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

**WASHINGTON, DC 20549**

----

 

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

 
| **(Mark One)**                                    |   |                                                                                    |
|---------------------------------------------------|--------|-----------------------------------------------------------------------------------------|
| **ý**                                        |   | **Quarterly report under Section 13  or 15 (d) of the Securities Exchange Act of 1934** |
|                                              |   |                                                                                    |
| **For the  quarterly period ended June 30, 2002** |
|                                              |   |                                                                                    |
| **o**                                             |   | **Transition report under Section 13  or 15 (d) of the Exchange Act**                   |

 

# **Forthe Transition periodfrom          to          **

 

**Commission file number 0-29402**

 

**ON STAGEENTERTAINMENT, 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  Telephone Number, Including Area Code                                |
|                                                                                |
| (Former  Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |

 

Check whether the registrant: (1) filed alldocuments and reports required to be filed by Section 12, 13 or 15 (d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý No  o

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

The number of shares outstanding of the issuer’scommon stock, par value $0.01 per share, as of August 13, 2002, 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                         |   |
|                                    |  |  |  |

 

2

----

 

This document contains certain forward-lookingstatements that are subject to risks and uncertainties.  Forward-lookingstatements include certain information relating to our potential new showopenings, the potential markets for our productions, the expansion of existingand potential gaming and tourist markets, exposure to various trends in thegaming industry, acquisition plans and the benefits anticipated from theseacquisitions, business strategy, outstanding litigation matters and theavailable defenses, the seasonality of our business, and liquidity issues, aswell as information contained elsewhere in this report where current statementsare preceded by, followed by or include the words “believes,” “expects,”“anticipates” or similar expressions.  For these statements, we claim theprotection of the safe harbor for forward-looking statements contained in thePrivate Securities Litigation Reform Act of 1995. The forward-lookingstatements in this document are subject to risks and uncertainties that couldcause the assumptions underlying the forward-looking statements and the actualresults to differ materially from those expressed in or implied by thestatements.

 

3

----

 

**PARTI.   FINANCIAL INFORMATION**

 

**Item 1.    Consolidated Financial Statements**

 

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

**ConsolidatedBalance Sheets**

 
|                                                                                                                                                           |   | **June 30,  2002** |      | **December 31,  2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|------------------------|--------|
|                                                                                                                                                           |   | **(unaudited)**    |      |                   |   |
| Assets                                                                                                                                                         |   |               |      |                   |   |
| Current assets                                                                                                                                                 |   |               |      |                   |   |
| Cash and cash equivalents                                                                                                                                      |   | $                  | 454,922   |                   | $      | 955,363 |   |
| Accounts receivable, net                                                                                                                                       |   | 505,907            |      | 650,188                |   |
| Inventory                                                                                                                                                      |   | 106,821            |      | 90,423                 |   |
| Deposits                                                                                                                                                       |   | 281,103            |      | 223,601                |   |
| Prepaid and other assets                                                                                                                                       |   | 427,125            |      | 343,307                |   |
|                                                                                                                                                           |   |               |      |                   |   |
| Total current assets                                                                                                                                           |   | 1,775,878          |      | 2,262,882              |   |
|                                                                                                                                                           |   |               |      |                   |   |
| Property, equipment and leasehold improvements                                                                                                                 |   | 6,527,670          |      | 7,081,925              |   |
| Less: Accumulated depreciation and amortization                                                                                                                |   | (5,772,828         | )         | (6,070,919             | )      |
|                                                                                                                                                           |   |               |      |                   |   |
| Property, equipment and leasehold improvements,  net                                                                                                           |   | 754,842            |      | 1,011,006              |   |
|                                                                                                                                                           |   |               |      |                   |   |
| Due from officer                                                                                                                                               |   | 200,198            |      | 203,318                |   |
| Show rights, net of accumulated amortization of  $315,266 and $189,607                                                                                         |   | 3,240,648          |      | 3,366,307              |   |
|                                                                                                                                                           |   |               |      |                   |   |
|  Total Assets                                                                                                                                             |   | $                  | 5,971,566 |                   | $      | 6,843,513 |   |
|                                                                                                                                                           |   |               |      |                   |   |
| Liabilities, Convertible Preferred Stock, and  Stockholders’ Deficit                                                                                      |   |               |      |                   |   |
| Current liabilities                                                                                                                                            |   |               |      |                   |   |
| Accounts payable                                                                                                                                               |   | $                  | 391,710   |                   | $      | 205,223 |   |
| Accrued payroll and other liabilities                                                                                                                          |   | 1,833,687          |      | 1,853,726              |   |
| Convertible debentures, net of beneficial  conversion                                                                                                          |   | 146,677            |      | 143,353                |   |
| Short-term note                                                                                                                                                |   | 700,000            |      | —                 |   |
| Current maturities of long-term debt                                                                                                                           |   | 399,828            |      | 552,662                |   |
|  Total current liabilities                                                                                                                                |   | 3,471,902          |      | 2,754,964         |   |
| Accrued dividends payable                                                                                                                                      |   | 1,314,000          |      | 758,000                |   |
| Total liabilities                                                                                                                                              |   | 4,785,902          |      | 3,512,964              |   |
|                                                                                                                                                           |   |               |      |                   |   |
| Commitments and contingencies                                                                                                                                  |   |               |      |                   |   |
| Series A Convertible Preferred Stock, par value  $.01 per share, 10,000,000 shares authorized; 1,852,632 issued and  outstanding, liquidation price $9,263,158 |   | 8,121,014          |      | 8,056,014              |   |
| Stockholders’ deficit                                                                                                                                     |   |               |      |                   |   |
| Common stock; par value $0.01 per share;  authorized 100,000,000 shares; 11,307,930 shares issued and outstanding                                              |   | 113,079            |      | 113,079                |   |
| Additional paid-in capital                                                                                                                                     |   | 17,036,600         |      | 16,754,991             |   |
| Accumulated deficit                                                                                                                                            |   | (24,085,029        | )         | (21,593,535            | )      |
|  Total stockholders’ deficit                                                                                                                         |   | (6,935,350         | )         | (4,725,465             | )      |
| Total Liabilities, Convertible Preferred Stock,  and                                                                                                           |   |               |      |                   |   |
| Stockholders’ Deficit                                                                                                                                     |   | $                  | 5,971,566 |                   | $      | 6,843,513 |   |

 

See notes to consolidatedfinancial statements.

 

4

----

 

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

**ConsolidatedStatements of Operations**

 
|                                                           |   | **Three months ended June 30,** |      |
|----------------------------------------------------------------|--------|---------------------------------|-----------|
|                                                           |   | **2002**                        |      | **2001** |   |
|                                                           |   | **(Unaudited)**                 |      | **(Unaudited)** |   |
| Net revenues                                                   |   | $                               | 6,622,937 |   | $ | 6,469,916 |   |
| Costs of revenues                                              |   | 5,603,518                       |      | 5,696,542 |   |
| Gross profit                                                   |   | 1,019,419                       |      | 773,374 |   |
|                                                           |   |                            |      |   |   |
| Operating expenses                                             |   |                            |      |   |   |
| Selling, general and administrative                            |   | 820,950                         |      | 654,028 |   |
| Depreciation and amortization                                  |   | 190,633                         |      | 295,814 |   |
| (Gain) loss on disposal of assets                              |   | (250                            | )         | — |   |
| Total operating expenses                                       |   | 1,011,333                       |      | 949,842 |   |
|                                                           |   |                            |      |   |   |
| Operating profit (loss)                                        |   | 8,086                           |      | (176,468 | ) |
| Interest expense, net                                          |   | (337,697                        | )         | (200,622 | ) |
|                                                           |   |                            |      |   |   |
|  Loss before income taxes                                 |   | (329,611                        | )         | (377,090 | ) |
| Income taxes                                                   |   | —                          |      | — |   |
|                                                           |   |                            |      |   |   |
| Net loss                                                       |   | (329,611                        | )         | (377,090 | ) |
|                                                           |   |                            |      |   |   |
| Deemed dividends for preferred stock                           |   | —                          |      | (202,105 | ) |
| Dividends accreted for preferred stock                         |   | (32,500                         | )         | — |   |
| Dividends accrued for preferred stock                          |   | (278,000                        | )         | (192,000  | ) |
|                                                           |   |                            |      |   |   |
| Net loss applicable to common shares                           |   | $                               | (640,111  | ) | $ | (771,195 | ) |
|                                                           |   |                            |      |   |   |
| Basic and diluted loss per common share                        |   | $                               | (0.06     | ) | $ | (0.07 | ) |
|                                                           |   |                            |      |   |   |
| Basic and diluted average number of common shares  outstanding |   | 11,307,930                      |      | 11,307,930 |   |
|                                                                |        |                                 |           |  |  |  |  |  |

 

See notes to consolidatedfinancial statements.

