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

## **WASHINGTON, DC 20549**

 

**AMENDMENTNO. 1**

**TO**

**FORM 10-QSB**

 

**(MarkOne)**
| **ý** | **Quarterly report under Section 13 or 15 (d) of the  Securities Exchange Act of 1934** |
|------------|-----------------------------------------------------------------------------------------|

**For the quarterly period endedSeptember 30, 2000**

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

 

## **For the Transition period from ________ to__________**

 

**Commissionfile number  0-29402**

 

**ON STAGEENTERTAINMENT, INC.**

(Exact Name ofSmall Business Issuer as Specified in Its Charter)

 

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

 

**(702) 253-1333**

Issuer’s TelephoneNumber, Including Area Code

 

**______________________________________________________________________________________**

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

Since Last Report)

 

                Check whether the issuer:  (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

Yes         ý                           No           o  

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

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

 

| Class                         |   | Outstanding  at  November 17, 2000 |
|-------------------------------|--------|-----------------------------------------|
| Common Stock, $0.01 par value |   | 7,226,808                               |

 

 

 

 

**ON STAGE ENTERTAINMENT, INC. ANDSUBSIDIARIES**

 

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

 

 

 

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

 

## **PART I. FINANCIALINFORMATION**

 

**Item1.  Consolidated Financial Statements**
| ** **                                                                                                      |   | **December 31, 1999** |       | **September 30, 2000** |   |
|-----------------------------------------------------------------------------------------------------------------|--------|-----------------------|------------|------------------------|--------|
|                                                                                                            |   |                  |       | **(Unaudited)**        |   |
| **Assets**                                                                                                      |   |                  |       |                   |   |
| Current assets                                                                                                  |   |                  |       |                   |   |
| Cash and cash equivalents                                                                                       |   | $                     | 374,587    |                   | $      | 816,611 |   |
| Accounts receivable, net                                                                                        |   | 1,249,619             |       | 643,580                |   |
| Inventory                                                                                                       |   | 234,579               |       | 187,421                |   |
| Deposits                                                                                                        |   | 198,523               |       | 263,288                |   |
| Prepaid and other assets                                                                                        |   | 238,274               |       | 298,039                |   |
| Notes receivable from officers                                                                                  |   | 117,906               |       | 267,198                |   |
| Total current assets                                                                                            |   | 2,413,488             |       | 2,476,137              |   |
| Property, equipment and leasehold improvements                                                                  |   | 23,720,804            |       | 14,590,587             |   |
| Less:  Accumulated  depreciation and amortization                                                          |   | (5,176,244            | )          | (5,307,866             | )      |
| Property, equipment and leasehold improvements, net                                                             |   | 18,544,560            |       | 9,282,721              |   |
| Direct acquisition costs                                                                                        |   | 597,328               |       |  -                |   |
| Deferred financing costs, net of amortization of $192,810                                                       |   | 927,190               |       |  -                |   |
|                                                                                                            |   | $                     | 22,482,566 |                   | $      | 11,758,858 |   |
|                                                                                                            |   |                  |       |                   |   |
| **Liabilities and Stockholders’ Equity**                                                                   |   |                  |       |                   |   |
| Current liabilities                                                                                             |   |                  |       |                   |   |
| Working capital line                                                                                            |   | $                     | 459,146    |                   | $      | - |   |
| Accounts payable and accrued expenses                                                                           |   | 1,444,878             |       | 1,175,351              |   |
| Accrued  payroll and other liabilities                                                                          |   | 3,937,951             |       | 3,995,288              |   |
| Current maturities of long-term debt                                                                            |   | 15,398,282            |       | 14,332,096             |   |
| Note payable to officer                                                                                         |   | -                     |       | 21,371                 |   |
| Total current liabilities                                                                                       |   | 21,240,257            |       | 19,524,106             |   |
| Long-term debt, less current maturities                                                                         |   | 30,773                |       | -                      |   |
| Total liabilities and long-term debt                                                                            |   | 21,271,030            |       | 19,524,106             |   |
| Commitments and contingencies                                                                                   |   |                  |       |                   |   |
| Stockholders’ equity   (deficiency)                                                                   |   |                  |       |                   |   |
| Preferred stock, par value $1 per share, 1,000,000 sharesauthorized; none issued and  outstanding               |   | -                     |       | -                      |   |
| Common stock, par value $0.01 per share; authorized  25,000,000shares;  7,226,808 shares issued and outstanding |   | 72,268                |       | 72,268                 |   |
| Additional paid-in-capital                                                                                      |   | 11,430,336            |       | 11,430,336             |   |
| Accumulated deficit                                                                                             |   | (10,291,068           | )          | (19,267,852            | )      |
| Total stockholders’ equity (deficiency)                                                                    |   | 1,211,536             |       | (7,765,248             | )      |
|                                                                                                            |   | $                     | 22,482,566 |                   | $      | 11,758,858 |   |

 

See notes to consolidatedfinancial statements.

 

 

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

**Consolidated Statements of Operations**

 

 
|                                                                |   | **Three months endedSeptember 30,** |      |
|---------------------------------------------------------------------|--------|-------------------------------------|-----------|
|                                                                |   | **1999**                            |      | **2000** |   |
|                                                                |   | **(Unaudited)**                     |      | **(Unaudited)** |   |
|                                                                |   |                                |      |   |   |
| Net revenues                                                        |   | $                                   | 7,792,718 |   | $ | 6,393,371 |   |
|                                                                |   |                                |      |   |   |
| Costs of revenues                                                   |   | 5,637,613                           |      | 5,086,094 |   |
|                                                                |   |                                |      |   |   |
| Gross profit                                                        |   | 2,155,105                           |      | 1,307,277 |   |
|                                                                |   |                                |      |   |   |
| Selling, general & administrative                               |   | 1,023,677                           |      | 1,040,183 |   |
|                                                                |   |                                |      |   |   |
| Depreciation and amortization                                       |   | 306,288                             |      | 254,843 |   |
|                                                                |   |                                |      |   |   |
| Restructuring charges                                               |   | 81,060                              |      | - |   |
|                                                                |   |                                |      |   |   |
| Operating income (loss)                                             |   | 744,080                             |      | 12,251 |   |
|                                                                |   |                                |      |   |   |
| Interest expense, net                                               |   | (711,756                            | )         | (32,651 | ) |
|                                                                |   |                                |      |   |   |
| Other income (expense)                                              |   | 368,786                             |      | 292,956 |   |
|                                                                |   |                                |      |   |   |
| Loss on disposition of disposition of property plant and  equipment |   | (61,237                             | )         | (298,118 | ) |
|                                                                |   |                                |      |   |   |
| Net income (loss) before extraordinary item                         |   | $                                   | 339,873   |   | $ | (25,562 | ) |
|                                                                |   |                                |      |   |   |
| Extraordinary item – troubled debt restructuring loss          |   | ---                                 |      | (56,591 | ) |
|                                                                |   |                                |      |   |   |
| Net Income (loss)                                                   |   | $                                   | 339,873   |   | $ | (82,153 | ) |
|                                                                |   |                                |      |   |   |
| Basic and diluted loss per share from continuing operations         |   | $                                   | 0.05      |   | $ | (0.00 | ) |
|                                                                |   |                                |      |   |   |
| Basic and diluted loss per share from extraordinary item            |   | ---                                 |      | $ | (0.01 | ) |
|                                                                |   |                                |      |   |   |
| Basic and diluted loss per common share                             |   | $                                   | 0.05      |   | $ | (0.01 | ) |
|                                                                |   |                                |      |   |   |
| Basic and diluted average number of common shares  outstanding      |   | 7,031,475                           |      | 7,226,808 |   |
|                                                                     |        |                                     |           |  |  |  |  |  |

