U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A-1
(Mark One)
[X] Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1998
[ ] 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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4625 W. NEVSO DRIVE, LAS VEGAS, NEVADA 89103
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (ZIP CODE)
(702) 253-1333
----------------------------------------------
Issuer's 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 April 1, 1998
- ----------------------------- ----------------------------
Common Stock, $0.01 par value 7,190,738
<PAGE>
This amendment to the Registrant's Form 10-QSB filed with the Securities and
Exchange Commission on March 31, 1998 (the "Form 10-QSB") amends and modifies
Part I of the Form 10-QSB.
PAGE NO.
Part I. Financial Information
Item 1. Consolidated Financial Statements
Balance sheets......................................
Statements of operations............................
Statements of cash flows............................
Notes to financial statements.......................
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations....
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
December 31, March 31,
1997 1998
----------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents .................................................................. $ 2,323,559 $ 1,195,187
Accounts receivable, net ................................................................... 455,340 963,995
Inventory .................................................................................. 118,700 299,771
Deposits ................................................................................... 342,096 465,385
Prepaid and other assets ................................................................... 271,338 353,472
Pre-opening costs, net ..................................................................... -- 804,410
Notes receivable from stockholder ............................................................ 136,194 158,568
------------ ------------
Total current assets .............................................................. 3,647,227 4,240,788
------------ ------------
Property, equipment and leasehold improvements (Note 5) ......................................... 5,008,835 20,807,049
Less: Accumulated depreciation and amortization ................................................. (2,553,347) (2,706,258)
------------ ------------
Property, equipment and leasehold improvements, net .............................................. 2,455,488 18,100,791
------------ ------------
Cost in excess of net assets acquired, net of accumulated amortization
of $7,370 and $10,941 ........................................................................ 116,415 112,845
Direct acquisition costs ......................................................................... 258,133 100,557
Deferred financing costs, net of amortization of $3,699 (Note 5) ................................ -- 1,246,301
------------ ------------
$ 6,477,263 $ 23,801,282
============ ============
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable and accrued expenses ........................................................ $ 880,286 $ 2,108,065
Accrued payroll and other liabilities ........................................................ 698,499 1,230,492
Current maturities of long-term debt ......................................................... 271,918 603,332
------------ ------------
Total current liabilities ....................................................... 1,850,703 3,941,889
------------ ------------
Long-term debt, less current maturities (Note 5) ................................................ 550,332 13,311,891
------------ ------------
Total liabilities and long-term debt .................................................. 2,401,035 17,253,780
------------ ------------
Commitments and contingencies (Note 4)
Stockholder's equity
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; 6,595,500 and 7,190,738 shares issued and outstanding .......................... 65,955 71,907
Additional paid-in-capital .................................................................. 7,340,013 10,334,061
Accumulated deficit ......................................................................... (3,329,740) (3,858,466)
------------ ------------
Total stockholder's equity ............................................................. 4,076,228 6,547,502
------------ ------------
$ 6,477,263 $ 23,801,282
============ ============
</TABLE>
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended
March 31,
--------------------------
1997 1998
--------------------------
(Unaudited) (Unaudited)
Net revenues (Note 5) ............................ $ 2,718,777 $ 6,205,371
Costs of revenues ................................ 1,902,888 3,917,328
----------- -----------
Gross profit ..................................... 815,889 2,288,043
Selling, general & administrative ................ 1,069,832 2,282,216
Depreciation and amortization .................... 147,241 188,621
----------- -----------
Operating loss ................................... (401,184) (182,794)
Interest expense, net ............................ 113,869 13,760
Other income ..................................... -- (35,599)
Subsidiary operations for period not owned (Note 5) -- 366,516
----------- -----------
Net loss before income taxes ..................... (515,053) (527,471)
Income taxes ..................................... 2,319 1,255
----------- -----------
Net loss ......................................... $ (517,372) $ (528,726)
