
| Net loss                                                                     |   | $                                | (1,531,997 | ) | $ | (8,894,631 | ) |
| Adjustments to reconcile net  loss to net cash used in operating activities: |   |                             |       |   |   |
| Depreciation and amortization                                                |   | 676,087                          |       | 1,201,822 |   |
| Loss on troubled debt  restructuring                                         |   | -                                |       | 6,861,719 |   |
| Write-down of deferred financing  charges                                    |   | -                                |       | 927,190 |   |
| Loss on disposal of fixed assets                                             |   | -                                |       | 5,856 |   |
| Accounts receivable                                                          |   | 180,505                          |       | 298,448 |   |
| Inventory                                                                    |   | (4,438                           | )          | 16,462 |   |
| Deposits                                                                     |   | (223,792                         | )          | (173,102 | ) |
| Prepaid and other assets                                                     |   | (73,151                          | )          | (134,445 | ) |
| Accounts payable and accrued  expenses                                       |   | (143,496                         | )          | (145,485 | ) |
| Accrued payroll and other  liabilities                                       |   | 794,769                          |       | 732,527 |   |
| Total adjustments                                                            |   | 1,206,484                        |       | 9,590,992 |   |
| Net cash provided (used in)  operating activities                            |   | (325,513                         | )          | 696,361 |   |
|                                                                         |   |                             |       |   |   |
| Cash flows from investing  activities                                        |   |                             |       |   |   |
| Advances on notes receivable  from officer                                   |   | (31,950                          | )          | (75,993 | ) |
| Payments received on notes  receivable from officer                          |   | 15,526                           |       | - |   |
| Capital expenditures                                                         |   | (42,538                          | )          | (77,085 | ) |
| Net cash provided (used in)  investing activities                            |   | (58,962                          | )          | (153,078 | ) |
|                                                                         |   |                             |       |   |   |
| Cash used in financing  activities                                           |   |                             |       |   |   |
| Borrowings/repayments under  working capital line (Note 5)                   |   | (127,834                         | )          | (319,823 | ) |
| Repayment on long-term borrowing                                             |   | (263,976                         | )          | (3,118 | ) |
| Notes payable to officer                                                     |   | 300,000                          |       | 20,841 |   |
| Cash received on notes payable  from officer                                 |   | (83,000                          | )          | - |   |
| Issuance of common stock                                                     |   | 100,050                          |       | - |   |
| Net cash provided by (used in)  financing activities                         |   | (74,760                          | )          | (302,100 | ) |
|                                                                         |   |                             |       |   |   |
| Effect of exchange rate changes  on cash and cash equivalents                |   | (84,456                          | )          | - |   |
|                                                                         |   |                             |       |   |   |
| Net decrease in cash and cash  equivalents                                   |   | (543,691                         | )          | 241,183 |   |
| Cash and cash equivalents at  beginning of period                            |   | 1,009,768                        |       | 374,587 |   |
|                                                                         |   |                             |       |   |   |
| Cash and cash equivalents at end  of period                                  |   | $                                | 466,077    |   | $ | 615,770 |   |

 

See notes to consolidated financial statements.

 

**Supplemental Schedule of Non-CashInvesting and Financing Activities**

 

In June 2000, On Stage sold equipment withhistorical cost of approximately $8000, at a loss of $5,856.

 

**On Stage Entertainment, Inc. and Subsidiaries**

**Notes to Consolidated FinancialStatements**

**June 30, 1999**

 

 

**Basis of Presentation**

 

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;Blazing Pianos, Inc., a Nevada corporation; King Henry’s Inc., a Nevadacorporation; On Stage Merchandise, Inc., a Nevada corporation; On Stage Events,Inc., a Nevada 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 theopinion of the management of On Stage Entertainment, Inc. and Subsidiaries, theaccompanying unaudited consolidated financial statements include all normaladjustments considered necessary to present fairly the financial position as ofJune 30, 2000, and the results of operations and cash flows for the three monthsended June 30, 2000 and 1999. Interim results are not necessarily indicative ofresults for full year. The consolidated financial statements and notes arepresented as permitted by Form 10-QSB, and do not contain information includedin the Company’s audited consolidated financial statements and notes for thefiscal year ended December 31, 1999.

 

(**1) Loss per share**

 

                Statementof Financial Accounting Standard No. 128 provides a different method ofcalculating earnings per share than is currently used in accordance with APB15, Earnings per Share. SFAS 128 provides for the calculation of Basic andDiluted earnings per share. Basic earnings per share includes no dilution andis computed by dividing income available to common shareholders by the weightedaverage number of common shares outstanding for the period. Diluted earningsper share reflect the potential dilution of securities that could share in theearnings of the entity, similar to fully diluted earnings per share. SFAS 128is effective for fiscal years and interim periods after December 15, 1997. Wehave adopted this pronouncement during the fiscal year ended December 31, 1997.

 

                For the six months ended June30, 1999, potential dilutive securities representing 1,121,550 outstandingstock options and 3,660,155 outstanding warrants are not included, since theireffect would be anti-dilutive. For the six months ended June 30, 2000,potential dilutive securities representing 1,224,850 outstanding stock optionsand 3,660,155 outstanding warrants are not included, since their effect wouldbe anti-dilutive.

 

**(2) Commitments and contingencies**

 

                We are a party tovarious legal proceedings in which the adverse parties are seeking damages fromus. While there can be no assurance that any of the instituted or threatenedlawsuits will be settled or decided in favor of us, the management of On Stagedoes not believe the final resolution of these matters will have a materialadverse effect upon its financial condition and results of operations.