 

See notes toconsolidated financial statements.

 

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

**Consolidated Statements of Operations**

 
|                                                           |   | **Nine months ended  September 30,** |       |
|----------------------------------------------------------------|--------|--------------------------------------|------------|
|                                                           |   | **1999**                             |       | **2000** |   |
|                                                           |   | **(Unaudited)**                      |       | **(Unaudited)** |   |
|                                                           |   |                                 |       |   |   |
| Net revenues                                                   |   | $                                    | 21,467,965 |   | $ | 19,650,618 |   |
|                                                           |   |                                 |       |   |   |
| Costs of revenues                                              |   | 16,467,446                           |       | 15,978,060 |   |
|                                                           |   |                                 |       |   |   |
| Gross profit                                                   |   | 5,000,519                            |       | 3,672,558 |   |
|                                                           |   |                                 |       |   |   |
| Selling, general & administrative                          |   | 3,105,545                            |       | 2,372,970 |   |
|                                                           |   |                                 |       |   |   |
| Depreciation and amortization                                  |   | 909,889                              |       | 1,456,665 |   |
|                                                           |   |                                 |       |   |   |
| Restructuring charges                                          |   | 343,853                              |       | - |   |
|                                                           |   |                                 |       |   |   |
| Operating income (loss)                                        |   | 641,232                              |       | (157,077 | ) |
|                                                           |   |                                 |       |   |   |
| Interest expense, net                                          |   | (2,140,905                           | )          | (1,890,380 | ) |
|                                                           |   |                                 |       |   |   |
| Other (income)                                                 |   | 368,786                              |       | 292,956 |   |
|                                                           |   |                                 |       |   |   |
| Loss on disposition of property plant and equipment            |   | (61,237                              | )          | (303,974 | ) |
|                                                           |   |                                 |       |   |   |
| Net loss before extraordinary item                             |   | $                                    | (1,192,124 | ) | $ | (2,058,475 | ) |
|                                                           |   |                                 |       |   |   |
| Extraordinary item – troubled debt restructuring loss     |   | ---                                  |       | 6,918,309 |   |
|                                                           |   |                                 |       |   |   |
| Net loss                                                       |   | $                                    | (1,192,124 | ) | $ | (8,976,784 | ) |
|                                                           |   |                                 |       |   |   |
| Basic and diluted loss per share from continuing  operations   |   | $                                    | (0.16      | ) | $ | (0.28 | ) |
|                                                           |   |                                 |       |   |   |
| Basic and diluted loss per share from extraordinary item       |   | ---                                  |       | $ | (0.96 | ) |
|                                                           |   |                                 |       |   |   |
| Basic and diluted loss per common share                        |   | $                                    | (0.16      | ) | $ | (1.24 | ) |
|                                                           |   |                                 |       |   |   |
| Basic and diluted average number of common shares  outstanding |   | 7,288,497                            |       | 7,226,808 |   |

 

Seenotes to consolidated financial statements.

 

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

**Consolidated Statements of Cash Flows**

 

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

 
|                                                                         |   | **Nine months ended  September 30,** |          |
|------------------------------------------------------------------------------|--------|--------------------------------------|---------------|
|                                                                         |   | **1999**                             |          | **2000** |   |
|                                                                         |   | **(Unaudited)**                      |          | **(Unaudited)** |   |
|                                                                         |   |                                 |          |   |   |
| Cash flows from operating activities                                         |   |                                 |          |   |   |
| Net loss                                                                     |   | $                                    | (1,192,124    | ) | $ | (8,976,784 | ) |
| Adjustments to reconcile net loss to net cash used in  operating activities: |   |                                 |          |   |   |
| Depreciation and amortization                                                |   | 985,911                              |          | 1,456,665 |   |
| Direct acquisition costs                                                     |   | (596,356                             | )             | 597,328 |   |
| Write off of debt financing costs                                            |   | -                                    |          | 927,190 |   |
| Loss on troubled debt restructuring                                          |   | -                                    |          | 6,918,309 |   |
| Loss on disposal of property plant and equipment                             |   | 61,236                               |          | 303,974 |   |
| Accounts receivable                                                          |   | (75,151                              | )             | 606,039 |   |
| Inventory                                                                    |   | (21,286                              | )             | 47,158 |   |
| Deposits                                                                     |   | (127,794                             | )             | (64,765 | ) |
| Prepaid and other assets                                                     |   | 134,362                              |          | (59,765 | ) |
| Accounts payable and accrued expenses                                        |   | (142,234                             | )             | (269,527 | ) |
| Accrued payroll and other liabilities                                        |   | 1,336,231                            |          | 57,337 |   |
| Total adjustments                                                            |   | 1,554,919                            |          | 10,519,943 |   |
| Net cash provided (used in) operating activities                             |   | 362,795                              |          | 1,543,159 |   |
|                                                                         |   |                                 |          |   |   |
| Cash flows from investing activities                                         |   |                                 |          |   |   |
| Proceeds from sale of assets                                                 |   | -                                    |          | 2,000,000 |   |
| Advances on notes receivable from officer                                    |   | -                                    |          | (149,292 | ) |
| Pay down on note receivable from officer                                     |   | 14,272                               |          | - |   |
| Capital expenditures                                                         |   | (179,055                             | )             | (492,110 | ) |
| Net cash provided (used in) investing activities                             |   | (164,783                             | )             | 1,358,598 |   |
|                                                                         |   |                                 |          |   |   |
| Cash used in financing activities                                            |   |                                 |          |   |   |
| Repayments under working capital line                                        |   | (377,842                             | )             | - |   |
| Repayment on long-term borrowing                                             |   | (348,529                             | )             | (2,481,104 | ) |
| Notes payable to officer                                                     |   | 36,968                               |          | - |   |
| Cash received on notes payable from officer                                  |   | -                                    |          | 21,371 |   |
| Issuance of common stock                                                     |   | 182,493                              |          | - |   |
| Net cash provided by (used in) financing activities                          |   | (506,910                             | )             | (2,459,733 | ) |
|                                                                         |   |                                 |          |   |   |
| Effect of exchange rate changes on cash and cash  equivalents                |   | (89,292                              | )             | - |   |
|                                                                         |   |                                 |          |   |   |
| Net decrease in cash and cash equivalents                                    |   | (398,190                             | )             | 442,024 |   |
| Cash and cash equivalents at beginning of period                             |   | 1,009,768                            |          | 374,587 |   |
|                                                                         |   |                                 |          |   |   |
| Cash and cash equivalents at end of period                                   |   | $                                    |  611,578 |   | $ |  816,611 |   |
|                                                                         |   |                                 |          |   |   |