 

5

----

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

**Consolidated Statements of Operations**

 
|                                                           |   | **Six months ended June 30,** |       |
|----------------------------------------------------------------|--------|-------------------------------|------------|
|                                                           |   | **2002**                      |       | **2001** |   |
|                                                           |   | **(Unaudited)**               |       | **(Unaudited)** |   |
| Net revenues                                                   |   | $                             | 11,160,789 |   | $ | 10,496,211 |   |
| Costs of revenues                                              |   | 10,739,271                    |       | 9,810,804 |   |
|                                                           |   |                          |       |   |   |
| Gross profit                                                   |   | 421,518                       |       | 685,407 |   |
|                                                           |   |                          |       |   |   |
| Operating expenses                                             |   |                          |       |   |   |
| Selling, general and administrative                            |   | 1,470,588                     |       | 1,195,157 |   |
| Depreciation and amortization                                  |   | 384,379                       |       | 544,799 |   |
| Loss on disposal of assets                                     |   | 64,204                        |       | — |   |
|                                                           |   |                          |       |   |   |
| Total operating expenses                                       |   | 1,919,171                     |       | 1,739,956 |   |
|                                                           |   |                          |       |   |   |
| Operating loss                                                 |   | (1,497,653                    | )          | (1,054,549 | ) |
| Interest expense, net                                          |   | (368,366                      | )          | (340,385 | ) |
|                                                           |   |                          |       |   |   |
| Loss before income taxes                                       |   | (1,866,019                    | )          | (1,394,934 | ) |
| Income taxes                                                   |   | (4,475                        | )          | -0- |   |
|                                                           |   |                          |       |   |   |
| Net loss                                                       |   | (1,870,494                    | )          | (1,394,934 | ) |
|                                                           |   |                          |       |   |   |
| Deemed dividends for preferred stock                           |   | —                        |       | (3,014,905 | ) |
| Dividends accreted for preferred stock                         |   | (65,000                       | )          | — |   |
| Dividends accrued for preferred stock                          |   | (556,000                      | )          | (222,000 | ) |
|                                                           |   |                          |       |   |   |
| Net loss applicable to common shares                           |   | $                             | (2,491,494 | ) | $ | (4,631,839 | ) |
|                                                           |   |                          |       |   |   |
| Basic and diluted loss per common share                        |   | $                             | (0.22      | ) | $ | (0.41 | ) |
|                                                           |   |                          |       |   |   |
| Basic and diluted average number of common shares  outstanding |   | 11,307,930                    |       | 11,307,930 |   |

 

See notes to consolidatedfinancial statements.

 

6

----

 

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

**ConsolidatedStatements of Cash Flows**

 
|                                                                         |   | **Increase (Decrease) in Cash  and Cash Equivalents  Six months ended June 30,** |       |
|------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|------------|
|                                                                         |   | **2002**                                                                         |       | **2001** |   |
|                                                                         |   | **(Unaudited)**                                                                  |       | **(Unaudited)** |   |
| Cash flows from operating activities                                         |   |                                                                             |       |   |   |
| Net loss                                                                     |   | $                                                                                | (1,870,494 | ) | $ | (1,394,934 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |   |                                                                             |       |   |   |
| Depreciation and amortization                                                |   | 384,379                                                                          |       | 544,799 |   |
| Amortization of beneficial conversion                                        |   | 284,933                                                                          |       | 78,006 |   |
| Loss on disposal of property, plant and equipment                            |   | 64,204                                                                           |       | —  |   |
|                                                                         |   |                                                                             |       |   |   |
| Increase (decrease) in operating assets and  liabilities:                    |   |                                                                             |       |   |   |
| Accounts receivable                                                          |   | 144,281                                                                          |       | (119,716 | ) |
| Inventory                                                                    |   | (16,398                                                                          | )          | (36,044 | ) |
| Deposits                                                                     |   | (57,502                                                                          | )          | (17,516 | ) |
| Prepaid and other assets                                                     |   | (83,818                                                                          | )          | (47,448 | ) |
| Accounts payable and accrued expenses                                        |   | 186,487                                                                          |       | (1,256,525 | ) |
| Accrued payroll and other liabilities                                        |   | (20,039                                                                          | )          | 553,630 |   |
| Total adjustments                                                            |   | 886,527                                                                          |       | (300,814 | ) |
| Net cash used in operating activities                                        |   | (983,967                                                                         | )          | (1,695,748 | ) |
| Cash flows from investing activities                                         |   |                                                                             |       |   |   |
| Advances on notes receivable from officer                                    |   | —                                                                           |       | (154,030 | ) |
| Acquisition of show rights                                                   |   | —                                                                           |       | (250,000 | ) |
| Capital expenditures                                                         |   | (66,760                                                                          | )          | (459,112 | ) |
| Proceeds received from note receivable from  officer                         |   | 3,120                                                                            |       | —  |   |
| Net cash used in investing activities                                        |   | (63,640                                                                          | )          | (863,142 | ) |
| Cash flows from financing activities                                         |   |                                                                             |       |   |   |
| Conversion of debentures                                                     |   | —                                                                           |       | 58,514 |   |
| Proceeds received from convertible debentures                                |   | —                                                                           |       | 650,000 |   |
| Proceeds of issuing Series A Convertible Preferred  Stock                    |   | —                                                                           |       | 4,700,000 |   |
|                                                                         |   |                                                                             |       |   |   |
| Payment on long-term note                                                    |   | (152,834                                                                         | )          | (318,000 | ) |
| Payment on short-term borrowing                                              |   | —                                                                           |       | (650,000 | ) |
| Proceeds received on promissory notes                                        |   | 700,000                                                                          |       | — |   |
| Net cash provided by financing activities                                    |   | 547,166                                                                          |       | 4,440,514 |   |
|                                                                         |   |                                                                             |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                        |   | (500,441                                                                         | )          | 1,881,624 |   |
| Cash and cash equivalents at beginning of period                             |   | 955,363                                                                          |       | 517,353 |   |
|                                                                         |   |                                                                             |       |   |   |
| Cash and cash equivalents at end of period                                   |   | $                                                                                | 454,922    |   | $ | 2,398,977 |   |

 

See notes to consolidatedfinancial statements.

 

7

----

 

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

 

Accrued dividends on SeriesA Convertible Preferred Stock of $556,000 and $222,000 were attributable to andrecognized during the six months ended June 30, 2002 and 2001, respectively.

 

Accretion of dividends onSeries A Convertible Preferred Stock was $65,000 during the six months endedJune 30, 2002.

 

On March 25, 2002, theCompany issued detachable warrants in conjunction with a short-term promissorynote resulting in a discount of $281,609.

 

Deemed dividends relating tothe issuance of Series A Convertible Preferred Stock on March 13, 2001, was$3,014,905.

