As filed with the Securities and Exchange Commission on October 7, 1999
Registration No. 333-56785
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
ON STAGE ENTERTAINMENT, INC.
(Exact name of small business issuer as specified in its charter)
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Nevada 7929 88-0214292
(State or other jurisdiction of (Primary Standard Industrial) (I.R.S. EmployerIdentification No.)
incorporation or organization) Classification No.)
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4625 West Nevso Drive
Las Vegas, NV 89103
(702) 253-1333
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Christopher R. Grobl, Esq.
On Stage Entertainment, Inc.
4625 West Nevso Drive
Las Vegas, NV 89103
(702) 253-1333
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. | |
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. | |
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. | |
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CALCULATION OF REGISTRATION FEE
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Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered aggregate price per aggregate offering registration fee (2)
share (1) price (1)
Common Stock
par value 4,489,903 $0.50 $345.16
$.001..........
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act based upon the average
of the high and low sales prices reported for such security by the Nasdaq
SmallCap Market on August 30, 1999.
(2) Of this total (a) $699.22 was paid at the time of the original filing of
this Registration Statement for the 505,649 shares covered thereby at a
maximum offering price of $4.6875 per share; (b) $419.54 was paid at the
time of the filing of Amendment No. 1 to this Registration Statement for
the additional 400,000 shares added by Amendment No. 1 at a maximum
offering price of $4.1875 per share. The balance of $345.16 is applicable
to the 4,489,903 shares added by this amendment at a maximum offering price
of $.50 per share and is being paid upon the filing of this amendment.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 7, 1999
PROSPECTUS
, 1999
ON STAGE ENTERTAINMENT, INC.
4,489,903 SHARES OF COMMON STOCK
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
All of the 4,489,903 shares of common stock, $.01 par value per share of On
Stage Entertainment, Inc., offered by this prospectus are offered for the
account of some of our stockholders as described more fully in this prospectus.
The 4,489,903 shares offered by this prospectus were issued to the respective
stockholders in a number of separate transactions, as follows:
o 55,000 by this prospectus were issued to Dr. Larry Salberg on November 4,
1998 for aggregate consideration of $55,000.
o 143,464 by this prospectus were issued to the respective selling
stockholders immediately prior to our initial public offering on August 13,
1997, in exchange for their agreement to convert an aggregate of $486,319
in our outstanding debentures into 143,464 shares of common stock.
o 440,755 by this prospectus were issued to the respective selling
stockholders on March 17, 1997, in exchange for their agreement to exchange
then outstanding warrants for 440,755 shares of common stock.
o 195,500 by this prospectus were issued to the respective selling
stockholders who participated in our $1,000,000 bridge loan offering prior
to our initial public offering.
o 206,612 by this prospectus were issued to Calvin Gilmore Productions, Inc.
in connection with the On Stage's fee simple purchase of its Legends
Theater in Surfside Beach, South Carolina.
o 169,537 were issued to some of the respective selling stockholders by John
W. Stuart, our Chairman and Chief Executive Officer, to Calvin Gilmore
Productions, Inc. in a privately negotiated transaction.
o 475,000 were issued to some of the respective selling stockholders by John
W. Stuart, for aggregate consideration of $1,200,000 in privately
negotiated transactions.
o 150,000 were issued to the respective selling stockholders in December of
1998 in connection with a private placement of common stock.
o 8,471 were issued to James Owen in connection with the resolution of
certain litigation pending against us.
o 250,000 are issuable upon the exercise of warrants granted to Imperial
Capital, LLC in connection with On Stage's first mortgage financing for the
acquisition of the Gedco USA, Inc. properties.
o 325,000 are issuable upon the exercise of warrants granted to Imperial
Capital, LLC in connection with On Stage's first mortgage financing for the
Gedco USA, Inc. asset acquisition.
<PAGE>
o 40,000 are issuable upon the exercise of options granted to Nida & Maloney,
LLP in consideration for payment of legal fees.
o 72,917 are issuable upon the exercise of warrants granted to Joseph D.
Kowal for investor relations services rendered on our behalf.
o 595,238 are issuable upon the exercise of warrants granted to Hanover
Restaurants, Inc. granted by On Stage as part of a resolution of a dispute
between On Stage and Gedco.
o 300,000 are issuable upon the exercise of warrants granted to John W.
Stuart in connection with a $300,000 aggregate loan he extended to us
during 1999.
o 254,500 are issuable upon the exercise of warrants granted to our
underwriter in connection with our initial public offering.
o 212,500 are issuable upon the exercise of warrants granted to the
respective selling stockholders who participated in our $1,000,000 bridge
loan offering entered into prior to our initial public offering.
The shares may be offered by the selling stockholders from time to time in
transactions (which may include block transactions) on The Nasdaq SmallCap
Market, in negotiated transactions, through a combination of such methods of
sale, or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. If our common stock is
delisted from Nasdaq and our shares are quoted in the OTC Bulletin Board,
transactions may occur through that service. The selling stockholders may effect
those transactions by selling the shares to or through broker-dealers, who may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders and/or the purchasers of the shares for whom such
broker-dealers may act as agents or to whom they may sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). We will not receive any of the proceeds from the sale of
the shares by the selling stockholders. We have agreed to bear all expenses of
registration of the shares, but all selling and other expenses incurred by the
selling stockholders will be borne by the selling stockholders. We are
registering the shares pursuant to contractual obligations that we have to the
selling stockholders.
The selling stockholders and any broker-dealers, agents or underwriters
that participate with the selling stockholders in the distribution of the shares
may be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended, and any commissions paid or any discounts or concessions
allowed to any of those persons, and any profits received on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Selling Stockholders" and "Plan of
Distribution."
The common stock is traded on The Nasdaq SmallCap Market under the symbol
"ONST" but we have received a notice that our common stock may be delisted from
Nasdaq, in which case we anticipate that our common stock will be included in
the OTC Bulletin Board service. On August 30, 1999, the closing price of the
common stock, as reported by The Nasdaq SmallCap Market, was $0.50 per share.
The common stock offered hereby involves a high degree of risk and could
result in a loss of your investment. See "Risk Factors" beginning on page 6.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful, accurate or complete. Any representation to the contrary
is a criminal offense.
<PAGE>
PROSPECTUS SUMMARY
The following is only a summary and you should refer to the more detailed
information and the financial statements and accompanying notes appearing
elsewhere in this prospectus.
ON STAGE ENTERTAINMENT, INC.
We produce and market live theatrical productions and operate live theaters
and dinner theaters worldwide. We market our productions, directly and through
ticket wholesalers, to audiences at theaters in resort and urban tourist
locations. We also market our productions to commercial clients, which include
casinos, corporations, fairs and expositions, theme and amusement parks, and
cruise lines.
Our flagship Legends in Concert production is a live tribute show featuring
recreations of past and present music and motion picture superstars through the
use of impersonators and is the longest running independently produced
production in Las Vegas, Nevada and Atlantic City, New Jersey. We currently have
full-scale, resident Legends productions running at the Imperial Palace in Las
Vegas, Nevada, Bally's Park Place in Atlantic City, New Jersey, Legends Theater
in Surfside Beach, South Carolina, and Legends Family Theater in Branson,
Missouri. We also produce limited-run Legends shows and corporate events and
have performed in locations such as the Illinois State Fair, MGM Grand Theme
Park and Dollywood Theme Park; in locations as far away as Australia, Russia,
China, Africa, Japan and the Philippines; and for major corporate clients such
as McDonalds, Hewlett Packard, IBM, Pitney Bowes, Levi Strauss and Texaco. Also,
separate from the Legends shows and as discussed below, we operate King Henry's
Feast, Wild Bill's Dinner Extravaganza and Blazing Pianos in the greater Orlando
area as well as a Wild Bill's Dinner Theater in Buena Park, California.
In addition to Legends, we have developed and produced over 18 other
theatrical productions since 1985, including other tribute-type shows, and a
variety of musical reviews, magic, ice and specialty shows. All of our shows are
designed to appeal to a broad spectrum of attendees by offering affordable,
quality entertainment incorporating experienced talent and state-of-the-art
special effects and staging. By offering multiple productions in addition to
Legends, we seek to run more than one show in highly visited live entertainment
markets, thereby generating increased operating margins due to economies of
scale resulting from shared fixed costs and greater market share. In addition,
since we currently have access to approximately 75 different Legends tribute
acts, we can tailor each tribute show to suit the unique demographics of any
audience and the size of any venue, and have been able to attract significant
repeat business by varying regularly the composition of the acts in our shows.
On Stage was incorporated on October 30, 1985 under the laws of the State
of Nevada as Legends in Concert, Inc. Subsequently, on August 7, 1996, we
changed our name to On Stage Entertainment, Inc. Our principal executive offices
are located at 4625 West Nevso Drive, Las Vegas, Nevada 89103, and our telephone
number is (702) 253-1333.
THE OFFERING
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Total Common Stock Offered....................................4,489,903 shares
Outstanding Common Stock......................................6,985,279 shares, exclusive of options and warrants
Use of Proceeds...............................................All of the proceeds from this offering will be received by
the selling stockholders.
Nasdaq Symbol.................................................ONST
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4
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following tables set forth summary financial data to aid investors in their
analysis of this potential investment. The summary financial data should be read
in conjunction with our complete financial statements and notes included
elsewhere in this Prospectus.
Statement of Operations Data
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Six Months Ended
Years Ended December 31, June 30,
------------------------------- -------------------------------
1997 1998 1998 1999
----------- ------------ ----------- ------------
(unaudited) (unaudited)
----------- -----------
Statement of Operations Data:
Net revenues........................... $ 15,726 $ 27,847 $ 11,969 $ 13,675
Gross profit........................... 4,313 5,619 2,838 2,845
Operating (loss)....................... (2,105) (3,316) (87) (102)
Net loss............................... (2,946) (4,871) (541) (1,531)
Basic and diluted (loss) per share..... (0.55) (0.68) (0.08) (0.21)
Basic and diluted average number of
common shares outstanding........... 5,365,851 7,191,276 6,883,421 7,459,597
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Balance Sheet Data
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As of December 31, 1998 As of June 30,1999
-----------------------
Actual
(unaudited)
Balance Sheet Data:
Working capital (deficit).................... $ (16,791) $(17,927)
Total assets................................. 24,089 23,013
Total liabilities............................ 20,894 21,361
Stockholders' equity (deficit)............... 3,196 1,652
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5
<PAGE>
RISK FACTORS
We are currently in default under our credit facilities
During 1998, we received mortgage financing from Imperial Credit Commercial
Mortgage Investment Corporation and extended our existing credit facilities with
First Security Bank of Nevada and First Security Leasing Company to fund our
existing operations and finance our growth strategy with future acquisitions. We
have been unable to service our substantial indebtedness and we are,
consequently, in default under these facilities.
As of March 31, 1999, we had failed to pay off any part of the line of
credit with First Security Bank of Nevada and are currently in default under its
terms. On April 29, 1999, we received a notice of default under this line of
credit from First Security Bank. Our default on this line of credit triggered an
automatic default on our lease lines with First Security Leasing due to a
cross-default provision contained in the line of credit.
On July 12, 1999, First Security Bank filed a complaint against On Stage,
its subsidiaries and John W. Stuart in the District Court of Nevada in Clark
County, Nevada. The complaint alleges that we breached our contract with First
Security Bank by failing to repay our outstanding indebtedness to First Security
Bank and First Security Leasing. The complaint prays for repayment of the
matured loan and lease lines in the aggregate amount of approximately
$1,955,998, together with interest, attorneys' fees and associated costs
therewith. Additionally, the complaint seeks to enforce the personal guaranty of
John W. Stuart to repay $1,000,000 of this outstanding balance and prays for
writs of garnishment and attachments of our personal property. We have filed an
answer to this complaint and subsequently entered into a "stand-still" agreement
with First Security Bank. Under this "stand-still" agreement, First Security
Bank agreed not to take any further legal action on the complaint until
September 30, 1999 in exchange for: (i) additional security in our real and
personal property; (ii) $200,000 payment on the outstanding indebtedness upon
execution of the agreement; (iii) an additional $50,000 payment on September 1,
1999; and (iv) a firm re-payment plan we can reasonably make, commencing October
1, 1999. While we are currently working with our acting chief operating officer
and chief financial officer, along with restructuring consultants, to devise a
cash management plan to satisfy First Security Bank, there can be no assurance
that we will be successful in doing so.
We made our January, February and March 1999 payments to Imperial Credit
after the due date for those payments. As a result of those delinquencies, we
incurred late charges and default interest, which we have not paid. We are in
default under the Imperial Credit facility and we are unable to borrow
additional funds under the facility. As of August 31, 1999, we had not made
payments to Imperial Credit due April 1, 1999, May 1, 1999, June 1, 1999, July
1, 1999, August 1, 1999, September 1, 1999 or October 1, 1999.
On May 28, 1999, we issued a press release on Form 8-K announcing that we
had received notice of default from Imperial Credit. The notice of default was
received May 24, 1999. On August 8, 1999, we were served with a Notice of
Default and Election to Sell Under Deed of Trust by Imperial Credit, which
formally notified us of Imperial Credit's commencement of foreclosure
proceedings of our Wild Bill's California theater. Additionally, Imperial Credit
has informally notified us that it has also commenced foreclosure proceedings on
our King Henry's Feast Theater, Wild Bill's Theater and Shopping Complex, both
in the greater Orlando, Florida area, as well as our Legends in Concert Theater
in Surfside Beach, South Carolina. While we are currently working with Imperial
Credit to identify purchasers for our respective theaters in an attempt to sell
these theaters in an orderly manner to maximize proceeds from sale, there can be
no assurance that we will be successful in selling any of these theaters before
Imperial Credit completes its foreclosure process and takes over the respective
theaters.
6
<PAGE>
All or a portion of our property and assets securing the credit facilities
extended by our lenders may be sold to satisfy our commitments under the terms
of those facilities. While we intend to renegotiate the terms of our credit
facilities, to obtain extensions of the terms of those facilities and to seek
alternative additional financing, there can be no assurance that our efforts
will be successful.
Our common stock may be delisted from the Nasdaq SmallCap Market
In order to continue to be listed on the Nasdaq SmallCap Market, we must
maintain $2,000,000 in total assets, a $200,000 market value of the public float
and $1,000,000 in total capital and surplus. In addition, continued inclusion
requires two market-makers and a minimum bid price of $1.00 per share; provided,
however, that if our stock price falls below that minimum bid price, we will
remain eligible for continued inclusion on the Nasdaq SmallCap Market if the
market value of the public float is at least $1,000,000 and we have $2,000,000
in capital surplus. Our stock price has been below $1.00 per share for most of
1999. Nasdaq has recently proposed new maintenance criteria which, if
implemented, would eliminate the foregoing exception to the minimum bid price
requirement and require, among other things, $2,000,000 in net tangible assets,
$1,000,000 market value of the public float and adherence to certain governance
provisions.
On April 20, 1999, On Stage received a letter of inquiry from The Nasdaq
Stock Market, Inc. requesting that we submit a detailed letter describing our
plan to address the specific items that led to the issuance of "going concern"
opinion from our independent auditor, BDO Seidman, LLP. The letter further
requested that we discuss why we believe we will be able to sustain compliance
with the continued listing standards of the Nasdaq SmallCap Market.
On June 4, 1999, we responded to the April 30, 1999, letter from the Nasdaq
Stock Market, Inc. providing information regarding the auditors "going concern"
opinion, our growth strategy and our ability to comply with the continued
listing standards of The Nasdaq SmallCap Market.
On June 8, 1999, we received a response letter from Nasdaq, under which we
were afforded ninety (90) days in which to raise our minimum bid price to $1.00
or more for a minimum of ten (10) consecutive trading days. In the event we are
unsuccessful in our attempt to accomplish this requirement, our securities will
be delisted at the opening of business on September 9, 1999. On August 23, 1999,
we hired Newport Capital Consultants, Inc. to assist us with promoting our stock
to achieve the $1.00 minimum bid price, by providing us with broker-dealer and
investor relations services.
On August 18, 1999, we received a letter from Nasdaq informing us that we
have failed to meet the net tangible assets/market capitalization/net income
minimum listing requirement for continued inclusion in Nasdaq. As a result,
Nasdaq is reviewing our continued listing and they have requested that we submit
a specific plan for achieving compliance with all of their minimum listing
requirements by September 1, 1999.
On September 1, 1999, we responded to Nasdaq's August 18, 1999 request for
a specific plan to regain compliance by informing them that we would be
requesting an oral hearing to appeal any determination to delist our securities
as a result of our failure to meet the minimum bid price and net tangible
asset/market capitalization/net income requirements.
On September 8, 1999, we formally requested an oral hearing to appeal
Nasdaq's determination to delist our securities from their exchange as a
consequence of our failure to comply with the minimum bid price and net tangible
asset/market capitalization/net income requirements.
7
<PAGE>
On September 10, 1999, Nasdaq informed us that our request for an appeal
for their determination to delist our securities from their exchange as a result
of our failure to comply with their minimum listings standards was accepted and
that the oral hearing is scheduled for October 14, 1999.
The failure to meet the continued minimum listing standards in the future,
and the failure to adequately assure Nasdaq that we will be able to meet the
listing criteria in the future, may result in the delisting of our securities
from the Nasdaq SmallCap Market. If this occurs, the trading, if any, in our
securities would be conducted in the non-Nasdaq over-the-counter market. If our
stock is delisted, an investor could find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, our securities.
Our stock may be subject to penny stock regulation.
In addition, if the common stock were to become delisted from trading on
the Nasdaq SmallCap Market and the trading price of the common stock were to
remain below $5.00 per share, trading in the common stock would also be subject
to the requirements of certain rules, under the Securities Exchange Act of 1934,
that require additional disclosure by broker-dealers in connection with any
trades involving a stock defined as a "penny stock." Generally, "penny stock" is
any non-Nasdaq equity security that has a market price of less than $5.00 per
share, subject to limited exceptions. Those rules require the delivery, prior to
any penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated with it, and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors-generally institutions. For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. The additional burdens imposed upon
broker-dealers by these requirements may discourage broker-dealers from
effecting transactions in the common stock, which could severely limit the
market liquidity of the common stock and the ability of stockholders to sell the
common stock in the market.
Need for additional financing or sales of properties.
Our cash, cash equivalent balances and anticipated revenues from operations
will not be sufficient to fund our current operations and service our
substantial indebtedness under our existing credit facilities. We must
restructure our existing indebtedness, sell some of our properties or obtain
additional sources of financing in order to avoid foreclosure under these credit
facilities. There can be no assurance that we will be able to negotiate a
restructuring, timely sell our properties or that funds will be available to us.
We may also note be able to sell the properties we seek to sell at prices that
generate sufficient proceeds to repay our indebtedness. We may have our
properties foreclosed upon and sold at values we do not believe are favorable to
us if we are not able to obtain additional financing or sell those properties in
an orderly manner. As a result of our financing difficulties, we recently
reevaluated our growth strategy. We have no current arrangements with respect
to, or potential sources of, additional financing, and any inability to obtain
financing could cause us to curtail, delay or eliminate present or anticipated
productions, or to fund those productions through arrangements with third
parties that may require us to relinquish rights to substantial portions of our
revenue, which may nonetheless result in foreclosure under our existing credit
facilities.
Increased operating expenses.
The increased operating expenses in connection with our recent acquisitions
or our proposed expansion plans, delays in the introduction of new productions
and factors adversely affecting our current productions, have had a material
adverse effect on our operating results. There can be no assurance that we will
continue to generate significant net income in the future or that our future
operations will be profitable.
8
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Dependence on legends.
To date, our revenue has been limited largely to the production of Legends.
Our future success will depend, to a significant extent, on our ability to
successfully produce and market Legends shows in other venues. To the extent we
are unsuccessful in expanding the production of Legends, or to the extent the
Legends production concept ceases to be successful or profitable for us, we will
be adversely affected.
Reliance on principal production venues.
We anticipate that we will continue to rely upon our six current largest
revenue producing show sites, including our resident Legends productions in Las
Vegas, Nevada, Branson, Missouri and Myrtle Beach, South Carolina, as well as
our King Henry's Dinner Theater in Orlando Florida, Wild Bill's Dinner Theater
in Buena Park, California and Wild Bill's Dinner Theater in Kissimmee, Florida,
for the substantial majority of our revenue. The loss of all or a substantial
portion of the business generated at those venues or the termination or
impairment of contractual relationships that make some of these venues available
to us would adversely affect us. Imperial Credit's recently announced
foreclosure proceedings may result in the closure of one or more of these
productions.
Risks associated with acquisition strategy.
If we are able to restructure or repay our debt, we may seek to pursue a
revised expansion plans. We may pursue strategic acquisitions of, or joint
ventures with, independent production companies, and to market our brand name
products to the established customer bases of any acquired companies, in order
to increase revenues and market share. In addition, we may seek to acquire
additional established, brand-name shows which we believe have the potential to
be successful in new markets. We previously planned to enter into these types of
arrangements on a shared revenue and/or profit basis and to make these
acquisitions through limited equity distributions rather than through cash
payments or investments. However, if, as it presently is, our stock price is too
low, we may not be able or willing to use our common stock in acquisitions.
There may, in the future, be attractive acquisition candidates for which cash
funding is our only choice, in which case, any acquisitions will likely be
contingent upon us acquiring additional financing. There can be no assurance
that we will be able to acquire financing or, even with additional financing,
that we will be able to acquire acceptable production companies or shows, nor
can there be any assurance that we will be able to enter into beneficial joint
ventures on commercially reasonable terms or in a timely manner. Furthermore, we
can provide no assurance that any acquired customer bases will be receptive to
our productions or that we will be able to successfully develop any acquired
shows. To the extent we effect an acquisition or joint venture, there can be no
assurance that we will be able to successfully integrate into our operations any
business or productions which we may acquire. Any inability to do so,
particularly in instances in which we make significant capital investments,
could adversely affect us. In addition, there can be no assurance that any
acquired business will increase our revenue and/or market share or otherwise
improve our financial condition.
Competition.
The leisure and entertainment market, which includes the market for live
theatrical productions, is highly competitive, and many of our current markets
contain a large number of competing live theatrical productions. In resort and
urban tourist locations, we compete for ticket sales with the producers of other
live productions, many of whom have greater financial and other resources than
we do and/or feature productions and headline stars with greater name
recognition than those we have. In addition, we compete with other production
companies for the most desirable commercial and tourist venues and for talent
and production personnel. Any inability to secure those venues or personnel
could adversely affect us. In addition, one or more of the commercial venues in
which we currently have, or plan to have, a live production show could decide to
self-produce its live entertainment needs. There can be no assurance that we
will be able to secure alternative venues for displaced productions or that
those alternative venues could be secured under similar or favorable terms.
9
<PAGE>
Availability of talent and lack of long-term contracts.
Our future success will depend largely upon our ability to attract and
retain personnel sufficiently trained in performing arts and theatrical
production, including singers, dancers, musicians, choreographers and technical
personnel. We maintain rigorous standards with respect to the abilities and
level of experience of these personnel in order to ensure consistency, quality
and professionalism in our productions. This may make it more difficult for us
to obtain qualified personnel. Moreover, that difficulty is compounded by the
fact that Legends, our flagship production, features impersonators of past and
present superstar vocalists. Because these headline performers must look, sound
and act like specific celebrities, the pool of performers from which we can
choose is significantly reduced. In addition, while our musicians, singers,
dancers and production personnel are generally employees, our headline acts are
independent contractors who enter into new contracts with us for each new show
or venue in which they perform. We do not maintain any long-term contracts with
our performers. We will need to hire additional performers and production
technicians as we continue to open new productions, as well as to supplement
personnel in our existing productions. Our inability to attract and retain
needed personnel, for either new or existing productions, could adversely affect
us.
Fluctuations in quarterly operating results; High seasonality.
Our live theatrical production business is highly seasonal. As a result, we
have experienced, and expect to continue to experience, fluctuations in
quarterly results of operations. We expect these seasonal trends to continue.
Additionally, we typically spend significant resources on new resident
theatrical productions up to six months in advance of show openings, and believe
that, as we emphasize pre-opening market research and development as part of our
expansion plans, both the amount of pre-opening expenditures and the lag between
the time in which we incur those expenditures and the receipt of post-opening
revenue will increase. Accordingly, our operating results may also vary
significantly from quarter to quarter or year to year due to the opening and
timing of new shows and the fluctuations associated with the pre-opening and
start-up phases of new productions in new and varying venues. Consequently,
revenue as well as profit and loss may vary significantly from quarter to
quarter and the results in any one period will not necessarily be indicative of
results in subsequent periods.
The live entertainment industry is cyclical and very sensitive to economic
trends.
The live entertainment industry is cyclical, with consumer spending tending
to decline during recessionary periods when disposable income is low. Although
we believe our moderate ticket prices may enhance the appeal of our productions
to consumers in a recessionary environment, a poor general economic climate may
have an adverse impact on our ability to compete for limited consumer resources.
The live entertainment industry is also subject to changing consumer demands and
trends and, while the markets for live entertainment have grown significantly
over the past several years, that growth may not continue or be reversed. For
instance, the rate of growth in the casino gaming industry has recently begun to
decrease due to consolidation within the industry. Our success will depend on
our ability to anticipate and respond to changing consumer demands and trends
and other factors affecting the live entertainment industry, including new
artists and musicians, as well as general trends affecting the music industry
and its performers. Failure to respond to these factors in a timely manner could
adversely affect us.
We are dependent on the success of the casino gaming industry.
Although we have recently shifted our primary emphasis away from gaming
markets and toward the resort and urban tourist markets, our success has been,
and will continue to be, highly dependent on the casino gaming industry.
Consequently, a change in the laws or regulations governing the casino gaming
industry, or a significant decline in casino gaming in the United States, could
adversely affect us.
