U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1997
[] Transition report under Section 13 or 15 (d) of the Exchange Act
For the Transition period from ________ to __________
Commission file number 0-92402
ON STAGE ENTERTAINMENT, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 88-0214292
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4625 W. NEVSO DRIVE, LAS VEGAS, NEVADA 89103
(Address of Principal Executive Offices) (ZIP CODE)
(702) 253-1333
Issuer's Telephone Number, Including Area Code
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at September 2, 1997
Common Stock, $0.01 par value 6,584,480
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
Part I. Financial Information
Item 1. Consolidated Financial Statements
Balance Sheets.........................................
Statements of Operations...............................
Statements of Cash Flow................................
Notes to Financial Statements..........................
Item 2. Management's Discussion and Analysis
Of Financial Condition and
Results of Operations..................................
Part II. Other Information
Item 1. Legal Proceedings..........................................
Item 2. Changes in Securities......................................
Item 3. Defaults upon Senior Securities............................
Item 4. Submission of Matters to a vote
Of Security Holders....................................
Item 5. Other Information..........................................
Item 6. Exhibits and Reports on Form 8-K...........................
Signatures................................................................
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
June 30,
December 31, 1997
1996 (Unaudited)
------------ -----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 290,751 $ 79,844
Accounts receivable 490,465 400,795
Inventory 67,853 79,074
Deposits 231,601 437,524
Prepaid and other assets 236,295 532,077
Prepaid issue costs - 97,300
Pre-opening costs, net 129,180 583,425
----------- ----------
Total current assets 1,446,145 2,210,039
----------- ----------
Property, equipment and leasehold improvements 3,725,941 4,379,389
Less: Accumulated depreciation and amortization (1,937,718) (2,212,427)
----------- ----------
Property, equipment and leasehold improvements, net 2,166,962 1,788,223
----------- ----------
Cost in excess of net assets acquired, net of accumulated amortization 62,123 58,964
of $1,053 and $3,159
Offering costs 657,801 1,107,133
Note receivable from stockholder - 183,046
---------- ----------
$3,954,292 $5,726,144
========== ==========
Liabilities and Stockholder's Equity (Deficit)
Current liabilities
Accounts payable and accrued expenses 599,045 1,145,340
Accrued payroll and other liabilities 621,986 455,846
Litigation settlement accrual 100,000 -
Current maturities of long-term debt 228,510 347,844
Bridge Notes - 556,000
---------- ----------
Total current liabilities 1,549,541 2,505,030
DYDX LP Loan 750,000 750,000
Long-term debt, less current maturities 1,877,391 2,382,055
Commitments and contingencies
Stockholder's equity (deficit) - -
Preferred stock, par value $1 per share, 1,000,000 shares
Authorized; none issued and outstanding - -
Common stock, par value $0.01 per share; authorized 25,000,000
Shares; 4,002,044 and 4,683,331 shares issued and outstanding 40,020 46,833
Additional paid-in-capital 121,024 642,640
Accumulated deficit (383,684) (600,414)
---------- ----------
Total stockholder's equity (deficit) $ (222,640) $ 89,059
---------- ----------
$3,954,292 $5,726,144
========== ==========
</TABLE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
Three months ended
June 30,
-----------------------------
1996 1997
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Net revenues $4,266,181 $3,979,685
Direct production costs 1,791,916 1,841,621
Indirect production costs 607,950 728,242
---------- ----------
Gross profit 1,866,315 1,409,822
---------- ----------
Operating expenses
Selling, general and administrative 774,692 814,671
Depreciation and amortization 170,167 171,868
Principal stockholder compensation 62,500 62,500
---------- ----------
Total operating expenses 1,007,359 1,049,039
---------- ----------
Operating income 858,956 360,783
Interest expense, net 52,395 60,141
---------- ----------
Net income before income taxes 806,561 300,642
Income taxes 4,019 -
---------- ----------
Net income $ 802,542 $ 300,642
========== ==========
Net income per share $ 0.20 $ 0.06
========== ==========
Weighted average number of common and common equivalent shares 4,112,643 4,783,711
========== ==========
</TABLE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
Six months ended
June 30,
-----------------------------
1996 1997
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Net revenues $6,612,935 $6,698,462
Direct production costs 2,946,873 3,304,526
Indirect production costs 1,066,980 1,168,225
---------- ----------
Gross profit 2,599,082 2,225,711
---------- ----------
Operating expenses
Selling, general and administrative 1,308,277 1,822,003
Depreciation and amortization 293,868 319,109
Principal stockholder compensation 125,000 125,000
---------- ----------
Total operating expenses 1,727,145 2,266,112
---------- ----------
Operating income (loss) 871,937 (40,401)
Interest expense, net 133,692 174,010
---------- ----------
Net income (loss) before income taxes 738,245 (214,411)
Income taxes 4,019 2,319
---------- ----------
Net income (loss) $ 734,226 $ (216,730)
========== ==========
Net income (loss) per share 0.18 (0.05)
========== ==========
Weighted average number of common and common equivalent shares 4,112,643 4,367,154