 

See notes to consolidated financial statements.

** **

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

 

                In June 2000, OnStage sold equipment with historical cost of approximately $8,000, at a loss of$5,856.

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

## **Notes to Consolidated Financial Statements**

**September 30, 2000**

 

**Basis of Presentation**

 

The financialstatements included in this report include the accounts of On StageEntertainment, Inc., a publicly traded Nevada corporation and its subsidiaries:Legends in Concert, Inc., a Nevada corporation; On Stage Marketing, Inc., aNevada corporation; On Stage Theaters, Inc., a Nevada corporation; Wild Bill’sCalifornia, Inc., a Nevada corporation; Blazing Pianos, Inc., a Nevadacorporation; King Henry’s Inc., a Nevada corporation; On Stage Merchandise,Inc., a Nevada corporation; On Stage Events, Inc., a Nevada corporation; OnStage Casino Entertainment, Inc., a Nevada corporation; On Stage Productions,Inc., a Nevada corporation; On Stage Theaters North Myrtle Beach, Inc., aNevada corporation; and On Stage Theaters Surfside Beach, Inc., a Nevadacorporation.

 

In theopinion of the management of On Stage Entertainment, Inc. and Subsidiaries, theaccompanying unaudited consolidated financial statements include all normaladjustments considered necessary to present fairly the financial position as ofSeptember 30, 2000, and the results of operations and cash flows for the ninemonths ended September 30, 2000 and 1999. Interim results are not necessarilyindicative of results for the full year. The consolidated financial statementsand notes are presented as permitted by Form 10-QSB, and do not containinformation included in our audited consolidated financial statements and notesfor the fiscal year ended December 31, 1999.

 

**(1)Going Concern**

 

                The accompanyingconsolidated financial statements have been prepared assuming that On Stagewill continue as a going concern, which contemplates the realization of assetsand the satisfaction of liabilities in the normal course of business.  The carrying amounts of assets and liabilitiespresented in the financial statements do not purport to represent realizable orsettlement values. However, On Stage has suffered recurring operating losses,has a working capital deficit of $17,048,000 and has defaulted on its long-termdebt. These factors raise substantial doubt about the ability to continue as agoing concern.  The consolidatedfinancial statements do not include any adjustments that might result from theoutcome of those uncertainties.  Thereport of our independent certified public accountant for the year endedDecember 31, 1999 contains an explanatory paragraph regarding the uncertaintyof our ability to continue as a going concern.

 

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

 

                Management plansto manage short-term liquidity concerns through the renegotiations of itsexpired working capital line, capital leases and mortgage facilities. On Stagehas either closed down or restructured any business units that are notgenerating positive cash flow.  Inaddition, it has lowered selling, general and administrative costs as a percentof net revenues from 14.5% for the nine months ended September 30, 1999, to12.1% for the nine months ended September 30, 2000, and continues to downsizeand restructure its selling, general and administrative functions.

 

                Inaddition, On Stage is continuing its efforts to secure working capital foroperations, expansion and possible acquisitions, mergers, joint ventures,and/or other business combinations. However, there can be no assurance that On Stage will be able to secureadditional capital or, if available, whether the terms or conditions would beacceptable.

 

 

**(2) Debt Restructuring**

 

**               **Asof September 30, 2000, equipment and leasehold improvements included $9 millionof assets subject to foreclosure, stated at net realizable value.

 

                As of October 7, 1998, we had borrowed an aggregateof $14,150,000 from our mortgage lender, ICCMIC.  On May 24, 1999, we received a notice of default fromICCMIC.  On November 5, 1999, wereceived a formal demand from ICCMIC to pay them the sum of $16,163,305 as aguarantor under the loan, which represented all of the indebtedness, includinglate charges and default interest, due on that date.  On November 12, 1999, ICCMIC filed a complaint against us in theDistrict Court for Clark County, Nevada, alleging, among other things, that wehad breached the guaranty.  On December10, 1999, we agreed to allow ICCMIC to obtain judgement against us for theamount of the guaranty in return for a forbearance on the collection of thejudgment until March 31, 2000.  ICCMIClater extended the date for collection on the judgment until May 1, 2000.

 

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

 

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

 

                During the period, we continued negotiating the termsof the credit facilities to obain extensions and to seek alternative additionalfinancing.

 

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

 

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

 

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

 

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

 

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

 

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

 

                On October 12, 2000, we restructured our remainingdebt with ICCMIC and First Security Bank of Nevada ("First Security").  Under the terms of the agreement, ICCMICagreed to convert its outstanding loan and accrued interest of approximately$8.2 million in exchange for 4,061,122 shares of common stock with a marketvalue of $1,218,336, which resulted in a troubled debt restructuring gain of$7,059,431.  As part of thistransaction, Mr. Parrott purchased 2,630,000 shares of our common stock, atmarket value, from ICCMIC for $1 million.