10
<PAGE>
Our success depends on one successful non-infringing use of other person's
likeness, voice and performance
Our success depends to a large extent on our ability to reproduce the
performance, likeness and voice of various celebrities without infringing on the
publicity rights of those celebrities or their estates. Although we believe that
our productions do not violate those intellectual property rights under
applicable state and federal laws, in the event a claim were made against us,
litigation, regardless of the outcome, could be expensive and time consuming for
us to defend. Additionally, if we were determined to be infringing any
intellectual property rights in the production of our performances, we could be
required to pay damages-possibly including treble and/or statutory damages-costs
and attorney fees, alter our productions, obtain licenses or cease certain
activities, all of which, individually or collectively, could adversely affect
us. Furthermore, if we were required to obtain licenses from the celebrities we
impersonate, we may not be able to acquire those licenses on commercially
favorable terms, if at all.
Our merchandising strategy is dependent on our successful use and
protection of intellectual property
Providing entertainment to the casino gaming industry may subject On Stage
to various licensing regulations. For instance, the Casino Control Commission of
the State of New Jersey requires that we obtain a Casino Service Industry
License to perform our shows at our Atlantic City venues. Although we have
obtained this license, there may be other licenses or permits, which may be
required for us to perform our shows in casinos in other areas.
We may not be able to pursue an expansion strategy if we cannot obtain
additional licenses. If we pursue an expansion program we will need to lease or
purchase theaters for our new Legends or other brand-name resident productions.
As a result, we will be required to absorb all costs and risks associated with
producing the show in order to retain 100% of the show's profits-referred to as
a "four-wall" production. Producing shows on this basis may require us to obtain
and maintain certain business, professional, retail and local licenses and
permits-as we were required to obtain for the opening of our Myrtle Beach show,
a "four-wall" production. Difficulties or failure in obtaining required licenses
or regulatory approvals could delay or prevent the opening of a new show or,
alter, delay or hinder expansion. In addition, the suspension of, or inability
to renew, a license needed to operate any of our currently running productions
would adversely affect our operations.
We are dependent on the creative direction of our chairman and chief
executive officer. Our future success will depend largely on the creative
efforts and abilities of our founder, chairman and chief executive officer, Mr.
John W. Stuart. The loss of the services of Mr. Stuart would adversely affect
us. Although we currently maintain a key-man life insurance policy on the life
of Mr. Stuart in the amount of $5,000,000, those proceeds may not be sufficient
to compensate us for the loss of his services. In particular, Mr. Stuart's death
would result in the loss of his creative contribution and would give the owner
of the Imperial Palace the right to terminate its contract with us relating to
our resident Legends production in Las Vegas, one of our largest revenue
producing venues. In addition, while Mr. Stuart has entered into a
non-competition agreement restricting his ability to work for a competitor
during the term of his employment agreements-which will expire on May 31,
2001-and thereafter for a period of five years, this non-competition agreement
may not be enforceable or we may not be in a position to pay Mr. Stuart the
contractual amount required to effectuate his non-competition agreement.
Finally, we may not be able to attract and retain the additional qualified
senior management personnel necessary to manage us.
11
<PAGE>
We may be subject to employment tax liability
Consistent with industry standards, we have, since inception, treated, and
expect to continue to treat, the headline acts of productions as independent
contractors rather than as employees. In making the determination that we are
qualified to characterize the headline acts as independent contractors, we, in
addition to following industry precedent, made an independent review of, and
analyzed, the applicable guidelines issued by the Internal Revenue Service. If
we were wrong in our determination and we have improperly classified the
headline acts as independent contractors, then we would be liable for the
payment of employment taxes for those periods in which the headline acts were
incorrectly characterized as independent contractors. If imposed, that
employment tax liability would adversely affect us.
We are involved in certain pending and threatened lawsuits in which the
adverse parties are seeking damages
We are currently party to litigation and threatened litigation which may
not be settled or decided in our favor. Moreover, regardless of the outcome of
those lawsuits and claims, if we were to be engaged in protracted litigation,
the costs of that litigation could be substantial. Even in situations where we
are fully indemnified by third parties, the time and effort expended by our
personnel in connection with those matters could be significant, leaving us with
less opportunity to pursue our strategic goals.
A real estate partnership in which our chairman and chief executive was a
partner went bankrupt
An unaffiliated real estate partnership, but of which Mr. John W. Stuart,
our chairman and chief executive officer, was a partner, Maze Stone Canyon
Estates Partnership, filed for bankruptcy under Chapter 11 in December 1991 in
the United States Bankruptcy Court, Central District of California. The
partnership's plan of reorganization was withdrawn before adoption by the
bankruptcy court in August 1992. The partnership Maze Stone Canyon Estates
Partnership was subsequently dissolved.
A current prospectus and state registration are required to exercise our
outstanding warrants and we may not be able to keep it current at all times
Holders of outstanding warrants to acquire our common stock will be able to
exercise their warrants only if a current prospectus under the Securities Act
relating to the securities underlying the warrants, is then in effect and those
securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of
warrants reside. Although we intend to use our best efforts to maintain a
current prospectus covering the securities underlying the warrants at the
earliest practicable date, to the extent required by federal securities laws, we
may not be able to do so. As a result of the defaults under our credit
facilities, we are not eligible to use the "short-form" registration procedures
available to other issuers under the Securities Act. Therefore, our ability to
maintain a current prospectus will be impaired until we are again eligible to
use the "short-form" registration procedures, which we do not anticipate will
occur prior to March 31, 2000. The value of the warrants may be greatly reduced
if a prospectus covering the securities issuable upon the exercise of the
warrants is not kept current or if the securities are not qualified, or exempt
from qualification, in the states in which the holders of warrants reside.
Persons holding warrants who reside in jurisdictions in which those securities
are not qualified and in which there is no exemption will be unable to exercise
their warrants and would either have to sell their warrants in the open market
or allow them to expire unexercised.
12
<PAGE>
The restrictive covenants in our debt agreements may impair our operation
or restructuring plan
Our various loan agreements contain covenants that, among other things,
restrict the ability of our operating subsidiaries to dispose of assets, incur
additional indebtedness, pay cash dividends, create liens on assets, make
investments or acquisitions, engage in mergers or consolidations, make capital
expenditures, engage in certain transactions with affiliates or redeem or
repurchase the indebtedness of such subsidiaries. These facts may limit or
prevent our planned restructuring. In addition, under our loan agreements, we
are required to satisfy financial ratio tests, including interest expense, fixed
charges and total debt coverage ratios. We are currently in default under some
of these ratios. Our ability to satisfy financial tests and ratios can be
affected by numerous events beyond our control, including economic, weather and
industry conditions. The breach of any financial covenant contained in a loan
agreement could result in the termination of our credit facilities-and the
acceleration of the maturity of all amounts outstanding thereunder-and, by
virtue of cross default provisions, the acceleration of the maturity of our
other indebtedness.
We have incurred and expect to continue to incur losses
For the year ended December 31, 1996, we had net income of $900,998. For
the years ended December 31, 1997 and December 31, 1998, and for the six months
ended June 30, 1999, we had net losses of $2,946,056, $4,870,989 and
$__________, respectively. Moreover, increased expenses in connection with our
restructuring plan, delays in the introduction of new productions and factors
adversely affecting our current productions have adversely affected us. We may
not generate net income in the future and our future operations may not be
profitable.
Our success is dependent on developing new productions and market growth
Our success depends, to a significant degree, on our ability to produce and
market new theatrical productions on a profitable basis. It will also be highly
dependent on our ability to restructure our existing debt and obtain additional
financing.
Our prospects will also be largely dependent upon the ability of our
Legends productions to achieve significant market share in targeted tourist and
gaming markets and our ability to develop and/or acquire and commercialize
additional productions. We may not be able to achieve our goals. Moreover, in
light of
(1) the significant up-front capital expenditures and pre-opening
costs-estimated to be approximately $500,000 to $1,000,000 in the case of a
leased theater-associated with the establishment of a new resident
production,
(2) the length of time required to prepare for the opening of a new resident
production (typically three to six months), and
(3) the significant time required before a new resident production can achieve
the market acceptance and name recognition required for local ticket
wholesalers and tour specialists to promote it,
the discontinuation of any new production-whether due to inadequate advance
marketing, inadequate performances, poor site selection or otherwise-would have
adversely affected us. For instance, during 1997, we discontinued our resident
production of Legends in Daytona Beach, Florida, as a result of less than
optimal ticket sales in the start-up phase of the show, which caused an
aggregate estimated loss to us of at least $877,000.
13
<PAGE>
Our principal shareholder controls more than a majority of our stock and
may determine the outcome of any shareholder vote
John W. Stuart, our chairman and chief executive officer, beneficially owns
approximately 52.2% of the outstanding common stock. Accordingly, Mr. Stuart is
able to control and direct our affairs, including the election of directors, and
cause an increase in our authorized capital or the dissolution, merger or sale
of On Stage or substantially all of our assets.
The eligibility for sale or sale of significant number of shares of our
stock that may become eligible for sale may adversely affect our stock prices
We currently have 6,985,279 shares of common stock outstanding, along with
2,050,155 shares reserved for issuance upon the exercise of outstanding warrants
and/or options to purchase shares of our common stock, of which all 4,894,903
shares offered by this prospectus, along with the 1,400,000 shares offered in
the initial public offering, will be freely tradable without restriction or
further registration under the Securities Act. The remaining 3,740,940 shares of
common stock outstanding are deemed to be "restricted securities," as that term
is defined under Rule 144 promulgated under the Securities Act, and may only be
sold:
(1) pursuant to an effective registration under the Securities Act,
(2) in compliance with the exemption provisions of Rule 144, or
(3) pursuant to another exemption under the Securities Act.
Those restricted shares of common stock will become eligible for sale,
under Rule 144, at various times, subject to certain volume limitations
prescribed by Rule 144 and to the agreements discussed below. No prediction can
be made as to the effect, if any, that sales of shares of common stock, or even
the availability of those shares for sale, will have on the market prices
prevailing from time to time. We have also reserved for issuance 1,400,000
shares of common stock under our 1996 Amended and Restated Stock Option Plan.
These shares have been registered under the Securities Act by the filing of a
registration statement in Form S-8 and will be freely tradable upon exercise of
the underlying stock options. The possibility that substantial amounts of common
stock may be sold in the public market may adversely affect prevailing market
prices for the common stock and could impair our ability to raise capital
through the sale of our equity securities.
If we lose our facilities, our operations may be adversely affected
A number of the properties we currently own house our revenue-producing
productions. We may lose one or more of these facilities to foreclosure. If our
lenders foreclose and do not lease those properties to us, we may have to
relocate or close those productions. Leases of other facilities in Atlantic
City, New Jersey, and Branson, Missouri are scheduled to expire in the year 2000
and the lease on our corporate space in Las Vegas expires in 2002. Although we
intend to let the leases expire on some of our locations that we do not intend
to continue to occupy, we will need to retain or replace the leases for some of
this space. We may not be successful in retaining or replacing the space we
want.
RECENT DEVELOPMENTS
Our revenues decreased by $842,000, or 10.2%, to $7,403,000 for the quarter
ended June 30, 1999 compared to $8,245,000 for the quarter ended June 30, 1998.
Net loss for the six months ended June 30, 1999 was $1,531,997, as compared to
net loss of $541,814 for the six months ended June 30, 1998.
FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of many factors, including those
set forth in the preceding "Risk Factors" section and elsewhere in this
Prospectus. In evaluating our business, prospective investors should consider
carefully the factors presented in the "Risk Factors" section in addition to the
other information set forth in this Prospectus.
USE OF PROCEEDS
All of the shares being offered hereby are offered by the selling
stockholders. We will not receive any of the proceeds from the sale of the
shares. The offering is made to fulfill our contractual obligations to the
selling stockholders to register the shares. However, some of the shares offered
hereby are issuable in the future upon the exercise of outstanding or issuable
options and warrants, and we will receive the exercise prices payable upon any
exercise of these warrants. There can be no assurance that all or any part of
these warrants will be exercised.
DIVIDEND POLICY
To date, we have never paid any cash dividends on our common stock and do
not expect to declare any cash dividends in the future. We currently intend to
retain our earnings to finance future growth and working capital needs and
therefore do not anticipate paying any cash dividends in the foreseeable future.
Payments of dividends, if any, will be at the sole discretion of the board of
directors after taking into account various factors, including our financial
condition, results of operations and current and anticipated cash needs and
other factors the board of directors may deem relevant.
PRICE RANGE OF COMMON STOCK
The common stock trades on the Nasdaq SmallCap Market under the symbol
"ONST." The following table sets forth, for the periods indicated, the high and
low sales prices as quoted on the Nasdaq Stock Market.
<TABLE>
<S> <C> <C> <C>
Period High Low
Fiscal 1999:
First quarter.................................... 1.6875 0.6875
Second quarter................................... 2.00 0.625
Fiscal 1998:
First quarter..................................... 5.4375 3.50
Second quarter.................................... 5.125 3.625
Third quarter..................................... 4.75 1.75
Fourth quarter ................................... 2.25 1.18
Fiscal 1997:
Third quarter..................................... 5.625 4.50
Fourth quarter.................................... 6.50 3.825
</TABLE>
As of June 24, 1999, there were 701 holders of record of our common stock.
On August 27, 1999, the closing sale price of the common stock as reported by
the Nasdaq SmallCap Market was $0.6875.
On Stage has never declared or paid any cash dividends on its capital
stock. On Stage currently intends to retain its earnings to finance future
growth and working capital needs and therefore does not anticipate paying any
cash dividends in the foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth our short-term debt and capitalization at
June 30, 1999.
<TABLE>
<S> <C>
June 30,1999
--------------------
(Dollars in Thousands)
Short-term debt:
Line of credit.................................................... $ 871,845
Capital leases.................................................... $ 515,016
Mortgage.......................................................... $ 14,150,000
Notes Payable to Officer.......................................... $ 217,000
------------
Total short-term debt. $15,753,861
============
Long-term debt:
Capital leases.................................................... $ 539,722
Total long-term debt.......................................... $ 539,722
Stockholders' equity:
Preferred Stock, par value $1.00; 1,000,000 shares authorized;
no shares issued and outstanding.................................... $ -
Common Stock, par value $.01; 25,000,000 shares authorized;
6,985,279 shares issued and outstanding............................. $ 69,853
Additional paid-in capital............................................. $ 11,332,250
Currency exchange adjustments...................................... $ (17,167)
Accumulated deficit................................................ $ (9,732,726)
-------------
Total stockholders' equity........................................ $ 1,652,210
=============
Total capitalization.............................................. $ 2,191,932
</TABLE>
15
<PAGE>
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
The following selected financial data for the two years ended December 31,
1997 and 1998 are derived from, and should be read in conjunction with, our
audited financial statements and notes, which are included elsewhere in this
Prospectus. The selected financial data for the three months ended March 31,
1998 and 1999, are derived from our unaudited financial statements and, in the
opinion of management, include all adjustments that are necessary to present
fairly our results of operations and financial position for those periods in
accordance with generally accepted accounting practices. The selected financial
data for the three months ended March 31, 1999 are not necessarily indicative of
the results to be expected for the full year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Statement of Operations Data:
<TABLE>
<S> <C> <C>
Years Ended Six Months Ended
December 31, June 30,
1997 1998 1998 1999
-------- --------- --------- ---------
(unaudited) (unaudited)
Net revenue................................................$ 15,726 $ 27,847 $ 11,969 $ 13,675
Gross profit .............................................. 4,313 5,619 2,838 2,845
Operating income (loss) ................................... (2,105) (3,316) ( 87) (102)
Net income (loss) ......................................... (2,946) (4,871) (541) (1,531)
Basic and diluted (loss) per share(1)...................... (0.55) (0.68) (0.08) (0.21)
Basic and diluted average number of common shares
outstanding.............................................. 5,365,851 7,191,276 6,883,421 7,459,597
</TABLE>
<TABLE>
<S> <C> <C>
Balance Sheet Data: December 31, 1998 June 30, 1999
--------------------- --------------
Working capital (deficit).................................. $ (16,791) $ (17,927)
Total assets............................................... 24,089 23,013
Total liabilities.......................................... 20,894 21,361
Stockholders' equity....................................... 3,196 1,652
</TABLE>
(1) Basic earnings per shares 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.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The financial statements include herein included the accounts of On Stage
Entertainment, Inc., a publicly traded Nevada corporation and its subsidiaries:
Legends in Concert, Inc., a Nevada corporation; On Stage Marketing, Inc., a
Nevada corporation; On Stage Theaters, Inc., a Nevada corporation; Wild Bill's
California, Inc., a Nevada corporation; Blazing Pianos, Inc., a Nevada
corporation; King Henry's Inc., a Nevada corporation; On Stage Merchandise,
Inc., a Nevada corporation; On Stage Events, Inc., a Nevada corporation; On
Stage Casino Entertainment, Inc., a Nevada corporation; On Stage Productions,
Inc., a Nevada corporation; On Stage Theaters North Myrtle Beach, Inc., a Nevada
corporation; On Stage Theaters Surfside Beach, Inc., a Nevada corporation; and
Interactive Events, Inc., a Georgia corporation.
On Stage derives net revenues from five reportable segments:
o Casinos. The Casinos segment primarily sells live theatrical productions to
casinos worldwide for a fixed fee. In addition, this Casinos segment also
operates our Legends show at the Imperial Palace in Las Vegas, Nevada and
Biloxi, Mississippi and at Bally's Park Place in Atlantic City, New Jersey.
o Theaters. The Theaters segment owns and/or rents live theaters and dinner
theaters in urban and resort tourist locations primarily in the United
States. This Theaters segment derives revenues from the sale of tickets,
along with food and beverages to patrons who attend our live theatrical
productions.
o Events. The Events segment sells live theatrical productions to commercial
clients, which include corporations, theme and amusement parks and cruise
lines for a fixed fee. Revenues generated from the Events segment are
included in the Casinos segment.
o Merchandise. The Merchandise segment sells merchandise and souvenir
photography products to patrons who attend our Casinos, Theaters and Events
productions. Revenues generated from the Merchandise segment are included
in the Theaters segment.
o Production Services. The Production Services segment sells technical
equipment and services to commercial clients. However, the Productions
Services segment's primary focus is to provide technical support for all of
the Casinos, Theaters, Events and Merchandise segments.
Results of Operations
The following table sets forth the various components of our net revenue as
a percentage of the total net revenue for the periods indicated:
<TABLE>
<S> <C> <C> <C>
Years Ended December 31, Six Months Ended
June 30,
1997 1998 1998 1999
--------- ------------ -------- ---------
Net revenue .................... 100.0% 100.0% 100.0% 100.0%
Cost of sales ................... 75.5 79.8 76.3 79.2
Gross profit..................... 27.5 20.2 23.7 20.8
Selling, general and administrative. 31.5 22.5 20.6 15.2
Depreciation and amortization.... 6.2 6.5 3.9 4.4
Loss on discontinued location...... 3.1 1.6 0.0 0.0
Restructuring charges.............. 0.0 0.0 0.0 1.9
--------- --------- -------- --------
Operating profit (loss)............ (13.3) (11.9) (0.7) (0.8)
Interest expense, net.............. 5.3 5.6 3.8 10.5
---------- -------- -------- -------
Income taxes....................... 0.1 0.0 0.0 0.0
Net income (loss).................. ( 18.7)% (17.5)% (4.5)% (11.2)%
========= ======= ======== ========
</TABLE>
17
<PAGE>
Net loss for the year ended December 31, 1997, was $2,946,056, as
compared to a net loss of $4,870,989 for the year ended December 31, 1998.
The following tables sets forth, the results of operations for the
reportable segment indicated:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Sub-Total
Operating On Stage Total
Casinos Events Merchandise Theaters Corporations Production Entertainment Consolidated
----------- ------------- ------------- ----------- ------------- -------------- ------------- -------------
Net revenues.........$6,326,952 $ 2,552,440 $ 454,842 $ 6,391,840 $ 15,726,074 $ - $ - $ 15,726,074
Cost of revenues..... 3,841,285 1,709,708 103,330 5,627,492 11,281,815 131,709 - 11,413,524
----------- ------------- ------------- ----------- ------------- -------------- ------------- -------------
Gross profit......... 2,485,667 842,732 351,512 764,348 4,444,259 (131,709) - 4,312,550
Selling, general
& administrative.... 296,104 639,961 36,359 233,548 1,205,972 62,985 3,677,178 4,946,135
Depreciation &
Amortization........ 141,275 6,221 - 323,336 470,832 - 511,348 982,180
Discontinued
Location............ - - - 489,285 489,285 - - 489,285
----------- ------------- ------------- ----------- ------------- -------------- ------------- -------------
Operating Income
(loss)........... 2,048,288 196,550 315,153 (281,821) 2,278,170 (194,694) (4,188,526) (2,105,050)
Interest expense,
net.............. - (297) - - (297) - 834,630 834,333
----------- ------------- ------------- ----------- ------------- -------------- ------------- -------------
Net income (loss)
before income
taxes.............. 2,048,288 196,847 315,153 (281,821) 2,278,467 (194,694) (5,023,156) (2,939,383)
Income taxes........ 3,197 - - 3,197 - 3,476 6,673
----------- ------------- ------------- ----------- ------------- -------------- ------------- -------------
Net income (loss).. $2,048,288 $ 193,650 $ 315,153 $ (281,821) $2,275,270 $ (194,694) $(5,026,632) $ (2,946,056)
----------- ------------- ------------- ----------- ------------- -------------- ------------- -------------
</TABLE>
<TABLE>
Year ended December 31, 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sub-Total
Operating On Stage Total
Casinos Events Merchandise Theaters Corporations Production Entertainment Consolidated
----------- -------------- ------------- ------------- ------------ -------------- ------------- -------------
Net revenues.........$6,977,020 $ 2,554,942 $ 1,243,942 $ 17,064,071 $27,839,484 $ 7,992 $ - $27,847,476
Cost of revenues..... 4,522,257 1,900,216 812,505 14,727,694 21,962,672 265,852 - 22,228,524
----------- -------------- ------------- ------------- ------------ -------------- ------------- -------------
Gross profit......... 2,454,763 654,726 430,946 2,336,377 5,876,812 (257,860) - 5,618,952
Selling, general
& administrative.... 417,686 736,365 173,137 1,506,432 2,833,620 255,640 3,187,065 6,276,325
Depreciation &
Amortization......... 268,780 140,455 5,055 1,086,822 1,501,112 44,704 260,710 1,806,526
Asset
Impairment loss - - - 409,117 409,117 - - 409,117
Discontinued
Location............. - - - 443,096 - - - 443,096
----------- -------------- ------------- ------------- ------------ -------------- ------------- -------------
Operating
Income (loss)..... 1,768,297 (222,094) 252,754 (1,109,090) (558,204) (3,447,775) (3,447,775) (3,316,112)
Interest expense,
net............. 4,712 1,292 193 1,354,370 1,360,567 - 194,310 1,554,877
----------- -------------- ------------- ------------- ------------ -------------- ------------- -------------
Net income (loss)
before income
taxes............. 1,763,585 (223,336) 252,561 (2,463,460) (670,770) (558,204) (3,642,085) (4,870,989)
Income taxes........ 0 0 0 0 0 0 0 0
----------- -------------- ------------- ------------- ------------ -------------- ------------- -------------
Net income (loss)... $1,763,585 $ (223,336) $ 252,561 $ (2,463,460) $ (670,000) $ (558,204) $(3,642,085) $(4,870,989)
----------- -------------- ------------- ------------- ------------ -------------- ------------- -------------
</TABLE>
18
<PAGE>
<TABLE>
For the six months ended June 30, 1998
<S> <C> <C> <C> <C> <C> <C>
--------------- -------------- -------------- ----------------- --------------- -----------------
Sub-Total
Operating Total
Casino Production Theaters Segments OSE Consolidated
--------------- -------------- -------------- ----------------- --------------- -----------------
Net revenues......... $4,498,359 $ - $ 7,470,708 $ 11,969,067 $ - $ 11,969,067
Cost of revenues..... 2,922,840 126,260 6,081,637 9,130,737 - 9,130,737
--------------- -------------- -------------- ----------------- --------------- -----------------
Gross profit (loss).. 1,575,519 (126,260) 1,389,071 2,838,330 - 2,838,330
Selling, general &
administrative....... 514,970 8,408 681,587 1,204,965 1,256,449 2,461,414
Depreciation & 96,048 59 200,230 296,337 167,559 463,896
amortization.........
--------------- -------------- -------------- ----------------- --------------- -----------------
Operating income
(loss)............... 964,501 (134,727) 507,254 1,337,028 (1,424,008) (86,980)
Interest expense, net.. (33) - 432,713 432,680 22,154 454,834
--------------- -------------- -------------- ----------------- --------------- -----------------
Net income (loss)..... $ 964,534 $ (134,727) $ 74,541 $ 904,348 $ (1,446,162) $ (541,814)
=============== ============== ============== ================= =============== =================
</TABLE>
<TABLE>
For the six months ended June 30, 1999
<S> <C> <C> <C> <C> <C> <C>
--------------- -------------- -------------- ----------------- --------------- -----------------
Sub-Total
Operating Total
Casino Production Theaters Segments OSE Consolidated
--------------- -------------- -------------- ----------------- --------------- -----------------
Net revenues...... $ 4,848,049 $ 45,499 $ 8,781,699 $ 13,675,247 $ - $ 13,675,247
Cost of revenues... 3,082,748 343,392 7,403,693 10,829,833 - 10,829,833
--------------- -------------- -------------- ----------------- --------------- -----------------
Gross profit (loss).. 1,765,301 (297,893) 1,378,006 2,845,414 - 2,845,414
Selling, general &
administrative....... 323,509 - 753,491 1,077,000 1,004,868 2,081,868
Depreciation &
amortization......... 185,583 43,923 280,397 509,903 93,698 603,601
Restructuring charges 10,000 - 113,359 123,359 139,434 262,793
--------------- -------------- -------------- ----------------- --------------- -----------------
Operating income
(loss).............. 1,246,209 (341,816) 230,759 1,135,152 (1,238,000) (102,848)
Interest expense, net. 27 1,123 1,323,694 1,324,844 104,305 1,429,149
--------------- -------------- -------------- ----------------- --------------- -----------------
Net income (loss).....$ 1,246,182 (342,939) (1,092,935) (189,692) (1,342,305) (1,531,997)
=============== ============== ============== ================= =============== =================
</TABLE>
19
<PAGE>
Year ended December 31, 1997 versus year ended December 31, 1998
Net Revenues. Revenues were $27,847,000 for the year ended December 31,
1998 compared to $15,726,000 for the year ended December 31, 1997, an increase
of $12,121,000, or 77.1%. Our revenue is derived from five principal segments:
casinos, events, merchandise, theaters and production services.