========== ==========
</TABLE>
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
Six months ended
June 30,
-----------------------------
1996 1997
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 734,226 $(216,730)
--------- ---------
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 293,868 319,109
Issuance of Common Stock to CFO - 162,129
Increase (decrease) from changes in operating assets and
Liabilities
Accounts receivable (134,581) 89,670
Inventory (52,014) (11,221)
Offering costs (156,752) (449,332)
Deposits (76,423) (205,923)
Pre-opening costs (9,225) (454,245)
Prepaid and other assets (181,422) (393,082)
Accounts payable and accrued expenses 17,283 546,295
Accrued payroll and other liabilities 222,708 (166,140)
Litigation settlement accrual - (100,000)
--------- ---------
Total adjustments (76,558) (662,740)
--------- ---------
Net cash provided by (used in) operating activities 657,668 (879,470)
--------- ---------
Cash used in investing activities
Advances on note receivable from stockholder (281,000) (183,046)
Capital expenditures (504,894) (653,448)
--------- ---------
Net cash used in investing activities (785,894) (836,494)
--------- ---------
Cash used in financing activities
Repayments under line of credit (200,000) -
Proceeds from line of credit - 122,000
Proceeds from long-term borrowing 1,135,883 627,391
Repayments on short-term borrowings ( 114,349) (119,334)
Proceeds from Bridge Notes - 875,000
--------- ---------
Net cash provided by financing activities 821,534 1,505,057
--------- ---------
Net increase (decrease) in cash and cash equivalents 693,308 (210,907)
Cash and cash equivalents at beginning of period
20,098 290,751
--------- ---------
Cash and cash equivalents at end of period $ 713,359 $ 79,844
========= =========
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest $ 137,297 $ 177,008
Taxes $ 4,019 $ 2,319
</TABLE>
<PAGE>
Supplemental schedule of non-cash investing and financing activities
During fiscal year 1996 and for the six months ended June 30, 1997, $259,855 and
$531,319 of lease assets and obligations were capitalized, respectively.
During the six months ended June 30,1997, the Company borrowed an aggregate of
$1,000,000 from 21 private investors, in return for which the Company issued to
such investors unsecured non-negotiable notes payable, which accrued interest at
an annual rate of 9% and which matured upon the consummation of an initial
public offering (the "Bridge Notes"), Common Stock and warrants (the "Bridge
Financing"). The Common Stock issued in connection with the Bridge Financing was
valued at $440,000. As no consideration was paid for the Common Stock, this
amount is considered an original issue discount and amortized over the term of
the Bridge Notes.
During the six months ended June 30,1997, the Company exchanged all of its
outstanding warrants for 440,755 shares of Common Stock, which had no effect on
the Company's earnings.
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30,1997
(1) Basis of Presentation
The financial statements included herein include the accounts of On Stage
Entertainment, Inc. (the "Company"), and its subsidiaries, Legends in Concert
Inc., a Nevada corporation; On Stage Marketing, Inc., a Nevada corporation; and
Interactive Events, Inc., a Georgia corporation. In the opinion of the Company's
management, all adjustments considered necessary for fair presentation have been
reflected in the financial statements. These adjustments are of a normal,
recurring nature. Operating results for the three and six months ended June 30,
1997 are not necessarily indicative of those expected for the full year. Certain
prior year amounts have been adjusted and reclassified to conform to the 1997
presentation.
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and the rules and
regulations of the Securities and Exchange Commission. These consolidated
financial statements have been prepared under the presumption that users of the
interim consolidated financial information have either read or have access to
the Company's audited financial statements and footnotes thereto for the year
ended December 31, 1996, included in Amendment No. 5 to the Company's
Registration Statement on Form SB-2 (Registration No. 333-24681) filed with the
Securities and Exchange Commission on August 13, 1997, ("Amendment No. 5").
Accordingly, footnote disclosures, which would substantially duplicate the
disclosures contained in the Company's December 31, 1996 audited financial
statements, have been omitted from these interim consolidated financial
statements. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
instructions. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
unaudited interim consolidated financial statements be read in conjunction with
the audited consolidated financial statements and the notes thereto for the year
ended December 31,1996, included in Amendment No. 5.
(2) Subsequent Events
On August 13, 1997, the Company completed an initial public offering of
1,400,000 shares of Common Stock at $5.00 per share and redeemable warrants to
purchase 1,610,000 shares of Common Stock at $.10 per Warrant ("Redeemable
Warrrants"). The net proceeds to the Company of the offering, after underwriting
discounts and commissions, was approximately $6,270,070 (the "Net Offering
Proceeds").
Certain of the Net Offering Proceeds were used for new show openings and the
repayment of indebtedness. The Company intends to use the remaining balance of
the Net Offering Proceeds for additional new show openings, the hiring of
additional administrative and sales personnel and for working capital and
general corporate purposes.
