Overview

     The financial statements included in this report include the accounts of On
Stage  Entertainment,  Inc.,  a  publicly  traded  Nevada  corporation  and  its
subsidiaries:   Legends  in  Concert,  Inc.,  a  Nevada  corporation;  On  Stage
Marketing,  Inc.,  a Nevada  corporation;  On  Stage  Theaters,  Inc.,  a Nevada
corporation; Wild Bill's California, Inc., a Nevada corporation; Blazing Pianos,
Inc., a Nevada corporation;  King Henry's Inc., a Nevada  corporation;  On Stage
Merchandise,  Inc.,  a Nevada  corporation;  On  Stage  Events,  Inc.,  a Nevada
corporation; On Stage Casino Entertainment, Inc., a Nevada corporation; On Stage
Productions,  Inc., a Nevada corporation;  On Stage Theaters North Myrtle Beach,
Inc., a Nevada  corporation;  On Stage Theaters  Surfside Beach,  Inc., a Nevada
corporation; and Interactive Events, Inc., a Georgia corporation.

     On Stage derives net revenues from five reportable segments:

     o    Casinos.   The  Casinos   segment   primarily  sells  live  theatrical
          productions  to casinos  worldwide for a fixed fee. In addition,  this
          Casinos  segment also operates our Legends show at the Imperial Palace
          in Las Vegas, Nevada and Biloxi, Mississippi and at Bally's Park Place
          in Atlantic City, New Jersey.

     o    Theaters.  The Theaters  segment  owns and/or rents live  theaters and
          dinner theaters in urban and resort tourist locations primarily in the
          United States. This Theaters segment derives revenues from the sale of
          tickets,  along with food and beverages to patrons who attend our live
          theatrical productions.

     o    Events.  The Events  segment  sells  live  theatrical  productions  to
          commercial clients,  which include  corporations,  theme and amusement
          parks and cruise lines for a fixed fee.  Revenues  generated  from the
          Events segment are included in the Casinos segment.

     o    Merchandise.  The Merchandise  segment sells  merchandise and souvenir
          photography products to patrons who attend our Casinos,  Theaters, and
          Events segment  productions.  Revenues  generated from the Merchandise
          segment are included in the Theaters segment.

     o    Production  Services.  The Production Services segment sells technical
          equipment and services to commercial clients. However, the Productions
          Services  segment's  primary focus is to provide technical support for
          all of the Casinos, Theaters, Events and Merchandise segments.

     This document contains certain forward-looking  statements that are subject
to  risks  and   uncertainties.   Forward-looking   statements  include  certain
information  relating to potential new show openings,  the potential markets for
On Stage's  productions,  the  expansion  of existing and  potential  gaming and
tourist  markets,  our exposure to various  trends in the gaming  industry,  our
restructuring  plans and the  benefits we  anticipate  from  restructuring,  our
business strategy, our outstanding litigation matters and the defenses available
to us,  the  seasonality  of our  business,  and  liquidity  issues,  as well as
information  contained  elsewhere in this report where  current  statements  are
preceded  by,   followed  by  or  include  the  words   "believes,"   "expects,"
"anticipates" or similar expressions.  For these statements, On Stage claims the
protection of the safe harbor for  forward-looking  statements  contained in the
Private Securities Litigation Reform Act of 1995. The forward-looking statements
in this  document  are subject to risks and  uncertainties  that could cause the
assumptions underlying the forward-looking  statements and the actual results to
differ materially from those expressed in or implied by the statements.
<PAGE>

     The most  important  factors that could prevent On Stage from achieving our
goals--and cause the assumptions  underlying the forward-looking  statements and
the actual results to differ  materially  from those  expressed in or implied by
those  forward-looking  statements  include the  information  provided under the
heading "Description of Business-Risk Factors" in Item 1 of our Annual Report on
Form 10-KSB for the year ended December 31, 1998, as well as the following:

     o    On Stage's ability to renegotiate its defaulted debt  obligations with
          its Lenders and continue to forebear  foreclosure  proceedings against
          its properties;

     o    The dependence on our flagship  Legends in Concert  production and our
          principal production venues;

     o    The ability to successfully  produce and market new productions and to
          manage the growth associated with any new productions;

     o    Risks associated with our acquisition strategy,  including our ability
          to   successfully   identify,   complete   and   integrate   strategic
          acquisitions;

     o    The ability to meet our commitments under our credit facilities, which
          are  currently  in  default,  and to  obtain  alternative,  additional
          financing on commercially reasonable terms;

     o    The ability to continue as an ongoing concern;

     o    The competitive  nature of the leisure and entertainment  industry and
          the ability to continue to distinguish our services;

     o    Fluctuations  in quarterly  operating  results and the highly seasonal
          nature of our business;

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

     o    The ability to successfully  manage the litigation  pending against us
          and to avoid future litigation; and

     o    The results of operations which depend on numerous factors,  including
          the commencement and expiration of contracts, the timing and amount of
          new business generated by us, our revenue mix, the timing and level of
          additional selling, general and administrative expense and the general
          competitive  conditions in the leisure and  entertainment  industry as
          well as the overall economy.

     The accounting  policies of the reportable  operating segments are the same
as  those  described  in the  Summary  of  Accounting  Policies.  The  Company's
management  evaluates the  performance of its operating  segments based upon the
profit and loss from operations.

     The Company's reportable segments are strategic business units because each
unit services a different  market or performs a specialized  function in support
of a given market.

Results of Operations

     The following table sets forth the various  components of the Company's net
revenue as a percentage of the total net revenue for the periods indicated:

                                       2
<PAGE>

<TABLE>
               <S>                                                      <C>                  <C>

                                                                        Year Ended December 31,
                                                                 ---------------------------------------
                                                                       1998                   1999
                                                                 -----------------       ---------------

      Net revenues................................                  100.0%                 100.0%
      Costs of Revenues...........................                    79.8                   77.7
                                                                 -----------------       ---------------

      Gross profit................................                    20.2                   22.3
      Selling, general and administrative.........                    22.5                   15.2
      Depreciation and amoritziation..............                     6.5                    4.4
      Expenses at discounted location.............                     1.6                    0.0
      Asset impairment loss.......................                     1.5                    0.0
      Restructuring charges.......................                     0.0                    1.5
                                                                 -----------------       ---------------

      Operating Income (loss).....................                  (11.9)                    1.2
      Interest expenses, net......................                     5.6                   10.1
      Other income................................                     0.0                  (1.8)
      Loss on disposal of fixed assets............                     0.0                    0.2
                                                                 -----------------       ---------------

      Pre-tax loss................................                   (17.5)                  (7.3)
      Income taxes................................                     0.0                    0.0
      Net loss....................................                   (17.5)%                 (7.3)%
                                                                 =================       ===============
</TABLE>

     Net loss for the year ended December 31, 1998, was $4,870,989,  as compared
to a net loss of $2,090,339 for the year ended December 31, 1999.

     The following  tables sets forth  the results of operations by the Company
for reportable segment indicated:

                          Year ended December 31, 1998

                             Casino      Production     Theaters     Operations
                                                         Services     Sub-Total
                            ---------- ------------ -------------   ------------
Net revenues............... $9,522,738 $     71,589  $ 18,253,148  $ 27,847,476
Cost of  revenues..........  6,453,955      521,493    15,253,077    22,228,524
                            ----------- ------------ -------------  ------------
Gross profit...............  3,068,784     (449,903)    3,000,072     5,618,952
Selling, general &
administrative.............  1,156,533            -     1,704,326     2,860,860
Depreciation & amortization    409,235       44,704     1,086,824     1,540,762
Discontinued operations....          -            -       443,096       443,096
Asset impairment loss......          -            -       409,116       409,116
Restructuring Charges......     -             -             -             -
                            ----------- ------------ -------------  ------------
Operating income (loss)....  1,503,015     (494,607)     (643,291)      365,117

Interest expense, net......      3,522            -     1,412,116     1,415,639
Gain (loss) on sale of
    fixed assets...........          -            -             -             -
                            ----------- ------------ -------------  ------------
Net income (loss) before
    Income taxes...........  1,499,493     (494,607)   (2,055,408)   (1,050,522)
Income taxes...............         0             0             0             0
                            =========== ============ =============  ============
Net income (loss).......... $1,499,493   $ (494,607)  $(2,055,408)  $(1,050,522)
                            =========== ============ =============  ============


                                       3
<PAGE>

                          Year ended December 31, 1998
                                (continued)


                            Operating        Corporate        Total
                             Sub-Total         Office      Consolidated
                           ------------     ----------    -------------
Net revenues.............. $27,847,476     $        -     $27,847,476
Cost of revenues..........  22,228,524              -      22,228,524
                           ------------     ----------    -------------
Gross profit..............   5,618,952              -       5,618,952
Selling, general &
administrative............   2,860,860      3,415,465       6,276,325
Depreciation & amortization  1,540,762        265,764       1,806,526
Discontinued operations....    443,096              -         443,096
Asset impairment loss......    409,116              -         409,116
                            ----------    ------------     ------------
Operating income (loss)....    365,117     (3,681,229)     (3,316,112)

Interest expense, net......  1,415,639        139,239       1,554,877
                             -----------     ----------    ------------
Net income (loss) before
    income taxes........... (1,050,522)       139,239      (4,870,989)
Income taxes...............          0              0               0
                             ===========     ==========    ============
Net income (loss)..........$(1,050,522)    $(3,820,467)   $(4,870,989)
                             ===========     ==========    ============

                                Year ended December 31, 1999


                             Casino      Production     Theaters    Operations
                                          Services                   Sub-Total
                             ---------- ------------ -------------  ------------
Net revenues............... $10,006,642   $ 103,896  $ 18,438,104  $ 28,548,642
Cost of revenues..........    6,565,776     679,128    14,931,965    22,176,869
                            ----------- ------------ -------------  ------------
Gross profit...............   3,440,866    (575,232)    3,506,139     6,371,773
Selling, general &
administrative.............    766,964            -     1,747,966     2,514,930
Depreciation & amortization    401,664       90,239       559,335     1,051,238
Discontinued operations....          -            -             -             -
Asset impairment loss......          -            -             -             -
Restructuring Charges......     41,494            -       111,880       153,374
                            ----------- ------------ -------------  ------------
Operating income (loss)....  2,230,744     (665,471)    1,086,958     2,652,231

Interest expense, net......         84         1,123    2,648,061     2,649,268
Gain (loss) on sale of
    fixed assets...........          -            -        61,237        61,237
Other income--discounted
    invoices...............          -            -             -             -
Other income...............    (97,490)           -             -       (97,490)
                            ----------- ------------ -------------  ------------
Net income (loss) before
    Income taxes...........  2,328,150     (666,594)   (1,622,340)       39,216
Income taxes...............          0            0             0             0
                            =========== ============ =============  ============
Net income (loss).......... $2,328,150   $ (666,594)  $(1,622,340)   $   39,216
                            =========== ============ =============  ============


                                       4
<PAGE>

                          Year ended December 31, 1999
                                (continued)

                                        Corporate         Total
                                         Office       Consolidated
                                       ----------     ------------
Net revenues...............            $        -      $28,548,642
Cost of  revenues..........                     -       22,176,869
                                       ----------     ------------
Gross profit...............                     -        6,371,773
Selling, general &
administrative.............             1,836,871        4,351,801
Depreciation & amortization               192,910        1,244,148
Discontinued operations....                     -                -
Asset impairment loss......                     -                -
Restructuring Charges......               273,580          426,954
                                       ----------      ------------
Operating income (loss)....            (2,303,361)         348,870

Interest expense, net......               230,359        2,879,627
Gain (loss) on sale of
       fixed assets........                 1,819           63,056
Other income--discounted
       invoices............              (405,984)        (405,984)
Other income...............                     -          (97,490)
                                       ----------    ------------
Net income (loss) before
    income taxes...........            (2,129,555)     (2,090,339)
Income taxes...............                     0               0
                                       ==========    ============
Net income (loss)..........           $(2,129,555)   $ (2,090,339)
                                       ==========    ============

Year Ended December 31, 1998 versus Year Ended December 31, 1999

     Net Revenues

     Revenues were  $28,549,000 for the year ended December 31, 1999 compared to
$27,847,000  for the year ended  December 31, 1998, an increase of $702,000,  or
2.5%.  The Company's  revenue is derived from four principal  segments:  Casino,
Production  Services,   Merchandise,  and  Theaters.  Merchandise  revenues  are
accounted for in the Theaters reports.