Casino revenues were approximately $6,977,000 for the year ended December
31, 1998 compared to $6,326,000 for the year ended December 31, 1997, an
increase of $651,000, or 10.2%. The increase was primarily attributable to new
show openings at Hilton Hotel & Casino and Trump Taj Mahal Hotel & Casino in
Atlantic City, New Jersey, as well as new shows at Crown Casino in Melbourne,
Australia, River Palms Resort Casino in Laughlin, Nevada and Muckleshoot Casino
in Auburn, Washington. The increase was partially offset by decrease
attributable to the Legends show at the Imperial Palace in Las Vegas, Nevada.
Events revenues were $2,555,000 for the year ended December 31, 1998
compared to $2,552,000 for the year ended December 31, 1997, an increase of
$3,000, or 0.12%.
Merchandise revenues were approximately $1,243,000 for the year ended
December 31, 1998 compared to $455,000 for the year ended December 31, 1997, an
increase of $788,000, or 173.2%. This increase was mainly attributable to an
increase in photo and merchandise sales, along with the and the inclusion of the
revenue generated from the properties we acquired from Gedco asset acquisition
in 1998.
Theaters revenues were approximately $17,064,000 for the year ended
December 31, 1998 compared to $6,392,000 for the year ended December 31, 1997,
an increase of $10,672,000, or 166.9%. This increase in revenues was primarily
attributed to new Legends show openings since March 1998 at the Legends Theater
in Branson, Missouri, the Legends show at the Sheraton Centre in Toronto, Canada
and the inclusion of revenue generated from the properties we acquired from
Gedco USA, Inc. in 1998. This increase was partially offset by decreases
attributable to the discontinuation of the Legends show in Daytona Beach,
Florida and decrease in revenues derived from the Legends Theater in Myrtle
Beach, South Carolina.
Costs of Revenues. Total costs of revenues were $22,228,524 for the year
ended December 31, 1998 compared to $11,414,000 for the year ended December 31,
1997, an increase of $10,814,524, or 94.8%. Costs of revenues increased to 79.8%
of net revenues for the year ended December 31, 1998, as compared to 72.6% for
the year ended December 31, 1997. This increase in cost of revenues as a percent
of net revenues was primarily attributable to a change in the mix of our
revenues from primarily theater shows to a combination of theater and dinner
theater shows.
Selling, General and Administrative. Selling, general and administrative
expenses were approximately $6,276,000 for the year ended December 31, 1998
compared to $4,946,000 for the year ended December 31, 1997, an increase of
$1,330,000, or 26.8%. Selling, general and administrative expenses decreased to
22.5% of net revenues for the year ended December 31, 1998, as compared to 31.5%
for the year ended December 31, 1997, which was primarily attributable to a
consolidation of operations resulting in a reduction of work force due to
elimination of duplicate or overlapping positions.
Depreciation and Amortization. Depreciation and amortization was $1,807,000
for year ended December 31, 1998 compared to $982,000 for the year ended
December 31, 1997, an increase of $825,000, or 84.0%. The increase was primarily
due to capital additions to current shows, expenses related to a discontinued
location and the determination at December 31, 1998 of the impairment of net
assets acquired in connection with the Interactive Events, Inc. acquisition.
Expenses to Discontinued Location. We decided to discontinue the operation
of our Legends production in Daytona Beach, Florida in December of 1997. As a
result of this discontinuation, we incurred an additional expense of $489,285
during 1997. Additionally, in 1998 we wrote-off $443,096 of net assets.
20
<PAGE>
Asset Impairment Loss. We decided to restructure our Legends production in
Toronto, Canada on December 31, 1998. As part of the restructuring, we had an
impairment of net assets and wrote off $409,000.
Operating Income. Our operating loss was approximately $3,316,000 for the
year ended December 31, 1998 compared to an operating loss of $2,105,000 for the
year ended December 31, 1997, an increase in loss of $1,211,000. This increase
in loss is primarily attributable to recurring losses at our Toronto and Buena
Park locations.
Interest Expense, Net Asset. Interest expense was approximately $1,555,000
for year ended December 31, 1998 compared to $834,000 for the year ended
December 31, 1997, an increase of $721,000 or 86.4%. The increase was primarily
due to additional debt incurred as a result of the Gedco asset acquisition and
the purchase of our Legends Theater in Surfside Beach, South Carolina, both of
which occurred during 1998.
Six Months Ended June 30, 1998 versus Six Months Ended June 30, 1999
Net Revenues. Revenues increased by $1,706,000 or 14.3 % to $13,675,000 for
the six months ended June 30, 1999 compared to $11,969,000 for the six months
ended June 30, 1998. Our revenue is derived from five principal operating
segments: Casinos, Events, Merchandise, Productions and Theaters. Revenues from
Events are included in the Casino segment. Revenues from Merchandise are
included in the Theaters segment.
Casinos revenues were approximately $4,848,000 for the six months ended
June 30, 1999 compared to $4,498,000 for the six months ended June 30, 1998, an
increase of $350,000, or 7.8%. Contributing to this increase were increases in
revenues generated at the Legends show at the Imperial Palace and Casino in Las
Vegas, Nevada, the addition of new shows at the River Palms Resort and Casino in
Laughlin, Nevada, Taj Mahal Hotel and Casino, Hilton Hotel and Casino and
Atlantic City Showboat.
Production Services revenues were approximately $45,000 for the six months
ended June 30, 1999 compared to $0 for the six months ended June 30, 1998. The
increase was attributable to equipment rentals.
Theaters revenues were approximately $8,782,000 for the six months ended
June 30, 1999 compared to $7,471,000 for the six months ended June 30, 1998, an
increase of $1,311,000, or 17.6%. This increase was primarily attributable to
the fact that the dinner theaters acquired as a result of the Gedco asset
acquisition were given a full six (6) month results of operations in 1999,
compared to only 4.5 months results of operations during the first six months of
1998.
Costs of Revenues. Total costs of revenues were $10,830,000 for the six
months ended June 30, 1999 compared to $9,131,000 for the six months ended June
30, 1998, an increase of $1,699,000, or 18.6%. Costs of revenues increased to
79.2% of net revenues for the six months ended June 30, 1999, as compared to
76.3% for the six months ended June 30, 1998. This increased in cost of sales as
a percentage of revenues was primarily attributable to a change in the mix of
our revenues due to the inclusion of the dinner theaters revenues, which have
higher costs of revenues than our other business segments.
21
<PAGE>
Selling, General and Administrative. Selling, general and administrative
costs were approximately $2,082,000 for the six months ended June 30, 1999 as
compared to $2,461,000 for the six months ended June 30, 1998, a decrease of
$379,000, or 15.4%. Selling, general and administrative costs decreased to 15.3%
of net revenues for the six months ended June 30, 1999, as compared to 20.6% for
the six months ended June 30, 1998. This is primarily attributable to our
reduction of overhead associated with On Stage's discontinued "roll-out"
strategy.
Depreciation and Amortization. Depreciation and amortization for the six
months ended June 30, 1999 increased by $140,000, or 30.2%, as compared to the
six months ended June 30, 1998. The increase was primarily due to capital
additions to current shows, new shows, and an increase in assets as a result of
the Gedco asset acquisition.
Restructuring Charges. Restructuring charges represents expenses related to
the closing of the Legends show in Toronto, Canada, payment of
employment-related severance and termination benefits, legal expenses, and
relocation expenses of a key executive.
Operating Loss. On Stage's operating loss was approximately $103,000 for
the six months ended June 30, 1999, compared to an operating loss of $87,000 for
the six months ended June 30, 1998, an increase of $16,000, or 18.4%.
Interest Expense, Net. Interest expense for the six months ended June
30,1999 increased by $974,000, or 214.2% as compared to the six months ended
June 30, 1998. The increase was primarily due to interest accrued on the
Imperial Credit debt, together with penalties and default interest rates.
Income Taxes. On Stage 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. We have not accrued any federal income tax for the six months
ended June 30, 1998. At June 30, 1998 and 1999, we had federal net operating
loss carryforwards of approximately $4,339,000 and $7,907,190 respectively.
Under Section 382 of the Internal Revenue Code, certain significant changes in
ownership that On Stage is currently undertaking may restrict the future
utilization of these tax loss carryforwards. The net deferred tax assets have a
100% valuation allowance, as management cannot determine if it is more likely
than not that the deferred tax assets will be realized.
Seasonality and Quarterly Results. Our business has been, and is expected
to remain, highly seasonal, with the majority of our revenue being generated
during the months of April through October. Part of our business strategy is to
increase sales in tourist markets that experience their peak seasons from
November through March so as to offset seasonality in revenues. The revenues
generated from the dinner theaters we acquired from Gedco asset acquisition from
November through March has helped to mitigate the seasonality in our revenues.
The following table sets forth our net revenues for each of the last ten
quarters ended June 30, 1999:
<TABLE>
Net Revenues
($ in thousands)
<S> <C> <C> <C> <C> <C>
March 31, June 30, September 30, December 31,
------------- ------------ -------------- -----------------
Fiscal 1997................................. $ 2,719 $ 3,979 $ 5,071 $ 3,957
Fiscal 1998................................. $ 3,724 $ 8,245 $ 8,059 $ 7,819
Fiscal 1999................................. $ 6,272 $ 7,403
</TABLE>
22
<PAGE>
Tax Net Operating Losses. At December 31, 1997 and 1998, we had federal net
operating loss carryforwards of approximately $3,138,544 in 1997, and $6,315,193
in 1998, respectively. Under Section 382 of the Internal Revenue Code,
significant changes in ownership contemplated by us may restrict the future
utilization of these tax loss carryforwards. The net deferred tax assets have a
100% valuation allowance, as management cannot determine if it is more likely
than not that the deferred tax assets will be realized.
Liquidity and Capital Resources
General
We have historically met our working capital requirements through a
combination of cash flow from operations, equity and debt offerings and
traditional bank financing. We anticipate, based on our proposed plans and
assumptions relating to our operations, that our current cash, cash equivalent
balances, anticipated revenue from operations and our working capital line are
insufficient to fund our ongoing operations.
We intend to manage short-term liquidity concerns through the
renegotiations of our expired working capital line, capital leases and mortgages
facilities. We have either closed down or restructured any business units that
were not generating positive cash flow. In addition, we have lowered selling,
general and administrative expenses as a percentage of net revenues from 31.5%
in 1997 to 22.4% in 1998 and from 20.6% for the six months ended in June 30,1998
to 15.2% for the six months ended in June 30, 1999 and continue to downsize and
restructure our selling, general and administrative functions.
In addition, we are continuing our efforts to secure working capital for
operations, expansion and possible acquisitions, mergers, joint ventures, and/or
other business combinations. However, there can be no assurance that we will be
able to secure additional capital or that if such capital is available, whether
the terms or conditions would be acceptable to us.
For the year ended December 31, 1997, we had net cash deficit used by
operations of approximately $1,099,000. The net cash deficit was primarily
attributable to the losses incurred at our Legends show in Daytona Beach,
Florida, and increases in selling, general and administrative expenses incurred
in anticipation of our rapid growth. For the year ended December 31, 1998, we
had a net cash deficit from operations of $1,534,000. The net cash deficit
provided from operations was primarily attributable to legal fees, vacation
accruals, asset impairment expenses, and due diligence expenses written off in
connection with prospective acquisitions, operational losses at the Legends show
in Toronto, Canada, Wild Bill's Dinner Extravaganza in Buena Park, California,
and the debt service on our mortgage and credit line facilities.
For the six months ended June 30, 1998, On Stage had net cash deficit used
by operations of approximately $1,413,000. As of June 30, 1998, On Stage had
approximately $1,100,000 in cash and cash equivalents. For the six months ended
June 30, 1999, On Stage had net cash deficit used by operations of approximately
$325,000. As of June 30, 1999, On Stage had approximately $466,000 in cash and
cash equivalents. The operating deficits for both periods were primarily
attributable to pre-opening costs for new shows and business seasonality.
23
<PAGE>
The net cash used in investing activities for the year ended December 31,
1997 of $1,241,000 was primarily attributable to capital expenditures and
advances on notes receivable from officers, and direct acquisition costs. The
net cash used in investing activities for the year ended December 31, 1998 of
$14,548,000 was primarily attributable to advances on notes receivable from
officers, capital expenditures and direct acquisition costs related to
acquisitions.
On August 13, 1997, we 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 from the
offering were approximately $4,856,000, net of offering underwriting discounts,
commissions and expenses and costs incurred by us of approximately $1,414,000.
The net cash used in investing activities for the six months ended June 30,
1998 of $13,989,000 was primarily attributable to direct acquisition costs
related to the Gedco asset acquisition. The net cash used in investing
activities for the quarter ended June 30, 1999 of $59,000, was primarily
attributable to capital expenditures.
Net cash provided by financing activities for the year ended December 31,
1997 of $4,373,000 was primarily generated from our initial public offering.
This increase in cash was partially offset by the repayment of a $750,000 bridge
loan. Net cash provided by financing activities for the year ended December 31,
1998 of $14,701,000 was primarily attributable to Imperial Credit Commercial
Mortgage Investment Corporation funding of $12,500,000 for the Gedco asset
acquisition, $1,100,000 million for the purchase of our Legends Theater in
Surfside Beach, South Carolina and $550,000 for working capital.
Net cash provided by financing activities for the six months ended June 30,
1998 of $14,166,000, was attributable to Imperial Credit's funding of
$12,500,000 for the Gedco asset acquisition. Net cash provided by financing
activities for the six months ended June 30, 1999 of $75,000 was primarily
attributable to notes payable from officer and the issuance of common stock,
offset by repayment of long-term borrowing and repayment under working capital
lines
Working Capital
At December 31, 1997, we had working capital of approximately $1,797,000,
primarily from proceeds derived from the sale of our common stock and redeemable
warrants from the our initial public offering. The proceeds of the offering were
partially offset by increases in inventory and deposits. At December 31, 1998,
we had a working capital deficit of approximately $16,791,000, which resulted,
primarily, from an increase in our working capital line of credit, accounts
payable, accrued expenses, and accrued payroll and other liabilities. Because of
the recurring losses, the working capital deficit and the loan defaults, our
auditors have issued a going concern opinion.
On August 13, 1997, we converted all of the approximately $1,800,000 of
principal amount of outstanding convertible debentures into an aggregate of
505,649 shares of common stock. The conversion was based upon a ratio of 295
shares of common stock for each $1,000 in principal amount of convertible
debentures. The conversion resulted in a one-time, non-recurring, interest
expense charge in the amount of $194,228 (based on an imputed value of $4.00 per
share of common stock).
On August 13, 1997, we paid off a $750,000 bridge loan in full, which, with
principal and interest, totaled $773,000.
As of December 31, 1996, we had a term loan outstanding in the principal
amount of $150,000, with First Security Bank of Nevada, which accrued interest
at a rate of 11.5% per annum. On October 10, 1997, we paid off the balance of
this term loan, in full, which, including all outstanding principal and accrued
interest, was $19,091.
24
<PAGE>
At June 30, 1998, we had a working capital of approximately $112,000
primarily attributable to the pre-opening costs of new shows. At June 30, 1999,
we had working capital deficit of approximately $17,927,000 which resulted
primarily from an increase in the accrued expenses, accrued payroll and other
liabilities, notes payable to officer, and the default and concurrent
acceleration of our lease lines and loan from First Security Bank and the
Imperial Credit mortgage to current liabilities. Because of the recurring
losses, the working capital deficit and the loan defaults, our auditors issued a
going concern opinion for the year ended December 31, 1998.
Working Capital Line
In May 1997, First Security Bank of Nevada issued a line of credit to us
for up to $250,000. Borrowings under this line of credit bear variable interest
at 1.5% over the First Security Bank of Idaho's index 10% per year as of the
facility's inception--and are due on demand. John W. Stuart has personally
guaranteed this line of credit.
On March 28, 1998, First Security agreed to increase this line of credit
from $250,000 to $1,000,000 and the expiration date was extended to March 25,
1999. As of December 31, 1998, On Stage had drawn $1,000,000 on the line of
credit. As of March 31, 1999, On Stage has failed to pay off any part of the
line of credit and is in default under its terms.
Capital Equipment Financing Commitment
On September 29, 1997, First Security Leasing Company, a Utah corporation,
approved On Stage for a $1,000,000 lease line of credit. Advances under the
lease line incur interest at a rate of 9.75% per annum. The lease line has been
utilized in the following amounts: $389,290, $442,997 and $167,713, commencing
in April 1998 and May 1998, respectively, and terminating on October 2001,
September 2001 and November 2001.
Mortgage Financing Commitment
On March 13, 1998, Imperial Credit Commercial Mortgage Investment
Corporation signed an agreement with On Stage to fund up to $20,000,000 of
mortgage financing. On the same day, On Stage used $12,500,000 of the facility
to fund the cash portion of the Gedco asset acquisition. On June 30, 1998, On
Stage used an additional $1,100,000 to fund the cash portion of the purchase of
a fee simple interest in the Legends Theater in Surfside Beach, South Carolina,
and the purchase of a leasehold interest in the Eddie Miles Theater in North
Myrtle Beach, South Carolina. On October 7, 1998, On Stage used an additional
$550,000 for working capital purposes. The initial $12,500,000 loan and the
subsequent $1,650,000 in loans extended by Imperial Credit to On Stage under the
mortgage financing facility currently bear interest at the rate of 9.06% and
9.9%, respectively. In addition, On Stage granted Imperial Credit and related
entity warrants to purchase an aggregate of 575,000 shares of common stock at an
exercise price of $4.44 per share. In consideration for Imperial Credit's
October 7, 1998 funding of $550,000, On Stage reset the strike price on 325,000
of the Imperial Credit warrants from $4.44 to $1.25 per share.
Existing Defaults Under Credit Facilities
As of March 31, 1999, we had failed to pay off any part of the line of
credit with First Security Bank of Nevada and are currently in default under its
terms. On April 29, 1999, we received a notice of default under this line of
credit from First Security Bank. Our default on this line of credit triggered an
automatic default on our lease lines with First Security Leasing due to a
cross-default provision contained in the line of credit.
25
<PAGE>
On July 12, 1999, First Security Bank filed a complaint against On Stage,
its' subsidiaries and John W. Stuart in the District Court of Nevada in Clark
County, Nevada. The complaint alleges that we breached our contract with First
Security Bank by failing to repay our outstanding indebtedness to First Security
Bank and First Security Leasing. The complaint prays for repayment of the
matured loan and lease lines in the aggregate amount of approximately
$1,955,998, together with interest, attorneys' fees and costs associated
therewith. Additionally, the complaint seeks to enforce the personal guaranty of
Mr. Stuart to repay $1,000,000 of this outstanding balance and prays for writs
of garnishment and attachments of our personal property. We have filed an answer
to this complaint and subsequently entered into a "stand-still" agreement with
First Security Bank. Under this "stand-still" agreement, First Security Bank
agreed not to take any further legal action on the complaint until September 30,
1999 in exchange for: (i) additional security in our real and personal property;
(ii) $200,000 payment on the outstanding indebtedness upon execution of this
agreement; (iii) an additional $50,000 payment on September 1, 1999; and (iv) a
firm re-payment plan we can reasonably make commencing October 1, 1999. While we
are currently working with our acting Chief Operating Officer and Chief
Financial Officer, along with restructuring consultants, to devise a cash
management plan to satisfy First Security Bank, there can be no assurance that
we will be successful in doing so.
We made our January, February and March 1999 payments to Imperial Credit
after the due date for those payments. As a result of those delinquencies, we
have incurred late charges and default interest, which we have not paid. We are
in default under the Imperial Credit facility and we are unable to borrow
additional funds under the facility. As of August 6, 1999, we had not made
payments to Imperial Credit due April 1, 1999, May 1, 1999, June 1, 1999, July
1, 1999, August 1, 1999, September 1, 1999 or October 1, 1999.
On May 28, 1999, we issued a press release on Form 8-K announcing that we
had received notice of default from Imperial Credit. The notice of default was
received May 24, 1999. On August 8, 1999, we were served with a Notice of
Default and Election to Sell Under Deed of Trust by Imperial Credit, which
formally notified us of Imperial Credit's commencement of foreclosure
proceedings of our Wild Bill's California theater. Additionally, Imperial Credit
has informally notified us that it has also commenced foreclosure proceedings on
our King Henry's Feast Theater, Wild Bill's Theater and Shopping Complex, both
in the greater Orlando, Florida area, as well as our Legends in Concert Theater
in Surfside Beach, South Carolina. While we are currently working with Imperial
Credit to identify purchasers for our respective theaters in an attempt to sell
these theaters in an orderly manner to maximize proceeds from such sale, there
can be no assurance that we will be successful in selling any of these theaters
before Imperial Credit completes its' foreclosure process and takes over the
respective theaters.
In the event that First Security or First Security Leasing, initiates
foreclosure action against us or our assets, all or a portion of our property
and assets securing the credit facilities extended by those lenders may be sold
to satisfy our commitments under the terms of those facilities. While we intend
to renegotiate the terms of our credit facilities, to obtain extensions of the
terms of those facilities and to seek alternative additional financing, there
can be no assurance that our efforts will be successful.
26
<PAGE>
Impact of Inflation
We believe that inflation has not had a material impact on our operations.
However, substantial increases in material costs could adversely affect our
operations in future periods.
Year 2000
We believe that our accounting and financial reporting systems are Year
2000 ready or Year 2000 compliant. We have invested in the latest hardware and
software and we have implemented standards that require Year 2000 compliance
from all vendors. We do not anticipate any problems in maintaining this
compliance in the future.
However, we are still continuing to assess Year 2000 preparedness, through
actively coordinating with vendors, creditors and financial organizations to
prepare for possible repercussions of non-compliance. We are also undertaking
exhaustive surveys in each of our geographic locations to further determine
preparedness. We have a full-time certified in-house management information
systems employee who has the authority to hire local computer certification
companies to visit each site and physically re-certify that each machine,
microprocessor and software program in use is Year 2000 compliant. We have
allocated $25,000 to complete our certification program and anticipates
completion by September 30, 1999.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS No. 129") issued by the FASB is
effective for financial statements ending after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously in
effect under Account Principles Board Opinion No. 15, which has been superseded
by SFAS No. 129. We adopted SFAS No. 129 as of January 1, 1998 which had no
effect on our financial position or results of operations.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130") issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. We adopted SFAS No. 130 as of January
1, 1998 which had no effect on our financial position or results of operations.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") issued by
the FASB is effective for financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted. SFAS No. 131 requires that
the public companies report specified information about operating segments,
products, services and geographical areas in which they operate and their major
customers. We adopted SFAS No. 131 on January 1, 1998 which had no effect on our
financial position or results of operations; however, disclosures on some of
these items were expanded as a result of adopting SFAS No. 131.
27
<PAGE>
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities"
("SOP 98-5") issued by the American Institute of Certified Public Accountants is
effective for financial statements beginning after December 15, 1998. SOP 98-5
requires that the costs of start-up activities, including organization costs, be
expensed as incurred. Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customers (excluding ongoing customer acquisition costs, such as policy
acquisition costs and loan origination costs) or beneficiary, initiating a new
process in an existing facility, or commencing some new operation. We do not
expect the adoption of SOP 98-5 to have a material impact, if any, on our
financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") effective for financial
statements with fiscal years beginning after June 15, 1999. SFAS No. 133
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities and requires all derivatives
to be recorded on the balance sheet at fair value. We do not expect the adoption
of SFAS No. 133 to have a material impact, if any, on our results of operations,
financial position or cash flows.
Segment Information
The following tables set forth the segment profit/loss and asset
information.
<TABLE>
For the six months ended June 30, 1998
<S> <C> <C> <C> <C> <C>
---------------- -------------- ------------- ------------------- -------------------
Total
Casino Production Theaters OSE Consolidated
---------------- -------------- ------------- ------------------- -------------------
Revenues from external customers $ 4,498,359 $ - $ 7,470,708 $ - $ 11,969,067
Interest expense $ (33) - 432,713 22,154 454,834
Depreciation and amortization $ 96,048 59 200,230 167,559 463,896
Segment profit (loss) $ 964,534 (134,727) 74,541 (1,446,162) (541,814)
Segment assets $ 2,763,234 740,828 18,288,553 1,641,129 23,433,744
Additions to long-lived assets $ 241,897 33,089 2,155,928 625,212 3,056,126
</TABLE>
28
<PAGE>
<TABLE>
For the six months ended June 30, 1999
<S> <C> <C> <C> <C> <C>
---------------- -------------- ------------- ------------------- -------------------
Total
Casino Production Theaters OSE Consolidated
---------------- -------------- ------------- ------------------- -------------------
Revenues from external customers $ 4,848,049 45,499 8,781,699 - 13,675,247
Interest expense $ 27 1,123 1,323,694 104,305 1,429,149
Depreciation and amortization $ 185,583 43,923 280,397 93,698 603,601
Segment profit (loss) $ 1,246,182 (342,939) (1,092,935) (1,342,305) (1,531,997)
Segment assets $ 3,182,401 775,783 18,336,767 1,861,576 24,156,527
Additions to long-lived assets $ 20,091 - 22,447 - 42,538
</TABLE>
Subsequent Events
Notes Payable to Principal Stockholder
On April 5, 1999, we entered into an agreement with Mr. Stuart, our
chairman, chief executive officer and principal stockholder, pursuant to which
we agreed to accept a bridge loan from Mr. Stuart in an amount of up to $500,000
in return for a one year promissory note bearing 12% interest, a 5% origination
fee and a warrant to purchase one share of common stock for each $1.00 invested,
provided that we did not repay Mr. Stuart within thirty (30) days. As of May 3,
1999, we had accepted $200,000 of the potential $500,000 from Mr. Stuart.