On August 13, 1997, the Company agreed to forgive a note receivable of $221,521
(including principal and interest at the rate of 8% per annum) due from the
Chief Executive Officer and principal stockholder of the Company.
On August 13, 1997, the Company converted $1,714,064 of principal amount
currently outstanding under the Company's 8% Amended and Restated Convertible
Subordinated Debentures due in January, 1999 (the "Debentures"), into an
aggregate of 505,649 shares of Common Stock. The aforementioned conversion was
based upon a ratio of 295 shares of Common Stock per each $1,000 principal
amount of Debenture. The pending conversion will result in a one time,
non-recurring, interest expense charged in the third quarter of fiscal year 1997
in the amount of $194,228 (based on an imputed value of $4.00 per share of
Common Stock).
On August 13,1997, the Company paid off, in full, all outstanding principal and
accrued interest, $773,014, pursuant to the terms of a $1,000,000 bridge loan
agreement, as extended, which was entered into by and between the Company and
DYDX Legends Group, L.P. on February 29, 1996 ( "DYDX Loan" ).
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.
(3) Commitments and Contingencies
As set forth in Part II of this Form 10-QSB, the Company is a party to various
legal proceedings in which the adverse parties are seeking damages from the
Company. While there can be no assurance that any of the instituted or
threatened lawsuits will be settled or decided in favor of the Company, the
management of the Company does not believe that the final resolution of these
matters will have a material adverse effect upon the Company's financial
condition and results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This document contains certain forward-looking statements that are subject to
risks and uncertainties. Forward-looking statements include certain information
relating to the Company's utilization of tax benefits, the seasonal nature of
the Company's business, general business strategy, the introduction of new
theatrical productions, expansion plans, litigation matters, operating
performance and liquidity, as well as information contained elsewhere in this
Quarterly Report where statements are preceded by, followed by or include the
words "believes," "expects," "anticipates" or expressions of similar import. For
such statements, the Company 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 such
forward-looking statements and the actual results to differ materially from
those expressed in or implied by the statements. The most important factors that
could prevent the Company from achieving its goals | and cause the assumptions
underlying the forward-looking statements and the actual results of the Company
to differ materially from those expressed in or implied by those forward-looking
statements | include, without limitation and in addition to those discussed in
the various documents filed by the Company with the Securities and Exchange
Commission, the following: (i) The highly competitive nature of the leisure and
entertainment market, which includes the market for live theatrical productions,
in which the Company competes and the ability of the Company to successfully
compete in this market with other production companies for the most desirable
commercial and tourist venues; (ii) The ability of the Company to successfully
implement its expansion strategy which contemplates the opening of approximately
nine additional "four wall" resident productions over the next 24 months; (iii)
Future capital needs and the uncertainty of additional funding (whether through
financial markets, collaborative or other arrangements with strategic partners,
or from other sources); (iv) The outcome of litigation matters; (v) Risks
associated with acquisition strategy; (vi) The Company's working capital
position ; and (vii) The Company's ability to reproduce the performance,
likeness and voice of various celebrities without infringing on the publicity
rights of such celebrities or their estates.
Overview
The Company derives the majority of its revenue from the sale of its theatrical
productions to audiences at venues in urban and resort tourist locations and to
commercial clients, which include casinos, corporations, theme parks and cruise
lines. In addition, the Company generates revenue from the sale of merchandise,
food and beverages in certain of its venues, and from to time, from the sale of
technical equipment, services to commercial clients, and design and fabrication
of sets and props.
The Company classifies its productions (both its resident and limited-run
engagements) into two main categories: "at-risk" shows and "low-risk" shows.
"At-risk" shows are classified as any of the Company's resident or longer term
limited-run productions where the amount of the revenue to be obtained by the
Company in connection with the show is uncertain (as is typical in the case of
shows produced by the Company at theaters leased and or purchased directly by
the Company in urban and resort tourist locations and of shows produced by the
Company in certain casino markets like Las Vegas). "Low-risk" shows are
contracted productions in which the client guarantees a fee (typical of shows
produced by the Company in certain smaller casino markets like Atlantic City and
for other commercial clients such as corporations, theme parks and cruise
lines).
<PAGE>
Results of Operations
The following table sets forth certain financial data as a percentage of net
revenue of the Company for the periods presented:
<TABLE>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
1996 1997 1996 1997
----- ----- ------ -----
<S> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0%
Direct production costs 42.0 46.3 44.6 49.3
Indirect production costs 14.3 18.3 16.1 17.4
----- ----- ------ ------
Gross profit 43.7 35.4 39.3 33.3
Operating expenses
Selling, general and administrative 18.2 20.5 19.8 27.2
Depreciation and amortization 3.9 4.3 4.4 4.8
Principal stockholder compensation 1.5 1.6 1.9 1.9
---- ---- ---- -----
Total operating expenses 23.6 26.4 26.1 33.9
Operating income (loss) 20.1 9.0 13.2 (0.6)
Interest, net 1.2 1.5 2.0 2.6
---- ---- ----- -----
Net income (loss) before income taxes 18.9 7.5 11.2 (3.2)
Income tax 0 .1 0.0 0.1 0.0
----- ---- ---- -----
Net income (loss) 18.8% 7.5% 11.1% (3.2)%
====== ===== ===== ======
</TABLE>
Quarter Ended June 30,1996 versus Quarter Ended June 30,1997
Net Revenues. Net revenue consists of sales of the Company's theatrical
productions, concession sales, photo sales, and income from equipment rental.