 

**(3) Going concern**

 

                The accompanyingconsolidated financial statements have been prepared assuming that On Stagewill continue as a going concern, which contemplates the realization of assetsand the satisfaction of liabilities in the normal course of business.  The carrying amounts of assets andliabilities presented in the financial statements do not purport to representrealizable or settlement values. However, On Stage has suffered recurringoperating losses, has a working capital deficit of $18,837,000 and has defaultedon its long-term debt. These factors raise substantial doubt about the abilityto continue as a going concern.  Theconsolidated financial statements do not include any adjustments that mightresult from the outcome of those uncertainties.

 

                On Stage hashistorically met its working capital requirements through a combination of cashflow from operations, equity and debt offerings and traditional bankfinancing.  On Stage anticipates, basedon its proposed plans and assumptions relating to its operations that thecurrent cash, cash equivalent balances, and anticipated revenue from operationsare insufficient to fund its ongoing operations.

 

                Management plansto manage short-term liquidity concerns through the renegotiations of itsexpired working capital line, capital leases and mortgage facilities. On Stagehas either closed down or restructured any business units that are notgenerating positive cash flow.  Inaddition, we have lowered selling, general and administrative costs as apercent of net revenues from 15.2% for the six months ended June 30, 1999, to10.1% for the six months ended June 30, 2000 and continue to downsize andrestructure selling, general and administrative functions.

 

                Inaddition, On Stage is continuing its efforts to secure working capital foroperations, expansion and possible acquisitions, mergers, joint ventures,and/or other business combinations. However, there can be no assurance that On Stage will be able to secureadditional capital or that if such capital is available, whether the terms orconditions would be acceptable to us. While we are currently in settlement negotiations with ICCMIC and FirstSecurity Bank, there can be no assurance that we will be successful withreaching a settlement with either party.

 

 (**4) Direct acquisition costs**

 

                On March 31, 2000,On Stage wrote-off direct acquisition costs totaling $597,238, which had nofuture value.

 

**(5) Deferred financing charges**

 

                On June 30, 2000,On Stage wrote-off deferred financing charges totaling $927,190, which had nofuture value.

 

**(6) Debt restructuring**

 

                Asof June 30, 2000, property, equipment, and leasehold improvements include $9million of assets subject to foreclosure, stated at net realizable value.

 

                Asof October 7, 1998, we had borrowed an aggregate of $14,150,000 from ourmortgage lender, ICCMIC.  On May 24,1999, we received a notice of default from ICCMIC.  On November 5, 1999, we received a formal demand from ICCMIC topay them the sum of $16,163,305 as a guarantor under the loan, whichrepresented all of the indebtedness, including late charges and defaultinterest, due on that date.  On November12, 1999, ICCMIC filed a complaint against us in the District Court for ClarkCounty, Nevada, alleging, among other things that we had breached theguaranty.  On December 10, 1999, weagreed to allow ICCMIC to obtain a judgment against us for the amount of theguaranty in return for a forbearance on the collection of the judgment untilMarch 31, 2000.  ICCMIC later extendedthe date for collection on the judgment until May 1, 2000.

 

                On December 9, 1999, ICCMIC obtained judgment offoreclosure against our subsidiaries, Port Liberty, Inc. and King Henry's, Inc.for the sale of the Fort Liberty Shopping Complex and Wild Bill's DinnerTheater in Kissimmee, Florida, and the King Henry's Feast Theater in Orlando,Florida.

 

                On January 5, 2000, ICCMIC obtained a foreclosuredecree for the official sale of the Legends in Concert Family Theater inSurfside Beach, South Carolina.

 

                During the period, wecontinued negotiating the terms of the credit facilities to obtain extensionsand to seek alternative additional financing.

 

                On January 24, 2000, we reached an agreement withICCMIC to extend the foreclosure sale date on the King Henry's Feast Theaterfrom January 26, 2000 to March 8, 2000. On March 7, 2000, we reached an agreement with ICCMIC to extend theforeclosure sale date on the King Henry's Feast Theater until April 5,2000.  On March 30, 2000, ICCMIC agreedto extend the foreclosure sale date to May 3, 2000.

 

                On January 25, 2000, we reached an agreement withICCMIC to extend the foreclosure sale date on the Fort Liberty Shopping Complexand Wild Bill's Dinner Theater from January 25, 2000 until March 7,2000.  On March 7, 2000, we reached anagreement with ICCMIC to extend the foreclosure sale date until April 4,2000.  On March 30, 2000, ICCMIC agreedto extend the foreclosure sale date to May 2, 2000.

 

                On February 1, 2000, we reached an agreement withICCMIC to extend the foreclosure sale date on the Legends in Concert FamilyTheater in Surfside Beach from February 7, 2000 until March 6, 2000.  On March 3, 2000, we reached on agreementwith ICCMIC to extend the foreclosure sale date until April 3, 2000.  On March 30, 2000, ICCMIC agreed to extendthe foreclosure sale date until May 2000.

 

                On May 1, 2000, we entered into a partial settlementwith ICCMIC under which we agreed not to prevent ICCMIC from foreclosing on theFort Liberty, King Henry's and Legends in Concert Surfside Beach Theater inexchange for an aggregate credit of $9 million.  Of this amount, $3 million was allocated to Fort Liberty, $4million was allocated to King Henry's Feast and $2 million was allocated toLegends in Concert Surfside Beach Theater. We also agreed to operate the King Henry's and Fort Liberty Theatersuntil June 21, 2000, at which time the theaters were closed.