On March 4, 1999, the board of directors authorized a loan in the principal
amount of $100,000 from Mr. Stuart. This loan is evidenced by a one year
promissory note bearing an interest rate of twelve percent (12%) per annum, due
on March 3, 2000. In consideration for this loan, the board of directors
approved the issuance of warrants to purchase 100,000 shares of common stock at
a price of $1.00 per share, the market price on the closing date of the loan.
Additionally, we agreed to pay legal fees incurred by Mr. Stuart in connection
with this transaction, as well as an additional $12,500 for previous legal bills
Mr. Stuart personally incurred for On Stage related matters.
In March 1997, we agreed with our underwriter, Whale Securities Co., L.P.,
that we would neither loan nor advance any sums to or on behalf of Mr. Stuart,
other than those sums advanced to Mr. Stuart from December 31, 1996 through
August 13, 1997, the effective date of our initial public offering, without
Whale's prior written consent. On October 23, 1997 and again on November 17,
1997, we advanced Mr. Stuart an aggregate of $105,483, for which we obtained
Whale's prior written consent. Whale authorized to advance an additional
$150,000 to Mr. Stuart on March 25, 1998 for settlement of litigation related to
his involvement in the Legends in Concert show in Hawaii. As of June 30, 1998,
we had advanced Mr. Stuart an aggregate of $136,194, evidenced by a promissory
note. The funds we advanced accrued interest at the rate of ten percent (10%)
per annum. The advance to Mr. Stuart became due and payable one year from the
date of which it was made. On July 6, 1998, Mr. Stuart paid the advance in full.
In February 1997, Mr. Stuart granted to Senna Venture Capital Holdings,
Inc., an affiliate of DYDX Legends Group L.P. (and one of our lenders), an
option to purchase 142,292 of his personal shares of our common stock at an
exercise price of $5.00 per share, in consideration for (i) DYDX waiving a
technical default under a loan agreement entered into between DYDX and On Stage
and (ii) DYDX's agreement in connection with a waiver to allow $1,780,424 in
debt forgiveness to Mr. Stuart in 1997. That option is exercisable for a period
of two years commencing February 9, 1998.
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We lease seven condominium units in Atlantic City, New Jersey from Mr.
Stuart for use by our impersonators in our Legends show at Bally's Park Place in
Atlantic City, New Jersey. The current lease term expires on June 30, 2000. The
total lease payment to Mr. Stuart from On Stage is currently $7,833 per month,
which amount we believe approximates the fair market value for the use of these
properties. In addition, commencing as of January 1, 1997, we began to pay the
association dues, insurance, taxes, maintenance and utilities on the seven
condominiums directly, instead of through Mr. Stuart. We paid aggregate rent to
Mr. Stuart for these leases of $150,686 and $149,686 for each of the years ended
December 31, 1997 and 1998, respectively.
Note Receivable from Chief Financial Officer
On April 13, 1998, we loaned $63,213 to Kiran Sidhu, our former senior vice
president and chief financial officer, to assist Mr. Sidhu with satisfying
personal income taxes incurred as a result of the issuance of 40,532 shares of
common stock in accordance with the terms of Mr. Sidhu's employment agreement.
The note, which recently matured on April 12, 1999, was secured by Mr. Sidhu's
40,532 shares of common stock. Mr. Sidhu subsequently requested that we extend
the maturity date of the note through to December 31, 1999, due primarily to the
fact that he does not have sufficient funds to repay the Sidhu Note, coupled
with the fact that the common stock which secures the repayment of the note is
not enough to satisfy the outstanding debt, since the common stock has declined
in value from $5.00 per share when issued, to approximately $1.00 per share as
of the maturity date. On April 13, 1999, we agreed to extend the maturity date
on the note to December 31, 1999.
On April 16, 1999, Mr. Sidhu sold Mr. Stuart the 40,532 shares of common
stock. In exchange, Mr. Stuart agreed to assume $60,798 of Mr. Sidhu's note,
with recourse only to the 40,532 shares of common stock purchased from Mr.
Sidhu. Mr. Sidhu executed a new promissory note in the principal amount of
$7,472, which was subsequently forgiven as part of Mr. Sidhu's employment
restructuring.
Chief Financial Officer Employment Restructuring
On April 16, 1999, Mr. Sidhu agreed to restructure his employment agreement
in an attempt to assist with the facilitation of our restructuring plan. Under
the terms of his employment restructuring, Mr. Sidhu agreed to forego any rights
he had to his employment, option, and confidentiality agreements, in return for
the following:
o a new employment agreement which he will be an "at-will" consultant at a flat
rate of $50.00 per hour;
o a new option agreement which affords him the right to purchase 140,000 shares
of common stock at a strike price of $1.50 per share;
o a reimbursement of $25,000 for unpaid insurance, car allowances and expenses;
o $17,887 for all accrued, but unused vacation pay;
o all earned, but unpaid salary under his old employment agreement; and
o forgiveness of a promissory note in the amount of $7,472.
Additionally, we agreed to pay Mr. Sidhu $25,000 within ninety (90) days of this
restructuring, in consideration for Mr. Sidhu's execution of a new
confidentiality and non-competition agreement.
Board Resignations
On July 9, 1999, David Hope resigned from his positions with us as our
president, chief operating officer and a director to pursue other interests.
However, Mr. Hope has agreed to provide consulting services on a part-time basis
to assist with the consummation of our restructuring and strategic growth
strategies.
On July 14, 1999, James Nederlander resigned his post as a member of our
board of directors. The reason given for his resignation was that Mr.
Nederlander's other business interests were increasingly consuming the majority
of his time, which left him unable to attend to his Director responsibilities
for us.
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<PAGE>
First Security Bank Default.
As of March 31, 1999, we had failed to pay off any part of the line of
credit with First Security Bank of Nevada and are currently in default under its
terms. On April 29, 1999, we received a notice of default under this line of
credit from First Security Bank. Our default on this line of credit triggered an
automatic default on our lease lines with First Security Leasing due to a
cross-default provision contained in the line of credit.
On July 12, 1999, First Security Bank filed a complaint against On Stage,
its' subsidiaries and John W. Stuart in the District Court of Nevada in Clark
County, Nevada. The complaint alleges that we breached our contract with First
Security Bank by failing to repay our outstanding indebtedness to First Security
Bank and First Security Leasing. The complaint prays for repayment of the
matured loan and lease lines in the aggregate amount of approximately
$1,955,998, together with interest, attorneys' fees and costs associated
therewith. Additionally, the complaint seeks to enforce the personal guaranty of
Mr. Stuart to repay $1,000,000 of this outstanding balance and prays for writs
of garnishment and attachments of our personal property. We have filed an answer
to this complaint and subsequently entered into a "stand-still" agreement with
First Security Bank. Under this "stand-still" agreement, First Security Bank
agreed not to take any further legal action on the complaint until September 30,
1999 in exchange for: (i) additional security in our real and personal property;
(ii) $200,000 payment on the outstanding indebtedness upon execution of this
agreement; (iii) an additional $50,000 payment on September 1, 1999; and (iv) a
firm re-payment plan we can reasonably make commencing October 1, 1999. While we
are currently working with our acting Chief Operating Officer and Chief
Financial Officer, along with restructuring consultants, to devise a cash
management plan to satisfy First Security Bank, there can be no assurance that
we will be successful in doing so.
Imperial Credit Commercial Mortgage Investment Corporation Default.
We made our January, February and March 1999 payments to Imperial Credit
after the due date for those payments. As a result of those delinquencies, we
have incurred late charges and default interest, which we have not paid. We are
in default under the Imperial Credit facility and we are unable to borrow
additional funds under the facility. As of August 6, 1999, we had not made
payments to Imperial Credit due April 1, 1999, May 1, 1999, June 1, 1999, July
1, 1999, August 1, 1999, September 1, 1999 or October 1, 1999.
On May 28, 1999, we issued a press release on Form 8-K announcing that we
had received notice of default from Imperial Credit. The notice of default was
received May 24, 1999. On August 8, 1999, we were served with a Notice of
Default and Election to Sell Under Deed of Trust by Imperial Credit, which
formally notified us of Imperial Credit's commencement of foreclosure
proceedings of our Wild Bill's California theater. Additionally, Imperial Credit
has informally notified us that it has also commenced foreclosure proceedings on
our King Henry's Feast Theater, Wild Bill's Theater and Shopping Complex, both
in the greater Orlando, Florida area, as well as our Legends in Concert Theater
in Surfside Beach, South Carolina. While we are currently working with Imperial
Credit to identify purchasers for our respective theaters in an attempt to sell
these theaters in an orderly manner to maximize proceeds from such sale, there
can be no assurance that we will be successful in selling any of these theaters
before Imperial Credit completes its' foreclosure process and takes over the
respective theaters.
Nasdaq SmallCap Market Delisting Inquiry.
On April 20, 1999, On Stage received a letter of inquiry from the Nasdaq
Stock Market, Inc. requesting that we submit a detailed letter describing our
plan to address the specific items that led to the issuance of "going concern"
opinion from our independent auditor, BDO Seidman, LLP. The letter further
requested that we discuss why we believe we will be able to sustain compliance
with the continued listing standards of the Nasdaq SmallCap Market.
On June 4, 1999, we responded to the April 30, 1999, letter from the Nasdaq
Stock Market, Inc. providing information regarding the auditors "going concern"
opinion, our growth strategy and our ability to comply with the Continued
Listing Standards of The Nasdaq SmallCap Market.
On June 8, 1999, we received a response letter from Nasdaq, pursuant to
which we were afforded ninety (90) days in which to raise our minimum bid price
to $1.00 or more for a minimum of ten (10) consecutive trading days. In the
event we are unsuccessful in our attempt to accomplish this requirement, our
securities will be delisted at the opening of business on September 9, 1999. On
August 23, 1999, we hired Newport Capital Consultants, Inc. to assist us with
promoting our stock to achieve the $1.00 minimum bid price, by providing us with
broker-dealer and investor relations services.
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<PAGE>
On August 18, 1999, we received a letter from Nasdaq informing us that we
have failed to meet the net tangible assets/market capitalization/net income
minimum listing requirement for continued listing on their exchange. As a
result, Nasdaq is reviewing our continued listing on their exchange and they
have requested that we submit a specific plan for achieving compliance with all
of their minimum listing requirements by September 1, 1999.
On September 1, 1999, we responded to Nasdaq's August 18, 1999 request for
a specific plan to regain compliance by informing them that we would be
requesting an oral hearing to appeal any determination to delist our securities
as a result of our failure to meet the minimum bid price and net tangible
asset/market capitalization/net income requirements.
On September 8, 1999, we formally requested an oral hearing to appeal
Nasdaq's determination to delist our securities from their exchange as a
consequence of our failure to comply with the minimum bid price and net tangible
asset/market capitalization/net income requirements.
On September 10, 1999, Nasdaq informed us that our request for an appeal
for their determination to delist our securities from their exchange as a result
of our failure to comply with their minimum listings standards was accepted and
that the oral hearing is scheduled for October 14, 1999.
The failure to meet the continued minimum listing standards in the future,
and the failure to adequately assure Nasdaq that we will be able to meet the
listing criteria in the future, may result in the delisting of our securities
from the Nasdaq SmallCap Market. If this occurs, the trading, if any, in our
securities would be conducted in the non-Nasdaq over-the-counter market. As a
result of such a delisting, an investor could find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of, our securities.
Common Stock Purchase Agreement with Whale Securities Co., L.P.
On or about January 28, 1999, we entered into a Stock Purchase Agreement
with our underwriter, Whale Securities Co., L.P., pursuant to which we agreed to
sell 150,000 shares of our common stock to certain of Whale's customers for an
aggregate purchase price of $100,000.
Hiring of New Chief Operating Officer and Chief Financial Officer.
We recently hired David Connelly to work as our acting Chief Operating
Officer and acting Chief Financial Officer. He is set to commence his employment
on September 1, 1999.
32
<PAGE>
BUSINESS
General
We produce and market live theatrical productions and operate live theaters
and dinner theaters worldwide. We market our productions directly to audiences
at theaters in resort and urban tourist locations. During 1998, we performed
shows in the following live theaters and dinner theaters worldwide.
- ---------------------- ------------------------ ---------------- --------------
Owned/
Tourist Market Production Location Leased/
Contracted
- --------------------- ------------------------ --------------- ---------------
Atlatic City,
New Jersey Legends in Concert Bally's Park Contracted
Place
Various Trump Taj Mahal Contracted
Various Atlantic City
Hilton Contracted
- --------------------- ------------------------- ---------------- --------------
Branson, Missouri Legends in Concert Legends Family
Theater Leased
- --------------------- ------------------------ ---------------- --------------
Berlin, Germany Legends in Concert Estrel Residence
& Congress Center Contracted
- --------------------- ------------------------ ----------------- --------------
Buena Park (Anaheim), Wild Bill's Dinner Wild Bill's
California Extravanganza Dinner Theater Leased
- --------------------- ------------------------ ----------------- --------------
Las Vegas, Nevada Legends in Concert Imperial Palace Contracted
- --------------------- ------------------------ ----------------- --------------
Laughlin, Nevada Spice 'N Ice River Palms
Casino Contracted
- --------------------- ------------------------ ----------------- --------------
Myrtle Beach,
South Carolina Legends in Concert Legends Theater Owned
Eddie Miles Show Eddie Miles Leased
Theater
- --------------------- ------------------------ ----------------- --------------
Orlando, Florida King Henry's Feast King Henry's
Dinner Theater Owned
Wild Bill's Dinner Wild Bill's
Extravaganza Dinner Theater Owned
Fort Liberty
Retail Complex
Blazing Pianos Blazing Pianos Leased
Bar
- --------------------- ------------------------ ------------------- -------------
Toronto, Orlando Legends in Concert Legends Theater
at Sheraton Leased
Centre Hotel
- --------------------- ------------------------ ------------------- -------------
Valley Forge,
Pennsylvania Various Lily Langtry
Dinner Theater Contracted
- --------------------- ------------------------ ------------------ --------------
We also market our productions to commercial clients, which include
casinos, corporations, fairs and expositions, theme and amusement parks, and
cruise lines. We have performed in locations such as the Illinois State Fair,
MGM Grand Theme Park and Dollywood Theme Park; in locations as far away as
Australia, Russia, China, Africa, Japan and the Philippines; and for major
corporate clients such as McDonald's, Hewlett Packard, IBM, Pitney Bowes, Levi
Strauss and Texaco.
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<PAGE>
For the years ended December 31, 1998 and 1997, approximately 40% and 25%,
respectively, of our net revenue was generated from theaters and dinner theaters
that we operate in resort and urban tourist markets; approximately 41% and 61%,
respectively, of our net revenue was generated from live productions performed
in gaming markets, predominantly Las Vegas and Atlantic City; and approximately
16% and 9%, respectively, of our net revenue was generated from sales to
commercial clients other than casinos. The remaining 3% and 5%, respectively, of
our net revenue was generated from merchandise and souvenir photography sales.
These percentages reflect the early results of our strategic objective to
become the leading owner and operator of affordable live theatrical productions,
dinner theaters and other location-based entertainment in North America. Our
primary strategy is to build location-based entertainment clusters consisting of
live theatrical productions and other forms of middle market entertainment
including, for example, musical reviews and magic shows, in major tourist
markets. Our plan is to achieve this strategy by:
o establishing a significant market presence through the acquisition of multiple
entertainment venues with strong, predictable cash flows;
o pooling our contacts with ticket wholesalers, tour operators and individual
ticket sellers; and
o rolling out a variety of successful entertainment concepts in the localities
in which we established our presence.
Management believes this "clustering" strategy will reduce our financial
exposure and will enhance our revenue by:
o increasing our visibility and market acceptance in a greater number of
entertainment venues;
o enabling us to realize cost savings through the consolidation of sales and
marketing and the elimination of duplicative administrative overhead; and
o enabling us to market productions traditionally performed in a particular
venue in a greater number of venues or an array of markets.
We believe that strong fundamentals for the consolidation of multiple
entertainment venues and the establishment of location-based entertainment
clusters exist, including:
o a large number of North American resort and urban tourist-driven locations;
o fragmented ownership of location-based entertainment businesses;
o ownership by individuals who lack the ability to capitalize on economies of
scale in sales and marketing, operations, systems and capital formation;
o ownership by individuals who lack a clear exit strategy;
o acquisitions characterized by predictable cash flows and the ability to
leverage real and personal property;
o numerous cost reduction and revenue enhancement opportunities;
o limited competition for acquisitions; and
o low acquisition multiples (typically 4.0 - 5.0x EBITDA).
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<PAGE>
Given our current financial condition (as discussed in the heading "Risk
Factors") our ability to pursue our strategic objectives will be severally
limited.
On Stage was incorporated on October 30, 1985 under the laws of the state
of Nevada as Legends in Concert, Inc. Subsequently, on August 7, 1996, we
changed our name to On Stage Entertainment, Inc. Our principal executive offices
are located at 4625 West Nevso Drive, Las Vegas, Nevada 89103, and our telephone
number is (702) 253-1333.
Developments During 1998
Gedco USA, Inc. Acquisition - March 1998
On March 13, 1998, we purchased assets of Gedco USA Inc., a Florida
corporation, for $14 million. We utilized $11.5 million of our mortgage
financing facility with Imperial Commercial Credit Mortgage Investment
Corporation, and 595,238 shares of our common stock valued at $4.20 per share,
or $2.5 million worth of our common stock, to fund this transaction. Included in
the purchase were substantially all of the income producing assets and
associated real property of Orlando Entertains and LA Entertains, consisting of
King Henry's Feast and Blazing Pianos located in Orlando, Florida, and the Fort
Liberty retail shopping complex, which includes the Wild Bill's Dinner Theater,
located in Kissimmee, Florida, and Wild Bill's Dinner Theater located in Buena
Park, California. For the year ended December 31, 1997, audited revenues of the
assets purchased were $13.9 million and earnings before interest, taxes,
depreciation and amortization were $2.7 million.
Kodak Relationship-June 1998
On June 3, 1998, On Stage and Kodak Themed Entertainment, a division of the
Eastman Kodak Company that is interested in developing a branded imaging
presence in key entertainment environments, executed a letter of intent. This
letter of intent contemplates the joint development of retail outlets known as
Kodak On Stage Fantasy Stores. The Fantasy Stores will incorporate Kodak's
digital photographic technology with live impersonators from Legends in Concert
to create a unique and entertaining retail experience, blending the strengths of
Kodak's brand and products with the "star power" provided by our impersonators.
The retail store will include Legends merchandise, licensed themed clothing,
souvenirs of legendary superstars, Kodak traditional photographic products and
Kodak proprietary digital photographic products featuring licensed character
images from The Walt Disney Company, Warner Bros. Studios and Universal Studios.
We are currently evaluating initial launch sites in New York, Las Vegas and Los
Angeles.
Kodak and On Stage have also agreed to share revenue generated by the
operation of digital photography systems to be provided by Kodak in some of our
theaters under a digital imaging systems agreement we executed on June 3, 1998.
The new systems are currently in place in our entertainment venues in Myrtle
Beach, South Carolina, Branson, Missouri and Buena Park, California.
Calvin Gilmore Productions, Inc. Acquisition-June 1998
On June 30, 1998, we purchased certain assets of Calvin Gilmore
Productions, Inc., a subsidiary of Fox Family Worldwide, Inc., Myrtle Beach's
oldest and largest live theater operator, for approximately $2.0 million,
consisting of $1.0 million in cash and 206,612 shares of common stock at a price
of $4.35 per share. We used $1.1 million of our mortgage financing facility with
Imperial Credit to fund the cash portion of the purchase price. The assets
acquired in the transaction include fee simple title to the Legends Theater and
a leasehold interest in the Eddie Miles Theater.
Upon consummation of the transaction, Fox Family also agreed to order
television programming and production services from us, and to give us a 30-day
right of negotiation to acquire specified live theatrical/stage rights in
projects developed and owned by Fox Family over the next five years. Also, Fox
Family increased its stock ownership to a 5% equity stake in our company, and
Mel Woods, President and Chief Operating Officer of Fox Family, was elected to
our board of directors.
35
<PAGE>
Substantial Indebtedness Incurred
During 1998, we received mortgage financing from Imperial Credit and
extended our existing credit facilities with First Security Bank of Nevada and
First Security Leasing Company in order to fund our existing operations and
finance our growth strategy with future acquisitions. We have been unable to
service our substantial indebtedness and are, consequently, in default under
these facilities. See "Existing Defaults under Credit Facilities" below.
Industry Background
We have focused our clustering efforts in North American resort and tourist
markets. In 1996, international and domestic travelers spent over $473.0 billion
on travel and tourism within the U.S. The table below outlines the spending of
domestic and international travelers within the U.S. for the past 10 years.
[Bar Graph Representing the Spending of Domestic and International Travelers for
Past 10 years omitted]
According to the Travel Industry Association's National Travel Survey, of
the 715 million trips taken in 1997, over 61% were pleasure trips. In 1997, the
most popular 10 states among U.S. travelers were California, Florida, New York,
Texas, Illinois, Nevada, Hawaii, New Jersey, Pennsylvania and Georgia. In 1998,
we ran productions in seven of these 10 states and has identified potential
acquisitions in the other three. Below is a chart illustrating the top ten
states by traveler expenditures.
[Bar Graph Representing the top ten states by travelers omitted]
According to the Travel Industry Association of Americans, theme park and
entertainment attractions are one of the top six types of family vacation
destinations. While the most popular destinations include the top gaming sites,
Las Vegas, Nevada and Atlantic City, New Jersey, and the top theme park sites,
Orlando, Florida and Los Angeles, California, several emerging resort locations
such as Myrtle Beach, South Carolina and Branson, Missouri were also included.
Set forth below, is general information on the key markets in which we
operated in 1998.
Anaheim /Buena Park, California
Anaheim/Buena Park, California, home of Disneyland, hosted 37.5 million
visitors in 1997, according to the Anaheim/Orange County Visitors & Convention
Bureau. Visitors spent approximately $5.6 billion, of which $1.3 billion was
spent on entertainment. In Buena Park alone, over $81 million was spent on
entertainment in 1997. The Anaheim Convention Center, in conjunction with
Disneyland, has announced a plan to spend over $2 billion over the next five
years to revitalize the convention center and surrounding areas, and expand
Disneyland. Expansion plans for Disneyland include the construction of:
o a 750-room Craftsman-style hotel;
o a second theme park to be named "Disney's Californian Adventure;" and
o a 200,000 square foot entertainment, dining and retail complex joining the two
theme parks.
We believe this new investment will increase tourism to this market with
potentially positive results for other entertainment suppliers. In March 1998,
we acquired Wild Bill's Dinner Extravaganza which performs at the Wild Bill's
Dinner Theater in Buena Park, California. Buena Park is in close proximity to
Anaheim, California.
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<PAGE>
Atlantic City, New Jersey
In 1997, Atlantic City received approximately 37 million visitors according
to the Atlantic City Convention and Visitors Bureau. we currently produce
Legends at Bally's Park Place in Atlantic City, and various productions at the
Trump Taj Mahal, and we have produced numerous other shows in this market
including the Atlantic City Swing at the Atlantic City Hilton, Magic!, Magic!,
Magic! at the Showboat Hotel and Casino, Cabaret on Ice at Trump's Castle, and
Bon Voyage and The Atlantic City Experience at Bally's Park Place. Furthermore,
we are aware of at least two new casino hotel projects under development in
Atlantic City and we believe that these will also contain showrooms for live
entertainment.
Branson, Missouri
Branson is less than a one-day drive for half of the U.S. population and is
a popular vacation destination. The Branson Chamber of Commerce reported that in
1997, Branson attracted six million visitors. Branson is home to 40
entertainment venues with over 70 live productions. The live entertainment
industry in Branson is atypical of other theater districts, with shows beginning
mid-morning and continuing throughout the day and into the evening. We have
presented Legends in Branson since 1995 for limited runs, with successful
results to date. Legends is currently being performed in Branson at the Legends
Family Theater.
Myrtle Beach, South Carolina
Myrtle Beach, which has 99 golf courses and 11 live theatrical venues, was,
according to BYWAYS magazine, ranked the second most highly preferred motor
coach destination in the United States in 1997. The Myrtle Beach Chamber of
Commerce reported that 13.4 million people visited Myrtle Beach in 1997 and
spent approximately $2.6 billion. Visitors, according to the Myrtle Beach
Chamber of Commerce, have an average stay of 5.7 days. Our resident Legends
production at the Legends Theater at Surfside Beach (located just South of
Myrtle Beach in beautiful Surfside Beach) opened in March 1995, and is known as
one of the top shows in town.
Las Vegas, Nevada
In 1997, Las Vegas had over 30 million visitors, according to Las Vegas
Convention and Visitors Authority, an increase of almost 30% since 1993, and
spent $25 billion. Las Vegas has 80 hotels and casinos and 35 different live
productions. Visitors to Las Vegas, according to Las Vegas Convention and
Visitors Authority, spent an average of $33.24 a day on shows during an average
4.5 day stay per visitor. According to the Las Vegas Visitor Profile Study, of
these 30 million visitors, 48% attended shows during their stay, up
significantly from 40% in 1994.
Of those people that attended shows, almost 78% attended a regularly
scheduled production show. Our Legends production has been playing at the
Imperial Palace in Las Vegas since 1983 and we have produced numerous limited
engagements and other shows in Las Vegas.
Laughlin, Nevada
Laughlin, Nevada is another emerging tourist market in close proximity to
Las Vegas. According to the Laughlin Visitor's Bureau, five million people
visited Laughlin in 1997 and spent an average of $187 per day. In 1997, visitors
to Laughlin spent almost $20 per day on shows and stayed an average of 3.5 days.