 

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

 

 

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

 

                We also restructured our remaining debt ofapproximately $1.2 million with First Security.  Under the terms of the agreement with First Security, effectiveAugust 1, 2000, we pay $50,000 per month. The loan matures on September 1, 2002 and accrues interest at the annualrate of prime plus 2%, which was 9.5% at December 31, 2000.

 

(**3) Loss per share**

 

                Statement ofFinancial Accounting Standard No. 128, Earnings per Share, provides for the calculation of Basic and Dilutedearnings per share. Basic earnings per share includes no dilution and is computedby dividing income available to common shareholders by the weighted averagenumber of common shares outstanding for the period. Diluted earnings per sharereflect the potential dilution of securities that could share in the earningsof the entity, similar to fully diluted earnings per share.

 

                For the nine months endedSeptember 30, 1999, potential dilutive securities representing 1,125,550outstanding stock options and 3,660,155 outstanding warrants are not included,since their effect would be anti-dilutive. For the nine months ended September30, 2000, potential dilutive securities representing 1,224,850 outstandingstock options and 3,660,155 outstanding warrants are not included, since theireffect would be anti-dilutive.

### ** **

### **(4)Commitments and contingencies**

 

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

 

**(5)Direct acquisition costs**

 

                On March 31, 2000,On Stage wrote-off direct acquisition costs totaling $597,328, which had nofuture value.

 

**(6)Deferred financing charges**

 

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

 

**(7)Segment information**

 

                The following information is presentedin accordance with SFAS No. 131, which was adopted by On Stage in thefourth quarter of 1998.

 

On Stage derives its net revenues from five reportable segments:

 

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

•      Theaters.  The Theaters segment owns and /or rents live theaters and dinnertheaters in urban and resort tourist locations primarily in the UnitedStates.  The Theaters segment derivesrevenues from the sale of tickets along with food and beverages to patrons whoattend our live theatrical productions.

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

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

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

 

                The accountingpolicies of the reportable operating segments are the same as those describedin the Summary of Accounting Policies. On Stage management evaluates the performance of its operating segmentsbased upon the profit or loss from operations. On Stage reportable segments are strategic business units because eachbusiness unit services a different market or performs a specialized function insupport of a given market.

 

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

 

For the nine months ended September 30, 1999

 
|                             |   | **Casino** |      | **Production  Services** |   | **Theaters** |   | **OSE** |       | **Total Consolidated** |   |
|----------------------------------|--------|------------|-----------|--------------------------|--------|--------------|--------|---------|------------|------------------------|--------|
| Revenues from external customers |   | $          | 7,356,231 |                     | $      | 92,867       |   | $       | 14,018,867 |                   | $      | - |   | $ | 21,467,965 |   |
|                             |   |       |      |                     |   |         |   |    |       |                   |   |
| Interest expense                 |   | $          | 75        |                     | $      | 1,123        |   | $       | 1,986,763  |                   | $      | 152,944 |   | $ | 2,140,905 |   |
|                             |   |       |      |                     |   |         |   |    |       |                   |   |
| Depreciation and amortization    |   | $          | 277,238   |                     | $      | 65,989       |   | $       | 424,883    |                   | $      | 141,779 |   | $ | 909,889 |   |
|                             |   |       |      |                     |   |         |   |    |       |                   |   |
| Segment profit (loss)            |   | $          | 1,826,751 |                     | $      | (464,995     | )      | $       | (899,679   | )                      | $      | (1,654,201 | ) | $ | (1,192,124 | ) |
|                             |   |       |      |                     |   |         |   |    |       |                   |   |
| Segment assets                   |   | $          | 3,205,079 |                     | $      | 811,917      |   | $       | 18,252,412 |                   | $      | 1,861,594 |   | $ | 24,131,002 |   |
|                             |   |       |      |                     |   |         |   |    |       |                   |   |
| Additions to long-lived assets   |   | $          | 111,251   |                     | $      | 8,121        |   | $       | 53,305     |                   | $      | 6,378 |   | $ | 179,055 |   |

 

 

For the nine months ended September 30, 2000

 
|                                            |   | ** Casino** |      | **Production  Services** |   | **Theaters** |   | **OSE** |       | **Total Consolidated** |   |
|-------------------------------------------------|--------|------------------|-----------|--------------------------|--------|--------------|--------|---------|------------|------------------------|--------|
| Revenues from external customers                |   | $                | 7,307,227 |                     | $      | 27,718       |   | $       | 12,315,673 |                   | $      | - |   | $ | 19,650,618 |   |
|                                            |   |             |      |                     |   |         |   |    |       |                   |   |
| Interest expense                                |   | $                | 1,834     |                     | $      | -            |   | $       | 1,757,811  |                   | $      | 130,735 |   | $ | 1,890,380 |   |
|                                            |   |             |      |                     |   |         |   |    |       |                   |   |
| Depreciation and amortization                   |   | $                | 299,276   |                     | $      | 82,275       |   | $       | 320,383    |                   | $      | 754,731 |   | $ | 1,456,665 |   |
|                                            |   |             |      |                     |   |         |   |    |       |                   |   |
| Segment profit (loss) before extraordinary item |   | $                | 1,599,911 |                     | $      | (640,241     | )      | $       | (1,201,228 | )                      | $      | (1,816,917 | ) | $ | (2,058,475 | ) |
|                                            |   |             |      |                     |   |         |   |    |       |                   |   |
| Segment assets                                  |   | $                | 3,169,863 |                     | $      | 922,744      |   | $       | 1,207,621  |                   | $      | 1,822,567 |   | $ | 7,122,795 |   |
|                                            |   |             |      |                     |   |         |   |    |       |                   |   |
| Additions to long-lived assets                  |   | $                | 18,853    |                     | $      | 12,503       |   | $       | 440,889    |                   | $      | 19,865 |   | $ | 492,110 |   |

##### *** ***

**Item 2.****Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

This documentcontains certain forward-looking statements that are subject to risks anduncertainties. Forward-looking statements include certain information relatingto potential new show openings, the potential markets for On Stage'sproductions, the expansion of existing and potential gaming and touristmarkets, our exposure to various trends in the gaming industry, our acquisitionplans and the benefits we anticipate from these acquisitions, our businessstrategy, our outstanding litigation matters and the defenses available to us,the seasonality of our business, and liquidity issues, as well as informationcontained elsewhere in this report where current statements are preceded by,followed by or include the words "believes," "expects,""anticipates" or similar expressions.  For these statements, On Stage claims the protection of the safeharbor for forward-looking statements contained in the Private Securities LitigationReform Act of 1995. The forward-looking statements in this document are subjectto risks and uncertainties that could cause the assumptions underlying theforward-looking statements and the actual results to differ materially fromthose expressed in or implied by the statements.