 

                In connection with the transfer of assets to ICCMIC,we incurred a troubled debt restructuring loss of approximately $6,918,309 (ofwhich $6,861,418 had been accrued at March 31, 2000 based on a preliminaryestimate and $56,591 was recorded on September 30, 2000 when we completed ouranalysis of the foreclosure), representing the difference between the estimatedfair value of the assets transferred and the carrying value of the debtsettled.

 

                On September 15, 2000, On Stage sold the assets ofthe Legends in Concert Family Theater in Surfside Beach independently and usedthe proceeds to pay off its debt with ICCMIC.

 

                On October 12, 2000, we restructured our remainingdebt with ICCMIC and First Security Bank of Nevada ("First SecurityBank").  Under the terms of theagreement, ICCMIC agreed to convert its outstanding loan and accrued interestof approximately $8.2 million in exchange for 4,061,122 shares of common stockwith a market value of $1,218,336, which resulted in a troubled debtrestructuring gain of $7,059,431.  Aspart of this transaction, Mr. Parrott purchased 2,630,000 shares of our commonstock, at market value, from ICCMIC for $1 million.

 

                As a result of the debt restructuring, we recorded anet troubled debt restructuring gain of $141,122 in the following quarters:

 

 
| **Quarter  Ended**  |   | **Gains (loss)** |       |
|---------------------|--------|------------------|------------|
| March  31, 2000     |   | $                | (6,861,719 | ) |
| June  30, 2000      |   | ---              |       |
| September  30, 2000 |   | (56,591          | )          |
| December  31, 2000  |   | 7,059,432        |       |
|                |   |             |       |
| Total               |   | $                | 141,122    |   |

 

                We also restructured ourremaining debt of approximately $1.2 million with First Security Bank.  Under the terms of the agreement with FirstSecurity Bank, effective August 1, 2000, we pay $50,000 per month.  The loan matures on September 1, 2002 andaccrues interest at the annual rate of prime plus 2%, which was 9.5% atDecember 31, 2000.

 

 

(**7) Segment information**

 

                The following information ispresented in accordance with SFAS No. 131, which was adopted by On Stagein the fourth quarter of 1998.

 

The Company derives its net revenues from five reportable segments:

 

•      Casinos.  The Casinos segment primarily sells live theatrical productionsto casinos worldwide for a fixed fee. In addition, this segment operates our Legends in Concerts show at theImperial Palace in Las Vegas, Nevada and Biloxi, Mississippi and at Bally’sPark Place in Atlantic City, New Jersey.

•      Theaters.  The Theaters segment owns and /or rents live theaters and dinnertheaters in urban and resort tourist locations primarily in the UnitedStates.  This segment derives revenuesfrom the sale of tickets along with food and beverages to patrons who attendour live theatrical productions.

•      Events.  The Events segment sells live theatrical productions to commercialclients, which include corporations, theme and amusement parks and cruiselines, for a fixed fee.  Revenuesgenerated from the Events segment are included in the Casinos segment.

•      Merchandise.  The Merchandise segment sells merchandiseand souvenir photography products to patrons who attend our Casinos, Theaters,and Events productions.  Revenuesgenerated from the Merchandise segment are included in the Theaters segment.

•      Production Services.  The Production Services segment sellstechnical equipment and services to commercial clients.  However, the Production Services segment’sprimary focus is to provide technical support for all of the Casinos, Theaters,Events and Merchandise segments.

 

                The accountingpolicies of the reportable operating segments are the same as those describedin the Summary of Accounting Policies. On Stage’s management evaluates the performance of its operatingsegments based upon the profit or loss from operations.  On Stage reportable segments are strategicbusiness units because each business unit services a different market orperforms a specialized function in support of a given market.

 

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

 

For the six months ended June 30, 1999

 
|                             |   | **Casino** |      | **Production****Services** |   | **Theaters** |   | **OSE** |       | **Total Consolidated** |   |
|----------------------------------|--------|------------|-----------|----------------------------|--------|--------------|--------|---------|------------|------------------------|--------|
| Revenues from external customers |   | $          | 4,848,049 |                       | $      | 45,499       |   | $       | 8,781,699  |                   | $      | - |   | $ | 13,675,247 |   |
|                             |   |       |      |                       |   |         |   |    |       |                   |   |
| Interest expense                 |   | $          | 27        |                       | $      | 1,123        |   | $       | 1,323,694  |                   | $      | 104,305 |   | $ | 1,429,149 |   |
|                             |   |       |      |                       |   |         |   |    |       |                   |   |
| Depreciation and amortization    |   | $          | 185,583   |                       | $      | 43,923       |   | $       | 280,397    |                   | $      | 93,698 |   | $ | 603,601 |   |
|                             |   |       |      |                       |   |         |   |    |       |                   |   |
| Segment profit (loss)            |   | $          | 1,246,182 |                       | $      | (342,939     | )      | $       | (1,092,935 | )                      | $      | (1,342,305 | ) | $ | (1,531,997 | ) |
|                             |   |       |      |                       |   |         |   |    |       |                   |   |
| Segment assets                   |   | $          | 3,182,401 |                       | $      | 775,783      |   | $       | 18,336,767 |                   | $      | 1,861,576 |   | $ | 24,156,527 |   |
|                             |   |       |      |                       |   |         |   |    |       |                   |   |
| Additions to long-lived assets   |   | $          | 20,091    |                       | $      | -            |   | $       | 22,447     |                   | $      | - |   | $ | 42,538 |   |

