**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20450**

** **

**AMENDMENT NO. 1**

**FORM 10-KSB/A**

 

**(Mark One)**

** **

**ý****Annual report under section13 or 15(d) of the Securities Exchange Act of 1934.**

** **

**For the fiscal year ended December 31, 2000 or**

** **

**o****Transition reportunder  section 13 or 15(d) of theSecurities Exchange Act of 1934.**

** **

**For the transition period from ____________ to ___________**

** **

**Commission FileNumber 0-29402**

 

**ON STAGE ENTERTAINMENT, INC. **

(Name of Small Business Issuer in itsCharter)

 

| **Nevada**                                      |   |   |   | **88-0214292**                             |
|-------------------------------------------------|--------|--------|--------|--------------------------------------------|
| (State or Other Jurisdiction of                 |   |   |   | (I.R.S.  Employer Identification No.) |
| Incorporation or Organization)                  |   |   |   |                                       |
|                                            |   |   |   |                                       |
| **4625 W.  Nevso Drive Las Vegas, Nevada** |   |   |   | **89103**                                  |
| (Address of principal executive  offices)       |   |   |   | (Zip Code)                                 |
|                                            |   |   |   |                                       |

Issuer’stelephone number, including area code: **702-253-1333**

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

Titleof each class: **None**

 

Nameof each exchange on which registered: **None**

 

Securitiesregistered pursuant to Section 12(g) of the Act:

 

**Common Stock, parvalue $0.01 per share**

**Redeemable Warrantsto purchase shares of Common Stock**

(Title of Class)

 

                Check whether the issuer: (1)filed all reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days: YES ýNO o

 

                Check if there is no disclosureof delinquent filers in response to Item 405 of Regulation S-B contained inthis form, and no disclosure will be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  ý

 

                The issuer’s revenues for themost recent fiscal year ended December 31, 2000 were $24,137,441.

 

                The aggregate market value ofthe voting stock held by non-affiliates computed by reference to the averagebid and asked prices of such stock as quoted on April 6, 2001 was $1,282,238.

 

                The number of shares of theissuer’s common stock outstanding as of April 6, 2001 was 11,307,930.

 

                Transitional Small BusinessDisclosure Format (check one): Yes oNo ý

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

                None.

 
| TABLE OF CONTENTS                                                                                                              |
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| PART I                                                                                                                         |   |
|                                                                                                                           |   |
| Item 1.  Description of Business                                                                                          |   |
| Item 2.  Description of Property                                                                                          |   |
| Item 3.  Legal Proceedings                                                                                                |   |
| Item  4.  Submission of Matters to a Vote of  Security Holders                                                            |   |
|                                                                                                                           |   |
| PART II                                                                                                                        |   |
|                                                                                                                           |   |
| Item  5.  Market for Common Equity and  Related Stockholder Matters                                                       |   |
| Item  6.  Management’s Discussion and  Analysis or Plan of Operations                                                |   |
| Item  7.  Financial Statements                                                                                            |   |
| Item  8.  Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure                           |   |
|                                                                                                                           |   |
| PART III                                                                                                                       |   |
|                                                                                                                           |   |
| Item 9.  Directors, Executive Officers, Promoters  and Control Persons, Compliance with Section 16(a) of the Exchange Act |   |
| Item 10. Executive  Compensation                                                                                               |   |
| Item  11. Security Ownership of Certain Beneficial Owners and Management                                                       |   |
| Item  12. Certain Relationships and Related Transactions                                                                       |   |
| Item 13.  Exhibits and Reports on Form 8-K                                                                                     |   |

 

 

PART I

 

                This document contains certainforward-looking statements that are subject to risks and uncertainties.  Forward-looking statements include certaininformation relating to potential new show openings, the potential markets for expansionof our existing and potential gaming and tourist markets, our exposure tovarious trends in the gaming industry, our acquisition plans and the benefitswe anticipate from these acquisitions, our business strategy, our outstandinglitigation matters and the defenses available to us, the seasonality of ourbusiness, and liquidity issues, as well as information contained elsewhere inthis Report, where current statements are preceded by, followed by or includethe 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-looking statements in this document are subject torisks 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 from achievingour goals--and cause the assumptions underlying the forward-looking statementsand the actual results to differ materially from those expressed in or impliedby those forward-looking statements--include the information provided under theheading “Description of Business-Risk Factors” in Item 1, as well as thefollowing:

 

•      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 the new productions;

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

•      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 such celebrities or their estates, as well as our ability to protectour intellectual property rights;

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

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

 

ITEM 1.                  Description of Business

 

General

 

                We produce and market livetheatrical productions and operate live theaters and dinner theatersworldwide.  We market our productionsdirectly to audiences at theaters in resort and urban tourist locations.  During 2000, we performed full-time shows inthe following locations:

 

 
| Tourist  Market                      |   | Production                              |   | Location                           |   | Leased/  Discontinued/  Contracted |
|--------------------------------------|--------|-----------------------------------------|--------|------------------------------------|--------|------------------------------------|
|                                 |   |                                    |   |                               |   |                               |
| Atlantic  City,  New Jersey          |   | Legends  in Concert                     |   | Bally’s  Park  Place          |   | Contracted                         |
|                                 |   |                                    |   |                               |   |                               |
| Biloxi,  Mississippi                 |   | Legends  in Concert                     |   | Imperial  Palace                   |   | Contracted                         |
|                                 |   |                                    |   |                               |   |                               |
| Branson,  Missouri                   |   | Legends  in Concert                     |   | Legends  Theater                   |   | Leased                             |
|                                 |   |                                    |   |                               |   |                               |
| Buena  Park (Anaheim),  California   |   | Wild  Bill’s Dinner  Extravanganza |   | Wild  Bill’s  Dinner Theater  |   | Leased                             |
|                                 |   |                                    |   |                               |   |                               |
| Las  Vegas, Nevada                   |   | Legends  in Concert                     |   | Imperial  Palace                   |   | Contracted                         |
|                                 |   |                                    |   |                               |   |                               |
| North  Myrtle Beach,  South Carolina |   | Sub-Leased                              |   | Sub-Leased                         |   | Leased                             |
|                                 |   |                                    |   |                               |   |                               |
| Orlando,  Florida                    |   | King  Henry’s Feast                |   | King  Henry’s  Dinner Theater |   | Discontinued                       |
|                                 |   |                                    |   |                               |   |                               |
|                                 |   | Wild  Bill’s Dinner  Extravaganza  |   | Wild  Bill’s  Dinner Theater  |   | Discontinued                       |
|                                 |   |                                    |   |                               |   |                               |
|                                 |   | Fort  Liberty Shopping  Malls           |   | Fort  Liberty  Retail              |   | Discontinued                       |
|                                 |   |                                    |   |                               |   |                               |
|                                 |   | Blazing  Pianos                         |   | Blazing  Pianos  Bar               |   | Discontinued                       |
|                                 |   |                                    |   |                               |   |                               |
| Surfside  Beach,  South Carolina     |   | Legends  in Concert                     |   | Legends  Theater                   |   | Leased                             |

 

 

                We also market our productionsto commercial clients.  These includecasinos, corporations, fairs and expositions, theme and amusement parks, andcruise lines.  We have performed inlocations such as the Illinois State Fair, MGM Grand Theme Park and DollywoodTheme Park.  We have performed inAustralia, Russia, China, Africa, Japan and the Philippines.  We have also performed for several corporateclients including McDonald’s, Bank of America, Hewlett Packard, IBM, PitneyBowes, Levi Strauss and Texaco.

 

                For the years ended December 31,1999 and 2000, approximately 60% and 51%, respectively, of our net revenue wasgenerated from theaters and dinner theaters that we operate in resort and urbantourist markets.  Approximately 27% and26%, respectively, of our net revenue was generated from live productionsperformed in gaming markets, predominantly Las Vegas and Atlantic City.  Approximately 6% and 16%, respectively, ofour net revenue was generated from sales to commercial clients other thancasinos.  The remaining 7% of our netrevenue for each respective year was generated from merchandise and souvenirphotography sales.  We were incorporatedon October 30, 1985 in Nevada under the name Legends in Concert, Inc.  On August 7, 1996, we changed our name to OnStage Entertainment, Inc.  Our principalexecutive offices are located at 4625 West Nevso Drive, Las Vegas, Nevada89103, and our telephone number is (702) 253-1333.

 

Developmentsduring 2000

 

                On May 1, 2000, we entered intoa partial settlement with our first mortgage lender, Imperial Credit CommercialMortgage Investment Corp. (“ICCMIC”).  Under thesettlement, we agreed not to prevent ICCMIC from foreclosing on our FortLiberty, King Henry’s Feast and Legends in Concert Surfside Beach theaters inexchange for an aggregate credit of $9 million.  This included $3 million for our Fort Liberty theater, $4 millionfor our King Henry’s Feast theater and $2 million for our Legends in ConcertSurfside Beach theater.  We agreed tooperate the King Henry’s and Fort Liberty Theaters until June 21, 2000, atwhich time the theaters were closed.  OnSeptember 15, 2000, On Stage Theaters Surfside Beach, Inc., one of oursubsidiaries, sold its Legends in Concert Theater in Surfside Beach, SouthCarolina to LIC Theatres, LLC for $2 million. We resolved the remaining issues with ICCMIC on October 12, 2000, asdiscussed below.

 

                On August 21, 2000, we acquiredthe live production licensing rights to “Ripley’s Believe it or Not” for theUnited States and Canada, excluding New York, for an initial fee of $250,000and 15% of gross revenue from each production. Under the licensing agreement, On Stage must open two full-scaleRipley’s Live productions within the next two years.  We entered into a lease agreement with the Osmond Family Theaterto open the first Ripley’s live productions in Branson, Missouri on May 24,2001.

 

                In connection with the sale ofour Surfside Beach, South Carolina theater, we entered into a 10-year leaseagreement with LIC Theatres, LLC, to ensure that the Legends in Concertproduction, one of our largest revenue sources, will continue for manyyears.  The proceeds from the sale ofthe theater were paid to ICCMIC in accordance with the terms of the partialsettlement agreement with ICCMIC discussed above.

 

                On October 12, 2000, wesuccessfully restructured our outstanding debt with both ICCMIC and FirstSecurity Bank.  Under the settlement,ICCMIC agreed to cancel our outstanding loan and accrued interest ofapproximately $8.2 million in exchange for 4,061,122 shares of common stockwith a market value of $1,218,336.  Aspart of the restructuring, Timothy J. Parrott, our new President & CEO, purchased 2,630,000 shares ofcommon stock, at market value, from ICCMIC for $1 million.  Additionally, we restructured our remainingdebt of approximately $1.2 million with First Security Bank.  Under the terms of the agreement with FirstSecurity Bank, we agreed to pay First Security Bank $50,000 per month inexchange for its agreement to extend the loan until September 1, 2002.  The loan accrues interest annually at therate of prime plus 2%.  We recorded anet gain on debt restructuring of $141,122.

 

 

                In November 2000, we enteredinto a letter of intent with Bounce Back Technologies.com, Inc.  to purchase its “Country Tonite”production.  Under the terms of theletter of intent, we agreed to purchase the Country Tonite assets for $3.8million.  In January 2001, we completedthe acquisition.  The show opened underour management in March 2001.  We alsoacquired the right to oversee the Country Tonite production in Pigeon Forge,Tennessee.  However, the rights topresent the Pigeon Forge show were previously licensed to an unrelated thirdparty and were not included in this acquisition.

 

                During late 2000 and early 2001,we raised an aggregate of $1,350,000 from accredited private investors to meetour capital requirements, pay for expenses, and make the scheduled payments forthe acquisition of Country Tonite and the live licensing rights forRipley’s.  In this private placement, weissued convertible debentures that accrue interest at an annual rate of 10% andare convertible into common stock at $0.79 per share.  The remaining debentures mature in either November and December2001 or January and February 2003.  InMay 2001, the debenture holders were given the option to exchange theirdebentures for Series A Convertible Preferred Stock that accrues dividends atan annual rate of 12%, payable quarterly in arrears, and is convertible intocommon stock at $0.50 per share.  As ofJune 2001, $1.2 million of the debentures were converted into Series AConvertible Preferred Stock.

 

SHOWOFFERINGS

 

                We develop, produce or acquirelive theatrical productions including tribute shows, musical reviews, magicshows, ice-skating productions and specialty shows.  Most recently we acquired Country Tonite.  The principal productions we currentlyproduce are described below.

 

Legendsin Concert

 

                Legends in Concert is ourflagship production.  It is a livetheatrical tribute show featuring impersonators who recreate past and presentmusic and motion picture superstars. Legends is the longest running independently produced production in LasVegas and Atlantic City.  Based on ouraccess to approximately 75 different Legends tribute acts, we can tailor eachtribute show to suit the unique demographics of any audience and the size ofany venue.  We have been able to attractsignificant repeat business by varying the composition of the acts in ourshows.  In 2000, full-time residentLegends productions were performed in Atlantic City, New Jersey, Biloxi,Mississippi, Branson, Missouri, Las Vegas, Nevada and Myrtle Beach, SouthCarolina.

 

WildBill’s Dinner Extravangaza

 

                Wild Bill’s Dinner Extravaganzais a two-hour dinner show that features the best of the Wild West.  The show includes Indian tribal dances, gunfighting, and show girls.  The show runsevery day throughout the year at the Wild Bill’s Dinner Theater in Buena Park,California.

 

IntellectualProperty

 

OnStage has filed or obtained the following intellectual property marks:

 
| **Name:**                                    |   | **Class (es)**      |   | **Status** |
|----------------------------------------------|--------|---------------------|--------|------------|
| **Country**                                  |   |                |   |       |
| Legends  in Concert  United States           |   | 6,16,18,21,25,26,41 |   | Registered |
| Legends  in Concert w/ design  United States |   | 6,16,18,21,25,26,41 |   | Registered |
| Legends  in Concert  Canada                  |   | 41                  |   | Registered |
| Legends  in Concert  Europe                  |   | 41                  |   | Registered |
| Legends  in Concert  Great Britain           |   | 41                  |   | Registered |
| Legends  in Concert  Japan                   |   | 41                  |   | Registered |
| Legends  in Concert  Mexico                  |   | 41                  |   | Registered |
| Legends  in Concert  Australia               |   | 41                  |   | Pending    |
| Legends  of Country  United States           |   | 41                  |   | Registered |
| Atlantic  City Experience  United States     |   | 41                  |   | Registered |
| Camouflage  Aux Folles  United States        |   | 41                  |   | Published  |

 

 

                We will file applications forprotection of our Legends service mark in other foreign countries, ifnecessary.  We believe we own or haveappropriately licensed all of the intellectual property rights required toperform our shows in the manner in which they are currently produced, includingthe right to publicly present and perform all non-dramatic copyrighted musicalcompositions under musical licenses with Broadcast Music, Inc.  (“BMI”) and American Society of Composers,Authors and Publishers (“ASCAP”).

 

                We typically require ourindependent contractors, employees, consultants and advisors to signappropriate confidentiality and non-competition agreements in connection withtheir employment, consulting or advisory relationship with us.

 

Employees

 

                As of April 9, 2001, we employedapproximately 402 employees (217 full-time and 185 part-time), including 123entertainers, 11 theater operations personnel, 58 production personnel, 92 food& beverage personnel, 22 administrative personnel, 26 marketing personnel,67 box office/concession personnel and three executive officers.  None of our current employees are covered bya collective bargaining agreement.  Webelieve that our relationship with our employees is good.

 

RISKFACTORS

 

                Increased OperatingExpenses.  Increased operating expensesin connection with our recent acquisition of Country Tonite, our proposedexpansion plans, delays in the introduction of new productions and factorsadversely affecting our current productions, could have a material adverseeffect on our future operating results. There can be no assurance that we will generate significant net incomein the future or that our future operations will be profitable.

 

                Dependence on Legends.  To date, our revenue has been limitedlargely to the production of Legends. Our future success will depend, to a significant extent, on our abilityto successfully produce and market Legends shows in other venues.  If we are unsuccessful in expanding theproduction of Legends, or if the Legends production concept ceases to be successfulor profitable, there will be a material adverse effect on us.

 

                Reliance on Principal Production Venues.  We anticipate that we will continueto rely upon our four current largest revenue producing show sites, includingour resident Legends productions in Las Vegas, Nevada, Branson, Missouri andMyrtle Beach, South Carolina, as well as our Wild Bill’s Dinner Theater inBuena Park, California, for the substantial majority of our revenue.  The loss of all or a substantial portion ofthe business generated at those venues or the termination or impairment ofcontractual relationships that make some of these venues available to us wouldhave a material adverse effect on us.

 

                Risks Associated with ProposedAcquisition Strategy.  We intend topursue strategic acquisitions of, or joint ventures with, independentproduction companies, and to market our brand name products to the establishedcustomer bases of any acquired companies to increase revenues and marketshare.  In addition, we intend toacquire additional established, brand-name shows that we believe have thepotential to be successful in new markets. We plan to enter into these types of arrangements on a shared revenue orshared profit basis and to make these acquisitions through limited equitydistributions rather than through cash payments or investments.  If our stock price is too low, we may not beable to use our common stock for acquisitions. However, if cash funding is our only option, we will need additionalfinancing.  We may not be able to acquirefinancing or acquire acceptable production companies or shows.  In addition, we may not be able to enterinto beneficial joint ventures on commercially reasonable terms or in a timelymanner.  Furthermore, we can provide noassurance that any acquired customer bases will be receptive to our productionsor that we will be able to successfully develop any acquired shows.  Further, we may not be able to successfullyintegrate any business or productions that we acquire.  Any inability to do so, particularly wherewe have made significant capital investments, could have a material adverseeffect on us.  In addition, acquiredbusiness may not increase our revenue or market share or otherwise improve ourfinancial condition.

 

                Competition.  The leisure and entertainment market, whichincludes the market for live theatrical productions, is highlycompetitive.  Many of our marketscontain a large number of competing live theatrical productions.  In resort and urban tourist locations, wecompete for ticket sales with the producers of other live productions, many ofwhom have greater financial and other resources than we do or featureproductions and headline stars with greater name recognition than ours.  In addition, we compete with otherproduction companies for the most desirable commercial and tourist venues andfor talent and production personnel. Any inability to secure those venues or personnel could have a materialadverse effect on us.  In addition, aproduction could decide to self-produce its live entertainment needs in one ormore of our venues.  There can be noassurance that we will be able to secure alternative venues for displacedproductions or that those alternative venues could be secured under similar orfavorable terms.

 

                Availability of Talent and Lackof Long-Term Contracts.  Our futuresuccess depends largely upon our ability to attract and retain personnelsufficiently trained in performing arts and theatrical production, includingsingers, dancers, musicians, choreographers and technical personnel.  We maintain rigorous standards with respectto the abilities and level of experience of these personnel to ensureconsistency, quality and professionalism in our productions.  This may make it more difficult for us toobtain qualified personnel.  Moreover,that difficulty is compounded by the fact that Legends, our flagshipproduction, features impersonators of past and present superstarvocalists.  Because these headlineperformers must look, sound and act like specific celebrities, the pool ofperformers from which we can choose is significantly reduced.  In addition, while our musicians, singers,dancers and production personnel are generally employees, our headline acts areindependent contractors who enter into new contracts with us for each new showor venue in which they perform.  We donot maintain any long-term contracts with our performers.  We will need to hire additional performersand production technicians as we continue to open new productions, as well asto supplement personnel in our existing productions.  Our inability to attract and retain needed personnel, for eithernew or existing productions, could have a material adverse effect on us.

 

                Fluctuations in QuarterlyOperating Results; High Seasonality.  Wehave experienced, and expect to continue to experience, fluctuations inquarterly results of operations.  Thelive theatrical production business is highly seasonal.  We expect these seasonal trends tocontinue.  Additionally, we typicallyspend significant resources on new resident theatrical productions up to sixmonths in advance of show openings, and believe that, as we emphasizepre-opening market research and development as part of our expansion plans,both the amount of pre-opening expenditures and the lag between the time inwhich we incur those expenditures and the receipt of post-opening revenue willincrease.  Accordingly, our operatingresults may also vary significantly from quarter to quarter or year to year dueto the opening and timing of new shows and the fluctuations associated with thepre-opening and start-up phases of new productions in new and varyingvenues.  Consequently, revenue as wellas profit and loss, may vary significantly from quarter to quarter.  The results in any period may notnecessarily be indicative of results in subsequent periods.

 

                Cyclical and Economy-SensitiveIndustry; Changing Trends.  The liveentertainment industry is cyclical, with consumer spending tending to declineduring recessionary periods when disposable income is low.  Although we believe our moderate ticketprices may enhance the appeal of our productions to consumers in a recessionaryenvironment, a poor general economic climate may have an adverse impact on ourability to compete for limited consumer resources.  The live entertainment industry is also subject to changingconsumer demands and trends and there can be no assurance that growth willcontinue or that the growth trends will not be reversed.  The rate of growth in the casino gamingindustry has recently begun to decrease due to consolidation within theindustry.  Our success depends on ourability to anticipate and respond to changing consumer demands and trends andother factors affecting the live entertainment industry, including new artistsand musicians, as well as general trends affecting the music industry and itsperformers.  Failure to respond to thesefactors in a timely manner could have a material adverse effect on us.

 

                Dependence on the Casino GamingIndustry.  Our success depends on thesuccess of the casino gaming industry. Consequently, a change in the laws or regulations governing the casinogaming industry, or a significant decline in casino gaming in the UnitedStates, could have a material adverse effect on us.