 

8

----

 

On Stage Entertainment, Inc. and Subsidiaries

Consolidated Statement of Stockholders’ Equity (Deficit)

 
|                                                                         |   | **Common Stock** |   | **Additional****Paid-in** |    | **Accumulated** |   |        |   |
|------------------------------------------------------------------------------|--------|------------------|--------|---------------------------|---------|-----------------|--------|-------------|--------|
|                                                                         |   | **Shares**       |   | **Amount**                |    | **Capital**     |   | **Deficit** |   | **Total** |   |
|                                                                         |   |             |   |                      |    |            |   |        |   |   |   |
| Balance, December 31, 2001                                                   |   | 11,307,930       |   | $                         | 113,079 |            | $      | 16,754,991  |   | $ | (21,593,535 | ) | $ | (4,725,465 | ) |
| Dividends accreted on  Series A Convertible Preferred Stock                  |   | —           |   | —                    |    | —          |   | (32,500     | )      | (32,500 | ) |
| Accrued dividends on  Series A Convertible Preferred Stock                   |   | —           |   | —                    |    | —          |   | (278,000    | )      | (278,000 | ) |
| Detachable warrants issued  in conjunction with a short-term promissory note |   | —           |   | —                    |    | 281,609         |   | —      |   | 281,609 |   |
| Net loss                                                                     |   | —           |   | —                    |    | —          |   | (1,540,883  | )      | (1,540,883 | ) |
| Balance March 31, 2002                                                       |   | 11,307,930       |   | $                         | 113,079 |            | $      | 17,036,600  |   | $ | (23,444,918 | ) | $ | (6,295,239 | ) |
| Dividends accreted on  Series A Convertible Preferred Stock                  |   | —           |   | —                    |    | —          |   | (32,500     | )      | (32,500 | ) |
| Accrued dividends on  Series A Convertible Preferred Stock                   |   | —           |   | —                    |    | —          |   | (278,000    | )      | (278,000 | ) |
| Net loss                                                                     |   | —           |   | —                    |    | —          |   | (329,611    | )      | (329,611 | ) |
| Balance, June 30, 2002                                                       |   | 11,307,930       |   | $                         | 113,079 |            | $      | 17,036,600  |   | $ | (24,085,029 | ) | $ | (6,935,350 | ) |

 

See notes to consolidated financial statements.

 

9

----

 

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

**Notes toConsolidated Financial Statements**

**June 30, 2002**

 

**Basis of Presentation**

 

The financial statements included in this reportinclude the accounts of On Stage Entertainment, Inc., a publicly traded Nevadacorporation (the “Company” or “On Stage”) and its subsidiaries: Legends inConcert, Inc., a Nevada corporation (“LIC”); On Stage Marketing, Inc., a Nevadacorporation (“Marketing”); On Stage Theaters, Inc., a Nevada corporation(“Theaters”); Wild Bill’s California, Inc., a Nevada corporation (“WildBills”); On Stage Merchandise, Inc., a Nevada corporation (“Merchandise”); OnStage Events, Inc., a Nevada corporation (“Events”); On Stage CasinoEntertainment, Inc., a Nevada corporation (“Casinos”); On Stage Productions,Inc., a Nevada corporation (“Productions”); On Stage Theaters North MyrtleBeach, Inc., a Nevada corporation (“North Myrtle”); On Stage Theaters SurfsideBeach, Inc., a Nevada corporation (“Surfside”); and Country Tonite Branson, LLC(“Country Tonite Branson”) (collectively, the “Subsidiaries”).

 

In the opinion of the management of On Stage and theSubsidiaries, the accompanying unaudited consolidated financial statementsinclude all normal adjustments considered necessary to present fairly thefinancial position as of June 30, 2002, and the results of operations and cashflows for the six months ended June 30, 2002 and 2001. 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 andaudited consolidated financial statements and notes included in our Form 10-KSBfor the fiscal year ended December 31, 2001. Certain reclassifications have been made for consistent presentation.

 

**(1) Acquisition of Country Tonite**

 

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

 

The acquisition has been accounted for as a purchaseand, accordingly, the operating results of Country Tonite have been included inthe consolidated financial statements of On Stage since the date ofacquisition. The show rights acquired (approximately $3,556,000) are beingamortized on a straight-line basis over 15 years.

 

The following unaudited pro forma consolidatedresults of operations for the quarter and six months ended June 30, 2001 assumethe acquisition occurred as of January 1, 2000:

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

 
|                                |   | **Six months  ended  June 30, 2001** |             |
|-------------------------------------|--------|--------------------------------------|------------------|
| Net revenues                        |   | $                                    |  10,496,211 |   |
| Net loss from continuing operations |   | (1,523,121                           | )                |
| Loss per common share:              |   |                                 |             |
| Basic and diluted                   |   | (0.42                                | )                |
|                                     |        |                                      |                  |  |

 

10

----

 

The unaudited results are not necessarily indicativeof the results that would have been obtained had the acquisition happened as ofan earlier date, nor are they indicative of future results.

 

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

 

**(2) Promissory Notes**

 

In March 2002, McCown De Leeuw& Co., Inc., a private equity investment firm (“MDC”), agreed to loan OnStage $1,300,000 in the form of promissory notes with detachable warrants topurchase shares of the Company’s common stock.  Interest on the notes ispayable at the rate of 15% per annum, compounded quarterly, and the warrantshave an exercise price of $.50 per share exercisable for a ten-yearperiod.  The first loan, in the amount of $700,000, was funded on March27, 2002 and was due and payable on July 1, 2002.  As of August 13, 2002, On Stage had not made this payment, norhad MDC taken any action with respect to the default. The promissory noteprovides, however, that MDC may, at its sole discretion, extend the maturitydate to December 31, 2006.  We arecurrently in discussions with MDC to determine whether, and to what extent, itintends to extend the maturity date. In connection with the $700,000 promissorynote, MDC received warrants to purchase 1,346,154 shares of common stock.  Using the Black-Scholes pricing model, thewarrants were valued at $281,609 and recorded as a discount and amortized overthe initial term.  The discount wasamortized in full as of June 30, 2002. The funds will be used (1) to reimburse MDC $250,000 of expensesincurred on behalf of On Stage, including but not limited to attorneys' feesincurred in connection with this promissory note, and (2) for working capitalpurposes within the ordinary course of business. The second loan, in the amountof $600,000, with warrants to purchase 1,153,846 shares of common stock, willbe deposited in a separate bank account and may be withdrawn only for directuse in connection with our participation and investment in a potential futureproject.

 

**(3) Loss per share**

 

Statement of FinancialAccounting Standard No. 128, Earnings per Share, provides for the calculationof Basic and Diluted earnings per share. Basic earnings per share includes nodilution and is computed by dividing income available to common shareholders bythe weighted average number of common shares outstanding for the period.Diluted earnings per share reflect the potential dilution of securities thatcould share in the earnings of the entity, similar to fully diluted earningsper share.

 

For the three and six monthsended June 30, 2002, potential dilutive securities representing 1,623,950outstanding common stock options, 5,756,309 outstanding common stock warrants,and 1,852,632 shares of preferred stock, which are convertible into 18,526,326shares of common stock, are not included, since their effect would beanti-dilutive.  Furthermore, On Stagehas preferred stock warrants which convert into 2,800,000 shares of preferredstock which further convert into 28,000,000 shares of common stock contingentupon On Stage achieving certain EBITDA levels. These potentially dilutivesecurities are not included, since their effect would be anti-dilutive.

 

For the three and six monthsended June 30, 2001, potential dilutive securities representing 1,464,850outstanding common stock options, 4,410,155 outstanding common stock warrants,and 1,464,850 shares of preferred stock, which are convertible into 14,526,316shares of common stock, are not included, since their effect would beanti-dilutive.  Furthermore, On Stage has preferred stock warrants whichconvert into 2,800,000 shares of preferred stock which further convert into28,000,000 shares of common stock contingent upon On Stage achieving certainEBITDA levels.  These potentiallydilutive securities are not included, since their effect would beanti-dilutive.

 

11

----

 

**(4) Commitments and contingencies**

 

In March 2002, On Stagereceived notice of a civil complaint filed in the Superior Court of New Jersey— Law Division — Atlantic County on January 11, 2002, by former employees ofBally’s Park Place, Inc., a former venue for one of our full time Legends productions,against Bally’s, On Stage and several Legends performers that we hire asindependent contractors.  The complaint alleges violations of the NewJersey Law Against Discrimination, retaliatory termination by conspiracy,misconduct causing severe emotional distress, assault and battery, and loss ofconsortium, and seeks damages of $7,750,000, plus cost of attorneys’ fees.  Although On Stage has responded to thecomplaint, it is too early for management to determine the probability of anunfavorable outcome and the range of possible loss, if any. On Stage believesthat the case is without merit with respect to itself, and intends tovigorously defend the action.