=========== ===========
Loss per share ................................... $ (0.12) $ (0.08)
=========== ===========
Number of common shares outstanding .............. 4,486,515 6,714,548
=========== ===========
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
Three months ended
March 31,
------------------------------
1997 1998
------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss .............................................................................. $ (517,372) $ (528,726)
-------------------------------
Adjustments to reconcile net loss to net cash used in operating activities:
Issuance of common stock to officer ................................................. 162,129 --
Depreciation and amortization ....................................................... 147,241 160,180
Increase (decrease) from changes in operating assets and
liabilities
Accounts receivable ............................................... 170,599 (508,655)
Inventory ......................................................... (6,967) (60,987)
Deposits .......................................................... (121,970) (123,289)
Pre-opening costs ................................................. (112,457) (804,410)
Prepaid and other assets .......................................... (23,963) 75,382
Accounts payable and accrued expenses ............................. (6,623) 241,735
Accrued payroll and other liabilities ............................. (57,144) 531,993
Litigation settlement accrual ..................................... (100,000) --
-------------------------------
Total adjustments ................................................................... 50,845 (488,051)
-------------------------------
Net cash used in operating activities ........................................................ (466,527) (1,016,777)
-------------------------------
Cash flows from investing activities
Advances on note receivable from stockholder ................................... (103,235) (55,000)
Payments received on notes receivable from stockholder ......................... -- 32,626
Capital expenditures ........................................................... (93,517) (134,363)
Direct acquisition costs ....................................................... -- (157,576)
Payment for purchase of Gedco, USA, net of cash received (Note 5) .............. -- (12,762,430)
-------------------------------
Net cash used in investing activities ........................................................ (196,752) (12,761,591)
-------------------------------
Cash used in financing activities
Offering costs ......................................................................... (162,728) - -
Borrowings/repayments under line of credit ............................................. -- 250,000
Proceeds from long-term borrowing (Note 5) ............................................. -- 12,500,000
Repayment on long-term borrowing ....................................................... (25,597) (100,004)
Proceeds from bridge notes ............................................................. 875,000 --
-------------------------------
Net cash provided by financing activities .................................................... 686,675 12,649,996
-------------------------------
Net increase in cash and cash equivalents .................................................... 23,396 (1,128,372)
Cash and cash equivalents at beginning of period ............................................. 290,751 2,323,559
-------------------------------
Cash and cash equivalents at end of period ................................................... $ 314,147 $ 1,195,187
===============================
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest ............................................................................. $ 67,072 $ 22,923
Taxes ................................................................................ 2,319 1,255
===============================
</TABLE>
Supplemental schedule of non-cash investing and financing activities
During the three months ended March 31, 1997 and 1998, $0 and $442,997 of lease
assets and other obligation, principally pre-opening costs, were capitalized,
respectively.
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 was valued at $500,000 and accounted
for as an original issue discount.
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(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; On
Stage Theaters, Inc., a Nevada corporation; Wild Bill's California, Inc., a
Nevada corporation; Fort Liberty, Inc., a Nevada corporation; Blazing Pianos,
Inc., a Nevada corporation; King Henry's Inc., a Nevada corporation and
Interactive Events, Inc., a Georgia corporation (collectively, the
"Subsidiaries"). 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 months ended March 31, 1998, 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, 1997, included in Form 10-KSB, filed on March 31, 1998 with
the Securities and Exchange Commission. Accordingly, footnote disclosures, which
would substantially duplicate the disclosures contained in the Company's
December 31, 1997 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, 1997, included in Form 10-KSB, filed on
March 31, 1998.
(2) Subsequent Events
On April 23, 1998 the Company formed six (6) new Nevada subsidiaries. These
subsidiaries include: On Stage Productions, Inc., On Stage Merchandise, Inc., On
Stage Casino Entertainment, Inc., On Stage Events, Inc., On Stage Theaters North
Myrtle Beach, Inc., and On Stage Theaters Surfside Beach, Inc.