     Casinos revenues were approximately $10,007,000 for the year ended December
31,  1999  compared to  $9,523,000  for the year ended  December  31,  1998,  an
increase of $484,000,  or 5.1%. This increase was primarily  attributable to new
Legends shows on Premier Cruise Line, new Legends shows at the Imperial  Palace,
in Biloxi. The increase was partially offset attributable to the Legends show at
the Imperial Palace.

     Production Services revenues were approximately $104,000 for the year ended
December 31, 1999 compared to 72,000 for the year ended  December 31, 1998.  The
increase was primarily attributable to equipment rental.

                                       5
<PAGE>

     Theaters  revenues  were  approximately  $18,438,000  for  the  year  ended
December 31, 1999 compared to $18,253,000  for the year ended December 31, 1999,
an increase of  $185,000,  or 1.1%.  This  increase  in revenues  was  primarily
attributable  to the fact that the dinner  theaters  acquired as a result of the
Gedco  acquisition were given a full 12 months of results of operations in 1999,
compared to only 9.5 months  results of  operations  in 1998.  The  increase was
partially offset by the discontinuation of the Legends show in Toronto, Canada.

Costs of Revenues

     The total costs of revenues were  $22,177,000  for the year ended  December
31,  1999  compared to  $22,229,000  for the year ended  December  31,  1998,  a
decrease  of  $52,000,  or 2.3%.  Costs of  revenues  decreased  to 77.7% of net
revenues for the year ended December 31, 1999, as compared to 79.8% for the year
ended  December 31, 1998.  This decrease in cost of revenues as a percent of net
revenues was primarily attributable to a change in the mix of our revenues.

     Selling, General and Administrative

     Selling, general and administrative costs were approximately $4,352,000 for
the year ended  December  31,  1999  compared to  $6,276,000  for the year ended
December 31,  1998, a decrease of  $1,924,000,  or 30.7%.  Selling,  general and
administrative  costs  decreased  to 15.2% of net  revenues  for the year  ended
December  31, 1999,  as compared to 22.5% for the year ended  December 31, 1998,
which was  primarily  attributable  to the  downsizing  and  restructuring  plan
adopted on April 30, 1999.

     Depreciation and Amortization

     Depreciation  and  amortization  was $1,244,000 for year ended December 31,
1999 compared to $1,807,000  for the year ended December 31, 1998, a decrease of
$563,000,  or 31.1%. The decrease was primarily due to the write-off at December
31, 1998 of start-up costs, goodwill, and impairment of net assets.

     Expenses to Discontinued Location

     On Stage decided to  discontinue  operations  at its Legends  production in
Toronto,  Canada  in  November  of 1998.  As part of the  closing,  we  incurred
additional expenses of $443,096 during 1998.  Additionally,  in 1999 the Company
wrote-off $559,335 of Net Assets.

     Restructuring Charges

     Restructuring  charges  represents  expenses  related to the closing of the
Legends show in Toronto,  Canada,  payment of  employment-related  severance and
termination benefits, legal expenses, and relocation expenses of key executive.

                                       6
<PAGE>

     Operating Income

     Our operating income was approximately $349,000 for the year ended December
31, 1999 compared to an operating loss of $3,316,000 for the year ended December
31, 1998.

     Interest Expense, Net

     Interest expense was  approximately  $2,880,000 for year ended December 31,
1999 compared to $1,555,000 for the year ended December 31, 1998, an increase of
$1,325,000 or 85.2%.  The increase was primarily due to additional debt incurred
for the Gedco and Fox Family Acquisitions.

     Seasonality and Quarterly Results

     Our 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  has helped to  mitigate  the
Company's seasonality.

     The  following  table sets forth the  Company's net revenue for each of the
last eight quarters ended December 31, 1999:

<TABLE>
                                                             Net Revenues
                                                           ($ in thousands)
          <S>                           <C>                  <C>                <C>                  <C>
                                       March 30,           June 30,         September 30,         December 31,
                                     --------------     ----------------    -----------------     ------------------

Fiscal 1998..................           $3,724              $8,245               $8,059                $7,819
Fiscal 1999..................           $6,272              $7,403               $7,793                $7,081
</TABLE>

     Tax Net Operating Losses

     At December 31, the Company had federal net operating  loss carry  forwards
of approximately $6,315,193 in 1998, and $8,405,532 in 1999, respectively. Under
Section  382 of the  Internal  Revenue  Code,  certain  significant  changes  in
ownership  contemplated  by the Company may restrict the future  utilization  of
these tax loss carry forwards. 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

     We have  historically  met  our  working  capital  requirements  through  a
combination  of cash  flow  from  operations,  equity  and  debt  offerings  and
traditional  bank  financing.  We  anticipate,  based on our proposed  plans and
assumptions  relating to our operations,  that our current cash, cash equivalent
balances,  anticipated  revenue from operations and our working capital line are
insufficient to fund our ongoing operations.

     On Stage  intends  to manage  short-term  liquidity  concerns  through  the
renegotiations of our expired working capital line,  capital leases and mortgage
facilities.  We have  either  closed  down,  have or  restructured  or intend to
restructure  any business units that are not  generating  positive cash flow. In
addition,  we have lowered  selling,  general and  administrative  expenses as a
percentage of net revenues  from 22.5% for the twelve months ended  December 31,
1998 to 15.2% for the twelve  months ended in December 31, 1999 and continues to
downsize and restructure our selling, general and administrative functions.

     In addition,  we are continuing  our efforts to secure working  capital for
operations, expansion and possible acquisitions, mergers, joint ventures, and/or
other business combinations.  However, there can be no assurance that we will be
able to secure additional capital or that if such capital is available,  whether
the terms or conditions would be acceptable to us.

                                       7
<PAGE>

     For the year ended  December 31, 1998,  the On Stage had a net cash deficit
from operations of $1,534,000. The net cash deficit provided from operations was
primarily  attributable  to  legal  fees,  vacation  accrual,  asset  impairment
expenses,  and due  diligence  expenses  written  off related  with  prospective
acquisitions,  operational losses at the Legends show in Toronto,  Canada,  Wild
Bill's Dinner  Extravaganza in Buena Park,  California,  and the debt service on
our mortgage and credit line. For the year ended December 31,1999,  On Stage had
net  cash  used  by  operations  of  approximately  $10,000.  The  cash  used by
operations  was  primarily  attributable  the  Company's  loss to an increase in
revenue, decrease in cost of revenue and forgiveness of debts.

     The net cash used in investing  activities  for the year ended December 31,
1998 of $14,548,000,  was primarily attributable to advances on notes receivable
from officers,  capital  expenditures  and direct  acquisition  costs related to
acquisitions.  The net cash  used in  investing  activities  for the year  ended
December 31, 1999 of $78,000,  was primarily  attributable to direct acquisition
costs, and capital expenditures offset by asset disposals.

     Net cash provided by financing  activities  for the year ended December 31,
1998  of  $14,701,000  was  primarily   attributable  to  ICCMIC's   funding  of
$12,500,000 for the Gedco Acquisition and $1,650,000  million for the Fox Family
Acquisition.  Net cash used by financing for the year ended December 31, 1999 of
$480,000 was  primarily  attributable  to repayment of working  capital line and
long-term borrowing offset by proceeds from stock sales.

     Working Capital

     At  December  31,  1998,  On stage had a working  deficit of  approximately
$16,791,000,  which resulted,  primarily, from increase in: working capital line
of credit,  accounts payable,  accrued  expenses,  and accrued payroll and other
liabilities.  At December 31, 1999,  On Stage had a working  capital  deficit of
approximately $18,826,769,  which resulted primarily from an increase in accrued
interest expense and late charges,  partially offset by decreases in the working
capital line of credit and  accounts  payable.  Due to recurring  losses and the
working  capital  deficit and the loan defaults our auditors have issued a going
concern opinion.

     Working Capital Line

     In May 1997, First Security Bank of Nevada ("First Security") 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.  John W. Stuart has
personally guaranteed the line of credit.

     On March 28,  1998,  First  Security  agreed to increase the line of credit
from $250,000 to $1,000,000  and the  expiration  date was extended to March 25,
1999. As of December 31, 1998,  the Company had drawn  $1,000,000 on the line of
credit.  As of March 31, 1999, the Company had failed to pay off any part of the
line of credit  and,  is in  default  under its  terms.  On April 29,  1999,  we
received a notice of default under the line of credit from First Security.

     Capital Equipment  Financing  Commitment

     On September 29, 1997,  First Security  Leasing  Company  ("First  Security
Leasing"), a Utah corporation, approved the Company for a $1,000,000 lease line.
Advances under the lease line incur  interest at a rate of 9.75% per annum.  The
lease line has been utilized in the following  amounts:  $389,290,  $442,997 and
$167,713, commencing in April, 1998, April 1998 and May, 1998, respectively, and
terminating  on October,  2001,  September,  2001 and  November,  2001.  We also
received a notice of default under this line on April 29, 1999.

     Mortgage Financing Commitment

     As of October  7, 1998,  we  borrowed  an  aggregate  of  $14,150,000  from
Imperial Credit Commercial Mortgage Investment Corp. ("Mortgage Lender").  While
we made our January,  February and March 1999 payments under this loan after the
due date for those payments, no other payments under this loan have been made to
date.  As a result of these  delinquencies,  we have  incurred  late charges and
default interest, which we have not paid.

