EXHIBIT 13


                          ON STAGE ENTERTAINMENT, INC.

                 Portions of 1997 Annual Report to Stockholders



                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

         The Company  derives the  majority of its net revenue  from the sale of
theatrical  productions  to  audiences  at venues in urban  and  resort  tourist
locations and to commercial clients, which include casinos, corporations,  theme
and amusement parks and cruise lines. In addition, the Company generates revenue
from the sale of merchandise,  food and beverages in certain of its venues, and,
from  time to  time,  from the  sale of  technical  equipment  and  services  to
commercial clients. The following table sets forth the various components of the
Company's revenue as a percentage of net revenue for the periods indicated:

                                                        Years Ended December 31,
                                                        ------------------------
                                                          1996             1997
                                                         -----            ------
Theatrical productions:
       Legends ...............................            93.4%            83.7%
       Other .................................             0.8              9.0
                                                         -----            -----
              Total ..........................            94.2             92.7
Merchandise (all Legends) ....................             4.9              4.3
Other ........................................             0.9              3.0
                                                         -----            -----
              Total ..........................           100.0%           100.0%
                                                         =====            =====

         The first Legends production opened at the Imperial Palace in Las Vegas
in May of 1983.  The Company began  actively  producing  additional  tribute and
specialty shows in 1994 and produces  resident Legends shows in Las Vegas (since
May 1983),  Atlantic City (since October 1994), Myrtle Beach (since March 1995),
Branson,  Missouri  (July 1995,  April 1996 through  October 1996; and June 1997
through August 1997), and Berlin, Germany (since September 1997).

         The  Company   classifies  its  productions   (both  its  resident  and
limited-run  engagements) into two main categories:  (1) "at-risk" shows and (2)
"low-risk"  shows.  "At-risk"  shows  classify any of the Company's  resident or
longer term limited-run  productions  where the amount of revenue to be obtained
by the Company in  connection  with the show is uncertain  (as is typical in the
case of shows  produced  by the  Company at  theaters  leased  and or  purchased
directly by the Company in urban and resort tourist locations and shows produced
by the Company in, and for, large casinos in certain markets such as Las Vegas).
"Low-risk"  shows are contracted  productions  in which the client  guarantees a
fee,  which is typical of shows  produced by the  Company  in, and for,  certain
casinos and for other commercial  clients such a corporations,  cruise lines and
theme  parks.  Revenues  attributable  to  "at-risk"  shows for the years  ended
December  31,  1996  and  1997,  represented  approximately  72%  and 63% of the
Company's net revenues, respectively.

         The  Company has opened  three new  "at-risk"  shows  since  1995:  (1)
Legends at the Surfside  Theater in Myrtle Beach,  South Carolina in March 1995;
(2) Legends at the Grand  Palace  Theater for a six month run in 1996 and at the
Osmond  Family  Theater  for a three  month run in 1997;  and (3) Legends at the
Coliseum Theater in Daytona Beach,  Florida in June 1997. The Company's  Legends
production  in Myrtle  Beach  generated  approximately  44% and 34% gross profit
margins in fiscal  1996 in fiscal  1997,  respectively.  The  Company's  Legends
production in Branson  generated  approximately 41% and 11% gross profit margins
in fiscal 1996 and 1997,  respectively.  Unfortunately,  for  reasons  discussed
below, the Legends  production at the Coliseum Theater was not as successful and
was  discontinued  in  December  1997  after  generating  an  operating  loss of
$877,000.  In addition to the operating loss, the discontinuation of the Daytona
Beach operation generated an additional expense to the Company of $489,285.
<PAGE>


         The Company  believes that the operating  performance of Legends at the
Coliseum Theater in 1997 suffered from inadequate  market research  resulting in
less than  optimal  ticket sales in the start-up  phase of the  production.  The
lower than anticipated  revenue levels,  combined with high indirect  production
costs associated with the show's  "four-wall" cost structure resulted in losses.
The Company continues to believe that emerging tourist markets,  such as Cancun,
Mexico,   Pigeon  Forge,   Tennessee  and  Toronto,   Canada,  offer  attractive
opportunities for future growth.  The Company has recently  implemented a policy
of opening only proven,  branded shows,  like Legends,  and  identifying,  where
possible,  local marketing partners in similar "at-risk"  situations to increase
the  likelihood  of success  and share any  unexpected  losses.  If the  Company
determines  that the risk  profile of a new  market is too high,  it will seek a
"low-risk"  deal structure such as a fixed fee structure or a partnership  under
which the Company has the right to be the first in line to collect a  designated
amount of the show revenues each week.

         During 1997,  the Company  opened five new  "low-risk"  shows:  (1) the
Improv(R)  Spectacular at the Trump Taj Mahal Hotel and Casino in Atlantic City,
New Jersey, for a sixteen week run, which opened in March; (2) a Legends show at
the Fireside Theater,  Fort Atkinson,  Wisconsin,  for an eleven week run, which
opened in January; (3) a Legends show at the Empress Casino in Joliet, Illinois,
for a sixteen  week run which  opened in March;  (4)  Camouflage  Aux Folles,  a
comedic  variety  show  featuring  talented  female  impressionists,  comedians,
singers and dancers which was presented at the Trump Taj Mahal in Atlantic City,
New Jersey for a sixteen week run which opened in July; (5) A full-scale Legends
production  at the Estrel  Residence & Congress  Hotel in Berlin,  Germany which
opened in  September.  These five shows  along with the  addition of the Atlanta
branch office  significantly  increased the Company's special events and limited
engagement business. At December 31, 1997, the Daytona Beach show was closed.

         The Company  initiated  expansion of its operations in  anticipation of
future  sales  growth,  which  significantly  increased  selling,   general  and
administrative  costs.  Since  December 1995, the Company has hired seven senior
executives  and their related  support  staff:  a Vice President of Marketing in
December  1995;  a  President  and Chief  Operating  Officer  in April  1996;  a
Corporate  Controller in July 1996; a Vice President of Corporate  Entertainment
in September 1996; an Assistant Vice President of Group Sales in September 1997;
a Vice President of  Merchandising  in October 1997; and a President of On Stage
Theaters,  Inc., a wholly owned  subsidiary of the Company,  in March 1998.  The
Company  also  added a new  branch  office  in  Atlanta,  Georgia  (through  its
acquisition of Interactive Events, Inc.) as well as in-house wardrobe, lighting,
scenery and multimedia  departments.  At the end of 1997, the Company maintained
five administrative  offices,  including its corporate headquarters in Las Vegas
and branch offices in Atlantic City, Atlanta, Palm Springs and Myrtle Beach.

         On December 29, 1997, the Company  announced an acquisition to purchase
certain assets from Gedco USA, Inc. for  $14,000,000,  consisting of $11,500,000
in cash and 595,238  shares of the  Company's  common stock valued at $2,500,000
(the "Gedco  Acquisition").  Included in the Gedco Acquisition are substantially
all of the income  producing  assets and  associated  real  property  of Orlando
Entertains and LA Entertains consisting of King Henry's Feast, Blazing Pianos(R)
bar and the Fort Liberty shopping  complex,  which includes a Wild Bill's Dinner
Theater  located in greater  Orlando,  Florida and a second  Wild Bill's  Dinner
Theater located in Buena Park,  California.  The Gedco Acquisition was completed
on March 13, 1998.  Gerard  O'Riordan,  President of Gedco USA, Inc., has joined
the Company as President of On Stage Theaters,  Inc., a wholly owned  subsidiary
of the Company,  that manages the acquired dinner theaters and piano bar as well
as other selected  theaters.  For the year ended December 31, 1997, the acquired
assets from Gedco USA, Inc. had unaudited  revenues of $13,900,000  and earnings
before interest, taxes, depreciation and amortization of $2,700,000.
<PAGE>


Results of Operation

         The  following  table  sets  forth,  for  the  periods  indicated,  the
percentage of the Company's net revenues represented by certain income statement
data:

                                                   Years Ended December 31,
                                                   ------------------------
                                                       1996        1997
                                                      -----       -----

Net revenue ..................................        100.0%      100.0%
Direct production costs ......................         42.6        49.2
Indirect production costs ....................         16.6        23.3
                                                      -----       -----
Gross profit .................................         40.8        27.5
Selling, general and administrative ..........         28.6        31.5
Depreciation and amortization ................          4.7         6.2
Loss on discontinued location ................          0.0         3.1
                                                      -----       -----
Operating profit (loss) ......................          7.5       (13.3)
Interest expense, net ........................          1.1        (5.3)
                                                      -----       -----
Pre-tax income (loss) ........................          6.4       (18.6)
Income taxes .................................          0.1         0.1
                                                      -----       -----
Net income (loss) ............................          6.3%      (18.7)%
                                                      =====       =====

          Net income for the year ended  December 31,  1996,  was  $900,998,  as
compared to a net loss of $2,946,056 for the year ended December 31, 1997.

Year Ended December 31, 1996 versus Year Ended December 31, 1997

Net  Revenue.  Net  revenue  consists  of  sales  of  the  Company's  theatrical
productions,  concessions,  merchandise  and  income  generated  from  equipment
rental.  Net  revenue  for  the  year  ended  December  31,  1997  increased  by
$1,448,000,  or 10.1% from  $14,278,000 to $15,726,000,  as compared to the year
ended  December  31,  1996.  Contributing  to this  increase  were  increases of
approximately: (i) $1,985,000, attributable to limited engagements and corporate
events,  which included limited  engagements of Legends  Celebrity Series at the
Empress Casino in Joliet,  Illinois and the Company's joint ventures (An Evening
at the Improv(R)  Spectacular  and Camouflage Aux Folles) at the Taj Mahal Hotel
and Casino in Atlantic City,  New Jersey,  each of which ran in 1997, but not in
1996; (ii) $679,000, attributable to the Legends show in Daytona Beach, Florida,
which ran in 1997, but not in 1996.  These  increases  were partially  offset by
decreases in sales of: (a) $52,000, attributable to the resident Legends show at
the  Imperial  Palace in Las Vegas,  Nevada;  (b) $34,000,  attributable  to the
resident  Legends show at Bally's Park Place in Atlantic City,  New Jersey;  (c)
$317,000,  attributable  to the  resident  Legends show in Myrtle  Beach,  South
Carolina; (d) $64,000,  attributable to the Legends show on Premier Cruise Lines
which  was  discontinued  due to a sale of the  vessels  to a new  company;  (e)
$741,000,  attributable to the Legends show in Branson, Missouri, which ran only
three months in the year ended December 31, 1997 (from June 1997 to August 1997)
in the  Osmond  Family  Theater,  as  opposed  to six  months in the year  ended
December  31,  1996 (from  April 1996 to October  1996) in the Grand  Palace,  a
larger venue; and (f) $8,000, attributable to the decrease of other revenue.