 

In July 2002,On Stage received notice of a civil complaint filed in the Circuit Court ofTaney County, Missouri by TCK, L.P., the landlord for the theater in which OnStage presented its *Legends in Concert* show in Branson fromAugust 1997 through December 2001.  Thecomplaint alleges breach of contract for failure to pay a percentage of grossreceipts and damage to property in excess of $200,000.  On Stage has responded to thecomplaint.  On Stage believes the caseis without merit and intends to vigorously defend the action.

 

**(5) Recent AccountingPronouncements**

 

Statement of Financial Accounting Standards No. 145,“Rescission of SFAS Statements No. 4, 44, and 64, Amendment of SFAS StatementNo. 13, and Technical Corrections” ("SFAS 145"), updates, clarifiesand simplifies existing accounting pronouncements.  SFAS 145 rescinds SFAS No. 4, “Reporting Gains and Losses fromExtinguishment of Debt.” SFAS 145 amends SFAS No. 13, “Accounting for Leases,”to eliminate an inconsistency between the required accounting forsale-leaseback transactions and the required accounting for certain leasemodifications that have economic effects that are similar to sale-leasebacktransactions.  The provisions of SFAS145 related to SFAS No. 4 and SFAS No. 13 are effective for fiscal yearsbeginning and transactions occurring after May 15, 2002, respectively.  It is anticipated that the financial impactof SFAS 145 will not have a material effect on the Company.

 

Statement of Financial Accounting Standards No. 146,“Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS146”), requires the Company to recognize costs associated with exit or disposalactivities when they are incurred rather than at the date of a commitment to anexit or disposal plan.  SFAS 146replaces Emerging Issues Task Force (“EITF”) Issue No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring).”  The provisions of SFAS 146 are to be appliedprospectively to exit or disposal activities initiated after December 31, 2002.

 

**(6) Segment information**

 

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

 

On Stage derives its net revenues from five businessunits categorized by three reportable segments:

 

•                  *Casinos.* The Casinos segment primarily sellslive theatrical productions to casinos for fixed fees.  The Casinos segment operates the Legendsshow at the Imperial Palace in Las Vegas, Nevada, and at the Claridge CasinoHotel in Atlantic City, New Jersey (previously operated at Bally’s Park Placein Atlantic City, New Jersey).

 

•                  *Theaters.* The Theaters segment rents livetheaters and dinner theaters in urban and resort tourist locations.  The Theaters segment derives revenues fromticket sales along with food and beverage sales to patrons who attend the livetheatrical productions.

 

12

----

 

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

 

•                  *Merchandise.* The Merchandise business unit sellsmerchandise and souvenir photography products to patrons who attend theCasinos, Theaters, and Events productions. Revenues generated from the Merchandise business unit are included inthe 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 the Casinos and Theaterssegments and the Events and Merchandise business units.

 

In addition to these business units, On Stagereports corporate overhead costs through a separate unit, On StageEntertainment (“OSE”).

 

The accounting policies of the reportable operatingsegments are the same as those described in the Summary of Accounting Policiescontained in On Stage’s Annual Report on Form 10-KSB for the fiscal year endedDecember 31, 2001.  Management evaluatesthe performance of its operating segments based upon the profit or loss fromoperations.

 

On Stage’s reportable segments include 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 segmentprofit/(loss) and asset information:

 
|                             |   | **For the quarter ended June 30, 2002** |      |
|----------------------------------|--------|-----------------------------------------|-----------|
|                             |   | **Casinos**                             |      | **Production  Services** |   | **Theaters** |   | **OSE** |   | **Total  Consolidated** |   |
| Revenues from external customers |   | $                                       | 2,053,797 |   | $ | 1,500 |   | $ | 4,567,640 |   | $ | — |   | $ | 6,622,937 |   |
| Interest expense                 |   | $                                       | 245       |   | $ | — |   | $ | 12,678 |   | $ | 324,774 |   | $ | 337,697 |   |
| Depreciation and amortization    |   | $                                       | 25,693    |   | $ | 35,562 |   | $ | 96,699 |   | $ | 32,679 |   | $ | 190,633 |   |
| Segment profit (loss)            |   | $                                       | 421,507   |   | $ | (146,626 | ) | $ | 537,071 |   | $ | (1,141,563 | ) | $ | (329,611 | ) |
| Segment fixed assets             |   | $                                       | 2,855,299 |   | $ | 1,137,656 |   | $ | 1,385,040 |   | $ | 1,149,675 |   | $ | 6,527,670 |   |
| Additions to long-lived assets   |   | $                                       | 36,617    |   | $ | 4,396 |   | $ | 1,034 |   | $ | 1,628 |   | $ | 43,675 |   |

 

13

----

 
|                             |   | **For the quarter ended June 30, 2001** |      |
|----------------------------------|--------|-----------------------------------------|-----------|
|                             |   | **Casinos**                             |      | **Production  Services** |   | **Theaters** |   | **OSE** |   | **Total  Consolidated** |   |
| Revenues from external customers |   | $                                       | 1,731,029 |   | $ | 75 |   | $ | 4,738,812 |   | $ | — |   | $ | 6,469,916 |   |
| Interest expense                 |   | $                                       | 231       |   | $ | — |   | $ | 72,085 |   | $ | 128,306 |   | $ | 200,622 |   |
| Depreciation and amortization    |   | $                                       | 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 |   |
| Additions to long-lived assets   |   | $                                       | 6,246     |   | $ | 6,436 |   | $ | 326,855 |   | $ | 44,097 |   | $ | 383,634 |   |

 

14

----

 
|                             |   | **For the six months ended June 30, 2002** |      |
|----------------------------------|--------|--------------------------------------------|-----------|
|                             |   | **Casinos**                                |      | **Production  Services** |   | **Theaters** |   | **OSE** |   | **Total  Consolidated** |   |
| Revenues from external customers |   | $                                          | 4,514,200 |   | $ | 2,200 |   | $ | 6,644,389 |   | $ | — |   | $ | 11,160,789 |   |
| Interest expense                 |   | $                                          | 296       |   | $ | — |   | $ | 20,625 |   | $ | 347,445 |   | $ | 368,366 |   |
| Depreciation and amortization    |   | $                                          | 50,063    |   | $ | 70,093 |   | $ | 198,105 |   | $ | 66,118 |   | $ | 384,379 |   |
| Segment profit (loss)            |   | $                                          | 824,107   |   | $ | (294,801 | ) | $ | (577,646 | ) | $ | (1,822,154 | ) | $ | (1,870,494 | ) |
| Segment fixed assets             |   | $                                          | 2,855,299 |   | $ | 1,137,656 |   | $ | 1,385,040 |   | $ | 1,149,675 |   | $ | 6,527,670 |   |
| Additions to long-lived assets   |   | $                                          | 53,836    |   | $ | 4,396 |   | $ | 5,725 |   | $ | 2,803 |   | $ | 66,760 |   |

 
|                             |   | **For the six months ended June 30, 2001** |      |
|----------------------------------|--------|--------------------------------------------|-----------|
|                             |   | **Casinos**                                |      | **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 July 12, 2002, On Stage gave notice to GordonGaming Corporation (d/b/a Sahara Hotel and Casino) and Charo Entertainment,Inc., terminating its Performance Engagement Agreement and its Co-ProductionAgreement, respectively. As such, effective July 28, 2002, On Stage terminatedits involvement in the production of Bravo at the Sahara Hotel and Casino inLas Vegas, Nevada.