                                       8
<PAGE>

     On  November 5, 1999,  we received a formal  demand from ICCMIC to pay them
the sum of $16,163,305 as a guarantor under the loan,  which  represented all of
the  indebtedness due the Mortgage Lender as of that date. On November 12, 1999,
the Mortgage Lender filed a complaint against us in the District Court for Clark
County, Nevada,  alleging, among other things, that we breached the guaranty. On
December 10, 1999,  we agreed to allow the Mortgage  Lender to obtain a judgment
against us for the amount of the guaranty,  in return for a  forbearance  on the
collection  of this  judgment  until March 31,  2000.  The  Mortgage  Lender has
extended the date for collection on this judgment until May 1, 2000.

     On December 9, 1999, the Mortgage Lender  obtained  judgment of foreclosure
against our  subsidiaries,  Fort Liberty,  Inc. and King Henry's,  Inc., for the
sale of the Fort  Liberty  Shopping  Complex and Wild Bill's  Dinner  Theater in
Kissimmee,  Florida and The King Henry's  Feast in Orlando,  Florida.  While the
foreclosure sales on these properties were originally scheduled for late January
2000,  the  Mortgage  Lender  has  honored  our  request  to  reschedule   these
foreclosure sale dates until May 2 and 3, 2000, respectively.

     On January 5, 2000, the Mortgage Lender  obtained a foreclosure  decree for
the judicial sale of our Legends in Concert  Family  Theater in Surfside  Beach,
South  Carolina.  The  foreclosure  sale was set for  February 7, 2000,  but was
extended by the Mortgage Lender to May 2000.

     In the event that First  Security  Bank or the  Mortgage  Lender  initiates
foreclosure  action  against our assets,  all or us or a portion of our property
and assets  securing the credit  facilities and mortgage  financing  extended by
those  lenders may be sold to satisfy our  commitments  under the terms of those
facilities.  While we intend to renegotiate the terms of our credit  facilities,
to obtain  extensions of the terms of those  facilities and to seek  alternative
additional  financing,  there  can be no  assurance  that  our  efforts  will be
successful.

     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.

New Accounting Pronouncements

     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  adopted  SFAS No. 131 on January 1, 1998 and it had no
effect on its financial position or results of operations;  however, disclosures
on certain of these items were expanded.

     Statement  of  Position   98-5,   "Reporting   on  the  Costs  of  Start-up
Activities,"  ("SOP 98-5") issued by the American  Institute of Certified Public
Accountants is effective for financial  statements  beginning after December 15,
1998.  SOP 98-5  requires  that  the  costs of  start-up  activities,  including
organization  costs,  be expensed as incurred.  Start-up  activities are defined
broadly  as  those  one-time  activities  related  to  opening  a new  facility,
introducing a new product or service,  conducting  business in a new  territory,
conducting  business with a new class of customers  (excluding  ongoing customer
acquisition  costs, such as policy acquisition costs and loan origination costs)
or beneficiary,  initiating a new process in an existing facility, or commencing
some new operation. The Company does not expect the adoption of SOP 98-5 to have
a material impact, if any, on its financial position or results of operations.

                                       9
<PAGE>

Subsequent Events

     Wild Bill's California Ground Lease

     On February 18, 2000,  Spiegel  Enterprises,  the ground lessor of the Wild
Bill's Dinner Theater in Buena Park,  California,  filed a complaint  against On
Stage and its  wholly-owned  subsidiary,  Wild Bill's  California,  Inc., in the
Superior  Court  of the  State  of  California  for the  County  of Los  Angeles
alleging,  among other counts,  that Wild Bill's  breached its Ground Lease with
Speigel  Enterprises.  On March 15, 2000,  this complaint was dismissed  without
prejudice,  pursuant  to the  terms of a  settlement  agreement  reached  by and
between Wild Bill's  California,  Inc. and Speigel  Enterprises  on February 23,
2000.

     Status of  Foreclosure  Sale for King  Henry's  Feast  Theater in  Orlando,
Florida

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

     Status of Foreclosure  Sale for Fort Liberty Shopping  Complex/Wild  Bill's
Dinner Theater Extravaganza in Kissimmee, Florida

     On January 25, 2000, On Stage reached an agreement with its Mortgage Lender
to extend the foreclosure  sale date on the Fort Liberty  Shopping  Complex/Wild
Bill's Dinner Theater  Extravaganza in Kissimmee,  Florida from January 25, 2000
until March 7, 2000. On March 7, 2000,  On Stage  reached an agreement  with its
Mortgage Lender to extend the foreclosure sale date on the Fort Liberty property
from March 7, 2000 until April 4, 2000.  On March 30, 2000,  On Stage reached an
agreement with its Mortgage  Lender to extend the  foreclosure  sale date on the
Fort Liberty property from April 4, 2000 until May 2, 2000.

     Status of Foreclosure  Sale for Legends  Family Theater in Surfside  Beach,
South Carolina

     On February 1, 2000, On Stage reached an agreement with its Mortgage Lender
to extend the  foreclosure  sale date on the Legends  Family Theater in Surfside
Beach,  South  Carolina  from  February 7, 2000 until March 6, 2000. On March 3,
2000,  On Stage  reached an  agreement  with its  Mortgage  Lender to extend the
foreclosure  sale date on the Legends  Family  Theater  from March 6, 2000 until
April 3,  2000.  On March 30,  2000,  On Stage  reached  an  agreement  with its
Mortgage  Lender to extend  the  foreclosure  sale  date on the  Legends  Family
Theater from April 3, 2000 until May 2000.

     Appeal of Judgment

     On  February  24,  2000,  oral  arguments  were  heard on the appeal of the
$14,955 judgment awarded against On Stage in the United States  Bankruptcy Court
for the  District  of Nevada.  No  decision  has been  rendered  to date on this
appeal.

     Status of Execution of Nevada Judgment

     On March 30, 2000, On Stage reached an agreement  with its Mortgage  Lender
to extend the date,  which the Mortgage  Lender had previously  agreed to forego
collection efforts on the Nevada judgment,  which was set to expire on March 31,
2000, until May 1, 2000.

     Status of First Security Bank Forbearance Agreement.

     The  Forbearance  Agreement  with First  Security Bank expired on April 10,
2000 by its own  terms.  On April 7,  2000,  we  received  a letter  from  First
Security Bank requesting that we submit a further  settlement  plan,  along with
other  documents,  on or before May 1, 2000.  On Stage is currently  preparing a
settlement plan for First Security Bank.

                                       10
<PAGE>

                  On Stage Entertainment, Inc. and Subsidiaries



                             _______________________




               Report on Audited Consolidated Financial Statements


                 For the Years Ended December 31, 1998 and 1999



                             _______________________




<PAGE>

                  ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS



                                                                 Page Number

Report of Independent Certified Public Accountants                  F-2

Consolidated Financial Statements
     Balance Sheets                                                 F-3
     Statements of Operations                                       F-4
     Statements of Stockholders' Equity (Deficit)                   F-5
     Statements of Cash Flows                                       F-6
     Summary of Accounting Policies                                 F-9
     Notes to Financial Statements                                  F-13


<PAGE>

               Report of Independent Certified Public Accountants



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, 1998 and 1999, and the
related statements of operations,  stockholders' equity (deficit) and cash flows
for  each  of  the  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, 1998 and 1999,  and the
results  of their  operations  and their  cash  flows for each of the years then
ended, in conformity with generally accepted accounting principles.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming the Company will continue as a going concern. As discussed in Note 2 to
the  consolidated  financial  statements,  the  Company has  suffered  recurring
operating losses and, at December 31, 1999, has a working capital  deficiency of
$18,826,769  and has  defaulted  on its' long term debt which raise  substantial
doubt about its ability to continue as a going concern. On December 9, 1999, the
mortgage  lender  obtained   judgment  of  foreclosure   against  the  Company's
subsidiaries,  while the foreclosure  sales on these  properties were originally
scheduled for late January 2000,  the mortgage  lender has honored the Company's
request to  reschedule  these  foreclosure  sales  until May 2, 2000.  While the
Company is attempting to negotiate an extension,  there is no assurance that the
Company will be successful.





                                                     /s/ BDO SEIDMAN, LLP




Los Angeles, California
April 13, 2000



                                       F-2
<PAGE>


                  ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
          <S>                                                                         <C>                <C>
                                                                                     Years ended December 31,
                                                                                  --------------------------------
                                                                                      1998              1999
                                                                                  --------------    --------------
   Assets

Current assets
   Cash and cash equivalents                                                    $     1,009,768   $       374,587
   Accounts receivable, net                                                           1,264,526         1,249,619
   Inventory                                                                            243,413           234,579
   Deposits                                                                             125,784           198,523
   Prepaid and other assets                                                             594,777           238,274
   Notes receivable from officers (Note 7)                                               77,330           117,906
                                                                                  --------------    --------------

Total current assets                                                                  3,315,598         2,413,488
                                                                                  --------------    --------------

Property, equipment and leasehold improvements (Notes 1 and 3)                       24,130,663        23,720,804
Less:  Accumulated depreciation and amortization                                     (4,396,229)       (5,176,244)
                                                                                  --------------    --------------

Property, equipment and leasehold improvements, net                                  19,734,434        18,544,560
                                                                                  --------------    --------------

Direct acquisition costs (Note 12)                                                            -           597,328
Deferred financing costs, net of  amortization of $80,813 and
     $111,997 (Note 12)                                                               1,039,187           927,190
                                                                                  --------------    --------------


                                                                                $    24,089,219    $   22,482,566
                                                                                  --------------    --------------

   Liabilities and Stockholders' Equity

Current liabilities

   Working capital line (Note 3)                                                $       999,679 $         459,162
   Accounts payable and accrued expenses                                              2,533,232         1,444,878
   Accrued payroll and other liabilities                                              1,891,924         3,937,951
   Current maturities of long-term debt (Note 3)                                     14,682,246        15,398,282
                                                                                  --------------    --------------
Total current liabilities                                                            20,107,081        21,240,257
                                                                                  --------------    --------------
Long-term debt, less current maturities (Note 3)                                        786,468            30,773
                                                                                  --------------    --------------
Total liabilities                                                                    20,893,549        21,271,046
                                                                                  --------------    --------------
Commitments and contingencies (Note 4)

Stockholders' equity (deficit) (Notes 3 and 5)
      Common stock; par value $0.01 per share; authorized 25,000,000
      shares 7,452,350 and 7,226,808 shares issued and outstanding                       74,523            72,268
   Additional paid-in capital                                                        11,254,587        11,430,336
       Accumulated other comprehensive loss                                              67,289                 -
   Accumulated deficit                                                               (8,200,729)      (10,291,068)
                                                                                  --------------    --------------

Total stockholders' equity                                                            3,195,670         1,211,520
                                                                                  --------------    --------------

                                                                                $    24,089,219   $    22,482,566
                                                                                  --------------    --------------
</TABLE>