In March 1997, in connection with the Company's initial public offering of its
common stock, par value $0.01 per share ("Common Stock"), and redeemable
warrants to purchase Common Stock (the "IPO"), the Company agreed with its
Underwriter, Whale Securities Co., LP (the "Underwriter"), that it would neither
loan nor advance any sums to or on behalf of John W. Stuart, the Company's
Chairman, Chief Executive Officer and principal stockholder, other than those
sums advanced to Mr. Stuart from December 31, 1996 through the date of the IPO,
without the Underwriter's prior consent. On October 23, 1997 and subsequently on
November 17, 1997, the Company received authorization from the Underwriter to
advance Mr. Stuart an aggregate of $105,483 (including principal and interest)
and on March 25, 1998, the Company again received authorization from the
Underwriter to advance $150,000 for settlement of certain litigation pending
against Mr. Stuart related to his involvement in the Legends in Concert, Hawaii
show. As of May 5, 1998, the Company has advanced Mr. Stuart an aggregate of
$205,483 (the "Advance"), which Advance bears interest at a rate of 10% per
annum, matures one year from the date of the Advance and is evidenced by a
promissory note.
(3) Loss Per Share
On March 3, 1997, the FASB issued Statement of Financial Accounting Standard No.
128. Earnings per share (SFAS 128). This pronouncement provides a different
method of calculating earnings per share than is currently used in accordance
with APB 15, Earnings per Share. SFAS 128 provides for the calculation of Basic
and Diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of the entity, similar to fully diluted earnings per
share. Except where the provisions of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 98 are applicable, potential dilutive securities
have been excluded in all years presented in the Statements of Operations when
the effect of their inclusion would be anti-dilutive.
<PAGE>
For the three months ended March 31, 1997, potential dilutive securities
representing 617,403 outstanding options and 212,500 outstanding warrants are
not included, since their effect would be anti-dilutive. For the three months
ended March 31, 1998, potential dilutive securities representing 563,953
outstanding stock options and 2,802,000 outstanding warrants are not included,
since their effect would be anti-dilutive.
(4) Commitments and Contingencies
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 the final resolution
of these matters will have a material adverse effect upon the Company's
financial condition and results of operations.
(5) Business Acquisition
Gedco USA, Inc. Acquisition
On March 13, 1998, the Company completed its acquisition of certain assets from
Gedco USA, Inc. 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 Acqusition").
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 Thearter
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.
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"). ICCMIC has committed a total of
$20,000,000, of which $7,500,000 is remaining to finance the Company's future
real estate related acquisitions. In connection with the loan agreement entered
into between the Company and ICCMIC on March 13, 1998 (the "Loan Agreement"),
the Company granted ICCMIC the right to provide the Company with up to an
additional $30 million of similar mortgage financing. 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 Common Stock at an exercise price of $4.44. In addition, concurrent with
the ICCMIC financing, Mark Karlan, the President of ICCMIC, was named a member
of the Company's Board of Directors, filling a vacancy created by the
resignation of Kenneth Berg.
The components of the purchase price and its allocation to the assets and
liabilities are as follows:
Purchase Price:
Liabilities assumed ........................................ $ 986,044
Issuance of 595,238 restricted shares of common stock ..... 2,500,000
-----------
3,486,044
Costs of acquisition incurred .............................. 1,645,874
Cash paid ................................................ 11,500,000
-----------
$16,631,918
===========
Cash paid for the purchase of Gedco, USA, net of cash received is as follows:
Cash paid to sellers ......................... $11,500,000
Acquisition costs ............................ 1,645,874
-----------
13,145,874
Less cash received ........................... (383,444)
-----------
$12,762,430
===========
<PAGE>
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 cost 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:
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
-----------
$16,631,918
===========
The assets acquired and liabilities assumed were transferred to either
the Company's wholly-owned subsidiary, On Stage Theaters, Inc., or a wholly
owned subsidiary of On Stage Theaters, Inc., concurrent with the acquisition.
The Company has elected to consolidate the operations of the assets
acquired in the Gedco Acquisition retroactively to January 1, 1998. Therefore,
the pre-acquisition gain of $366,516 has been added to the consolidated
statement of operations for the quarter ended March 31, 1998. The effect of this
consolidation of operations prior to acquisition was an increase in net sales of
approximately $3,099,071.