 

                Intellectual Property.  Our success depends to a large extent on ourability to reproduce the performance, likeness and voice of various celebritieswithout infringing on the publicity rights of those celebrities or theirestates.  Although we believe that ourproductions do not violate those intellectual property rights under applicablestate and federal laws, if a claim is made against us, it could be expensiveand time consuming to defend. Additionally, if we were determined to be infringing any intellectualproperty rights in the production of our performances, we could be required topay damages--including treble or statutory damages--costs and attorney fees,alter our productions, obtain licenses or cease certain activities, all ofwhich, individually or collectively, could have a material adverse effect onus.  Furthermore, if we were required toobtain licenses from the celebrities we impersonate, there can be no assurancethat we would be able to acquire those licenses on commercially favorableterms, if at all.  In addition, an elementof our business strategy is to expand our merchandising program by introducinga wider variety of clothing items and new products, such as compact discs, andaudio and video tapes.  We have filedtrademark applications, as necessary, in order to protect our rights in theproducts that we sell.  There can be noassurance that we will be able to obtain any trademarks on terms and conditionsacceptable to us.  Our inability to obtainthose rights could have a material adverse effect on our ability to successfullyimplement our merchandising strategy.

 

GovernmentRegulation

 

                Providing entertainment to thecasino gaming industry subjects us to various licensing regulations.  We are regulated and required to obtain acasino industry license from the New Jersey Casino Control Commission under theNew Jersey Casino Control Act.  Ourcurrent casino service industry license from the New Jersey Casino ControlCommission is valid through September 30, 2003.  We do not believe that we are required to obtain a license toprovide our services to casinos in Nevada, Mississippi or in any otherjurisdictions in which we operate, other than New Jersey.  The Nevada and Mississippi Gaming ControlBoards and similar authorities in other jurisdictions, however, have broadauthority to order providers of services to casinos to file applications, beinvestigated, have their suitability determined, obtain licenses and ceaseproviding their services, if they find the service providers to be unfit.  Additionally, many of the casinos require aproduction company to be properly licensed under the local gaming laws beforeit will contract for their services.

 

                We lease or own certain of thetheaters for our new brand-name resident productions.  We absorb all costs and risks associated with producing the showin order to retain 100% of the show’s profits. Producing shows under this “four-wall” arrangement may require us toobtain and maintain certain local licenses and permits.  We were required to obtain such licenses toopen our Myrtle Beach and Branson shows, both of which are “four-wall”productions.  These licenses and permitscould include amusement licenses, music licenses (i.e., BMI or ASCAP), businesslicenses, liquor licenses, retail sales tax licenses, food and beverage licensesand a health inspection rating (if dairy products and/or hot food, other thanpopcorn, is to be sold).  Difficultiesor failure in obtaining required licenses or regulatory approvals could delayor prevent the opening of a new show or, alter, delay or hinder our expansionplans.  In addition, the suspension of,or inability to renew, a license needed to operate any of our currently runningproductions would adversely affect our operations.

 

                Dependence on KeyPersonnel.  Our future success dependslargely on the efforts and abilities of our existing senior management,particularly Mr.  John W.  Stuart, our Chairman and founder and TimothyJ.  Parrott, our President and ChiefExecutive Officer.  The loss of theservices of these officers, or other members of our management team, could havea material adverse effect on us. Although we currently maintain a key-man life insurance policy on thelife of Mr.  Stuart in the amount of $2,500,000,those proceeds may not be sufficient to compensate us for the loss of hisservices.  In particular, Mr.  Stuart’s death would result in the loss ofhis creative contribution to On Stage and would give the owner of the ImperialPalace the right to terminate its contract with us relating to our residentLegends production in Las Vegas, one of our largest revenue-producingvenues.  Mr.  Stuart and Mr.  Parrottare employed by On Stage pursuant to employment agreements.  These employment agreements are validthrough October 12, 2003.  They containnon-competition clauses for a period of three years.  These non-competition clauses may not be enforceable and we maynot be able to pay the contractual amount required to effectuate theirnon-competition agreements.  There canbe no assurance that we will be able to renew Mr.  Stuart’s employment contract or attract and retain the additionalqualified senior management personnel necessary to manage our planned growth.

 

                Risk of Employment TaxLiability.  Consistent with industrystandards, we treat, and expect to continue to treat, the headline acts of ourproductions as independent contractors rather than employees.  In determining that we are qualified tocharacterize the headline acts as independent contractors, we have reviewed andanalyzed the applicable guidelines issued by the Internal Revenue Service.  There can be no assurance, however, that weare qualified to treat the headline acts as independent contractors.  If we have improperly classified the headlineacts as independent contractors, we would be liable for the payment of employmenttaxes for those periods in which the headline acts were incorrectlycharacterized as independent contractors. If imposed, that employment tax liability would have a material adverseeffect on us.

 

                Litigation.  We are involved in certain pending andthreatened lawsuits in which the adverse parties are seeking damages.  There can be no assurance that any of theinstituted or threatened lawsuits will be settled or decided in our favor.  Moreover, regardless of the outcome of thoselawsuits and claims, if we are engaged in protracted litigation, the costs ofthat litigation could be substantial. Even if we are fully indemnified by third parties, the time and effortwe expend in connection with those matters could be significant, leaving uswith less opportunity to pursue our strategic goals.

 

                Limitations on Liability ofDirectors and Officers.  Our Articles ofIncorporation include provisions to eliminate, to the full extent permitted byNevada General Corporation Law, the personal liability of our directors formonetary damages arising from a breach of their fiduciary duties asdirectors.  Our Articles ofIncorporation also provide that we will, to the maximum extent permitted underNevada law, indemnify and, upon request, advance expenses to any director orofficer.

 

                Possible Adverse Effects ofAuthorization of Preferred Stock.  OurArticles of Incorporation authorize issuance of up to 10,000,000 shares of“blank check” preferred stock, with the designations, rights and preferences asmay be determined from time to time by the board of directors.  This means that our board of directors mayissue preferred stock with dividend, liquidation, conversion, voting, or otherrights, that could adversely affect the rights of our common stockholderswithout their approval.  This could makeit difficult for a third party to gain control of On Stage, prevent orsubstantially delay a change in control, discourage bids for our common stockat a premium, or otherwise adversely affect the market price of our common stock.

 

                Risks Relating to PennyStocks.  Our stock is subject to therequirements of certain rules under the Exchange Act, that require additionaldisclosure by broker-dealers in connection with any trades of “penny stock.”Generally, “penny stock” is any non-Nasdaq equity security that has a marketprice of less than $5.00 per share, with limited exceptions.  Those rules require the delivery, prior toany penny stock transaction, of a disclosure schedule explaining the pennystock market and the risks associated with it, and impose various salespractice requirements on broker-dealers who sell penny stocks to persons otherthan established customers and accredited investors--generallyinstitutions.  For these types oftransactions, the broker-dealer must make a special suitability determinationfor the purchaser and receive the purchaser’s written consent to thetransaction prior to sale.  Theadditional burdens imposed upon broker-dealers by these requirements may discouragebroker-dealers from effecting transactions in our stock.  This could severely limit the liquidity ofour common stock and the ability of stockholders to sell our common stock inthe market.

 

                Registration under theSecurities Act and State Registration Required to Trade Warrants.  Holders of outstanding warrants to acquireour common stock will be able to sell their warrants or the shares of commonstock underlying those warrants only if a registration statement under theSecurities Act relating to the warrants is then in effect and those securitiesare qualified for sale or exempt from qualification under the applicablesecurities laws of the states in which the various holders of warrantsreside.  Although we intend to use ourbest efforts to maintain a current registration statement covering thesecurities underlying the warrants at the earliest practicable date, we may notbe able to do so.  The value of thewarrants may be greatly reduced if a registration statement covering thesecurities issuable upon the exercise of the warrants is not kept current or ifthe securities are not qualified, or exempt from qualification, in the statesin which the holders of warrants reside. Warrant holders who reside in jurisdictions in which those securities arenot qualified and in which there is no exemption will be unable to sell theirwarrants in the open market and may allow them to expire unexercised.  Currently, we have outstanding warrants topurchase 4,410,155 shares of common stock of which 1,400,000 areregistered.  We are not eligible to registerour securities on Form S-3, a short form registration statement, because ourForm 10-KSB for the fiscal year 2000 was not timely filed.  This may delay our ability to register thecommon stock issuable upon exercise of the warrants because of the increasedtime and expense associated with registering the securities on that form.

 

                Restrictive Debt Covenants.  Our loan agreements contain covenants that,among other things, restrict the ability of our operating subsidiaries todispose of assets, incur additional indebtedness, pay cash dividends, createliens on assets, make investments or acquisitions, engage in mergers orconsolidations, make capital expenditures, engage in certain transactions withaffiliates or redeem or repurchase the indebtedness of such subsidiaries.

 

                Prior Losses.  For the years ended December 31, 1999 andDecember 31, 2000, we had net losses of $2,090,339 and $4,701,666,respectively.  There can be no assurancethat we will generate net income in the future or that our future operationswill be profitable.

 

                No Assurance of Continued PublicMarket; Possible Continued Volatility of Market Price of Common Stock.  There can be no assurance that a regulartrading market for our common stock will be sustained.  The market prices of our securities maycontinue to be characterized by volatility and low trading volume.  Factors such as our operating results,announcements by us or our competitors of new production contracts, and variousfactors affecting the entertainment industry generally, may have a significantimpact on the market price of our securities.

 

                Risks Relating to ProposedExpansion Plans; Possible Inability to Achieve or Manage Growth.  Our continued growth depends, to asignificant degree, on our ability to produce and market new theatricalproductions on a profitable basis.  Ourexpansion plans include increasing both the number of productions in operationat any given time and the rate at which such productions open.  This expansion strategy contemplates theopening of additional resident productions. This will place significant pressures on our personnel because thatgrowth will require development and operation of a significantly largerbusiness over a broader geographical area. The success of our expansion strategy depends upon a number of factors,including:

 

•      our ability to hire and retain additionalskilled management, marketing, technical and performing arts and theatricalproduction personnel;

 

•      our ability to secure suitable venues fornew productions on a timely basis and on commercially reasonable terms; and

 

•      our ability to successfully manage ourgrowth (which requires us to develop and improve our operational, managementand financial systems and control).

 

                Our prospects and future growthalso depend upon the ability of our productions to achieve significant marketshare in targeted tourist and gaming markets and our ability to develop andacquire and commercialize additional productions.  There can be no assurance that we will be able to achieve our expansiongoals or, if we are able to expand our operations, that we will be able toeffectively manage our growth, anticipate and satisfy all of the changingdemands and requirements that this growth will impose upon us or achievegreater operating income or profitability. If we have to discontinue new productions, our operations will beadversely affected.  This is because of:

 

                (1)   thesignificant up-front capital expenditures and pre-opening costs--estimated tobe approximately $500,000 to $1,000,000 in the case of a leasedtheater--associated with the establishment of a new resident production;

 

                (2)   the timerequired to open a new resident production (typically three to six months); and

 

                (3)   the timerequired for a new resident production to achieve the market acceptance andname recognition required for successful local ticket wholesalers and tourspecialists.

 

During1998, we discontinued our resident production of Legends in Toronto, Canada,because of less than optimal ticket sales in the start-up phase of theshow.  This resulted in a loss ofapproximately $443,100.

 

                Control by PrincipalStockholders.  Our Chairman and founder,and our Chief Executive Officer beneficially own approximately 31.4% and 29.9%,respectively, of our outstanding common stock. Accordingly, they can control and direct our affairs, including theelection of directors, increase our authorized capital or they can cause thedissolution, merger or sale of all, or substantially all, of our assets.

 

ITEM 2.                  Description of Property

 

                Our corporate headquartersconsist of approximately 16,000 square feet of leased office and warehousespace in Las Vegas, Nevada.  This leaseexpires on August 31, 2002.

 

                The table provided below listscertain information regarding the facilities that we used during 2000.

 
|                |   | **Square**  |   | **Type of**    |   | **Lease**      |   | **Principal** |
|---------------------|--------|-------------|--------|----------------|--------|----------------|--------|---------------|
| **Location**        |   | **Footage** |   | **Possession** |   | **Expiration** |   | **Function**  |
|                |   |        |   |           |   |           |   |          |   |
| Atlantic  City, NJ  |   |        | 2,000  |           | Lease  |           | 12/00  |          | Office |
| Atlantic  City, NJ  | (1)    |        | N/A    |           | Lease  |           | 06/00  |          | Residential |
| Branson,  MO        | (2)    |        | 27,500 |           | Lease  |           | 12/03  |          | Theater/Office |
| Buena  Park, CA     | (3)    |        | 27,599 |           | Lease  |           | 06/10  |          | Theater |
| Las  Vegas, NV      |   |        | 16,000 |           | Lease  |           | 08/02  |          | Office |
| Las  Vegas, NV      | (4)    |        | 4,668  |           | Lease  |           | 05/01  |          | Warehouse |
| N.Myrtle  Beach, SC | (5)    |        | 15,000 |           | Lease  |           | 12/04  |          | Theater/Office |
| Myrtle  Beach, SC   | (6)    |        | 16,171 |           | Lease  |           | 12/10  |          | Theater/Office |

----

| (1) |   | Consists  of seven condominium units for use by our performers when they are performing  in our Legends show at Bally’s Park Place in Atlantic  City, New Jersey. We lease these units  from Mr. Stuart and his wife, at a rate equivalent to the fair market value.              |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | On  Stage Entertainment, Inc. leases this property from TCK, L.P.                                                                                                                                                                                                                           |
| (3) |   | On  Stage’s wholly-owned subsidiary, On Stage Theaters, Inc., subleases this  property from Wild Bill’s California, Inc., a wholly-owned subsidiary of On  Stage Theaters.  Wild Bill’s  California,  Inc. leases the property from an unrelated third party. |
| (4) |   | This  lease may be terminated at any time after August 31, 1999 by providing  written notice of that intention.                                                                                                                                                                             |
| (5) |   | On  Stage is currently attempting to sub-lease this theater.                                                                                                                                                                                                                                |
| (6) |   | On  Stage  Theaters  Surfside   Beach,  Inc.  leases this  property  from LIC  Theaters.                                                                                                                                                                 |

 

                We believe that our existingfacilities are suitable and adequate for our current operations and areadequately insured.

 

ITEM 3.  Legal Proceedings

 

                In May 1997, First Security Bankof Nevada issued us a line of credit for up to $250,000 that bears variableinterest at 1.5% over the First Security Bank of Idaho’s index (10% per year asof the facility’s inception) and is due on demand.  Our chairman personally guaranteed the line of credit.

 

                On March 28, 1998, FirstSecurity increased the line of credit to $1,000,000 and the expiration date wasextended to March 25, 1999.  As ofDecember 31, 1998, we had drawn $1,000,000 on the line of credit.  As of March 31, 1999, we had failed to payoff any part of the line of credit and were in default under its terms.  On April 29, 1999, we received a notice ofdefault from First Security Bank.  Werestructured the line of credit in October 2000.

 

                On September 29, 1997, FirstSecurity Leasing Company (“First Security Leasing”) approved a $1,000,000 leaseline for On Stage.  Advances under theline incur interest at an annual rate of 9.75%.  The lease line has been utilized in the following amounts:$389,290, $442,997 and $167,713, commencing in April 1998, April 1998 and May1998, respectively, and terminating on October 2001, September 2001 andNovember 2001.  We also received a noticeof default under this line on April 29, 1999. We subsequently restructured the lease line with First Security onOctober 12, 2000, as discussed below.

 

                From March 13, 1998 to October7, 1998, we borrowed an aggregate of $14,150,000 from ICCMIC.  Although we made our January, February and March1999 payments under this loan after the due date for those payments, no otherpayments were made.  As a result ofthese delinquencies, we incurred late charges and default interest, which wedid not pay.

 

                On November 5, 1999, we receiveda formal demand from ICCMIC to pay them the sum of $16,163,305 as a guarantorunder the loan, which represented all of the indebtedness due as of thatdate.  On November 12, 1999, ICCMICfiled a complaint against us in the District Court for Clark County, Nevada,alleging, among other things, that we breached the guaranty.  On December 10, 1999, we agreed to allowthem to obtain a judgment against us for the amount of the guaranty, in returnfor forbearance on the collection of this judgment until March 31, 2000.  ICCMIC extended the date for collection onthis judgment until June 1, 2000.

 

                On May 1, 2000, we entered intoa partial settlement with ICCMIC, pursuant to which we agreed not to preventICCMIC from foreclosing on the Fort Liberty and King Henry’s Feast theaters inexchange for: (1) an aggregate credit of $9.0 million for our Fort Liberty,King Henry’s Feast and Legends in Concert Surfside Beach theaters; and (2) a 30day extension of time during which ICCMIC agreed: (i) to forego collection onits deficiency judgment in Nevada; and (ii) to extend the foreclosure date onthe Legends in Concert Surfside Beach theater. Additionally, we orally agreed with ICCMIC to temporarily operate theKing Henry’s and Fort Liberty Theaters for an indefinite period of time andengaged in active negotiations with ICCMIC to resolve the issue of thedeficiency judgment.  The Companysubsequently restructured the loan as discussed below.

 

                On October 12, 2000, werestructured our loans with ICCMIC and First Security Bank.  Under the terms of this restructuring,ICCMIC agreed to convert its outstanding loan and accrued interest ofapproximately $8.2 million into 4,061,122 shares of common stock.  As part of the transaction, Mr. Parrott, ourPresident and CEO, purchased 2,630,000 shares of our common stock at marketvalue from ICCMIC for $1 million.  Inconnection with this transaction, we restructured our only remaining debt ofapproximately $1.2 million with First Security Bank.  Under the terms of the agreement with First Security Bank, whichbecame effective August 1, 2000, we agreed to pay $50,000 per month.  The loan accrues interest at the annual rateof prime plus 2%.

 

                On August 2, 1999, HemisphereTour & Travel, Inc., n/k/a HT&T, Inc., Richard Winokur, MediaCorp.  of America and Stephen Zadrickfiled a complaint against On Stage and Gedco USA, Inc. in the Ninth JudicialCircuit Court in and for Orange County, Florida.  The complaint alleges that representatives from On Stage andGedco breached an oral contract with plaintiffs to pay them a commission inconnection with the Gedco asset acquisition. More specifically, the plaintiffs allege that had it not been for theirintroduction of Gedco and On Stage, the parties would never have consummatedthe Gedco asset acquisition.  On February13, 2001, On Stage entered into a settlement agreement for $309,607 with theplaintiffs, which effectively resolved all of their differences.

 

ITEM 4. Submission of Matters to a Vote of Security-Holders

 

                The following matters weresubmitted to a vote of  our securityholder’s at our 1999 annual meeting: (1) the re-election of John W.  Stuart and Matthew Gohd as directors and (2)the ratification of BDO Seidman, LLP as On Stage’s independent publicaccountants for the fiscal year ending December 31, 2000.

 

PARTII

 

ITEM 5.  Marketfor Common Equity and Related Stockholder Matters

 

                Our common stock trades on theOver-the-Counter Bulletin Board under the symbol “ONST.OB” The following tablesets forth, for the periods indicated, the high and low sales prices as quotedon the OTCBB, which reflect inter-dealer prices, without retail mark-up,mark-down or commission and may not represent actual transactions.

 

 

 

| **Period**     |   | **High** |   | **Low** |   |
|----------------|--------|----------|--------|---------|--------|
| Fiscal 2000:   |   |     |   |    |   |
| First Quarter  |   | .94      |   | .28     |   |
| Second Quarter |   | .63      |   | .22     |   |
| Third Quarter  |   | .44      |   | .19     |   |
| Fourth Quarter |   | .88      |   | .25     |   |
|           |   |     |   |    |   |
| Fiscal 1999:   |   |     |   |    |   |
| First Quarter  |   | 1.69     |   | .88     |   |
| Second Quarter |   | 1.59     |   | .63     |   |
| Third Quarter  |   | .88      |   | .31     |   |
| Fourth Quarter |   | .44      |   | .09     |   |

 

 

 

                As of April 8, 2001 there wereapproximately 700 holders of record of our common stock and the closing saleprice of the common stock as reported on the OTCBB was $0.875.

 

                We have never declared or paidany cash dividends on our capital stock. We currently intend to retain any earnings to finance future growth andworking capital needs.  We do notanticipate paying any cash dividends in the foreseeable future.

 

ITEM 6. Management’s Discussion and Analysis or Plan of Operation

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS

 

Overview

 

                The financial statementsincluded in this report include the accounts of On Stage Entertainment, Inc., apublicly traded Nevada corporation and its subsidiaries, including, Legends inConcert, Inc., On Stage Marketing, Inc., On Stage Theaters, Inc., Wild Bill’sCalifornia, Inc., Blazing Pianos, Inc., King Henry’s Inc., On StageMerchandise, Inc., On Stage Events, Inc., On Stage Casino Entertainment, Inc.,On Stage Productions, Inc., On Stage Theaters North Myrtle Beach, Inc. and OnStage Theaters Surfside Beach, Inc.

 

                On Stage derives net revenuesfrom five business units categorized by three reportable segments:

 

•      Casinos. The Casinos segment primarily sells live theatrical productions tocasinos worldwide for a fixed fee.  In addition,this segment operates our Legends show at the Imperial Palace in Las Vegas,Nevada and at Bally’s Park Place in Atlantic City, New Jersey.