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


                                      F-3
<PAGE>

                  ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>

                                                                  Years Ended December 31,
                                                                 -------------------------------
                                                                     1998               1999
                                                                 -------------     -------------
<S>                                                                   <C>             <C>
Net revenues                                                   $   27,847,476    $   28,548,642
Cost of revenues                                                   22,228,524        22,176,869
                                                                 -------------     -------------
Gross profit                                                        5,618,952         6,371,773
                                                                 -------------     -------------
Operating expenses
   Selling, general and administrative                              6,276,325         4,351,801
   Depreciation and amortization                                    1,806,526         1,244,148
   Impairment loss (Note 13)                                          409,117                 -
   Expenses at discontinued location (Note 8)                         443,096           426,954
                                                                    -------------     -------------
Total operating expenses                                            8,935,064         6,022,903
                                                                 -------------     -------------
Operating (loss) income                                            (3,316,112)          348,870

Other income (Note 10)                                                      -           440,418

Interest expense, net (See Note 9)                                  1,554,877         2,879,627
                                                                 -------------     -------------

Loss before income taxes                                           (4,870,989)       (2,090,339)

Income taxes (Note 11)                                                      -                 -
                                                                 -------------     -------------

Net loss                                                         $ (4,870,989)   $   (2,090,339)
                                                                 =============    ==============

Basic loss per share                                             $      (0.68)   $         (.29)
                                                                 -------------     -------------

Diluted loss per share                                           $      (0.68)   $         (.29)
                                                                 -------------     -------------

Basic average number of common shares outstanding                   7,191,276         7,293,815
                                                                 -------------     -------------

Diluted average number of common shares outstanding                 7,191,276         7,293,815
                                                                 -------------     -------------
</TABLE>

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

                                      F-4


<PAGE>

                  ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>

                                                                                   Accumulated
                                             Common Stock                              Other
                                        -----------------------                    Comprehensive
                                           Shares       Amount       Capital           Income
                                        -----------   ---------   ------------   -----------------
<S>                                        <C>           <C>           <C>                 <C>
Balance, December 31, 1997              $6,595,500    $ 65,955    $ 7,340,013        $       -

Issuance of common stock in connection
   with Gedco acquisition (Note 12)        595,238       5,952      2,494,048                -
Issuance of common stock in connection
   with Fox Kids acquisition (Note 12)     206,612       2,066        721,076                -
Issuance of common stock in connection
   with private placement (Note 5)          55,000         550         54,450                -
Issuance of warrants in connection with
   financing (Note 12)                           -           -        645,000                -
Comprehensive loss:
  Net loss for the year                          -           -              -                -
   Currency exchange adjustment                  -           -              -            67,289

Comprehensive loss                               -           -              -                 -
                                         -----------   ---------   ------------   -----------------

Balance, December 31, 1998               7,452,350      74,523     11,254,587            67,289

Issuance of common stock in connection
   with Whale Securities Co.               150,000       1,500         98,550                 -
Issuance of common stock in connection
   with litigation settlement                8,471          85          8,915                 -
Issuance of common stock in connection
   with Hawaii settlement                  250,000       2,500        107,000                 -
Cancellation of shares in connection
   with Interactive Events (Note 12)       (30,304)       (303)       (29,817)                -
Cancellation of shares in connection
   with Gedco acquisition (Note 12)       (595,238)     (5,952)            -                  -
Cancellation of shares in connection
   with litigation settlement               (8,471)        (85)        (8,915)                -
Comprehensive loss:
   Net loss for the year                         -           -              -                 -
   Currency exchange adjustment                  -           -              -           (67,289)

Comprehensive loss                               -           -              -                 -
                                       -----------   ---------   ------------    ----------------
Balance, December 31, 1999               7,226,808  $   72,268  $  11,430,336    $            -
                                      ============  ==========  =============     ===============
</TABLE>

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

                                      F-5


<PAGE>

                  ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - Continued
<TABLE>

                                        Accumulated    Comprehensive
                                          Deficit          Loss            Total
                                        -----------    -------------   ------------
<S>                                        <C>              <C>           <C>
Balance, December 31, 1997              $(3,329,740)   $       -       $ 4,076,228

Issuance of common stock in connection
   with Gedco acquisition (Note 12)               -            -         2,500,000
Issuance of common stock in connection
   with Fox Kids acquisition (Note 12)            -            -           723,142
Issuance of common stock in connection
   with private placement (Note 5)                -            -            55,000
Issuance of warrants in connection with
   financing (Note 12)                            -            -           645,000
Comprehensive loss:
  Net loss for the year                  (4,870,989)     (4,870,989)    (4,870,989)
   Currency exchange adjustment                   -          67,289         67,289
                                                         -----------
Comprehensive loss                               -       (4,803,700)             -
                                          -----------    -----------   ------------

Balance, December 31, 1998               (8,200,729)                     3,195,670

Issuance of common stock in connection
   with Whale Securities Co.                     -             -           100,050
Issuance of common stock in connection
   with litigation settlement                    -             -             9,000
Issuance of common stock in connection
   with Hawaii settlement                        -             -           109,500
Cancellation of shares in connection
   with Interactive Events (Note 12)             -             -           (30,120)
Cancellation of shares in connection
   with Gedco acquisition (Note 12)              -             -            (5,936)
Cancellation of shares in connection
   with litigation settlement                    -             -            (9,000)
Comprehensive loss:
   Net loss for the year                 (2,090,339)     (2,090,339)    (2,090,339)
   Currency exchange adjustment                  -          (67,289)       (67,289)
                                                         -----------
Comprehensive loss                               -      $(2,157,628)             -
                                        -----------      ===========   ------------

Balance, December 31, 1999             $(10,291,068)                   $ 1,211,536
                                       ============                    ===========
</TABLE>

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

                                      F-6

<PAGE>

                  ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>

                                                                             Years ended December 31,
                                                                        --------------------------------
                                                                            1998              1999
                                                                        --------------    --------------
<S>                                                                          <C>                <C>
Cash flows from operating activities
   Net loss                                                            $   (4,870,989)    $ (2,090,339)

   Adjustments to reconcile net loss to net cash used in operating
     activities:
   Depreciation and amortization                                            1,085,766          893,318
   Write off of cost in excess of net assets acquired                         102,131
   Write off of deferred financing costs                                      275,000
   Impairment loss                                                            852,213
   Loss on disposal of property and equipment                                       -          (63,056)
   Forgiveness of note receivable from stockholder                                  -         (503,474)
   Increase (decrease) from changes in operating assets and liabilities
     Accounts receivable                                                     (809,187)           3,594
     Inventory                                                                 (4,629)           8,834
     Deposits                                                                 216,312          (76,180)
     Prepaid and other assets                                                (165,923)         356,503
     Accounts payable and accrued expenses                                    591,900         (584,896)
     Accrued payroll and other liabilities                                  1,193,426        2,046,027
     Litigation settlement accrual                                                  -
                                                                         --------------    --------------
Total adjustments                                                           3,337,009        2,080,670
                                                                         --------------    --------------
Net cash used in operating activities                                      (1,533,980)          (9,669)
                                                                         --------------    --------------
Cash flows from investing activities
   Advances on notes receivable from officers                                 (69,024)         (40,576)
   Pay down on note receivable from officers                                  127,888                -
   Capital expenditures                                                      (947,165)        (254,952)
   Capital dispositions                                                                        705,257
   Payment for acquisitions, net of cash acquired                         (14,602,005)        (487,828)
   Direct acquisition costs                                                   942,063                -
                                                                         --------------    --------------
Net cash used in investing activities                                     (14,548,243)         (78,099)
                                                                         --------------    --------------

Cash flows from financing activities:
   Borrowing under working capital line                                     1,000,000                -
   Repayment on working capital line                                                          (540,517)
   Proceeds from long-term borrowing                                       13,860,007                -
   Repayment on long-term borrowing                                          (213,864)         (39,657)
   Net proceeds from sale of common stock and warrants                         55,000          100,050
   Offering costs                                                                   -
                                                                         --------------    --------------
Net cash provided by (used in) financing activities                        14,701,143         (480,124)
                                                                         --------------    --------------
Effect of exchange rate changes on cash and cash equivalents                   67,289          (67,289)
                                                                         --------------    --------------
Net (decrease) in cash and cash equivalents                                (1,313,791)        (635,181)
Cash and cash equivalents at beginning of year                              2,323,559        1,009,768
                                                                         --------------    --------------
</TABLE>
                                      F-7
<PAGE>
                  ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
                                                                             Years ended December 31,
                                                                        --------------------------------
                                                                            1998              1999
                                                                        --------------    --------------
<S>                                                                          <C>                <C>


Cash and cash equivalents at end of year                                 $  1,009,768      $   374,587
                                                                         --------------    --------------

Supplemental Disclosure of Cash Flow Information
   Cash paid during the year for:
   Interest                                                              $  1,551,574      $  502,942
                                                                         --------------    --------------
</TABLE>

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

Supplemental Schedule of Non-Cash Investing and Financing Activities

During 1998,  $1,000,000  of leased  assets and  obligations  were  capitalized,
respectively.

During  1998,  in  connection  with  mortgage  financing  related  to the  Gedco
Acquisition,  the Company  issued  575,000  warrants to purchase  the  Company's
Common Stock to the lender and an affiliate of the lender, which were originally
valued at $500,000  and  accounted  for as an original  issue  discount.  Of the
575,000 warrants originally issued, 325,000 were subsequently repriced (see Note
3) and were valued at $145,000 and accounted for as an original issue  discount.
The Company wrote off the remaining unamortized value of the 325,000 warrants of
$275,000.

On February 23, 1999,  On Stage entered into a Common Stock  Purchase  Agreement
with Richard S. Kanfer,  effectively  unwinding the November 1996 acquisition of
Interactive  Events,  Inc.  Under  the  Interactive   re-conveyance,   On  Stage
re-conveyed  all of the assets of  Interactive  to Kanfer in  consideration  for
Kanfer's re-conveyance of the 30,304 shares of On Stage's common stock valued at
$1.125 per share,  issued to Kanfer during On Stage's  original  acquisition  of
Interactive, along with the cancellation of a non-plan option to purchase 15,000
shares of common stock and incentive  stock options to purchase 19,835 shares of
common stock at a price of $5.00 per share.  In addition,  the parties agreed to
release  one  another  from any  liability  arising  out of the  acquisition  of
Interactive by On Stage and any claim relating to Kanfe's subsequent  employment
with the Company.  Kanfer also entered into an exclusive right of representation
agreement with the Company in February 1999,  under which the Company granted to
Kanfer the right to represent  its Legends  production  in  designated  areas in
consideration   for  a  portion  of  the  gross   proceeds   generated  by  that
representation.

On April 23, 1999, On Stage  granted it's  securities  counsel,  Nida & Maloney,
P.C. an option to purchase  40,000 shares of common stock at a purchase price of
$1.00 per share as payment for $38,469 in legal services  performed for On Stage
by Nida & Maloney,  P.C. The  securities  were issued under the  exception  from
registration provided by Section 4(2) of the Securities Act.

                                      F-8
<PAGE>

Supplemental Schedule of Non-Cash Investing and Financing Activities (Continued)

On May 7, 1999, On Stage issued 8,471 shares of common stock valued at $1.06 per
share  to a  former  performer  with On  Stage.  These  shares  were  issued  in
connection  with the resolution of litigation.  The securities were issued under
the exception from registration  provided by Section 4(2) of the Securities Act.
On  December  8, 1999,  the 8,471  shares  were  returned to the Company in full
settlement of $6,000.