Net revenue for the quarter ended June 30, 1997 decreased by 6.7%, or $286,000,
to $3,980,000 from $4,266,000 as compared to the second quarter ended June 30,
1996. Contributing to this decrease were decreases of approximately: (i)
$598,000 attributable to the discontinuation of the Legends show at the Grand
Palace in Branson, Missouri and (ii) $388,000 attributable to a resident Legends
show in Myrtle Beach, South Carolina. These decreases were offset by increases
of approximately: (a) $320,000 attributable to limited engagements and corporate
events which includes limited engagements of the Legends show at Empress Casino
in Joliet, Illinois and Trump's Taj Mahal Hotel and Casino in Atlantic City, New
Jersey, which ran in 1997, but not in 1996; (b) $233,000 attributable to the
Legends show at the Osmond Family Theater in Branson, Missouri, which ran in
1997, but not in 1996; (c) $16,000 attributable to the resident Legends show at
the Imperial Palace in Las Vegas, Nevada; (d) $18,000 attributable to the
resident Legends show at Bally's Park Place in Atlantic City, New Jersey; (e)
$5,000 attributable to the Legends shows on Premier Cruise Lines; (f) $12,000
attributable to the new resident show in Daytona Beach, Florida, which ran in
1997, but not in 1996; (g) $ 58,000 attributable to other revenue; and (h)
$38,000 attributable to management fees from the Legends show in Hawaii.
Direct Production Costs. Direct production costs include salaries for
impersonators, stars, singers, dancers, musicians, technical operators,
choreographers, wardrobe personnel, production managers and concession
personnel, license fees, electronic supplies, lighting, sound, wardrobe, sets,
props, and the costs of goods for merchandise and food and beverage. Direct
production costs for the quarter ended June 30, 1997 increased by $50,000, or
3%, as compared to the quarter ended June 30, 1996. Direct production costs
increased to 46% of net revenue for the quarter ended June 30, 1997, as compared
to 42% for the quarter ended June 30, 1996. This increase was primarily
attributable to costs associated with increases in salaries, electronic
supplies, make-up and wardrobe. The increase was partially offset by a decrease
in costs associated with equipment rental, props and production supplies.
Indirect Production Costs. Indirect production costs include salaries for
operations, box office, finance and marketing personnel, advertising and
promotion, insurance, rent, utilities, property taxes, housing, legal,
accounting and travel. Indirect production costs for the quarter ended June 30,
1997 increased by $120,000, or 20%, as compared to the quarter ended June 30,
1996. Indirect production costs increased to 18% of net revenue for the quarter
ended June 30, 1997, as compared to 14% for the quarter ended June 30, 1996. The
increase was primarily attributable to a higher level of indirect salaries,
advertising, promotion and rent.
Selling, General and Administrative. Selling, general and administrative
expenses include officers' salaries, finance, operations, development, marketing
and technical personnel salaries, office supplies, rent, utilities and legal
expenses. Selling, general and administrative expenses for the quarter ended
June 30, 1997 increased by $40,000, or 5%, as compared to the quarter ended June
30, 1996. Selling, general and administrative as a percent of net revenues
increased to 20% for the quarter ended June 30, 1997, as compared to 18% for the
quarter ended June 30, 1996. The insignificant increase in total dollars was
primarily due to increases in salaries, auto expense, rent, commissions,
corporate advertising and promotion. These increases were partially offset by
decreases in costs associated with travel, entertainment, and professional fees.
Depreciation and Amortization. Depreciation and amortization for the quarter
ended June 30,1997 increased by $1,700, or 100%, as compared to the quarter
ended June 30,1996. The increase was primarily due to increases in depreciation,
and goodwill amortization. These increases were partially offset by a decrease
of developmental amortization.
Interest Expense, Net. Interest expense is currently incurred and/or was
incurred as a result of the following: (i) a term loan with First Security Bank,
approximately $61,795 of which was outstanding as of June 30, 1997 and which
accrued interest at the annual rate of 11.5%; (ii) the DYDX Loan, approximately
$750,000 which accrued interest at the annual rate of 9.0%; (iii) $1,714,064 in
Convertible Subordinate Debentures which accrued interest at the annual rate of
9.0%; (iv) $250,000 line of credit with First Security Bank, which accrued
variable interest at the rate 1.5% over the First Security of Idaho Index (10%
per year as of the facility inception) and is due on demand (the "Line of
Credit"). The Line of Credit is scheduled to expire on May 19, 1998; (v) the
Bridge Notes of $1,000,000 of unsecured non-negotiable loan notes, Common Stock
and warrants. Interest expense for the quarter ended June 30, 1997 increased by
$8,000, or 15%, as compared to the quarter ended June 30, 1996. The increase was
primarily the result of the Bridge Notes, which was closed on March 26, 1997.