 

 

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  |                   | $      | 46,186 |   | $ | 1,857,729 |   |
|                                             |   |       |      |                       |   |         |   |    |       |                   |   |
| Depreciation and amortization                    |   | $          | 200,057   |                       | $      | 54,146       |   | $       | 241,874    |                   | $      | 705,745 |   | $ | 1,201,822 |   |
|                                             |   |       |      |                       |   |         |   |    |       |                   |   |
| Segment profit (loss) before  extraordinary item |   | $          | 1,308,421 |                       | $      | (412,517     | )      | $       | (1,437,331 | )                      | $      | (1,491,486 | ) | $ | (2,032,913 | ) |
|                                             |   |       |      |                       |   |         |   |    |       |                   |   |
| Segment 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     |                   | $      | 8,320 |   | $ | 77,085 |   |

 

 

**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

                This documentcontains certain forward-looking statements that are subject to risks anduncertainties. Forward-looking statements include certain information relatingto potential new show openings, the potential markets for On Stage'sproductions, the expansion of existing and potential gaming and touristmarkets, our exposure to various trends in the gaming industry, our acquisitionplans and the benefits we anticipate from these acquisitions, our businessstrategy, our outstanding litigation matters and the defenses available to us,the seasonality of our 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" or similar expressions.  For these statements, On Stage claims the protection of the safeharbor for forward-looking statements contained in the Private SecuritiesLitigation Reform Act of 1995. The forward-looking statements in this documentare subject to risks and uncertainties that could cause the assumptionsunderlying the forward-looking statements and the actual results to differmaterially from those expressed in or implied by the statements.

 

                The most importantfactors that could prevent On Stage from achieving its goals and cause theassumptions underlying the forward-looking statements and the actual results todiffer materially from those expressed in or implied by those forward-lookingstatements include the information provided under the heading "Descriptionof Business-Risk Factors" in Item 1 of our Annual Report on Form 10-KSBfor the year ended December 31, 1999, as well as the following:

 

•      On Stage's dependence on our flagshipLegends in Concert production and  ourprincipal 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 underour credit facilities, which are currently in default, and to obtainalternative or additional financing on commercially reasonable terms;

•      The ability to continue as an ongoingconcern;

•      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 abilityto successfully manage the litigation pending against us and to avoid futurelitigation; and

•      The resultsof operations which depend on numerous factors, including the commencement andexpiration of contracts, the timing and amount of new business generated by us,our revenue mix, the timing and level of additional selling, general andadministrative expense and the general competitive conditions in the leisureand entertainment industry as well as the overall economy.

 

**Results of Operations**

 

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

 

For thequarter ended June 30, 1999

 
|                                   |   | **Casino** |      | **Production****Services** |   | **Theaters** |   | **Sub-Total****Operating****Segments** |      | **OSE**  |   | **Total Consolidated** |   |
|----------------------------------------|--------|------------|-----------|----------------------------|--------|--------------|--------|----------------------------------------|-----------|----------|--------|------------------------|--------|
| Net revenues                           |   | $          | 2,274,856 |                       | $      | 26,929       |   | $                                      | 5,101,223 |     | $      | 7,403,008              |   | $ | - |   | $ | 7,403,008 |   |
|                                   |   |       |      |                       |   |         |   |                                   |      |     |   |                   |   |
| Cost of revenues                       |   | 1,437,970  |      | 170,628                    |   | 3,770,726    |   | 5,379,324                              |      | -        |   | 5,379,324              |   |
|                                   |   |       |      |                       |   |         |   |                                   |      |     |   |                   |   |
| Gross profit (loss)                    |   | 836,886    |      | (143,699                   | )      | 1,330,497    |   | 2,023,684                              |      | -        |   | 2,023,684              |   |
|                                   |   |       |      |                       |   |         |   |                                   |      |     |   |                   |   |
| Selling, general &  administrative |   | 132,112    |      | -                          |   | 425,132      |   | 557,244                                |      | 478,708  |   | 1,035,952              |   |
|                                   |   |       |      |                       |   |         |   |                                   |      |     |   |                   |   |
| Depreciation & amortization        |   | 86,204     |      | 22,029                     |   | 199,724      |   | 307,957                                |      | 45,577   |   | 353,534                |   |
|                                   |   |       |      |                       |   |         |   |                                   |      |     |   |                   |   |
| Restructuring charges                  |   | 10,000     |      | -                          |   | 113,359      |   | 123,359                                |      | 139,434  |   | 262,793                |   |
|                                   |   |       |      |                       |   |         |   |                                   |      |     |   |                   |   |
| Operating income (loss)                |   | 608,570    |      | (165,728                   | )      | 592,282      |   | 1,035,124                              |      | (663,719 | )      | 371,405                |   |
|                                   |   |       |      |                       |   |         |   |                                   |      |     |   |                   |   |
| Interest expense, net                  |   | (27        | )         | -                          |   | (966,804     | )      | (966,831                               | )         | (53,007  | )      | (1,019,838             | )      |
|                                   |   |       |      |                       |   |         |   |                                   |      |     |   |                   |   |
| Net income (loss)                      |   | $          | 608,543   |                       | $      | (165,728     | )      | $                                      | (374,522  | )        | $      | 68,293                 |   | $ | (716,726 | ) | $ | (648,433 | ) |