Direct   Production   Costs.   Direct  production  costs  include  salaries  for
impersonators, stars, singers, dancers, musicians, technicians,  choreographers,
wardrobe personnel,  production managers,  concession  personnel,  license fees,
electronic supplies,  lighting,  sound,  wardrobe,  sets, props, and the cost of
goods for merchandise as well as food and beverage.  Direct production costs for
the year ended December 31, 1997 increased by $1,671,000,  or 27.5%, as compared
to the year ended December 31, 1996.  Direct production costs increased to 49.2%
of net revenue for the year ended  December 31,  1997,  as compared to 42.6% for
the year ended December 31, 1996. The increase was primarily attributable to the
high  direct  running  costs  of the  Daytona  show  (8.6% of the  total  direct
operating expenses) and increases in salaries and the cost of make-up,  wardrobe
and operating  supplies.  These increases were partially  offset by decreases in
costs associated with insurance premiums and electronic supplies.
<PAGE>


Indirect  Production  Costs.  Indirect  production  costs  include  salaries for
operations,  box  office,  finance  and  marketing  personnel,  advertising  and
promotion,   insurance,   rent,  utilities,   property  taxes,  housing,  legal,
accounting and travel. Indirect production costs for the year ended December 31,
1997 increased by $1,296,000,  or 54.5%,  as compared to the year ended December
31, 1996.  Indirect  production  costs increased to 23.3% of net revenue for the
year ended  December 31, 1997, as compared to 16.6% for the year ended  December
31, 1996. This increase was primarily attributable to the high indirect costs of
the Daytona show (21.6% of the total indirect operating  expenses) and increases
in salaries and the cost of advertising, promotion, freight, shipping, rent, and
insurance.   These  increases  were  partially  offset  by  decreases  in  costs
associated with bank charges and entertainment expenses.

Selling,  General  and  Administrative.   Selling,  general  and  administrative
expenses  include  management  salaries,   finance,   operations,   development,
marketing and technical  salaries,  office supplies,  rent,  utilities and legal
expenses.  Selling,  general  and  administrative  expenses  for the year  ended
December 31, 1997 increased by $861,000, or 21.1%, as compared to the year ended
December 31, 1996. Selling,  general and administrative expenses as a percent of
net revenue was 31.5%,  as  compared  to 28.6% for the year ended  December  31,
1996.  This  increase was primarily  due to increases in costs  associated  with
salaries, automobile allowances,  freight, shipping, office supplies, telephone,
commissions,  advertising,  promotion, and bad debts as well as one time charges
of  approximately  $162,000 and $221,000,  resulting from the issuance of 40,532
shares of common stock to Kiran Sidhu, the Company's Chief Financial Officer and
forgiveness  of a  promissory  note from John W.  Stuart,  the  Company's  Chief
Executive Officer (the "Stuart Note"), respectively.  As of August 12, 1997, the
Stuart Note,  which together with principal and interest totaled  $221,000,  was
forgiven in full. On October 23, 1997 and November 17, 1997,  the Company,  with
the consent of the  Underwriter,  agreed to advance an  aggregate of $100,000 to
Mr. Stuart,  which is evidenced by two promissory notes. The notes bear interest
at 8% per annum and mature on December  31,  1998.  At December  31,  1997,  Mr.
Stuart owed the Company a total of $136,194,  including  accrued interest on the
promissory  notes of $1,041,  personal  charges of $17,007 to a corporate credit
card and $18,146 in show fees  received by Stuart on behalf of the Company.  Mr.
Stuart has since  repaid  $35,153 to the  Company.  The  Company has agreed with
Whale Securities Co., LP (the  "Underwriter") not to loan or advance any further
sums to Mr. Stuart, without the prior consent of the Underwriter.

Depreciation and Amortization.  Depreciation and amortization for the year ended
December 31, 1997 increased by $306,000, or 45.2%, as compared to the year ended
December 31, 1996. The increase in depreciation  and  amortization was primarily
attributable to pre-opening  costs which were  capitalized in 1996, but expensed
in 1997.

Expenses at  Discontinued  Location.  The  Company  decided to close its Legends
production in Daytona  Beach on December 31, 1997.  As part of the closing,  the
Company  incurred  additional  expenses of  $489,285  during  1997.  The Company
intends to transfer  substantially  all of the  furniture  and  equipment at the
Daytona Beach facility to other  locations  scheduled to debut  performances  in
1998.  Also,  the Company is  currently  in  negotiations  with a third party to
potentially  sublease  the Daytona  Beach  theater.  In addition to the expenses
incurred in discontinuing  the operations in Daytona Beach, the Company realized
an  operating  loss of  $877,000.  This  operating  loss  resulted  from low net
revenues  which were less than the direct and indirect  production  costs during
the shows' run.

Interest  Expense,  Net.  Interest  expense for the year ended December  31,1997
increased by  $681,000,  or 445.3%,  as compared to the year ended  December 31,
1996.  The  increase  was  primarily  attributable  to one time,  non-recurring,
interest  expense  charges  of  $194,000  related to the  conversion  of certain
convertible  debentures  (the  "Debentures")  and an original  issue discount of
$366,000  related to a bridge loan.  These  increases were  partially  offset by
interest income of $59,000 earned from the Company's investment of approximately
49% of the net  proceeds  generated  from the  initial  public  offering  of the
Company's common stock and redeemable warrants.

Income  Taxes.  Income taxes for the years ended  December 31, 1997 and December
31, 1996 relate to income  taxes in those  states other than Nevada in which the
Company conducts business.

Seasonality and Quarterly Results

         The  Company's  business  has been,  and is expected to remain,  highly
seasonal,  with the majority of its revenue being generated during the months of
April through October.  Part of the Company's  business  strategy is to increase
sales in tourist  markets  that  experience  their peak  seasons  from  November
through March so as to offset  seasonality  in revenues.  The Gedco  Acquisition
should also help to decrease the  seasonality  of the  Company's  business.  The
Company is exploring  opportunities to open shows in markets such as Florida and
Arizona,  domestically,  and Australia, South Africa, Singapore and New Zealand,
abroad, which the Company believes could also help mitigate this seasonality.
<PAGE>


         The  following  table sets forth the  Company's net revenue for each of
the last eight quarters ended December 31, 1997:

                                     Net Revenues ($ in thousands)
                          ----------------------------------------------------
                          March 30,   June 30,   September 30,    December 31,
                          ----------------------------------------------------
Fiscal 1996 ..........     $2,347      $4,266      $4,591            $3,074
Fiscal 1997 ..........     $2,719      $3,979      $5,071            $3,957

Tax Net Operating Losses

         At December  31, 1996 and 1997,  the Company had federal net  operating
loss carryforwards of approximately $657,214 and $2,495,371, respectively. Under
Section  382 of the  Internal  Revenue  Code,  certain  significant  changes  in
ownership  that the Company is  currently  undertaking  may  restrict the future
utilization of these tax loss carryforwards.  The net deferred tax assets have a
100% valuation  allowance,  as management  cannot determine if it is more likely
than not that the deferred tax assets will be realized.

Liquidity and Capital Resources

General

         The  Company has  historically  met its  working  capital  requirements
through a combination  of cash flow from  operations,  equity and debt offerings
and traditional bank financing.  The Company anticipates,  based on its proposed
plans  and  assumptions  relating  to  its  operations  (including   assumptions
regarding  the  anticipated  timetable  of its new show  openings  and the costs
associated  therewith),   that  the  Company's  current  cash,  cash  equivalent
balances,  anticipated revenue from operations and its working capital line will
be sufficient to fund its current internal  expansion  strategy and contemplated
capital requirements over the next 36 months. However, the Company's acquisition
strategy will require additional debt and/or equity financing.  In the event the
Company's  plans or assumptions  change,  prove to be incorrect,  or if balances
and/or  anticipated  revenues  otherwise prove to be  insufficient,  the Company
would need to revise its expansion  strategy  (which  revision could include the
curtailment,  delay or elimination of certain of its anticipated  productions or
the funding of such productions through  arrangements with third parties,  which
would require it to relinquish rights to a substantial  portion of its revenues)
and/or seek additional financing prior to the end of such period.

         For the year ended December 31, 1996, the Company had net cash provided
by operations of approximately $1,154,000. The cash provided from operations was
primarily  attributable  to an  increase in revenue and a decrease in direct and
indirect production costs. For the year ended December 31, 1997, the Company had
a net cash  deficit from  operations  of $441,000.  This  operating  deficit was
primarily  attributable  to the losses  incurred at the Company's  Daytona Beach
show and increases in selling,  general and administrative  expenses incurred in
anticipation of future growth.

         The net cash used in investing  activities  for the year ended December
31, 1996 of $942,000,  was primarily  attributable to capital  expenditures  and
advances  (which were  subsequently  written off at December  31, 1996) on notes
receivable  from Mr. Stuart.  The net cash used in investing  activities for the
year ended  December  31, 1997 of  $1,241,000,  was  primarily  attributable  to
advances on notes  receivable to Mr.  Stuart  ($221,000 of which was forgiven by
the Company on August 13, 1997 and $35,000 which was paid back to the Company on
February 4, 1998),  capital  expenditures and direct  acquisition  costs related
with the Gedco Acquisition of $258,000.

         On August 13, 1997, the Company completed an initial public offering of
1,400,000  shares of common stock at $5.00 per share and redeemable  warrants to
purchase  1,610,000 shares of its common stock at $0.10 per warrant (the "IPO").
The net  proceeds  to the  Company  of the IPO,  after  underwriting  discounts,
commissions and expenses,  was approximately  $4,856,000,  net of offering costs
incurred by the Company of approximately $1,414,000.