 

                The most important factors that could prevent us fromachieving our goals and cause the assumptions underlying the forward-lookingstatements and the actual results to differ materially from those expressed inor implied by those forward-looking statements include the information providedunder the heading "Description of Business-Risk Factors" in Item 1 ofour Annual Report on Form 10-KSB for the year ended December 31, 1999, as wellas the following:

 

•      On Stage's dependence on our flagshipLegends in Concert production and our principal production venues;

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

•      Risks associated with our acquisition strategy,including our ability to successfully identify, complete and integratestrategic acquisitions;

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

•      The ability to continue as an ongoingconcern;

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

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

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

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

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

**Results of Operations**

 

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

 

Forthe quarter ended September 30, 1999

 
|                                             |   | **Casino** |      | **ProductionServices** |   | **Theaters** |   | **Sub-TotalOperatingSegments** |      | **OSE**  |   | **Total Consolidated** |   |
|--------------------------------------------------|--------|------------|-----------|------------------------|--------|--------------|--------|--------------------------------|-----------|----------|--------|------------------------|--------|
| Net revenues                                     |   | $          | 2,508,181 |                   | $      | 47,368       |   | $                              | 5,237,169 |     | $      | 7,792,718              |   | $ | - |   | $ | 7,792,718 |   |
|                                             |   |       |      |                   |   |         |   |                           |      |     |   |                   |   |
| Cost of revenues                                 |   | 1,705,468  |      | 147,358                |   | 3,784,787    |   | 5,637,613                      |      | -        |   | 5,637,613              |   |
|                                             |   |       |      |                   |   |         |   |                           |      |     |   |                   |   |
| Gross profit (loss)                              |   | 802,713    |      | (99,990                | )      | 1,452,382    |   | 2,155,105                      |      | -        |   | 2,155,105              |   |
|                                             |   |       |      |                   |   |         |   |                           |      |     |   |                   |   |
| Selling, general & administrative            |   | 200,514    |      | -                      |   | 382,286      |   | 582,800                        |      | 440,877  |   | 1,023,677              |   |
|                                             |   |       |      |                   |   |         |   |                           |      |     |   |                   |   |
| Depreciation & amortization                  |   | 91,657     |      | 22,066                 |   | 144,484      |   | 258,207                        |      | 48,081   |   | 306,288                |   |
|                                             |   |       |      |                   |   |         |   |                           |      |     |   |                   |   |
| Restructuring charges                            |   | 22,423     |      | -                      |   | 8,052        |   | 30,475                         |      | 50,585   |   | 81,060                 |   |
|                                             |   |       |      |                   |   |         |   |                           |      |     |   |                   |   |
| Operating income (loss)                          |   | 488,119    |      | (122,056               | )      | 917,560      |   | 1,283,623                      |      | (539,543 | )      | 744,080                |   |
| Interest expense, net                            |   | 48         |      | -                      |   | 663,069      |   | 663,117                        |      | 48,639   |   | 711,756                |   |
| Loss on disposal of property plant and equipment |   | -          |      | -                      |   | 61,237       |   | 61,237                         |      | -        |   | 61,237                 |   |
| Other (income) expense                           |   | (92,500    | )         | -                      |   | -            |   | (92,500                        | )         | (276,286 | )      | (368,786               | )      |
| Net income (loss)                                |   | $          | 580,571   |                   | $      | (122,056     | )      | $                              | 193,254   |     | $      | 651,769                |   | $ | (311,896 | ) | $ | 339,873 |   |

 

For thequarter ended September 30, 2000

 
|                                                    |   | **Casino** |      | **ProductionServices** |   | **Theaters** |    | **Sub-TotalOperatingSegments** |      | **OSE**  |   | **Total Consolidated** |   |
|---------------------------------------------------------|--------|------------|-----------|------------------------|--------|--------------|---------|--------------------------------|-----------|----------|--------|------------------------|--------|
| Net revenues                                            |   | $          | 2,347,545 |                   | $      | 3,643        |    | $                              | 4,042,183 |     | $      | 6,393,371              |   | $ | - |   | $ | 6,393,371 |   |
|                                                    |   |       |      |                   |   |         |    |                           |      |     |   |                   |   |
| Cost of revenues                                        |   | 1,844,086  |      | 203,238                |   | 3,038,770    |    | 5,086,094                      |      | -        |   | 5,086,094              |   |
|                                                    |   |       |      |                   |   |         |    |                           |      |     |   |                   |   |
| Gross profit (loss)                                     |   | 503,459    |      | (199,595               | )      | 1,003,413    |    | 1,307,277                      |      | -        |   | 1,307,277              |   |
|                                                    |   |       |      |                   |   |         |    |                           |      |     |   |                   |   |
| Selling, general & administrative                   |   | 90,880     |      | -                      |   | 464,451      |    | 555,331                        |      | 484,852  |   | 1,040,183              |   |
|                                                    |   |       |      |                   |   |         |    |                           |      |     |   |                   |   |
| Depreciation & amortization                         |   | 99,219     |      | 28,129                 |   | 78,509       |    | 205,857                        |      | 48,986   |   | 254,843                |   |
|                                                    |   |       |      |                   |   |         |    |                           |      |     |   |                   |   |
| Operating income (loss)                                 |   | 313,360    |      | (227,724               | )      | 460,453      |    | 546,089                        |      | (533,838 | )      | 12,251                 |   |
| Interest expense, net                                   |   | (194       | )         | -                      |   | (51,704      | )       | (51,898                        | )         | 84,549   |   | 32,651                 |   |
| Loss on disposition of property plant & equipment   |   | 22,064     |      | -                      |   | 276,054      |    | 298,118                   |      | -        |   | 298,118                |   |
| Other (income) expense                                  |   | -          |      | -                      |   | -            |    | -                              |      | (292,956 | )      | (292,956               | )      |
| Net income (loss) before extraordinary item             |   | $          | 291,490   |                   | $      | (227,724     | )       | $                              | 236,103   |     | $      | 299,869                |   | $ | (325,431 | ) | $ | (25,562 | ) |
|                                                    |   |       |      |                   |   |         |    |                           |      |     |   |                   |   |
| Extraordinary item --- troubled debt restructuring loss |   | --         |      | --                     |   | $            | (56,591 | )                              | $         | (56,591  | )      | --                     |   | $ | (56,591 | ) |
|                                                    |   |       |      |                   |   |         |    |                           |      |     |   |                   |   |
| Net income (loss)                                       |   | $          | 291,490   |                   | $      | (227,724     | )       | $                              | 179,512   |     | $      | 243,278                |   | $ | (325,431 | ) | $ | (82,153 | ) |