 

 

For thequarter ended June 30, 2000

 
|                                   |   | **Casino** |      | **Production****Services** |   | **Theaters** |   | **Sub-Total****Operating****Segments** |      | **OSE**  |   | **Total Consolidated** |   |
|----------------------------------------|--------|------------|-----------|----------------------------|--------|--------------|--------|----------------------------------------|-----------|----------|--------|------------------------|--------|
| Net revenues                           |   | $          | 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 sixmonths ended June 30, 1999

 
|                                   |   | **Casino** |      | **Production****Services** |   | **Theaters** |   | **Sub-Total****Operating****Segments** |       | **OSE**    |   | **Total Consolidated** |   |
|----------------------------------------|--------|------------|-----------|----------------------------|--------|--------------|--------|----------------------------------------|------------|------------|--------|------------------------|--------|
| Net revenues                           |   | $          | 4,848,049 |                       | $      | 45,499       |   | $                                      | 8,781,699  |       | $      | 13,675,247             |   | $ | - |   | $ | 13,675,247 |   |
|                                   |   |       |      |                       |   |         |   |                                   |       |       |   |                   |   |
| Cost of revenues                       |   | 3,082,748  |      | 343,392                    |   | 7,403,693    |   | 10,829,833                             |       | -          |   | 10,829,833             |   |
|                                   |   |       |      |                       |   |         |   |                                   |       |       |   |                   |   |
| Gross profit (loss)                    |   | 1,765,301  |      | (297,893                   | )      | 1,378,006    |   | 2,845,414                              |       | -          |   | 2,845,414              |   |
|                                   |   |       |      |                       |   |         |   |                                   |       |       |   |                   |   |
| Selling, general &  administrative |   | 323,509    |      | -                          |   | 753,491      |   | 1,077,000                              |       | 1,004,868  |   | 2,081,868              |   |
|                                   |   |       |      |                       |   |         |   |                                   |       |       |   |                   |   |
| Depreciation & amortization        |   | 185,583    |      | 43,923                     |   | 280,397      |   | 509,903                                |       | 93,698     |   | 603,601                |   |
|                                   |   |       |      |                       |   |         |   |                                   |       |       |   |                   |   |
| Restructuring charges                  |   | 10,000     |      | -                          |   | 113,359      |   | 123,359                                |       | 139,434    |   | 262,793                |   |
|                                   |   |       |      |                       |   |         |   |                                   |       |       |   |                   |   |
| Operating income (loss)                |   | 1,246,209  |      | (341,816                   | )      | 230,759      |   | 1,135,152                              |       | (1,238,000 | )      | (102,848               | )      |
|                                   |   |       |      |                       |   |         |   |                                   |       |       |   |                   |   |
| Interest expense, net                  |   | (27        | )         | (1,123                     | )      | (1,323,694   | )      | (1,324,844                             | )          | (104,305   | )      | (1,429,149             | )      |
|                                   |   |       |      |                       |   |         |   |                                   |       |       |   |                   |   |
| Net income (loss)                      |   | $          | 1,246,182 |                       | $      | (342,939     | )      | $                                      | (1,092,935 | )          | $      | (189,692               | )      | $ | (1,342,305 | ) | $ | (1,531,997 | ) |

 

 

For the sixmonths ended June 30, 2000

 
|                                                    |   | **Casino** |      | **Production****Services** |   | **Theaters** |   | **Sub-Total****Operating****Segments** |       | **OSE**    |   | **Total Consolidated** |   |
|---------------------------------------------------------|--------|------------|-----------|----------------------------|--------|--------------|--------|----------------------------------------|------------|------------|--------|------------------------|--------|
| Net revenues                                            |   | $          | 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                             | )          | (46,186    | )      | (1,857,729             | )      |
| Gain (loss) on disposition 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               | )      | $ | (1,491,486 | ) | $ | (2,032,913 | ) |
|                                                    |   |       |      |                       |   |         |   |                                   |       |       |   |                   |   |
| Extraordinary item – troubled  debt restructuring. |   | -          |      | -                          |   | (6,861,718   | )      | (6,861,718                             | )          | -          |   | (6,861,718             | )      |
|                                                    |   |       |      |                       |   |         |   |                                   |       |       |   |                   |   |
| Net income (loss)                                       |   | $          | 1,308,421 |                       | $      | (412,517     | )      | $                                      | (8,299,049 | )          | $      | (7,403,145             | )      | $ | (1,491,486 | ) | $ | (8,894,631 | ) |

 

**QuarterEnded June 30, 1999 versus Quarter Ended June 30, 2000**

 

***                NetRevenues***.Revenues were approximately $7,151,000 for the quarter ended June 30, 2000compared to $7,403,000 for the quarter ended June 30, 1999, a decrease of$252,000, or 3.4%. Our revenue is derived from five principal operatingsegments: Casinos, Events, Merchandise, Production Services, and Theaters.Revenues from Events are included in the Casino segment. Revenues from Merchandiseare included in the Theaters segment.

 

                Casinos revenueswere approximately $2,486,000 for the quarter ended June 30, 2000 compared to$2,275,000 for the quarter ended June 30, 1999, an increase of $211,000, or9.3%. Contributing to this increase were the addition of new *Legends in Concert*shows at the ImperialPalace in Biloxi, Mississippi and on Premier Cruise Lines and the increases inrevenue attributable to limited engagements and corporate events. Theseincreases were partially offset by a decrease in revenue at the *Legends in Concert* show at the ImperialPalace and Casino in Las Vegas, Nevada.