•      Theaters. The Theaters segment owns or rents live theaters and dinner theaters inurban and resort tourist locations primarily in the United States.  This segment derives revenues from theticket sales, and food and beverage sales to patrons attending our livetheatrical productions.

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

•      Merchandise.  The Merchandise segment sells merchandise and souvenir photographyproducts to patrons attending our Casinos, Theaters, and Events segmentproductions.  Revenues generated fromthe Merchandise segment are included in the Theaters segment.

•      Production Services.  The Production Services segment sellstechnical equipment and services to commercial clients.  However, this segment’s primary focus isproviding technical support for all of the Casinos, Theaters, Events andMerchandise segments.

 

                The accounting policies of thereportable operating segments are the same as those described in the Summary ofAccounting Policies.  On Stage’smanagement evaluates the performance of its operating segments based upon theprofit and loss from operations.

 

                On Stage’s reportable segmentsare strategic business units because each unit services a different market orperforms a specialized function in support of a given market.

 

Resultsof Operations

 

                The following table sets forththe various components of our net revenue as a percentage of the total netrevenue for the periods indicated:

 
|                                                      |   | **Years Ended December 31,** |   |
|-----------------------------------------------------------|--------|------------------------------|--------|
|                                                      |   | **1999**                     |   | **2000** |   |
|                                                      |   |                         |   |   |   |
| Net revenue                                               |   | 100.0                        | %      | 100.0 | % |
| Costs of Revenues                                         |   | 7.7                          |   | 85.3 |   |
|                                                      |   |                         |   |   |   |
| Gross profit                                              |   | 2.3                          |   | 14.7 |   |
| Selling, general and  administrative                      |   | 5.2                          |   | 17.2 |   |
| Depreciation and  amortization                            |   | 4.4                          |   | 4.5 |   |
| Expenses at closed locations                              |   | 1.5                          |   | 2.5 |   |
|                                                      |   |                         |   |   |   |
| Operating Income (loss)                                   |   | 1.2                          |   | (9.5 | ) |
| Other income                                              |   | 1.5                          |   | 1.4 |   |
| Loss on disposal of fixed  assets                         |   | 0.0                          |   | 6.5 |   |
| Interest expense, net                                     |   | 10.1                         |   | 5.0 |   |
|                                                      |   |                         |   |   |   |
| Loss before income tax and  extraordinary item            |   | (7.4                         | )      | (19.6 | ) |
| Income taxes                                              |   | (0.0                         | )      | (0.4 | ) |
| Loss before extraordinary  item                           |   | (7.4                         | )      | (20.0 | ) |
|                                                      |   |                         |   |   |   |
| Extraordinary item - trouble  debt restructurin gain, net |   | 0.0                          |   | 0.6 |   |
|                                                      |   |                         |   |   |   |
| Net loss                                                  |   | (7.4                         | )%     | (19.4 | )% |

 

                Loss before income taxes andextraordinary item for the year ended December 31, 1999 was $2,090,339, ascompared to a loss before income taxes and extraordinary item of $4,751,397 forthe year ended December 31, 2000.

 

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

 
|                                   |   | **Year ended  December 31, 1999** |       |
|----------------------------------------|--------|-----------------------------------|------------|
|                                   |   |                              |       |   |   | **Theaters** |   | **Operations** |   | **Operating** |   | **Corporate** |   | **Total** |   |
|                                   |   | **Casino**                        |       | **Production  Services** |   | **Services** |   | **Sub-Total** |   | **Sub-Total** |   | **Office** |   | **Consolidated** |   |
| Net revenues                           |   | $                                 | 10,006,642 |   | $ | 103,896 |   | $ | 18,438,104 |   | $ | 28,548,642 |   | $ | 28,548,642 |   | $ | - |   | $ | 28,548,642 |   |
| Cost  of  revenues                |   | 6,565,776                         |       | 679,128 |   | 14,931,965 |   | 22,176,869 |   | 22,176,869 |   | - |   | 22,176,869 |   |
|                                   |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross  profit                          |   | 3,440,866                         |       | (572,232 | ) | 3,506,139 |   | 6,371,773 |   | 6,371,773 |   | - |   | 6,371,773 |   |
| Selling,  general & administrative |   | 766,964                           |       | - |   | 1,747,966 |   | 2,514,930 |   | 2,514,930 |   | 1,836,871 |   | 4,351,801 |   |
| Depreciation  & amortization       |   | 401,664                           |       | 90,239 |   | 559,335 |   | 1,051,238 |   | 1,051,238 |   | 192,910 |   | 1,244,148 |   |
| Expenses  at closed locations          |   | 41,494                            |       | - |   | 111,880 |   | 153,374 |   | 153,374 |   | 273,580 |   | 426,954 |   |
|                                   |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  operating expenses              |   | 1,210,122                         |       | 90,239 |   | 2,419,181 |   | 3,719,542 |   | 3,719,542 |   | 2,303,361 |   | 6,022,903 |   |
|                                   |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating  income (loss)               |   | 2,230,744                         |       | (665,471 | ) | 1,086,958 |   | 2,652,231 |   | 2,652,321 |   | (2,303,361 | ) | 348,870 |   |
|                                   |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other  (income) expenses               |   | (97,490                           | )          | - |   | 61,237 |   | (36,253 | ) | (36,253 | ) | (404,165 | ) | (440,418 | ) |
|                                   |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest  expense, net                 |   | 84                                |       | 1,123 |   | 2,648,061 |   | 2,649,268 |   | 2,649,268 |   | 230,359 |   | 2,879,627 |   |
|                                   |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net  income (loss) before Income taxes |   | 2,328,150                         |       | (666,594 | ) | (1,622,340 | ) | 39,216 |   | 39,216 |   | (2,129,555 | ) | (2,090,339 | ) |
| Income  taxes                          |   | -                                 |       | - |   | - |   | - |   | - |   | - |   | - |   |
|                                   |   |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net  income (loss)                     |   | $                                 | 2,328,150  |   | $ | (666,594 | ) | $ | (1,622,340 | ) | $ | 39,216 |   | $ | 39,216 |   | $ | (2,129,555 | ) | $ | (2,090,339 | ) |

 

 

 
|                                                          |   | **Year ended  December 31, 2000** |      |
|---------------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                          |   |                              |      | **Production** |   |   |   | **Operations** |   | **Operating** |   | **Corporate** |   | **Total** |   |
|                                                          |   | **Casino**                        |      | **Services** |   | **Theaters** |   | **Sub-Total** |   | **Sub-Total** |   | **Office** |   | **Consolidated** |   |
| Net revenues                                                  |   | $                                 | 8,981,520 |   | $ | 29,719 |   | $ | 15,126,202 |   | $ | 24,137,441 |   | $ | 24,137,441 |   | $ | - |   | $ | 24,137,441 |   |
| Cost  of revenues                                             |   | 6,283,811                         |      | 848,820 |   | 13,460,766 |   | 20,593,397 |   | 20,593,397 |   | - |   | 20,593,397 |   |
|                                                          |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross  profit                                                 |   | 2,697,709                         |      | (819,101 | ) | 1,665,436 |   | 3,544,044 |   | 3,544,044 |   | - |   | 3,544,044 |   |
| Selling,  general & administrative                        |   | 379,801                           |      | - |   | 902,748 |   | 1,282,549 |   | 1,282,549 |   | 2,873,442 |   | 4,155,991 |   |
| Depreciation  & amortization                              |   | 398,667                           |      | 110,461 |   | 372,236 |   | 881,364 |   | 881,364 |   | 195,140 |   | 1,076,504 |   |
| Expenses  at closed locations                                 |   | -                                 |      | - |   | - |   | - |   | - |   | 608,878 |   | 608,878 |   |
|                                                          |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  operating expenses                                     |   | 778,468                           |      | 110,461 |   | 1,274,984 |   | 2,163,913 |   | 2,163,913 |   | 3,677,460 |   | 5,841,373 |   |
| Operating  income (loss)                                      |   | 1,919,241                         |      | (929,562 | ) | 390,452 |   | 1,380,131 |   | 1,380,131 |   | (3,677,460 | ) | (2,297,329 | ) |
| Other  income                                                 |   | -                                 |      | - |   | - |   | - |   | - |   | (333,657 | ) | (333,657 | ) |
| Loss  on disposal of assets                                   |   | 198,143                           |      | - |   | 1,377,485 |   | 1,575,628 |   | 1,575,628 |   | - |   | 1,575,628 |   |
|                                                          |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest  expense, net                                        |   | 2,037                             |      | - |   | 914,348 |   | 916,385 |   | 914,348 |   | 295,712 |   | 1,212,097 |   |
|                                                          |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Net  income (loss) before Income taxes and extraordinary item |   | 1,719,061                         |      | (929,562 | ) | (1,901,381 | ) | (1,111,882 | ) | (1,111,882 | ) | 3,639,515 |   | (4,751,397 | ) |
| Income  taxes                                                 |   | -                                 |      | - |   | (71,391 | ) | (71,391 | ) | (71,391 | ) | (20,000 | ) | (91,391 | ) |
|                                                          |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Net  income (loss) before extraordinary item.                 |   |                              |      |   |   |   |   |   |   | (1,182,273 | ) | (3,659,515 | ) | (4,842,788 | ) |
|                                                          |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Extraordinary  item-trouble debt restructure (loss) gain      |   | -                                 |      | - |   | (6,918,309 | ) | (6,918,309 | ) | (6,918,309 | ) | 7,059,431 |   | 141,122 |   |
|                                                          |   |                              |      |   |   |   |   |   |   |   |   |   |   |   |   |
| Net  income (loss)                                            |   | $                                 | 1,719,061 |   | $ | (929,562 | ) | $ | (8,891,081 | ) | $ | (8,101,582 | ) | $ | (8,101,582 | ) | $ | 3,399,916 |   | $ | (4,701,666 | ) |

 

 

YearEnded December 31, 1999 versus Year Ended December 31, 2000

 

NetRevenues

 

                Net revenues were approximately$24,137,000 for the year ended December 31, 2000 compared to $28,549,000 forthe year ended December 31, 1999, a decrease of $4,412,000, or 15.5%.  The Company’s revenue is derived from fiveprincipal segments: Casinos, Events, Merchandise, Theaters and ProductionServices.  Revenues from the Events segmentare reported under the Casinos segment and revenues from the Merchandise segmentare reported under the Theaters segment.

 

                Casinos revenues wereapproximately $8,982,000 for the year ended December 31, 2000 compared to$10,007,000 for the year ended December 31, 1999, a decrease of $1,025,000, or10.2 %.  This decrease was primarilyattributable to a decrease in limited engagements and corporate events.

 

                Production Services revenueswere approximately $30,000 for the year ended December 31, 2000 compared to$104,000 for the year ended December 31, 1999, a decrease of $74,000, or71.2%.  The decrease was primarilyattributable to a reduction in equipment rental revenues.

 

                Theaters revenues wereapproximately $15,126,000 for the year ended December 31, 2000 compared to$18,438,000 for the year ended December 31, 1999, a decrease of $3,312,000, or18.0%.  The decrease was primarilyattributable to the discontinuation of our shows in Orlando, Florida.

 

Costof Revenue

 

                Total costs of revenues were$20,593,000 for the year ended December 31, 2000 compared to $22,177,000 forthe year ended December 31, 1999, a decrease of $1,584,000, or 7.1%.  This decrease in revenues was primarilyattributable to the discontinuation of our shows in Orlando, Florida.  Cost of revenues increased to 85.3% of netrevenues for the year ended December 31, 2000, as compared to 77.7% for theyear ended December 31, 1999.  Thisincrease in costs of revenues as a percent of net revenues was primarilyattributable to a change in the mix of our revenues.

 

Selling,General and Administrative

 

                Selling, general andadministrative costs were approximately $4,156,000 for the year ended December31, 2000 compared to $4,352,000 for the year ended December 31, 1999, adecrease of $196,000, or 4.5%.  Selling,general and administrative costs increased to 17.2% of net revenues for theyear ended December 31, 2000, as compared to 15.2% for the year ended December31, 1999, which was primarily attributable to an increase in professional feesand licensing rights.

 

Depreciationand Amortization

 

                Depreciation and amortizationwas $1,077,000 for the year ended December 31, 2000 compared to $1,244,000 forthe year ended December 31, 1999, a decrease of $167,000, or 13.4%.  This decrease was primarily due to thediscontinuation of our shows in Orlando, Florida and a result of theforeclosure of certain of our assets.

 

Expensesat Closed Locations

 

                On Stage decided to discontinueoperations at its Legends production in Toronto, Canada in November of1998.  As part of the closing, weincurred additional expenses of $489,000 during 1997.  Additionally, during 1999 we wrote off $427,000 related to theclosing of this location.

 

                For the year ended December 31,2000, we wrote off acquisition costs of $597,000 on a show location that wasput into full production.

 

OperatingIncome

 

                Our operating loss wasapproximately $2,297,000 for the year ended December 31, 2000 compared to anoperating income of $349,000 for the year ended December 31, 1999.

 

OtherIncome

 

                Other income in 2000 and 1999represents reduction of past accreted liabilities related to professionalservices.

 

Losson Disposal of Assets

 

                For the year ended December 31,2000, we had a loss on disposition of assets in the amount of $1,575,000, ofwhich $648,000 was attributable to the sale of On Stage Theaters Surfside Beach,Inc. and $927,000 related to obsolete equipment.

 

InterestExpense, Net

 

                Interest expense wasapproximately $1,212,000 for year ended December 31, 2000, compared to$2,880,000 for the year ended December 31, 1999, a decrease of $1,668,000, or57.9%.  The decrease was primarily dueto the restructuring of the ICCMIC and First Security Bank debts.

 

IncomeTaxes

 

                Income tax was approximately$91,000 for the year ended December 31, 2000, compared to $0.0 for the yearended December 31, 1999.  The increase wasprimarily due to income taxes accrued for the Legends show in Surfside Beach inSouth Carolina.

 

ExtraordinaryItem

 

                During the year ended December31, 2000, the Company recorded a net gain on troubled debt restructuring of$141,122.

 

Seasonalityand Quarterly Results

 

                Our business has been, and isexpected to remain, highly seasonal, with the majority of our revenue generatedduring the months of April through October. Part our business strategy is to increase sales in tourist markets thatexperience their peak seasons from November through March so as to offset theseasonality in our revenues.

 

                The following table sets forththe Company’s net revenue for each of the last eight quarters ended December31, 2000:

 
|        |   | **Net Revenues**     |   |
|-------------|--------|----------------------|--------|
|        |   | **($ in thousands)** |   |
|        |   | **March 30,**        |   | **June 30,** |   | **September 30,** |   | **December 31,** |   |
| Fiscal 1999 |   | $6,272               |   | $7,403 |   | $7,793 |   | $7,081 |   |
| Fiscal 2000 |   | $6,106               |   | $7,151 |   | $6,393 |   | $4,487 |   |

 

 

TaxNet Operating Losses

 

                At December 31, 2000 andDecember 31, 1999 we had federal net operating loss carry forwards ofapproximately $14,570,050.  UnderSection 382 of the Internal Revenue Code, certain significant changes inownership contemplated by us may restrict the future utilization of these taxloss carry forwards.  The net deferredtax assets have a 100% valuation allowance, as management cannot determine ifit is more likely than not that the deferred tax assets will be realized.

 

Liquidityand Capital Resources

 

General

 

                We have historically met ourworking capital requirements through a combination of cash flow fromoperations, equity and debt offerings and traditional bank financing.  We anticipate, based on our proposed plansand assumptions relating to our operations, that our current cash, cash equivalentbalances, anticipated revenue from operations and our working capital line aresufficient to fund our ongoing operations.

 

                For the year ended December 31,1999, we had a net cash deficit used in operations of $9,700.  The net cash deficit used in operations wasprimarily attributable to an increase in revenue, decrease in costs of revenue,and forgiveness of debts.  For the yearended December 31, 2000, we had net cash provided by operations ofapproximately $137,000.  The cashprovided by operations was primarily attributable to a decrease in accountsreceivable, inventory, deposits, increase in accounts payable and accruedexpenses, partially offset by an increase in prepaid and other assets.

 

                The net cash used in investingactivities for the year ended December 31, 1999 of $78,000, was primarilyattributable to capital expenditures and direct acquisition costs.  The net cash provided by investingactivities for the year ended December 31, 2000 of $1,893,000 was primarilyattributable to proceeds from the sale of the Legends in Concert Theater inSurfside Beach, South Carolina.

 

                Net cash used in financingactivities for the year ended December 31, 1999 of $480,000 was primarilyattributable to repayment of working capital line and long-term debt.  Net cash used in financing for the yearended December 31, 2000 of $1,886,000 was primarily attributable to repaymentsof long-term debt, working capital line and payment on acquisition, offset byproceeds from convertible debentures.

 

WorkingCapital

 

                At December 31, 1999, On Stagehad a working capital deficit of approximately $18,827,000, which resultedprimarily from an increase in accrued interest expense and late charges, whichwas partially offset by decreases in the working capital line of credit andaccounts payable.  At December 31, 2000,On Stage had a working capital deficit of approximately $2,615,000, whichresulted primarily from a decrease in accounts receivable, inventory, a notereceivable from Mr.  Stuart, accruedpayroll, other liabilities and long-term debt, which was partially offset byincreases in cash and convertible debentures.

 

DebtRestructuring

 

                As of October 7, 1998, we hadborrowed an aggregate of $14,150,000 from our mortgage lender, ICCMIC.  On May 24, 1999, we received a notice ofdefault from ICCMIC.  On November 5,1999, we received a formal demand from ICCMIC to pay them the sum of$16,163,305 as a guarantor under the loan, which represented all of theindebtedness, including late charges and default interest, due on that date.  On November 12, 1999, ICCMIC filed acomplaint against us in the District Court for Clark County, Nevada, alleging,among other things, that we had breached the guaranty.  On December 10, 1999, we agreed to allowICCMIC to obtain a judgment against us for the amount of the guaranty in returnfor a forbearance on the collection of the judgment until March 31, 2000.  ICCMIC later extended the date forcollection on the judgment until May 1, 2000.

 

OnDecember 9, 1999, ICCMIC obtained judgment of foreclosure against oursubsidiaries, Fort Liberty, Inc. and King Henry's, Inc. for the sale of theFort Liberty Shopping Complex and Wild Bill's Dinner Theater in Kissimmee,Florida and the King Henry's Feast Theater in Orlando, Florida.

 

OnJanuary 5, 2000, ICCMIC obtained a foreclosure decree for the official sale ofthe Legends in Concert Family Theater in Surfside Beach, South Carolina.

 

Duringthe period, we continued negotiating the terms of the credit facilities toobtain extensions and to seek alternative additional financing.

 

OnJanuary 24, 2000, we reached an agreement with ICCMIC to extend the foreclosuresale date on the King Henry's Feast Theater from January 26, 2000 to March 8,2000.   On March 7, 2000, we reached anagreement with ICCMIC to extend the foreclosure sale date on the King Henry'sFeast Theater until April 5, 2000.  OnMarch 30, 2000, ICCMIC agreed to extend the foreclosure sale date to May 3,2000.

 

OnJanuary 25, 2000, we reached an agreement with ICCMIC to extend the foreclosuresale date on the Fort Liberty Shopping Complex and Wild Bill's Dinner Theaterfrom January 25, 2000 until March 7, 2000.  On March 7, 2000, we reached an agreement with ICCMIC to extend theforeclosure sale date until April 4, 2000. On March 30, 2000, ICCMIC agreed to extend the foreclosure sale date toMay 2, 2000.

 

OnFebruary 1, 2000, we reached an agreement with ICCMIC to extend the foreclosuresale date on the Legends Family Theater from February 7, 2000 until March 6,2000.  On March 3, 2000, we reached anagreement with ICCMIC to extend the foreclosure sale date until April 3,2000.  On March 30, 2000, ICCMIC agreedto extend the foreclosure sale date until May 2000.

 

OnMay 1, 2000, we entered into a partial settlement with ICCMIC under which weagreed not to prevent ICCMIC from foreclosing on the Fort Liberty, King Henry'sand Legends in Concert Surfside Beach theater in exchange for an aggregatecredit of $9 million.  Of this amount,$3 million was allocated to Fort Liberty, $4 million was allocated to KingHenry's Feast and $2 million was allocated to Legends in Concert SurfsideBeach.  We also agreed to operate theKing Henry's and Fort Liberty Theaters until June 21, 2000, at which time thetheaters were closed.

 

Inconnection with the transfer of assets to ICCMIC, we incurred a troubled debtrestructuring loss of approximately $6,918,309 (of which $6,861,418 had beenaccrued at March 31, 2000 based on a preliminary estimate and $56,591 wasrecorded on September 30, 2000 when we completed our analysis of theforeclosure), representing the difference between the estimated fair value ofthe assets transferred and the carrying value of the debt settled.

 

OnSeptember 15, 2000, the Company sold the assets of the Legends in ConcertSurfside Beach theater independently and used the proceeds to pay off its debtwith ICCMIC (See Note 10).

 

OnOctober 12, 2000, we restructured our remaining debt with ICCMIC and FirstSecurity Bank of Nevada ("First Security").   Under the terms of the agreement, ICCMIC agreed to convert itsoutstanding loan and accrued interest of approximately $8.2 million in exchangefor 4,061,122 shares of common stock with a market value of  $1,218,336, which resulted in a troubleddebt restructuring gain of $7,059,431. As part of this transaction, Mr. Parrott purchased 2,630,000 shares ofour common stock, at market value, from ICCMIC for $1 million.