 

On July 24, 2002, the Board ofDirectors agreed to allow John W. Stuart, Chairman and Founder, to take overthe production of Bravo, personally, under his newly-formed corporation, JohnStuart Productions, Inc., and work directly with the Sahara and CharoEntertainment, Inc. in this endeavor. In accordance with that agreement, (1)Mr. Stuart's involvement with the production of Bravo will take him away fromhis corporate duties at On Stage for no more than six hours per week; (2) atany time, On Stage has the option to purchase Mr. Stuart's interest in theproduction of Bravo for a sum equal to any cash investment plus any cash lossesincurred by John Stuart Productions, Inc., but not less than the fair marketvalue at that time; (3) the agreement applies solely to the production of Bravoat the Sahara; and (4) nothing in the agreement changes the terms of Mr.Stuart's Employment Agreement dated October 12, 2000, or his Non-CompeteAgreement dated April 6, 2001. 

 

On Stage is also currentlynegotiating a Lease Agreement with John Stuart Productions, Inc. to leasecertain equipment, valued at $75,000, to John Stuart Productions, Inc. for usein the production of Bravo. The terms of lease call for a $10,000 down paymentand weekly payments of $1,250. The effective rate of interest is 15%, and JohnStuart Productions, Inc. will have the option to purchase the equipment at theend of lease for $1.

 

In July 2002, On Stage reached a tentativesettlement agreement with its former President and Chief Operating Officer,David Hope, with respect to his Employment Agreement, dated March 1, 1996, asamended on February 1, 1997, and on July 7, 1999. The terms of that agreementinclude the following: (1) cash payments equaling $100,000, payable $25,000 attime of signing, $10,000 per month for seven months, and $5,000 in the eighthmonth; (2) a consent judgment for $122,000 which can be exercised only in theevent of a default in the payments; and (3) a mutual release between On Stageand Mr. Hope.

 

During late 2000 and early 2001, On Stage raised$700,000 and $650,000, respectively, from accredited private investors toassist with meeting its capital requirements, paying for expenses associatedwith its restructuring, and making deposits for the acquisition of CountryTonite and the live licensing rights for Ripley’s.  This private placement was issued in the form of convertibledebentures.  On June 1, 2001, $1,200,000of the $1,350,000 in convertible debentures were exchanged for Series APreferred Stock.  In December 2001, theremaining debentures were extended to July 2002.  On August 5, 2002, On Stage paid off the debenture in full withaccrued and unpaid interest.

 

**Item 2.    Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

This document contains certain forward-lookingstatements that are subject to risks and uncertainties. Forward-lookingstatements include certain information relating to our potential new showopenings, the potential markets for our productions, the expansion of existingand potential gaming and tourist markets, exposure to various trends in thegaming industry, acquisition plans and the benefits anticipated from these

 

15

----

 

acquisitions, business strategy, outstandinglitigation matters and the available defenses, the seasonality of our business,and liquidity issues, as well as information contained elsewhere in this reportwhere current statements are preceded by, followed by or include the words“believes,” “expects,” “anticipates” or similar expressions. For thesestatements, we claim 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.

 

The most important factors that could prevent usfrom achieving our goals and cause the assumptions underlying theforward-looking statements and the actual results to differ materially fromthose expressed in or implied by those forward-looking statements include theinformation provided under the heading “Description of Business–Risk Factors”in Item 1 of our Annual Report on Form 10-KSB for the year ended December 31,2001, as well as the following:

 

•                  The dependence on our flagship *Legends in Concert* production and ourprincipal production venues;

 

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

 

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

 

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

 

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

 

•                  Fluctuations in quarterly operating resultsand the highly seasonal nature of our business;

 

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

 

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

 

•                  The results of operations which depend onnumerous factors, including when our contracts begin and end, the timing andamount of new business we generate, our revenue mix, the timing and level ofadditional selling, general and administrative expense and the generalcompetitive conditions in the leisure and entertainment industry, as well asthe overall economy.

 

**Critical AccountingPolicies**

 

Financial Reporting Release No. 60, which wasrecently released by the Securities and Exchange Commission (“SEC”), requires allcompanies to include a discussion of critical accounting policies or methodsused in the preparation of financial statements.  The Financial Statements include a summary of the significantaccounting policies and methods used in the preparation of our FinancialStatements.  The following is a briefdiscussion of the more critical accounting policies and methods used byus.  In addition, Financial ReportingRelease No. 61 was recently issued by the SEC to require all companies toinclude a discussion to address, among other things, liquidity, off-balancesheet arrangements, contractual obligations and commercial commitments.

 

16

----

 

*Impairment oflong-lived assets and valuation of intangible assets.* We assess the impairment of long-lived assetsand identifiable intangible assets whenever events or changes in circumstancesindicate that the carrying value may not be recoverable.  Factors we consider important which couldtrigger an impairment review include the following:

 

•                  Significantunderperformance relative to expected historical or projected future operatingresults;

 

•                  Significantchanges in the manner of our use of the acquired assets or the strategy for ouroverall business; and

 

•                  Significantnegative industry or economic trends.

 

When we determine that the carrying value ofintangible assets may not be recoverable based upon the existence of one ormore of the above indicators of impairment, we measure any impairment based ona projected discounted cash flow method using a discount rate determined by ourmanagement to be commensurate with the risk inherent in our current businessmodel.  We had intangible show rightsthat amounted to a net $3.2 million at June 30, 2002.  Future events could cause us to conclude that impairmentindicators exist and that such intangible assets are impaired.  Any resulting impairment loss could have anadverse impact on our financial condition and results of operations.

 

**Recent AccountingPronouncements**

 

See Recent Accounting Pronouncements in Note5 to the Unaudited Consolidated Financial Statements.

 

**Results of Operations**

 

The following tables set forth the results ofoperations for the reportable segments indicated:

 
|                                  |   | **For the quarter ended June 30, 2002** |      |
|---------------------------------------|--------|-----------------------------------------|-----------|
|                                  |   | **Casinos**                             |      | **Production  Services** |   | **Theaters** |   | **Sub-Total  Operating  Divisions** |   | **OSE** |   | **Total Consolidated** |   |
| Net revenues                          |   | $                                       | 2,053,797 |   | $ | 1,500 |   | $ | 4,567,640 |   | $ | 6,622,937 |   | $ | — |   | $ | 6,622,937 |   |
| Cost of revenues                      |   | 1,584,527                               |      | 112,564 |   | 3,906,427 |   | 5,603,518 |   | — |   | 5,603,518 |   |
|                                  |   |                                    |      |   |   |   |   |   |   |   |   |   |   |
| Gross profit (loss)                   |   | 469,270                                 |      | (111,064 | ) | 661,213 |   | 1,019,419 |   | — |   | 1,019,419 |   |
| Selling, general & administrative |   | 21,825                                  |      | — |   | 14,765 |   | 36,590 |   | 784,360 |   | 820,950 |   |
| Depreciation & amortization       |   | 25,693                                  |      | 35,562 |   | 96,699 |   | 157,954 |   | 32,679 |   | 190,633 |   |
| (Gain) loss on disposal of assets     |   | —                                  |      | — |   | — |   | — |   | (250 | ) | (250 | ) |
|                                  |   |                                    |      |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss)               |   | 421,752                                 |      | (146,626 | ) | 549,749 |   | 824,875 |   | (816,789 | ) | 8,086 |   |
| Interest expense, net                 |   | (245                                    | )         | — |   | (12,678 | ) | (12,923 | ) | (324,774 | ) | (337,697 | ) |
|                                  |   |                                    |      |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) before income taxes |   | 421,507                                 |      | (146,626 | ) | 537,071 |   | 811,952 |   | (1,141,563 | ) | (329,611 | ) |
|                                  |   |                                    |      |   |   |   |   |   |   |   |   |   |   |
| Income taxes                          |   | —                                  |      | — |   | — |   | — |   | — |   | — |   |
|                                  |   |                                    |      |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                |   | $                                       | 421,507   |   | $ | (146,626 | ) | $ | 537,071 |   | $ | 811,952 |   | $ | (1,141,563 | ) | $ | (329,611 | ) |
|                                       |        |                                         |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