<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 its outstanding litigation matters and the defenses
available to the Company, the seasonality of the Company's business, and
liquidity as well as information contained elsewhere in this Report where
statements are preceded by, followed by or include the words "believes,"
"expects," "anticipates" or similar expressions. 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, but are not
limited to, those identified in pages 9-17 of Amendment No. 5 to the Company's
Registration Statement on Form SB-2 filed with the Commission on August 13, 1997
(Registration No. 333-24681), as well as the following: (i) The Company's
dependence on its flagship productions Legends in Concert, Wild Bill's Dinner
Extravaganza, Blazing Pianos, King Henry's Feast and its principal production
venues; (ii) The ability of the Company to successfully produce and market new
productions and to manage the growth associated with the any new productions;
(iii) Risks associated with the Company's acquisition strategy, including the
Company's ability to successfully identify, complete and integrate strategic
acquisitions; (iv) The Company's ability to obtain financing on commercially
reasonable terms; (v) The Company's ability to service its substantial
indebtedness; (vi) The competitive nature of the leisure and entertainment
industry and the ability of the Company to continue to distinguish its services;
(vii) Fluctuations in quarterly operating results and the highly seasonal nature
of the Company's business; (viii) The ability of the Company to reproduce the
performance, likeness and voice of various celebrities without infringing on the
publicity rights of such celebrities or their estates as well as its ability to
protect its intellectual property rights; (ix) The ability of the Company to
successfully manage the litigation pending against it and to avoid future
litigation; and (x) The results of operations which depend on numerous factors
including, but not limited to, the commencement and expiration of contracts, the
timing and amount of new business generated by the Company, the Company's
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.
Results of Operations
The following tables sets forth, the results of operations by operating
divisions for the period indicated:
<TABLE>
For the quarter ended March 31, 1997
----------------------------------------------------------------------------------------------------
Sub-Total
Casino Corporate Production Operating Corporate Total
Entertainment Events Merchandise Services Theaters Divisions Office Consolidated
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues................. $1,457,046 $ 625,050 $ 67,376 $ -- $ 569,305 $2,718,777 $ -- $2,718,277
Cost of revenues ............ 887,445 420,868 14,462 59,253 520,860 1,902,888 -- 1,902,888
--------------------------------------------------------------------------------------------------
Gross profit................. 569,601 204,182 52,914 (59,253) 48,445 815,889 -- 815,889
Selling, general &
administrative............. 53,758 152,287 -- -- 137,049 343,094 726,738 1,069,832
Depreciation & amortization . 30,583 -- -- -- 5,123 35,706 111,535 147,241
--------------------------------------------------------------------------------------------------
Operating income (loss) ..... 485,260 51,895 52,914 (59,253) (93,727) 437,089 (838,273) (401,184)
Interest expense, net ...... -- (144) -- -- -- (144) 114,013 --
--------------------------------------------------------------------------------------------------
Net income (loss) before
income taxes ............. 485,260 52,039 52,914 (59,253) (93,727) 437,233 (952,286) (515,053)
Income taxes................. -- 1,723 -- -- -- 1,723 596 2,319
--------------------------------------------------------------------------------------------------
Net income (loss) ........... $ 485,260 $ 50,316 $ 52,914 $ (59,253) $ (93,727) $ 435,510 $ (952,882) $ (517,372)
=================================================================================================
<PAGE>
For the quarter ended March 31, 1997
----------------------------------------------------------------------------------------------------
Sub-Total
Casino Corporate Production Operating Corporate Total
Entertainment Events Merchandise Services Theaters Divisions Office Consolidated
----------------------------------------------------------------------------------------------------
Net revenues................ $1,525,353 $ 539,798 $ 56,056 $ -- $4,084,164 $6,205,371 $ -- $6,205,371
Cost of revenues ........... 973,607 345,184 12,770 31,549 2,554,218 3,917,328 -- 3,917,328