 

 

For the ninemonths ended September 30, 1999

 
|                                                 |   | **Casino** |      | **ProductionServices** |   | **Theaters** |   | **Sub-TotalOperatingSegments** |       | **OSE**    |   | **Total Consolidated** |   |
|------------------------------------------------------|--------|------------|-----------|------------------------|--------|--------------|--------|--------------------------------|------------|------------|--------|------------------------|--------|
| Net revenues                                         |   | $          | 7,356,231 |                   | $      | 92,867       |   | $                              | 14,018,867 |       | $      | 21,467,965             |   | $ | - |   | $ | 21,467,965 |   |
|                                                 |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Cost of revenues                                     |   | 4,788,217  |      | 490,750                |   | 11,188,479   |   | 16,467,446                     |       | -          |   | 16,467,446             |   |
|                                                 |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Gross profit (loss)                                  |   | 2,568,014  |      | (397,883               | )      | 2,830,388    |   | 5,000,519                      |       | -          |   | 5,000,519              |   |
|                                                 |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Selling, general & administrative                |   | 524,027    |      | -                      |   | 1,135,773    |   | 1,659,800                      |       | 1,445,745  |   | 3,105,545              |   |
|                                                 |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Depreciation & amortization                      |   | 277,238    |      | 65,989                 |   | 424,883      |   | 768,110                        |       | 141,779    |   | 909,889                |   |
|                                                 |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Restructuring charges                                |   | 32,423     |      | -                      |   | 121,411      |   | 153,834                        |       | 190,019    |   | 343,853                |   |
|                                                 |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Operating income (loss)                              |   | 1,734,326  |      | (463,872               | )      | 1,148,321    |   | 2,418,775                      |       | (1,777,543 | )      | 641,232                |   |
|                                                 |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Interest expense, net                                |   | 75         |      | 1,123                  |   | 1,986,763    |   | 1,987,961                      |       | 152,944    |   | 2,140,905              |   |
| Loss on disposition ofproperty plant & equipment |   | -          |      | -                      |   | 61,237       |   | 61,237                         |       | -          |   | 61,237            |   |
| Other (income) expense                               |   | (92,500    | )         |                   |   | -            |   | (92,500                        | )          | (276,286   | )      | (368,786               | )      |
|                                                 |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Net income (loss)                                    |   | $          | 1,826,751 |                   | $      | (464,995     | )      | $                              | (899,679   | )          | $      | 462,077                |   | $ | (1,654,201 | ) | $ | (1,192,124 | ) |

 

For the ninemonths ended September 30, 2000

 
|                                                       |   | **Casino** |      | **ProductionServices** |   | **Theaters** |   | **Sub-TotalOperatingSegments** |       | **OSE**    |   | **Total Consolidated** |   |
|------------------------------------------------------------|--------|------------|-----------|------------------------|--------|--------------|--------|--------------------------------|------------|------------|--------|------------------------|--------|
| Net revenues                                               |   | $          | 7,307,227 |                   | $      | 27,718       |   | $                              | 12,315,673 |       | $      | 19,650,618             |   | $ | - |   | $ | 19,650,618 |   |
|                                                       |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |   |   |   |   |   |   |
| Cost of revenues                                           |   | 5,051,374  |      | 585,684                |   | 10,341,002   |   | 15,978,060                     |       | -          |   | 15,978,060             |   |
|                                                       |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Gross profit (loss)                                        |   | 2,255,853  |      | (557,966               | )      | 1,974,671    |   | 3,672,558                      |       | -          |   | 3,672,558              |   |
|                                                       |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Selling, general & administrative                      |   | 332,768    |      | -                      |   | 815,795      |   | 1,148,563                      |       | 1,224,407  |   | 2,372,970              |   |
|                                                       |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Depreciation & amortization                            |   | 299,276    |      | 82,275                 |   | 320,383      |   | 701,934                        |       | 754,731    |   | 1,456,665              |   |
|                                                       |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Operating income (loss), before extraordinary item         |   | 1,623,809  |      | (620,241               | )      | 838,493      |   | 1,822,061                      |       | (1,979,138 | )      | (157,077               | )      |
|                                                       |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Interest expense, net                                      |   | 1,834      |      | -                      |   | 1,757,811    |   | 1,759,645                      |       | 130,735    |   | 1,890,380              |   |
|                                                       |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Loss on disposition of property plant & equipment      |   | 22,064     |      | -                      |   | 281,910      |   | 303,974                        |       | -          |   | 303,974                |   |
| Other income                                               |   | -          |      | -                      |   | -       |   | -                              |       | (292,956   | )      | (292,956               | )      |
|                                                       |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Net income (loss) before extraordinary item                |   | $          | 1,599,911 |                   | $      | (640,241     | )      | $                              | (1,201,228 | )          | $      | (241,558               | )      | $ | (1,816,917 | ) | $ | (2,058,475 | ) |
|                                                       |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Extraordinary item – troubled debt restructuring loss |   | $          | ---       |                   | $      | --           |   | $                              | (6,918,309 | )          | $      | (6,918,309             | )      | $ | --- |   | $ | (6,918,309 | ) |
|                                                       |   |       |      |                   |   |         |   |                           |       |       |   |                   |   |
| Net income (loss)                                          |   | $          | 1,599,911 |                   | $      | (640,241     | )      | $                              | (8,119,537 | )          | $      | (7,159,867             | )      | $ | (1,816,917 | ) | $ | (8,976,784 | ) |

 

 

**Quarter Ended September 30, 1999 versus Quarter EndedSeptember 30, 2000**

 

***                Net Revenues***. Revenues were approximately $6,393,000 for the quarterended September 30, 2000 compared to $7,792,000 for the quarter ended September30, 1999, a decrease of $1,399,000, or 18.0%. Our revenue is derived from fiveprincipal operating segments: Casinos, Events, Merchandise, ProductionServices, and Theaters. Revenues from Events are included in the Casinossegment. Revenues from Merchandise are included in the Theaters segment.