17

----

 
|                                  |   | **For the quarter ended June 30, 2001** |      |
|---------------------------------------|--------|-----------------------------------------|-----------|
|                                  |   | **Casinos**                             |      | **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, 2002** |      |
|---------------------------------------|--------|--------------------------------------------|-----------|
|                                  |   | **Casinos**                                |      | **Production  Services** |   | **Theaters** |   | **Sub-Total  Operating  Divisions** |   | **OSE** |   | **Total  Consolidated** |   |
| Net revenues                          |   | $                                          | 4,514,200 |   | $ | 2,200 |   | $ | 6,644,389 |   | $ | 11,160,789 |   | $ | — |   | $ | 11,160,789 |   |
| Cost of revenues                      |   | 3,588,116                                  |      | 227,408 |   | 6,923,747 |   | 10,739,271 |   | — |   | 10,739,271 |   |
|                                  |   |                                       |      |   |   |   |   |   |   |   |   |   |   |
| Gross profit (loss)                   |   | 926,084                                    |      | (225,208 | ) | (279,358 | ) | 421,518 |   | — |   | 421,518 |   |
| Selling, general & administrative |   | 51,618                                     |      | — |   | 14,604 |   | 66,222 |   | 1,404,366 |   | 1,470,588 |   |
| Depreciation & amortization       |   | 50,063                                     |      | 70,093 |   | 198,105 |   | 318,261 |   | 66,118 |   | 384,379 |   |
| (Gain) loss on disposal of assets     |   | —                                     |      | (500 | ) | 64,954 |   | 64,454 |   | (250 | ) | 64,204 |   |
|                                  |   |                                       |      |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss)               |   | 824,403                                    |      | (294,801 | ) | (557,021 | ) | (27,419 | ) | (1,470,234 | ) | (1,497,653 | ) |
| Interest expense, net                 |   | (296                                       | )         | — |   | (20,625 | ) | (20,921 | ) | (347,445 | ) | (368,366 | ) |
|                                  |   |                                       |      |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) before income taxes |   | 824,107                                    |      | (294,801 | ) | (577,646 | ) | (48,340 | ) | (1,817,679 | ) | (1,866,019 | ) |
| Income taxes                          |   | —                                     |      | — |   | — |   | — |   | 4,475 |   | 4,475 |   |
|                                  |   |                                       |      |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                     |   | $                                          | 824,107   |   | $ | (294,801 | ) | $ | (577,646 | ) | $ | (48,340 | ) | $ | (1,822,154 | ) | $ | (1,870,494 | ) |

 

18

----

 
|                                  |   | **For the six months ended June 30, 2001** |      |
|---------------------------------------|--------|--------------------------------------------|-----------|
|                                  |   | **Casinos**                                |      | **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 | ) |

 

**Quarter Ended June 30, 2002 versusQuarter Ended June 30, 2001**

 

***Net Revenues.*** Revenues were approximately $6,623,000 forthe quarter ended June 30, 2002 compared to $6,470,000 for the quarter endedJune 30, 2001, an increase of $153,000, or 2.4%.  Our revenue is derived from five business units (categorized bythree reportable segments): Casinos, Theaters, Events, Merchandise, andProduction Services.  Revenues fromEvents are included in the Casinos segment. Revenues from Merchandise are included in the Theaters segment.

 

Casinos revenues were approximately $2,054,000 forthe quarter ended June 30, 2002 compared to $1,731,000 for the quarter endedJune 30, 2001, an increase of $323,000 or 18.7%.  This increase was primarily attributable to the addition of theBravo show in Las Vegas, Nevada.  OnStage terminated its involvement in the production of Bravo, effective July 28,2002.

 

Production Services revenues were approximately$1,500 for the quarter ended June 30, 2002 compared to $75 for the quarterended June 30, 2001, an increase of $1,425. This increase was primarily attributable to an increase in equipmentrental revenues.

 

Theaters revenues were approximately $4,568,000 forthe quarter ended June 30, 2002 compared to $4,739,000 for the quarter endedJune 30, 2001, a decrease of $171,000, or 3.6%.  This decrease was primarily attributable to a decline in showcounts at several venues due to a decrease in overall tourism during the firstquarter of 2002 as compared to the first quarter of 2001.

 

***Costs ofRevenues.*** Totalcosts of revenues were approximately $5,604,000 for the quarter ended June 30,2002 compared to $5,697,000 for the quarter ended June 30, 2001, a decrease of$93,000, or 1.6%.  Costs of revenuesdecreased to 84.6% of net revenues for the quarter ended June 30, 2002, ascompared to 88.0% for the quarter ended June 30, 2001.  This decrease in costs of revenues as apercentage of revenues was primarily attributable to better cost controlmeasures implemented in the Production Services and Theaters segments.

 

19

----

 

***Selling, Generaland Administrative.***Selling, general and administrative costs were approximately $821,000 for thequarter ended June 30, 2002 as compared to $654,000 for the quarter ended June30, 2001, an increase of $167,000, or 25.5%. Selling, general and administrative costs increased to 12.4% of netrevenues for the quarter ended June 30, 2002, as compared to 10.1% for thequarter ended June 30, 2001.  Thisincrease was primarily due attributable to the expense recognized inassociation with the settlement agreement with our former president and chiefoperating officer.

 

***Depreciation andAmortization.***Depreciation and amortization for the quarter ended June 30, 2002 decreased by$105,000, or 35.6%, as compared to the quarter ended June 30, 2001.  This decrease was primarily attributable tohaving fewer depreciable assets.

 

***Operating Income(Loss).*** Operatingincome was approximately $8,000 for the quarter ended June 30, 2002 compared toan operating loss of $176,000 for the quarter ended June 30, 2001, an increasein operating income of $184,000.  Theincrease in operating income was primarily attributable to improved margins inthe Theaters segment and the cost control measures implemented in the ProductionServices segment, partially offset by the expense recognized in associationwith the settlement agreement with our former president and chief operatingofficer.

 

***Interest Expense,Net.*** Interestexpense for the quarter ended June 30, 2002 increased by $137,000, as comparedto the quarter ended June 30, 2001. This increase was primarily attributable to the promissory note due toMDC.

 

***Income Taxes.*** We have not accrued any federal income taxesfor the quarter ended June 30, 2002. Because we cannot determine that we aremore likely than not to recognize the deferred tax assets, we have provided fora full allowance against the deferred tax assets.

 

**Six Months Ended June 30, 2002versus six Months Ended June 30, 2001**

 

***Net Revenues.*** Revenues were approximately $11,161,000 forthe six months ended June 30, 2002 compared to $10,496,000 for the six monthsended June 30, 2001, an increase of $665,000, or 6.3%.  Our revenue is derived from five businessunites (categorized by three reportable segments): Casinos, Theaters, Events,Merchandise and Production Services. Revenues from Events are included in the Casinos segment.  Revenues from Merchandise are included inthe Theaters segment.

 

Casinos revenues were approximately $4,514,000 forthe six months ended June 30, 2002 compared to $3,549,000 for the six monthsended June 30, 2001, an increase of $965,000, or 27.2%.  This increase was primarily attributable tothe addition of the Bravo show in Las Vegas, Nevada.

 

Production Services revenues were approximately$2,200 for the six months ended June 30, 2002 compared to $4,220 for the sixmonths ended June 30, 2001, a decrease of $2,020, or 47.9%.  The decrease was primarily attributable to areduction in equipment rental revenues.

 

Theaters revenues were approximately $6,644,000 forthe six months ended June 30, 2002 compared to $6,943,000 for the six monthsended June 30, 2001, a decrease of $299,000, or 4.3%.   The decrease was primarily attributable to adecline in show counts at several venues due to a decrease in overall tourismduring the first half of 2002 as compared to the first half of 2001.

 

***Costs ofRevenues.*** Totalcosts of revenues were approximately $10,739,000 for the six months ended June30, 2002 compared to $9,811,000 for the six months ended June 30, 2001, anincrease of $928,000, or 9.5%.  Costs ofrevenues increased to 96.2% of net revenues for the six months ended June 30,2002, as compared to 93.5% for the six months ended June 30, 2001.  This increase in costs of revenues as apercentage of revenues was primarily attributable to the inclusion of theCountry Tonite show for the full first half of 2002, and the addition of theBravo show.