--------------------------------------------------------------------------------------------------
Gross profit................ 551,746 194,614 43,286 (31,549) 1,529,946 2,288,043 -- 2,288,043
Selling, general &
administrative ........... 54,306 229,716 4,702 43,104 1,244,838 1,576,666 705,550 2,282,216
Depreciation &
amortization ............. 38,402 2,748 560 -- 69,863 111,573 77,048 188,621
--------------------------------------------------------------------------------------------------
Operating income (loss) .... 459,038 (37,850) 38,024 (74,653) 215,245 599,804 (782,598) (182,794)
Interest expense, net ...... -- (20) -- -- 6,815 6,795 6,965 13,760
Other income................ -- -- -- -- (35,599) (35,599) -- (35,599)
Subsidiary operations for
period not owned ......... -- -- -- -- 366,516 366,516 -- 366,516
--------------------------------------------------------------------------------------------------
Net income (loss) before
income taxes ............. 459,038 (37,830) 38,024 (74,653) (122,487) 262,092 (789,563) (527,471)
Income taxes................ -- -- -- -- -- -- 1,255 1,255
--------------------------------------------------------------------------------------------------
Net income (losses) ........ $ 459,038 $ (37,830) $ 38,024 $ (74,653) $ (122,487) $ 262,092 $ (790,818) $ (528,726)
=================================================================================================
</TABLE>
The following table sets forth, for the periods indicated, the percentage of the
Company's net revenues represented by operating Divisions income statement data:
<TABLE>
Three Months Ended March 31, 1997
-------------------------------------------------------------------------------------------
Sub-Total
Casino Corporate Production Operating Corporate Total
Entertainment Events Merchandise Services Theaters Divisions Office Consolidated
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues .................... 60.9 67.3 21.5 0.0 91.5 70.0 0.0 70.0
---------------------------------------------------------------------------------------
Gross profit ........................ 39.1 32.7 78.5 0.0 8.5 30.0 0.0 30.0
Selling, general & administrative ... 3.7 24.4 0.0 0.0 24.1 12.6 0.0 39.4
Depreciation & amortization ......... 2.1 0.0 0.0 0.0 0.9 1.3 0.0 5.4
---------------------------------------------------------------------------------------
Operating income (loss) ............. 33.3 8.3 78.5 0.0 (16.5) 16.1 0.0 (14.8)
Interest, net ....................... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.1
---------------------------------------------------------------------------------------
Net income (loss) before ............ 33.3 0.0 78.5 0.0 (16.5) 0.0 0.0 (18.9)
Income taxes ........................ 0.0 0.3 0.0 0.0 0.0 0.1 0.0 0.1
---------------------------------------------------------------------------------------
Net income (loss) ................... 33.3% 8.3% 78.5% 0.0% (16.5)% 16.0% 0.0% (19.0%)
=======================================================================================
Three Months Ended March 31, 1998
-------------------------------------------------------------------------------------------
Net revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues .................... 63.8 63.9 22.8 0.0 62.5 63.1 0.0 63.1
--------------------------------------------------------------------------------------
Gross profit ........................ 36.2 36.1 77.2 0.0 37.5 36.9 0.0 36.9
Selling, general & administrative ... 3.6 42.6 8.4 0.0 30.5 25.4 0.0 36.8
Depreciation & amortization ......... 2.5 0.5 1.0 0.0 1.7 1.8 0.0 3.0
--------------------------------------------------------------------------------------
Operating income (loss).............. 30.1 (6.5) 68.8 0.0 7.0 11.5 0.0 0.1
Interest, net ....................... 0.0 0.0 0.0 0.0 0.2 0.1 0.0 0.2
Other income ........................ 0.0 0.0 0.0 0.0 (0.9) (0.6) 0.0 (0.6)
Subsidiary operations for period
not owned ......................... 0.0 0.0 0.0 0.0 9.0 6.0 0.0 6.0
--------------------------------------------------------------------------------------
Net income (loss) before income
taxes .............................. 30.1 (7.0) 67.8 0.0 (3.0) 4.2 0.0 (8.5)
Income taxes ......................... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
--------------------------------------------------------------------------------------
Net income (loss) .................... 30.1% (7.0%) 67.8% 0.0 (3.0%) 4.2% 0.0% (8.5%)
======================================================================================
</TABLE>
<PAGE>
Net loss for the quarter ended March 31, 1998 was $528,726, as compared to a net
loss of $517,732 for the quarter ended March 31, 1997.