 

As aresult of the debt restructuring, we recorded a net troubled debt restructuringgain of $141,122 in the following quarters:

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

 

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

 

SubsequentEvents

 

                In November 2000, On Stage signeda letter of intent with BounceBack Technologies.com, Inc.  to purchase all of the rights to the liveproduction show entitled Country Tonite. In January 2001, the parties entered into a definitive agreement and OnStage completed the acquisition for a purchase price of $3,800,000.  The purchase price was paid as follows: (1)$100,000 when the letter of intent was signed, (2) $250,000 on January 29,2001, (3) $150,000 on February 15, 2001, (4) $500,000 on March 15, 2001 and (5)the balance of $2,800,000 plus interest was due on July 31, 2001.  The balance was paid in full on August 2,2001.  The amount due was funded througha combination of a $2 million investment from a private equity investment firm,as described in the next paragraph, and cash reserves.  The show opened under On Stage’s managementin about March 2001.  On Stage alsoacquired the right to oversee the Country Tonite production in Pigeon Forge,Tennessee.  However, the rights topresent the Pigeon Forge show have been previously licensed to an unrelatedthird party and are not included in this acquisition.

 

                On February 28, 2001, On Stageentered into an agreement with McCown De Leeuw & Co., Inc., a privateequity investment firm (“MDC”).  Underthis agreement, MDC will invest up to $20 million in On Stage in the form ofconvertible preferred securities.  MDCmay fund its investment in four separate tranches of $6 million, $4 million, $5million and $5 million, respectively. The preferred securities bear interest at the rate of 12% per annum, areconvertible into On Stage common stock at a conversion price of $0.50 or $0.75per share, depending on certain factors, and has a liquidation preference of$5.00 per share.  The first $6 millioninvestment was made on March 13, 2001 and was used primarily to fund newproductions slated to open this year. The remaining investments will be made available to On Stage for futuregrowth opportunities.  To draw downfunds from the second and third tranches (1) we must submit a notice to our board that includes the proposedfunding amount and specific growth or acquisition opportunity for which thefunds will be used, (2) we must have met the EBITDA budget approved by ourboard for the year-to-date period, and (3) MDC must have earned a minimumannualized rate of return of 35% on its funded investment.  Each request for funds must be for at least$2 million.  The fourth tranche isexercisable during the next 10 years only after the third tranche has beenfunded.  In connection with thetransaction, On Stage reimbursed MDC for fees and expenses incurred in thetransaction in the amount of $500,000 and paid MDC a $500,000 transactionfee.  These fees, along with the 5%discount at which the $6 million in Series A Convertible Preferred Stock wasissued, resulted in net proceeds of $4.7 million.  For accounting purposes, the fees and expenses are being accretedover 10 years and will result in the Series A Convertible Preferred Stockaccreting to its liquidation value.  Themarket price of the Series A Convertible Preferred Stock resulted in a deemeddividend of $2,812,800.  MDC made asecond investment of $2 million by exercising warrants for Series A ConvertiblePreferred Stock in July 2001.  Becausewe did not meet the EBITDA thresholds required as a condition to MDC'sobligation to fund the second tranche. MDC agreed to fund the second tranche only if we issued it a warrant topurchase an additional 400,000 shares of Series A Convertible Preferred Stockat an exercise price of $0.00001 per share. The warrant is exercisable for 10 years but only if we fail to meet ourcumulative EBITDA targets in 2002 and 2003. If we do not achieve the EBITDA targets, the warrant will be exercisablefor 8,000,000 shares of our common stock. This would result in substantial dilution to our existing stockholders,decreasing the value of their investment.

 

                We are precluded from using theMDC investments to fund future operating losses.  Our financial projections for the fiscal years ending December31, 2001, 2002 and 2003 indicate that we will have net operating profits.  To ensure this result, we have takensignificant cost-cutting measures. These include reducing our staff to cut corporate overhead byapproximately $425,000 per year, eliminating unnecessary warehouse space for anannual savings of approximately $35,000, and other cost-cutting measures thatwill save us approximately $150,000 annually.

 

                During late 2000 and early 2001,we raised $700,000 and $650,000, respectively, from accredited privateinvestors to assist with meeting our capital requirements, paying for expensesassociated with restructuring, and making deposits for the acquisition ofCountry Tonite and the live licensing rights for Ripley’s.  This private placement was issued in theform of convertible debentures that accrue interest at the rate of 10% perannum and have a conversion price of $0.79. The market price of the stock in relation to the conversion price ofthese convertible debentures created a beneficial conversion amount of $87,975,which is amortized over two years.  Thematurity dates for $700,000 of the convertible debentures are November andDecember 2001, and the maturity dates for $650,000 of the convertibledebentures are January and February 2003. In May 2001, the debenture holders were given the option to exchangetheir debentures for Series A Convertible Preferred Stock.  The Series A Convertible Preferred Stock hasan annual dividend rate of 12% payable quarterly in arrears, and is convertibleinto common stock at $0.50 per share.  Asof June 1, 2001, $1.2 million of the debentures were converted into Series AConvertible Preferred Stock.

 

                On March 27, 2001, On Stageentered into a multiple year lease to open Ripley’s Live...  Believe It or Not in Branson, Missouri atthe Osmond Family Theater.

 

Impactof Inflation

 

                We believe that inflation hasnot had a material impact on our operations. However, substantial increases in material costs could adversely affectour operations for future periods.

 

NewAccounting Pronouncements

 

                Statement of FinancialAccounting Standards No.  131,“Disclosures about Segments of an Enterprise and Related Information” (“SFASNo.  131”) issued by the FinancialAccounting Standards Board ("FASB") is effective for financialstatements with fiscal years beginning after December 15, 1997.  SFAS No. 131 requires that public companies report certain information aboutoperating segments, products, services and geographical areas in which theyoperate and their major customers.  OnStage adopted SFAS No.  131 on January1, 1998 and it had no effect on our financial position or results ofoperations; however, disclosures on certain of these items were expanded.

 

                In December 1999, the SEC staffreleased Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” ("SAB101”).  SAB 101 provides interpretiveguidance on the recognition presentation and disclosure revenue in thefinancial statements.  SAB 101 must beapplied to the financial statements no later than the fourth quarter of fiscalyears ending after December 15, 2000. On Stage adopted SAB 101 during the year ended December 31, 2000 and ithad no impact on our financial position or result of operations and cash flows.

 

                In March 2000, the FASB issuedInterpretation No.  44, "Accountingfor Certain Transactions Involving Stock Compensation" (“FIN 44”), anInterpretation of APB Opinion No. 25.  FIN 44 clarifies theapplication of APB No.  25 for (1) thedefinition of employee for purposes of applying APB No.  25, (2) the criteria for determining whethera plan qualifies as a non-compensatory plan, (3) the accounting consequences ofvarious modifications to the terms of a previously fixed stock option or award,and (4) the accounting for an exchange of stock compensation awards in a businesscombination.  FIN 44 is effective July2, 2000, but certain conclusions cover specific events that occur after eitherDecember 15, 1998, or January 12, 2000. During the year ended December 31, 2000, the Company adopted FIN 44 inaccounting for stock options.

 

ITEM 7.                 FinancialStatements and Supplementary Data

 

                                Submittedon a separate section of this report, commencing on page F-1 and incorporatedby reference.

 

ITEM 8.                 Changesin and Disagreements with Accountants on Accounting and Financial Disclosure

 

                                None.

 

PARTIII

 

ITEM 9.                 Directors, Executive Officers,Promoters and Control Persons; Compliance with Section 16(a) of the ExchangeAct

 

                The following sets forthbiographical information about each of On Stage’s directors and executiveofficers who served during 2000 or who are presently serving in thosecapacities.

 
| **Name**                     |   | **Age** |   | **Position**                            |   |
|------------------------------|--------|---------|--------|-----------------------------------------|--------|
| John W.  Stuart         |   | 58      |   | Chairman  and Founder                   |   |
| Timothy J .Parrott           |   | 53      |   | President  and Chief Executive Officer  |   |
| Jeffery Victor               |   | 37      |   | Executive  Vice-President & COO     |   |
| Pedro Perez                  |   | 53      |   | Chief  Accounting Officer and Treasurer |   |
| Christopher R.  Grobl   |   | 31      |   | General  Counsel and Secretary          |   |
| Mel Woods                    |   | 47      |   | Former  Director                        |   |
| Matthew Gohd                 |   | 43      |   | Former  Director                        |   |
| Gregory McIntosh             |   | 44      |   | Director                                |   |
| Robert B.  Hellman, Jr. |   | 39      |   | Director                                |   |
| Chris Frigon                 |   | 31      |   | Director                                |   |
| Fred Ordower                 |   | 48      |   | Director                                |   |

 

                John W.  Stuart has served as the Chairman and ChiefExecutive Officer of On Stage since April 1996 and also was the President of OnStage from October 1985 through March 1996. He founded On Stage in 1985.  Hehas been involved in the theatrical business since age seven and has producedor appeared in over 200 theater productions and several feature films.  Mr. Stuart received a Bachelor of Arts degree in 1967 from California StateUniversity at Fullerton.

 

                Timothy J.  Parrott has served as President, ChiefExecutive officer and a director of On Stage since October 2000.  Mr. Parrott has been a director of Pinnacle Entertainment since June 1997;President and Treasurer of Boomtown, Inc. from June 1987 to September 1992; adirector of Boomtown, Inc., since 1987; Chief Executive Officer of ParrottInvestment Company (a family-held investment company with agriculturalinterests in California) since April 1995; and Director of The ChroniclePublishing Company from April 1995 to June 2000.

 

                Jeffrey T.  Victor has served as the Chief OperatingOfficer and Executive Vice President of On Stage since October 2000.  Prior to that, Mr.  Victor was the Vice President and General Manager of Paramount’s$70 million Star Trek Experience at the Las Vegas Hilton where he managed astaff of 300 and increased profitability by 40%, since 1999.  Prior to that, since 1993, Mr. Victor servedin various managerial positions, including Corporate Vice President ofEntertainment, at Boomtown Casinos.

 

                Pedro Perez has been the ChiefAccounting Officer of On Stage since April 1999 and is a Certified PublicAccountant.  Mr.  Perez joined the company in July of 1996.  Before joining the company, Mr.  Perez served as the Corporate Controller ofMednet, Inc., a publicly traded pharmaceutical company, from 1993 to 1996.  Mr. Perez holds a Bachelor of Arts degree in Finance and Accounting from theUniversity of Puerto Rico.

 

                Christopher R.  Grobl has been the General Counsel andSecretary of On Stage since November 1994. Mr.  Grobl received a Bachelor ofArts in 1990 from the University of Illinois and a Juris Doctor in 1994 fromthe John Marshall Law School in Chicago, Illinois.

 

                Mel Woods was a director of OnStage from July 1998 to March 2001. Mr.  Woods is the President andChief Operating Officer of Fox Family Worldwide, Inc., Saban Entertainment’sparent company since 1997.  Previously,Mr.  Woods was the Chief FinancialOfficer and Senior Vice President of DIC Enterprises.

 

                Matthew Gohd was a director ofOn Stage from September 1998 to March 2001. Mr.  Gohd is currently a SeniorManaging director at Whale Securities Co., LP., the underwriter for On Stage’sinitial public offering.  Mr.  Gohd has over 20 years experience in thesecurities field working in various companies in industries such as retail,technology, healthcare and consumer finance.

 

                Gregory J.  McIntosh has been a director of On Stagesince October 2000.  Mr.  McIntosh has been employed at ImperialCredit Commercial Mortgage Investment Corp. and its affiliates, Imperial Credit Commercial Assets ManagementCorp.  since 1998, where he has heldvarious titles, including Senior Vice President.  Previously, Mr.  McIntoshwas Chief Operating Officer and 20% shareholder of a privately heldmanufacturing company since 1993.

 

                Robert B. Hellman, Jr. hasserved as a director of On Stage since March 2001.  Mr.  Hellman is a managingdirector of MDC Management Company III, L.P., which is the general partner ofMcCown De Leeuw & Co.  III,L.P.  and McCown De Leeuw Offshore(Europe) III, L.P.  He is also managingdirector of MDC Management Company IIIA, L.P., which is the general partner ofMcCown De Leeuw & Co.  (Asia),L.P.  These partnerships are engaged ininvestment activities.  Mr.  Hellman is also a member of The Gamma FundLLC, a limited liability company engaged in investment activities.  Mr. Hellman has been associated with McCown De Leeuw & Co.  since 1987. From 1982 to 1985, he worked for Bain & Company, a managementconsulting company.  Mr.  Hellman has been a director of TeleSpectrumsince 1999.

 

                Chris Frigon received an MBAfrom Harvard Business School and a BS in economics and computer applicationfrom the University of Notre Dame.  Heworked with McCown De Leeuw & Co. as a summer associate in 1998 and joined the firm as a Senior Associatein 1999 after completing business school. Mr.  Frigon was promoted toprincipal in January 2001.  Prior tojoining McCown De Leeuw, Mr.  Frigon wasan associate with Investcorp International limited in London and New York.  He also worked as an analyst at MorganStanley.

 

                Fred Ordower has been a directorof On Stage since March 2001, and has served as an advisor to the company sinceJuly 1998.  Mr.  Ordower has been a Senior Executive of FoxFamily Worldwide, Inc.  since August1997.  Since February 1997, Mr.  Ordower has been the President of EvergreenEvents, Inc., which provides business development and marketing advisoryservices related to the convergence of technology and entertainment.  From 1992 through 1996, Mr.  Ordower was Executive Vice President ofUniversal (formerly MCA) Music Entertainment Group.  From 1987 through 1992, Mr. Ordower was founder and chief operating officer of Ogden Presents, andVice President, Business Development of Ogden Entertainment Services, bothsubsidiaries of a Fortune 500 conglomerate.

 

Compensationof Directors

 

                Directors currently are not paida fee for their services, but are reimbursed for all reasonable expensesincurred in attending board meetings. In addition, each non-employee director will receive options to purchasean aggregate of 10,000 shares of common stock each year that the directorserves as a director, partially contingent upon the director’s attendance atthe four scheduled board of directors meetings during the year of grant.  One-quarter of the annual option grant willvest as of each of the grant year’s scheduled meetings.

 

ITEM 10.                  Executive Compensation.

 
|                             |   | **Executive  Compensation** |   |             |    |      |   |             |   |
|----------------------------------|--------|-----------------------------|--------|------------------|---------|-----------|--------|------------------|--------|
|                             |   | **Annual**                  |   | **Long Term**    |    |      |   |
|                             |   | **Compensation**            |   | **Compensation** |    |      |   |
|                             |   |                        |   |             |    |      |   |             |   | **Securities** |   |   |   |
|                             |   |                        |   |             |    |      |   | **Other Annual** |   | **Underlying** |   | **All Other** | ** ** |
| **Name and  Principal Position** |   | **Year**                    |   | **Salary**       |    | **Bonus** |   | **Compensation** |   | **Options/SAR** |   | **Compensation** | ** ** |
| Timothy J. Parrott               |   | 2000                        |   | $                | 1       |      | -      |             | 23,000 | (1) | - |   | - |   |
| President and Chief              |   |                        |   |             |    |      |   |             |   |   |   |   |   |
| Executive Officer                |   |                        |   |             |    |      |   |             |   |   |   |   |   |
|                             |   |                        |   |             |    |      |   |             |   |   |   |   |   |
| John W. Stuart                   |   | 2000                        |   | $                | 308,333 |      | 87,500 | (2)              | 24,612 | (3) | - |   | - |   |
| Chairman and Chief               |   | 1999                        |   | $                | 250,000 |      | -      |             | 35,869 | (4) | 300,000 |   | - |   |
| Executive Officer                |   | 1998                        |   | $                | 250,000 |      | -      |             | 35,869 | (4) | 75,000 |   | - |   |
|                             |   |                        |   |             |    |      |   |             |   |   |   |   |   |
| Jeffrey Victor                   |   | 2000                        |   | $                | 33,461  |      | -      |             | -      |   | - |   | - |   |
| Vice President/Chief             |   |                        |   |             |    |      |   |             |   |   |   |   |   |
| Executive Officer                |   |                        |   |             |    |      |   |             |   |   |   |   |   |
|                             |   |                        |   |             |    |      |   |             |   |   |   |   |   |
| David Hope                       |   | 2000                        |   | $                | -       |      | -      |             | -      |   | - |   | - |   |
| President and Chief              |   | 1999                        |   | $                | 104,784 |      | -      |             | 9,513  | (5) | - |   | - |   |
| Operating Officer                |   | 1998                        |   | $                | 207,308 |      | -      |             | 19,578 | (6) | 50,000 |   | - |   |
|                             |   |                        |   |             |    |      |   |             |   |   |   |   |   |
| Kiran Sidhu                      |   | 2000                        |   | -                |    | -         |   | -                |   | - |   | - |   |
| Senior Vice President            |   | 1999                        |   | $                | 55,659  |      | -      |             | 50,359 | (7) | 140,000 | (8) | - |   |
| Chief Finanical Officer          |   | 1998                        |   | $                | 157,385 |      | -      |             | 14,993 | (9) | 30,000 |   | - |   |
| and Treasurer                    |   |                        |   |             |    |      |   |             |   |   |   |   |   |
|                             |   |                        |   |             |    |      |   |             |   |   |   |   |   |
| Gary Panter                      |   | 2000                        |   | $                | 114,400 |      | -      |             | 12,612 | (10) | - |   | - |   |
| Senior Vice President            |   | 1999                        |   | $                | 95,920  |      | -      |             | 12,612 | (10) | - |   | - |   |
| Operations                       |   | 1998                        |   | $                | 102,370 |      | -      |             | 13,627 | (11) | 21,439 |   | - |   |
|                             |   |                        |   |             |    |      |   |             |   |   |   |   |   |
| Gerard O’ Riordan           |   | 1998                        |   | $                | 106,664 |      | -      |             | 14,424 | (12) | - |   | - |   |
|                             |   |                        |   |             |    |      |   |             |   |   |   |   |   |
| Richard Kanfer                   |   | 1998                        |   | $                | 109,154 |      | -      |             | 14,791 | (13) | - |   | - |   |
|                                  |        |                             |        |                  |         |           |        |                  |        |  |  |  |  |  |  |  |

----

| 1)  |   | Represents  housing and transportation costs associated with staying in Las Vegas.                                                                                                                                                                                               |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2)  |   | Bonus  paid in 2000 per employment agreement.                                                                                                                                                                                                                                    |
| 3)  |   | Represents  car and health allowance paid in 2000.                                                                                                                                                                                                                               |
| 4)  |   | Represents  $11,971 in unused vacation time accrued but not paid and $23,898 of car  allowance and health allowances accrued, of which $14,895 was paid in  1999.  Does not include $149,686 of  rent accrued for the leases to On Stage of which $76,028 was paid in 1999. |
| 5)  |   | Represents  $9,519 payments made to Mr.  Hope in  connection with Mr.  Hope’s severance  package.                                                                                                                                                                 |
| 6)  |   | Represents  $6,346 in unused vacation time accrued but not paid and $13,232 of car  allowance accrued, of which $9,732 was paid in 1999.                                                                                                                                         |
| 7)  |   | Includes  $25,000 for unpaid insurance, car allowance and expenses; $17,887 for all  accrued, but unused vacation pay; and a forgiveness of a promissory note in  the amount of $7,472, all of which were paid in connection with Mr.  Sidhu’s severance package.      |
| 8)  |   | Represents  140,000 incentive stock options, which were issued to Mr.  Sidhu in exchange for his previously  issued stock options in connection with Mr.   Sidhu’s severance package.                                                                             |
| 9)  |   | Represents  $5,393 in unused vacation time accrued but not paid and $9,600 of car  allowance accrued, of which $6,100 was paid in 1999.                                                                                                                                          |
| 10) |   | Represents  car and health allowance.                                                                                                                                                                                                                                            |
| 11) |   | Represents  $3,238 in unused vacation time accrued but not paid and $10,389 of car  allowance accrued of which $8,639 was paid in 1999 and $11,050 of housing  allowance payments.                                                                                               |
| 12) |   | Represents  $14,424 of car and health allowances paid in 1999                                                                                                                                                                                                                    |
| 13) |   | Represents  $4,232 in unused vacation time accrued but not paid and $10,560 of car  allowances accrued, of which $7,560 was paid in 1999.                                                                                                                                        |

 

OptionGrants.

 

                The table below sets forth thegrants of stock options to the persons named in the Summary Compensation Tableduring the year ended December 31, 2000:

 

 
|                                                              |   | **Option Grant in Last Fiscal Year** |   |
|-------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                              |   |                                 |   |   |   |   |   |   |   |   |   | **Potential** |   |
|                                                              |   |                                 |   |   |   |   |   |   |   |   |   | **Realizable** |   |
|                                                              |   |                                 |   |   |   |   |   |   |   |   |   | **Value at** |   |
|                                                              |   |                                 |   |   |   |   |   |   |   |   |   | **Assumed Rate** |   |
|                                                              |   |                                 |   | **Percent of** |   |   |   |   |   |   |   | **of Stock** |   |
|                                                              |   |                                 |   | **Options/SARS** |   |   |   |   |   |   |   | **price** |   |
|                                                              |   |                                 |   | **Granted to** |   |   |   |   |   |   |   | **Appreciation** |   |
| **Name and Principal**                                            |   | **Option**                           |   | **Employees in** |   | **Exercise** |   | **Expiration** |   | **Potential** |   | **for Option** |   |
| **Position**                                                      |   | **Granted**                          |   | **Fiscal Year** |   | **Price** |   | **Date** |   | **5%** |   | **Term** |   |
| Timothy J. Parrott  President and Chief  Executive Officer        |   | 750,000                              | (1)    | 78.9 | % | $ | 0.50 |   | 01/01/03 |   | $ | 0.00 |   | $ | 0.00 |   |
|                                                              |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Jeffrey Victor Senior Vice  President And Chief operating Officer |   | 200,000                              | (2)    | 21 | % | $ | 0.50 |   | 90 days  after  termination  of  employment |   | $ | 0.00 |   | $ | 0.00 |   |

----

                (1) Issued in connection withhis employment agreement.