 

***Selling, Generaland Administrative.***Selling, general and administrative costs were approximately $1,471,000 for thesix months ended June 30, 2002 as compared to $1,195,000 for the six monthsended

 

20

----

 

June 30, 2001, an increase of $276,000, or23.0%.  This increase in selling,general and administrative expenses was primarily attributable to the inclusionof senior management salaries for a full six months, and expense recognized inassociation with the settlement agreement with our former president and chiefoperating officer.  Selling, general andadministrative costs increased to 13.2% of net revenues for the six monthsended June 30, 2002 as compared to 11.4% for the six months ended June 30,2001.

 

***Depreciation andAmortization.***Depreciation and amortization for the six months ended June 30, 2002 decreasedby $160,000, or 29.4%, as compared to the six months ended June 30, 2001. Thedecrease was primarily attributable to having fewer depreciable assets.

 

***Operating Loss.*** Operating loss was approximately $1,498,000for the six months ended June 30, 2002 compared to an operating loss of$1,055,000 for the six months ended June 30, 2001, an increase in operatingloss of $443,000, or 42.0%.  Theincrease in operating loss was primarily attributable to the decrease in marginsin the Casinos segment, and the expense recognized in association with thesettlement agreement with our former president and chief operating officer.

 

***Interest Expense,Net.*** Interestexpense for the six months ended June 30, 2002 increased by $28,000, ascompared to the six months ended June 30, 2001.  This increase was primarily attributable to the promissory notedue to MDC, partially offset by the decrease in interest expense due to therepayment of the short-term borrowing associated with the acquisition ofCountry Tonite and the conversion of debentures both of which occurredsubsequent to March 31, 2001.

 

***Income Taxes.*** We have not accrued federal income taxes forthe quarter ended June 30, 2002. Because we cannot determine that we are more likely than not torecognize the deferred tax assets, we have provided for a full allowanceagainst the deferred tax assets.

 

**Seasonality and Quarterly Results**

 

Our business has been, and is expected to remain,highly seasonal, with the majority of our revenue being generated during themonths of April through October.  OurLegends shows in Branson, Missouri and Myrtle Beach, South Carolina are dark inJanuary, and our Country Tonite show in Branson, Missouri, is dark in Januaryand February.  Part of our businessstrategy is to increase sales in tourist markets that experience their peakseasons from November through March, to offset this seasonality in revenues.

 

The following table sets forth On Stage’s netrevenue for each of the last six quarters ended June 30, 2002:

 

**Net Revenues**

**($ in thousands)**

 
|        |   | **March 31** |   | **June 30** |   | **September 30** |   | **December 31** |   |
|-------------|--------|--------------|--------|-------------|--------|------------------|--------|-----------------|--------|
| Fiscal 2002 |   | $            | 4,538  |        | $      | 6,623            |   | $               |   |   | $ |   |   |
| Fiscal 2001 |   | $            | 4,026  |        | $      | 6,470            |   | $               | 7,322  |   | $ | 5,943 |   |

 

**Liquidity and Capital Resources**

 

***General***

 

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

 

21

----

 

In February 2001, we enteredinto an agreement with McCown De Leeuw & Co., Inc., a private equityinvestment firm (“MDC”), under which MDC agreed to invest up to $20 million inthe form of convertible preferred securities.  The terms of the agreementprovide for funding in four tranches of $6.0 million, $4.0 million, $5.0million and $5.0 million.  The second and third tranches are in the formof warrants exercisable over a 10-year period, at our option.  The fourthtranche is exercisable only after the third tranche has been funded.  Theavailability of funds is subject to the following:

 

•                     Wemust submit a notice to our board that includes the proposed funding amount,which must be at least $2 million, and the specific growth or acquisitionopportunity for which the funds will be used;

•                     We must have met the EBITDA budget approvedby our board for the year-to-date period; and

•                     MDC must have earned a minimum annualizedrate of return of 35% on its funded investment.

 

The convertible preferred stockhas an annual dividend rate of 12%, of which 10% is payable in cash and 2% ispayable in kind. The convertible preferred stock has a liquidation preferenceof $5.00 per share and is convertible into shares of common stock at aconversion price of $.50 or $.75 per share depending on certain factors. There is a mandatory redemption provision under certain circumstances,including a change of control.  We are precluded from using the MDCinvestment to fund operating losses.  The first $6 million investment wasmade in March 2001 and was used to fund new productions. In August 2001,MDC funded its second investment by exercising warrants–per the terms of theprior MDC investment–for 400,000 shares of Series A Convertible Preferred Stockin consideration of $2,000,000.  At the time of MDC’s second investment,our financial performance failed to meet the minimum EBITDA thresholds set forthin the agreement as a condition to MDC’s obligation to fund the second trancheof its investment.   However, MDC agreed to consummate the funding ifwe issued it a warrant to purchase an additional 400,000 shares of our SeriesA  Convertible Stock at an exercise price of $0.00001, exercisable for a10-year period.  The warrant may only be exercised if we fail to meet ourcumulative EBITDA targets for the 2002 and 2003 calendar years.  MDC’s$2,000,000 investment will be convertible into either 4,000,000 shares ofcommon stock, or, if we fail to achieve certain EBITDA targets, 8,000,000shares of common stock.  We used the investment to fund the last$2,800,000 payment for the acquisition of Country Tonite due on July 31, 2001.

 

In March 2002, MDC agreed toloan On Stage $1,300,000 in the form of promissory notes with detachablewarrants to purchase shares of the Company’s common stock.  Interest onthe notes is payable at the rate of 15% per annum, compounded quarterly, andthe warrants have an exercise price of $.50 per share exercisable for aten-year period.  The first loan, in the amount of $700,000, was funded onMarch 27, 2002 and was due and payable on July 1, 2002.  As of August 13, 2002, On Stage had not madethis payment, nor had MDC taken any action with respect to the default.  The promissory note provides, however, thatMDC may, at its sole discretion, extend the maturity date to December 31,2006.  We are currently in discussionswith MDC to determine whether, and to what extent, MDC intends to extend thematurity date. In connection with the $700,000 promissory note, MDC receivedwarrants to purchase 1,346,154 shares of common stock.  Using theBlack-Scholes pricing model, the warrants were valued at $281,609 and recordedas a discount and amortized over the initial term.  The discount was amortized in full as of June 30, 2002.  Thefunds will be used (1) to reimburse MDC $250,000 of expenses incurred on behalfof On Stage, including but not limited to attorney’s fees incurred inconnection with this promissory note, and (2) for working capital purposeswithin the ordinary course of business. The second loan, in the amount of$600,000, with warrants to purchase 1,153,846 shares of common stock, will bedeposited in a separate bank account and may be withdrawn only for direct usein connection with our participation and investment in a potential futureproject.

 

In May 1997, we entered into aMaster Equipment Lease Agreement (“Lease Agreement”) with First Security Bankof Nevada (“First Security”).  Pursuant to that Lease Agreement, weentered into four leases for a total of $1,094,764.  In March 1998, weentered into a Business Loan Agreement with First Security with respect to a$1,000,000 promissory note.  The Lease Agreement and the Business LoanAgreement contain various financial and other covenants that we mustmeet.  As of April 1999, we were in default

 

22

----

 

under the Lease Agreement andthe Business Loan Agreement for failure to make required payments. Subsequently, we entered into a Litigation Forbearance Agreement (“ForbearanceAgreement”) that contained a waiver for the noncompliance as of October2000.  Under the Forbearance Agreement, we were required to make monthypayments of $50,000.  We are currently in default under the ForbearanceAgreement because our recent monthly payments have been only $28,000.  Weare in the process of obtaining a waiver from Wells Fargo Bank (successor bankto First Security) for the prior payments and are negotiating to have themonthly payment reduced to $28,000.  As of June 30, 2002, the outstandingbalance under the Lease Agreement and the Business Loan Agreement wasapproximately $400,000.

 

***Cash Flow***

 

For the six months ended June30, 2002, we had net cash used in operations of approximately $984,000.  As of June 30, 2002, we had approximately$455,000 in cash and cash equivalents. The operating deficit for the first half of 2002 was primarilyattributable to a $1,870,500 loss, partially offset by a decrease in accountsreceivable and an increase in accounts payable.