         Net cash provided by financing  activities  for the year ended December
31, 1996 of $58,000,  was  primarily  attributable  to a series of debt and bank
financings.  Net cash  provided  by  financing  activities  for the  year  ended
December 31, 1997 of  $3,716,000  was  primarily  generated  from the IPO.  This
increase in cash was partially offset by the repayment of a $750,000 bridge loan
(the "DYDX Loan").
<PAGE>


         At December  31,  1996,  the Company had a working  capital  deficit of
approximately  $103,000,  due primarily from advances paid to Mr. Stuart.  As of
December 31, 1996, such advances (including  principal and interest) amounted to
approximately  $860,000. At December 31, 1997 the Company had working capital of
approximately  $1,797,000,  due primarily from proceeds derived from the sale of
the Company's common stock and redeemable warrants from the IPO. The proceeds of
the IPO were partially offset by increases in inventory and deposits.

         On August 13, 1997,  the Company  converted  all of the  $1,800,000  of
principal  amount under the  Debentures  into an aggregate of 505,649  shares of
common stock. The aforementioned conversion was based upon a ratio of 295 shares
of common stock per each $1,000  principal  amount of Debenture.  The conversion
resulted in a one time, non-recurring, interest expense charge to the Company in
the amount of $194,228  (based on an imputed  value of $4.00 per share of common
stock).
         On August 13, 1997, the Company paid off the DYDX Loan in full,  which,
with principal and interest, totaled $773,000.

         As of December 31, 1996, the Company had a term loan outstanding in the
principal amount of $150,000,  with First Security Bank of Nevada, which accrued
interest at a rate of 11.5% per annum. On October 10, 1997, the Company paid off
this term loan, in full, which,  including all outstanding principal and accrued
interest, was $19,091.

Working Capital Line

         In May 1997, First Security Bank issued a line of credit to the Company
for up to $250,000.  Borrowings  under such facility  bear variable  interest at
1.5% over the  First  Security  Bank of  Idaho's  index  (10% per year as of the
facility's  inception) and are due on demand. The line of credit is scheduled to
expire on May 19, 1998.  John W. Stuart has  personally  guaranteed  the line of
credit.  On August 19, 1997, the Company paid off, in full, all the  outstanding
principal and accrued interest,  $223,000, owed by the Company under the line of
credit facility.

Capital Equipment Financing Commitment

         On  September  29,  1997,  First  Security  Leasing  Company,   a  Utah
corporation,  approved the Company for a $1,000,000  lease line.  Advances under
the line of credit incur  interest at a rate of 9.75% per annum.  The  financing
commitment will expire on September 29, 1998.

Mortgage Financing Commitment

         On March 13,  1998,  Imperial  Credit  Commercial  Mortgage  Investment
Corporation  ("ICCMIC")  signed  an  agreement  with the  Company  to fund up to
$20,000,000  of  mortgage  financing.   On  the  same  date,  the  Company  used
$12,500,000  of said facility to fund the cash portion of the Gedco  Acquisition
and related fees.  Under the terms of their  agreement,  ICCMIC may also provide
the Company with up to an additional  $30,000,000 of mortgage related financing.
Concurrent  with the  initial  $12,500,000  funding,  the Company  elected  Mark
Karlan,  the President of ICCMIC,  to the Company's board of directors,  filling
the vacancy created by the resignation of Kenneth Berg.

Impact of Inflation

         The Company  believes that  inflation has not had a material  impact on
its operations. However, substantial increases in material costs could adversely
affect the operations of the Company for future periods.

Year 2000

         The Company is in full compliance with Year 2000 standards. The Company
has invested in the latest hardware and software and has implemented  purchasing
standards  that  requires  Year 2000  compliance  from all vendors.  The Company
anticipates no problems in maintaining this compliance into the future.

         The  Company is  actively  coordinating  with  vendors,  creditors  and
financial  service  organizations  to  prepare  for  possible  repercussions  of
non-compliance.  While the  Company  cannot  ultimately  control  these  outside
entities,  the Company is exerting every influence to promote future  compliance
in order to minimize impact to its business.
<PAGE>


New Accounting Pronouncements

Disclosure of Information about Capital Structure

         Statement of Financial  Accounting  Standard  No. 129,  "Disclosure  of
Information  about  Capital  Structure,"  ("SFAS 129")  issued by the  Financial
Accounting  Standards  Board (the "FASB") is effective for financial  statements
ended  December  15,  1997.  The  new  standard  reinstates  various  securities
disclosure  requirements  previously in effect under Accounting Principles Board
Opinion No. 15, which has been superseded by Statements of Financial  Accounting
Standard No. 128. The Company  adopted SFAS 129 on December 15, 1997, and it had
no effect on its financial position or results of operations.

Reporting Comprehensive Income

         Statement  of  Financial   Accounting   Standard  No.  130,  "Reporting
Comprehensive  Income,"  ("SFAS  130")  issued  by the  FASB  is  effective  for
financial  statements  with fiscal  years  beginning  after  December  15, 1997.
Earlier application is permitted.  SFAS 130 establishes  standards for reporting
and  display  of  comprehensive  income  and  its  components  in a full  set of
general-purpose  financial  statements.  The Company does not expect adoption of
SFAS 130 to have a material effect, if any, on its financial position or results
of operations.

Disclosures about Segments of an Enterprise and Related Information

         Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related  Information,"  ("SFAS 131") issued by the
FASB is effective for financial  statements  with fiscal years  beginning  after
December 15, 1997.  Earlier  application  is  permitted.  SFAS 131 requires that
public companies report certain information about operating segments,  products,
services and geographical areas in which they operate and their major customers.
The Company does not expect adoption of SFAS 131 to have a material  effect,  if
any, on its financial position or results of operations.

Subsequent Events

Note Receivable from Principal Stockholder

         In connection  with the IPO, the Company  agreed with its  Underwriter,
that it would  neither  loan nor advance any sums to or on behalf of Mr.  Stuart
other than those sums  advanced to Mr. Stuart from December 31, 1996 through the
date of the IPO, without the  Underwriter's  prior written consent.  The Company
also received the authorization from the Underwriter,  to advance John Stuart up
to another  $150,000 for settlement of certain  litigation  pending  against Mr.
Stuart for his involvement in the Legends in Concert, Hawaii show.

Working Capital Line Increase

         As of March 10,  1998,  the Company  has drawn  $250,000 on the line of
credit.  On March 23, 1998 First Security  agreed to increase the line of credit
from $250,000 to $1,000,000  and the  expiration  date will be extended to March
25, 1998. (See "Liquidity and Capital Resources- General".)

Capital Equipment Financing Commitment

         As of March 13,  1998,  the Company  has drawn  $443,000 on the line of
credit. The Companies  remaining  availability is $537,000.  (See "Liquidity and
Capital Resources- General").

Gedco USA, Inc. Acquisition

         As of December 31, 1997, the Company incurred approximately $258,000 in
direct acquisition costs, which consisted  primarily of audit fees, legal costs,
and real estate  appraisals in connection with the acquisition of certain assets
from Gedco USA, Inc. (the "Gedco Acquisition"),  which was subsequently added to
the agreed price to arrive at the total price paid for the said assets.

      On March  13,  1998,  the  Company  completed  the Gedco  Acquisition  for
$14,000,000  million  by using  $12,500,000  of a  $20,000,000  credit  facility
provided to the Company by ICCMIC and by issuing 595,238 shares of the Company's
common stock valued at $2,500,000. Under the terms of this agreement, ICCMIC may
also  provide  the  Company  with up to an  additional  $30,000,000  of mortgage
related financing.



<PAGE>

                                   On Stage Entertainment, Inc. and Subsidiaries
                                                 Table of Contents



Item                                                                Page Number

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........................


<PAGE>


                Independent Certified Public Accountants' Report

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

We have  audited  the  accompanying  consolidated  balance  sheets  of On  Stage
Entertainment,  Inc. and  subsidiaries as of December 31, 1996 and 1997, and the
related statements of operations,  stockholders' equity (deficit) and cash flows
for  each of the two  years  then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material   respects,   the  financial  position  of  On  Stage
Entertainment,  Inc. and  Subsidiaries  at December  31, 1996 and 1997,  and the
results of their  operations and their cash flows for each of the two years then
ended, in conformity with generally accepted accounting principles.



                                            /s/ BDO Seidman, LLP

Los Angeles, California
February 14, 1998
Except for Note 12, which is as of
March 20, 1998







<PAGE>


                  On Stage Entertainment, Inc. and Subsidiaries
                           Consolidated Balance Sheets
<TABLE>

                                                                                                        Years ended December 31,
                                 Assets (Note 2)                                                     ------------------------------
                                                                                                         1996               1997
                                                                                                     ------------------------------
<S>                                                                                                  <C>                <C>
Current assets
      Cash and cash equivalents ..............................................................       $   290,751        $ 2,323,559
      Accounts receivable ....................................................................           490,465            455,340
      Inventory ..............................................................................            67,853            118,700
      Deposits ...............................................................................           231,601            342,096
      Prepaid and other assets ...............................................................           236,295            271,338
      Pre-opening costs, net .................................................................           129,180                - -
    Notes receivable from stockholder (Note 6) ...............................................               - -            136,194
                                                                                                     -----------        -----------
               Total current assets ..........................................................         1,446,145          3,647,227
                                                                                                     -----------        -----------

Property, equipment and leasehold improvements (Notes 1 and 2) ...............................         3,725,941          5,008,835
Less:  Accumulated depreciation and amortization .............................................        (1,937,718)        (2,553,347)
                                                                                                     -----------        -----------
Property, equipment and leasehold improvements, net ..........................................         1,788,223          2,455,488
                                                                                                     -----------        -----------

Cost in excess of net assets acquired, net of accumulated amortization
    of $1,053 and $7,370 (Note 4) ............................................................            62,123            116,415
Direct acquisition costs (Note 12) ...........................................................               - -            258,133
Offering costs ...............................................................................           657,801                - -
                                                                                                     -----------        -----------
                                                                                                     $ 3,954,292        $ 6,477,263
                                                                                                     ===========        ===========