Income Taxes. The Company is a Nevada corporation with a substantial portion of
revenue and income derived in Nevada. There are no state or local income taxes
in Nevada. The Company accrued no federal income tax for the quarter ended June
30,1997.
At December 31, 1996 and for the quarter ended June 30, 1997, the Company had
federal net operating loss carryforwards of $657,214 and $957,856, respectively.
Under Section 382 of the Internal Revenue Code, certain significant changes in
ownership that the Company is currently undertaking may restrict the future
utilization of these tax loss carryforwards.
Six Months Ended June 30, 1996 versus Six Months Ended June 30, 1997
Net Revenues. Net revenue for the six months ended June 30, 1997 increased by
1.3%, or $85,000, from $6,613,000 to $6,698,000 as compared to the six months
ended June 30, 1996. Contributing to this increase were increases of
approximately: (i) $1,013,000 attributable to limited engagements and corporate
events which includes limited engagements of the Legends show at Empress Casino
in Joliet, Illinois and Trump's Taj Mahal Hotel and Casino in Atlantic City, New
Jersey, which ran in 1997, but not in 1996; (ii) $12,000 attributable to the new
resident show in Daytona Beach, Florida, which ran in 1997, but not in 1996; and
(iii) $ 64,000 attributable to management fees from the Legends show in Hawaii.
These increases were partially offset by decreases of: (a) $609,000 attributable
to the discontinuation of the Legends show at the Grand Palace in Branson,
Missouri; (b) $105,000 attributable to the resident Legends show at the Imperial
Palace in Las Vegas, Nevada; (c) $18,000 attributable to the resident Legends
show at Bally's Park Place in Atlantic City, New Jersey; (d) $266,000
attributable to the resident Legends show in Myrtle Beach, South Carolina; (e)
$2,000 attributable to the Legends shows on Premier Cruise Lines; and (f) $4,000
attributable to other lost revenue.
Direct Production Costs. Direct production costs include salaries for
impersonators, stars, singers, dancers, musicians, technical operators,
choreographers, wardrobe personnel, production managers and concession
personnel, license fees, electronic supplies, lighting, sound, wardrobe, sets,
props, and the cost of goods for merchandise and food and beverage. Direct
production costs for the six months ended June 30, 1997 increased by $358,000,
or 12%, as compared to the first six months of fiscal 1996. Direct production
costs increased to 49% of net revenue for the six months ended June 30, 1997, as
compared to 45% for the first six months of fiscal 1996. The increase was
primarily attributable to costs associated with increases in salaries,
electronic supplies, make-up, wardrobe, and operating supplies. These increases
were partially offset by decreases in costs associated with equipment rental,
props and production supplies.
Indirect Production Costs. Indirect production costs include salaries for
operations, box office, finance, and marketing personnel, advertising and
promotion, insurance, rent, utilities, property taxes, housing, legal,
accounting and travel. Indirect production costs for the six months ended June
30, 1997 increased by $101,000, or 10%, as compared to the first six months of
fiscal 1996. Indirect productions costs increased to 17% of net revenue for the
six months ended June 30, 1997, as compared to 16% for the first six months of
fiscal 1996. These increases were primarily attributable to increases in
salaries, rent and insurance. These increases were offset partially by decreases
in advertising, promotion, and travel.
Selling, General and Administrative. Selling, general and administrative
expenses include officers' salaries, finance, operations, development, marketing
and technical personnel salaries, office supplies, rent, utilities and legal
expenses. Selling, general and administrative expenses for the six months ended
June 30, 1997 increased by $514,000, or 39%, as compared to the first six months
of fiscal 1996. Selling, general and administrative expenses as a percent of net
revenues were 27% for the six months ended June 30,1997, as compared to 20% for
the first six months of fiscal 1996. The increase was mainly due to increases in
costs associated with salaries, auto expense, freight, shipping, office
supplies, telephone, commissions, advertising, promotion, and bad debts. These
increases were partially offset by a decrease in costs associated with insurance
and legal services.
Depreciation and Amortization. Depreciation and amortization for the first six
months ended June 30, 1997 increased by $25,000, or 9%, as compared to the first
six months of fiscal 1996. The increase was due primarily to new capital
additions in existing and new shows.
Interest Expense, Net. Interest expense for the six months of fiscal 1997
increased by $40,000, or 30%, as compared to the first six months of fiscal
1996. The increase in interest expense resulted from the Bridge Notes, which
closed on March 26,1997.
Income Taxes. At December 31, 1996 and June 30, 1997, the Company had federal
net operating loss carryforwards of $657,214 and $843,944, respectively. Under
Section 382 of the Internal Revenue Code, certain significant changes in
ownership that the Company is currently undertaking may restrict the future
utilization of these tax loss carryforwards.