In 1998, we began performances of Spice 'n Ice, an ice skating extravaganza at
the River Palms Hotel & Casino.
Orlando, Florida
Orlando is one the most popular destination cities in the United States and
was voted as the number one theme park destination in 1996 by the National
Tourism Association. According to Orlando's Visitors Bureau, approximately 36.5
million tourists visited Orlando in 1997 and spent $15.9 billion. In 1997, the
Orlando Visitor's Bureau reported that visitors spent $3.3 billion on
entertainment and stayed for an average of 3.7 days. Orlando's hotel industry is
meeting the demands of visitors, with over 85,000 hotel rooms available in 1996,
an 8% growth over the prior four years. In March 1998, we acquired King Henry's
Feast, Wild Bill's Dinner Extravaganza and Blazing Pianos, all located within
the greater Orlando area.
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<PAGE>
Toronto, Ontario
Toronto is the tenth largest metropolitan area in North America and the
third largest English-speaking theater market in the world after London and New
York according to Tourism Toronto, the official tourism sales and marketing
agency for the Toronto region. Approximately 20.2 million tourists visited
Toronto in 1997 and spent approximately $3.3 billion. Of the $3.3 billion spent,
$193 million was spent on entertainment. Tourism Toronto estimates average
spending per person to be approximately $93 per day. Toronto is home to 83 live
productions in 39 live entertainment venues including our Legends production
featured at the Sheraton Centre Hotel which ran from May of 1998 through April
of 1999.
Other Potential Urban and Resort Markets
We believe that there are numerous other emerging urban and resort tourist
markets, both in the United States and Canada, where the demand exists for
quality, affordable live entertainment. We believe that the following urban and
resort tourist locations may be suitable for the acquisition, production and
marketing of location-based entertainment:
Chicago Niagara Falls
Corpus Christi Orlando
Miami Phoenix
Montreal Pigeon Forge
New Orleans San Diego
New York City San Francisco
South Padre Island Vancouver
Other Commercial Clients
We have also produced limited-run Legends shows in the last five years for
other types of commercial clients, including:
o theme parks--Six Flags-MGM Grand Theme Park, Lotte World in Korea;
o cruiseships--Royal Caribbean Cruise Lines, Singapore Cruise Lines; and
o major fairs--Dade County Youth Fair, Illinois State Fair.
In addition, in 1997 and 1998, we produced approximately 185 and 172 events,
respectively, for corporate clients, such as McDonald's, Bell South, Home Depot,
IBM, Norwest Bank, and Anheuser Busch.
Show Offerings
Since our inception, we have developed, produced or acquired many different
productions. These productions include Legends, other tribute shows, a variety
of musical reviews, magic shows, ice skating productions and specialty shows.
The principal productions we currently produce are as follows:
Legends in Concert
Our flagship Legends in Concert production is a live theatrical tribute
show featuring impersonators who recreate past and present music and motion
picture superstars. Legends is the longest running independently produced
production in Las Vegas and Atlantic City. Based on our access to approximately
75 different Legends tribute acts, we can tailor each tribute show to suit the
unique demographics of any audience and the size of any venue, and we have been
able to attract significant repeat business by varying regularly the composition
of the acts in our shows. In 1998, full-time resident Legends productions were
performed in Atlantic City, New Jersey; Berlin, Germany; Branson, Missouri; Las
Vegas, Nevada; Myrtle Beach, South Carolina; and Toronto, Canada.
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Wild Bill's Dinner Extravaganza
As a result of the Gedco asset acquisition, we acquired Wild Bill's Dinner
Extravaganza, a two hour dinner show that features the best of the Wild West.
The show includes Indian tribal dances, gun fighting, and showgirls. The show
runs every day throughout the year at the Wild Bill's Dinner Theater at our Fort
Liberty Complex in Kissimmee, Florida and the Wild Bill's Dinner Theater in
Buena Park, California.
King Henry's Feast
As a result of the Gedco asset acquisition, we acquired King Henry's Feast,
a two hour dinner show that takes the patrons back to the time of King Henry
VIII. The show includes a sword swallower, a jester, a trapeze act and a sword
fight. The show runs every day throughout the year at our King Henry's Feast
Castle located in Orlando, Florida.
Blazing Pianos
As a result of the Gedco asset acquisition, we also acquired Blazing
Pianos, an interactive piano bar featuring three talented comedic piano players
and vocalists, who simultaneously play song requests from patrons on separate
pianos. The shows runs nightly throughout the year at the Blazing Pianos Bar in
Orlando, Florida.
Spice 'N Ice
Spice 'N Ice combines performances by world class skaters with adagio and
comedic skits by skating clowns, dancers and ensemble skating. Currently, Spice
'N Ice runs at the River Palms Casino in Laughlin, Nevada.
Production Economics
Most financial structures for theatrical productions in theaters in resort
and urban markets and in larger casinos are based on the "four-wall" method of
expense and revenue allocation between the producer and the client, while those
produced for clients, such as smaller casinos, corporations, fairs, cruise lines
and theme parks, are typically "contracted productions" are generally produced
for a fixed or "guaranteed" fee.
The four "walls" of any live theatrical production can be illustrated as
follows:
[Graphic presenting the "four walls" of live theaterical production described in
following paragraph]
We generally operate our resident productions in resort and urban tourist
markets and in Las Vegas casinos under either a "four-wall" arrangement or a
"two-wall" arrangement. Under the "four-wall" arrangement, we assume the
responsibility for the cost of the theater, whether leased or purchased, and all
other expenses associated with the presentation of the production, including:
o the artistic aspects of the production of a show;
o the technical requirements associated with producing a show;
o the promotion of a show; and
o ticket sales, concession sales and maintenance.
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In return for assuming full responsibility for the cost of presenting the
production under a "four wall" arrangement, we are entitled to 100% of the
revenues, profits and/or losses generated by a show under that arrangement.
Under the "two-wall" arrangement, the client owns or manages the theater.
On Stage and the client are responsible for two of the costing responsibilities,
or "walls," described above. On Stage and the client share revenue generated by
a show under this arrangement; each retains an agreed percentage of the show's
revenues.
Shows produced under either of these two arrangements are referred to as
"at-risk" shows, because our revenues are dependent upon customer attendance
levels. Our resident Legends shows at Myrtle Beach, South Carolina and Toronto,
Canada are examples of "four-wall" arrangements, and our Legends show at the
Imperial Palace in Las Vegas, Nevada is an example of a "two-wall" arrangement.
Although most contracts of this type are by their nature short-term, clients
typically renew their contracts or host a variety of our productions on a
regular basis.
We also operate "low-risk" productions where the client is responsible for
all non-production related expenses and retains all revenue generated from
ticket sales. In these arrangements, we are responsible for all production
related expenses--performers, orchestra, dancers and company manager--and we
typically receive a guaranteed weekly fee, regardless of attendance levels. This
is a typical structure for shows sold to commercial clients, such as
corporations, fairs and theme parks, and to casinos outside the Las Vegas,
Nevada market. Our Legends show at Bally's Park Place in Atlantic City, New
Jersey is an example of a "low-risk" arrangement. Although many of these
contracts are short term, clients typically renew their contracts on a regular
basis.
Corporate Structure
On Stage Casino Entertainment, Inc.
We have been a leading provider of live entertainment to casinos for over
15 years.
In 1998, On Stage Casino Entertainment had long running productions in the
following locations:
- ------------------- ----------------------- ----------------------------------
Venue City Type of Structure
- ------------------- ----------------------- ----------------------------------
Imperial Palace Las Vegas "Two-Wall"
Bally's Park Place Atlantic City Guaranteed Fee
River Palms Casino Laughlin Guaranteed Fee
Trump's Taj Mahal Atlantic City Guaranteed Fee
Atlantic City Hilton Atlantic City Guaranteed Fee
- ------------------- ----------------------- ----------------------------------
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On Stage Theaters, Inc.
Upon completion of the Gedco asset acquisition, we formed On Stage
Theaters, Inc., a wholly-owned subsidiary created to manage our theaters from
our offices in Orlando, Florida. During 1998, we operated seven live theater
productions, managed the sublease of the Eddie Miles Theater and produced one
show under contract in the following locations:
- ----------------- -------------- ----------- ------------- ------------
Venue City # of Seats Own/lease/ Date of
contracted expiration
- ----------------- -------------- ----------- ------------- ------------
Contracted
Productions:
Lily Langtry
Dinner Theater Valley Forge, PA 500 Contracted 1/00
"Four - Wall"
Productions:
Blazing Pianos Bar Orlando, FL 400 Lease 10/00
Eddie Miles Theater N.Myrtle Beach, SC 946 Lease 12/04
King Henry's Dinner
Theater Orlando, FL 620 Own N/A
Legends Theater Myrtle Beach, SC 800 Own N/A
Legends at Sheraton
Centre Hotel Toronto, ON 647 Lease 2/03
Wild Bill's Dinner
Theater Buena Park, CA 820 Lease 6/10
Wild Bill's Dinner
Theater Kissimmee, FL 628 Own N/A
Legends Family
Theater Branson, MO 984 Lease 12/98
- ----------------- --------------- ----------- ------------ -------------
On Stage Events, Inc.
On Stage Events creates numerous types of special entertainment events for
corporate clients such as casinos, fairs, theme parks, cruise lines and
corporations. These events utilize our inventory of props, decorations, sound,
lighting and costumes. In addition to creative custom-designed events, this
business segment has in-stock, unique interactive shows, as well as stage shows,
which have played for long runs at theaters and casinos and are now available
for private events. On Stage Events has typically produced either interactive
dinner shows or theme parties, such as Las Vegas Spectacular, a theme party in
which a casino is created and participants are allowed to gamble as if they were
in a Las Vegas casino. In 1998, the division had sales offices in Atlantic City,
New Jersey, Atlanta, Georgia, Palm Springs, California and Las Vegas, Nevada.
Examples of our corporate clients are:
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Illinois State Fair Dollywood Theme Park Hyatt Hotels Worldwide
MGM Grand Theme Park McDonald's Six Flags Over Georgia
Hewlett Packard IBM National Football League
Levi Strauss Texaco Xerox
On Stage Merchandise, Inc.
On Stage Merchandise sells merchandise at all of its venues in tourist
locations and, if permitted, in client venues. Merchandise includes logo
clothing, key chains, magnets, pins, canvas tote bags and coffee mugs, plus
specialty licensed merchandise featuring our more popular Legends acts such as
Elvis, the Blues Brothers and Marilyn Monroe. In addition, this wholly-owned
subsidiary sells autographed photographs of impersonators or other headline acts
posing with audience members, for which it pays nominal royalties to featured
performers. We believe that our relationship with Kodak Themed Entertainment
will further augment revenues from merchandising. See "Developments During
1998."
On Stage Productions, Inc.
On Stage Productions is located in Las Vegas, Nevada. This division is
capable of simultaneously producing multiple shows of varying complexity. Among
its responsibilities are choreography, costume, talent, lighting and sound. We
intend to produce multiple shows in each locality in which we have established
ourselves through this single, centralized production facility.
CORPORATE OPERATIONS
Sales and Marketing
Since many people plan to attend a specific live performance prior to
leaving for vacation, it is imperative that we market to potential customers
before they arrive at their destination. The development and maintenance of
amicable, professional relationships with individual sales representatives and
individuals working in group sales offices is, therefore, essential to our
clustering strategy. At some point in the future, we may invest in or acquire
receptive operators.
We generally target mass market audiences with average prices for our
productions ranging from $20.00 to $40.00 per adult ticket. Show pricing is
determined by competition in the local marketplace and is typically neither the
lowest nor the highest in a particular market. Once ticket pricing has been
determined, the composition of the show--number of headline acts, singers,
dancers, orchestra, technicians, etc.--and facility and equipment requirements
are adjusted so that each show will generate profits based upon projected
attendance. We distribute, from time to time, show coupons offering discounts of
up to 20% on individual ticket purchases, and offer volume discounts of up to
60% to ticket and tour wholesalers buying large blocks of tickets.
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Advertising and Promotion
We provide advertising and publicity support and seeks major ongoing media
coverage for all of our shows through our network of media contacts. Exposure on
television and radio, and in national periodicals, major metropolitan
newspapers, and local tourist entertainment guides has served to promote our
shows both regionally and nationally. Over the last three years, publicity
included appearances at the 1996 Miss Universe Pageant, Jay Leno's Tonight Show
from Las Vegas, Nevada, VH1's Route 96, CNN's Burden of Proof and on
Wheel-of-Fortune. In February 1999, our Legends Show in Branson, Missouri was
featured on a winter season special on The Nashville Network.
Advertising designed to target the individual tourist includes newspaper
and magazine print ads, television and radio commercials, airport videos and
signage, billboard and outdoor advertising, transit advertising, and brochures
placed in areas with a high concentration of tourists (such as visitor and
tourist welcome centers). In some resort markets, such as Myrtle Beach, South
Carolina and Branson, Missouri, advertising commences up to one year in advance
of a show's opening, and includes direct mail campaigns, attendance at consumer
and travel trade shows, and placement of print ads in travel and trade
publications. Within casinos and hotels, table tent cards, coupons, flyers and
brochures are placed in each guest-room, restaurant and lounge, whenever
possible, and promotional show videos are broadcast on in-house television
systems. As we begin to control other pieces of the distribution chain, and
forms entertainment clusters, traditional advertising and promotion costs can be
decreased due to economies of scale.
Competition
The leisure and entertainment market, which includes the market for live
theatrical productions, is highly competitive. Many of our markets contain a
large number of competing live theatrical productions. In resort and urban
tourist locations, we compete for ticket sales with other live productions and
headline stars, many of whom have better name recognition and greater financial
and other resources.
The live theatrical entertainment industry is highly fragmented and
contains many small, independent production companies and several major
production companies. We compete with these production companies for the most
desirable commercial and tourist venues, and for talent and production
personnel. Major production companies in our markets include Feld Entertainment
Productions, Blair Farrington Productions and Dick Foster Productions in Las
Vegas, and Greg Thompson Productions in Seattle. In addition to competition from
major production companies, which produce other forms of live theatrical shows,
we also compete directly against a large number of smaller independent producers
who sometimes produce tribute or impersonator shows. However, we believe that
only one of these competitors, Spring Time Productions, produces such shows on a
continuous basis in more than one location, and therefore presently offers any
material competition. Spring Time Productions currently produces its American
superstars impersonator show at the Stratosphere Hotel and Casino in Las Vegas,
Nevada and at the Grand Casino in Gulfport, Mississippi.
In Orlando, Florida and Buena Park, California, where we operate dinner
theaters, other major competing dinner theater shows include Medieval Times,
Arabian Nights, and Wizards. The dinner theater market is highly competitive and
we compete with other forms of live entertainment in addition to the dinner
theaters, primarily theme parks.
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Talent
We have featured approximately 175 impersonators and numerous variety acts
(magicians, aerial acts, jugglers, clowns, sword fighters, jesters and
comedians), singers, dancers, musicians and musical directors in our
productions, and we regularly receive promotional materials from individuals who
are eager for work. An average of 30 inquiries are received per month, and for
every working performer, we have access to approximately three potential
performers. We periodically hold auditions for new impersonators, singers, and
dancers in Las Vegas, Nevada, Atlantic City, New Jersey, Myrtle Beach, South
Carolina and Los Angeles, California, and we often view acts in outside show
environments and clubs.
All performers receive creative and professional support from our various
in-house personnel. We employ choreographers to work with new and existing
entertainers to develop their skills and improve their confidence on stage.
Utilizing our in-house music library, musical arrangements are developed for new
and existing performers and digital audio tapes are developed for principal
acts. Our in-house wardrobe personnel, together with several well established
costume designers, create new performers' wardrobes and update the wardrobes of
existing talent. We contract with an independent photographer to provide
promotional photographs of the headline acts and employ a writer to prepare
professional biographies and press releases.
We believe we are the premier producer of impersonator shows worldwide
and that we have the ability to offer a variety of consistent work to our acts
by rotating them among our different shows and events. Our musicians, singers,
dancers and production personnel are generally employees of considered
employees, while headline acts, including the impersonators utilized in our
tribute shows, are treated as independent contractors in accordance with
industry practice.
Intellectual Property
We have filed the following intellectual property marks:
<TABLE>
<S> <C> <C> <C>
Name: Class(es) Status
Country
Legends in Concert 41 Registered United States
Legends in Concert 41 Registered Japan
Legends in Concert 41 Registered Canada
Legends in Concert 41 Registered Great Britain
Legends in Concert 41 Registered Mexico
Legends in Concert 6, 16, 18, 21, 25, 26 Registered United States
Legends in Concert w/ design 6, 16, 18, 21, 25, 26 Registered United States
Legends in Concert 41 Pending Europe
Legends in Concert 41 Pending Australia
Legends of Country 41 Pending United States
Legends Live 107 Registered United States
Legends of the Rat Pack 41 Published United States
Atlantic City Experience 41 Registered United States
Camouflage Aux Folles 41 Published United States
Wild Bill's Extravaganza 41 Pending United States
</TABLE>
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We anticipate filing applications for protection of our Legends service
mark in France, South America, China and several other foreign countries, as
appropriate. We believe we either own or have appropriately licensed all of the
intellectual property rights required to perform our shows in the manner in
which they are currently produced, including, the right to publicly present and
otherwise perform all non-dramatic copyrighted musical compositions pursuant to
musical licenses with Broadcast Music, Inc. (BMI) and American Society of
Composers, Authors and Publishers (ASCAP).
We typically require our independent contractors, employees, consultants
and advisors to execute appropriate confidentiality and non-competition
agreements in connection with their employment, consulting or advisory
relationship with us.
Government Regulation
Providing entertainment to the casino gaming industry may subject On Stage
to various licensing regulations. We are regulated and required to obtain a
casino industry license from the New Jersey Casino Control Commission pursuant
to the New Jersey Casino Control Act. Our current casino service industry
license from the New Jersey Casino Control Commission was issued on January 17,
1997 and expires on September 30, 1999. In connection with the license
application, the New Jersey Division of Gaming Enforcement conducted an
investigation of our company, officers, directors and stockholders to determine
our suitability for licensure. We are currently in the process of renewing this
license for an additional four (4) years. While we have no reason to believe
that this New Jersey Casino Control Gaming License will not renew our license
past September 30, 1999, the failure in obtaining such renewal would prevent us
from performing our shows for any New Jersey casino in the future. Management
believes that we are not required to obtain a license to provide our services to
casinos in Nevada or in any other jurisdictions in which we operate, other than
New Jersey. The Nevada Gaming Control Board and similar authorities in other
jurisdictions, however, have broad authority to order providers of services to
casinos to file applications, be investigated, have their suitability
determined, obtain licenses and cease providing their services, if they find the
service providers to be unfit. Additionally, many of the casinos mandate that a
production company be properly licensed in accordance with the local gaming laws
before it will contract for their services.
In addition, we lease or own certain of the theaters for our new brand-name
resident productions, thereby absorbing all costs and risks associated with
producing the show in order to retain 100% of the show's profits. Producing
shows under this "four-wall" arrangement may require us to obtain and maintain
certain local licenses and permits as we were required to obtain for the opening
of our Myrtle Beach show, a "four-wall" production. These licenses and permits
could include, amusement licenses, music licenses (i.e., BMI or ASCAP), business
licenses, liquor licenses, retail sales tax licenses, food and beverage licenses
and a health inspection rating (if dairy products and/or hot food, other than
popcorn, is to be sold). Difficulties or failure in obtaining required licenses
or regulatory approvals could delay or prevent the opening of a new show or,
alter, delay or hinder our expansion plans. In addition, the suspension of, or
inability to renew, a license needed to operate any of our currently running
productions would adversely affect our operations.
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Employees
As of August 12, 1999 we employed approximately (a) 200 full-time
employees, including 71 entertainers, 27 theater operations personnel, 17
production personnel, 16 food & beverage personnel, 21 administrative personnel,
20 marketing personnel, 26 box office/concession personnel and three executive
officers; and (b) 376 part-time employees. None of our current employees are
covered by a collective bargaining agreement. We believe that our relationship
with our employees is good.
Existing Defaults Under Credit Facilities.
First Security Bank Default.
As of March 31, 1999, we had failed to pay off any part of the line of
credit with First Security Bank of Nevada and are currently in default under its
terms. On April 29, 1999, we received a notice of default under this line of
credit from First Security Bank. Our default on this line of credit triggered an
automatic default on our lease lines with First Security Leasing due to a
cross-default provision contained in the line of credit.
On July 12, 1999, First Security Bank filed a complaint against On Stage,
its' subsidiaries and John W. Stuart in the District Court of Nevada in Clark
County, Nevada. The complaint alleges that we breached our contract with First
Security Bank by failing to repay our outstanding indebtedness to First Security
Bank and First Security Leasing. The complaint prays for repayment of the
matured loan and lease lines in the aggregate amount of approximately
$1,955,998, together with interest, attorneys' fees and costs associated
therewith. Additionally, the complaint seeks to enforce the personal guaranty of
Mr. Stuart to repay $1,000,000 of this outstanding balance and prays for writs
of garnishment and attachments of our personal property. We have filed an answer
to this complaint and subsequently entered into a "stand-still" agreement with
First Security Bank. Under this "stand-still" agreement, First Security Bank
agreed not to take any further legal action on the complaint until September 30,
1999 in exchange for: (i) additional security in our real and personal property;
(ii) $200,000 payment on the outstanding indebtedness upon execution of this
agreement; (iii) an additional $50,000 payment on September 1, 1999; and (iv) a
firm re-payment plan we can reasonably make commencing October 1, 1999. While we
are currently working with our acting Chief Operating Officer and Chief
Financial Officer, along with restructuring consultants, to devise a cash
management plan to satisfy First Security Bank, there can be no assurance that
we will be successful in doing so.
Imperial Credit Commercial Mortgage Investment Corporation Default.
We made our January, February and March 1999 payments to Imperial Credit
after the due date for those payments. As a result of those delinquencies, we
have incurred late charges and default interest, which we have not paid. We are
in default under the Imperial Credit facility and we are unable to borrow
additional funds under the facility. As of August 6, 1999, we had not made
payments to Imperial Credit due April 1, 1999, May 1, 1999, June 1, 1999, July
1, 1999, August 1, 1999, September 1, 1999 or October 1, 1999.
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On May 28, 1999, we issued a press release on Form 8-K announcing that we
had received notice of default from Imperial Credit. The notice of default was
received May 24, 1999. On August 8, 1999, we were served with a Notice of
Default and Election to Sell Under Deed of Trust by Imperial Credit, which
formally notified us of Imperial Credit's commencement of foreclosure
proceedings of our Wild Bill's California theater. Additionally, Imperial Credit
has informally notified us that it has also commenced foreclosure proceedings on
our King Henry's Feast Theater, Wild Bill's Theater and Shopping Complex, both
in the greater Orlando, Florida area, as well as our Legends in Concert Theater
in Surfside Beach, South Carolina. While we are currently working with Imperial
Credit to identify purchasers for our respective theaters in an attempt to sell
these theaters in an orderly manner to maximize proceeds from such sale, there
can be no assurance that we will be successful in selling any of these theaters
before Imperial Credit completes its' foreclosure process and takes over the
respective theaters.
In the event that First Security or First Security Leasing, initiates
foreclosure action against us or our assets, all or a portion of our property
and assets securing the credit facilities extended by those lenders may be sold
to satisfy our commitments under the terms of those facilities. While we intend
to renegotiate the terms of our credit facilities, to obtain extensions of the
terms of those facilities and to seek alternative additional financing, there
can be no assurance that our efforts will be successful.
Nasdaq(R) SmallCap Market Delisting Inquiries.
On April 20, 1999, On Stage received a letter of inquiry from the Nasdaq
Stock Market, Inc. requesting that we submit a detailed letter describing our
plan to address the specific items that led to the issuance of "going concern"
opinion from our independent auditor, BDO Seidman, LLP. The letter further
requested that we discuss why we believe we will be able to sustain compliance
with the continued listing standards of the Nasdaq SmallCap Market.
On June 4, 1999, we responded to the April 30, 1999, letter from the Nasdaq
Stock Market, Inc. providing information regarding the auditors "going concern"
opinion, our growth strategy and our ability to comply with the Continued
Listing Standards of The Nasdaq SmallCap Market.
On June 8, 1999, we received a response letter from Nasdaq, pursuant to
which we were afforded ninety (90) days in which to raise our minimum bid price
to $1.00 or more for a minimum of ten (10) consecutive trading days. In the
event we are unsuccessful in our attempt to accomplish this requirement, our
securities will be delisted at the opening of business on September 9, 1999. On
August 23, 1999, we hired Newport Capital Consultants, Inc. to assist us with
promoting our stock to achieve the $1.00 minimum bid price, by providing us with
broker-dealer and investor relations services.
On August 18, 1999, we received a letter from Nasdaq informing us that we
have failed to meet the net tangible assets/market capitalization/net income
minimum listing requirement for continued listing on their exchange. As a
result, Nasdaq is reviewing our continued listing on their exchange and they
have requested that we submit a specific plan for achieving compliance with all
of their minimum listing requirements by September 1, 1999.
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On September 1, 1999, we responded to Nasdaq's August 18, 1999 request for
a specific plan to regain compliance by informing them that we would be
requesting an oral hearing to appeal any determination to delist our securities
as a result of our failure to meet the minimum bid price and net tangible
asset/market capitalization/net income requirements.
On September 8, 1999, we formally requested an oral hearing to appeal
Nasdaq's determination to delist our securities from their exchange as a
consequence of our failure to comply with the minimum bid price and net tangible
asset/market capitalization/net income requirements.
On September 10, 1999, Nasdaq informed us that our request for an appeal
for their determination to delist our securities from their exchange as a result
of our failure to comply with their minimum listings standards was accepted and
that the oral hearing is scheduled for October 14, 1999.
The failure to meet the continued minimum listing standards in the future,
and the failure to adequately assure Nasdaq that we will be able to meet the
listing criteria in the future, may result in the delisting of our securities
from the Nasdaq SmallCap Market. If this occurs, the trading, if any, in our
securities would be conducted in the non-Nasdaq over-the-counter market. As a
result of such a delisting, an investor could find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of, our securities.