                (2) Issued in connection withhis employment agreement.

 

OptionExercise and Fiscal Year-End Option Values

 

                The following table summarizesthe value of vested and unvested in-the-money options for the persons named inthe Summary Compensation Table at December 31, 2000.  Year-end values are based upon a price of $1.01 per share, whichwas the closing market price of a share of common stock on December 31,2000.  No options were exercised by thenamed executive officers in 2000.

 

Aggregated Option Exercise in LastYear and Year-End Option Values

 
|               |   | **Number of Unexercised  Options at December 31, 2000** |   | **Value of Unexercised  In-the-Money Options  at December 31, 2000** |   |
|--------------------|--------|---------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
| **Name**           |   | **Exercisable**                                         |   | **Unexercisable**                                                    |   | **Exercisable** |   | **Unexercisable** | ** ** |
| John W. Stuart     |   | 350,000                                                 |   | 25,000                                                               |   | $ | - |   | $ | - |   |
| Gary Panter        |   | 35,000                                                  |   | -                                                                    |   | $ | - |   | $ | - |   |
| Timothy J. Parrott |   | 250,000                                                 |   | 500,000                                                              |   | $ | 128,900 |   | $ | 257,800 |   |
| Jeffrey Victor     |   | 50,000                                                  |   | 150,000                                                              |   | $ | 25,780 |   | $ | 77,340 |   |

 

 

ITEM 11.  SecurityOwnership of Certain Beneficial Owners and Management

 

                The following table sets forthcertain information as of April 14, 2001 (except as otherwise noted) regardingthe ownership of On Stage common stock by:

 

                (1) each person known by us tobe the beneficial owner of more than five percent of the outstanding commonstock,

 

                (2) each director

 

                (3) each executive officer namedin the Summary Compensation Table and

 

                (4) all current executiveofficers and directors as a group.

 

                Unless otherwise indicated, OnStage believes that all persons named in the table have sole voting andinvestment power with respect to all shares of common stock shown asbeneficially owned by them, subject to community property laws whereapplicable.  In accordance with the rulesof the Securities and Exchange Commission, a person is deemed to be thebeneficial owner of common stock that can be acquired by that person within 60days, upon the exercise of options or warrants.  Each beneficial owner’s percentage ownership is determined byassuming that options and warrants that are held by that person (but not thoseheld by any other person) and which are exercisable within 60 days have beenexercised.  Percentages herein assume abase of 11,307,930 shares of common stock outstanding as of April 14,2001.  The address of all officers anddirectors is in care of On Stage at 4625 West Nevso, Las Vegas, NV 89103.

 

 

 
|                                                                   |   | **Number of Shares**   |   | **Percentage of** |   |
|------------------------------------------------------------------------|--------|------------------------|--------|-------------------|--------|
| **Name**                                                               |   | **Beneficially Owned** |   | **Class**         |   |
| John W. Stuart                                                         |   | 3,551,155              |   | 31.4              | %      |
| David Hope (1)                                                         |   | 372,550                |   | 3.3               | %      |
| Kiranjit S. Sidhu (2)                                                  |   | 145,625                |   | 1.3               | %      |
| Mel Woods (3)                                                          |   | 37,500                 |   | *                 |   |
| Matt Gohd (4)                                                          |   | 137,500                |   | 1.2               | %      |
| Hanover Restaurants, Inc.  (5)                                         |   | 595,238                |   | 5.3               | %      |
| Imperial Credit Industries,  Inc (6)                                   |   | 250,000                |   | 2.2               | %      |
| Timothy J. Parrott (7)                                                 |   | 3,380,000              |   | 29.9              | %      |
| Jeffrey T. Victor (8)                                                  |   | 200,000                |   | 1.8               | %      |
| Gary Panter(9)                                                         |   | 35,000                 |   | *                 |   |
| ICCMIC(10)                                                             |   | 1,756,122              |   | 15.5              | %      |
| Fred Ordower(11)                                                       |   | 75,000                 |   | *                 |   |
| All executive officers and  directors as a group (9) persons/entities) |   | 10,535,690             |   | 93.2              | %      |

----

*Lessthan one percent

(1)Includes 372,550 shares of common stock and common stock issuable upon theexercise of options or warrants.

(2)Includes 145,625 shares of common stock and common stock issuable upon theexercise of options or warrants.

(3)Includes 37,500 shares of common stock issuable upon the exercise of options.

(4)Includes 137,500 shares of common stock issuable upon the exercise of options.

(5)Includes 595,238 shares of common stock issuable upon the exercise of warrants.

(6)Includes 250,000 shares of common stock issuable upon the exercise of warrants.

(7)Includes 750,000 shares of common stock issuable upon the exercise of options.

(8)Includes 200,000 shares of common stock issuable upon the exercise of options.

(9)Includes 35,000 shares of common stock issuable upon the exercise of options.

(10)Includes 325,000 shares of common stock issuable upon the exercise of warrants.

(11)Includes 75,000 shares of common stock issuable upon the exercise of options.

 

ITEM 12. Certain Relationships and Related Transactions

 

                None.

 

ITEM 13. Exhibits & Reports on Form 8-K

 

(a)Exhibits

 

                The following is a list ofexhibits filed as part of this annual report on Form 10-KSB.  Where so indicated by footnote, exhibits,which were previously filed, are incorporated by reference.  For exhibits incorporated by reference, thelocation of the exhibit in the previous filing is indicated parentheticallyexcept in those situations where the exhibit number was the same as set forth below.

 
| Exhibit |                                                                                                                                                                                                                                                                                                                                                                     |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Number  | Description                                                                                                                                                                                                                                                                                                                                                              |
|    |                                                                                                                                                                                                                                                                                                                                                                     |
| 3.1     | Articles  of Incorporation of the Registrant, as amended(1)                                                                                                                                                                                                                                                                                                              |
| 3.2     | Bylaws  of the Registrant(3)                                                                                                                                                                                                                                                                                                                                             |
| 3.3     | Certificate  of Designation of the Relative Rights and Preferences of the Series A  Convertible Preferred Stock*                                                                                                                                                                                                                                                         |
| 4.1     | Specimen  Stock Certificate Representing the Common Stock(3)                                                                                                                                                                                                                                                                                                             |
| 4.2     | Specimen  Warrant Certificate Representing the Warrants(3)                                                                                                                                                                                                                                                                                                               |
| 4.3     | Form  of Public Warrant Agreement(3)                                                                                                                                                                                                                                                                                                                                     |
| 4.4     | Form  of Underwriter’s Warrant Agreement(3)                                                                                                                                                                                                                                                                                                                         |
| 10.1    | Employment  Agreement between the Registrant and John W.   Stuart(1)                                                                                                                                                                                                                                                                                                |
| 10.2    | Employment  Agreement between the Registrant and David Hope(1)                                                                                                                                                                                                                                                                                                           |
| 10.3    | Employment  Agreement between the Registrant and Kiranjit S.  Sidhu(1)                                                                                                                                                                                                                                                                                              |
| 10.4    | Confidentiality  and Non-Competition Agreement between the Registrant and John W.Stuart(1)                                                                                                                                                                                                                                                                               |
| 10.5    | Confidentiality  and Non-Competition Agreement between the Registrant and David Hope(1)                                                                                                                                                                                                                                                                                  |
| 10.6    | Confidentiality  and Non-Competition Agreement between the Registrant and Kiranjit S Sidhu(1)                                                                                                                                                                                                                                                                            |
| 10.7    | Amended  and Restated 1996 Stock Option Plan(1)                                                                                                                                                                                                                                                                                                                          |
| 10.8    | Contribution  Agreement between the Registrant and John W.   Stuart(1)                                                                                                                                                                                                                                                                                              |
| 10.9    | Security  and Pledge Agreement between the Registrant and John W.  Stuart Relating to Contribution of LVHE  shares(1)                                                                                                                                                                                                                                               |
| 10.10   | Security  and Pledge Agreement between the Registrant and John W.  Stuart relating to LVHE Litigation  Indemnity(1)                                                                                                                                                                                                                                                 |
| 10.11   | Indemnification  Agreement between the Registrant, John W.   Stuart and Grand Strand Entertainment, Inc.(1)                                                                                                                                                                                                                                                         |
| 10.12   | Security  and Pledge Agreement between the Registrant and John W.  Stuart relating to Grand Strand  Entertainment, Inc.  Litigation  Indemnity(1)                                                                                                                                                                                                              |
| 10.13   | Promissory  Note to John Stuart dated March 4, 1999 (5)                                                                                                                                                                                                                                                                                                                  |
| 10.14   | Entertainment  Production Agreement between the Registrant, Imperial Palace, Inc.  and John W.  Stuart dated December, 1995 (3) (Filed in redacted form pursuant  to Rule 406 promulgated under the Securities Act.  Filed separately in unredacted form subject to a request for  confidential treatment pursuant to Rule 406 under the Securities Act.) |
| 10.15   | Agreement  between the Registrant and Bally’s Park Place, Inc.  dated September 1, 1994 and subsequent renewal letters(3)  (Filed in redacted form pursuant to Rule 406 promulgated under the Securities  Act.  Filed separately in unredacted form  subject to a request for confidential treatment pursuant to Rule 406 under the  Securities Act.)     |
| 10.16   | Common  Stock Purchase Agreement between Registrant and Interactive Events, Inc.(2)                                                                                                                                                                                                                                                                                      |
| 10.17   | (a)  Show Production Agreement between the Registrant and Kurz Management(3)                                                                                                                                                                                                                                                                                             |
| 10.18   | Portions  of 1998 Annual Report to Stockholders                                                                                                                                                                                                                                                                                                                          |
| 10.19   | Promissory  Note to John Stuart dated April 5, 1999(5)                                                                                                                                                                                                                                                                                                                   |
| 10.20   | First  Security Bank Agreement(5)                                                                                                                                                                                                                                                                                                                                        |
| 10.21   | Common  Stock Purchase Agreement with Whale Securities dated December 1998(5)                                                                                                                                                                                                                                                                                            |
| 10.22   | Common  Stock Purchase Agreement between On Stage Entertainment, Inc. and Richard S.  Kanfer(5)                                                                                                                                                                                                                                                                          |
| 10.23   | Stock  and Warrant Purchase Agreement between the Registrant and Purchasers dated  March 13, 2001+                                                                                                                                                                                                                                                                       |
| 10.24   | Investor  Rights Agreement between the Registrant and Investors dated March 13, 2001+                                                                                                                                                                                                                                                                                    |
| 10.25   | Right  of First Refusal and Co-Sale Agreement between the Registrant and Investors  dated March 13, 2001+                                                                                                                                                                                                                                                                |
| 10.26   | Voting  Agreement between the Registrant and Key Holders dated March 13, 2001+                                                                                                                                                                                                                                                                                           |
| 10.27   | Advisory  Services Agreement between the Registrant and MDC Management Company IV,  L.P.  dated March 13, 2001+                                                                                                                                                                                                                                                     |
| 10.28   | Co-Sale  Agreement between the Registrant and Investors and Imperial Credit Commercial  Mortgage Investment Corporation dated March 13, 2001+                                                                                                                                                                                                                            |
| 10.29   | Form  of Series A Preferred Stock Warrant+                                                                                                                                                                                                                                                                                                                               |
| 10.30   | Form  of Preferred Stock Warrant+                                                                                                                                                                                                                                                                                                                                        |
| 10.31   | Lease  Agreement between the Registrant and OFT, Ltd.  dated March 2001+                                                                                                                                                                                                                                                                                            |
| 10.32   | Sub-Lease  Agreement between the Registrant and Flashback, LLC dated March 2001+                                                                                                                                                                                                                                                                                         |
| 21.1    | Subsidiaries  of the Registrant(5)                                                                                                                                                                                                                                                                                                                                       |
| 23.1    | Consent  of Independent Certified Public Accountants*                                                                                                                                                                                                                                                                                                                    |

 

----

* Filed herewith

+ Previouslyfiled.

 
| (1) | Filed  as an exhibit to the Company’s Registration Statement on Form SB-2 on April  7, 1997 (Registration No.  333-24681).                          |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Filed  as an exhibit to Amendment No.  1 to  the Company’s Registration Statement on Form SB-2 on June 3, 1997  (Registration No.  333-24681)  |
| (3) | Filed  as an exhibit to Amendment No.  3 to  the Company’s Registration Statement on Form SB-2 on August 6,1997  (Registration No.  333-24681) |
| (4) | Reports  on Form 8-K                                                                                                                                          |
| (5) | Filed  as an exhibit to On Stage’s Form of 10-KSB filed on April 15, 1999.                                                                               |

 

(b)Reports on Form 8-K were filed by the Company on May 20, 2000 and September 15,2000.  The reports contained informationregarding the partial restructuring with ICCMIC and the sale and lease-back ofits Legends Theater in Surfside Beach, SC.

 

SIGNATURES

 

                Pursuant to the requirements ofSection 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant hasduly caused this Report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 ON STAGE ENTERTAINMENT, INC.

 
| Dated:  November  30, 2001 |   |   |   |   |   |   | By:/s/  Timothy J.  Parrott                                  |
|---------------------------------|--------|--------|--------|--------|--------|--------|-------------------------------------------------------------------|
|                            |   |   |   |   |   |   | Timothy  J.  Parrott, President and Chief  Executive Officer |
|                            |   |   |   |   |   |   |                                                              |
| Dated:  November 30, 2001       |   |   |   |   |   |   | By:  /s/ Margaret Ann Freman                                      |
|                            |   |   |   |   |   |   | Margaret  Ann Freman, Senior Vice                                 |
|                            |   |   |   |   |   |   | President  and Chief Financial Officer                            |
|                            |   |   |   |   |   |   |                                                              |

 

                Pursuant to the requirements ofthe Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the Registrant and in the capacities and on thedates indicated.

 
| Signature                         |   | Title                                  |   | Date               |
|-----------------------------------|--------|----------------------------------------|--------|--------------------|
|                              |   |                                   |   |               |
| /s/  Timothy J.  Parrott     |   | President  and Chief Executive Officer |   | November  30, 2001 |
| Timothy  J.  Parrott         |   |                                   |   |               |
|                              |   |                                   |   |               |
| /s/  John W.  Stuart         |   | Chairman  and Founder                  |   | November  30, 2001 |
| John  W.  Stuart             |   |                                   |   |               |
|                              |   |                                   |   |               |
| /s/  Jeffrey Victor               |   | Chief  Operating Officer               |   | November  30, 2001 |
| Jeffrey  T.  Victor          |   |                                   |   |               |
|                              |   |                                   |   |               |
| /s/  Margaret Ann Freman          |   | Senior  Vice President and             |   |               |
| Margaret  Ann Freman              |   | Chief  Financial Officer               |   | November  30, 2001 |
|                              |   |                                   |   |               |
| /s/  Gregory J.  McIntosh    |   | Director                               |   | November  30, 2001 |
| Gregory  J.  McIntosh        |   |                                   |   |               |
|                              |   |                                   |   |               |
| /s/  Robert B.  Hellman, Jr. |   | Director                               |   | November  30, 2001 |
| Robert  B.  Hellman, Jr.     |   |                                   |   |               |
|                              |   |                                   |   |               |
| /s/  Fred Ordower                 |   | Director                               |   | November  30, 2001 |
| Fred  Ordower                     |   |                                   |   |               |
|                              |   |                                   |   |               |
| /s/  John D.  Weil           |   | Director                               |   | November  30, 2001 |
| John  D.  Weil               |   |                                   |   |               |

 

 

 

On Stage Entertainment, Inc.  and Subsidiaries

 

-----------------------

 

Consolidated Financial Statements

 

For the Years Ended December 31, 1999and 2000

 

----------------------

 

 

ON STAGE ENTERTAINMENT, INC.  AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

 
| Report  of Independent Certified Public Accountants |                                               |   |
|-----------------------------------------------------|----------------------------------------------------|--------|
|                                                |                                               |   |
| Consolidated  Financial Statements                  |                                               |   |
|                                                | Balance Sheets                                     |   |
|                                                | Statements of  Operations                          |   |
|                                                | Statements of  Stockholders’ Equity (Deficit) |   |
|                                                | Statements of  Cash Flows                          |   |
|                                                | Summary of Accounting  Policies                    |   |
|                                                | Notes  to Financial Statements                     |   |
|                                                     |                                                    |        |  |

 

 

 

Report of Independent Certified Public Accountants

 

Boardof Directors and Stockholders of On Stage Entertainment, Inc. and Subsidiaries

 

Wehave audited the accompanying consolidated balance sheets of On StageEntertainment, Inc.  and subsidiaries asof December 31, 1999 and 2000, and the related statements of operations,stockholders’ equity (deficit) and cash flows for each of the years thenended.  These financial statements arethe responsibility of the Company’s management.  Our responsibility is to express an opinion on these financialstatements based on our audits.

 

Weconducted our audits in accordance with auditing standards generally acceptedin the United States of America.  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of On StageEntertainment, Inc.  and Subsidiaries atDecember 31, 1999 and 2000, and the results of their operations and their cashflows for each of the years then ended, in conformity with accountingprinciples generally accepted in the United States of America.

 

                                                                                                                /s/BDO SEIDMAN, LLP

 

LosAngeles, California

March30, 2001

 

ONSTAGE ENTERTAINMENT, INC.  ANDSUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 
|                                                                                                                             |   | **Years ended December 31,** |       |
|----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                                                                             |   | **1999**                     |       | **2000** |   |
| Assets                                                                                                                           |   |                         |       |   |   |
| Current assets                                                                                                                   |   |                         |       |   |   |
| Cash and cash equivalents                                                                                                        |   | $                            | 374,587    |   | $ | 517,353 |   |
| Accounts receivable, net                                                                                                         |   | 1,249,619                    |       | 561,239 |   |
| Inventory                                                                                                                        |   | 234,579                      |       | 89,996 |   |
| Deposits                                                                                                                         |   | 198,523                      |       | 166,092 |   |
| Prepaid and other assets                                                                                                         |   | 238,274                      |       | 291,652 |   |
| Notes receivable from  officers (Note 8)                                                                                         |   | 117,906                      |       | - |   |
|                                                                                                                             |   |                         |       |   |   |
| Total current assets                                                                                                             |   | 2,413,488                    |       | 1,626,332 |   |
|                                                                                                                             |   |                         |       |   |   |
| Property, equipment and  leasehold improvements (Notes 1 and 2)                                                                  |   | 23,720,804                   |       | 6,185,424 |   |
| Less:  Accumulated depreciation and amortization                                                                            |   | (5,176,244                   | )          | (5,346,133 | ) |
|                                                                                                                             |   |                         |       |   |   |
| Property, equipment and  leasehold improvements, net                                                                             |   | 18,544,560                   |       | 839,291 |   |
|                                                                                                                             |   |                         |       |   |   |
| Direct acquisition costs  (Note 9)                                                                                               |   | 597,328                      |       | 100,000 |   |
| Deferred financing costs,  net of  amortization of $80,813 (Note  2)                                                        |   | 927,190                      |       | - |   |
|                                                                                                                             |   |                         |       |   |   |
|                                                                                                                             |   | $                            | 22,482,566 |   | $ | 2,565,623 |   |
|                                                                                                                             |   |                         |       |   |   |
| Liabilities and  Stockholders’ Equity (Deficit)                                                                             |   |                         |       |   |   |
|                                                                                                                             |   |                         |       |   |   |
| Current liabilities                                                                                                              |   |                         |       |   |   |
|                                                                                                                             |   |                         |       |   |   |
| Working capital line (Note  3)                                                                                                   |   | $                            | 459,146    |   | $ | - |   |
| Accounts payable and accrued  expenses                                                                                           |   | 1,444,878                    |       | 1,625,040 |   |
| Accrued payroll and other  liabilities                                                                                           |   | 3,937,951                    |       | 1,316,329 |   |
| Convertible debentures (Note  4)                                                                                                 |   | -                            |       | 700,000 |   |
| Current maturities of  long-term debt (Notes 2 and 3)                                                                            |   | 15,398,282                   |       | 600,000 |   |
|                                                                                                                             |   |                         |       |   |   |
| Total current liabilities                                                                                                        |   | 21,240,257                   |       | 4,241,369 |   |
| Long-term debt, less current  maturities (Notes 2 and 3)                                                                         |   | 30,773                       |       | 551,798 |   |
|                                                                                                                             |   |                         |       |   |   |
| Total liabilities                                                                                                                |   | 21,271,030                   |       | 4,793,167 |   |
|                                                                                                                             |   |                         |       |   |   |
| Commitments and  contingencies (Note 5)                                                                                          |   |                         |       |   |   |
|                                                                                                                             |   |                         |       |   |   |
| Stockholders’ equity  (deficit) (Notes 2 and 6)                                                                             |   |                         |       |   |   |
| Preferred stock, par value  $.01 per share, 10,000,000 shares authorized; none issued and outstanding                            |   | -                            |       | - |   |
| Common stock; par value  $0.01 per share; authorized 100,000,000 shares; 7,226,808 and 11,307,930  shares issued and outstanding |   | 72,268                       |       | 113,079 |   |
| Additional paid-in capital                                                                                                       |   | 11,430,336                   |       | 12,652,111 |   |
| Accumulated deficit                                                                                                              |   | (10,291,068                  | )          | (14,992,734 | ) |
|                                                                                                                             |   |                         |       |   |   |
| Total stockholders’ equity  (deficit)                                                                                       |   | 1,211,536                    |       | (2,227,544 | ) |
|                                                                                                                             |   |                         |       |   |   |
|                                                                                                                             |   | $                            | 22,482,566 |   | $ | 2,565,623 |   |

 

See accompanying summary ofaccounting policies and notes to

consolidated financial statements.