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

On  September  14,  1999,   250,000   shares  were  issued  to  John  Stuart  in
consideration  for his personal  guaranty to fulfil the settlement  terms in the
Hawaiian Litigation.


                                      F-9
<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 financial statements include the amounts of On Stage Entertainment,  Inc., a
publicly   traded  Nevada   corporation   (the   "Company"  or  "OSE")  and  its
subsidiaries,  Legends in Concert,  Inc., a Nevada corporation ("LIC"); On Stage
Marketing, Inc., a Nevada corporation ("Marketing");  On Stage Theaters, Inc., a
Nevada  corporation  ("Theaters");   Wild  Bill's  California,  Inc.,  a  Nevada
corporation  ("Wild  Bills");  Fort Liberty,  Inc., a Nevada  corporation  ("Ft.
Liberty"); Blazing Pianos, Inc., a Nevada corporation ("Blazing");  King Henry's
Inc., a Nevada  corporation  ("King  Henry's");  On Stage  Merchandise,  Inc., a
Nevada corporation ("Merchandise");  On Stage Events, Inc., a Nevada corporation
("Events"); On Stage Casino Entertainment, Inc. a Nevada corporation ("Casino");
On Stage  Productions,  Inc.,  a Nevada  corporation  ("Productions");  On Stage
Theaters North Myrtle Beach,  Inc., a Nevada  corporation  ("North Myrtle");  On
Stage Theaters  Surfside Beach,  Inc., a Nevada  corporation  ("Surfside");  and
Interactive   Events,   Inc.,   a   Georgia   corporation   (collectively,   the
"Subsidiaries").  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.

                                      F-10
<PAGE>

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

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

IMPAIRMENT OF LONG-LIVED ASSETS

The  Financial  Accounting  Standards  Board  ("FASB")  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") 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 applies the
concepts to intangibles and productive assets periodically (see Note 12).

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.  SFAS No. 123 also  encourages,  but does not require  companies to
record compensation cost for stock-based employee compensation.  The Company has
chosen 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.

LOSS PER SHARE

Statement of Financial Accounting Standard No. 128 ("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.

                                      F-11
<PAGE>

For the years ended  December 31,  1998 and 1999,  potential diluted  securities
representing  896,344  and  1,225,600  outstanding  options  and  2,724,917  and
3,660,155  outstanding  warrants  are not  included  since their effect would be
anti-dilutive.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial  Accounting  Standards No. 107,  "Disclosures  about Fair
Value of Financial  Statements",  ("SFAS No. 107")  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,  and  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, 1999.

The Company  has notes  receivable  from  officers  of the  Company.  Due to the
related-party nature of these receivables the fair value cannot be determined.

INCOME TAXES

Statement  of  Financial   Accounting   Standards  No.  109  ("SFAS  No.  109"),
"Accounting  for Income  Taxes,"  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.

CASH EQUIVALENTS

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

FOREIGN CURRENCY TRANSLATION

Assets and  liabilities  of the Company's  foreign  affiliates are translated at
current  exchange  rates,  while revenue and expenses are  translated at average
rates  prevailing  during the year.  Translation  adjustments  are reported as a
component of other comprehensive income in stockholders' equity.

CONCENTRATION OF CREDIT RISK

The  Company  places  its cash  and  temporary  cash  investments  with  banking
institutions.  At December  31, 1998 and 1999,  the  Company  had  $252,910  and
$176,000  on deposit at one bank.  Account  balances at an  individual  bank are
insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000.


                                      F-12
<PAGE>

NEW ACCOUNTING STANDARDS

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments  and Hedging  Activities"  effective for financial  statements  with
fiscal  years   beginning   after  June  15,  2000.  SFAS  No.  133  provides  a
comprehensive  and consistent  standards for the  recognition and measurement of
derivatives  and hedging  activities and requires all derivatives to be recorded
on the balance sheet at fair value.  The Company does not expect the adoption of
SFAS No. 133 to have a material  impact,  if any, on its results of  operations,
financial position or cash flows.

RECLASSIFICATIONS

Certain 1998 amounts have been reclassified to conform to the 1999 presentation.



                                      F-13
<PAGE>

                  ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

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

                                                                         December 31,
                                                          --------------------------------------
                                                                1998                 1999
                                                          -----------------    -----------------
<S>                                                              <C>                   <C>
Land                                                       $    11,329,376       $   11,878,594
Buildings                                                        4,389,287            4,335,632
Stage equipment                                                  3,743,769            3,737,433
Scenery and wardrobe                                             1,286,957            1,469,733
Furniture and fixtures                                           1,134,555              938,582
Vehicles                                                            12,757               14,557
Leasehold improvements                                           2,233,962            1,346,273
                                                          -----------------    -----------------

                                                                24,130,663           23,720,804
Less accumulated depreciation and amortization                  (4,396,229)          (5,176,244)
                                                           -----------------    -----------------

Total property, equipment and leasehold improvements, net  $    19,734,434        $  18,544,560
                                                           -----------------    -----------------
</TABLE>

The cost of assets held under capital leases was $2,008,432 at December 31, 1998
and 1999, respectively.

NOTE 2 - GOING CONCERN

The accompanying  consolidated  financial statements have been prepared assuming
that the  Company  will  continue  as a going  concern  which  contemplates  the
realization of assets and the  satisfaction  of liabilities in the normal course
of business.  The carrying  amounts of assets and  liabilities  presented in the
financial  statements  do not  purport to  represent  realizable  or  settlement
values.  However,  the Company has suffered  recurring  operating losses,  has a
working capital deficit of $18,826,769, and has defaulted on its long term debt.
These factors raise  substantial doubt about the Compan's ability to continue as
a going  concern.  The  consolidated  financial  statements  do not  include any
adjustments that might result from the outcome of those uncertainties.

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 that the Company's current cash, cash
equivalent  balances,  anticipated  revenue from operations are  insufficient to
fund the Company's ongoing operations.

Management   plans  to  manage   short-term   liquidity   concerns  through  the
renegotiations of its expired working capital line,  capital leases and mortgage
facilities.  The Company has either  closed down or  restructured  any  business
units that are not generating  positive cash flow. In addition,  the Company has
lowered selling,  general and administrative  costs as a percent of net revenues
from 22% in 1998 to 15% in 1999 and  continues to downsize and  restructure  its
selling, general and administrative functions.

In addition, the Company is continuing its efforts to secure working capital for
operations, expansion and possible acquisitions, mergers, joint ventures, and/or
other business combinations. However, there can be no assurance that the Company
will be able to secure additional  capital or that if such capital is available,
whether the terms or conditions  would be  acceptable  to the Company.

                                      F-14
<PAGE>


NOTE 2 - GOING CONCERN (Continued)

The Company is also  negotiating an extension of the forbearance  agreement with
the mortgage lender and First Security Bank, there can be no assurance that this
will be successful. (See Note 3).

NOTE 3 - WORKING CAPITAL LINE, NOTES PAYABLE AND LONG-TERM DEBT

WORKING CAPITAL LINE

In May 1997, First Security Bank of Nevada ("First  Security")  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 (9.25%
at December 31, 1999). On September 28, 1998, First Security  increased the line
of credit from $250,000 to $1,000,000  and extended the  expiration  date of the
line to March 25,  1999.  As of December  31,  1999,  this line of credit was in
default.  As of December 31, 1998, the Company had drawn  $1,000,000 on the line
of credit and the balance  outstanding  at December  31, 1998 is  $999,679.  The
balance at  December  31,  1999 is  $459,162.  The Chief  Executive  Officer has
personally guaranteed the line of credit.

Long-term debt consists of the following:

<TABLE>

                                                                                              December 31,
                                                                               -------------------------------------
                                                                                     1998                1999
                                                                               -----------------    ----------------
<S>                                                                                   <C>                  <C>
ICCMIC Mortgage Loan (a)                                                       $    14,150,000       $  14,150,000


Capital lease obligations with interest ranging from 9.7% to 30.7% due
   in monthly installments ranging from $265 to $18,202, including
   interest various maturities dates through November 2001, secured by
   office communication equipment, and production equipment                           1,318,714          1,279,055
                                                                               -----------------    ----------------

Total long-term debt                                                                 15,468,714         15,429,055

Less current maturities                                                              14,682,246         15,398,282
                                                                               -----------------    ----------------

                                                                               $        786,468      $  30,773
                                                                               -----------------    ----------------
</TABLE>



                                      F-15
<PAGE>


NOTE 3 - WORKING CAPITAL LINE, NOTES PAYABLE AND LONG-TERM DEBT (Continued)

As of December 31, 1999 the future  minimum  principal  debt  payments and lease
payments under capital leases are as follows:


                                                ICCMIC               Capital
Year ending December 31,                         Loan(a)              Leases
-------------------------                   --------------       --------------

         2000                                $  14,150,000        $    890,532
         2001                                            -             502,591
                                            --------------       --------------
                                             $  14,150,000
                                            --------------

  Total                                                              1,393,123

  Less:  Amounts representing interest costs                           114,068
                                                                 --------------

  Net present values                                                 1,279,055

  Less:  Capital lease obligations included in short-term debt       1,248,282
                                                                 --------------

  Long-term capital lease obligations                             $     30,773
                                                                 ==============

     (a)  The Company funded the cash portion of the Gedco Acquisition  purchase
          price and transaction fees and expenses with $12.5 million of mortgage
          financing from Imperial  Credit  Commercial  Mortgage  Investment Corp
          ("ICCMIC") (see Note 12). This note is due March 13, 2029 paid monthly
          at an interest rate of 9.75%.  In connection  with the financing,  the
          Company issued ICCMIC and Imperial  Capital Group LLC (an affiliate of
          ICCMIC), an aggregate of 575,000 warrants immediately exercisable into
          shares of Common Stock at an exercise  price of $4.44.  These warrants
          were  valued  at  $500,000  and  accounted  for as an  original  issue
          discount.  Additionally,  the Company  funded the cash  portion of the
          "Fox Acquisition" (see Note 12) with $1,000,000 of mortgage  financing
          from "ICCMIC." The note is due June 30, 2029 paid monthly at a rate of
          10.28%.

On October 7, 1998, ICCMIC loaned the Company an additional $550,000, secured by
a first deed of trust on the  Company's  Legends in Concert  Theater in Surfside
Beach, South Carolina. In connection with this additional financing, the Company
modified the Common Stock purchase  warrant that the Company issued to ICCMIC on
March  13,  1998 (and the  corresponding  warrant  agreement)  by  reducing  the
exercise price of ICCMIC's  325,000 warrants to purchase shares of the Company's
Common  Stock from $4.44 per share to $1.25 per share.  The  re-priced  warrants
were valued at $145,000 and accounted  for as an original  issue  discount.  The
Company  wrote  off the  remaining  unamortized  original  value of the  325,000
warrants of $275,000.