Properties
Our corporate headquarters consist of approximately 16,000 square feet of
nondescript office and warehouse space located in an industrial strip mall in
Las Vegas, Nevada. This lease is currently set to expire on August 31, 2002. The
table provided below lists certain information regarding our other facilities
that were in use during 1998.
- --------------------- ------------ ------------- ----------- ----------------
Square Type of Lease Principal
Location Footage Possession Expiration Function
- --------------------- ------------ ------------- ----------- ----------------
Atlantic City, NJ 2,000 Lease 09/99 Office
Atlantic City,NJ (1) N/A Lease 06/00 Residential
Branson, MO 27,500 Lease 12/99 Theater/Office
Buena Park, CA (2) 27,599 Lease 06/10 Theater
Kissimmee, FL (3) 31,350 Own N/A Retail
Kissimmee, FL (4) 18,221 Own N/A Theater
Las Vegas, NV (5) 16,000 Lease 08/99 Corporate
Office
Las Vegas, NV (5) 4,668 Lease 08/99 Warehouse
N. Myrtle Beach, SC (6) 15,000 Lease 12/04 Theater/Office
Myrtle Beach, SC (7) 16,171 Own N/A Theater/Office
Orlando, FL 3,640 Lease 06/02 Warehouse
Orlando, FL (8) 10,000 Lease 10/00 Office/Bar
Orlando, FL (9) 15,500 Own N/A Theater
Toronto, ON 9,410 Lease 02/03 Theater
Toronto, ON 627 Lease Month-to-
Month Office
- --------------------- -------------- ------------ ---------- -----------------
(1) Consists of seven condominium units for use by our performers when they are
performing in our Legends show at Bally's Park Place in Atlantic City, New
Jersey. We lease these units from John W. Stuart, our chief executive
officer, and his wife.
(2) On Stage's wholly-owned subsidiary, On Stage Theaters, Inc., subleases this
property from Wild Bill's California, Inc., a wholly-owned subsidiary of On
Stage Theaters. Wild Bill's California, Inc. leases the property from an
unrelated third party.
(3) This property is owned by Fort Liberty, Inc., a wholly-owned subsidiary of
On Stage Theaters. On Stage Theaters leases this property from Fort
Liberty, Inc. Fort Liberty, Inc.'s ownership is subject to a lien in favor
of Imperial Credit securing a loan in the principal amount of $2.7 million.
The terms of this loan provide for monthly interest payments of $21,938,
plus monthly principal amortization of $7,500, commencing April 13, 1999.
The loan matures March 16, 2008, at which time the projected loan balance,
assuming no prepayments, of $2,676,199 million will be due and payable. We
have no present plans for the further development or improvement of the
property, beyond ordinary maintenance. The annual real property taxes on
the property are approximately $33,400. Depreciation with respect to the
building at the property is taken at a rate of $22,630 per year under the
straight-line method over a 30-year estimated life. The occupancy of this
mixed-use retail space is approximately 83% and a restaurant tenant
occupies approximately 17% of the total square footage of the property on a
lease and providing for monthly triple net rent of approximately $7,300.
The following is a schedule of the lease expirations at the property for
each of the next 10 years, with none with terms beyond 2004:
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Square Feet Percent of
Year Expiring Annual Rent Total Rent
Month to
Month Leases
1999 8,500 21.29 $ 100,420
2000 4,840 14.52 $ 68,520
2001 3,750 11.26 $ 53,120
2002 11,658 37.27 $ 175,820
2003 750 3.18 $ 15,000
2004 2,669 7.58 $ 35,750
2005 1,500 4.90 $ 23,140
(4) This property is owned by Fort Liberty, Inc., a wholly-owned subsidiary of
On Stage Theaters. On Stage Theaters leases this property from Fort
Liberty, Inc. The lease is for a term of 11 years and provides for monthly
rent of $89,117, plus taxes and utilities. Fort Liberty, Inc.'s ownership
is subject to a lien in favor of Imperial Credit securing a loan in the
principal amount of $3.9 million. The terms of this loan provide for
monthly interest payments of $31,688, plus monthly principal amortization
of $10,833, commencing April 13, 1999. The loan matures March 16, 2008, at
which time the projected loan balance, assuming no prepayments, of
$3,856,620 will be due and payable. We have no present plans for the
further development or improvement of the property, beyond ordinary
maintenance. The annual real property taxes on the property are
approximately $65,800. Depreciation with respect to the building at the
property is taken at a rate of $26,568 per year under the straight-line
method over a 30-year estimated life.
(5) This lease may be terminated at any time after August 31, 1999 by providing
written notice of that intention.
(6) This property is subleased to Eddie Miles Entertainment.
(7) This property is owned by On Stage Theaters, Inc. On Stage Theaters leases
this property from On Stage Theaters Surfside Beach, Inc.
(8) On Stage Theaters subleases this property from Blazing Pianos, Inc., a
wholly-owned subsidiary of On Stage Theaters. Blazing Pianos, Inc. leases
the property from an unrelated third party.
(9) This property is owned by King Henry's, Inc., a wholly-owned subsidiary of
On Stage Theaters. On Stage Theaters leases this property from King
Henry's, Inc. King Henry's, Inc.'s ownership is subject to a lien in favor
of Imperial Credit securing a loan in the principal amount of $5 million.
The terms of this loan provide for monthly interest payments of $40,625,
plus monthly principal amortization of $13,999, commencing April 13, 1999.
The loan matures March 16, 2008, at which time the projected loan balance,
assuming no prepayments, of $4.33 million will be due and payable. We have
no present plans for the further development or improvement of the
property, beyond ordinary maintenance. The annual real property taxes on
the property are approximately $89,850. Depreciation with respect to the
building at the property is taken at a rate of $44,201 under the straight
line method over a 30-year estimated life.
We believe that our existing facilities are suitable and adequate for our
current operations and are adequately insured.
49
<PAGE>
MANAGEMENT
Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act
The following sets forth biographical information about each of our
directors and executive officers who served during 1998 or who are presently
serving in those capacities.
<TABLE>
<S> <C> <C>
Name Age Position
John W. Stuart................................. 56 Chairman and Chief Executive Officer
David Connelly................................. 40 Acting Chief Operating Officer and Chief
Financial Officer
David Hope..................................... 40 Former President and Chief Operating Officer
Kiranjit S. Sidhu.............................. 34 Former Senior Vice President, Chief Financial
......... Officer and Treasurer
Christopher R. Grobl........................... 31 General Counsel and Secretary
James L. Nederlander........................... 38 Former Director
Mark Tratos.................................... 46 Director
Mel Woods...................................... 47 Director
Matthew Gohd................................... 43 Director
</TABLE>
John W. Stuart
John W. Stuart has served as our Chairman and Chief Executive Officer since
April 1996 and also was our President from October 1985 through March 1996. He
founded our company in 1985. He has been involved in the theatrical business
since age seven and has produced or appeared in over 200 theater productions and
several feature films. Mr. Stuart received a Bachelor of Arts degree in 1967
from California State University at Fullerton.
David Connelly
David Connelly will commence employment with On Stage on September 1, 1999
as our Chief Operating Officer and Chief Executive Officer. Prior to joining us,
Mr. Connelly was the Chief Financial Officer of PandaAmerica, which was a 24
hour/day television shopping network and direct marketing company from October
1995 to September 1998. From May 1995 to October 1995, Mr. Connelly served as
President of Jobette Music, Inc., a business founded by Barry Gordy which owned
and controlled all music publishing rights for the songs of Motown. From 1989 to
1995, Mr. Connelly served in various capacities with MCA Universal, the most
recent of which was Chief Financial Officer of MCA Entertainment Services, which
was one of MCA Universal's live music and merchandising division.
David Hope
David Hope served as our President, Chief Operating Officer and as a
director from April 1996 through July 1999. For ten years prior to that time,
Mr. Hope served in various capacities, including most recently as Executive Vice
President and Chief Operating Officer, for ITC Entertainment Group, a major
independent producer and worldwide distributor of feature films, television
movies and mini-series and a subsidiary of Polygram N.V., where, as Chief
Operating Officer, he was responsible for day-to-day operations, as well as
strategic and corporate development and acquisitions. Prior to that time, Mr.
Hope was a production manager with Hinchcliffe Productions, a United
Kingdom-based producer and distributor of documentaries and motor sport events.
Mr. Hope received a degree in Management Science in 1981 from the Loughborough
University in England.
50
<PAGE>
On July 9, 1999, Mr. Hope resigned his positions as our President, Chief
Operating Officer and a Director to pursue other interests. Mr. Hope will
continue to provide certain consulting services to assist us with regard to our
strategic alternatives in a part-time capacity.
Kiranjit S. Sidhu
Kiranjit S. Sidhu was our Senior Vice President, Chief Financial Officer
and Treasurer from August 1995 through April 1999. Prior to this time, Mr. Sidhu
served as Chief Financial Officer and Corporate Secretary for Aspen
Technologies, a computer peripheral manufacturer, from July 1994 to July 1995.
From January 1993 to June 1994, Mr. Sidhu served as President and a director for
Aspen Peripherals, a computer peripheral reseller. From February 1992 to June
1993, Mr. Sidhu served as a financial consultant to ITC. From January 1992 to
July 1993, Mr. Sidhu served as Vice President of Finance and a director for Nuvo
Holdings of America, a computer peripheral manufacturer. Mr. Sidhu holds a
Masters of Business Administration from the Wharton School of Business and a
Bachelor of Arts in Computer Science from Brown University.
On April 16, 1999, Mr. Sidhu agreed to restructure his employment agreement
in an attempt to assist us with our restructuring plan. Pursuant to the terms of
his employment restructuring, we entered into a new agreement with Mr. Sidhu
under which he is an "at-will" consultant.
Christopher R. Grobl
Christopher R. Grobl has been our General Counsel and Corporate Secretary
since November 1994. Mr. Grobl received a Bachelor of Arts in 1990 from the
University of Illinois and a Juris Doctor in 1994 from the John Marshall Law
School in Chicago, Illinois.
James L. Nederlander
James L. Nederlander was a member of our Board of Directors since August
1996. He is the Chairman of the Nederlander Production Company of America, a
producer of live entertainment shows, since August 1996 and prior to such time,
commencing in 1980, he was Executive Vice President of that organization.
Mark Tratos
Mark Tratos has been a member of our Board of Directors since March 1997.
Mr. Tratos has been the managing partner of the law firm Quirk & Tratos of Las
Vegas, Nevada since 1983. He received his Juris Doctor degree from Lewis and
Clark Law School in 1979. Since 1982, Mr. Tratos has also served as a member of
the adjunct faculty of the University of Nevada Las Vegas, teaching a variety of
subjects in the areas of fine and performing arts and entertainment and business
law.
Mel Woods
Mel Woods has been a member of our Board of Directors since July 1998. Mr.
Woods is the President and Chief Operating Officer of Fox Family Worldwide,
Inc., Saban Entertainment's parent company since 1997. Previously, Mr. Woods was
the Chief Financial Officer and Senior Vice President of DIC Enterprises.
51
<PAGE>
Matthew Gohd
Matthew Gohd has been a member of our Board of Directors since September
1998. Mr. Gohd is currently a Senior Managing director at Whale Securities Co.,
LP., the underwriter for our initial public offering. Mr. Gohd has over 20 years
in the securities field working in various companies in industries such as
retail, technology, healthcare and consumer finance.
Directors Resigning During 1998 and 1999
Five directors resigned during 1998 and 1999, Kenneth Berg, Nelson Foster,
Jules Haimovitz , Mark S. Karlan, David Hope and James Nederlander. Mr. Berg
resigned on January 21, 1998, Mr. Foster resigned on June 26, 1998, Mr.
Haimovitz resigned on September 8, 1998, Mr. Karlan resigned on April 16, 1999,
Mr. Hope resigned on July 9, 1999 and Mr. Nederlander resigned on July 14, 1999.
Mr. Foster resigned to create a vacancy for current director Mel Woods and Jules
Haimovitz resigned to create a vacancy for current director Matt Gohd. Mr.
Karlan has been the President, Chief Executive Officer and a director of
Imperial Credit Commercial Mortgage Investment Corp., a publicly traded real
estate investment trust, since July 1997. Mr. Karlan resigned from the board
following default in our loans with Imperial Credit. Mr. Hope resigned to pursue
other interests and Mr. Nederlander resigned to focus on his other business
interests.
Executive Bonus Plan
In March 1997, we implemented a three-year executive bonus plan, which is
administered by the compensation committee of the board. Under the executive
bonus plan, an annual bonus pool of up to 5% of our audited pre-tax earnings,
after non-recurring charges, such as original issue discount, compensation and
interest expense charges and excluding extraordinary items, may be established
for distribution at the discretion of the board of directors, to our executive
officers (other than Mr. Stuart, who is not eligible for bonuses under the plan)
in 1999 and 2000, provided that we achieve at least minimum pre-tax earnings as
calculated under the for the respective preceding fiscal year as follows:
Year Minimum Pre-Tax Earnings
----------- -----------------------------------
1998 $5,000,000
1999 $8,700,000
The terms of the executive bonus plan, including the minimum pre-tax earnings
requirements set forth above, were determined by negotiations between On Stage
and the underwriter of our initial public offering, and should not be construed
to imply or predict any future earnings. No bonuses have been paid under the
executive bonus plan.
Compensation of Directors
Directors currently are not paid a fee for their services, but are
reimbursed for all reasonable expenses incurred in attending board meetings. In
addition, each non-employee director will receive options to purchase an
aggregate of 10,000 shares of common stock each year that the director serves as
a director, partially contingent upon the director's attendance at the four
scheduled board of directors meetings during the year of grant. One-quarter of
the annual option grant will vest as of each of the grant year's scheduled
meetings. In 1998, we granted each director 10,000 stock options at $1.50 strike
price as consideration for the excessive time and energy the board spent on
company issues during 1998. In 1999, we granted 75,000 stock options to
directors Matt Gohd and Mark Tratos, along with 75,000 stock options to Fred
Ordower, who was a special advisor to the board of directors, for the
significant amount of time spent on board issues during 1999.
52
<PAGE>
Executive Compensation
<TABLE>
<CAPTION> Executive Compensation Table
Annual Long Term
Compensation Compensation
------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options/SAR Compensation
- --------------------------- ------ -------- ------- -------------- ------------ --------------
John W. Stuart............. 1998 $250,000 - 35,869(1) 75,000 -
Chairman and Chief 1997 $259,615 - 38,321(2) - 239,398(3)
Executive Officer
David Connelly(4).......... - $ - - - - -
Chief Operating Officer and
Chief Executive Officer
David Hope................. 1998 $207,308 - 19,578(5) 50,000 -
President and Chief 1997 $221,461 $37,865 19,578(6) - -
Operating Officer
Kiran Sidhu ............... 1998 $157,385 - 14,993(7) 30,000 -
Senior Vice President 1997 $161,596 $162,129(9) 17,215(9) 85,000 -
Chief Financial Officer
and Treasurer
Gerard O' Riordan.......... 1998 $106,664 - 14,424(10) - -
President-On Stage Theaters 1997 - - - - -
Richard Kanfer............. 1998 $109,154 - 14,791(11) 15,165 -
Vice President- Sales 1997 $115,769 - 10,560(12) - -
Gary Panter................ 1998 $102,370 - 13,627(13) 21,439 10,595(15)
Sr. Vice President
Operations............... 1997 $101,400 - 13,909(14) 10,389 -
- ---------------
</TABLE>
(1) Represents $11,971 in unused vacation time accrued but not paid and $23,898
of car and health allowances accrued, of which $14,895 was paid in 1998.
Does not include $149,686 of rent accrued for the leases to On Stage of
which $76,028 was paid in 1998.
(2) Represents $14,423 in unused vacation time accrued but not paid and $23,898
of car and health allowances paid in 1997. Does not include $150,686 of
rent for the leases to On Stage paid in 1997.
(3) Includes $221,500 in compensation as a result of forgiveness of certain
indebtedness owed by Mr. Stuart to On Stage and payment of $17,898 of
unused vacation time carried forward from prior years.
(4) Beginning September 1, 1999, Mr. Connelly will be receiving an annual
salary of $220,000.
(5) Represents $6,346 in unused vacation time accrued but not paid and $13,232
of car and health allowances accrued, of which $9,732 was paid in 1998.
53
<PAGE>
(6) Represents $6,346 in unused vacation time accrued but not paid and $13,232
of car and health allowances accrued, paid in 1997.
(7) Represents $5,393 in unused vacation time accrued but not paid and $9,600
of car and health allowances accrued, of which $6,100 was paid in 1998.
(8) Represents $7,615 in unused vacation time accrued but not paid and $9,600
of car and health allowances paid in 1997.
(9) Represents the fair market value of the issuance of 40,532 shares of common
stock as incentive compensation pursuant to his employment agreement.
(10) Represents $14,424 of car and health allowances paid in 1998.
(11) Represents $4,231 in unused vacation time accrued but not paid and $10,560
of car and health allowances accrued, of which $7,560 was paid in 1998.
(12) Represents $10,560 of car and health allowances paid in 1997.
(13) Represents $3,238 in unused vacation time accrued but not paid and $10,389
of car and health allowances accrued, of which $8,639 was paid in 1998 and
$11,050 of housing allowance payments.
(14) Represents $3,520 in unused vacation time accrued but not paid and $10,389
of car and health allowances, was paid in 1997.
(15) Represents $10,595 non-recurring relocation-related expenses.
Option Grants
The table below sets forth the grants of stock options to the persons named
in the Summary Compensation Table during the year ended December 31, 1998.
<TABLE>
Option Grant in Last Fiscal Year
<S> <C> <C> <C> <C> <C> <C>
Value at
Assumed
Percent of Annual Rates
Options/SARS of Stock
Granted to Price
Name and Principal Option Employees in Exercise Expire Potential Application
Position Granted Fiscal Year Price Date 5% Value 10%
- --------------------- ------------ --------------- ------------ --------- --------- --------------
John W. Stuart.......... 75,000 21% $4.38 6/03 $418,780 $528,449
Chairman and Chief
Executive Officer
David Hope.............. 50,000 14% $1.50 6/03 $ 95,721 $120,788
President and Chief
Operating Officer
Kiran Sidhu............. 30,000(2) 9% $1.50 9/03 $ 57,433 $ 72,473
Senior Vice President,
Chief Financial Officer
and Treasurer
Gerard O'Riordan......... 0(1) 0% - - - -
President, On Stage
Theater
Richard Kanfer........... 15,165 4% $1.50 9/03 $ 29,032 $36,635
Vice President-Sales
Gary Panter.............. 12,500 4% $1.50 9/03 $ 23,930 $30,197
Senior Vice President of
Operations
</TABLE>
(1) Excludes warrants to purchase 180,000 shares of common stock granted in
connection with the Gedco asset acquisition.
(2) Mr. Sidhu's options were subsequently cancelled, and replaced with
subsequent options in accordance with Mr. Sidhu's amended employment
agreement described below.
54
<PAGE>
Option Exercise and Fiscal Year-End Option Values
The following table summarizes the value of vested and unvested
in-the-money options for the persons named in the Summary Compensation Table at
December 31, 1998. Year-end values are based upon a price of $1.50 per share,
which was the closing market price of a share of common stock on December 31,
1998. No options were exercised by the named executive officers in 1998.
Aggregated Option Exercise in Last Year and Year-End Option Values
<TABLE>
<S> <C> <C> <C>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at December 31, 1998 at December 31, 1998
------------------------------- -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
----------------- ------------ --------------- ------------ -------------
John W. Stuart - 75,000 $ - $ -
David Hope 361,300 - $ - $ -
Kiran Sidhu 139,794 - $ - $ -
Gerard O'Riordan - - $ - $ -
Richard S. Kanfer - - $ - $ -
Gary Panter 1,563 10,937 $ - $ -
</TABLE>
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 30, 1999
(except as otherwise noted) regarding the ownership of our common stock (1) by
each person known by us to be the beneficial owner of more than five percent of
the outstanding common stock, (2) by each director, (3) by each executive
officer named in the Summary Compensation Table and (4) by all current executive
officers and directors as a group.
<TABLE>
<S> <C> <C>
Number of Shares Percentage of
Name and Address (1) Beneficially Owned (2) Class(2)
- ------------------------------- ------------------------------- ------------------
John W. Stuart (3)............. 3,678,755 48.6%
David Hope (4)................. 377,300 5.0%
Kiranjit S. Sidhu (5).......... 147,000 1.9%
James L. Nederlander (6)....... 30,000 *
Mark Tratos (7)................ 30,000 *
Mel Woods (8).................. 20,000 *
Matt Gohd (9).................. 367,500 4.8%
Hanover Restaurants, Inc (10).. 595,238 7.9%
Imperial Credit Industries,
Inc (11)..................... 575,000 7.6%
All executive officers and
directors as a group
(9 persons) (12)............. 5,820,793 76.8%
- -------------------------
*Less than one percent
</TABLE>
(1) Unless otherwise indicated, the address for each named individual or group
is in care of On Stage at 4625 West Nevso, Las Vegas, NV 89103.
(2) Unless otherwise indicated, we believes that all persons named in the table
have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them, subject to community property
laws where applicable. In accordance with the rules of the Securities and
Exchange Commission, a person is deemed to be the beneficial owner of
common stock that can be acquired by that person within 60 days, upon the
exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options and warrants that are held
by that person (but not those held by any other person) and which are
exercisable within 60 days have been exercised. Percentages herein assume a
base of 7,572,046 shares of common stock outstanding as of April 30, 1999.
(3) Includes: (a) 382,790 shares of common stock transferable by Mr. Stuart to
third parties upon the exercise of options granted by him; and (b) 300,000
shares of common stock issuable upon the exercise of immediately
exercisable warrants.
(4) Includes 368,800 shares of common stock issuable upon the exercise of
options or warrants.
(5) Includes 142,500 shares of common stock issuable upon the exercise of
options or warrants.
(6) Includes 30,000 shares of common stock issuable upon the exercise of
options.
56
<PAGE>
(7) Includes 30,000 shares of common stock issuable upon the exercise of
options.
(8) Includes 20,000 shares of common stock issuable upon the exercise of
options.
(9) Includes 217,500 shares of common stock issuable upon the exercise of
options or warrants.
(10) In the Gedco asset acquisition a settlement has been reached where the
595,238 shares of common stock issued to Hanover as part of the acquisition
were returned back to On Stage.
(11) Includes 325,000 shares of common stock issuable upon the exercise of an a
warrant granted to Imperial Credit Commercial Mortgage Investment
Corporation. Imperial Credit is managed by Imperial Credit Commercial Asset
Management Corporation, which is a wholly owned subsidiary of Imperial
Credit Industries, Inc. Imperial Credit Industries, Inc. also beneficially
owns approximately 8.9% of the outstanding common stock of Imperial Credit.
Also includes 250,000 shares of common stock issuable upon the exercise of
a warrant granted to Imperial Capital Group, LLC. Imperial Credit
Industries, Inc. has a 60% interest in Imperial Capital Group. Imperial
Credit Industries, Inc. disclaims the beneficial ownership of the shares of
common stock held by Imperial Capital Group. All information provided in
this footnote 10 was derived from a Schedule 13G filed by Imperial Credit
Industries, Inc. with the Securities and Exchange Commission on April 3,
1998.
(12) Includes 464,973 and 339,375 shares of common stock issuable upon the
exercise of options and warrants.
57
<PAGE>
CERTAIN TRANSACTIONS
Dr. Larry Salberg Common Stock Purchase Agreement
On October 2, 1998, we entered into a Stock Purchase Agreement with Dr.
Larry Salberg to sell up to 500,000 shares of common stock at an aggregate
purchase price of $500,000. As of November 4, 1998, Dr. Larry Salberg had
purchased 55,000 shares of common stock pursuant to this agreement.
Common Stock Purchase Agreement with Whale Securities Co., L.P.
On or about January 28, 1999, we entered into a Stock Purchase Agreement
with our underwriter Whale Securities Co., L.P., under which we agreed to sell
150,000 shares of our common stock to certain of Whale's customers for an
aggregate purchase price of $100,000.
Notes Payable to Principal Stockholder
On April 5, 1999, we entered into an agreement with Mr. Stuart, our
Chairman, Chief Executive Officer and principal stockholder, pursuant to which
we agreed to accept a bridge loan from Mr. Stuart in an amount of up to $500,000
in return for a one year promissory note bearing 12% interest, a 5% origination
fee and a warrant to purchase one share of common stock for each $1.00 loaned,
provided that we did not repay Mr. Stuart within thirty (30) days. As of May 3,
1999, we had accepted $200,000 of the potential $500,000 from Mr. Stuart.
On March 4, 1999, the board of directors authorized a loan from Mr. Stuart
in the principal amount of $100,000. This loan is evidenced by a one year
promissory note bearing an interest rate of twelve percent (12%) per annum, and
matures on March 3, 2000. In consideration for this loan, the board of directors
approved the issuance of warrants to purchase 100,000 shares of common stock at
a price of $1.00 per share, the market price on the closing date of the Loan.
Additionally, we agreed to pay legal fees incurred by Mr. Stuart in connection
with this transaction, as well as an additional $12,500 for previous legal bills
Mr. Stuart personally incurred for On Stage related matters.
In March 1997, we agreed with the underwriter of our initial public
offering, Whale Securities Co., L.P., that we would neither loan nor advance any
sums to or on behalf of Mr. Stuart, other than those sums advanced to Mr. Stuart
from December 31, 1996 through August 13, 1997, the effective date of our
initial public offering without Whale's prior written consent. On October 23,
1997 and again on November 17, 1997, we advanced Mr. Stuart an aggregate of
$105,483, for which we obtained Whale's prior written consent. Whale authorized
to advance an additional $150,000 to Mr. Stuart on March 25, 1998 for settlement
of certain litigation related to his involvement in the Legends in Concert show
in Hawaii. As of June 30, 1998, we had advanced Mr. Stuart an aggregate of
$136,194, evidenced by a promissory note. The funds we advanced accrued interest
at the rate of ten percent (10%) per annum. The advance to Mr. Stuart became due
and payable one year from the date of which it was made. On July 6, 1998, Mr.