Quarter Ended March 31, 1997 versus Quarter Ended March 31, 1998
Net Revenues. Revenues increased by 128.3% to $6,205,000 for the quarter ended
March 31, 1998 compared to $2,718,000 for the quarter ended March 31, 1997. The
Company's revenue is derived from four principal operating divisions: Theaters,
Corporate Events, Merchandise, and Casino Entertainment.
Theaters revenues were approximately $4,084,000 for the quarter ended March 31,
1998 compared to $569,000 for the quarter ended March 31, 1997, an increase of
$3,515,000, or 617.4%. Contributing to this increase were increases of
approximately: (i) $566,000, attributable a full scale Legends show at the
Estrel Residence & Congress Hotel in Berlin, Germany, a resident Legends show at
the Christy Lane Theater in Branson, Missouri, a resident variety show at the
Sheraton Valley Forge Hotel in King of Prussia; and (ii) $3,099,000,
attributable to the consolidation of operations of the Gedco Acquisition,
retroactively to January 1, 1998. These increases were partially offset by
decreases of approximately: (a) $104,000, attributable to the discontinuation of
the Legends show on Premier Cruise Lines due to a sale of the vessels to a new
company; and (b) $46,000, attributable to the resident Legends show in Myrtle
Beach, South Carolina.
Corporate Events revenues were $540,000 for the quarter ended March 31, 1998
compared to $625,000 for the quarter ended March 31, 1997, a decrease of $85,000
or 13.6%. This decrease was mainly attributable to a reduction of $209,000, in
limited engagements which included the Legends Celebrity Series at the Empress
Casino in Joliet, Illinois, which ran in 1997 but not in 1998. These decreases
were partially offset by increases in revenues of approximately $124,000 from
other corporate events.
Merchandise revenues were approximately $56,000 for the quarter ended March 31,
1998 compared to $67,000 for the quarter ended March 31, 1997, a decrease of
$11,000 or 16.4%. This decrease was mainly attributable to a decrease in photo
revenues at the Fireside Restaurant & Playhouse, due to the discontinuation by
Fireside of merchandise sales during 1998.
Casino Entertainment revenues were approximately $1,525,000 for the quarter
ended March 31, 1998 compared to $1,457,000 for the quarter ended March 31,
1997, an increase of $69,000, or 4.7%. Contributing to this increase were
increases of approximately: (i) $120,000, attributable to the Camouflage Aux
Follies, at the Taj Mahal Hotel and Casino in Atlantic City, New Jersey, which
ran in 1998, but not in 1997; (ii) $39,000, attributable to the Legends show at
the Bally's Park Place in Atlantic City, New Jersey; and (iii) $66,000,
attributable to Fiesta! Fiesta!, at the Taj Mahal Hotel and Casino in Atlantic
City, New Jersey, which ran in 1998, but not in 1997. These increases were
partially offset by decreases of approximately: (a) $64,000, attributable to a
resident Legends show at the Imperial Palace in Las Vegas; and (b) $92,000,
attributable to An Evening at the Improv(R) Spectacular for Trump's Taj Majal in
Atlantic City, Where it ran from March 1997 through July 1997.
Costs of Revenues. Total costs of revenues were $3,917,000 for the quarter ended
March 31, 1998 compared to $1,903,000 for the quarter ended March 31, 1997, an
increase of $2,014,000, or 105.9%. Costs of revenues decreased to 63.1% of net
revenues for the quarter ended March 31, 1998, as compared to 70.0% for the
quarter ended March 31, 1997. This decrease in cost of sales as percentage of
revenues was primarily attributable to a change in the mix of the Company's
revenues due to the inclusion of the Gedco Acquisition revenues which have lower
costs of revenues (49.4%) than: Casino Entertainment (63.8%); Corporate Events
(63.9%); or Theaters (103.8%, exclusive of the Gedco USA, Inc. consolidation).