 

ON STAGE ENTERTAINMENT, INC. ANDSUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 
|                                                              |   | **Years Ended December 31,** |       |
|-------------------------------------------------------------------|--------|------------------------------|------------|
|                                                              |   | **1999**                     |       | **2000** |   |
| Net revenues                                                      |   | $                            | 28,548,642 |   | $ | 24,137,441 |   |
| Cost of revenues                                                  |   | 22,176,869                   |       | 20,593,397 |   |
|                                                              |   |                         |       |   |   |
| Gross profit                                                      |   | 6,371,773                    |       | 3,544,044 |   |
|                                                              |   |                         |       |   |   |
| Operating expenses                                                |   |                         |       |   |   |
| Selling, general and  administrative                              |   | 4,351,801                    |       | 4,155,991 |   |
| Depreciation and  amortization                                    |   | 1,244,148                    |       | 1,076,504 |   |
| Expenses at closed locations  (Note 9)                            |   | 426,954                      |       | 608,878 |   |
|                                                              |   |                         |       |   |   |
| Total operating expenses                                          |   | 6,022,903                    |       | 5,841,373 |   |
|                                                              |   |                         |       |   |   |
| Operating income (loss)                                           |   | 348,870                      |       | (2,297,329 | ) |
| Other income                                                      |   | (440,418                     | )          | (333,657 | ) |
| Loss on disposal of assets  (Note 10)                             |   | -                            |       | 1,575,628 |   |
| Interest expense, net (Notes  3 and 4)                            |   | 2,879,627                    |       | 1,212,097 |   |
|                                                              |   |                         |       |   |   |
| Loss before income taxes and  extraordinary item                  |   | (2,090,339                   | )          | (4,751,397 | ) |
| Income taxes (Note 11)                                            |   | -                            |       | 91,391 |   |
|                                                              |   |                         |       |   |   |
| Loss before extraordinary  item                                   |   | (2,090,339                   | )          | (4,842,788 | ) |
| Extraordinary item - trouble  debt restructure gain, net (Note 2) |   | -                            |       | 141,122 |   |
|                                                              |   |                         |       |   |   |
| Net loss                                                          |   | $                            | (2,090,339 | ) | $ | (4,701,666 | ) |
|                                                              |   |                         |       |   |   |
| Basic and diluted loss per  share from continuing operations      |   | $                            | (.29       | ) | $ | (.58 | ) |
|                                                              |   |                         |       |   |   |
| Basic and diluted income per  share from extraordinary item       |   | $                            | -          |   | $ | .01 |   |
|                                                              |   |                         |       |   |   |
| Basic and diluted loss per  share                                 |   | $                            | (.29       | ) | $ | (.57 | ) |
|                                                              |   |                         |       |   |   |
| Basic and diluted average  number of common shares outstanding    |   | 7,293,815                    |       | 8,298,336 |   |

 

See accompanying summary ofaccounting policies and notes to

consolidated financial statements.

 

ON STAGE ENTERTAINMENT, INC. ANDSUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’EQUITY (DEFICIT)

 

 

 
|                                                                                        |   |             |   |       |    |        |   | **Accumulated**   |   |
|---------------------------------------------------------------------------------------------|--------|------------------|--------|------------|---------|-------------|--------|-------------------|--------|
|                                                                                        |   | **Common Stock** |   |       |    | **Other**   |   |
|                                                                                        |   |             |   |       |    |        |   | **Comprehensive** |   |
|                                                                                        |   | **Shares**       |   | **Amount** |    | **Capital** |   | **Income**        |   |
|                                                                                        |   |             |   |       |    |        |   |              |   |
| Balance, December 31, 1998                                                                  |   | 7,452,350        |   | $          | 74,523  |        | $      | 11,254,587        |   | $ | 67,289 |   |
|                                                                                        |   |             |   |       |    |        |   |              |   |
| Issuance of common stock in  connection with Whale Securities Co.                           |   | 150,000          |   | 1,500      |    | 98,550      |   | -                 |   |
| Issuance of common stock in  connection with litigation settlement                          |   | 8,471            |   | 85         |    | 8,915       |   | -                 |   |
| Issuance of common stock in  connection with Hawaii settlement                              |   | 250,000          |   | 2,500      |    | 107,000     |   | -                 |   |
| Cancellation of shares in  connection with Interactive Events                               |   | (30,304          | )      | (303       | )       | (29,817     | )      | -                 |   |
| Cancellation of shares in  connection with Gedco Acquisition                                |   | (595,238         | )      | (5,952     | )       | -           |   | -                 |   |
| Cancellation of shares in  connection with litigation settlement                            |   | (8,471           | )      | (85        | )       | (8,889      | )      | -                 |   |
| Comprehensive loss:                                                                         |   |             |   |       |    |        |   |              |   |
| Net loss for the year                                                                       |   | -                |   | -          |    | -           |   | -                 |   |
| Currency exchange adjustment                                                                |   | -                |   | -          |    | -           |   | (67,289           | )      |
| Comprehensive loss                                                                          |   | -                |   | -          |    | -           |   | -                 |   |
|                                                                                        |   |             |   |       |    |        |   |              |   |
| Balance, December 31, 1999                                                                  |   | 7,226,808        |   | $          | 72,268  |        | $      | 11,430,336        |   | - |   |
|                                                                                        |   |             |   |       |    |        |   |              |   |
| Issuance of common stock in  connection with Debt Restructuring with ICCMIC (Notes 2 and 6) |   | 4,061,122        |   | 40,611     |    | 1,177,725   |   | -                 |   |
| Issuance of common stock in  connection with services rendered                              |   | 20,000           |   | 200        |    | 6,050       |   | -                 |   |
| Beneficial conversion  feature (Note 4)                                                     |   | -                |   | -          |    | 38,000      |   | -                 |   |
| Net loss for the year                                                                       |   | -                |   | -          |    | -           |   | -                 |   |
|                                                                                        |   |             |   |       |    |        |   |              |   |
| Balance, December 31, 2000                                                                  |   | 11,307,930       |   | $          | 113,079 |        | $      | 12,652,111        |   | $ | - |   |

 

See accompanying summary of accounting policies and notes to consolidated

financial statements.

 

 

ON STAGE ENTERTAINMENT, INC. ANDSUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) - Continued

 
|                                                                                        |   | **Accumulated** |        | **Comprehensive** |       |       |       |
|---------------------------------------------------------------------------------------------|--------|-----------------|-------------|-------------------|------------|------------|------------|
|                                                                                        |   | **Deficit**     |        | **Loss**          |       | **Total**  |       |
|                                                                                        |   |            |        |              |       |       |       |
| Balance, December 31, 1998                                                                  |   | $               | (8,200,729  | )                 | $          | -          |       | $ | 3,195,670 |   |
|                                                                                        |   |            |        |              |       |       |       |
| Issuance of common stock in  connection with Whale Securities Co.                           |   | -               |        | -                 |       | 100,050    |       |
| Issuance of common stock in  connection with litigation settlement                          |   | -               |        | -                 |       | 9,000      |       |
| Issuance of common stock in  connection with Hawaii settlement                              |   | -               |        | -                 |       | 109,050    |       |
| Cancellation of shares in  connection with Interactive Events                               |   | -               |        | -                 |       | (30,120    | )          |
| Cancellation of shares in  connection with Gedco Acquisition                                |   | -               |        | -                 |       | (5,952     | )          |
| Cancellation of shares in  connection with litigation settlement                            |   | -               |        | -                 |       | (8,984     | )          |
| Comprehensive loss:                                                                         |   |            |        |              |       |       |       |
| Net loss for the year                                                                       |   | (2,090,339      | )           | (2,090,339        | )          | (2,090,339 | )          |
| Currency exchange adjustment                                                                |   | -               |        | (67,289           | )          | (67,289    | )          |
| Comprehensive loss                                                                          |   | -               |        | -                 |       | -          |       |
| Balance, December 31, 1999                                                                  |   | $               | (10,291,068 | )                 | $          | (2,157,628 | )          | $ | 1,211,536 |   |
|                                                                                        |   |            |        |              |       |       |       |
| Issuance of common stock in  connection with Debt Restructuring with ICCMIC (Notes 2 and 6) |   | -               |        | -                 |       | 1,218,336  |       |
| Issuance of common stock in  connection with services rendered                              |   | -               |        | -                 |       | 6,250      |       |
| Beneficial conversion  feature (Note 4)                                                     |   | -               |        | -                 |       | 38,000     |       |
| Net loss for the year                                                                       |   | (4,701,666      | )           | $                 | (4,701,666 | )          | (4,701,666 | ) |
| Balance, December 31, 2000                                                                  |   | $               | (14,992,734 | )                 |       |       | $          | (2,227,544 | ) |

 

 

See accompanying summary ofaccounting policies and notes to consolidated

financial statements.

 

**ON STAGEENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

Increase (Decrease) in Cash and CashEquivalents

 
|                                                                                       |   | **Years ended December 31,** |       |
|--------------------------------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                                       |   | **1999**                     |       | **2000** |   |
| Cash flows from operating  activities                                                      |   |                         |       |   |   |
| Net loss                                                                                   |   | $                            | (2,090,339 | ) | $ | (4,701,666 | ) |
| Adjustments to reconcile net  loss to net cash provided by (used in) operating activities: |   |                         |       |   |   |
| Common stock issued for  services                                                          |   | -                            |       | 6,250 |   |
| Beneficial conversion                                                                      |   | -                            |       | 38,000 |   |
| Depreciation and  amortization                                                             |   | 893,318                      |       | 1,076,504 |   |
| Write off of direct  acquisition costs                                                     |   | -                            |       | 597,328 |   |
| Extraordinary gain on debt  restructure                                                    |   | -                            |       | (141,122 | ) |
| Loss on disposal of  property, plant and equipment                                         |   | (63,056                      | )          | 1,575,628 |   |
| Increase (decrease) from  changes in operating assets and liabilities:                     |   |                         |       |   |   |
| Accounts receivable                                                                        |   | 3,594                        |       | 688,380 |   |
| Inventory                                                                                  |   | 8,834                        |       | 144,583 |   |
| Deposits                                                                                   |   | (76,180                      | )          | 32,431 |   |
| Prepaid and other assets                                                                   |   | 356,503                      |       | (53,378 | ) |
| Accounts payable and accrued  expenses                                                     |   | (1,088,370                   | )          | 180,162 |   |
| Accrued payroll and other  liabilities                                                     |   | 2,046,027                    |       | 693,451 |   |
|                                                                                       |   |                         |       |   |   |
| Total adjustments                                                                          |   | 2,080,670                    |       | 4,838,217 |   |
|                                                                                       |   |                         |       |   |   |
| Net cash provided by (used  in) operating activities                                       |   | (9,669                       | )          | 136,551 |   |
|                                                                                       |   |                         |       |   |   |
| Cash flows from investing  activities                                                      |   |                         |       |   |   |
| Proceeds from sale of assets                                                               |   | -                            |       | 2,000,000 |   |
| (Advances on) proceeds  received on notes receivable from officers                         |   | (40,576                      | )          | 117,906 |   |
| Capital expenditures                                                                       |   | (254,952                     | )          | (125,288 | ) |
| Capital dispositions                                                                       |   | 705,257                      |       | - |   |
| Payment for acquisitions,  net of cash acquired                                            |   | (487,828                     | )          | (100,000 | ) |
|                                                                                       |   |                         |       |   |   |
| Net cash provided by (used  in) investing activities                                       |   | (78,099                      | )          | 1,892,618 |   |
|                                                                                       |   |                         |       |   |   |
| Cash flows from financing  activities:                                                     |   |                         |       |   |   |
| Repayment on long-term  borrowing                                                          |   | (39,657                      | )          | (2,127,257 | ) |
| Repayment on working capital  line                                                         |   | (540,517                     | )          | (459,146 | ) |
| Proceeds received from  convertible debentures                                             |   | -                            |       | 700,000 |   |
| Net proceeds from sale of  common stock and warrants                                       |   | 100,050                      |       | - |   |
| Net cash provided by (used  in) financing activities                                       |   | (480,124                     | )          | (1,886,403 | ) |
|                                                                                       |   |                         |       |   |   |
| Effect of exchange rate  changes on cash and cash equivalents                              |   | (67,289                      | )          | - |   |
|                                                                                       |   |                         |       |   |   |
| Net increase (decrease) in  cash and cash equivalents                                      |   | (635,181                     | )          | 142,766 |   |
| Cash and cash equivalents at  beginning of year                                            |   | 1,009,768                    |       | 374,587 |   |
|                                                                                       |   |                         |       |   |   |
| Cash and cash equivalents at  end of year                                                  |   | $                            | 374,587    |   | $ | 517,353 |   |
|                                                                                       |   |                         |       |   |   |
| Supplemental Disclosure of  Cash Flow Information Cash paid during the year for:           |   |                         |       |   |   |
| Interest                                                                                   |   | $                            | 502,942    |   | $ | 2,020,926 |   |
| Taxes                                                                                      |   | $                            | -          |   | $ | 91,391 |   |

 

SupplementalDisclosure of Non-Cash Investing and Financing Activities

 

OnFebruary 23, 1999, On Stage entered into a Common Stock Purchase Agreement withRichard S.  Kanfer, effectivelyunwinding the November 1996 acquisition of Interactive Events, Inc.  Under the Interactive re-conveyance, OnStage re-conveyed all of the assets of Interactive to Kanfer in considerationfor Kanfer’s re-conveyance of the 30,304 shares of On Stage’s common stockvalued at $1.125 per share, issued to Kanfer during On Stage’s originalacquisition of Interactive, along with the cancellation of a non-plan option topurchase 15,000 shares of common stock and incentive stock options to purchase19,835 shares of common stock at a price of $5.00 per share.  In addition, the parties agreed to releaseone another from any liability arising out of the acquisition of Interactive byOn Stage and any claim relating to Kanfer’s subsequent employment with theCompany.  Kanfer also entered into anexclusive right of representation agreement with the Company in February 1999,under which the Company granted to Kanfer the right to represent its’ Legendsproduction in designated areas in consideration for a portion of the grossproceeds generated by that representation.

 

OnApril 23, 1999, On Stage granted it securities counsel, Nida & Maloney,P.C.  an option to purchase 40,000shares of common stock at a purchase price of $1.00 per share as payment for$38,469 in legal services performed for On Stage by Nida & Maloney, P.C.

 

OnMay 7, 1999, On Stage issued 8,471 shares of common stock valued at $1.06 pershare to Jim Owen, a former performer with On Stage.  These shares were issued in connection with the resolution oflitigation that arose between On Stage and Owen with regard to the right to theuse of certain photographs taken of Owen by On Stage.  On December 8, 1999, the 8,471 shares were returned to theCompany in full settlement of $6,000.

 

OnMay 27, 1999, Hanover Restaurants, Inc. returned 595,238 shares of On Stage common stock originally issued toHanover in connection with the Gedco asset acquisition.  The Hanover shares were returned to On Stageunder the terms of a Mutual Release and Settlement Agreement, which was enteredinto with Gedco as a result of a dispute that arose in connection with Gedcoasset acquisition.  In exchange for thereturn of the Hanover shares, On Stage: (1) granted Hanover a warrant topurchase 595,238 shares of common stock at a purchase price of $1.50; and (2)released its claim to approximately $925,000 which was being held in escrow assecurity for those representations and warranties made by Gedco representativesin connection with Gedco asset acquisition.

 

OnSeptember 14, 1999, 250,000 shares were issued to John Stuart in considerationfor his personal guaranty to fulfil the settlement terms in the HawaiianLitigation.

 

InJune 2000, ICCMIC foreclosed on properties with assets having a net book valueof $13,918,309.  The Company received anaggregate credit of $9.0 million and correspondingly wrote off debt financingcosts of $927,190.

 

OnOctober 12, 2000, 4,061,122 shares were issued to ICCMIC in exchange for itsremaining outstanding debt of $8.2 million.

 

ON STAGE ENTERTAINMENT, INC.  AND SUBSIDIARIES

SUMMARY OF ACCOUNTING POLICIES

 

BUSINESSACTIVITY

 

OnStage Entertainment, Inc.  (the“Company”) produces and sells live entertainment and operates live theaters anddinner theaters worldwide.  The Companyhas continuous running shows in gaming and resort venues in California, Florida,Missouri, Mississippi, Nevada, New Jersey and South Carolina.  The Company was incorporated on October 30,1985 in the state of Nevada.

 

PRINCIPLESOF CONSOLIDATION

 

Thefinancial statements include the amounts of On Stage Entertainment, Inc., apublicly traded Nevada corporation (the “Company” or “OSE”) and itssubsidiaries, Legends in Concert, Inc., a Nevada corporation (“LIC”); On StageMarketing, Inc., a Nevada corporation (“Marketing”); On Stage Theaters, Inc., aNevada corporation (“Theaters”); Wild Bill’s California, Inc., a Nevadacorporation (“Wild Bills”); Fort Liberty, Inc., a Nevada corporation (“Ft.  Liberty”); Blazing Pianos, Inc., a Nevadacorporation (“Blazing”); King Henry’s Inc., a Nevada corporation (“KingHenry’s”); On Stage Merchandise, Inc., a Nevada corporation (“Merchandise”); OnStage Events, Inc., a Nevada corporation (“Events”); On Stage CasinoEntertainment, Inc.  a Nevadacorporation (“Casino”); On Stage Productions, Inc., a Nevada corporation(“Productions”); and On Stage Theaters North Myrtle Beach, Inc., a Nevadacorporation (“North Myrtle”); On Stage Theaters Surfside Beach, Inc., a Nevadacorporation (“Surfside”); (collectively, the “Subsidiaries”).  All significant intercompany transactionsand balances have been eliminated in consolidation.  The consolidated group is referred to collectively andindividually as the “Company.” The results of operations include King Henry’sand Ft.  Liberty through June 21, 2000,the date on which they were closed (see Note 2).

 

ACCOUNTSRECEIVABLE

 

Accountsreceivable and revenue are recorded as the stage productions are run.  Accounts receivable represents cashcollected subsequent to the date on which the show ran.

 

ESTIMATES

 

Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financial statement andthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

INVENTORY

 

Inventoryconsists of various stage and lighting supplies and are stated at cost on afirst-in, first-out basis.

 

PROPERTY,EQUIPMENT AND LEASEHOLD IMPROVEMENTS

 

Propertyand equipment are stated at cost. Expenditures for maintenance and repairs are charged to expense asincurred.  Renewals or betterments ofsignificant items are capitalized.  Whenassets are sold or otherwise disposed, the cost and related accumulateddepreciation or amortization are removed from the respective accounts, and anyresulting gain or loss is recognized.

 

Depreciationand amortization of property and equipment purchased prior to January 1, 1996are provided using accelerated methods while property and equipment purchasedfrom January 1, 1996 are depreciated on a straight line basis over theestimated useful lives, as indicated below. Leasehold improvements are amortized over the lesser of the relatedassets useful life or the remaining lease term.

 
|                   |   | **Years** |   |
|------------------------|--------|-----------|--------|
|                   |   |      |   |
| Buildings              |   | 20-30     |   |
| Stage equipment        |   | 3-7       |   |
| Scenery and wardrobe   |   | 3-7       |   |
| Furniture and fixtures |   | 3-7       |   |
| Vehicles               |   | 3-5       |   |
| Leasehold improvements |   | 5-10      |   |

 

IMPAIRMENT OF LONG-LIVED ASSETS

 

TheCompany follows the guidelines set forth in SFAS No.  121, “Accounting for the Impairment of Long-Lived Assets andLong-Lived Assets to be Disposed Of” (“SFAS 121”) when reviewing its long-livedassets and certain related intangibles for impairment whenever changes incircumstances indicate that the carrying amount of an asset may not be fullyrecoverable.  The measurement ofimpairment losses to be recognized is based on the difference between the fairvalue and the carrying amount of the assets. Impairment would be recognized in operating results if a diminution invalue occurred.

 

STOCKBASED COMPENSATION

 

Statementsof Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No.  123”) establishes a fair value method ofaccounting for stock-based compensation plans and for transactions in which anentity acquires goods or services from non-employees in exchange for equityinstruments.  The Company adopted thisaccounting standard on January 1, 1996. SFAS No.  123 also encourages,but does not require companies to record compensation cost for stock-basedemployee compensation.  The Company haschosen to continue to account for stock-based compensation utilizing theintrinsic value method prescribed in Accounting Principles Board OpinionNo.  25, “Accounting for Stock Issued toEmployees, and comply with pro forma disclosure requirements.” Accordingly,compensation cost for stock options is measured as the excess, if any, of thefair market price of the Company’s stock at the date of grant over the amountan employee must pay to acquire the stock.