 

                Casinos revenues wereapproximately $2,347,000 for the quarter ended September 30, 2000 compared to$2,508,000 for the quarter ended September 30, 1999, a decrease of $161,000, or6.4%. This decrease was primarily attributable to a decrease in limitedengagements and corporate events.

 

                Production Services revenueswere approximately $4,000 for the quarter ended September 30, 2000 compared to$47,000 for the quarter ended September 30, 1999. The decrease was attributableto a decrease in equipment rentals.

 

                Theaters revenues wereapproximately $4,042,000 for the quarter ended September 30, 2000 compared to$5,237,000 for the quarter ended September 30, 1999, a decrease of $1,195,000,or 22.8%. This decrease was primarily attributable to the discontinuation ofour shows in Orlando, Florida. 

 

                ***Costs of Revenues***.Total costs of revenues were $5,086,000 for the quarter ended September30,  2000 compared to $5,638,000 for thequarter ended September 30, 1999, a decrease of $552,000, or 9.8%. Costs ofrevenues increased to 79.6% of net revenues for the quarter ended September 30,2000, as compared to 72.3% for the quarter ended September 30, 1999. Thisincrease in costs of revenue, as a percentage of revenue was primarilyattributable to a change in the mix of our revenues.

 

**                *Selling, General and Administrative****.* Selling, general and administrative costs were approximately $1,040,000for the quarter ended September 30, 2000 as compared to $1,023,000 for thequarter ended September 30, 1999, an increase of $17,000, or 1.7%. This isprimarily attributable to increases in legal expenses. Selling, general andadministrative costs increased to 16.3% of net revenues for the quarter endedJune 30, 2000, as compared to 13.1% for the quarter ended September 30, 1999.

 

***                Depreciation and Amortization***. Depreciation and amortization for thequarter ended September 30, 2000 decreased by $52,000, or 1.7%, as compared tothe quarter ended September 30, 1999. The decrease was primarily due to thetroubled debt restructuring loss.

 

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

 

                ***Operating Income.***Our operating income wasapproximately $12,000 for the quarter ended September 30, 2000 compared to anoperating income of $744,000 for the quarter ended September 30, 1999.

 

***                Interest Expense, Net***. Interest expense for the quarter endedSeptember 30, 2000 decreased by $679,000, or 95.4%, as compared to the quarterended September 30, 1999. The decrease was primarily due to interest accrued onthe ICCMIC debt, together with penalties and default interest rates.

 

                ***Other Income***. Other income for the quarterended September 30, 2000 decreased by $76,000, or 20.6%, as compared to thequarter ended September 30, 1999. The decrease was primarily attributable tothe implementation of the accounts payable rescheduling measure of ourrestructuring plan.

 

***                Loss onDisposition of Property Plant and Equipment. ***Loss on disposal for the three months endedSeptember 30, 1999 increased by $237,000, as compared to the three months endedSeptember 30, 1999. The increase was primarily attributable to the sale of theLegends in Concert Theater in Surfside Beach, South Carolina.

 

                ***Income Taxes.*** OnStage is a Nevada corporation with a substantial portion of revenue and incomederived in Nevada. There are no state or local income taxes in Nevada. We havenot accrued any federal income tax for the quarter ended September 30, 2000. AtSeptember 30, 1999 and 2000, we had federal net operating loss carryforwards ofapproximately $3,958,000 and $17,745,000, respectively. Under Section 382 of theInternal Revenue Code, certain significant changes in ownership that On Stageis currently undertaking may restrict the future utilization of these tax losscarryforwards.  The net deferred taxassets have a 100% valuation allowance, as management cannot determine if it ismore likely than not that the deferred tax assets will be realized.

 

**Nine Months Ended September 30, 1999 versus Nine Months EndedSeptember 30, 2000**

 

***                Net Revenues***. Revenues were approximately $19,651,000 for the ninemonths ended September 30, 2000 compared to $21,468,000 for the nine monthsended September 30, 1999, a decrease of $1,817,00, or 8.5%. Our revenue isderived from five principal operating segments: Casinos, Events, Merchandise,Production Services and Theaters. Revenues from Events are included in theCasinos segment. Revenues from Merchandise are included in the Theaterssegment.

 

                Casinos revenueswere approximately $7,307,000 for the nine months ended September 30, 2000compared to $7,356,000 for the nine months ended September 30, 1999, a decreaseof $49,000, or .07%. This decrease was primarily attributable to a decrease inrevenue generated by the *Legends in Concert*shows at the ImperialPalace in Las Vegas, and a decrease in limited engagements and corporateevents. These decreases were partially offset by the addition of a new *Legends inConcert* show on Premier Cruise Lines and at the *Legends in Concert*show atthe Imperial Palace and Casino in Biloxi, Mississippi.

 

                Production Services revenueswere approximately $28,000 for the nine months ended September 30, 2000compared to $93,000 for the nine months ended September 30, 1999. The decreasewas attributable to a decrease in equipment rentals.

 

                Theaters revenues wereapproximately $12,316,000 for the nine months ended September 30, 2000 comparedto $14,019,000 for the nine months ended September 30, 1999, a decrease of$1,703,000, or 12.1%. This decrease was primarily attributable to thediscontinuation of our shows in Orlando, Florida.

 

                ***Costs of Revenues****.*Total costs of revenues were $15,978,000 for the nine months ended September30, 2000 compared to $16,467,000 for the nine months ended September 30, 1999,a decrease of $489,000, or 3.0%.  Costsof revenues increased to 81.3% of net revenues for the nine months endedSeptember 30, 2000, as compared to 76.7% for the nine months ended September30, 1999. This increase in costs of revenues, as a percentage of revenue wasprimarily attributable to a change in the mix of our revenues.

 

**               *Selling,General and Administrative****.* Selling, general and administrativecosts were approximately $2,372,000 for the nine months ended September 30,2000 as compared to $3,106,000 for the nine months ended September 30, 1999, adecrease of $734,000, or 23.6%. Selling, general and administrative costsdecreased to 12.1% of net revenues for the nine months ended September 30,2000, as compared to 14.5% for the nine months ended September 30, 1999. Thisis primarily attributable to our reduction of overhead associated with the discontinuationof our  “ roll-out” strategy.