                                      F-16
<PAGE>

NOTE 3 - WORKING CAPITAL LINE, NOTES PAYABLE AND LONG-TERM DEBT (Continued)

During 1995, the Company conducted a private placement of debentures  originally
due on August 31, 1997, (the "Original  Debentures") with aggregate  proceeds of
$1,989,064 (the "1995 Private  Placement").  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 (the "Exchange or Repurchase  Offer").  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).

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 credit 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.


                                      F-17
<PAGE>

NOTE 3 - WORKING CAPITAL LINE, NOTES PAYABLE AND LONG-TERM DEBT (Continued)

Defaults Under Credit Facilities

As of October 7, 1998,  the Company  borrowed an aggregate of  $14,150,000  from
Imperial Credit  Commercial  Mortgage  Investment  Corp.  ("ICCMIC").  While the
Company made its January, February and March 1999 payments under this loan after
the due date for those  payments,  no other  payments  under this loan have been
made to date. As a result of these delinquencies,  the Company has incurred late
charges and default  interest,  which has not been paid. On November 5, 1999, we
received a formal demand from ICCMIC to pay them the sum of  $16,163,305 , which
represented all of the  indebtedness due ICCMIC as of that date. On November 12,
1999,  ICCMIC  filed a  complaint  against  us in the  District  Court for Clark
County, Nevada,  alleging, among other things, that we breached the guaranty. On
December 10, 1999,  the Company  agreed to allow the ICCMIC to obtain a judgment
against us for the amount of the guaranty,  in return for a  forbearance  on the
collection  of this judgment  until March 31, 2000.  The ICCMIC has extended the
date for  collection  on this  judgment  until May 1, 2000. On December 9, 1999,
ICCMIC obtained judgment of foreclosure against our subsidiaries,  Fort Liberty,
Inc. and King Henry's,  Inc., for the sale of the Fort Liberty  Shopping Complex
and Wild Bill's Dinner Theater in Kissimmee,  Florida and The King Henry's Feast
in  Orlando,  Florida.  While the  foreclosure  sales on these  properties  were
originally  scheduled for late January 2000,  the ICCMIC has honored our request
to  reschedule   these   foreclosure  sale  dates  until  May  2  and  3,  2000,
respectively.

As of March 31,  1999,  On Stage  had  failed to pay off any part of the line of
credit with First Security and is in default under its terms. On April 29, 1999,
the  Company  received a notice of default  under the line of credit  from First
Security.  Our  default  on the line of credit  with  First  Security  caused an
automatic  default  on our  lease  line with  First  Security  Leasing  due to a
cross-default  provision  contained in the line of credit.  While the Company is
negotiating  with First Security and First Security  Leasing to convert the line
of credit and lease line into term loan  facilities,  there can be no  assurance
that we will be successful in accomplishing this task. Additionally, on July 12,
1999,  First  Security  Bank filed a complaint  on behalf of First  Security and
First Security  Leasing against On Stage  demanding  repayment under the line of
credit  and  lease  lines.   While  the  Company  is  currently  in   settlement
negotiations  with First Security Bank, this  litigation  will continue  forward
until a formal agreement is reached.

On August 8,  1999,  Wild  Bill's  California,  Inc.,  On  Stage's  wholly-owned
subsidiary,  received a Notice of  Default  and  Election  to Sell Under Deed of
Trust from ICCMIC on its Ground Lease for its Wild Bill's Wild West Extravaganza
production in Buena Park, California.

On May 28,  1999,  we issued a press  release  announcing  that we had  received
notice of default  from  Imperial  Credit.  The notice of default  was  received
May 24,  1999. We are  currently  negotiating  with Imperial  Credit to cure the
default through a continuation of our  restructuring  to improve cash flow and a
restructuring  of our debt.  There can be no  assurance  that we will be able to
cure the default, effect an appropriate  restructuring or develop an alternative
financing strategy.

On September 29, 1997,  First  Security  Leasing  Company,  a Utah  corporation,
approved On Stage for $1,000,000 lease line of credit.  Advances under the lease
line  incur  interest  at a rate of 9.75% per  annum.  The  lease  line has been
utilized in the following amounts: $389,290, $442,997 and $167,713 commencing in
April  1998  and May  1998,  respectively,  and  terminating  on  October  2001,
September  2001 and November  2001.  We also  received a notice of default under
this lease line on April 29, 1999.

On July 12,  1999,  First  Security  Bank filed a  complaint  on behalf of First
Security and first Security  Leasing against On Stage demanding  repayment under
the line of credit  and lease  lines.  We filed an Answer to the  complaint  and
commenced  settlement  negotiations  with First Security Bank.  These settlement
discussions  led to the  execution  of a  Litigation  Forbearance  Agreement  on
December 13, 1999. Under this agreement,  we agreed to grant First Security Bank
an additional security interest in all of our personal property and pay them the
sum of $50,000 per month toward  repayment on the line of credit and lease line,
in exchange for a 120-day  forbearance  period.  On April 7, 2000, we received a
letter from First  Security  Bank  reminding us that the  forbearance  agreement
expires on April 10,  2000 and  requesting  that we submit a further  settlement
plan,  along  with  other  documents,  on or before  May 1,  2000.  While we are
attempting  to  negotiate  an extension  of this  forbearance  agreement  and/or
restructuring  on the line of credit and lease line,  there can be no  assurance
that our attempts will be  successful or that First  Security Bank will not take
additional action to collect this debt.

                                      F-18
<PAGE>

NOTE 4 - COMMITMENTS AND CONTINGENCIES

Leases

The Company leases various offices, condominiums,  warehouses and theaters under
operating  leases ranging in monthly  payments from $1,026 to $37,495.  Rent and
lease expense included in cost of revenues for the years ended December 31, 1998
and 1999 was $1,301,771  and  $1,248,961,  respectively.  Rent and lease expense
included in  selling,  general  and  administrative  expense for the years ended
December 31, 1998 and 1999 was $323,048 and $268,870, respectively.

The total minimum rental commitment at December 31, 1999 is as follows:



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

        2000                                           $    1,166,987
        2001                                                1,048,471
        2002                                                1,017,408
        2003                                                  547,420
        2004                                                  548,000
        Thereafter                                          3,464,576
                                                        -------------
                                                       $    7,792,862
                                                       ==============


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.

The Company has  employment  agreements  with  certain  executive  officers  and
employees,  the terms of which originally  expired at various dates through May,
2000 were cancelled in 1999 with the exception of John Stuart's  contract.  Such
agreements  provide for minimum  salary  levels and  incentive  bonuses based on
prescribed formulas over their terms.

                                      F-19
<PAGE>

NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)

Aggregate commitments related to employment contracts are as follows:



    Year ending December 31,                             Amount
---------------------------------                     -------------
       2000                                           $    140,000
                                                      =============

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 ending December 31,                                 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.

NOTE 5 - STOCKHOLDER'S EQUITY

On May 28, 1998, Silver State Property Management,  a Nevada corporation,  Roger
A. Bergmann  Enterprises,  a Nevada  corporation,  and R.E. Lyle Corp., a Nevada
corporation filed a complaint in the Second Judicial District Court of the State
of Nevada, County of Washoe,  alleging, among other things, that John W. Stuart,
acting as an agent,  chairman  of the board and chief  executive  officer  of On
Stage, breached an alleged oral agreement in this litigation,  pursuant to which
the  Plaintiff's  agreed to dismiss the lawsuit in exchange  for a payment  plan
which in the aggregate totals $350,000.  The Company paid $50,000 upon execution
of the  settlement  and agreed to make two (2)  additional  payments of $150,000
within the next year. Mr. Stuart personally  guaranteed the Company's payment of
the settlement  amount,  pledged his own real property as security therefore and
agreed to  forego  any  counterclaim  he may have  personally  had  against  the
Plaintiffs.  In  consideration  for his  guaranty,  pledge of real  property and
agreement to waive his rights against the  Plaintiffs,  the Company  granted Mr.
Stuart 250,000 shares and agreed to grant an additional  amount.  Since On Stage
failed to make required  $150,000 payment to the Plaintiff's in a timely manner,
the  Plaintiff's  executed on Mr. Stuart's real property in satisfaction of this
$150,000 payment.

                                      F-20
<PAGE>

NOTE 5 - STOCKHOLDER'S EQUITY (Continued)

Stock Split

On March 18, 1997, the Company  effectuated a 1 for 1.814967 reverse stock split
of the  Compan'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.

DY/DX Corp. Common Stock Purchase Agreement

On October 2, 1998,  the Company  entered into a stock  purchase  agreement with
DY/DX  Corp.,  an  Illinois  corporation,  to sell up to  500,000  shares of the
Company's  common  stock  at an  aggregate  purchase  price of  $500,000.  As of
December 31, 1998,  DY/DX Corp.  had  purchased  55,000  shares of the Company's
common stock pursuant to this agreement.

Warrants Converted to Common Stock

In connection  with the closing of the DYDX Loan and subsequent  extensions (see
Note 3), 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.

                                      F-21
<PAGE>

NOTE 5 - STOCKHOLDER'S EQUITY (Continued)

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.

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.

                                      F-22
<PAGE>

NOTE 5 - STOCKHOLDER'S EQUITY (Continued)

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 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 April 1999,  the CFO was granted  140,000 new stock  options by canceling his
old options.

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.

In June  1998,  the  Company  increased  its  number of  shares of common  stock
reserved for issuance  pursuant to the exercise of options under the option Plan
from 765,000 to 1,400,000 options.

In 1999,  John Stuart loaned the Company  $300,000.  In  consideration  for this
loan, the Company issued warrants to purchase  300,000 shares of common stock at
a price of $1.00 per share.