 

LOSSPER SHARE

 

Statementof Financial Accounting Standard No. 128 provides a different method of calculating earnings per share thanis currently used in accordance with APB 15, Earnings per Share.  SFAS 128 provides for the calculation ofBasic and Diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividingincome available to common shareholders by the weighted average number of commonshares outstanding for the period. Diluted earnings per share reflects the potential dilution of securitiesthat could share in the earnings of the entity, similar to fully dilutedearnings per share.

 

Forthe years ended December 31, 1999 and 2000, potential diluted securitiesrepresenting 4,885,755 and 5,850,005 outstanding options and warrants are notincluded since their effect would be anti-dilutive.

 

FAIRVALUE OF FINANCIAL INSTRUMENTS

 

Statementof Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Statements”, (“SFASNo.  107”) issued by the FASB becameeffective December 31, 1995.  Thisstatement requires the disclosure of estimated fair values for all financialinstruments for which it is practicable to estimate fair value.

 

Thecarrying amounts of financial instruments including cash, accounts receivable,current maturities of long-term debt, and accounts payable, approximate fairvalue because of their short maturity.

 

Thecarrying amount of long-term debt and convertible debt approximates fair valuebecause the interest rates on these instruments approximate the rate theCompany could borrow at December 31, 2000.

 

INCOMETAXES

 

TheCompany follows Statement of Financial Accounting Standards No.  109 (“SFAS No.  109”), “Accounting for Income Taxes.” SFAS No.  109 requires an asset and liability approachto providing deferred income taxes and specifies that all deferred tax balancesbe determined by using the tax rate expected to be in effect when the taxeswill actually be paid or refunds received.

 

CASHEQUIVALENTS

 

TheCompany considers all liquid assets with an initial maturity of three months orless to be cash and/or cash equivalents.

 

FOREIGNCURRENCY TRANSLATION

 

Assetsand liabilities of the Company’s foreign affiliates are translated at currentexchange rates, while revenue and expenses are translated at average ratesprevailing during the year.  Translationadjustments are reported as a component of other comprehensive income instockholders’ equity.  As indicated inNote 9, the foreign operations were closed during 1999.

 

CONCENTRATIONOF CREDIT RISK

 

TheCompany places its cash and temporary cash investments with bankinginstitutions.  At December 31, 1999, theCompany had $176,000 on deposit at one bank. At December 2000, the Company had $194,600 and $125,300 on deposit attwo different banks.  Account balancesat an individual bank are insured by the Federal Deposit Insurance Corporation(FDIC) up to $100,000.

 

SEGMENTREPORTING

 

Statementof Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and RelatedInformation” (“SFAS No.  131”) issued bythe FASB is effective for financial statements with fiscal years beginningafter December 15, 1997.  Earlierapplication is permitted.  SFAS No.  131 requires that the public companiesreport certain information about operating segments, products, services andgeographical areas in which they operate and their major customers.  The Company adopted SFAS No.  131 on January 1, 1998 and it had no effecton its financial position or results of operations; however, disclosures oncertain of these items was expanded (See Note 13).

 

NEWACCOUNTING STANDARDS

 

InJune 1998, the FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”effective for financial statements with fiscal years beginning after June 15,1999.  SFAS No.  133 provides a comprehensive and consistentstandards for the recognition and measurement of derivatives and hedgingactivities and requires all derivatives to be recorded on the balance sheet atfair value.  The Company does not expectthe adoption of SFAS No.  133 to have amaterial impact, if any, on its results of operations, financial position orcash flows.

 

InDecember 1999, the SEC staff released Staff Accounting Bulletin No.  101, “Revenue Recognition in FinancialStatements” (“SAB 101”).  SAB 101provides interpretive guidance on the recognition, presentation and disclosureof revenue in the financial statements. SAB 101 must be applied to the financial statements no later than thefourth quarter of fiscal years ending after December 15, 2000.  The Company adopted SAB 101 during the yearended December 31, 2000, and it had no impact on the Company’s financialposition or results of operations and cash flows.

 

InMarch 2000, the Financial Accounting Standards Board issued InterpretationNo.  44 (“FIN 44”) Accounting forCertain Transactions Involving Stock Compensation, an Interpretation of APBOpinion No.  25.  FIN 44 clarifies the application of APBNo.  25 for (a) the definition ofemployee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as anon-compensatory plan, (c) the accounting consequences of various modificationsto the terms of a previously fixed stock option or award, and (d) theaccounting for an exchange of stock compensation awards in a businesscombination.  FIN 44 is effective July2, 2000, but certain conclusions cover specific events that occur after eitherDecember 15, 1998, or January 12, 2000. During the year ended December 31, 2000, the Company adopted FIN 44 inaccounting for stock options.

 

RECLASSIFICATIONS

 

Certain1999 amounts have been reclassified to conform to the 2000 presentation.

 

 

NOTE 1 - PROPERTY, EQUIPMENT ANDLEASEHOLD IMPROVEMENTS

 

Property,equipment and leasehold improvements consist of the following:

 
|                                                       |   | **December 31,** |       |
|------------------------------------------------------------|--------|------------------|------------|
|                                                       |   |             |       |   |   |
|                                                       |   | **1999**         |       | **2000** |   |
|                                                       |   |             |       |   |   |
| Land                                                       |   | $                | 11,878,594 |   | $ | - |   |
| Buildings                                                  |   | 4,335,632        |       | - |   |
| Stage equipment                                            |   | 3,737,433        |       | 3,127,015 |   |
| Scenery and wardrobe                                       |   | 1,469,733        |       | 1,332,121 |   |
| Furniture and fixtures                                     |   | 938,582          |       | 830,808 |   |
| Vehicles                                                   |   | 14,557           |       | 8,234 |   |
| Leasehold improvements                                     |   | 1,346,273        |       | 887,246 |   |
|                                                       |   |             |       |   |   |
|                                                       |   |             |       |   |   |
|                                                       |   | 23,720,804       |       | 6,185,424 |   |
| Less accumulated  depreciation and amortization            |   | (5,176,244       | )          | (5,346,133 | ) |
|                                                       |   |             |       |   |   |
| Total property, equipment  and leasehold improvements, net |   | $                | 18,544,560 |   | $ | 839,291 |   |
|                                                       |   |             |       |   |   |

 

NOTE2 - DEBT RESTRUCTURE

 

As of October 7, 1998, the Company had borrowed anaggregate of $14,150,000 from Imperial Credit Commercial Mortgage InvestmentCorp. ("Mortgage Lender").  OnMay 24, 1999 the Company received notice of default from its MortgageLender.  On November 5, 1999, theCompany received a formal demand from its Mortgage Lender to pay them the sumof $16,163,305 as a guarantor under the loan, which represented all of theindebtedness, including late charges and default interest, due the MortgageLender as of that date.  On November 12,1999, the Mortgage Lender filed a complaint against the Company in the DistrictCourt for Clark County, Nevada, alleging, among other things, that the Companybreached the guaranty.  On December 10,1999, the Company agreed to allow the Mortgage Lender to obtain a judgmentagainst the Company for the amount of the guaranty, in return for a forbearanceon the collection of this judgment until March 31, 2000.  The Mortgage Lender extended the date forcollection on this judgment until May 1, 2000.

 

OnDecember 9, 1999, the Mortgage Lender obtained judgment of foreclosure againstthe subsidiaries, Fort Liberty, Inc. and King Henry's, Inc., for the sale ofthe Fort Liberty Shopping Complex and Wild Bill's Dinner Theater in Kissimmee,Florida and The King Henry's Feast in Orlando, Florida.

 

OnJanuary 5, 2000, the Mortgage Lender obtained a foreclosure decree for thejudicial sale of the Legends in Concert Family Theater in Surfside Beach, SouthCarolina.

 

Duringthe period, the Company continued to attempt to renegotiate the terms of thecredit facilities, to obtain extensions of the terms of those facilities and toseek alternative additional financing.

 

OnJanuary 24, 2000, the Company reached an agreement with its Mortgage Lender toextend the foreclosure sale date on the King Henry's Feast Theater in Orlando,Florida from January 26, 2000 until March 8, 2000. On March 7, 2000, theCompany reached an agreement with its Mortgage Lender to extend the foreclosuresale date on the King Henry's Feast Theater from March 7, 2000 until April 5,2000. On March 30, 2000, the Company reached an agreement with its MortgageLender to extend the foreclosure sale date on the King Henry's Feast Theaterfrom April 4, 2000 until May 3, 2000.

 

OnJanuary 25, 2000, the Company reached an agreement with its Mortgage Lender toextend the foreclosure sale date on the Fort Liberty Shopping Complex/WildBill's Dinner Theater Extravaganza in Kissimmee, Florida from January 25, 2000until March 7, 2000. On March 7, 2000, the Company reached an agreement withits Mortgage Lender to extend the foreclosure sale date on the Fort Libertyproperty from March 7, 2000 until April 4, 2000. On March 30, 2000, the Companyreached an agreement with its Mortgage Lender to extend the foreclosure saledate on the Fort Liberty property from April 4, 2000 until May 2, 2000.

 

OnFebruary 1, 2000, the Company reached an agreement with its Mortgage Lender toextend the foreclosure sale date on the Legends Family Theater in SurfsideBeach, South Carolina from February 7, 2000 until March 6, 2000. On March 3,2000, the Company reached an agreement with its Mortgage Lender to extend theforeclosure sale date on the Legends Family Theater from March 6, 2000 untilApril 3, 2000.  On March 30, 2000, theCompany reached an agreement with its Mortgage Lender to extend the foreclosuresale date on the Legends Family Theater from April 3, 2000 until May 2000.

 

OnMay 1, 2000, the Company entered into a partial settlement with its MortgageLender, pursuant to which the Company agreed not to take measures to preventits Mortgage Lender from foreclosing upon the Fort Liberty, King Henry’s Feastand Legends in Concert Surfside Beach theaters in exchange for an aggregatecredit of $9.0mm for its Fort Liberty ($3.0mm), King Henry’s Feast ($4.0mm) andLegends in Concert Surfside Beach ($2.0mm) theaters.  Additionally, the Company agreed to operate the King Henry’s andFort Liberty Theaters until June 21, 2000, at which time the theaters wereclosed to the public.  In connectionwith the transfer of assets to its Mortgage Lender, the Company incurred atroubled debt restructuring loss of approximately $6,918,309 (of which$6,861,418 had been accrued at March 31, 2000 based on a preliminary estimateand $56,591 was recorded on September 30, 2000 upon completion of the Company’sfinal analysis of the foreclosure) representing the difference between theestimated fair value of the assets transferred and the carrying value of thedebt settled.

 

OnSeptember 15, 2000, the Company was able to sell the assets of the SurfsideBeach Theater independently and used the proceeds to pay off its debt with itsMortgage Lender (see Note 10).

 

OnOctober 12, 2000, the Company restructured its remaining debt with its MortgageLender, and First Security Bank of Nevada (“First Security”).  Under the terms of the agreement itsMortgage Lender agreed to convert its outstanding loan and accrued interest ofapproximately $8.2 million for 4,061,122 shares of common stock with a marketvalue of $1,218,336, which resulted in a trouble debt restructuring gain of$7,059,431.  As part of the transaction,Timothy J. Parrott, the new President and CEO of the Company, purchased2,630,000 shares of common stock, at market value, from the Mortgage Lender for$1.0 million.

 

As aresult of the debt restructuring, the Company recorded a net troubled debtrestructuring gain of $141,122, in the following quarters:

 
| **Quarter ended**  |   | **Gain (Loss)** |       |
|--------------------|--------|-----------------|------------|
|               |   |            |       |
| March 31, 2000     |   | $               | (6,861,719 | ) |
| June 30, 2000      |   | -               |       |
| September 30, 2000 |   | (56,591         | )          |
| December 31, 2000  |   | 7,059,432       |       |
|               |   |            |       |
|               |   | $               | 141,122    |   |

 

 

Furthermore,the Company restructured its remaining debt of approximately $1.2 million withFirst Security.  Under the terms of theagreement with First Security, effective August 1, 2000, the Company is paying$50,000 per month, maturing September 1, 2002. The loan accrues interest at the rate of prime plus 2% (9.5% at December31,

 

 

NOTE3 - NOTES PAYABLE AND LONG-TERM DEBT

 

WORKINGCAPITAL LINE

 

InMay 1997, First Security issued a line of credit to the Company for up to$250,000.  Borrowings under suchfacility bear variable interest at 1.5% over the First Security Bank of Idaho’sindex.  On September 28, 1998, FirstSecurity increased the line of credit from $250,000 to $1,000,000.  As of December 31, 1999, the balanceoutstanding was $459,146, which was repaid during 2000.  This line of credit was personallyguaranteed by an officer of the Company.

 

InAugust 2000, as part of the restructuring, the Company entered into a newagreement with First Security, which converted the remaining capital leaseobligations into a note due on September 1, 2002.  On Stage is required to make $50,000 monthly payments whichincrease upon meeting certain income criteria.

 

Long-termdebt consists of the following:

 
|                                                                                                                                                                                                                                             |   | **December 31,** |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|------------|
|                                                                                                                                                                                                                                             |   | **1999**         |       | **2000** |   |
|                                                                                                                                                                                                                                             |   |             |       |   |   |
| ICCMIC Mortgage Loan (see Note  2)                                                                                                                                                                                                               |   | $                | 14,150,000 |   | $ | - |   |
|                                                                                                                                                                                                                                             |   |             |       |   |   |
| Capital lease obligations  with interest ranging from 9.7% to 30.7% due in monthly installments ranging  from $265 to $18,202, including interest various maturities dates, secured by  office communication equipment, and production equipment |   | 1,279,055        |       | - |   |
|                                                                                                                                                                                                                                             |   |             |       |   |   |
| First Security Bank debt  with a interest rate of Prime plus 2% (9.5% at December 31, 2000) due in  monthly installments of approximately $50,000 maturing September 1, 2002  secured by first lien position                                     |   | -                |       | 1,151,798 |   |
|                                                                                                                                                                                                                                             |   |             |       |   |   |
| Total long-term debt                                                                                                                                                                                                                             |   | 15,429,055       |       | 1,151,798 |   |
|                                                                                                                                                                                                                                             |   |             |       |   |   |
| Less current maturities                                                                                                                                                                                                                          |   | 15,398,282       |       | 600,000 |   |
|                                                                                                                                                                                                                                             |   |             |       |   |   |
|                                                                                                                                                                                                                                             |   | $                | 30,773     |   | $ | 551,798 |   |
|                                                                                                                                                                                                                                             |   |             |       |   |   |

 

As ofDecember 31, 2000 the future minimum principal debt payments are as follows:

 

 
|                          |   | **Notes**   |      |
|-------------------------------|--------|-------------|-----------|
| **Year ending  December 31,** |   | **Payable** |      |
| 2001                          |   | $           | 600,000   |   |
| 2002                          |   | 551,798     |      |
| Total                         |   | $           | 1,151,798 |   |

 

 

NOTE4 - CONVERTIBLE DEBENTURES

 

InDecember 2000, On Stage completed a $700,000 private placement in the form ofconvertible debentures with a 10% stated interest rate and $0.79 conversionprice, which mature on various dates in November and December 2001.  These funds were used for a combination ofworking capital requirements and expenses associated with On Stage’srestructuring completed in October 2000. The market price of the stock in relation to the conversion price ofthese convertible debentures created a beneficial conversion amount of $38,000,which was booked as interest expense for the year ended December 31, 2000.

 

NOTE5 - COMMITMENTS AND CONTINGENCIES

 

Leases

 

TheCompany leases various offices, condominiums, warehouses and theaters underoperating leases ranging in monthly payments from $1,026 to $37,495.  Rent and lease expense included in cost ofrevenues for the years ended December 31, 1999 and 2000 was $1,248,961 and$1,129,267, respectively.  Rent andlease expense included in selling, general and administrative expense for theyears ended December 31, 1999 and 2000 was $268,870 and $216,827, respectively.

 

Thetotal minimum rental commitment at December 31, 2000 is as follows:

 
| **Year ending December 31,** |   | **Amount** |       |
|------------------------------|--------|------------|------------|
| 2001                         |   | $          | 1,930,844  |   |
| 2002                         |   | 1,747,087  |       |
| 2003                         |   | 1,787,785  |       |
| 2004                         |   | 1,430,078  |       |
| 2005 and Thereafter          |   | 7,436,894  |       |
|                         |   | $          | 14,332,688 |   |

 

 

Employment Contracts

 

OnOctober 12, 2000, the Company renewed the employment agreement with theprincipal stockholder, John W.  Stuart,to employ him as its Chairman of Board and Founder until October 12, 2003.  In accordance with this employmentagreement, Mr.  Stuart will receive anannual salary of $350,000 and will be eligible to participate each calendaryear in executive annual bonus plan approved by the Board.  In no event will the executive annual bonusbe less than $150,000.

 

OnOctober 12, 2000, the Company entered into an agreement with the principalstockholder, Timothy J.  Parrott, toemploy him as its President and Chief Executive Officer until October 12,2003.  In accordance with thisemployment agreement, Mr.  Parrott willreceive an annual salary of $1.00 per the period of the date of this agreementthrough December 31, 2000, and $120,000 for the period January 1, 2001 throughDecember 31, 2001, and an annual salary to be determined by the compensationcommittee of the Board for the period of January 1, 2002 through December 31, 2002.  Additionally, Mr.  Parrott was granted 750,000 options to purchase the Company’scommon stock at a strike price of $.50 as further consideration for hisemployment.

 

 

Aggregatecommitments related to employment contracts are as follows:

 
| **Year ending  December 31,** |   | **Amount** |    |
|-------------------------------|--------|------------|---------|
| 2001                          |   | $          | 620,000 |   |
| 2002                          |   | 500,000    |    |
| 2003                          |   | 500,000    |    |
|                               |        |            |         |  |

 

 

LegalProceedings

 

TheCompany is a party to various legal proceeding in the ordinary course of itsbusiness.  The Company believes that thenature of the proceedings are typical for a company of its size and scope inthe entertainment industry, and that none of these proceedings are material toits financial position, results of operations and changes in cash flows.

 

NOTE6 - STOCKHOLDER’S EQUITY

 

OnMay 27, 1999, Hanover Restaurants, Inc. returned 595,238 shares of On Stage common stock originally issued toHanover in connection with the Gedco asset acquisition in 1998.  The Hanover Shares were returned to On Stageunder the terms of a Mutual Release and Settlement Agreement, which was enteredwith Gedco as a result of a dispute that arose in connection with the Gedcoasset acquisition.  In exchange for thereturn of the Hanover shares, On Stage: (1) granted Hanover a warrant topurchase 595,238 shares of common stock at a purchase price of $1.50 (the fairmarket value at date of grant); and (2) released its claim to approximately$925,000 which was being held in escrow as security for those representationsand warranties made by Gedco representatives in connection with the Gedco assetacquisition.

 

OnOctober 30, 2000, the Company issued 20,000 shares of common stock inconnection with services rendered.  Thefair market value at date of issuance was $.3125 per share.

 

1996Stock Option Plan

 

TheBoard of Directors and the Company’s then sole stockholder approved theCompany’s Incentive Stock Option Plan on August 7, 1996 (the “OptionPlan”).  Pursuant to an amendment to theOption Plan, effected in 2000, an aggregate of 1,650,000 shares of common stockhave been reserved for issuance pursuant to options granted and available forgrant under the Option Plan.  The OptionPlan is designed to further the interests of the Company by incentivizing theiremployees to continue to work for the betterment of the Company in return forsharing in the success of the Company through the Option Plan.

 

Underthe Option Plan, a committee (the “Committee”) has been appointed by the Boardof Directors to administer the Option Plan and is authorized, to grant optionsthereunder to all eligible employees of the Company, including certain officersand directors of the Company as well as to others providing services to theCompany.  The Option Plan provides forthe granting of both: (I) “incentive stock options” as defined in Section 422of the Internal Revenue Code of 1986, as amended, which are intended to qualifyfor special federal income tax treatment (“ISOs”) to employees (includingofficers and employee directors) and (ii) “non-qualified stock options”(“NQSOs”) to employees (including officers and employee directors) non-employeedirectors, and consultants.  Options canbe granted under the Option Plan on such terms and at such prices as determinedby the Committee, except that in the case of ISOs, the per share exercise priceof such options cannot be less than the fair market value of the Common Stockon the date of grant.  In the case of anISO granted to a 10% stockholder (a “10% Stockholder”), the per share exerciseprice cannot be less than 110% of such fair market value.  To the extent that the grant of an optionresults in the aggregate fair market value of the shares with respect to whichincentive stock options are exercisable by a grantee for the first time in anycalendar year exceed $100,000, such option will be treated under the Option Planas an NQSO.

 

Optionsgranted under the Option Plan will become exercisable after successfulcompletion of the vesting period or periods specified in each optionagreement.  Except as otherwisedetermined by the Committee, options become exercisable as to one-third of theshares subject to the option on each of the first, second and thirdanniversaries of the date of grant of the option.  Options are not exercisable, however, after the expiration of tenyears from the date of grant (or five years from such date in the case of anISO granted to a 10% Stockholder) and are not transferable other than by willor by the laws of descent and distribution.

 

Exceptas the Committee may determine with respect to NQSOs, if the holder of anoption granted under the Option Plan ceases to be an employee, options grantedto such holder shall terminate three months (12 months if the termination is aresult of the death or disability of the employee) from the date of terminationof employment and shall be exercisable as to only those options exercisable asof the date of termination.