Seasonality and Quarterly Results
The Company's business has been, and is expected to remain, highly seasonal,
generating the majority of its revenues from April through October. Part of the
Company's business strategy is to increase sales in tourist markets that
experience their peak seasons from November to March. The Company is exploring
opportunities in markets such as Florida and Arizona, domestically, and
Australlia, South Africa, China, Singapore, New Zealand, and Hong Kong, abroad.
The Company believes that penetration of these markets could help mitigate this
seasonality.
The following table sets forth the Company's net revenue for each of the last
ten quarters ended June 30, 1997:
Net Revenues
($ in thousands)
<TABLE>
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Fiscal 1995................ $2,319 $2,747 $4,388 $3,321
Fiscal 1996................ $2,347 $4,266 $4,591 $3,074
Fiscal 1997................ $2,719 $3,979
</TABLE>
Liquidity and Capital Resources
General
The Company has historically met its working capital and capital expenditures
through a combination of cash flow from operations, debt offerings, and
traditional bank financing. The Company anticipates, based on its currently
proposed plans and assumptions relating to its operations (including assumptions
regarding the anticipated timetable of its new show openings and the costs
associated therewith), that the Company's current cash and cash equivalent
balances and anticipated revenues from operations will be sufficient to fund its
current expansion strategy and contemplated capital requirements (including
those associated with the opening of nine resident "four-wall" productions) for
the next 24 months. In the event the Company's plans or assumptions change, or
prove to be incorrect, or if balances and/or anticipated revenues otherwise
prove to be insufficient, the Company would need to revise its expansion
strategy (which revision could include the curtailment, delay or elimination of
certain of its anticipated productions or the funding of such productions
through arrangements with third parties which would require it to relinquish
rights to a substantial portion of its revenues) and/or seek additional
financing prior to the end of such period.
For the six months ended June 30, 1996, the Company generated net cash from
operations of approximately $658,000. The cash provided by operations was
primarily attributable to an increase in revenues and a decrease in direct and
indirect production costs offset partially by an increase in selling, general
and administrative costs. For the six months ended June 30, 1997, the Company
had a net cash deficit from operations of $879,000. This operating deficit was
primarily attributable to business seasonality increased selling, general and
administrative expenses in anticipation of future growth and offering costs.
The net cash used in investing activities for the six months ended June 30, 1996
and June 30, 1997 of $786,000 and $836,000, respectively, was primarily due to
capital expenditures and advances (which were subsequently written off at August
13,1997) to Mr. Stuart, the Company's Chairman and Chief Executive Officer.
Net cash provided by financing activities for the six months ended June 30, 1996
of $ 821,000 was attributable to the DYDX Loan and bank financing. Net cash
provided by financing activities for the six months ended June 30,1997 of
$1,505,000 was primarily attributable to the Bridge Notes.
At June 30,1997, the Company had a working capital deficit of approximately
$295,000, which resulted, primarily, from increases in offering costs and
capital expenditures, which were partially offset by proceeds from a line of
credit, long-term borrowings and the Bridge Notes.
As of June 30, 1997, the Company had outstanding: (i) A bank term loan in the
principal outstanding amount of $61,795, which (a) accrues interest at a rate of
11.5% per annum and (b) becomes due on September 25, 1997; (ii) The DYDX Loan in
the principal outstanding amount of $750,000, which (a) accrued interest at a
rate of 9% per annum and (b) was paid off in full on August 13, 1997; and (iii)
the Bridge Notes in the principal outstanding amount of $1,000,000, which (a)
accrued interest at a rate of 7% per annum and (b) were paid off in full on
August 13, 1997.
On August 13, 1997, the Company completed an initial public offering of
1,400,000 shares of Common Stock at $5.00 per share and redeemable warrants to
purchase 1,610,000 shares of Common Stock at $0.10 per Warrant. The net proceeds
to the Company of the offering, after underwriting discounts and commissions,
was approximately $6,270,070.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1996, a former performer in the Company's Legends production aboard a
vessel owned and operated by Premier Cruise Lines filed a lawsuit in a Florida
Circuit Court against the Company alleging bodily injury, pain and suffering,
disability, disfigurement, mental anguish and pain, loss of earnings, loss of
ability to earn money, and reimbursement for medical expenses and treatment and
care for any amount in excess of $15,000 as a result of an injury suffered in
the course of his performance. The case was recently dismissed for improper
venue and has been refiled by the plaintiffs in another jurisdiction. The
Company has filed an answer to the plaintiff's complaint. The matter is
currently in the discovery stage of litigation.
In July 1996, an impersonator of Hank Williams, Sr. who performed for the
Company, filed suit against the Company in the Circuit Court of Taney County,
Missouri. The plaintiff asserts that during one of his performances with the
Company, a photograph was taken of him by the Company while in costume and
surrounded by dancers and that the picture has been reproduced and published in
a Company scrapbook along with other photographs of the Company's impersonators.