Liabilities and Stockholders' Equity (Deficit)
Current liabilities
    Accounts payable and accrued expenses ....................................................       $   599,045        $   880,286
    Accrued payroll and other liabilities ....................................................           621,986            698,499
    Litigation settlement accrual ............................................................           100,000                - -
    Current maturities of long-term debt (Note 2) ............................................           228,510            271,918
                                                                                                     -----------        -----------
                 Total current liabilities
                                                                                                       1,549,541          1,850,703
                                                                                                     -----------        -----------

DYDX LP Loan (Notes 2 and 4) .................................................................           750,000                - -
Long-term debt, less current maturities (Note 2) .............................................         1,877,391            550,332
                                                                                                     -----------        -----------
           Total liabilities .................................................................         4,176,932          2,401,035
                                                                                                     -----------        -----------

Commitments and contingencies (Note 3)

Stockholders' equity (deficit) (Notes 2 and 4)
     Preferred stock, par value $1 per share, 1,000,000 shares
         Authorized; none issued and outstanding .............................................               - -                - -
     Common stock, par value $0.01 per share; authorized 25,000,000
          shares; 4,002,044 and 6,595,500 shares issued and outstanding ......................            40,020             65,955
     Additional paid-in-capital ..............................................................           121,024          7,340,013
     Accumulated deficit .....................................................................          (383,684)        (3,329,740)
                                                                                                     -----------        -----------
           Total stockholders' equity  (deficit) .............................................          (222,640)         4,076,228
                                                                                                     -----------        -----------
                                                                                                     $ 3,954,292        $ 6,477,263
                                                                                                     ===========        ===========
</TABLE>

See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.
<PAGE>


                  On Stage Entertainment, Inc. and Subsidiaries
                      Consolidated Statements of Operations

<TABLE>
                                                                                                   Years ended December 31,
                                                                                             --------------------------------------
                                                                                                  1996                      1997
                                                                                             --------------------------------------
<S>                                                                                          <C>                       <C>
Net revenues ...................................................................             $ 14,278,082              $ 15,726,074
Direct production costs ........................................................                6,070,361                 7,741,739
Indirect production costs ......................................................                2,376,006                 3,671,785
                                                                                             ------------              ------------

Gross profit ...................................................................                5,831,715                 4,312,550
                                                                                             ------------              ------------

Operating expenses
        Selling, general and administrative (Note 7) ...........................                4,085,624                 4,946,135
        Depreciation and amortization (Note 8) .................................                  676,306                   982,180
        Expenses at discontinued location (Note 9) .............................                      - -                   489,285
                                                                                             ------------              ------------
                   Total operating expenses ....................................                4,761,930                 6,417,600
                                                                                             ------------              ------------

Operating income  (loss) .......................................................                1,069,785                (2,105,050)

Interest expense, net (See Note 10) ............................................                  152,998                   834,333
                                                                                             ------------              ------------
Income (loss) before income taxes ..............................................                  916,787                (2,939,383)
Income taxes (Note 11) .........................................................                   15,789                     6,673
                                                                                             ------------              ------------

Net Income (loss) (See Note 11) ................................................             $    900,998              $ (2,946,056)
                                                                                             ============              ============

Basic income (loss) per share ..................................................             $       0.23              $      (0.55)
                                                                                             ============              ============

Diluted net income (loss) per share ............................................             $       0.22              $      (0.55)
                                                                                             ============              ============

Basic average number of common shares outstanding ..............................                4,002,044                 5,365,851
                                                                                             ============              ============

Diluted average number of common shares outstanding ............................                4,064,927                 5,365,851
                                                                                             ============              ============
</TABLE>
See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.

<PAGE>



                  On Stage Entertainment, Inc. and Subsidiaries
            Consolidated Statement of Stockholders' Equity (Deficit)
<TABLE>
                                                                      Additional
                                                                     Common Stock           Paid-In
                                                                -----------------------    Additional   Accumulated
                                                                  Shares       Amount       Capital       Deficit          Total
                                                                ---------   -----------   -----------   -----------     -----------
<S>                                                             <C>         <C>           <C>           <C>             <C>
Balance, December 31, 1995.................................     3,982,760   $    10,000   $       - -   $(1,254,854)    $(1,244,854)
Effects of stock splits (Notes 4) .........................           - -        29,828           - -       (29,828)            - -
Acquisition of Interactive Events, Inc. (Note 4) ..........        19,284           192       121,024           - -         121,216
Net income for the year ...................................           - -           - -           - -       900,998         900,998
                                                              -----------   -----------   -----------    -----------    -----------
Balance, December 31, 1996.................................     4,002,044        40,020       121,024      (383,684)       (222,640)
Issuance of common stock in connection
  with the bridge financing (Note 2) .....................        195,500         1,956       364,344           - -         366,300
Issuance of common stock to officer (Note 4)  ............         40,532           405       161,724           - -         162,129
Warrant exchange (Note 4) ................................        440,755         4,408        (4,408)          - -             - -
Issuance of stock in connection with Interactive
  Events acquisition (Note 4) ............................         11,020           110        60,500           - -          60,610
Issuance of common stock in connection with the initial
  public offering (Note 4) ...............................      1,400,000        14,000     4,841,975           - -       4,855,975
Issuance of common stock in connection with the
  Debentures conversion (Note 4) .........................        505,649         5,056     1,794,854           - -       1,799,910
Net loss for the year ....................................            - -           - -           - -    (2,946,056)     (2,946,056)
                                                              -----------   -----------   -----------   -----------     -----------
Balance, December 31, 1997.................................   $ 6,595,500   $    65,955   $ 7,340,013   $(3,329,740)    $ 4,076,228
                                                              ===========   ===========   ===========   ===========     ===========
</TABLE>
See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.

<PAGE>



                  On Stage Entertainment, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows

                Increase (Decrease) in Cash and Cash Equivalents
<TABLE>

                                                                                                        Years ended December 31,
                                                                                                     ------------------------------
                                                                                                         1996               1997
                                                                                                     ------------------------------
<S>                                                                                                  <C>                <C>
Cash flows from operating activities
       Net income (loss) .....................................................................       $  900,998         $(2,946,056)
                                                                                                     ----------         -----------
       Adjustments to reconcile  net income (loss) to net cash provided by (used
             in) operating activities:
         Depreciation and amortization .......................................................           676,306            676,306
         Interest paid in common stock .......................................................              --              194,228
         Loss on disposal of property and equipment ..........................................            53,983            (10,834)
         Issuance of common stock to officer .................................................              --              162,129
         Non-cash interest ...................................................................              --              366,300
         Reverse litigation accrual ..........................................................              --              (25,000)
         Forgiveness of  note receivable from stockholder ....................................              --              221,521
         Increase (decrease) from changes in operating assets and
                 liabilities
                           Accounts receivable ...............................................          (262,341)            46,723
                           Inventory .........................................................           (67,853)           (50,847)
                           Offering costs ....................................................          (344,522)           657,801
                           Deposits ..........................................................           (86,816)          (110,495)
                           Pre-opening costs .................................................           (61,483)           129,180
                           Prepaid and other assets ..........................................          (125,988)           (35,043)
                           Accounts payable and accrued expenses .............................            56,302            281,243
                           Accrued payroll and other liabilities .............................           415,651             76,513
                           Litigation settlement accrual .....................................              --              (75,000)
                                                                                                     -----------        ------------
         Total adjustments ...................................................................           253,239          2,504,725
                                                                                                     -----------        -----------
Net cash provided by (used in) operating activities ..........................................         1,154,237           (441,331)
                                                                                                     -----------        ------------

Cash flows from investing activities
Advances on note receivable from stockholder ................................................                - -           (357,715)
      Capital expenditures ..................................................................           (987,355)          (625,612)
      Acquisition of Interactive Events Inc., net of cash acquired ...........................            45,272               --
      Direct acquisition costs ...............................................................              --             (258,133)
                                                                                                     -----------        -----------
Net cash used in investing activities ........................................................          (942,083)        (1,241,460)
                                                                                                     -----------        -----------

Cash flows from financing activities
      Repayments under line of credit ........................................................          (200,000)              --
      Proceeds from short-term borrowing .....................................................         1,000,000               --
      Repayments on long-term borrowing ......................................................          (649,099)        (1,140,376)
      Repayments on short-term borrowing .....................................................           (92,402)              --
      Proceeds from bridge notes .............................................................              --              875,000
      Payments of bridge notes ...............................................................              --             (875,000)
      Net proceeds from sale of common stock and warrants ....................................              --            4,855,975
                                                                                                     -----------        -----------
Net cash provided by financing activities ....................................................            58,499           3,715,599
                                                                                                     -----------        ------------

Net increase  in cash and cash equivalents ...................................................           270,653          2,032,808
Cash and cash equivalents at beginning of  year ..............................................            20,098            290,751
                                                                                                     -----------        -----------
Cash and cash equivalents at end of  year ....................................................       $   290,751        $ 2,323,559
                                                                                                     ===========        ===========


Supplemental disclosure of cash flow information Cash paid during the year for:
        Interest .............................................................................       $   287,047        $   278,059
        Taxes ................................................................................       $    15,789        $     6,673
                                                                                                     ===========        ===========

</TABLE>
See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.

<PAGE>


                  On Stage Entertainment, Inc. and Subsidiaries
                Consolidated Statements of Cash Flows (Continued)

Supplemental schedule of non-cash investing and financing activities

      During  1996  and  1997,   $259,855  and  $712,405  of  lease  assets  and
obligations were capitalized, respectively.

      During  1997,  the Company  borrowed an aggregate  of  $1,000,000  from 21
private  investors,  in return for which the  Company  issued to such  investors
unsecured non-negotiable notes payable, which accrued interest at an annual rate
of 9% and which matured upon the  consummation  the initial public offering (the
"Bridge  Notes"),   Common  Stock  and  warrants   (collectively,   the  "Bridge
Financing"). The Common Stock issued in connection with the Bridge Financing was
valued at $366,300.  As no  consideration  was paid for the Common  Stock,  this
amount is considered an original  issue  discount and amortized over the term of
the Bridge Notes.

      During 1997,  the Company  exchanged all of its  outstanding  warrants for
440,755 shares of Common Stock, which had no effect on the Company's earnings.

      During  1997,  the  Company  sold  equipment  with a  historical  cost  of
approximately  $55,000 at a gain.  The  Company  accepted a note  receivable  as
payment for the sale.