 

                ProductionServices revenues were approximately $13,000 for the quarter ended June 30,2000 compared to $27,000 for the quarter ended June 30, 1999. The decrease wasattributable to a decrease in equipment rentals.

 

                Theaters revenues wereapproximately $4,652,000 for the quarter ended June 30, 2000 compared to$5,101,000 for the quarter ended June 30, 1999, a decrease of $449,000, or8.8%. This decrease was primarily attributable to decreases in revenuesgenerated by On Stage’s dinner theaters and the discontinuation of the *Legends in Concert*show at the SheratonCentre Hotel in Toronto, Canada. 

 

                ***Costs of Revenues***.Total costs of revenues were $5,674,000 for the quarter ended June 30,  2000 compared to $5,379,000 for the quarterended June 30, 1999, an increase of $295,000, or 5.5%. Costs of revenuesincreased to 79.3% of net revenues for the quarter ended June 30, 2000, ascompared to 72.7% for the quarter ended June 30, 1999. This increase in cost ofsales as a percentage of revenues was primarily attributable to a change in themix of our revenues.

 

***                Selling,General and Administrative****.* Selling, general and administrative costs wereapproximately $738,000 for the quarter ended June 30, 2000 as compared to$1,036,000 for the quarter ended June 30, 1999, a decrease of $298,000, or28.8%. This is primarily attributable to our reduction of overhead associatedwith the discontinuation of our “roll-out” strategy. Selling, general andadministrative costs decreased to 10.0% of net revenues for the quarter endedJune 30, 2000, as compared to 14.0% for the quarter ended June 30, 1999.

 

***                Depreciationand Amortization***. Depreciation and amortization for the quarter ended June 30,  2000 decreased by $93,000, or 26.4%, ascompared to the quarter ended June 30, 1999. The decrease was primarily due tothe write down of assets held for sale and subject to foreclosure.

 

***                RestructuringCharges.***Restructuringcharges represents expenses related to the closing of the *Legends in Concert* show in Toronto,Canada, payment of employment-related severance and termination benefits, legalexpenses, and relocation expenses of a key executive.

 

                ***Operating Income****.* Our operating income was approximately$479,000 for the quarter ended June 30, 2000 compared to an operating income of$371,000 for the quarter ended June 30, 1999.

 

***                InterestExpense, Net***.Interest expense for the quarter ended June 30, 2000 increased by $141,000, or13.9%, as compared to the quarter ended June 30, 1999. The increase wasprimarily due to interest accrued on the ICCMIC debt, together with penaltiesand default interest rates.

 

                ***Income Taxes***. OnStage is a Nevada corporation with a substantial portion of revenue and incomederived in Nevada. There are no state or local income taxes in Nevada. We havenot accrued any federal income tax for the quarter ended June 30, 1999. At June30, 1999 and 2000, we had federal net operating loss carryforwards of approximately$7,907,000 and $17,290,000, respectively. Under Section 382 of the InternalRevenue Code, certain significant changes in ownership that On Stage iscurrently undertaking may restrict the future utilization of these tax losscarryforwards.  The net deferred taxassets have a 100% valuation allowance, as management cannot determine if it ismore likely than not that the deferred tax assets will be realized.

 

**Six Months Ended June 30, 1999 versusSix Months Ended June 30, 2000**

 

***                NetRevenues***.Revenues were approximately $13,257,000 for the six months ended June 30, 2000compared to $13,675,000 for the six months ended June 30, 1999, a decrease of$418,000, or 3.1%. Our revenue is derived from five principal operatingsegments: Casinos, Events, Merchandise, Productions and Theaters. Revenues fromEvents are included in the Casinos segment. Revenues from Merchandise areincluded in the Theaters segment.

 

                Casinos revenueswere approximately $4,960,000 for the six months ended June 30, 2000 comparedto $4,848,000 for the six months ended June 30, 1999, an increase of $112,000,or 2.3%. Contributing to this increase were the addition of new *Legends in Concert*shows at the ImperialPalace in Biloxi, Mississippi and on Premier Cruise Lines and the increases inrevenue attributable to limited engagements and corporate events. Theseincreases were partially offset by a decrease in revenue at the *Legends in Concert* show at the ImperialPalace and Casino in Las Vegas, Nevada.

 

                ProductionServices revenues were approximately $24,000 for the six months ended June 30,2000 compared to $45,000 for the six months ended June 30, 1999. The decreasewas attributable to a decrease in equipment rentals.

 

                Theaters revenueswere approximately $8,273,000 for the six months ended June 30, 2000 comparedto $8,782,000 for the six months ended June 30, 1999, a decrease of $509,000,or 5.8%. This decrease was primarily attributable to decreases in revenuegenerated by On Stage’s theaters in Orlando, Florida, the *Legends in Concert* show in Myrtle Beach,South Carolina and the discontinuation of the *Legendsin Concert* show in Toronto, Canada.

 

                ***Costs of Revenues****.* Total costs of revenues were $10,892,000for the six months ended June 30, 2000 compared to $10,830,000 for the sixmonths ended June 30, 1999, an increase of $62,000, or 0.6%.  Costs of revenues increased to 82.2% of netrevenues for the six months ended June 30, 2000, as compared to 79.2% for thesix months ended June 30, 1999. This increase in cost of sales as a percentageof revenues was primarily attributable to a change in the mix of our revenues.