 

***              Depreciation and Amortization***. Depreciation and amortization for the nine months ended September 30,2000 increased by $547,000, or 60.2%, as compared to the nine months endedSeptember 30, 1999. The increase was primarily due to the write-off of  direct acquisition costs.

 

***                Restructuring Charges.***Restructuring charges represent expensesrelated to the closing of the *Legends in Concert* show in Toronto,Canada, payment of employment-related severance and termination benefits, legalexpenses, and relocation expenses of a key executive.

 

                ***Operating Income (Loss)****.* Our operating loss wasapproximately $157,000 for the nine months ended September 30, 2000, comparedto an operating income of $641,000 for the nine months ended September 30,1999.

 

  ***              Interest Expense,Net***. Interest expense for the nine months ended September 30,2000 decreased by $251,000, or 11.7%, as compared to the nine months endedSeptember 30, 1999. The decrease was primarily due to interest accrued on theICCMIC debt, together with penalties and default interest rates.

 

                ***Other Income***. Other income for the ninemonths ended September 30, 2000 decreased by $76,000, or 20.6%, as compared tothe nine months  ended September 30,1999. The decrease was primarily attributable to the implementation of theaccounts payable rescheduling measure of our restructuring plan.

 

***              Loss onDisposition of Property Plant and Equipment. ***Loss on disposal for the nine months endedSeptember 30, 2000 increased by $243,000, as compared to the nine months endedSeptember 30, 1999. The increase was primarily attributable to the sale of theLegends in Concert Theater in Surfside Beach, South Carolina.

 

                ***Income Taxes***. OnStage is a Nevada corporation with a substantial portion of revenue and incomederived in Nevada. There are no state or local income taxes in Nevada. We havenot accrued any federal income tax for the nine months ended September 30,2000. At September 30, 1999 and 2000, we had federal net operating losscarryforwards of approximately $3,958,000 and $17,745,000, respectively. UnderSection 382 of the Internal Revenue Code, certain significant changes inownership that On Stage is currently undertaking may restrict the futureutilization of these tax loss carryforwards. The net deferred tax assets have a100% valuation allowance, as management cannot determine if it is more likelythan not that the deferred tax assets will be realized.

 

**Seasonalityand Quarterly Results**

 

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

 

                The followingtable sets forth On Stage’s net revenue for each of the last seven quartersended September 30, 2000:

 

                   

Net Revenues      ($ in thousands)

 
|         |   | **March 31,** |   | **June 30,** |   | **September 30,** |   | **December 31,** |   |
|--------------|--------|---------------|--------|--------------|--------|-------------------|--------|------------------|--------|
| Fiscal  1999 |   | $             | 6,272  |         | $      | 7,403             |   | $                | 7,793  |   | $ | 7,819 |   |
| Fiscal  2000 |   | $             | 6,106  |         | $      | 7,151             |   | $                | 6,393  |   |   |   |
|              |        |               |        |              |        |                   |        |                  |        |  |  |  |  |

 

**Liquidityand Capital Resources**

 

###### ***General***

 

                 On Stage has historically met its workingcapital requirements through a combination of cash flow from operations, equityand debt offerings and traditional bank financing.  On Stage anticipates, based on its proposed plans and assumptionsrelating to its operations (including assumptions regarding the anticipatedtimetable of its new show openings and the associated costs therewith), thatits current cash, cash equivalent balances, anticipated revenue from operationsand its working capital line will be insufficient to fund its ongoingoperations and contemplated capital requirements over the next 12 months.

 

#### ***Going Concern***

 

On Stage has suffered recurringoperating losses, has a working capital deficit of $17,048,000, and hasdefaulted on its long-term debt. These factors raise substantial doubt aboutits ability to continue as a going concern. The consolidated financialstatements do not include any adjustments that might result from the outcome ofthose uncertainties. The report of our independent certified public accountantfor the year ended December 31, 1999 contains an explanatory paragraphregarding the uncertainty of our ability to continue as a going concern.

 

                Management plansto manage short-term liquidity concerns through the renegotiation of itsexpired working capital line, capital leases and mortgage facilities. On Stagehas either closed down or restructured any business units that are notgenerating positive cash flow. In addition, On Stage has lowered selling,general and administrative costs as a percentage of revenues from 14.5% for thenine months ended September 30, 1999, to 12.1% for the nine months ended September 30, 2000 and continues todownsize and restructure its selling, general and administrative costs.

 

#### ***Cash Flow***

 

                For the ninemonths ended September 30, 1999, On Stage had net cash provided by operationsof approximately $363,000. As of September 30, 1999, On Stage had approximately$612,000 in cash and cash equivalents. The cash provided by operations was primarily attributable to an increasein accrued payroll and other liabilities. For the nine months ended September30, 2000, On Stage had net cash provided by operations of approximately$1,543,000. As of September 30, 2000, On Stage had approximately $817,000 incash and cash equivalents.  The cashprovided by operations was primarily attributable to the troubled debtrestructuring loss and write-off of debt financing costs***.***

 

                The net cash used in investingactivities for the nine months ended September 30, 1999 of $165,000 wasprimarily attributable to capital expenditures. The net cash provided frominvesting activities for the nine months ended September 30, 2000 of$1,359,000, was primarily attributable to proceeds from the sale of assets.

 

                Net cash used byfinancing activities for the nine months ended September 30, 1999 of $507,000,was attributable to repayment of long-term borrowing and repayment underworking capital lines, partially offset by the issuance of common stock andnotes payable to an officer. Net cash used in financing activities for the ninemonths ended September 30, 2000 of $2,459,000, was primarily attributable torepayment of line of credit and long-term debt.

 

**PARTII. OTHER INFORMATION**

 

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

 

                (a) Exhibits

 

                      None.

 

               (b) Reports on Form 8-K

 

                      On Stage filed a Current Report on Form 8-K on May 5,2000 (Commission File No: 000-29402).

 

**SIGNATURES**

 

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

 

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

 

 

 

|                     |                     |                                        |
|--------------------------|--------------------------|---------------------------------------------|
|                     |                     |                                        |
| Date:  November 30, 2001 | /s/  Margaret Ann Freman |                                        |
|                     |                     | Margaret Ann Freman                         |
|                     |                     | Vice President and Chief Financial  Officer |
|                     |                     |                                        |
|                     |                     |                                        |