      Upon the consummation of the Company's initial public offering,  1,799,910
of  outstanding  convertible  debentures  were  converted into 505,549 shares of
common stock.

          During  1997 the  Company  issued  11,020  shares of  common  stock in
connection with the Interactive Events acquisition.

          See  accompanying   summary  of  accounting   policies  and  notes  to
consolidated financial statements.


<PAGE>


                  On Stage Entertainment, Inc. and Subsidiaries
                         Summary of Accounting Policies

Business Activity

      On Stage  Entertainment,  Inc.  (the  "Company")  produces  and sells live
entertainment  and operates live  theaters and dinner  theaters  worldwide.  The
Company has continuous  running shows in gaming and resort venues in California,
Florida,  Missouri,  Nevada,  New Jersey,  Pennsylvania and South Carolina.  The
Company was incorporated on October 30, 1985 in the state of Nevada.

Principles of Consolidation

      The balance sheet  reflects the accounts of On Stage  Entertainment,  Inc.
and  its  wholly-owned   subsidiaries   Legends  in  Concert,   Inc.,  a  Nevada
corporation,  On Stage  Marketing,  Inc., a Nevada  corporation  and Interactive
Events, Inc., a Georgia corporation.  The consolidated  statements of operations
for the year ended  December 31, 1997 include the results of  operations  of the
above-listed  companies for the period presented.  The consolidated statement of
operations  for the  year  ended  December  31,  1996  include  the  results  of
operations  of On Stage  Entertainment,  Inc.,  Legends In Concert,  Inc. and On
Stage  Marketing,  Inc. for the period  presented and the results of Interactive
Events,  Inc. from November 1, 1996. All significant  intercompany  transactions
and balances have been eliminated in  consolidation.  The consolidated  group is
referred to collectively and individually as the "Company."

Accounts Receivable

      Accounts  receivable and revenue are recorded as the stage productions are
run. Accounts receivable represents cash collected subsequent to the year-end in
which the show ran.

Estimates

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosures  of contingent  assets and  liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Inventory

      Inventory  consists of various stage and lighting  supplies and are stated
at cost on a first-in, first-out basis.

Property, Equipment and Leasehold Improvements

      Property and equipment are stated at cost.  Expenditures  for  maintenance
and repairs  are charged to expense as  incurred.  Renewals  or  betterments  of
significant items are capitalized.  When assets are sold or otherwise  disposed,
the cost and related  accumulated  depreciation or amortization are removed from
the respective accounts, and any resulting gain or loss is recognized.

      Depreciation and amortization of property and equipment purchased prior to
January 1, 1996 are  provided  using  accelerated  methods  while  property  and
equipment  purchased  from January 1, 1996 are  depreciated  on a straight  line
basis  over  the  estimated   useful  lives,  as  indicated   below.   Leasehold
improvements  are amortized over the lesser of the related assets useful life or
the remaining lease term.
                                                                       Years
                                                                       -----

Stage equipment..............................................           5-7
Scenery and wardrobe.........................................           5-7
Furniture and fixtures.......................................           5-7
Vehicles.....................................................            3
Leasehold improvements.......................................           10

Impairment of Long-Lived Assets

      The Financial  Accounting  Standards  Board ("FASB")  issued  Statement of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived Assets to Be Disposed of" ("SFAS No. 121")
which is effective for financial  statements  for fiscal years  beginning  after
December  15,  1995.  This  standard   establishes   guidelines  regarding  when
impairment losses on long-lived assets,  which include plant and equipment,  and
certain identifiable  intangible assets, should be recognized and how impairment
losses  should be  measured.  The Company  adopted this  accounting  standard on
January 1, 1996 and is applying  the  concepts  to  intangibles  and  productive
assets periodically.
<PAGE>


Stock Based Compensation

      Statements  of Financial  Accounting  Standards No. 123,  "Accounting  for
Stock-Based  Compensation"  ("SFAS No. 123")  establishes a fair value method of
accounting for stock-based  compensation  plans and for transactions in which an
entity  acquires  goods or services  from  non-employees  in exchange for equity
instruments.  The Company adopted this  accounting  standard on January 1, 1996.
SFAS  No.  123  also  encourages,  but  does not  require  companies  to  record
compensation cost for stock-based employee compensation.  The Company has chosen
to continue to account for  stock-based  compensation  utilizing  the  intrinsic
value  method  prescribed  in  Accounting   Principles  Board  Opinion  No.  25,
"Accounting for Stock Issued to Employees", and comply with pro forma disclosure
requirements.  Accordingly,  compensation  cost for stock options is measured as
the excess,  if any, of the fair market price of the Company's stock at the date
of grant over the amount an employee must pay to acquire the stock.

Earnings (Loss) Per Share

      On March 3,  1997,  the FASB  issued  Statement  of  Financial  Accounting
Standard No. 128. Earnings per share (SFAS 128). This  pronouncement  provides a
different  method of  calculating  earnings per share than is currently  used in
accordance  with  APB  15,  Earnings  per  Share.  SFAS  128  provides  for  the
calculation  of Basic and Diluted  earnings per share.  Basic earnings per share
includes no dilution  and is computed  by dividing  income  available  to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of securities
that  could  share in the  earnings  of the  entity,  similar  to fully  diluted
earnings per share.  Except where the  provisions of the Securities and Exchange
Commission's Staff Accounting Bulletin No. 98 are applicable, potential dilutive
securities  have been  excluded  in all years  presented  in the  Statements  of
Operations when the effect of their inclusion would be  anti-dilutive.  SFAS 128
is effective for fiscal years and interim periods after December 15, 1997; early
adoption is not permitted. The Company has adopted this pronouncement during the
fiscal year ended  December 31, 1997.  The effect of restating 1996 earnings per
share to conform to SFAS 128 was to increase basic earnings per share by $0.01.

      The Company's diluted net income per share for the year ended December 31,
1996,  includes  62,883  common  shares  that would be issued  upon  exercise of
311,300 stock options.  For the year ended December 31, 1997, potential dilutive
securities  representing  outstanding 720,938 options and 2,077,000  outstanding
warrants are not included  since their  effect would be  anti-dilutive.  For the
year ended December 31, 1996, potential dilutive securities representing 456,453
outstanding  stock  options are not included  because their  exercise  price was
greater than the average market price of the common shares.

Fair Value of Financial Instruments

          Statement  of Financial  Accounting  Standards  No. 107,  "Disclosures
about Fair Value of Financial  Statements",  ("SFAS No. 107") issued by the FASB
became  effective  December 31, 1995. This statement  requires the disclosure of
estimated fair values for all financial  instruments for which it is practicable
to estimate fair value.

          The carrying amounts of financial instruments including cash, accounts
receivable,  current maturities of long-term debt,  accounts payable approximate
fair value because of their short maturity.

      The carrying amount of long-term debt  approximates fair value because the
interest  rates on these  instruments  approximate  the rate the  Company  could
borrow at December 31, 1997.

       The  Company  has  notes  receivable  from the  Chief  Executive  Officer
("CEO").  Due to the  related-party  nature of these  receivables the fair value
cannot be determined.

Income Taxes

      The Company follows  Statement of Financial  Accounting  Standards No. 109
("SFAS No. 109"),  "Accounting for Income Taxes." SFAS No. 109 requires an asset
and liability approach to providing deferred income taxes and specifies that all
deferred  tax  balances be  determined  by using the tax rate  expected to be in
effect when the taxes will actually be paid or refunds received.

Pre-opening Costs

      Pre-opening expenses include the cost incurred to prepare a production for
show. These costs are capitalized and amortized over a one year period,  or over
the life of the show for those shows which have a minimum guaranteed period.
<PAGE>


Cash Equivalents

      The Company  considers all liquid assets with an initial maturity of three
months or less to be cash and/or cash equivalents.

Concentration of Credit Risk

      The Company  places its cash and temporary cash  investments  with banking
institutions. At December 31, 1997, the Company had $2,600,788 on deposit at one
bank.  Account balances at an individual bank are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000.

New Accounting Standards

          Statement of Financial  Accounting  Standards No. 129,  "Disclosure of
Information  about  Capital  Structure"  ("SFAS No.  129") issued by the FASB is
effective  for  financial  statements  ending after  December 15, 1997.  The new
standard  reinstates various securities  disclosure  requirements  previously in
effect under Account  Principles Board Opinion No. 15, which has been superseded
by SFAS No. 129.  The Company  adopted of SFAS No. 129 as of December  15, 1997,
and it had no effect on its financial position or results of operations.

          Statement  of  Financial  Accounting  Standards  No.  130,  "Reporting
Comprehensive  Income"  ("SFAS No.  130")  issued by the FASB is  effective  for
financial  statements  with fiscal  years  beginning  after  December  15, 1997.
Earlier  application  is  permitted.  SFAS No.  130  establishes  standards  for
reporting and display of  comprehensive  income and its components in a full set
of general-purpose financial statements. The Company does not expect adoption of
SFAS  No.  130 to have  an  effect  on its  financial  position  or  results  of
operations.

      Statement of Financial  Accounting  Standards No. 131,  "Disclosures about
Segments of an Enterprise  and Related  Information"  ("SFAS No. 131") issued by
the FASB is effective for financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted.  SFAS No. 131 requires that
the public  companies  report  certain  information  about  operating  segments,
products,  services and geographical areas in which they operate and their major
customers.  The  Company  does not  expect  adoption  of SFAS No. 131 to have an
effect on its financial position or results of operations;  however, disclosures
on certain of these items may be expanded.

Reclassifications

      Certain  1996  amounts  have  been  reclassified  to  conform  to the 1997
presentation.

<PAGE>



                  On Stage Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

1.    Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements consist of the following:
<TABLE>

                                                                  December 31,
                                                            -----------------------
                                                               1996         1997
                                                            -----------------------
<S>                                                         <C>          <C>

Stage equipment .........................................   $1,997,340   $2,267,456
Scenery and wardrobe ....................................      854,976    1,047,750
Furniture and fixtures ..................................      678,912    1,002,674
Vehicles ................................................        6,434       12,757
Leasehold improvements ..................................      188,279      678,198
                                                            ----------   ----------
                                                             3,725,941    5,008,835
Less accumulated depreciation and amortization ..........    1,937,718    2,553,347
                                                            ----------   ----------
Total property, equipment and leasehold improvements, net   $1,788,223   $2,455,488
                                                            ==========   ==========
</TABLE>

The cost of assets held under  capital  leases was  $308,072 and  $1,008,432  at
December 31, 1996 and 1997, respectively.