 

**                *Selling, General and Administrative****.* Selling, general and administrativecosts were approximately $1,333,000 for the six months ended June 30, 2000 ascompared to $2,082,000 for the six months ended June 30, 1999, a decrease of$749,000, or 36.0%. Selling, general and administrative costs decreased to10.1% of net revenues for the six months ended June 30, 2000, as compared to15.2% for the six months ended June 30, 1999. This is primarily attributable toour reduction of overhead associated with the discontinuation of our"roll-out” strategy.

 

***                Depreciationand Amortization***.  Depreciation and amortizationfor the six months ended June 30, 2000 increased by $598,000, or 99.1%, as comparedto the six months ended June 30, 1999. The increase was primarily due to thewrite-off of direct acquisition costs.

 

***                RestructuringCharges.***Restructuringcharges represents expenses related to the closing of the *Legends in Concert* show in Toronto, Canada,payment of employment-related severance and termination benefits, legalexpenses, and relocation expenses of a key executive.

 

                ***Operating Loss****.* On Stage’s operating losses wereapproximately $169,000 for the six months ended June 30, 2000, compared to anoperating loss of $103,000 for the six months ended June 30, 1999, an increaseof  $66,000.

 

***                InterestExpense, Net***.Interest expense for the six months ended June 30, 2000 increased by $429,000,or 30.0%, as compared to the six months ended June 30, 1999. The increase wasprimarily due to interest accrued on the ICCMIC debt, together with penaltiesand default interest rates.

 

                ***Income Taxes***. OnStage is a Nevada corporation with a substantial portion of revenue and incomederived in Nevada. There are no state or local income taxes in Nevada. We havenot accrued any federal income tax for the six months ended June 30, 2000. AtJune 30, 1999 and 2000, we had federal net operating loss carryforwards ofapproximately $7,907,000 and $17,290,000 respectively. Under Section 382 of theInternal Revenue Code, certain significant changes in ownership that On Stageis currently undertaking may restrict the future utilization of these tax losscarryforwards. The net deferred tax assets have a 100% valuation allowance, asmanagement cannot determine if it is more likely than not that the deferred taxassets will be realized.

 

**Seasonality and Quarterly Results**

 

                On Stage’sbusiness has been, and is expected to remain, highly seasonal, with themajority of our revenue being generated during the months of April throughOctober. Part of our business strategy is to increase sales in tourist marketsthat experience their peak seasons from November through March, so as to offsetthis seasonality in revenues.

 

                The followingtable sets forth On Stage’s net revenue for each of the last six quarters endedJune 30, 2000:

 

 

Net Revenues      ($ in thousands)

 
|         |   | **March 31,** |   | **June 30,** |   | **September 30,** |   | **December 31,** |   |
|--------------|--------|---------------|--------|--------------|--------|-------------------|--------|------------------|--------|
| Fiscal  1999 |   | $             | 6,272  |         | $      | 7,403             |   | $                | 8,059  |   | $ | 7,819 |   |
| Fiscal  2000 |   | $             | 6,106  |         | $      | 7,151             |   |             |   |   |   |
|              |        |               |        |              |        |                   |        |                  |        |  |  |  |  |

 

 

**Liquidity and Capital Resources**

 

***General***

 

                 On Stage has historically met its workingcapital requirements through a combination of cash flow from operations, equityand debt offerings and traditional bank financing.  On Stage anticipates, based on its proposed plans and assumptionsrelating to its operations (including assumptions regarding the anticipatedtimetable of our new show openings and the costs associated therewith), thatits current cash, cash equivalent balances, anticipated revenue from operationsand working capital line will not be sufficient to fund our ongoing operationsand contemplated capital requirements over the next 12 months.

 

***GoingConcern***

 

On Stage has suffered recurringoperating losses, has a working capital deficit of $18,837,000, and hasdefaulted on its long-term debt. These factors raise substantial doubt aboutour ability to continue as a going concern. The consolidated financialstatements do not include any adjustments that might result from the outcome ofthose uncertainties. The report of On Stage's independent certified publicaccountant for the year ended December 31, 1999 contains an explanatoryparagraph regarding the uncertainty of our ability to continue as a goingconcern.

 

                Management plans to manage short-term liquidity concerns through therenegotiation of its expired working capital line, capital leases and mortgagefacilities. On Stage has either closed down or restructured any business unitsthat are not generating positive cash flow. In addition, On Stage has loweredselling, general and administrative costs as a percentage of revenues from15.2% for the six months ended June 30, 1999 to 10.1% for the six months endedJune 30, 2000 and continues to downsize and restructure its selling, generaland administrative costs.

 

                 In addition, On Stage is continuing itsefforts to secure working capital for operations, expansion and possibleacquisitions, mergers, joint ventures, and/or other business combinations.  However, there can be no assurance that OnStage will be able to secure additional capital or that if such capital isavailable, whether the terms or conditions would be acceptable to us.  While we are currently in settlementnegotiations with ICCMIC and First Security Bank, there can be no assurancethat we will be successful with reaching a settlement with either party.

 

***Cash Flow***

 

                For the six monthsended June 30, 1999, On Stage had net cash deficit used by operations ofapproximately $325,000.  As of June 30,1999, On Stage had approximately $466,000 in cash and cash equivalents.  The operating deficit was primarilyattributable to pre-opening costs for new shows and business seasonality. Forthe six months ended June 30, 2000, On Stage had net cash provided byoperations of approximately $696,000. As of June 30, 2000, On Stage hadapproximately $616,000 in cash and cash equivalents.  The cash provided by operations was primarily attributable to thewrite down of assets and write off of deferred financing costs.