Stuart paid the advance in full.
In February 1997, Mr. Stuart granted to Senna Venture Capital Holdings,
Inc., an affiliate of DYDX Legends Group L.P. (and one of our lenders), an
option to purchase 142,292 of his shares of common stock at an exercise price of
$5.00 per share, in consideration for (i) DYDX waiving a technical default under
our loan agreement with DYDX and (ii) DYDX's agreement in connection with a
waiver to allow $1,780,424 in debt forgiveness to Mr. Stuart in 1997. That
option is exercisable for a period of two years commencing February 9, 1998.
58
<PAGE>
We lease seven condominium units in Atlantic City, New Jersey from Mr.
Stuart for use by our impersonators in our Legends show at Bally's Park Place in
Atlantic City, New Jersey. The current lease term expires on June 30, 2000. The
total lease payment to Mr. Stuart from On Stage is currently $7,833 per month,
which amount we believe approximates the fair market value for the use of these
properties. In addition, commencing as of January 1, 1997, we began to pay the
association dues, insurance, taxes, maintenance and utilities on the seven
condominiums directly, instead of through Mr. Stuart. We paid aggregate rent to
Mr. Stuart for these leases of $150,686 and $149,686 for each of the years ended
December 31, 1997 and 1998, respectively.
Note Receivable from Chief Financial Officer
On April 13, 1998, we loaned $63,213 to Kiran Sidhu, our former Senior Vice
President and Chief Financial Officer, to assist Mr. Sidhu with satisfying
personal income taxes incurred as a result of the issuance of 40,532 shares of
common stock in accordance with the terms of Mr. Sidhu's employment agreement.
The note, which matured on April 12, 1999, was secured by Mr. Sidhu's 40,532
shares of common stock. Mr. Sidhu subsequently requested that we extend the
maturity date of the note through to December 31, 1999, due primarily to the
fact that he did not have sufficient funds to repay the outstanding note,
coupled with the fact that the common stock which secured the repayment of the
note was not enough to satisfy the outstanding debt, since the common stock had
declined in value from $5.00 per share when issued, to approximately $1.00 per
share as of the maturity date. On April 13, 1999, we agreed to extend the
maturity date on the note to December 31, 1999.
On April 16, 1999, Mr. Sidhu sold Mr. Stuart his 40,532 shares of common
stock. In exchange, Mr. Stuart agreed to assume $60,798 of Mr. Sidhu's note,
with recourse only to the 40,532 shares of common stock purchased from Mr.
Sidhu. Mr. Sidhu executed a new promissory note in the principal amount of
$7,472, which was subsequently forgiven as part of Mr. Sidhu's employment
restructuring.
Chief Financial Officer Employment Restructuring
On April 16, 1999, Mr. Sidhu agreed to restructure his current employment
agreement with to assist us with our restructuring plan. Under the terms of his
employment restructuring, Mr. Sidhu agreed to forego any rights he had to his
employment, option, and confidentiality agreements, in return for the following:
o a new agreement which made him an "at-will" consultant at a flat rate of
$50.00 per hour;
o a new option agreement which affords him the right to purchase 140,000 shares
of common stock at an exercise price of $1.50 per share;
o a reimbursement of $25,000 for unpaid insurance, car allowances and expenses;
o $17,887 for all accrued, but unused vacation pay;
o all earned, but unpaid salary under his old employment agreement; and
o forgiveness of his $7,472 outstanding loan.
59
<PAGE>
Additionally, we agreed to pay Mr. Sidhu $25,000 within ninety (90) days of the
restructuring, in consideration for Mr. Sidhu's execution of a new
confidentiality and non-competition agreement.
Imperial Credit Commercial Mortgage Investment Corporation Related Transactions
On March 13, 1998, we entered into an agreement with Imperial Credit
Commercial Mortgage Investment Corporation for them to fund up to $20,000,000 of
mortgage financing. On the same day, we used $12,500,000 of the facility to fund
the cash portion of the Gedco asset acquisition. On June 30, 1998, we used an
additional $1,100,000 to fund the cash portion of the purchase of a fee simple
interest in the Legends Theater in Surfside Beach, South Carolina, and the
purchase of a leasehold interest in the Eddie Miles Theater in North Myrtle
Beach, South Carolina. On October 7, 1998, we used an additional $550,000 for
working capital purposes. The initial $12,500,000 loan and the subsequent
$1,650,000 in loans extended to us by Imperial Credit under the mortgage
financing facility currently bear interest at the rate of 9.06% and 9.9%,
respectively. In addition, we granted Imperial Credit and a related entity
warrants to purchase an aggregate of 575,000 shares of common stock at an
exercise price of $4.44 per share. In consideration for Imperial Credit's
October 7, 1998 funding of $550,000, we reset the strike price on 325,000 of the
Imperial Credit warrants from $4.44 to $1.25 per share. This transaction is
discussed in Item 11 entitled "Security Ownership of Certain Beneficial Owners
and Management" below. Mr. Karlan, a director until April 20, 1999, is the
President, Chief Executive Officer and a Director of Imperial Credit.
Re-Purchase of Common Stock and Resale of Interactive Events, Inc.
On February 23, 1999, On Stage entered into a Common Stock Purchase
Agreement with Richard S. Kanfer, thereby effectively unwinding the November
1996 acquisition of Interactive Events, Inc. In accordance with the terms of the
Interactive re-conveyance, On Stage re-conveyed all of the assets of Interactive
to Kanfer in consideration for Kanfer's re-conveyance of the 30,304 shares of On
Stage's common stock valued at $1.125 per share, issued to Kanfer during On
Stage's original acquisition of Interactive in November 1996, along with the
cancellation of a non-plan option to purchase 15,000 shares of common stock and
incentive stock options to purchase 19,835 shares of common stock at a price of
$5.00 per share. In addition, the parties agreed to release one another from any
liability arising out of the acquisition of Interactive by On Stage and any
claim relating to Kanfer's subsequent employment with us. Kanfer also entered
into an exclusive right of representation agreement with us in February 1999,
pursuant to which we granted to Kanfer the right to represent our Legends
production in designated areas in consideration for a portion of the gross
proceeds generated thereby.
60
<PAGE>
SELLING STOCKHOLDERS
The following tables set forth certain information with respect to the
common stock beneficially owned by each selling stockholder as of August 11,
1999, and as adjusted to give effect to the sale of the securities being
registered. The shares are being registered to permit public secondary trading
of such securities, and the selling stockholders may offer such securities for
resale from time to time. See "Plan of Distribution."
Except as set forth below, none of such selling stockholders has had a
material relationship with us within the past three years other than as a result
of ownership of our securities. See "Plan of Distribution."
In accordance with the rules of the Commission, the columns "Shares
Beneficially Owned After Offering" show the amount of securities owned by
selling stockholders after the offering. The numbers in such columns assume all
shares registered and offered by this Prospectus, shown in the column, "Number
of Shares Offered" are sold by the selling stockholders. However, the selling
stockholders are not required to sell any of the shares offered, and the selling
stockholders may sell as many or as few shares as they choose. See "Plan of
Distribution."
o 55,000 by this prospectus were issued to Dr. Larry Salberg on November 4,
1998 for aggregate consideration of $55,000.
o 143,464 by this prospectus were issued to the respective selling
stockholders immediately prior to our initial public offering on August 13,
1997, in exchange for their agreement to convert an aggregate of $486,319
in our outstanding debentures into 143,464 shares of common stock.
o 440,755 by this prospectus were issued to the respective selling
stockholders on March 17, 1997, in exchange for their agreement to exchange
then outstanding warrants for 440,755 shares of common stock.
o 195,500 by this prospectus were issued to the respective selling
stockholders who participated in our $1,000,000 bridge loan offering prior
to our initial public offering.
o 206,612 by this prospectus were issued to Calvin Gilmore Productions, Inc.
in connection with the On Stage's fee simple purchase of its Legends
Theater in Surfside Beach, South Carolina.
o 169,537 were issued to some of the respective selling stockholders by John
W. Stuart, our Chairman and Chief Executive Officer, to Calvin Gilmore
Productions, Inc. in a privately negotiated transaction.
o 475,000 were issued to some of the respective selling stockholders by John
W. Stuart, for aggregate consideration of $1,200,000 in privately
negotiated transactions.
o 150,000 were issued to the respective selling stockholders in December of
1998 in connection with a private placement of common stock.
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<PAGE>
o 8,471 were issued to James Owen in connection with the resolution of
certain litigation pending against us.
o 250,000 are issuable upon the exercise of warrants granted to Imperial
Capital, LLC in connection with On Stage's first mortgage financing for the
acquisition of the Gedco USA, Inc. properties.
o 325,000 are issuable upon the exercise of warrants granted to Imperial
Capital, LLC in connection with On Stage's first mortgage financing for the
Gedco USA, Inc. asset acquisition.
o 40,000 are issuable upon the exercise of options granted to Nida & Maloney,
LLP in consideration for payment of legal fees.
o 72,917 are issuable upon the exercise of warrants granted to Joseph D.
Kowal for investor relations services rendered on our behalf.
o 595,238 are issuable upon the exercise of warrants granted to Hanover
Restaurants, Inc. granted by On Stage as part of a resolution of a dispute
between On Stage and Gedco.
o 300,000 are issuable upon the exercise of warrants granted to John W.
Stuart in connection with a $300,000 aggregate loan he extended to us
during 1999.
o 254,500 are issuable upon the exercise of warrants granted to our
underwriter in connection with our initial public offering.
o 212,500 are issuable upon the exercise of warrants granted to the
respective selling stockholders who participated in our $1,000,000 bridge
loan offering entered into prior to our initial public offering.
As required by regulations of the Commission, the number of shares shown as
beneficially owned includes shares which can be acquired within 60 days after
the date of this Prospectus.
62
<PAGE>
<TABLE>
<S> <C> <C> <C>
Shares Beneficially Number Shares Beneficially
Owned Prior to Offering of Shares Sold Owned After Offering
-------------------------- ----------------- -------------------------
Shares Underlying
Shares Warrants or
Name Owned Options Percent Number Percent
- ---------------------- -------- ---------------- --------- -------- ---------
Larry Saldberg......... 55,000 32,056 * 87,056 -- --
JDK & Associates, Inc.. 86,288 59,955 * 146,243 -- --
Kenneth Berg........... 69,000 77,256 * 146,256 -- --
Southwest Marketing I,
LLC.................. 59,000 17,301 * 76,701 -- --
Robert Kautz........... 8,584 * 8,584 -- --
Lance Hall............. 10,000 21,893 * 31,893 -- --
DYDX Legends Group, LP. 40,073 * 40,073 -- --
Susan Weinkranz........ 8,014 * 8,014 -- --
Brooke Whitted......... 1,602 * 1,602 -- --
Jerome Lipman.......... 8,014 * 8,014 -- --
Richard Cristea........ 8,014 * 8,014 -- --
Cabridge Holdings, Ltd. 16,028 * 16,028 -- --
Larry Saldberg......... 32,056 * 32,056 -- --
Robert Stuberg......... 802 * 802 -- --
Barry McEneely......... 4,007 * 4,007 -- --
Vic Conant............. 40,872 * 40,872 -- --
Kevin McEneely......... 40,872 * 40,872 -- --
Senna Venture Capital
Holdings............ 50,089 * 50,089 -- --
Harry Stahl............ 5,323 * 5,323 -- --
Calving Gilmore
Productions, Inc..... 206,612 * 206,612 -- --
James Owen............. 8,471 * 8,471 -- --
Imperial Capital, LLC.. 575,000 * 575,000 -- --
Nida & Maloney, LLP.... 40,000 * 40,000 -- --
Joseph D. Kowal........ 72,917 * 72,917 -- --
Hanover Restaurants,
Inc.................. 595,238 * 595,238 -- --
John W. Stuart......... 300,000 * 300,000 -- --
Elliot Broidy.......... 312,450 * 312,450 -- --
Arthur Goldberg........ 156,250 * 156,250 -- --
Joseph E. Haick........ 118,750 * 118,750 -- --
William G. Walters/
William G. Walters
IRA Account.......... 68,929 * 68,929 -- --
Ronald Nash............ 78,304 * 78,304 -- --
Jeffrey Silverman...... 78,304 * 78,304 -- --
John Pappajohn......... 78,304 * 78,304 -- --
Robert Toricelli....... 31,250 * 31,250 -- --
Fortsmann Partners, LLP. 78,304 * 78,304 -- --
Mark Siegel............ 46,876 * 46,876 -- --
Matt Gohd.............. 46,876 * 46,876 -- --
Allen J. Siemons ...... 46,876 * 46,876 -- --
Joseph W. McSherry..... 31,250 * 31,250 -- --
Robert Mittman ........ 31,250 * 31,250 -- --
Julie T. McMahon....... 15,626 * 15,626 -- --
Anthony Fortsmann...... 15,626 * 15,626 -- --
Eamon J. Twomey........ 6,250 * 6,250 -- --
Arthur Kanfer.......... 4,425 * 4,425 -- --
Chad Nellis............ 20,355 * 20,355 -- --
Christopher Tyler...... 3,835 * 3,835 -- --
Clarence & Ada Miller
Family Trust........ 17,700 * 17,700 -- --
Cynthia Wall........... 5,900 * 5,900 -- --
Darin Nellis........... 1,770 * 1,770 -- --
David Fox.............. 5,900 * 5,900 -- --
Gene Smith............. 1,180 * 1,180 -- --
Gerard Hendricks....... 32,911 * 32,911 -- --
Gerard Hendricks IRA/FBO. 36,875 * 36,875 -- --
Jack Calkins .......... 1,475 * 1,475 -- --
Jackie Francis......... 1,475 * 1,475 -- --
Eric Shiu.............. 29,500 * 29,500
Jessica Tyler.......... 2,950 * 2,950 -- --
63
<PAGE>
John Calkins........... 1,475 * 1,475 -- --
Josh Regier............ 4,425 * 4,425 -- --
Kim Choy Trust......... 29,500 * 29,500 -- --
Philip Shiu and
Greg Shiu........... 14,750 * 14,750 -- --
Robert Moes............ 7,375 * 7,375 -- --
Roberto Amendola....... 590 * 590 -- --
Ryan Nellis............ 2,950 * 2,950 -- --
Scott Freedman......... 14,750 * 14,750 -- --
Scott Nellis........... 7,670 * 7,670 -- --
William Walters........ 14,750 * 14,750 -- --
Wing Hin Chau.......... 29,500 * 29,500 -- --
Zarko Vuletic and Irma
Vuletic, JT......... 7,375 * 7,375 -- --
Avendon Construction
and Design Corp...... 5,000 6,250 * 11,250 -- --
Baytree Associates,
Inc., Retirement Plan. 10,000 12,500 * 22,500 -- --
Steven H. Brooks........ 5,000 5,000 * 10,000 -- --
Delaware Charter Guar.
& Trust Co.f/b/o
Ronald I. Heller, IRA. 5,000 5,000 * 10,000 -- --
Delaware Charter Guar.
& Trust Co. f/b/o
David Nagelberg, IRA.. 5,000 5,000 * 10,000 -- --
Dependable Contractors,
Inc................... 5,000 5,000 * 10,000 -- --
Norton Herrick.......... 20,000 25,000 * 45,000 -- --
David Hope.............. 5,000 6,250 * 11,250 -- --
Jim Huntley and
Melanie Huntley, JTWRS 2,500 3,125 * 5,625 -- --
Daniel Keenan........... 8,500 * 8,500 -- --
Alexander S. Mark,
M.D. & Thais R.
Mark, JTWRS........... 5,000 6,250 * 11,250 -- --
Michael Miller.......... 10,000 12,500 * 22,500 -- --
Minor Metals, Inc....... 20,000 25,000 * 45,000 -- --
William J. Reese &
Cheryl Reese, JTWRS... 30,000 37,500 * 67,500 -- --
Kiranjit Sidhu.......... 2,500 3,125 * 5,625 -- --
Westminster Capital, Inc. 17,000 * 17,000 -- --
Edward Weston &
Ann Weston,JTWRS...... 5,000 6,250 * 11,250 -- --
Robert H. Winnerman..... 10,000 12,500 * 22,500 -- --
Theodore Winston........ 5,000 6,250 * 11,250 -- --
----------
4,489,923
==========
</TABLE>
----------------------
*Less than one percent
64
<PAGE>
PLAN OF DISTRIBUTION
The shares may be sold from time to time by the selling stockholders or
their pledgees or donees. See "Selling Stockholders." These sales may be made on
the Nasdaq SmallCap Market System or in negotiated transactions, at prices and
on terms then prevailing or at prices related to the then current market price
or at negotiated prices. The methods by which the shares may be sold may
include, but no be limited to, the following: (a) block trades in which the
broker or dealer will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account; (c) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; (d) privately negotiated transactions; (e) short
sales; and (f) a combination of any such methods of sale. In effecting sales,
brokers or dealers engaged by the selling shareholders may receive commissions
or discounts from the selling shareholders or from the purchasers in amounts to
be negotiated immediately prior to the sale.
We have agreed to maintain the effectiveness of the registration of shares
offered hereby until the earlier of the date upon which all of the shares
offered hereby have been sold without restriction on resale, or the date on
which the shares offered hereby, in the opinion of counsel, may be immediately
sold by the selling shareholders without registration or restriction on resale.
There can be no assurance that the selling shareholders will sell any or all of
the shares offered hereby.
We are bearing all of the costs relating to the registration of the shares.
Any commissions, discounts or other fees payable to a broker, dealer,
underwriter, agent or market maker in connection with the sale of any of the
shares will be borne by the selling shareholders. We will not receive any of the
proceeds form this offering, but will receive the exercise price payable upon
the exercise of the warrants if the warrants are exercised for cash.
Under the registration rights granted to those selling shareholders, we
have agreed to indemnify the selling shareholders, any person who controls this
selling shareholder, and any underwriters for those selling shareholders,
against certain liabilities and expenses arising out of or based upon the
information set forth or incorporated by reference in this Prospectus, and the
registration statement of which this Prospectus is a part, including liabilities
under the Securities Act and the Exchange Act. The selling shareholders and any
brokers participating in these sales may be deemed to be underwriters within the
meaning of the Securities Act. any commission paid or any discounts or
concessions allowed to any broker, dealer, underwriter, agent or market maker
and, if any broker, dealer, underwriter, agent or market maker purchases any of
the shares as principal, any profits received on the resale of those shares, may
be deemed to be underwriting commissions or discounts under the Securities Act.
65
<PAGE>
DESCRIPTION OF SECURITIES
Capital Stock
General
We are authorized to issue 25,000,000 shares of common stock, par value
$.01 per share, and 1,000,000 shares of preferred stock, par value $1.00 per
share. As of August 11, 1999, there were 6,985,279 shares of common stock
outstanding held by approximately 701 stockholders of record and no shares of
preferred stock outstanding.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. If dividends are
declared, whether payable in cash, property or securities, holders of our common
stock are entitled to share equally in such dividends, subject to the rights, if
any, of the holders of any series of preferred stock. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of On Stage,
after payment has been made to the holders of shares of preferred stock, if any,
for the full amount to which they are entitled, each holder of common stock will
be entitled to share equally in the assets available for distribution.
Holders of shares of common stock have no preemptive rights to acquire any
additional shares of the common stock and have no cumulative voting rights. All
currently outstanding shares of common stock are duly authorized, validly
issued, fully paid and non-assessable.
Preferred Stock
The board of directors is authorized, without further action by the
stockholders, to issue up to 1,000,000 shares of preferred stock in one or more
series and to fix the designations, powers, preferences, privileges, and
relative participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the common stock. The board,
without stockholder approval, can issue preferred stock with voting, conversion
or other rights that could adversely affect the voting power and other rights of
the holders of common stock. Preferred Stock could thus be issued quickly with
terms calculated to delay or prevent a change in control of On Stage or make
removal of management more difficult. Additionally, the issuance of preferred
stock may have the effect of decreasing the market price of the common stock,
and may adversely affect the voting and other rights of the holders of common
stock.
66
<PAGE>
Public Warrants
The warrants entitle the registered holders to purchase one share of common
stock at a price of $5.50, subject to adjustment in certain circumstances at any
time commencing August 13, 1998 (or such earlier date as to which the IPO
Underwriter consents) through and including August 13, 2002. The warrants will
be separately transferable immediately upon issuance.
We have the right to redeem the warrants, with the consent of Whale
Securities Co., LP, at any time commencing on August 13, 1998, upon notice of
not less than 30 days, at a price of $.10 per warrant, provided that the closing
bid quotation of the common stock on all 20 trading days ending on the third
trading day prior to the day on which we give notice has been at least 150% of
the then effective exercise price of the warrants and we obtain the written
consent of the Whale Securities Co., LP to such redemption prior to the call
date. The warrant holders shall have the right to exercise their warrants until
the close of business on the date fixed for redemption.
The warrants have been issued in registered form under a warrant agreement
by and among us, American Stock Transfer & Trust Company, as warrant agent, and
the IPO Underwriter. The exercise price and number of shares of common stock or
other securities issuable on exercise of the warrants are subject to adjustment
in certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of On Stage. However,
the warrants are not subject to adjustment for issuances of common stock at
prices below the exercise price of the warrants. Reference is made to the
warrant agreement (which has been filed as an exhibit to the registration
statement of which this Prospectus is a part) for a complete description of the
terms and conditions therein (the description herein contained being qualified
in its entirety by reference thereto).
The warrants may be exercised upon surrender of the warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to On Stage) to the warrant agent for the
number of warrants being exercised. The warrant holders do not have the rights
or privileges of holders of common stock.
No warrant will be exercisable unless, at the time of exercise, we have
filed a current registration statement with the Commission covering the shares
of common stock issuable upon exercise of the warrant and those shares have been
registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of that warrant. We will use our best efforts to have all such shares so
registered or qualified on or before the exercise date and to maintain a current
Prospectus relating thereto until the expiration of the warrants, subject to the
terms of the warrant agreement. While it is our intention to do so, there can be
no assurance that we will be successful in registering those shares.
67
<PAGE>
No fractional shares will be issued upon exercise of the warrants. However,
if a warrant holder exercises all warrants then owned of record by those warrant
holders, we will pay to those warrant holders, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the common stock on the last trading day prior to the exercise
date.
Bridge Warrants
The bridge warrants are exercisable at an exercise price of $5.50 per share
until March 19, 2002; however, neither the bridge warrants nor the bridge
warrant shares are transferable by the holders thereof until August 13, 2000.
The investors in the bridge financing have been granted certain registration
rights relating to the bridge warrant shares. See "- Registration Rights."
Registration Rights
Upon the consummation of this offering, the holders of 1,844,339 shares of
common stock and the holders of warrants convertible into 2,050,155 shares of
common stock will be entitled to certain rights with respect to the registration
of those shares under the Securities Act.
The holders of the 440,755 shares of common stock (which were exchanged for
all of our warrants outstanding on March 17, 1997) may request that we file one
registration statement under the Securities Act with respect to those shares
beginning August 13, 1998. In addition, beginning at the same time as the
foregoing demand registration right, whenever we propose to register any of its
securities under the Securities Act for our own account or for the account of
other security holders, we shall be required to promptly notify the holders of
the warrant exchange shares of the proposed registration and include all warrant
exchange shares which each holder may request to be included in that
registration, subject to certain limitations (a "piggyback registration").
In connection with the bridge financing, we have agreed to include the
195,500 bridge shares and the 212,500 bridge warrant shares in a registration
statement which we will prepare and file with, and use our best efforts to have
declared effective by, the Commission so as to permit the public trading of the
registerable bridge securities pursuant thereto commencing no later than August
13, 1999. If such registration statement is not declared effective by the
Commission by August 13,1999, then, commencing on the first day of the 25th
month following August 13,1997, we shall issue to each holder of registerable
bridge securities, on the first day of each month that a registration statement
continues not to have been declared effective by the Commission, that number of
additional shares of common stock is equal to 10% of the number of registerable
bridge securities held by and/or issuable to each holder thereof. In the event
we fail to maintain the effectiveness of a registration statement with respect
to the registerable bridge securities, we are obligated to issue, on one
occasion only, additional shares of common stock.
In connection with our initial public offering, we agreed to grant to our
underwriter, Whale Securities Co., LP, certain demand and piggyback registration
rights in connection with the 254,500 shares of common stock issuable upon
exercise of the underwriter's warrants and the warrants included therein.
We granted Hanover Restaurants, Inc. a warrant to purchase 595,238 shares
of common stock in connection with the Gedco asset acquisition. The holders of
the warrants were granted piggyback registration rights with respect to the
595,238 shares of common stock underlying the warrants.
68
<PAGE>
We granted to Imperial Credit Commercial Mortgage Investment Corporation
and Imperial Capital Group, LLC warrants to purchase an aggregate of 575,000
shares of common stock in connection with Imperial Credit's March 13, 1997 loan
of $12,500,000 to several subsidiaries of On Stage. The holders of the warrants
were granted piggyback registration rights with respect to the 575,000 shares of
common stock underlying the warrants. The piggyback registration rights enable
the holders to request us to include the shares in a registration statement
filed by On Stage (whether such registration is made on behalf of On Stage or on
behalf of any of its security holders) at any time after January 1, 1999.
We granted Nida & Maloney a warrant to purchase 40,000 shares of common
stock as payment toward their outstanding legal fees. The holders of the
warrants were granted piggyback registration rights with respect to the 40,000
shares of common stock underlying the warrants.
We granted Joseph D. Kowal a warrant to purchase 72,917 shares of common
stock in consideration for investor relations services he personally rendered
for us. Mr. Kowal was granted piggyback registration rights with respect to the
72,917 shares of common stock underlying the warrants.