2.    Notes Payable and Long-Term Debt

Long-term debt consists of the following:
<TABLE>
                                                                                         December 31,
                                                                                      1996         1997
                                                                                   ----------------------
<S>                                                                                <C>          <C>
8% convertible subordinated debentures payable ("Deben-
  tures"), due in monthly installments of interest only (a) ....................   $1,714,064   $     --
DYDX LP Loan (b) ...............................................................      750,000         --
11.5% note payable to bank, due in monthly installments of
  $15,405, including interest through September 1997, secured
  by two performance contracts .................................................      149,721         --
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  through  April  2000,  secured by office
  communication equipment, and production equipment ............................      242,116      822,250
                                                                                   ----------   ----------
Total  long-term debt ..........................................................    2,855,901      822,250
Less current maturities ........................................................      228,510      271,918
                                                                                   ----------   ----------
                                                                                   $2,627,391   $  550,332
                                                                                   ==========   ==========
</TABLE>

As of December 31, 1997 the future  minimum lease  payments under capital leases
are as follows:

                                                             Capital
Year                                                          Leases
-----                                                       ---------

 1998.....................................................  $ 359,373
 1999.....................................................    320,657
 2000.....................................................    266,730
 2001.....................................................      2,706
                                                            ---------
 Total....................................................    949,466
                                                            =========
 Less: amounts representing interest costs................    127,216
                                                            ---------
 Net present values.......................................    822,250
 Less: capital lease obligations included in
   short-term debt .......................................    271,918
                                                            ---------
 Long term capital lease obligations......................  $ 550,332
                                                            =========
<PAGE>


      (a) From June  through  November  1995,  the  Company  conducted a private
placement of units of its securities (the "Debenture Units"),  with each $50,000
Debenture  Unit  consisting  of (i) a $50,000  principal  amount 8%  convertible
subordinated  debenture  of the Company due on August 31,  1997,  with  interest
payable monthly (the "Original  Debentures")  and (ii) the right,  under certain
circumstances,  to receive an A and a B Warrant of the  Company,  for  aggregate
proceeds of $1,989,064 (the "1995 Private Placement").

      In July 1996,  in order to (i) extend the  maturity  date of the  Original
Debentures and (ii) eliminate certain covenants in the Original  Debentures that
were  disadvantageous to the Company, the Company offered to either (a) exchange
the  outstanding  Debenture  Units for Debentures due January 4, 1999, or (b) to
repurchase the Debenture  Units upon the terms and subject to the conditions set
forth in an Offer to Exchange or Repurchase the Debenture Units,  dated July 24,
1996 (the "Exchange or Repurchase  Offer").  The Debentures issued in connection
with the Exchange or Repurchase Offer bear interest at the rate of 8% per annum,
payable  monthly,  and,  when issued,  were  convertible  at the option of their
holders into shares of Common Stock at the rate of 266.67 shares per each $1,000
principal  amount  of  Debenture  at any time  prior to  maturity.  There are no
warrants  attached  to the  Debentures.  In  connection  with  the  Exchange  or
Repurchase  Offer,  the holders of $1,714,064  principal  amount of the Original
Debentures tendered their Debenture Units in exchange for Debentures in the same
principal  amount  and  holders of  $275,000  principal  amount of the  Original
Debentures  opted to have them  repurchased.  On August 13,  1997,  the  Company
converted the entire $1,714,064 principal amount of Debentures into an aggregate
of 505,649 shares of Common Stock. The aforementioned  conversion was based upon
a ratio of 295  shares  of  Common  Stock per each  $1,000  principal  amount of
Debentures.  The  conversion  resulted  in a one time,  non-recurring,  interest
expense  charge in the amount of $194,228  (based on an imputed  value of $ 4.00
per share of Common Stock).

      (b) On February 29, 1996,  the Company  entered into a loan agreement with
DYDX  Legends  Group,  L.P.  ("DYDX")  pursuant  to which the  Company  borrowed
$1,000,000 from DYDX (the "DYDX Loan"). The DYDX Loan accrued interest at a rate
of 8% per annum,  was to mature on January 1, 1998 and was secured by a security
agreement  pursuant to which DYDX had a lien on substantially all of the present
and future  assets of the Company.  In addition,  if the Company did not file an
initial public offering registration  statement by June 30, 1996, it would be in
default under the DYDX Loan.

      The Company and DYDX  entered into several  extension  agreements,  one of
which included the repayment of $250,000.

      In order to effect the Bridge Financing, the Company and DYDX entered into
an Amended and Restated Loan  Agreement as of March 19, 1997 in connection  with
which the  security  agreement  executed  in  connection  with the DYDX Loan and
DYDX's security  interest in the Company's assets were terminated,  the maturity
date of the DYDX Loan was extended to coincide with that of the Bridge Notes and
its interest  rate was raised to 9% per annum.  On August 13, 1997,  the Company
paid off, in full, all  outstanding  principal and accrued  interest,  $773,014,
owed by the Company under the DYDX loan.

Bridge Financing

      On March 26, 1997 Company  completed a Bridge  Financing of  $1,000,000 of
unsecured  non-negotiable notes, common stock and warrants through the Company's
underwriter,  Whale  Securities  Co.,  L.P.  (the  "Placement  Agent").  The net
proceeds to the Company after  deducting the Placement  Agent's  commissions and
other offering expenses were $875,000.  The common stock was assigned a value of
$444,000 less  expenses of $77,700  resulting in a charge to equity of $366,300.
As no consideration  was paid for the common stock, this amount is considered an
original issue discount and interest  expense over the term of the related notes
payable.  On August 13,  1997,  the Company paid off, in full,  all  outstanding
principal and accrued interest, $1,036,746, owed by the Company under the Bridge
Notes.

      Lines of Credit

      In May 1997,  First  Security  Bank issued a line of credit to the Company
for up to $250,000.  Borrowings  under such facility  bear variable  interest at
1.5% over the  First  Security  Bank of  Idaho's  index  (10% per year as of the
facility's  inception) and are due on demand. The line of credit is scheduled to
expire on May 19, 1998.  John W.  Stuart,  the  Company's  Chairman and CEO, has
personally guaranteed the line of credit. No balance was outstanding at December
31, 1997.

      On September 29, 1997,  First Security  Leasing  Company  approved for the
Company a  $1,000,000  lease  line.  Advances  under  the line of  credit  incur
interest at a rate of 9.75% per annum.  The financing  commitment will expire on
September 29, 1998. No balance was outstanding at December 31, 1997.
<PAGE>


3.    Commitments and Contingencies

Leases

      The  Company's  corporate  headquarters  consist of  approximately  16,000
square feet of office and warehouse space located at 4625 West Nevso Drive,  Las
Vegas, Nevada. The lease will expire on February 28, 1999 and the total rent for
the premises is approximately $14,614 per month.

      The Company's  corporate  warehouses  consist of  approximately  5,376 and
4,669  square feet  located at 4695 West Nevso  Drive,  Las Vegas,  Nevada.  The
leases,  which will expire in July,  1998 and in  November  1998,  provides  for
monthly rent for the premises of $2,289 and $3,506, respectively.

      The Company's  east coast office  consists of  approximately  2,000 square
feet of space located at Egg Harbor  Township in Atlantic City, New Jersey.  The
lease,  which will expire in September,  1999,  provides for monthly rent in the
amount of $1,725.  In addition,  the Company leases seven  condominium units for
use by its  performers in Atlantic City from the Company's CEO and his wife. The
aggregate rent for such apartments is currently  $12,671 per month.  The current
lease term expires on June 30, 1998.

      The Company  leases and operates the Surfside  Theater and related  office
space in Myrtle Beach, South Carolina.  The Lease, which will expire on December
31, 2004, provides for monthly rent for the premises of $29,166.

      The Company  leases the Coliseum  Theater in Daytona Beach,  Florida.  The
lease,  which will expire in November,  1998,  provides for monthly rent for the
premises of $10,000.

      The Company  leases and  operates the Legends  Family  Theater and related
office space in Branson,  Missouri.  This lease,  which will expire in December,
1998, provides for monthly rent for the premises is $13,000.

      The Company  leases and operates the Toronto  Legends  theater in Toronto,
Ontario.  This lease, which will expire in February,  2003, provides for monthly
rent for the premises is $9,410.

      The Toronto Legends Theater office  consists of  approximately  627 square
feet of space located at Toronto,  Ontario.  This lease, which is currently on a
month to month basis, provides for monthly rent in the amount of $1,286.

      The Company's  Atlanta,  Georgia  office  consists of 6,000 square feet of
office and  warehouse  space.  This lease  expires on October 31, 1998,  and the
total rent for the premises is approximately $1,000 per month.

      Rent and lease expense  included in  production  costs for the years ended
December  31, 1996 and 1997 was $301,918 and  $595,425,  respectively.  Rent and
lease expense included in selling,  general and  administrative  expense for the
years ended December 31, 1996 and 1997 was $214,383 and $252,905, respectively.

The total minimum rental commitment at December 31, 1997 is as follows:

      Year ending
      December 31,                                         Amount
      ------------                                       ----------

         1998.......................................     $1,022,159
         1999.......................................        506,813
         2000.......................................        462,920
         2001.......................................        462,920
         2002.......................................        462,920
      Thereafter....................................     $  718,822
                                                         ----------
                                                         $3,636,554
                                                         ==========

Employment Contracts

      On February 1, 1997, the Company entered into an employment agreement with
the principal  stockholder  to employ him as its Chairman of the Board and Chief
Executive  Officer  until May 31,  2000.  In  accordance  with  this  employment
agreement,  the principal  stockholder will receive an annual salary of $250,000
and may be entitled to receive an annual 10% increase of his base salary amount.
The Company has the right to terminate the principal stockholder's employment at
any time without cause, provided that the Company pays the principal stockholder
a lump sum payment equal to one year's base salary,  car allowance and insurance
allowance.  Also in February 1997, the Company amended the employment agreements
with the CFO and the President  which,  among other things,  extended their then
current  employment  agreements through May 31, 2000. In connection with each of
their respective employment agreements,  the CEO, President and CFO also entered
into confidentiality and non-compete agreements with the Company.
<PAGE>

      In connection with the CFO's amended  employment agreement the Company has
granted  him  options  to  purchase  85,000  shares of common  stock,  which are
immediately  exercisable  at $4.00 per share.  The  Company  also issued the CFO
40,532  shares of common  stock upon the  closing of the Bridge  Financing.  The
issuance  of these share will  result as a one-time  compensation  charge to the
Company of $162,128.