                                      F-23
<PAGE>

NOTE 5 - STOCKHOLDER'S EQUITY (Continued)

The option and warrant  activity  during the years ended  December  31, 1998 and
1999 is as follows:

<TABLE>
                                                                                                      Weighted
                                                                                    Number of          Average
                                                                                   Options and        Exercise
                                                                                    Warrants            Price
                                                                                  --------------     ------------
                    <S>                                                                <C>               <C>

Options and warrants outstanding at December 31, 1997                            $    2,797,938      $      5.52

Granted                                                                               1,399,511             2.33
Canceled                                                                               (576,188)           (4.31)
                                                                                  --------------     ------------

Options and warrants outstanding at December 31, 1998                                 3,621,261             3.90

Granted                                                                               1,431,488             1.31
Canceled                                                                               (166,994)           (2.07)
                                                                                  --------------     ------------

Options and warrants outstanding at December 31, 1999                            $    4,885,755      $      3.14
                                                                                  ==============     ============
Options and warrants exercisable at December 31, 1999                            $    4,802,755      $      3.20
                                                                                  ==============     ============
</TABLE>

Information  relating  to stock  options  and  warrants  at  December  31,  1999
summarized by exercise price are as follows:
<TABLE>

     Exercise                              Outstanding                                        Exercisable
                               -----------------------------------              -----------------------------------
      Price                              Weighed Average                                    Weighted Average
                       ---------------------------------------------------      -----------------------------------
    Per Share             Shares         Life (Year)       Exercise Price         Shares          Exercise Price
  ---------------      ------------   -----------------  -----------------      -------------   -------------------
        <S>                 <C>            <C>                   <C>                 <C>               <C>
       1.00               602,500          6.0             $     1.00               602,500         $ 1.00
       1.25               325,000          3.2                   1.25               325,000           1.25
       1.50             1,335,788          6.0                   1.50             1,315,788           1.50
       4.38                75,000          8.5                   4.38                25,000           4.38
       4.44               250,000          3.2                   4.44               250,000           4.44
       5.00               220,467          6.3                   5.00               207,467           5.00
       5.50             1,822,500          2.6                   5.50             1,822,500           5.50
       8.25               114,500          2.7                   8.25               114,500           8.25
       9.08               140,000          2.7                   9.08               140,000           9.08
                    --------------    ---------------     -----------------    -------------     ------------------

  Total                 4,885,755          4.3            $      3.14             4,802,755         $ 3.20
                    --------------    ---------------     -------------------     -------------   -----------------
</TABLE>

                                      F-24
<PAGE>

NOTE 5 - STOCKHOLDER'S EQUITY (Continued)

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 loss and loss per share for the years ended  December 31,
1998 and 1999 would have been reduced to the pro forma amounts presented below:

                                                  1998             1999
                                              -------------    -------------

Net loss
     As reported                              $ (4,870,989)    $ (2,090,339)
     Pro forma                                $ (5,374,773)    $ (2,530,546)

Basic and diluted loss per share
     As reported                              $      (0.68)    $       (.29)
     Pro forma                                $      (0.75)    $       (.35)

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 1997,  expected life of 10 years:  expected  volatility of 38.06%,  risk-free
interest rates of 6.0%, and a 0% dividend  yield.  The fair value was calculated
in 1999 using the following  assumptions:  expected  life of 10 years,  expected
volatility of 16.34%,  risk-free  interest rates of 6%, and a 0% dividend yield.
The weighted average fair value at date of grant for options granted during 1998
and 1999 approximated $0.87 and $.69 per option, respectively.

     Due to the fact that the  Compan'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.

NOTE 6 - 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,
                                        ----------------------------
                                           1998              1999
                                        ------------      ----------

Venue A                                      12%             13%
Venue B                                      15              13
Venue C                                       6              10
Venue D                                      11              12
                                        ------------      ----------
                                             44%             48%
                                        ============      ==========

                                      F-25
<PAGE>

NOTE 7 - NOTES RECEIVABLE FROM OFFICERS

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.  As of
December 31, 1998, the amount due from the Chief Executive Officer was $8,306.

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.

During 1998,  the Company  advanced  $63,213 to an officer of the Company.  This
advance is payable  April 12, 1999 and bears  interest at 8%. For the year ended
December 31,  1998,  $3,803 of interest  was accrued and added to the balance of
the advance. The note is secured by the officer's 40,532 shares of common stock.
In  April  1999,  the  Company  extended  the  maturity  date  of  the  note  to
December 31, 1999.

On April 16,  1999,  Mr. Sidhu sold Mr. Stuart 40,532 shares of common stock. In
exchange,  Mr. Stuart  agreed to  assume  Mr. Sidhu's  $60,798  note in favor of
On Stage, with recourse only to the 40,532 shares of common stock purchased from
Mr. Sidhu.  Mr. Sidhu executed a new promissory note in favor of On Stage in the
principal  amount of  $7,472,  which was  subsequently  forgiven  as part of Mr.
Sidhu's employment restructuring.

NOTE 8 - EXPENSES AT DISCONTINUED LOCATION

The Company decided to close its Legends production in Daytona Beach on December
31, 1997. In 1998 the Company wrote off $443,096 in net assets.  The Company has
plans to transfer all the remaining furniture and equipment at the Daytona Beach
facility to other locations which have performances in 1999.

The  Company's  Legends  in Concert  production  opened at the  Sheraton  Centre
Toronto  Hotel  in May  1997.  This  Legends  production  did  not  prove  to be
successful and was discontinued in April 1999 after generating an operating loss
of  $717,000  for the year ended  December  31, 1998 and  $264,000  for the four
months ended April 1999. At December 31, 1998, On Stage had an impairment of net
assets  associated  with the Toronto  show and wrote off net assets of $409,000.
The  Company  also  expensed  $426,954  in 1999  related to the  closing of this
location.

                                      F-26
<PAGE>

NOTE 9 - INTEREST EXPENSE

Interest expense was  approximately  $2,880,000 for year ended December 31, 1999
compared to  $1,555,000  for the year ended  December 31,  1998,  an increase of
$1,325,000 or 85.2%.  The increase was primarily due to additional debt incurred
for the Gedco and Fox Family Acquisitions.

NOTE 10 - OTHER INCOME

In 1999,  certain  invoices  related  to  consulting  and  legal  services  were
discounted.  This  forgiveness  of debt  amounted to a net of  $440,418  for the
period ended December 31, 1999.

NOTE 11 - INCOME TAXES

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

                                                      1998            1999
                                                  ------------    -----------

Current
     Federal                                      $         -     $        -
     State                                                  -              -
                                                  ------------    -----------
                                                  $         -     $        -
                                                  ============    ===========
Deferred taxes are as follows:
                                                      Years ended December 31,
                                                  ----------------------------
                                                       1998           1999
                                                  -------------   ------------
Deferred tax assets
   Litigation accrual                             $     74,480    $         -
   Allowance for doubtful accounts                      94,872         97,912
   Impairment loss                                     155,464              -
   Start-up costs                                      222,938              -
   Net operating loss carryforward                   2,399,773      3,764,806
                                                  -------------   ------------

Total deferred tax assets                            2,947,527      3,862,718

Less: valuation allowance                           (2,947,527)    (3,862,718)
                                                  -------------   ------------
                                                  $          -    $         -
                                                  =============   ============

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,
                                                   -----------------------------
                                                       1998             1999
                                                   ------------     ------------
U.S. Federal statutory rate applied
   to pretax income (loss)                         $ (1,641,139)    $  (710,715)
Permanent differences                                   144,149          (8,103)
State income taxes, net of Federal benefit                    -               -

Tax effect of unrecognized net operating
   loss carryforward                                  1,496,990          718,819
                                                   ------------     ------------
                                                   $          -     $          -
                                                   ============     ============

                                      F-27
<PAGE>

NOTE 11 - INCOME TAXES (Continued)

At December 31, 1998, the Company had Federal net operating  loss  carryforwards
of  approximately  $9,907,384,  which expire in 2018.  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.

NOTE 12 - BUSINESS ACQUISITIONS

Interactive Events, Inc. Purchase and Re-Conveyance

On November 1,  1996, On Stage entered into Common Stock Purchase Agreement with
Interactive  Events,  Inc. under this agreement to which Interactive sold all of
its  assets to  On Stage  in  exchange  for an  aggregate  of  30,304  shares of
On Stage's  common  stock.   Additionally,   Richard  S.  Kanfer,  President  of
Interactive,  agreed to join On Stage as its Vice  President of Sales.  On Stage
recorded  $129,180  as the  excess of the  purchase  price  over the net  assets
acquired,  which was being  amortized  over ten  years.  At  December 31,  1998,
On Stage  determined  there was an  impairment in the value of the excess of the
purchase price over the net assets  acquired in connection  with the Interactive
purchase and wrote off the remaining unamortized balance of $102,131.

On February 23, 1999,  On Stage entered into a Common Stock  Purchase  Agreement
with  Kanfer,  under  which  the  parties  agreed  to  rescind  the  Interactive
acquisition.  Under the terms of the repurchase,  On Stage reconveyed all of the
assets of Interactive to Kanfer, in consideration for the reconveyance by Kanfer
of 30,304  shares of On Stage's  common stock valued at $1.125 per share,  along
with the  cancellation  of a non-plan option to purchase 15,000 shares of common
stock and incentive stock options to purchase 19,835 shares of common stock at a
price of $5.00 per share. In addition, the parties agreed to release one another
from any  liability  arising out of the  Interactive  acquisition  and any claim
relating to Kanfer's  subsequent  employment  with us.  On Stage and Kanfer also
entered into an exclusive  right of  representation  agreement in February 1999,
under which we granted to Kanfer the right to represent  our Legends  production
in  designated  areas  in  consideration  of a  portion  of the  gross  proceeds
generated.

Gedco USA, Inc. Acquisition

On March 13,  1998, the Company completed its acquisition of certain assets from
Gedco USA, and its affiliates for a purchase price of $14,000,000, consisting of
$11,500,000 in cash and 595,238 shares of common stock valued at $2,500,000 (the
"Gedco Acquisition").

Included in the Gedco Acquisition were 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 piano bar, the Fort Liberty
shopping  complex that includes a Wild Bill's Dinner  Theater,  each of which is
located in greater  Orlando,  Florida,  and a second Wild Bill's Dinner  Theater
located in Buena Park,  California.  Gerard  O'Riordan,  President of Gedco USA,
Inc.,  joined the Company as  President  of On Stage  Theaters,  Inc.,  a wholly
subsidiary  of the Company that manages the acquired  dinner  theaters and piano
bar as well as other selected theaters.

                                      F-28
<PAGE>

NOTE 12 - BUSINESS ACQUISITIONS  (Continued)

The Company funded the cash portion of the purchase price and  transaction  fees
and expenses  with $12.5  million of mortgage  financing  from  Imperial  Credit
Commercial Mortgage Investment Corp. ("ICCMIC") (see Note 3).

On May 27, 1999, Hanover  Restaurants,  Inc. returned 595,238 shares of On Stage
common stock  originally  issued to Hanover in  connection  with the Gedco asset
acquisition.  The Hanover  Shares were returned to On Stage under the terms of a
Mutual  Release and  Settlement  Agreement,  which was  entered  with Gedco as a
result of a dispute that arose in connection  with the Gedco asset  acquisition.
In exchange for the stock at a purchase  price of $1.50;  and  (2) released  its
claim to  approximately  $925,000 which was being held in escrow as security for
those representations and warranties made by Gedco representatives in connection
with the Gedco asset acquisition..

The  components  of the  purchase  price and its  allocation  to the  assets and
liabilities as of March 13, 1998 are as follows:

                                                                 Amount
                                                             --------------
Purchase price:
    Liabilities assumed                                       $   986,044
    Issuance of 595,238 restricted shares of common stock       2,500,000
                                                             --------------
                                                                3,486,044
                                                             --------------
    Cost of acquisition incurred                                1,645,874
    Cash paid                                                  11,500,000
                                                             --------------
                                                              $16,631,918
                                                             ==============

Cash paid for the  purchase  of Gedco,  USA,  Inc.  net of cash  received  is as
follows:

                                                                Amount
                                                            --------------
 Cash paid to sellers                                        $ 11,500,000
 Acquisition costs                                              1,645,874
                                                            --------------
                                                               13,145,874
 Less cash received                                              (383,444)
                                                            --------------
                                                             $ 12,762,430
                                                            ==============

The costs of acquisition  increased primarily relates to the lenders origination
fee of $750,000, legal fees of $240,000,  financing fees of $100,000,  recording
fees of $100,000, and accounting fees of $125,000.