The plaintiff alleges that the Company misappropriated his name, image and
likeness for commercial purposes by publishing and selling the booklets and is
claiming damages in the amount of $2,000,000. The Company believes that the
plaintiff's claim is without merit since the Company utilized the plaintiff's
photograph in its booklets for ten years with the plaintiff's knowledge and
without our objection. The Company intends to defend this action by asserting
that the appropriation was de minimize in that the picture is only approximately
2" x 4" in size, contains two of the Company's showgirls, identifies the
plaintiff as an impersonator of Hank Williams, Sr. and is only one of
approximately 50 other photographs contained in the brochure. The Company has
filed its answer to the plaintiff's complaint. The matter is currently in the
discovery stage of litigation.
In March 1997, a complaint was filed by a shareholder of Grand Strand
Entertainment, Inc. ("Grand Strand"), a South Carolina corporation in which Mr.
Stuart, the CEO of On Stage Entertainment Inc., is a majority shareholder. The
complaint was filed against the "Company", John Stuart and Grand Strand,
alleging misappropriation of corporate opportunity and breach of contract. Grand
Strand, which was formed solely for the purpose of establishing a Legends
production in Myrtle Beach, South Carolina, was granted a license by the Company
to use the "Legends in Concert" trademark in connection with such production.
The license was contingent upon Grand Strand raising sufficient capital to fund
pre-production costs associated with establishing the Legends production which
was scheduled to take place at the Surfside Theater in Myrtle Beach. However,
since the contingency was not met in a timely manner and the Company was
responsible for the lease of the property, the company rescinded the license and
funded and operated the production on its own. The plaintiff seeks: (i) a
receiver to manage the Legends show produced by Grand Strand; (ii) an accounting
of all assets and profits of Grand Strand; (iii) the Company to be prevented
from diverting profits to itself or from diminishing the value of Grand Strand's
property or other contractual rights; (iv) the Company to pay to Grand Strand
all sums found to be due from an accounting of the profits and the losses of
Grand Strand caused by the Company's actions; and (v) actual damages for loss of
earnings. The Company filed an answer to the plaintiff's complaint, as well as a
motion to stay and a motion to compel arbitration. On June 2, 1997, the Court of
Common Pleas for Horry County, South Carolina granted such motions. Mr. Stuart
has entered into an Indemnification Agreement with the Company and Grand Strand
dated February 27, 1997, whereby Mr. Stuart shall indemnify the Company against
any liability for any judgments or settlement payments, expenses and or legal
fees in connection with any proceeding relating to the grant of the license to
Grand Strand. Mr. Stuart has also entered into a Security and Pledge Agreement
with the Company dated February 27, 1997 whereby he has pledged and granted a
security interest to the Company in 400,000 of his shares of Common Stock of the
Company to secure his obligations and performances under the Indemnification
Agreement.
Although the Company believes that it has meritorious defenses with respect to
all of the foregoing matters which it will vigorously pursue, there can be no
assurance that the ultimate outcome of such actions will be resolved favorably
to the Company or that such litigation will not have an adverse effect on the
Company's liquidity, financial condition or results of operation. To the extent
that the Company is required to use the proceeds of this offering in connection
with such litigation, the Company will have less resources available to it for
other purposes.
ITEM 2. CHANGES IN SECURITIES.
Use of Proceeds from the Company's Initial Public Offering
The following information is being provided in accordance with Rule 463 of the
Securities Act of 1933 (the "Securities Act") and Item 701 of Regulation S-B
under the Securities Act. On August 13, 1997, the Company completed an initial
public offering of 1,400,000 shares of its Common Stock and Warrants to purchase
1,610,000 shares of its Common Stock (the "Offering").
The effective date of the Company's Registration Statement on Form SB-2
(Registration No. 333-24681) was August 13, 1997.
The Offering commenced on August 13, 1997 and terminated on August 19,
1997, after all securities registered under the Offering were sold.
The managing underwriter of the Offering was Whale Securities Co., L.P.
The following classes of securities were registered pursuant to the
Offering: (i) Common Stock, par value $0.01 per share and (ii) Warrants, each to
purchase on share of Common Stock at a price of $5.50 at any time commencing
August 13, 1998 through and including August 13, 2002; the Warrants are
redeemable by the Company upon (i) the consent of the managing underwriter and
(ii) the occurrence of certain other events.
All of the securities registered in the Offering were sold for the account
of the company. There were no selling shareholders in the Offering. The Company
registered 1,400,000 shares of Common Stock and Warrants to purchase 1,610,000
shares of Common Stock. The aggregate price of the 1,400,000 shares of Common
Stock, before underwriting discounts and commissions, was $7,000,000. The
Company sold all 1,400,000 shares of Common Stock, before underwriting discounts
and commission, was $161,000. The Company sold all of the Warrants to purchase
1,610,000 shares of Common Stock.
Because the effective date of the Registration Statement was after the
ending date for the reporting period, the amount of expenses incurred by the
company in connection with the Offering will be provided in the Company's
Quarterly Report for the quarter ending September 30, 1997.