      The Company has employment  agreements with certain executive officers and
employees,  the terms of which expire at various dates through May,  2000.  Such
agreements  provide for minimum  salary  levels and  incentive  bonuses based on
prescribed formulas over their terms.

Aggregate commitments related to employment contracts are as follows:

Years ending December 31,                                      Amount
-------------------------                                    ----------
      1998...............................................    $  927,524
      1999...............................................       534,646
      2000...............................................       197,770
                                                             ----------
                                                             $1,659,940
                                                             ==========

Executive Bonus Plan

      In March 1997, the Company implemented a three-year  Executive Bonus Plan,
administered  by the  Board of  Director's  Compensation  Committee.  Under  the
Executive Bonus Plan, an annual bonus pool of up to 5% of the Company's  audited
pre-tax earnings,  after non-recurring  charges such as original issue discount,
compensation  and interest expense charges,  but excluding  extraordinary  items
("Pre-Tax Earnings"),  may be established for distributions at the discretion of
the Company's  Board of Directors,  to the Company's  executive  officers (other
than the Chairman and CEO who is not  eligible for bonuses  under the  Executive
Bonus Plan) in 1998, 1999 and 2000,  provided that the Company achieves at least
minimum Pre-Tax Earnings for the respective preceding year as follows:

                                                      Minimum
                                                      Pre-Tax
      Year                                            Earnings
      ---------------------------------------       -----------

      1998...................................       $ 5,000,000
      1999...................................         8,700,000
      2000...................................         8,900,000
                                                    ------------
                                                    $22,600,000
                                                    ===========

Legal Proceedings

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

4.    Stockholder's Equity

Initial Public Offering

      On August 13, 1997, the Company  completed an initial  public  offering of
1,400,000  shares of Common Stock at $5.00 per share and redeemable  warrants to
purchase  1,610,000 shares of Common Stock at $0.10 per Warrant (the "IPO"). The
net  proceeds  to the  Company of the  offering  after  underwriting  discounts,
commissions and expenses was approximately $4,855,975.

Stock Split

      In June 1996, the Company  effectuated a 72,550-for-1  split of its common
stock and  increased  the number of the  authorized  shares of common stock from
100,000 to  25,000,000  shares and  simultaneously  decreased the par value from
$1.00 per share to $.01 per share ("Stock  Split").  All common  shares,  common
stock warrants, options and grants and (loss) per share information disclosed in
the financial statements and notes have been adjusted to give retroactive effect
for the Stock Split.
<PAGE>

      On March 18, 1997, the Company  effectuated a 1 for 1.814967 reverse stock
split of the Company's common stock ("Reverse Split"). Accordingly,  $29,828 was
transferred from accumulated deficit to common stock and the Company has retired
26,422 of the principal stockholder's shares of common stock. All common shares,
common  stock  warrants,   options  and  grants  and  income  (loss)  per  share
information  disclosed in the financial  statements and notes have been adjusted
to give  effect  to the  Reverse  Split  and  the  retirement  of the  principal
stockholder common stock.

Interactive Purchase

On November 1, 1996,  the Company  entered  into a common  stock  purchase  with
Interactive   Events,  Inc.   ("Interactive"),   which  creates  and  implements
interactive  events for parties and conventions.  The Company issued 19, 284 and
11,020  shares  of  common  stock on  November  1, 1996 and  November  1,  1997,
respectively,  as payment.  The Company  recorded  $129,180 as the excess of the
purchase price over the net assets  acquired,  which is being amortized over ten
years. Since this transaction was accounted for as a purchase, the operations of
Interactive  Events are included in the  Company's  operations as of the date of
the acquisition. The operations prior to November 1, 1996 were immaterial.

Warrants Converted to Common Stock

      In connection with the closing of the DYDX Loan and subsequent  extensions
(see Note 2(b)),  the lender was issued  warrants to purchase  550,974 shares of
the Company's  common stock in February 1996 at an original  exercise  price per
share equal to the initial public  offering price of the Company's  common stock
(the "DYDX  Warrant").  In connection with the Third Extension of the DYDX Loan,
the Company  split the DYDX Warrant into two  warrants,  one in the name of DYDX
for the purchase of 440,779  shares of Common Stock and the other in the name of
an affiliate of DYDX,  for the purchase of 110,195  shares of Common Stock,  and
reduced  the  exercise  price  of  both  warrants  to  $3.99  per  share,  which
approximates fair market value at the date of the reduction.

      On March 17, 1997, the Company  exchanged all of its outstanding  warrants
for shares of its  common  stock (the  "Warrant  Exchange  Shares) on a cashless
basis (the "Warrant Exchange").  The number of Warrant Exchange Shares issued to
each warrant holder in the Warrant  Exchange was equal to the number of warrants
held by such holder  divided by the  exercise  price of the  holder's  warrants,
based on the number and price of the warrants prior to the Reverse  Split.  As a
result of the  Warrant  Exchange,  all of the  Company's  currently  outstanding
warrants were canceled and  exchanged  for a total of 799,956  Warrant  Exchange
Shares on a pre-Reverse Split basis,  which amount was reduced to 440,755 shares
in connection  with the Reverse Split.  The Warrant  Exchange had no effect upon
the Company's earnings.

1996 Stock Option Plan

      The Board of Directors and the Company's  then sole  stockholder  approved
the Company's Incentive Stock Option Plan on August 7, 1996 (the "Option Plan").
Pursuant to an  amendment to the Option  Plan,  effected on March 19,  1997,  an
aggregate  of 785,000  shares of common  stock have been  reserved  for issuance
pursuant to options  granted and available for grant under the Option Plan.  The
Option Plan is designed to further the interests of the Company by incentivizing
their  employees to continue to work for the betterment of the Company in return
for sharing in the success of the Company through the Option Plan.

      Under the Option Plan, a committee (the "Committee") has been appointed by
the Board of Directors to administer the Option Plan and is authorized, to grant
options thereunder to all eligible  employees of the Company,  including certain
officers and directors of the Company as well as to others providing services to
the Company.  The Option Plan provides for the granting of both:  (i) "incentive
stock  options" as defined in Section 422 of the Internal  Revenue Code of 1986,
as  amended,  which are  intended  to qualify  for  special  federal  income tax
treatment ("ISOs") to employees  (including officers and employee directors) and
(ii)  "non-qualified  stock options" ("NQSOs") to employees  (including officers
and employee directors) non-employee directors, and consultants.  Options can be
granted  under the Option Plan on such terms and at such prices as determined by
the Committee,  except that in the case of ISOs, the per share exercise price of
such  options  cannot be less than the fair market  value of the Common Stock on
the date of grant.  In the case of an ISO granted to a 10%  stockholder  (a "10%
Stockholder"),  the per share  exercise  price  cannot be less than 110% of such
fair  market  value.  To the extent  that the grant of an option  results in the
aggregate fair market value of the shares with respect to which  incentive stock
options are  exercisable  by a grantee for the first time in any  calendar  year
exceed $100,000, such option will be treated under the Option Plan as an NQSO.
<PAGE>


      Options  granted  under the  Option  Plan will  become  exercisable  after
successful  completion of the vesting period or periods specified in each option
agreement.  Except as otherwise  determined  by the  Committee,  options  become
exercisable  as to one-third of the shares  subject to the option on each of the
first,  second  and  third  anniversaries  of the date of  grant of the  option.
Options are not exercisable, however, after the expiration of ten years from the
date of grant (or five years  from such date in the case of an ISO  granted to a
10% Stockholder)  and are not transferable  other than by will or by the laws of
descent and distribution.

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

      In March  1996,  the Company  hired a new  President  and Chief  Operating
Officer (the "President").  As part of the new President's employment agreement,
the Company granted him options to purchase 311,300 (post Reverse-Split)  shares
of the Company's  common stock.  The President has elected to classify 75,132 of
the options as ISOs which vest in three equal annual installments  commencing on
the date of the grant.  The remaining  236,168 are to be classified as NQSOs, of
which one-half vest  immediately,  one-quarter vest on the first  anniversary of
the grant date,  and the balance vest on the second  anniversary  of such grant.
The exercise price of all of the  President's  stock options is $3.99 per share,
which was the fair value at the date of grant.

          In August and December 1996, the Company granted options to purchase a
total of 120,359 shares of the Company's common stock to certain other employees
of the Company. These options were granted under the Company's 1996 Stock Option
Plan and have an exercise price of $5.00 per share. Unless otherwise  determined
by the  Committee,  the options  have a term of ten years from the date of grant
and are  subject  to  earlier  termination  in  certain  events  related  to the
termination of employment.  The options vest in three equal annual  installments
commencing on the first anniversary of the date of the grant.

      In February  1997 the CFO  entered  into an amended  employment  agreement
under which he was granted 85,000 additional stock options (see Note 3).