The increase in total costs of revenues was partially offset by a decrease in
costs of revenue (22.8%) in the Merchandise Division.
<PAGE>
Selling, General and Administrative. Selling, general and administrative costs
were approximately $2,282,000 for the quarter ended March 31, 1998 as compared
to $1,070,000 for the quarter ended March 31, 1997, an increase of $1,212,000,
or 113.3%. Selling, general and administrative costs decreased to 36.8% of net
revenues for the quarter ended March 31, 1998, as compared to 39.4% for the
quarter ended March 31, 1997. The increase in total cost was primarily
attributable to the inclusion of the Gedco Acquisition selling, general and
administrative expense, and increases in automobile expenses, insurance,
professional services, rent, advertising, and promotion and investor relations.
These decreases were partially offset by decreases in salaries and commissions.
Operating Loss. The Company's operating loss was approximately $183,000 for the
quarter ended March 31, 1998, compared to an operating loss of $401,000 for the
quarter ended March 31, 1997, an increase of $218,000, or 54%.
Depreciation and Amortization. Depreciation and amortization for the quarter
ended March 31, 1998 increased by $41,000, or 28.0%, as compared to the quarter
ended March 31, 1997. The increase was primarily due to capital additions to
current shows, new shows, goodwill amortization and an increase in assets as a
result of the Gedco Acquisition.
Interest Expense, Net. Interest expense for the quarter ended March 31, 1998
decreased by $100,000, or 88%, as compared to the quarter ended March 31, 1997.
The decrease was primarily due to a decrease in the average borrowing level for
the quarter ended March 31, 1998 as compared to the quarter ended March 31,
1997.
Other Income. Other income for the quarter ended March 31, 1998 was attributable
to a sign-on bonus received from a new supplier.
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 March
31, 1998. Income taxes for the quarters ended March 31, 1997 and 1998, relate to
income taxes due in those states other than Nevada in which the Company conducts
business. At March 31, 1997 and 1998, the Company had federal net operating loss
carryforwards of approximately $1,174,847 and $3,024,097, respectively. Under
Section 382 of the Internal Revenue Code, certain significant changes in
ownership that the Company is currently undertaking may restrict the future
utilization of these tax loss carryforwards. The net deferred tax assets have a
100% valuation allowance, as management cannot determine if it is more likely
than not that the deferred tax assets will be realized.
Seasonality and Quarterly Results
The Company's business has been, and is expected to remain, highly seasonal,
with the majority of its revenue being generated during the months of April
through October. Part of the Company's business strategy is to increase sales in
tourist markets that experience their peak seasons from November through March,
so as to offset this seasonality in revenues. The Gedco Acquisition should also
help to decrease the seasonality of the Company's business since Gedco's revenue
has historically been less seasonal. The Company is exploring opportunities to
open shows in markets such as Florida and Arizona, domestically, and Australia,
South Africa, and Mexico, abroad, which the Company believes, could also help
mitigate the effect of this seasonality.
The following table sets forth the Company's net revenue for each of the last
nine quarters ended March 31, 1998:
Net Revenues ($ in thousands)
----------------------------------------------------
March 31, June 30, September 30, December 31,
----------------------------------------------------
Fiscal 1996 .......... $2,347 $4,266 $4,591 $3,074
Fiscal 1997 .......... $2,719 $3,979 $5,071 $3,957
Fiscal 1998 .......... $6,205 -- -- --
<PAGE>
Liquidity and Capital Resources
General
The Company has historically met its working capital requirements through a
combination of cash flow from operations, equity and debt offerings and
traditional bank financing. The Company anticipates, based on its proposed plans
and assumptions relating to its operations (including assumptions regarding the
anticipated timetable of its new show openings and the costs associated
therewith), that the Company's current cash, cash equivalent balances,
anticipated revenue from operations and its working capital line will be
sufficient to fund its current operations and contemplated capital requirements
over the next 18 months. However, the Company's acquisition strategy will
require additional debt and/or equity financing. In the event the Company's
plans or assumptions change, prove to be incorrect, or if balances and/or
anticipated revenues otherwise prove to be insufficient, the Company would need
to revise its expansion strategy (which revision could include the curtailment,
delay or elimination of certain of its anticipated productions or the funding of
such productions through arrangements with third parties, which would require it
to relinquish rights to a substantial portion of its revenues) and/or seek
additional financing prior to the end of such period.