                                      F-29
<PAGE>

NOTE 12 - BUSINESS ACQUISITIONS (Continued)

The  acquisition  was accounted  for as a purchase and the assets  acquired were
recorded  at  a  fair  market  value.  The  building  and  equipment  are  being
depreciated over twenty and three years,  respectively,  under the straight-line
method.  The costs of  acquisition  incurred  primarily  relates to the  lenders
origination fee of $750,000, legal fees of $240,000, financing fees of $100,000,
recording fees of $100,000,  and accounting fees of $125,000.  The allocation of
the purchase price was as follows:

                                                                Amount
                                                            --------------
Cash                                                        $    383,444
Inventory                                                        120,084
Prepaid expenses                                                 157,516
Land                                                          11,275,507
Building                                                       3,214,740
Equipment                                                        730,627
Deferred financing acquisition expenses                          750,000
                                                            --------------
Deferred financing acquisition expenses                     $ 16,631,918
                                                            ==============

The assets  acquired  and  liabilities  assumed were  transferred  to either the
Company's  wholly-owned  subsidiary,  On Stage  Theaters,  Inc., or wholly owned
subsidiaries of On Stage Theaters, Inc., concurrent with the acquisition.

The Gedco  acquisition  was  accounted  for as a purchase and the  operations of
Gedco  are  included  in  the  Company's  operations  as  of  the  date  of  the
acquisition.

On  October  1,  1999,  On Stage  and  two  of  our  wholly-owned  subsidiaries,
Fort Liberty,  Inc. and King Henry's Inc., each received a notice of default and
demand  for  payment  of  rents  collected  from  our   Wild Bill's   Wild  West
Extravaganza  production and Fort Liberty Retail Shopping  Complex in Kissimmee,
Florida and our King Henry's Feast production in Orlando, Florida.

The  unaudited  pro forma  results of  operations  presented  below  reflect the
Company's  operations as though the acquisition had taken place at the beginning
of  each  period  presented.  The pro  forma  results  have  been  prepared  for
comparative purposes only, and are not necessarily indicative of what the actual
result of  operations  would  have been had such  acquisitions  occurred  at the
beginning of the periods presented, or what results of operations will be in the
future.

                                                              Year ended
                                                             December 31,
                                                                 1998
                                                          ----------------
Revenues                                                  $  30,328,361
Operating income (loss)                                      (3,003,214)
Net loss                                                     (4,758,688)
Basic and diluted loss per share                                  (0.65)
Basic and diluted average number of common shares
  outstanding                                                 7,307,062


                                      F-30
<PAGE>

NOTE 12 - BUSINESS ACQUISITIONS (Continued)

Calvin Gilmore Productions, Inc.

On June 30, 1998, the Company  completed its  acquisition of certain assets from
Calvin Gilmore Productions,  Inc. ("CGP"), an affiliate of Fox Family Worldwide,
for a purchase  price of $1,000,000  in cash and 206,612  shares of common stock
valued at $723,142 (the "Fox Acquisition").

Included in the Fox Acquisition were substantially all of CGP's income producing
assets and  associated  real and personal  property in the greater Myrtle Beach,
South Carolina area, consisting of the fee simple purchase of The Surfside Beach
Theater,  which the  Company  had leased  from CGP for its  presentation  of its
flagship Legends in Concert  production since 1995, and a leasehold  interest in
The Eddie Miles Theater.

The Company funded the cash portion of the purchase price and  transaction  fees
and expenses with $1,100,000 million of mortgage financing from ICCMIC (see Note
3).

NOTE 13 - IMPAIRMENT OF TORONTO ASSETS

The  Company  decided to close its  Legends  production  in  Toronto,  Canada on
December 31, 1998. As part of the  restructuring,  the Company had an impairment
of net assets and wrote off net assets of $409,000.

NOTE 14 - SEGMENT INFORMATION

The following  information is presented in accordance  with SFAS No. 131,  which
was adopted by the Company in the fourth quarter of 1998.

The Company derives its net revenues from five reportable segments:

     o    Casinos.   The  Casinos   segment   primarily  sells  live  theatrical
          productions  to casinos  worldwide for a fixed fee. In addition,  this
          Casinos  segment also operates our Legends show at the Imperial Palace
          in Las Vegas, Nevada and Biloxi, Mississippi and at Bally's Park Place
          in Atlantic City, New Jersey.

     o    Theaters.  The Theaters  segment owns and /or rents live  theaters and
          dinner theaters in urban and resort tourist locations primarily in the
          United States. This Theaters segment derives revenues from the sale of
          tickets  along with food and  beverages to patrons who attend our live
          theatrical productions.

     o    Production  Services.  The Production Services segment sells technical
          equipment and services to commercial clients.  However, the Production
          Services  segment's  primary focus is to provide technical support for
          all of the Casinos, Theaters, Events and Merchandise segments.

     o    Merchandise.  The Merchandise  segment sells  merchandise and souvenir
          photography products to patrons who attend our Casinos,  Theaters, and
          Events productions.  Revenues generated from the merchandising segment
          are included in the Theaters segment.

     o    Events.  The Events  segment  sells  live  theatrical  productions  to
          commercial clients,  which include  corporations,  theme and amusement
          parks and cruise lines for a fixed fee.  Revenues  generated  from the
          Events segment are included in the Casinos segment.

The  accounting  policies of the reportable  operating  segments are the same as
those described in the Summary of Accounting Policies.  The Company's management
evaluates the  performance  of its operating  segments  based upon the profit or
loss from operations.

                                      F-31
<PAGE>

NOTE 14 - SEGMENT INFORMATION (Continued)

The  Company's  reportable  segments are strategic  business  units because each
business unit services a different market or performs a specialized  function in
support of a given market.

The following table sets forth the segment profit/(loss) and asset information:
<TABLE>

                                                               Year Ended December 31, 1999
                                 --------------------------------------------------------------------------------------
                                      Casinos          Production                         Corporate           Total
                                    Entertainment       Services         Theaters          Office         Consolidation
                                    -------------     -------------    -------------    --------------    --------------
          <S>                           <C>                <C>              <C>              <C>              <C>

Revenues from external customer    $  10,006,642      $    103,896     $ 18,438,104     $           -     $  28,548,642

Interest expense                              84             1,123        2,648,061           230,359         2,879,627

Depreciation and amortization            401,664            90,239          559,335           192,910         1,244,148

Segment profit (loss)                  2,328,150          (666,594)      (1,622,340)       (2,129,555)       (2,090,339)

Segment assets                         3,226,262           861,265       16,538,994         1,856,045        22,482,566

Additions to long-lived assets           165,061            18,229            3,419             8,272           194,982

</TABLE>
<TABLE>
                                                               Year Ended December 31, 1998
                                 ---------------------------------------------------------------------------------------
                                      Casinos          Production                         Corporate           Total
                                    Entertainment       Services         Theaters          Office         Consolidation
                                  ---------------     -------------    -------------    --------------    --------------
        <S>                           <C>                <C>                <C>              <C>               <C>
Revenues from external customer    $   9,522,739      $     71,589     $ 18,253,148      $          -     $  27,847,476

Interest expense                           3,522                 -        1,412,116           139,239         1,554,877

Depreciation and amortization            409,234            44,704        1,086,824           265,764         1,806,526

Segment profit (loss)                  1,499,493          (494,607)      (2,055,408)       (3,820,467)       (4,870,989)

Segment assets                         3,033,466           775,130       18,393,505         1,887,118        24,089,219

Additions to long-lived assets           589,054            60,001          577,602           866,678         2,093,335
</TABLE>



                                      F-32

<PAGE>

NOTE 15 - SUBSEQUENT EVENTS

Wild Bill's California Ground Lease

On February 18,  2000, Spiegel Enterprises, the ground lessor of the Wild Bill's
Dinner Theater in Buena Park, California, filed a complaint against On Stage and
its wholly-owned subsidiary, Wild Bill's California, Inc., in the Superior Court
of the State of California for the County of Los Angeles  alleging,  among other
counts, that Wild Bill's breached its Ground Lease with Spiegel Enterprises.  On
March 15, 2000, this complaint was dismissed without prejudice,  pursuant to the
terms of a settlement  agreement reached by and between Wild Bill's  California,
Inc. and Spiegel Enterprises on February 23, 2000.

Status of Foreclosure Sale for King Henry's Feast Theater in Orlando, Florida

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

Status of Foreclosure Sale for Fort Liberty Shopping  Complex/Wild Bill's Dinner
Theater Extravaganza in Kissimmee, Florida

On January 25,  2000,  On Stage reached an agreement with its Mortgage Lender to
extend  the  foreclosure  sale date on the Fort  Liberty  Shopping  Complex/Wild
Bill's Dinner Theater Extravaganza in Kissimmee,  Florida from January 25,  2000
until March 7,  2000. On March 7,  2000,  On Stage reached an agreement with its
Mortgage Lender to extend the foreclosure sale date on the Fort Liberty property
from March 7, 2000 until April 4,  2000. On March 30,  2000, On Stage reached an
agreement with its Mortgage  Lender to extend the  foreclosure  sale date on the
Fort Liberty property from April 4, 2000 until May 2, 2000.

Status of Foreclosure  Sale for Legends Family Theater in Surfside Beach,  South
Carolina

On February 1,  2000,  On Stage reached an agreement with its Mortgage Lender to
extend the  foreclosure  sale date on the  Legends  Family  Theater in  Surfside
Beach,  South Carolina from  February 7,  2000 until March 6,  2000. On March 3,
2000,  On Stage  reached an  agreement  with its  Mortgage  Lender to extend the
foreclosure  sale date on the Legends  Family  Theater from March 6,  2000 until
April 3,  2000.  On  March 30,  2000,  On Stage  reached an  agreement  with its
Mortgage  Lender to extend  the  foreclosure  sale  date on the  Legends  Family
Theater from April 3, 2000 until May, 2000.

Appeal of Judgment

On  February 24,  2000,  oral  arguments were heard on the appeal of the $14,955
judgment awarded against On Stage in the United States  Bankruptcy Court for the
District of Nevada. No decision has been rendered to date on this appeal.


                                      F-33

<PAGE>

NOTE 15 - SUBSEQUENT EVENTS (Continued)

Status of Execution of Nevada Judgment

On March 30, 2000,  On Stage  reached an agreement  with its Mortgage  Lender to
extend  the date  which the  Mortgage  Lender  had  previously  agreed to forego
collection efforts on the Nevada judgment,  which was set to expire on March 31,
2000, until May 1, 2000.

Status of First Security Bank Forbearance Agreement

The Forebearance Agreement with First Security Bank expired on April 10, 2000 by
its own terms.  On April 7,  2000, we received a letter from First Security Bank
requesting that we submit a further settlement plan, along with other documents,
on or before May 1, 2000.  On Stage is currently preparing a settlement plan for
First Security Bank.

                                      F-34