 

For the six months ended June30, 2001, we had net cash used in operations of approximately $1,696,000. As ofJune 30, 2001, we had approximately $2,399,000 in cash and cash equivalents.The cash used in operations for the six months ended June 30, 2001 wasprimarily attributable to the decrease of accounts payable and accruedexpenses.

 

The net cash used in investingactivities for the six months ended June 30, 2002 of $64,000 was attributableto capital expenditures.  The net cashused in investing activities for the six months ended June 30, 2001 of $863,000was attributable to the acquisition of show rights, the addition to capitalexpenditures, and advances on a note receivable from an officer.

 

Net cash provided by financingactivities for the six months ended June 30, 2002 of $547,000, was primarilyattributable to the proceeds from the issuance of promissory notes, partiallyoffset by payments made on the long-term note. Net cash provided by financing activities for the six months ended June30, 2001 of $4,440,500, was primarily attributable to the proceeds fromconvertible debentures and proceeds from the issuance of Series A ConvertiblePreferred Stock, partially offset by payment on long-term debt.

 

***Working Capital***

 

At June 30, 2002, we had aworking capital deficit of approximately $1,696,000 which resulted primarilyfrom an increase in short-term debt.  AtJune 30, 2001, we had a working capital deficit of approximately $2,080,000,which resulted primarily from an increase in short-term debt associated withthe purchase of Country Tonite.  Thisincrease was partially offset by an increase in cash and cash equivalents.

 

**PART II.OTHER INFORMATION**

 

**Item1.  Legal Proceedings**

 

In March 2002, On Stagereceived notice of a civil complaint filed in the Superior Court of New Jersey– Law Division – Atlantic County on January 11, 2002, by former employees ofBally’s Park Place, Inc., a venue for one of our full time Legends productions,against Bally’s, On Stage and several Legends performers that we hire asindependent contractors.  The complaint alleges violations of the NewJersey Law Against Discrimination, retaliatory termination by conspiracy,misconduct causing severe emotional distress, assault and battery, and loss ofconsortium, and seeks damages of $7,750,000, plus cost of attorneys’fees.  On Stage has responded to the complaint, however it is too earlyfor management to determine the probability of an unfavorable outcome and therange of possible loss, if any. On Stage believes that the case is withoutmerit with respect to itself, and intends to vigorously defend the action.

 

23

----

 

In July 2002,On Stage received notice of a civil complaint filed in the Circuit Court ofTaney County, Missouri by TCK, L.P., the landlord for the theater in which OnStage presented its *Legends in Concert* show in Branson fromAugust 1997 through December 2001.  Thecomplaint alleges breach of contract for failure to pay a percentage of grossreceipts and damage to property in excess of $200,000.  On Stage has responded to thecomplaint.  On Stage believes the caseis without merit and intends to vigorously defend the action.

 

**Item2.  Changes in Securities**

 

In March 2002, we issuedwarrants to purchase 1,346,154 shares of our common stock to MDC inconsideration of a $700,000 loan.  The warrants have an exercise price of$0.50 per share and are exercisable for 10 years from the date of issuance. Theissuance was made in reliance on an exemption from registration under Section4(2) of the Securities Act as an issuance not involving a public offering.

 

**Item3.  Defaults Upon Senior Securities**

 

In March 2002, McCown DeLeeuw & Co., Inc. a private equity investment firm (“MDC”), agreed to loanOn Stage $1,300,000 in the form of promissory notes with detachable warrants topurchase shares of the Company’s common stock.  Interest on the notes ispayable at the rate of 15% per annum, compounded quarterly, and the warrantshave an exercise price of $.50 per share exercisable for a ten-yearperiod.  The first loan, in the amount of $700,000, was funded on March27, 2002 and was due and payable on July 1, 2002.  As of August 13, 2002, On Stage had not made this payment, norhad MDC taken any action with respect to the default. The promissory noteprovides, however, that MDC may, at its sole discretion, extend the maturitydate to December 31, 2006.  We arecurrently in discussions with MDC to determine whether, and to what extent, MDCintends to extend the maturity date. In connection with the $700,000 promissorynote, MDC received warrants to purchase 1,346,154 shares of common stock.  Using the Black-Scholes pricing model, thewarrants were valued at $281,609 and recorded as a discount and amortized overthe initial term.  The discount wasamortized in full as of June 30, 2002. The funds will be used (1) to reimburse MDC $250,000 of expensesincurred on behalf of On Stage, including but not limited to attorney’s feesincurred in connection with this promissory note, and (2) for working capitalpurposes within the ordinary course of business. The second loan, in the amountof $600,000, with warrants to purchase 1,153,846 shares of common stock, willbe deposited in a separate bank account and may be withdrawn only for directuse in connection with our participation and investment in a potential futureproject.

 

In May 1997, we entered intoa Master Equipment Lease Agreement (“Lease Agreement”) with First Security Bankof Nevada (“First Security”).  Pursuant to that Lease Agreement, weentered into four leases for a total of $1,094,764.  In March 1998, weentered into a Business Loan Agreement with First Security with respect to a$1,000,000 promissory note.  The Lease Agreement and the Business LoanAgreement contain various financial and other covenants that we mustmeet.  As of April 1999, we were in default under the Lease Agreement andthe Business Loan Agreement for failure to make required payments. Subsequently, we entered into a Litigation Forbearance Agreement (“ForbearanceAgreement”) that contained a waiver for the noncompliance as of October2000.  Under the Forbearance Agreement, we were required to make monthlypayments of $50,000.  We are currently in default under the ForbearanceAgreement because our recent monthly payments have been only $28,000.  Weare in the process of obtaining a waiver from Wells Fargo Bank (successor bankto First Security) for the prior payments and are negotiating to have themonthly payment reduced to $28,000.  As of June 30, 2002, the outstandingbalance under the Lease Agreement and the Business Loan Agreement wasapproximately $400,000.

 

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

 

None.

 

24

----

 

**Item 5.  OtherInformation**

 

None.

 

**Item 6.    Exhibits & Reports on Form8-K**

 
|   | 3.1    |   | Certificate of Amendment  to the Amended and Restated Articles of Incorporation of On Stage  Entertainment, Inc.                 |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                             |
|   | 3.2    |   | Amended and Restated  Bylaws of On Stage Entertainment, Inc.                                                                |
|   |   |   |                                                                                                                             |
| *      | 10.1   |   | Employment Agreement dated  October 12, 2000 between John W. Stuart and On Stage Entertainment, Inc.                        |
|   |   |   |                                                                                                                             |
|   | 10.2   |   | Confidentiality and  Non-Competition Agreement dated April 6, 2001 between John W. Stuart and On  Stage Entertainment, Inc. |
|   |   |   |                                                                                                                             |
| *      | 10.3   |   | Employment Agreement dated  October 12, 2000 between Timothy J. Parrott and On Stage Entertainment, Inc.                         |
|   |   |   |                                                                                                                             |
|   | 99.1   |   | Certification  Pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the  Sarbanes-Oxley Act of 2002.            |

 

* Management contract orcompensatory plan or arrangement required to be filed as an exhbit pursuant tothe applicable rules of the Securities Exchange Act.

25

----

 

**SIGNATURES**

 

In accordance with the requirements of theSecurities Exchange Act of 1934, the registrant caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
|                  |   | ON STAGE ENTERTAINMENT,  INC.                        |
|-----------------------|--------|------------------------------------------------------|
|                  |   |                                                 |
|                  |   |                                                 |
| Date: August 13, 2002 | By:    | /s/ TIMOTHY J. PARROTT                               |   |
|                  |   | Timothy J. Parrott                                   |
|                  |   | *Chief  Executive Officer*                           |
|                  |   |                                                 |
|                  |   |                                                 |
| Date: August 13, 2002 | By:    | /s/ MARGARET ANN FREMAN                              |   |
|                  |   | Margaret Ann Freman                                  |
|                  |   | *Senior  Vice President and Chief Financial Officer* |

 

----