 

InMarch 1996, the Company hired a new President and Chief Operating Officer (the“President”).  As part of the newPresident’s employment agreement, the Company granted him options to purchase311,300 shares of the Company’s common stock. The President has elected to classify 75,132 of the options as ISOswhich vest in three equal annual installments commencing on the date of thegrant.  The remaining 236,168 are to beclassified as NQSOs, of which one-half vest immediately, one-quarter vest onthe first anniversary of the grant date, and the balance vest on the secondanniversary of such grant.  The exerciseprice of all of the President’s stock options is $3.99 per share, which was thefair value at the date of grant.

 

InAugust and December 1996, the Company granted options to purchase a total of120,359 shares of the Company’s common stock to certain other employees of theCompany.  These options were grantedunder the Company’s 1996 Stock Option Plan and have an exercise price of $5.00per share.  Unless otherwise determinedby the Committee, the options have a term of ten years from the date of grantand are subject to earlier termination in certain events related to thetermination of employment.  The optionsvest in three equal annual installments commencing on the first anniversary ofthe date of the grant.

 

InApril 1999, the CFO was granted 40,000 new stock options with an exercise priceof $1.50 in exchange for his old options, which had an exercise price of$5.00.  The options are treated asvariable options but have no impact as the market value has not been greaterthan $1.50.

 

InOctober 2000, the CEO was granted 750,000 options at $.50 per share and the COOwas granted 200,000 options at $.50 per share.

 

Non-employeeDirectors’ Options

 

InMarch 1997, the Company provided for each non-employee director of the Companyto receive, in addition to reimbursement of expenses incurred in attendingBoard meetings, an option to purchase 10,000 shares of Common Stock each yearthat he or she serves as such a director (each such year, a “Grant Year”),partially contingent upon the director’s attendance at the Company’s fourscheduled Board of Director meetings during the Grant Year.  One-quarter of the annual option grant shallvest as of each of the Grant Year’s first three scheduled Board of Directormeetings and the remainder of such option will vest as of the fourth scheduledmeeting, provided, in the latter case, that the director has attended all fourof that Grant Year’s scheduled Board meetings.

 

In1999, the Company issued warrants to purchase 300,000 shares of common stock ata price of $1.00 per share to John Stuart.

 

InJune 2000, a director was granted 15,000 options at $5.00 per share.

 

Theoption and warrant activity during the years ended December 31, 1999 and 2000is as follows:

 
|                                                   |   |            |   | **Weighted** |   |
|--------------------------------------------------------|--------|-----------------|--------|--------------|--------|
|                                                   |   | **Number of**   |   | **Average**  |   |
|                                                   |   | **Options and** |   | **Exercise** |   |
|                                                   |   | **Warrants**    |   | **Price**    |   |
|                                                   |   |            |   |         |   |
| Options and warrants  outstanding at December 31, 1998 |   | 3,621,261       |   | $            | 3.90   |   |
|                                                   |   |            |   |         |   |
| Granted                                                |   | 1,431,488       |   | 1.31         |   |
| Canceled                                               |   | (166,994        | )      | (2.07        | )      |
|                                                   |   |            |   |         |   |
| Options and warrants  outstanding at December 31, 1999 |   | 4,885,755       |   | 3.14         |   |
|                                                   |   |            |   |         |   |
| Granted                                                |   | 965,000         |   | .57          |   |
| Canceled                                               |   | (750            | )      | (5.00        | )      |
|                                                   |   |            |   |         |   |
|                                                   |   |            |   |         |   |
| Options and warrants  outstanding at December 31, 2000 |   | 5,850,005       |   | $            | 2.69   |   |
| Options and warrants  exercisable at December 31, 2000 |   | 4,874,505       |   | $            | 3.19   |   |

 

Information  relating to stock  options  and warrants  at  December 31,  2000 summarized by exerciseprice are as follows:

 

 
| **Exercise**  |   | **Outstanding**     |   | **Exercisable**      |   |
|---------------|--------|---------------------|--------|----------------------|--------|
| **Price**     |   | **Weighed Average** |   | **Weighted Average** |   |
|          |   |                |   |                 |   |   |   |   |   |   |   |
| **Per Share** |   | **Shares**          |   | **Life (Year)**      |   | **Exercise Price** |   | **Shares** |   | **Exercise Price** |   |
|          |   |                |   |                 |   |   |   |   |   |   |   |
| 0.50          |   | 950,000             |   | 5.6                  |   | $ | 0.50 |   | - |   | $ | - |   |
| 1.00          |   | 602,500             |   | 5.0                  |   | 1.00 |   | 602,500 |   | 1.00 |   |
| 1.25          |   | 325,000             |   | 2.2                  |   | 1.25 |   | 325,000 |   | 1.25 |   |
| 1.50          |   | 1,335,788           |   | 5.0                  |   | 1.50 |   | 1,335,788 |   | 1.50 |   |
| 4.38          |   | 75,000              |   | 7.5                  |   | 4.38 |   | 50,000 |   | 4.38 |   |
| 4.44          |   | 250,000             |   | 2.2                  |   | 4.44 |   | 250,000 |   | 4.44 |   |
| 5.00          |   | 234,717             |   | 5.5                  |   | 5.00 |   | 234,217 |   | 5.00 |   |
| 5.50          |   | 1,822,500           |   | 1.6                  |   | 5.50 |   | 1,822,500 |   | 5.50 |   |
| 8.25          |   | 114,500             |   | 1.7                  |   | 8.25 |   | 114,500 |   | 8.25 |   |
| 9.08          |   | 140,000             |   | 1.7                  |   | 9.08 |   | 140,000 |   | 9.08 |   |
| Total         |   | 5,850,005           |   | 2.8                  |   | $ | 2.69 |   | 4,874,505 |   | $ | 3.19 |   |

 

 

 

Allstock options issued to employees have an exercise price not less than the fairmarket value of the Company’s common stock on the date of grant, and inaccordance with accounting for such options utilizing the intrinsic valuemethod there is no related compensation expense recorded in the Company’sfinancial statements.  Had compensationcost for stock-based compensation been determined based on the fair value atthe grant dates consistent with the method of SFAS 123, the Company’s net lossand loss per share for the years ended December 31, 1999 and 2000 would havebeen reduced to the pro forma amounts presented below:

 
|                              |   | **1999** |       | **2000** |       |
|-----------------------------------|--------|----------|------------|----------|------------|
|                              |   |     |       |     |       |
| Net loss                          |   |     |       |     |       |
| As reported                       |   | $        | (2,090,339 | )        | (4,701,666 | ) |
| Pro forma                         |   | $        | (2,530,546 | )        | (4,766,281 | ) |
| Basic and diluted loss per  share |   |     |       |     |       |
| As reported                       |   | $        | (.29       | )        | (.57       | ) |
| Pro forma                         |   | $        | (.35       | )        | (.57       | ) |

 

 

Thefair value of option grants is estimated on the date of grants utilizing theBlack-Scholes option-pricing model.  Thefair value was calculated in 1999 using the following assumptions: expected lifeof 10 years, expected volatility of 16.34%, risk-free interest rates of 6%, anda 0% dividend yield.  The fair value in2000 was calculated using the following assumptions: expected life of 4 years,expected volatility of 28.23%, risk-free interest rates of 4.7% to 6.0%, and a0% dividend yield.  The weighted averagefair value at date of grant for options granted during 1999 and 2000approximated $0.69 and $.03 per option, respectively.

 

NOTE7 - SIGNIFICANT VENUES AND CONCENTRATION OF CREDIT RISK

 

Revenuesfrom certain venues comprised 10% or more of total revenues.  The following table shows the percentage ofrevenues of these venues to total revenues.

 
| **Years ended December 31,** |   |     |   |     |   |
|------------------------------|--------|----------|--------|----------|--------|
|                         |   | **1999** |   | **2000** |   |
|                         |   |     |   |     |   |
| Venue A                      |   | 13       | %      | 14       | %      |
| Venue B                      |   | 13       |   | 16       |   |
| Venue C                      |   | 10       |   | -        |   |
| Venue D                      |   | 12       |   | 17       |   |
| Venue E                      |   | -        |   | 11       |   |
|                         |   | 48       | %      | 58       | %      |

 

NOTE8 - NOTES RECEIVABLE FROM OFFICERS

 

As ofDecember 31, 1999, the Company had $117,906 in notes receivable from JohnStuart, an officer of the Company, the notes bore interest at 8% and were dueon demand, and the notes were repaid in 2000.

 

NOTE9 - EXPENSES AT CLOSED LOCATION

 

TheLegends in Concert production opened at the Sheraton Centre Toronto Hotel inMay 1997.  This Legends production didnot prove to be successful and was closed in April 1999 after generatingoperating losses in previous years and $264,000 for the four months ended April1999.  At December 31, 1999, On Stagehad an impairment of net assets associated with the Toronto show and wrote offnet assets of $426,954.

 

In2000, the Company wrote off acquisition costs of $608,878 on a show at alocation that was not put into full production.

 

NOTE10 - SALE OF THEATER

 

OnSeptember 15, 2000, On Stage Entertainment subsidiary, On Stage TheatersSurfside Beach, Inc., sold its Legends in Concert Theater in Surfside Beach,South Carolina to LIC Theaters, LLC for $2.0mm.  In connection with the sale of the Theater, Legends Surfsideentered into a ten (10) year lease agreement with LIC Theaters, LLC.  The proceeds from the sale of the Theaterwere given to the Company’s first mortgage lender, Imperial Credit CommercialMortgage Investment Corp., in accordance with the terms of its partialsettlement agreement with ICCMIC. Furthermore, the Company recorded a loss on disposal of assets of$648,438.

 

NOTE11 - INCOME TAXES

 

Incometaxes in the statement of operations consists of the following:

 
|    |   | **1999** |   | **2000** |   |
|---------|--------|----------|--------|----------|--------|
|    |   |     |   |     |   |
| Current |   |     |   |     |   |
| Federal |   | $        | -      |     | $      | - |   |
| State   |   | -        |   | 91,391   |   |
|    |   | $        | -      |     | $      | 91,391 |   |

 

 

Deferredtaxes are as follows:

 
|                             |   | **Years ended December 31,** |   |
|----------------------------------|--------|------------------------------|--------|
|                             |   | **1999**                     |   | **2000** |   |
| Deferred tax assets              |   |                         |   |   |   |
| Allowance for doubtful  accounts |   | $                            | 97,912 |   | $ | 314,444 |   |
| Net operating loss  carryforward |   | 3,764,806                    |   | 5,536,999 |   |
|                             |   |                         |   |   |   |
| Total deferred tax assets        |   | 3,862,718                    |   | 5,851,443 |   |
| Less: valuation allowance        |   | (3,862,718                   | )      | (5,851,443 | ) |
|                             |   |                         |   |   |   |
|                             |   | $                            | -      |   | $ | - |   |
|                             |   |                         |   |   |   |

 

Thenet deferred tax assets have a 100% valuation allowance as management cannotdetermine  if it is more  likely than not that the  deferred tax assets will be realized.

 

Incometaxes in the statement of operations differs from the amount computed by applying  the U.S.  Federal  income tax rate (34%)  because of the effect of the followingitems:

 

 
| **Years ended December 31,**                                 |   | **1999** |     | **2000**  |   |
|--------------------------------------------------------------|--------|----------|----------|-----------|--------|
|                                                         |   |     |     |      |   |
| U.S. Federal statutory rate  applied to pretax income (loss) |   | $        | (710,715 | )         | $      | (1,585,646 | ) |
| Permanent differences                                        |   | (8,103   | )        | (3,220    | )      |
| Effect of State taxes                                        |   | -        |     | 91,391    |   |
| Tax effect of unrecognized  net operating loss carryforward  |   | 718,819  |     | 1,588,866 |   |
|                                                         |   | $        | -        |      | $      | 91,391 |   |

 

 

AtDecember 31, 2000, the Company had Federal net operating loss carryforwards ofapproximately $14,571,050, which expire in 2020.  Under Federal Tax Law IRC Section 382, certain significantchanges in ownership that the Company is currently undertaking may restrict thefuture utilization of these tax loss carryforwards.

 

NOTE12 - BUSINESS ACQUISITIONS

 

InteractiveEvents, Inc.  Purchase and Re-Conveyance

 

OnNovember 1, 1996, On Stage entered into Common Stock Purchase Agreement withInteractive Events, Inc.  under thisagreement to which Interactive sold all of its assets to On Stage in exchangefor an aggregate of 30,304 shares of On Stage’s common stock.  Additionally, Richard S.  Kanfer, President of Interactive, agreed tojoin On Stage as our Vice President of Sales. On Stage recorded $129,180 as the excess of the purchase price over thenet assets acquired, which was being amortized over ten years.  At December 31, 1998, On Stage determinedthere was an impairment in the value of the excess of the purchase price overthe net assets acquired in connection with the Interactive purchase and wroteoff the remaining unamortized balance of $102,131.

 

OnFebruary 23, 1999, On Stage entered into a Common Stock Purchase Agreement withKanfer, under which the parties agreed to rescind the Interactiveacquisition.  Under the terms of therepurchase, On Stage reconveyed all of the assets of Interactive to Kanfer, inconsideration for the reconveyance by Kanfer of 30,304 shares of On Stage’s commonstock valued at $1.125 per share, along with the cancellation of a non-planoption to purchase 15,000 shares of common stock and incentive stock options topurchase 19,835 shares of common stock at a price of $5.00 per share.  In addition, the parties agreed to releaseone another from any liability arising out of the Interactive acquisition andany claim relating to Kanfer’s subsequent employment with the Company.  On Stage and Kanfer also entered into anexclusive right of representation agreement in February 1999, under which theCompany granted to Kanfer the right to represent its Legends production indesignated areas in consideration of a portion of the gross proceeds generated.

 

NOTE13 - SEGMENT INFORMATION

 

TheCompany derives its net revenues from five reportable segments.  The Casino Division (“Casinos”) primarilysells live theatrical productions to casinos worldwide for a fixed fee.  In addition this division also operates theCompany’s Legends show at the Imperial Palace in Las Vegas, Nevada.  The Theaters Division (“Theaters”) owns orrents live theaters and dinner theaters in urban and resort tourist locationsprimarily in the United States.  Thisdivision derives its revenues from the sale of tickets and food and beverage topatrons who attend live theatrical performances at these venues.  The Events Division (“Events”) sells livetheatrical productions to commercial clients, which include corporations, themeand amusement parks and cruise lines for a fixed fee.  The Merchandise Division (“Merchandise”) sells merchandise andsouvenir photography products to patrons who attend the Company”productions.  “Events” and “Merchandise”are included in “Casinos” in the following tables.  The Production Services Division (“Production”) sells technicalequipment and services to commercial clients; however, this division’s primaryfocus is to technically support all of the other divisions.  The Corporate office segment is responsiblefor the corporate and finance portion of the Company’s operations.

 

Theaccounting policies of the reportable operating segments are the same as thosedescribed in the Summary of Accounting Policies.  The Company’s management evaluates the performance of itsoperating segments based upon the profit or loss from operations.

 

Thefollowing table sets forth the segment profit/(loss) and asset information:

 
|                                             |   | **Year Ended December 31, 2000** |      |
|--------------------------------------------------|--------|----------------------------------|-----------|
|                                             |   | **Casinos**                      |      | **Production** |   |   |   | **Corporate** |   | **Total** |   |
|                                             |   | **Entertainment**                |      | **Services** |   | **Theaters** |   | **Office** |   | **Consolidation** |   |
|                                             |   |                             |      |   |   |   |   |   |   |   |   |
| Revenues  from external customers                |   | $                                | 8,981,520 |   | $ | 29,719 |   | $ | 15,126,202 |   | $ | - |   | $ | 24,137,441 |   |
| Interest  expense                                |   | 2,037                            |      | - |   | 914,348 |   | 295,712 |   | 1,212,097 |   |
| Depreciation  and amortization                   |   | 398,667                          |      | 110,461 |   | 372,236 |   | 195,140 |   | 1,076,504 |   |
| Segment  profit (loss) before extraordinary item |   | 1,719,061                        |      | (929,562 | ) | (8,940,812 | ) | 3,399,916 |   | (4,751,397 | ) |
| Segment  fixed assets                            |   | 2,967,723                        |      | 856,134 |   | 1,281,187 |   | 1,080,380 |   | 6,185,424 |   |
| Additions  to long-lived assets                  |   | 24,292                           |      | 14,553 |   | 66,578 |   | 19,865 |   | 125,288 |   |
|                                                  |        |                                  |           |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 
|                             |   | **Year Ended December 31, 1999** |       |
|----------------------------------|--------|----------------------------------|------------|
|                             |   | **Casinos**                      |       | **Production** |   |   |   | **Corporate** |   | **Total** |   |
|                             |   | **Entertainment**                |       | **Services** |   | **Theaters** |   | **Office** |   | **Consolidation** |   |
|                             |   |                             |       |   |   |   |   |   |   |   |   |
| Revenues from external  customer |   | $                                | 10,006,642 |   | $ | 103,896 |   | $ | 18,438,104 |   | $ | - |   | $ | 28,548,642 |   |
| Interest expense                 |   | 84                               |       | 1,123 |   | 2,648,061 |   | 230,359 |   | 2,879,627 |   |
| Depreciation and  amortization   |   | 401,664                          |       | 90,239 |   | 559,335 |   | 192,910 |   | 1,244,148 |   |
| Segment profit (loss)            |   | 2,328,150                        |       | (666,594 | ) | (1,622,340 | ) | (2,129,555 | ) | (2,090,339 | ) |
| Segment fixed assets             |   | 3,226,262                        |       | 861,265 |   | 17,777,232 |   | 1,856,045 |   | 23,720,804 |   |
| Additions to long-lived  assets  |   | 165,061                          |       | 18,229 |   | 3,419 |   | 8,272 |   | 194,982 |   |
|                                  |        |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

NOTE 14 - SUBSEQUENT EVENTS

 

OnJanuary 16, 2001, On Stage entered into an agreement with BounceBackTechnologies, Inc.  to purchase all ofthe rights to the live production show entitled Country Tonite.  Country Tonite is a theatrical production,which has been presented in Las Vegas, Nevada, Branson, Missouri and PigeonForge, Tennessee.  On February 1, 2001,On Stage completed the acquisition for a purchase price of $3,800,000.  The terms of the agreement call for initialpayments of; $100,000 on November 21, 2000, $250,000 on January 29, 2001,$150,000 on February 15,2001 and $500,000 on March 15, 2001, the balance of$2,800,000 plus interest is due on July 31, 2001.  The show opened on March 7, 2001.  Additionally, the Company will have the right to oversee theCountry Tonite production in Pigeon Forge, Tennesee.  However, the rights to present the Pigeon Forge show have beenpreviously licensed to an unrelated third party and are not included in thisacquisition.

 

OnFebruary 28, 2001, On Stage entered into an agreement with McCown DeLeeuw & Co., Inc., a private equity investment firm (“MDC”),pursuant to which MDC agreed to invest up to $20,000,000 in On Stage in theform of convertible preferred securities. According to the terms of the MDC investment, MDC will have theopportunity to stage its funding in four separate investments of $6.0 million,$4.0 million, $5.0 million, and $5.0 million, respectively.  The second and third tranches of theinvestment are in the form of warrants exercisable during the next ten(10) years at the option of the Company contingent on, among other things,its achieving certain EBITDA levels. The fourth tranche is exercisable by On Stage during the next ten(10) years only after funding of the third tranche.  The convertible preferred securities beardividends at the rate of twelve percent (12%) per annum (10% cash plus 2% paidin kind), carry a liquidation preference of $5.00 per share, and areconvertible into common stock of On Stage at a conversion price of $0.50 pershare with respect to the Series A Preferred Stock and $0.75 per share withrespect to the Series A-1 Preferred Stock. The preferred stock has no mandatory redemption terms other than achange in control provision that could, under certain circumstances, requirethe redemption of the preferred stock. The first $6,000,000 investment was made on March 13, 2001 with theissuance of 1,200,000 shares of Series A Convertible Preferred Stock witha face value of $6,000,000 which was issued at a 5% discount of the facevalue.  In connection with thetransaction, the Company agreed to reimburse MDC for fees and expenses incurredin the transaction in the amount of $500,000 and agreed to pay MDC atransaction fee of $500,000.  These feeswere deducted from the gross proceeds of the first investment funding resultingin net proceeds from the Convertible Preferred Stock of $4,700,000.  For accounting purposes, the fees andexpenses are being accreted over a 10-year period of time and will result inthe convertible preferred stock accreting to its liquidation value.  The conversion terms of the Series AConvertible Preferred Stock resulted in a deemed dividend of $2,812,800.

In March 2001, On Stageentered into an Advisory Services Agreement with MDC Management IV, L.P. toassist On Stage in obtaining equity, debt, lease and acquisitionfinancing.  The agreement has afive-year term and provides for an annual fee of $250,000, payable quarterly,for the first year.  For the remainderof the term, the quarterly fee will be the greater of $62,500 or 1⁄4 of 1% of OnStage's gross revenues for the four most recent fiscal quarters but not morethan $95,000.

OnMarch 27, 2001, On Stage announced that it has entered into a multiple yearlease with Jimmy Osmond, of Osmond Family Theaters, to open Ripley’sLive...Believe It or Not in Branson, Missouri at the Osmond Family Theater inMay 2001.