Non-employee Directors' Options

      In March 1997, the Company provided for each non-employee  director of the
Company to  receive,  in  addition  to  reimbursement  of  expenses  incurred in
attending  Board  meetings,  an option to purchase 10,000 shares of Common Stock
each year that 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
four scheduled Board of Director meetings during the Grant Year.  One-quarter of
the annual  option  grant shall vest as of each of the Grant  Year's first three
scheduled Board of Director  meetings and the remainder of such option will vest
as of the fourth  scheduled  meeting,  provided,  in the latter  case,  that the
director has attended all four of that Grant Year's scheduled Board meetings.
<PAGE>


The option and warrant  activity  during the years ended  December  31, 1996 and
1997 is as follows:

                                                                        Weighted
                                                         Number of       Average
                                                          Options       Exercise
                                                       and Warrants       Price
                                                       -------------------------

Outstanding at January 1, 1996 .....................          24,794    $   5.00
Granted ............................................         431,659        4.27
                                                           ---------    --------
Outstanding at December 31, 1996 ...................         456,453        4.31
Cancelled ..........................................           8,000        5.00
Granted ............................................       2,790,240        5.63
Exercised ..........................................         440,755        5.00
                                                           =========    ========
Options outstanding at December 31, 1997 ...........       2,797,938        5.52
                                                           =========    ========
Options exercisable at December 31, 1997 ...........       1,282,822        5.29
                                                           =========    ========
Options exercisable at December 31, 1996 ...........         228,128    $   3.99
                                                           =========    ========

Information  relating  to stock  options  and  warrants  at  December  31,  1997
summarized by exercise price are as follows:
<TABLE>

                                         Outstanding                                          Exercisable
                     -----------------------------------------------------         ----------------------------------
Exercise Price                         Weighted Average                                    Weighted Average
                     -----------------------------------------------------         ----------------------------------
  Per Share            Shares          Life (Year)       Exercise Price              Shares         Exercise Price
---------------      ------------     --------------    ------------------         ------------    ------------------
<S>                  <C>              <C>               <C>                        <C>             <C>
    $3.99                311,300           10                 $3.99                    286,256           $3.99
    $4.00                 85,000           10                 $4.00                     85,000           $4.00
    $5.00                324,638           10                 $5.00                     55,884           $5.00
    $5.50              1,822,500            5                 $5.50                    757,368           $5.50
    $8.25                114,500            5                 $8.25                     44,232           $8.25
    $9.08                140,000            5                 $9.08                     54,082           $9.08
                     ============     ==============    ==================         ============    ==================
                       2,797,938           6.3                $5.52                  1,282,822           $5.29
                     ============     ==============    ==================         ============    ==================
</TABLE>
<PAGE>


      All stock options issued to employees have an exercise price not less than
the fair market value of the Company's common stock on the date of grant, and in
accordance with accounting for such options utilizing the intrinsic value method
there is no related  compensation  expense  recorded in the Company's  financial
statements.  Had compensation cost for stock-based  compensation been determined
based on the fair value at the grant  dates  consistent  with the method of SFAS
123,  the  Company's  net  income  and  earnings  per share for the years  ended
December  31,  1996 and 1997  would have been  reduced to the pro forma  amounts
presented below:

                                                   1996                1997
                                                -----------       --------------
Net Income (loss)
   As reported ..........................       $   900,998       $  (2,946,056)
   Pro forma ............................       $   555,773       $  (3,335,419)

Basic Income (loss) per share
   As reported ..........................       $      0.23       $       (0.55)
   Pro forma ............................       $      0.14       $       (0.62)

Diluted income (loss) per share
   As reported ..........................       $      0.22       $       (0.55)
   Pro forma ............................       $      0.14       $       (0.62)

      The  fair  value of  option  grants  is  estimated  on the date of  grants
utilizing the Black-Scholes  option-pricing  with the following weighted average
assumptions  for in 1996,  expected  life of 10 years:  expected  volatility  of
2.42%, risk-free interest rates of 6.0%, and a 0% dividend yield. The fair value
was  calculated  in 1997 using the  following  assumptions:  expected life of 10
years,  expected volatility of 38.06%,  risk-free interest rates of 6%, and a 0%
dividend  yield.  The  weighted  average fair value at date of grant for options
granted  during  1996  and  1997  approximated   $1.60  and  $1.71  per  option,
respectively.

      Due to the fact that the  Company's  stock option  programs vest over many
years and additional  awards are made each year, the above pro forma numbers are
not indicative of the financial impact had the disclosure provisions of FASB No.
123 been applicable to all years of previous option grants.

5.    Significant Venues and Concentration of Credit Risk

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

                                                        Years ended December 31,
                                                        ------------------------
                                                            1996        1997
                                                        ------------------------

Venue A................................................      29%         25%
Venue B................................................      11           -
Venue C................................................      32          28
Venue D................................................      12          10
                                                             --          --
                                                             84%         63%
                                                             ==          ==

6.    Note Receivable from CEO and Principal Stockholder

      On October 23, 1997 and  November  17,  1997,  the  Company  obtained  the
written  consent of the  Underwriter  to advance  the CEO the  amounts  totaling
$100,000  (the  "Advances"),  which  advances bear interest at a rate of 10% per
annum,  mature December 31, 1998 and are evidenced by promissory  notes executed
by the CEO in favor of the Company.

      At December 31, 1997, the notes receivable  balance was $136,194 including
accrued interest income of $1,041. The difference ($35,153) between the December
31, 1997 ending balance ($136,194) and the note receivable were personal charges
($17,007)  to the  corporate  credit card and  $18,146 in show fees  received by
Stuart on behalf of the Company.  Mr. Stuart has since repaid the $35,153 to the
Company.  The Company has agreed with the Underwriter not to loan or advance any
further sums to Mr. Stuart, without the prior consent of the Underwriter.
<PAGE>


7.    Selling, General and Administrative

      As of  December  31,  1996,  the  Company  agreed  to  forgive  all of the
outstanding  amounts  due  from  the  principal   stockholder  and  release  all
collateral  against the notes.  As a result,  the Company  recorded a $859,  511
charge during 1996 for the forgiveness of debt.

      As of August 12, 1997,  the Note from  stockholder,  which  together  with
principal and interest totaled  $221,000,  was forgiven in full. The Company has
agreed with the  Underwriter not to loan or advance any further sums to the CEO,
without the prior written consent of the Underwriter.

      As more fully  discussed  in footnote 4, the issuance of shares to the CFO
resulted in a one time, non-recurring, compensation charge of $162,128.

8.    Depreciation  and Amortization.

      Depreciation  and  amortization  for the  year  ended  December  31,  1997
increased  by  $306,000,  or 45.2%,  as compared to the year ended  December 31,
1996. The increase in depreciation and  amortization was primarily  attributable
to pre-opening costs capitalized in 1996, which were expensed in 1997.

9.    Expenses at discontinued location

      The Company  decided to close its Legends  production  in Daytona Beach on
December  31,  1997.  As part of the closing,  the Company  incurred  additional
expenses of $489,285 during 1997. The Company intends to transfer  substantially
all the furniture and equipment at the Daytona Beach facility to other locations
which  are  scheduled  to debut  performances  in 1998.  Also,  the  Company  is
currently in negotiations with a third party to potentially sublease the Daytona
Beach theater.

10.   Interest Expense

      As more  fully  discussed  in note 2,  the  conversion  of the  Debentures
resulted in a one time,  non-recurring,  interest expense charge of $194,228 and
the Bridge  Financing  resulted  $366,000  original  issue discount and interest
expense.

11.   Income Taxes

Income taxes in the statement of operations consists of the following:

Years ended December 31,                             1996                  1997
------------------------                            -------              -------
Current
  Federal ............................              $   - -              $   - -
  State ..............................               15,789                6,673
                                                    -------              -------
                                                    $15,789              $ 6,673
                                                    =======              =======

Deferred taxes are as follows:

Years ended December 31,                                1996             1997
------------------------                              ---------       ---------
Deferred tax assets:
      Litigation accrual .......................      $  34,000       $  21,080
      Net operating loss carryforward ..........        223,453         848,426
                                                      ---------       ---------
Total deferred tax assets ......................        257,453         869,506
Deferred tax liability:
Pre-opening costs ..............................        (43,921)            - -
                                                      ---------       ---------
Net deferred tax assets ........................        213,532         869,506
Less: Valuation allowance ......................       (213,532)       (869,506)
                                                      ---------       ---------
                                                      $     - -       $     - -
                                                      =========       =========
<PAGE>


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

      Income  taxes 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 following items:

Years ended December 31,                               1996              1997
------------------------                             ---------        ----------

U.S. Federal statutory rate
  applied to pretax income (loss) ............       $ 306,339        $(999,390)
Permanent differences ........................             510            5,663
State income taxes, net
  of Federal benefit .........................          15,789            2,269
Benefit of net operating
  loss carryforward ..........................       $(306,849)             - -
Tax effect of unrecognized net
  operating loss carryforward ................             - -          998,131
                                                     ---------        ---------
                                                     $  15,789        $   6,673
                                                     =========        =========

      At December 31, 1996 and 1997 the Company had Federal net  operating  loss
carryforwards  of  approximately  $657,214 and  $2,495,371  respectively.  Under
Federal Tax Law IRC Section 382, certain  significant  changes in ownership that
the Company is currently  undertaking  may restrict  the future  utilization  of
these tax loss carryforwards.

12.   Subsequent Events

Note Receivable from Principal Stockholder

      In March 1997,  the Company  agreed  with its  Underwriter,  that it would
neither loan nor advance any sums to or on behalf of Mr. Stuart other than those
sums to or on behalf of Mr.  Stuart other than those sums advanced to Mr. Stuart
from  December 31, 1996 through the date of the IPO,  without the  Underwriter's
prior  written  consent.  The Company also received the  authorization  from the
Underwriter,  to advance John Stuart up to another  $150,000 for  settlement  of
certain litigation pending against Mr. Stuart for his involvement in the Legends
in Concert, Hawaii show.

Working Capital Line Increase

      As of March  10,  1998,  the  Company  has drawn  $250,000  on the line of
credit.  On March 23, 1998 First Security  agreed to increase the line of credit
from $250,000 to $1,000,000. (See "Liquidity and Capital Resources- General".)

Capital Equipment Financing Commitment

      As of March  13,  1998,  the  Company  has drawn  $443,000  on the line of
credit. The Companies  remaining  availability is $537,000.  (See "Liquidity and
Capital Resources- General").

Gedco USA, Inc. Acquisition

      As of December 31, 1997, the Company  incurred  approximately  $258,000 in
direct acquisition costs, which consisted  primarily of audit fees, legal costs,
and real estate  appraisals in connection with the acquisition of certain assets
from Gedco USA, Inc. (the "Gedco Acquisition"),  which was subsequently added to
the agreed price to arrive at the total price paid for the said assets.

         On March 13, 1998, the Company  completed the Gedco Acquisition for $14
million by using $12.5 million of a $20 million credit facility  provided to the
Company by ICCMIC under the terms of this agreement, ICCMIC may also provide the
Company with up to an additional $30 million of mortgage related financing.