 

                Thenet cash used in investing activities for the six months ended June 30, 1999 of$59,000 was primarily attributable to capital expenditures. The net cash usedin investing activities for the six months ended June 30, 2000 of $153,000 wasprimarily attributable to capital expenditures and advances on a notereceivable from a stockholder.

 

                Net cash used byfinancing activities for the six months ended June 30, 1999 of $75,000, wasattributable to notes payable from an officer and issuance of common stock,offset by repayment of long-term borrowing and repayment of working capitalline of credit. Net cash used by financing activities for the six months endedJune 30, 2000 of $302,000 was primarily attributable to repayment of line ofcredit and long-term debt.

 

***Working Capital***

 

                At June 30, 1999,we had a working capital deficit of approximately $17,927,000 primarilyattributable to an increase in the accrued expenses, accrued payroll and otherliabilities, notes payable to an officer and the default acceleration of ourlease and loan from First Security Bank and ICCMIC to current liabilities.  At June 30, 2000, we had a working capitaldeficit of approximately $18,837,000 which resulted primarily from an increasein the accrued expenses, accrued payroll and other liabilities, notes payableto an officer and the default acceleration of our lease and loan from FirstSecurity Bank and ICCMIC to current liabilities. Because of the recurringlosses, the working capital deficit and the loan defaults, our auditors issueda going concern opinion for the year ended December 31, 1999.

 

***Working Capital Line***

 

In May 1997, First Security Bank of Nevada  (“First Security Bank”) issued a line ofcredit to us for up to $250,000. Borrowings under such facility bear variableinterest at 1.5% over the First Security Bank of Idaho's index (10% per year asof the facility's inception) and are due on demand. John W. Stuart haspersonally guaranteed this line of credit.

 

                On March 28, 1998,First Security Bank agreed to increase this line of credit from $250,000 to$1,000,000 and the expiration date was extended to March 25, 1999. As ofDecember 31, 1998, On Stage had drawn $1,000,000 on the line of credit.  As of March 31, 1999, On Stage had failed topay off any part of the line of credit and is in default under its terms.  On April 29, 1999, we received a notice ofdefault under the line of credit from First Security Bank. As of June 30, 2000,amounts owed under the line of credit were $139,000.

 

###### ***Capital EquipmentFinancing Commitment***

 

On September 29,1997, First Security Leasing Company ("First Security Leasing"), aUtah corporation, approved On Stage for a $1,000,000 lease line of credit.  Advances under the lease line incur interestat a rate of 9.75% per annum. The lease line has been utilized in the followingamounts: $389,290, $442,997 and $167,713, commencing in April 1998 and May1998, respectively, and terminating on October 2001, September 2001 andNovember 2001.  We also received anotice of default under this line on April 29, 1999. As of June 30, 2000,amounts owed under the lease line were $1,300,000.

 

**PARTII. OTHER INFORMATION**

 

**Item 1.****  Exhibits & Reports on Form 8-K**

 
|   | (a)    | Exhibits                                                                                     |
|--------|--------|----------------------------------------------------------------------------------------------|
|   |   |                                                                                         |
|   |   | See Index of Exhibits                                                                        |
|   |   |                                                                                         |
|   | (b)    | Reports on Form 8-K                                                                          |
|   |   |                                                                                         |
|   |   | On Stage filed a Current Report on Form 8-K on May  5, 2000 (Commission File No: 000-29402). |
|   |   |                                                                                         |

 

**SIGNATURES**

 

Inaccordance with the requirements of the Securities Exchange Act of 1934, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                           | ON STAGE ENTERTAINMENT, INC.                                                                                             |   |
|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------|
|                           |                                                                                                                     |   |
|                           |                                                                                                                     |   |
|                           |                                                                                                                     |   |
| Date:   November 30, 2001 |                 /s/  Timothy J. Parrott  |   |
|                           | Timothy J. Parrott                                                                                                       |   |
|                           | President and Chief Executive Officer                                                                                    |   |
|                           |                                                                                                                     |   |
|                           |                                                                                                                     |   |
|                           |                                                                                                                     |   |
|                           |                                                                                                                     |   |
|                           |                                                                                                                     |   |
| Date: November 30, 2001        |                 /s/  Margaret Ann Freman |   |
|                           | Margaret Ann Freman                                                                                                      |   |
|                           | Vice President and Financial Officer                                                                                     |   |
|                           |                                                                                                                     |   |
|                           |                                                                                                                     |   |

 

**EXHIBITINDEX**

** **
| 10.1 |   | Warrant Agreement between Imperial Credit Commercial  Mortgage Investment Corp., Imperial Capital Group LLC and the Registrant,  dated as of March 13,1998. [1]                                             |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2 |   | Loan Agreement by and between Imperial Credit  Commercial Mortgage Investment Corp. and Wild Bill’s California, Inc., King  Henry’s, Inc. and Fort Liberty, inc., dated as of March 13, 1998. [1] |
| 10.3 |   | Guaranty Loan Agreement between Imperial Credit  Commercial Mortgage Investment Corp. and the Registrant, dated as of March  13, 1998. [1]                                                                  |

 

----

 

| [1]    |  Incorporated  by reference to the Company’s Quarterly Report on Form 10-QSB for the quarter  ended March 31, 1998 filed May 15, 1998 (Commission File No.  333-24681). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                   |