The net proceeds to the Company of the Offering were $6,270,070.
Because the effective date of the Registration Statement was after the
ending date for the reporting period, the amount of the net proceeds used by the
Company for specific uses will be provided in the Company's Quarterly Report for
the quarter ending September 30, 1997.
ITEM 3. DEFAULTS OF SENIOR SECURITIES.
NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
ITEM 5. OTHER INFORMATION.
NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The following is a list of exhibits filed as part of this quarterly report on
Form 10-QSB. Where so indicated by footnote, exhibits which were previously
filed are incorporated by reference. Unless otherwise indicated, the location of
the exhibit in the previous filing is the same number as listed below.
<TABLE>
Exhibit
Number Description
<S> <C>
3.1 Articles of Incorporation of the Registrant. (1)
3.2 Bylaws of the Registrant. (4)
4.1 Specimen stock certificate representing the Common Stock. (4)
4.2 Specimen warrant certificate representing the Warrants. (4)
4.3 Form of Public Warrant Agreement. (4)
4.4 Form of Underwriter's Warrant Agreement. (4)
10.1 Employment Agreement between the Registrant and John W. Stuart. (1)
10.2 Employment Agreement between the Registrant and David Hope. (1)
10.3 Employment Agreement between the Registrant and Kiranjit S. Sidhu. (1)
10.4 Confidentiality and Non-Competition Agreement between the Registrant
and John W. Stuart. (1)
10.5 Confidentiality and Non-Competition Agreement between the Registrant
and David Hope. (1)
10.6 Confidentiality and Non-Competition Agreement between the Registrant
and Kiranjit S. Sidhu. (1)
10.7 Amended and Restated 1996 Stock Option Plan. (1)
10.8 Contribution agreement between the Registrant and John W. Stuart. (1)
10.9 Security and Pledge Agreement between the Registrant and John W. Stuart
relating to contribution of LVHE share. (1)
10.10 Security and Pledge Agreement between the Registrant and John W. Stuart
relating to LVHE litigation indemnity. (1)
10.11 Indemnification Agreement between the Registrant, John W. Stuart and
Grand Strand Entertainment, Inc. (1)
10.12 Security and Pledge Agreement between the Registrant and John W. Stuart
relating to Grand Strand Entertainment, Inc. litigation indemnity. (1)
10.13 Lease between the Registrant and Great American Entertainment Company.(3)
10.14 Entertainment Production Agreement between the Registrant, Imperial
Palace, Inc. and John W. Stuart dated December 8, 1995. (4)
10.15 Agreement between the Registrant and Bally's Park Place, Inc. dated
September 1, 1994 and subsequent renewal letter. (4)
10.16 Agreement between Registrant and Improv West, Inc. (2)
10.17 Amended and Restated Loan agreement between Registrant and DYDX Legends
Group, L.P. (2)
10.18 Common Stock Purchase Agreement between Registrant and Interactive
Events, Inc. (2)
10.19 Show Production Agreement between the Registrant and Kurz Management.(4)
10.20 Lease between the Registrant and Burgoyne Properties, Limited. (4)
27.1 Financial Data Schedule. *
<FN>
*Filed herewith
Filed as an exhibit to the Company's Registration Statement on Form SB-2 dated April 7, 1997 (Registration
No. 333-24681)
Filed as an exhibit to Amendment No. 1 to the Company's Registration Statement on Form SB-2 dated June 3,
1997 (Registration No. 333-24681).
Filed as an exhibit to Amendment No. 2 to the Company's Registration Statement on Form SB-2 dated June 30,
1997 (Registration No. 333-24681).
Filed as an exhibit to Amendment No. 3 to the Company's Registration Statement on Form SB-2 dated August 6,
1997 (Registration No. 333-24681).
</FN>
</TABLE>
(b) Form 8-K - None
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ON STAGE ENTERTAINMENT, INC.
Date: September 24, 1997 /s/ John W. Stuart
------------------ ------------------
John W Stuart, Chairman
and Chief Executive Officer
Date: September 24, 1997 /s/ Kiranjit S. Sidhu
------------------ ---------------------
Kiranjit S. Sidhu, Senior
Vice President
Finance and Administration,
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 FORM 10-QSB OF ON STAGE ENTERTAINMENT, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 80
<SECURITIES> 0
<RECEIVABLES> 401
<ALLOWANCES> 0
<INVENTORY> 79
<CURRENT-ASSETS> 2,210
<PP&E> 4,379
<DEPRECIATION> 2,212
<TOTAL-ASSETS> 5,726
<CURRENT-LIABILITIES> 2,505
<BONDS> 3,132
0
0
<COMMON> 47
<OTHER-SE> 42
<TOTAL-LIABILITY-AND-EQUITY> 5,726
<SALES> 3,980
<TOTAL-REVENUES> 3,980
<CGS> 2,570
<TOTAL-COSTS> 2,570
<OTHER-EXPENSES> 1,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> 301
<INCOME-TAX> 0
<INCOME-CONTINUING> 301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 301
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