For the quarter ended March 31, 1997, the Company used cash of $467,000 in
operations. As of March 31, 1997, the Company had approximately $314,000 in cash
and cash equivalents. For the quarter ended March 31, 1998, the Company used
cash of $1,017,000 in operations. As of March 31, 1998, the Company had
approximately $1,195,000 in cash and cash equivalents. The operating deficits
for both quarters were primarily attributable to business seasonality, and an
increase in selling, general and administrative costs.
The net cash used in investing activities for the quarter ended March 31, 1997
of $197,000, was primarily attributable to capital expenditures and direct
advances (which were subsequently written off at August 13, 1997) on notes
receivable to Mr. Stuart. The net cash used in investing activities for the
quarter ended March 31, 1998 of $12,762,000, was primarily attributable to
direct acquisition costs related to the Gedco Acquisition.
Net cash provided by financing activities for the quarter ended March 31, 1997
of $687,000, was primarily attributable to a series of debt and bank financings.
Net cash provided by financing activities for the quarter ended March 31, 1998
of $12,650,000, was primarily attributable to ICCMIC's funding of $12,500,000
for the Gedco Acquisition.
At March 31, 1997, the Company had a working capital deficit of approximately
$351,000, which resulted primarily from business seasonality, increased
operating expenses and advances paid to Mr. Stuart in the amount of
approximately $103,000. At March 31, 1998, the Company had working capital of
approximately $298,000, primarily attributable to an increase in pre-paid
tickets and monies received from the Gedco Acquisition.
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. On March 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 May 13, 1998,
the Company had drawn $715,000 on the line of credit.
<PAGE>
Capital Equipment Financing Commitment
On September 29, 1997, First Security Leasing Company, a Utah corporation,
approved the Company for a $500,000 capital lease line of credit, which was
subsequently increased to $1,000,000 on March 28, 1998. Advances under this
capital lease line incur interest at a rate of 9.75% per annum. The financing
commitment will expire on September 29, 1998. As of April 11, 1998, the Company
had drawn $832,000 on the capital lease line.
Mortgage Financing Commitment
On March 13, 1998, the Company entered into the Loan Agreement with ICCMIC
pursuant to which ICCMIC agreed to provide the Company with up to $20,000,000 of
mortgage financing. On the same date, the Company used $12,500,000 of said
facility to fund the cash portion of the Gedco Acquisition and related fees. In
connection with the Loan Agreement, the Company provided ICCMIC with the right
to provide the Company with up to an additional $30,000,000 of mortgage related
financing. In addition concurrent with the ICCMIC financing, Mark Karlan, the
President of ICCMIC, was named a member of the Company's Board of Directors,
filling a vacancy created by the resignation of Kenneth Berg.
New Accounting Pronouncements
Reporting on the Costs of Start-Up Activities:
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP
98-5) issued by the American Institute of Certified Public Accounts 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 customer (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 adoption
of SOP 98-5 will require the Company to expense all capitalized pre-opening
costs. Such costs are $804,410 at March 31, 1998.
<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: November 11, 1998 /s/ John W. Stuart
-------------------------------
John W Stuart, Chairman
and Chief Executive Officer
Date: November 11, 1998 /s/ Kiranjit S. Sidhu
------------------------------
Kiranjit S. Sidhu, Senior Vice
President Finance and
Administration, and Chief
Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE MARCH
31, 1998 FORM 10-QSB OF ON STAGE ENTERTAINMENT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
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