On Stage granted certain piggyback registration rights with respect to (i)
the 206,612 shares of common stock issued to Calvin Gilmore in connection with
the Calvin Gilmore acquisition and (ii) the 169,537 shares of common stock
purchased by Calvin Gilmore from Mr. Stuart on June 30, 1998. The piggyback
registration rights permit Calvin Gilmore to request us to include these 376,149
shares of common stock in any registration statement that we file on or after
July 1, 1998 and before July 1, 2013. Beginning on July 1, 2000 and lasting as
long as Calvin Gilmore owns any of such 376,149 shares of On Stage, Calvin
Gilmore also has the right to request one demand registration with respect to
such shares.
We granted James Owen 8,471 shares of common stock in connection with the
resolution of certain litigation pending against us. Mr. Owen was granted
piggyback registration rights with respect to the 8,471 shares.
We granted John W. Stuart a warrant to purchase an aggregate of 300,000
warrants to purchase shares of common stock in connection with a loan Mr. Stuart
made to us. Mr. Stuart was granted piggyback registration rights with respect to
the 300,000 shares of common stock underlying the warrants.
Nevada Law and Articles of Incorporation and Bylaws Provisions Affecting
Stockholders
Our Certificate of Incorporation, By-laws and the General Corporation Law
of the State of Nevada may have the effect, either alone or in combination with
each other, of making more difficult or discouraging a tender offer, change in
control or takeover attempt that is opposed by our board.
Staggered Board
Our by-laws provide that the board will be divided into three classes of
directors, with the classes to be as nearly equal in number as possible. The
by-laws provide that Class I shall be comprised of directors who shall serve
until the annual meeting of stockholders in 1998 and until their successors
shall have been elected and qualified. Class II shall be comprised of directors
who shall serve until the annual meeting of stockholders in 1999 and until their
successors shall have been elected and qualified. Class III shall be comprised
of directors who shall serve until the annual meeting of stockholders in 2000
and until their successors shall have been elected and qualified. The
classification of directors will have the effect of making it more difficult for
stockholders to change the composition of the board. The classification
provisions could also have the effect of discouraging a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to
obtain control of On Stage.
69
<PAGE>
Control Share Acquisitions
Pursuant to Sections 78.378 to 78.3793 of the Nevada General Corporation
Law (the "NGCL"), an "acquiring person," who acquires a "controlling interest"
in an "issuing corporation," may not exercise voting rights on any "control
shares" unless such voting rights are conferred by a majority vote of the
disinterested stockholders of the issuing corporation at a special meeting of
such stockholders held upon the request and at the expense of the acquiring
person. In the event that the control shares are accorded full voting rights and
the acquiring person acquires control shares with a majority or more of all the
voting power, any stockholder, other than the acquiring person, who did not vote
in favor of authorizing voting rights for the control shares, is entitled to
demand payment for the fair value of his or her shares, and the corporation must
comply with the demand. For purposes of the above provisions, "acquiring person"
means (subject to certain exceptions) any person who, individually or in
association with others, acquires or offers to acquire, directly or indirectly,
a controlling interest in an issuing corporation. "Controlling interest" means
the ownership of outstanding voting shares of an issuing corporation sufficient
to enable the acquiring person, individually or in association with others,
directly or indirectly, to exercise (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, and/or (iii) a
majority or more of the voting power of the issuing corporation in the election
of directors. Voting rights must be conferred by a majority of the disinterested
stockholders as each threshold is reached and/or exceeded. "Control shares"
means those outstanding voting shares of an issuing corporation which an
acquiring person acquires or offers to acquire in an acquisition or within 90
days immediately preceding the date when the acquiring person became an
acquiring person. "Issuing corporation" means a corporation that is organized in
Nevada, has 200 or more stockholders (at least 100 of whom are stockholders of
record and residents of Nevada) and does business in Nevada directly or though
an affiliated corporation. The above provisions do not apply if the Articles of
Incorporation or By-laws of the corporation in effect on the 10th day following
the acquisition of a controlling interest by an acquiring person provide that
said provisions do not apply. Our bylaws exclude us from the restrictions
imposed by those provisions.
Certain Business Combinations
Sections 78.411 to 78.444 of the NGCL restrict the ability of a "resident
domestic corporation" to engage in any combination with an "interested
stockholder" for three years following the interested stockholder's date of
acquiring the shares that cause such stockholder to become an interested
stockholder, unless the combination or the purchase of shares by the interested
stockholder on the interested stockholder's date of acquiring the shares that
cause such stockholder to become an interested stockholder is approved by the
board of directors of the resident domestic corporation before that date. If the
combination was not previously approved, the interested stockholder may effect a
combination after the three-year period only if such stockholder receives
approval from a majority of the disinterested shares or the offer meets certain
fair price criteria. For purposes of the above provisions, "resident domestic
corporation" means a Nevada corporation that has 200 or more shareholders.
"Interested stockholder" means any person, other than the resident domestic
corporation or its subsidiaries, who is (i) the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the outstanding voting shares
of the resident domestic corporation or (ii) an affiliate or associate of the
resident domestic corporation and, at any time within three years immediately
before the date in question, was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then outstanding shares of the
resident domestic corporation. The above provisions do not apply to any
combination of a resident domestic corporation; (i) whose current articles of
incorporation expressly state that the corporation is not to be governed by
these provisions; or (ii) that amends its articles of incorporation through a
vote of a majority of its stockholders, excluding any interested stockholders,
so as to expressly elect not to be governed by these provisions. However, in the
event a corporation amends its articles of incorporation in accordance with
subsection (ii), above, such an amendment would not become effective until
eighteen (18) months after its passage and would apply only to stock
acquisitions occurring after its effective date. As noted above, our Amended and
Restated Articles of Incorporation do not exclude us from the restrictions
imposed by those provisions.
70
<PAGE>
Indemnification of Officers and Directors
Subsection 1 of Section 78.7502 of Chapter 78 of the Nevada General
Corporation Law ("NGCL") empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe his action was unlawful.
Subsection 2 of Section 78.7502 of the NGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including amounts paid in settlement and
attorneys' fees, actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation. Except that no indemnification may be made in respect of any
claim, issue or matter as to which such person has been adjudged by a court of
competent jurisdiction after exhaustion of all appeals therefrom to be liable to
the corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which such action or suit was brought or
other court of competent jurisdiction determines upon application that, in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section 78.7502 (3) of the NGCL further provides that, to the extent a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in the defense of any action, suit or proceeding referred to
in subsection (1) and (2), or in the defense of any claim, issue or matter
therein, the corporation shall indemnify him against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense. Section 78.751(3) of the NGCL provides that the indemnification
provided for by Section 78.7502 of the NGCL shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled and that the scope
of indemnification shall continue as to directors, officers, employees or agents
who have ceased to hold such positions, and inures to the benefit of their
heirs, executors and administrators.
71
<PAGE>
Section 78.752 of the NGCL empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the authority to indemnify him against such liabilities
and expenses.
Our bylaws provide that directors, officers and certain other persons
may be indemnified to the fullest extent authorized by Nevada law. Section
78.751 of the NGCL provides that any discretionary indemnification under NGCL
78.7502, unless ordered by a court or pursuant to the provisions of subsection
(2) of Section 78.751 must be authorized by a determination of the stockholders,
a majority vote of a quorum of the disinterested board of directors and by
independent legal counsel in a written opinion, or if a quorum of disinterested
directors cannot be obtained by independent legal counsel in a written opinion.
To the extent that any of our directors, officers, employees, or agents
have been successful on the merits or otherwise in defense of any of the
foregoing actions, suits, or proceedings, such person must be indemnified
against reasonable expenses incurred by him in connection with the defense of
such action.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling On Stage
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act of 1933 and is therefore
unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
We currently have 6,985,279 shares of common stock outstanding, along with
2,050,155 shares reserved for issuance upon the exercise of outstanding warrants
and/or options to purchase shares of our common stock, of which all 4,489,903
shares offered hereby, along with the 1,400,000 shares offered in the initial
public offering, will be freely tradable without restriction or further
registration under the Securities Act. The remaining 3,740,940 shares of common
stock outstanding are deemed to be "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act, and may only be
sold
72
<PAGE>
(1) pursuant to an effective registration under the Securities Act,
(2) in compliance with the exemption provisions of Rule 144, or
(3) pursuant to another exemption under the Securities Act.
Those restricted shares of common stock will become eligible for sale, under
Rule 144, at various times, subject to certain volume limitations prescribed by
Rule 144 and to the agreements discussed below. In general, under rule 144 as
currently in effect, beginning 90 days after the date of this Prospectus, a
person or persons whose shares are aggregated, including any affiliate of On
Stage, who has beneficially owned restricted securities for at least one year,
including the holding period of any prior owner other than an affiliate of On
Stage, would be entitled to sell within any three-month period, a number of
shares that does not exceed the greater of:
(a) one percent of the number of shares of common stock then
outstanding--approximately 69,853 shares immediate after the offering; or
(b) the average weekly trading volume of the common stock during the four
calendar weeks preceding the filling of a Form 144 with respect to the
sale.
No prediction can be made as to the effect, if any, that sales of shares of
common stock, or even the availability of those shares for sale, will have on
the market prices prevailing from time to time. We have also reserved for
issuance 1,400,000 shares of common stock under our 1996 Amended and Restated
Stock Option Plan. These shares have been registered under the Securities Act by
the filing of a registration statement in Form S-8 and will be freely tradable
upon exercise of the underlying stock options. The possibility that substantial
amounts of common stock may be sold in the public market may adversely affect
prevailing market prices for the common stock and could impair our ability to
raise capital through the sale of our equity securities.
Prior to this offering, the market for our securities has been
characterized by volatility and low trading volume. No predictions can be made
with respect to the effect, if any, that public sales of shares of the common
stock or the availability of shares for sale will have on the market price of
the common stock after the offering. Sales of substantial amounts of common
stock in the public market following the offering, or the perception that such
sales may occur, could adversely affect the market price of the common stock or
our ability to raise capital through sales of its equity securities. See "Risk
Factors--Shares Eligible for Future Sale."
73
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
offered hereby will be passed upon by Chris Grobl, Esq., General Counsel of
OnStage.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for each of the two years in the period ended December 31, 1998 included in this
Prospectus have been included in reliance on the report of BDO Seidman, LLP,
independent certified public accountants, given on authority of that firm as
experts in auditing and accounting.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC. This
Prospectus forms a part of that registration statement. This Prospectus does not
contain all of the information set forth in the registration statement and the
exhibits to the registration statement. Some of the items in the registration
statement are omitted from this Prospectus as permitted by the rules and
regulations of the SEC. Statements made in this Prospectus as to the contents of
any contract or other document are not necessarily complete and, in each
instance, we refer you to the copy of the contract or other document filed as an
exhibit to the registration statement. Each statement about those contracts is
qualified in its entirety by that reference.
Following the offering, we will become subject to the reporting
requirements of the Securities Exchange Act of 1934. In accordance with that
law, we will be required to file reports and other information with the SEC. The
registration statement and exhibits, as well as those reports and other
information when so filed, can be inspected without charge and copied, at
prescribed rates, at the public reference facilities maintained by the SEC at
450 Fifth Street, NW, Washington, D.C. 20549; and at the regional offices of the
SEC at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of the material may be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates or at the SEC's web site at http://www.sec.gov. Those reports and other
information may also be inspected at the office of The Nasdaq Stock Market,
Inc., 1735 K Street, N.W., Washington D.C. 20006-1500, once the common stock has
been approved for listing or quotation on each.
We will furnish our stockholders annual reports and unaudited quarterly
reports for the first three quarters of each fiscal year. Annual reports will
include audited consolidated financial statements prepared in accordance with
generally accepted accounting principles. The financial statements included in
the annual reports will be examined and reported upon, with an opinion
expressed, by our independent auditors.
74
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Page
Independent Certified Public Accountant's Report................. F-2
Consolidated Financial Statements
Balance sheets........................................... F-3 - F-4
Statements of operations................................. F-5
Statements of stockholder's equity (deficit)............. F-6 - F-7
Statements of cash flows................................. F-8 - F-9
Supplemental schedule of noncash investing and
financing activities................................... F-10
Summary of accounting policies........................... F-11 - F-15
Notes to financial statements............................ F-16 - F-50
Unaudited consolidated financial statements for the three months
ended March 31, 1999 and 1999................................. F-37 - F-40
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders of On Stage Entertainment, Inc. and
Subsidiaries
We have audited the accompanying consolidated balance sheets of On Stage
Entertainment, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of On Stage
Entertainment, Inc. and Subsidiaries at December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the years then
ended, in conformity with generally accepted accounting principles. The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring operating
losses, and at December 31, 1998, has a working capital deficiency of
$16,791,483 that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ BDO SEIDMAN, LLP
Los Angeles, California
April 5, 1999
F-2
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
Years ended December 31,
------------------------
1997 1998
---------- ---------
Assets
Current assets
Cash and cash equivalents..................................$ 2,323,559 $1,009,768
Accounts receivable, net .................................. 455,340 1,264,526
Inventory.................................................. 118,700 243,413
Deposits................................................... 342,096 125,784
Prepaid and other assets................................... 271,338 594,777
Notes receivable from
officers (Note 7)........................................ 136,194 77,330
---------- ----------
Total current assets.......................................... 3,647,227 3,315,598
---------- ----------
Property, equipment and leasehold
improvements (Notes 1 and 3)............................... 5,008,835 24,130,663
Less: Accumulated depreciation
and amortization........................................... (2,553,347) (4,396,229)
----------- ----------
Property, equipment and leasehold
improvements, net.......................................... 2,455,488 19,734,434
----------- ----------
Cost in excess of net assets acquired,
net of accumulated amortization of
$7,370 at December 31, 1997 (Note 4) 116,415 -
Direct acquisition costs (Note 11)........................... 258,133 -
Deferred financing costs, net of
amortization of $80,813(Note 11).......................... - 1,039,187
------------ ----------
$ 6,447,263 $24,089,219
============ ===========
Liabilities and Stockholders' Equity
Current liabilities
Working capital line (Note 3).............................. $ - $ 999,679
Accounts payable and accrued expenses 880,286 2,533,232
Accrued payroll and other liabilities 698,499 1,891,924
Current maturities of long-term
debt (Note 3)............................................. 271,918 14,682,246
------------ -----------
Total current liabilities.................................... 1,850,703 20,107,081
------------ -----------
Long-term debt, less current
maturities (Note 3)........................................ 550,332 786,468
------------ -----------
Total liabilities............................................ 2,401,035 20,893,549
------------ -----------
</TABLE>
F-3
<PAGE>
<TABLE>
<S> <C> <C>
Commitments and contingencies (Note 4)
Stockholders' equity (deficit) (Notes 3
and 5)
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 7,452,350 shares
issued and outstanding.................................... 65,955 74,523
Additional paid-in capital............................... 7,340,013 11,254,587
Accumulated other comprehensive income
Currency exchange adjustment............................ - 67,289
Accumulated deficit...................................... (3,329,740) (8,200,729)
------------ -----------
Total stockholders' equity.................................. 4,076,228 3,195,670
------------ -----------
$ 6,477,263 $24,089,219
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
Years ended December 31,
----------------------------------
1997 1998
-------------- -------------
Net revenues.......................................... $ 15,726,074 $ 27,847,476
Direct production costs............................... 11,413,524 22,228,524
-------------- -------------
Cost of revenues...................................... 4,312,550 5,618,952
-------------- -------------
Operating expenses
Selling, general and administrative................. 4,946,135 6,276,325
Depreciation and amortization....................... 982,180 1,806,526
Impairment loss (Note 12)........................... - 409,117
Expenses at discontinued location (Note 8).......... 489,285 443,096
-------------- -------------
Operating loss....................................... (2,105,050) (3,316,112)
Interest expense, net (See Note 9)................... 834,333 1,554,877
-------------- -------------
Loss before income taxes............................. (2,939,383) (4,870,989)
Income taxes (Note 10)............................... 6,673 -
-------------- -------------
Net loss............................................. $ (2,946,056) $ (4,870,989)
-------------- -------------
Basic loss per share................................. $ (0.55) $ (0.68)
-------------- -------------
Diluted loss per share............................... $ (0.55) $ (0.68)
-------------- -------------
Basic average number of common
shares outstanding.................................. 5,365,851 7,191,276
-------------- -------------
Diluted average number of common
shares outstanding.................................. 5,365,851 7,191,276
-------------- -------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS STOCKHOLDER'S
EQUITY Accumulated
<TABLE>
<S> <C> <C> <C> <C>
Other
Comprehensive
Shares Amount Capital Income
--------- ----------- ----------- -------------
Balance, December 31, 1996..... $ 4,002,044 $ 40,020 121,024 $ -
Issuance of common stock
in connection with the
bridge financing (Note 3)..... 195,500 1,956 364,344 -
Issuance of common stock
to officer (Note 4)........... 40,532 405 161,724 -
Warrant exchange (Note 5)...... 440,755 4,408 (4,408) -
Issuance of common stock
in connection with Interactive
Events acquisition (Note 5)... 11,020 110 60,500 -
Issuance of common stock
in connection with the initial
public offering (Note 5)...... 1,400,000 14,000 4,841,975 -
Issuance of common stock
in connection with the
Debentures conversion
(Note 3)...................... 505,649 5,056 1,794,854 -
Net loss for the year.......... - - - -
---------- ----------- ----------- ----------
Balance, December 31, 1997..... 6,595,500 65,955 7,340,013 -
Issuance of common stock in
connection with Gedco
acquisition (Note 11)......... 595,238 5,952 2,494,048 -
Issuance of common stock in
connection with Fox Family
acquisition (Note 11)......... 206,612 2,066 721,076 -
Issuance of common stock in
connection with private
placement (Note 5)............ 55,000 550 54,450 -
Issuance of warrants in
connection with financing
(Note 11)..................... - - 645,000 -
Comprehensive loss:
Net loss for the year......... - - - -
Currency exchange adjustment - - - 67,289
---------- ----------- ----------- ---------
Comprehensive loss............. - - - -
---------- ----------- ----------- ----------
Balance, December 31, 1998..... $7,452,350 $ 74,523 $11,254,587 $ 67,289
========== =========== =========== ==========
</TABLE>
F-6
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(continued)
<TABLE>
<S> <C> <C> <C>
Accumulated Comprehensive
Deficit Loss Total
--------------- -------------- --------------
Balance, December 31, 1996................. $ (383,684) $ - $ (222,640)
Issuance of common stock in connection
with the bridge financing (Note 3)........ - - 366,300
Issuance of common stock to officer
(Note 4).................................. - - 162,129
Warrant exchange (Note 5).................. - - -
Issuance of common stock in connection with
Interactive Events acquisition (Note 5)... - - 60,610
Issuance of common stock in connection with
the initial public offering (Note 5)...... - - 4,855,975
Issuance of common stock in connection with
the Debentures conversion (Note 3)........ - - 1,799,910
Net loss for the year...................... (2,946,056) (2,946,056) (2,946,056)
Balance, December 31, 1997................. (3,329,740) (2,946,056) 4,076,228
Issuance of common stock in connection with
Gedco acquisition (Note 12)............... - - 2,500,000
Issuance of common stock in connection with
Fox Family acquisition (Note 12).......... - - 723,142
Issuance of common stock in connection with
private placement (Note 5)................ - - 55,000
Issuance of warrants in connection with
financing (Note 12)....................... - - 645,000
Comprehensive loss:
Net loss for the year...................... (4,870,989) (4,870,989) (4,870,989)
Currency exchange adjustment................ - 67,289 67,289
--------------- -------------- -------------
Comprehensive loss.......................... (4,870,989) $ (4,803,700) (880,558)
--------------- -------------- --------------
Balance, December 31, 1998.................. $8,200,729 $(7,749,756) $3,195,670
=============== ============== ==============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-7
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Years ended December 31,
---------------------------------
1997 1998
-------------- --------------
Cash flows from operating activities
Net loss ...................................... $ (2,946,056) $ (4,870,989)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Depreciation and amortization.................. 676,306 1,085,766
Write off of cost in excess of
net assets acquired............................ - 102,131
Write off of deferred financing costs.......... - 275,000
Impairment loss................................ - 852,213
Interest paid in common stock.................. 194,228 -
Loss on disposal of property and equipment..... (10,834) -
Issuance of common stock to officer............ 162,129 -
Non-cash interest.............................. 366,300 -
Reverse litigation accrual..................... (25,000) -
Forgiveness of note receivable from stockholder 221,521 -
Increase (decrease) from changes in operating
assets and liabilities:
Accounts receivable............................ 46,723 (809,187)
Inventory...................................... (50,847) (4,629)
Deposits....................................... (110,495) 216,312
Pre-opening costs.............................. 129,180 -
Prepaid and other assets....................... (35,043) (165,923)
Accounts payable and accrued expenses.......... 281,243 591,900
Accrued payroll and other liabilities.......... 76,513 1,193,426
Litigation settlement accrual.................. (75,000) -
------------- ------------
Total adjustments................................. 1,846,924 3,337,009
------------- ------------
Net cash used in operating activities............. (1,099,132) (1,533,980)
------------- -----------
</TABLE>
F-8
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase(Decrease) in Cash and Cash Equivalents (continued)
<TABLE>
<S> <C> <C>
Years ended December 31,
---------------------------------
1997 1998
-------------- -------------
Cash flows from investing activities
Advances on notes receivable from officers..... (357,715) (69,024)
Pay down on note receivable from officers...... - 127,888
Capital expenditures........................... (625,612) (947,165)
Payment for acquisitions, net of cash acquired. - (14,602,005)
Direct acquisition costs....................... (258,133) 942,063
------------ -------------
Net cash used in investing activities........... (1,241,460) (14,548,243)
------------ -------------
Cash flows from financing activities:
Borrowing under working capital line........... - 1,000,000
Proceeds from long-term borrowing.............. - 13,860,007
Repayment on long-term borrowing............... (1,140,376) (213,864)
Proceeds from bridge notes..................... 875,000 -
Payments of bridge notes....................... (875,000) -
Net proceeds from sale of common stock
and warrants................................. 4,855,975 55,000
Offering costs................................. 657,801 -
------------ ------------
Net cash provided by financing activities....... 4,373,400 14,701,143
------------- ------------
Effect of exchange rate charges on cash
and cash equivalents........................... $ - $ 67,289
------------- ------------
Net increase (decrease) in cash and cash
equivalents.................................... 2,032,808 (1,313,791)
Cash and cash equivalents at beginning of year.. 290,751 2,323,559
------------- ------------
Cash and cash equivalents at end of year........ $ 2,323,559 $ 1,009,768
------------- ------------
Supplemental Disclosure of Cash
Flow Information
Cash paid during the year for:
Interest..................................... $ 278,059 $ 1,551,574
Taxes........................................ $ 6,673 $ 44,111
============= ============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-9
<PAGE>
Supplemental Schedule of Non-Cash Investing and Financing Activities
During 1997 and 1998, $712,405 and $1,000,000 of leased assets and
obligations were capitalized, respectively.
During 1997, the Company borrowed an aggregate of $1,000,000 from 21
private investors, in return for which the Company issued to such investors
unsecured non-negotiable notes payable, which accrued interest at an annual rate
of 9% and which matured upon the consummation the initial public offering (the
"Bridge Notes"), Common Stock and warrants (collectively, the "Bridge
Financing"). The Common Stock issued in connection with the Bridge Financing was
valued at $366,300. As no consideration was paid for the Common Stock, this
amount is considered an original issue discount and amortized over the term of
the Bridge Notes.
During 1997, the Company exchanged all of its outstanding warrants for
440,755 shares of Common Stock, which had no effect on the Company's earnings.
During 1997, the Company sold equipment with a historical cost of
approximately $55,000 at a gain. The Company accepted a note receivable as
payment for the sale.
Upon the consummation of the Company's initial public offering, 1,799,910
of outstanding convertible debentures were converted into 505,549 shares of
common stock.
During 1997, the Company issued 11,020 shares of common stock in connection
with the Interactive Events acquisition.
During 1998, in connection with mortgage financing related to the Gedco
Acquisition, the Company issued 575,000 warrants to purchase the Company's
Common Stock to the lender and an affiliate of the lender, which were originally
valued at $500,000 and accounted for as an original issue discount. Of the
575,000 warrants originally issued, 325,000 were subsequently repriced (see Note
3) and were valued at $145,000 and accounted for as an original issue discount.
The Company wrote off the remaining unamortized value of the 325,000 warrants of
$275,000.
F-10
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Business Activity
On Stage Entertainment, Inc. (the "Company") produces and sells live
entertainment and operates live theaters and dinner theaters worldwide. The
Company has continuous running shows in gaming and resort venues in California,
Florida, Missouri, Nevada, New Jersey, Pennsylvania and South Carolina. The
Company was incorporated on October 30, 1985 in the state of Nevada.
Principles of Consolidation
The financial statements include the amounts of On Stage Entertainment,
Inc., a publicly traded Nevada corporation (the "Company" or "OSE") and its
subsidiaries, Legends in Concert, Inc., a Nevada corporation ("LIC"); On Stage
Marketing, Inc., a Nevada corporation ("Marketing"); On Stage Theaters, Inc., a
Nevada corporation ("Theaters"); Wild Bill's California, Inc., a Nevada
corporation ("Wild Bills"); Fort Liberty, Inc., a Nevada corporation ("Ft.
Liberty"); Blazing Pianos, Inc., a Nevada corporation ("Blazing"); King Henry's
Inc., a Nevada corporation ("King Henry"s"); On Stage Merchandise, Inc., a
Nevada corporation ("Merchandise"); On Stage Events, Inc., a Nevada corporation
("Events"); On Stage Casino Entertainment, Inc. a Nevada corporation ("Casino");
On Stage Productions, Inc., a Nevada corporation ("Productions"); On Stage
Theaters North Myrtle Beach, Inc., a Nevada corporation ("North Myrtle"); On
Stage Theaters Surfside Beach, Inc., a Nevada corporation ("Surfside"); and
Interactive Events, Inc., a Georgia corporation (collectively, the
"Subsidiaries"). All significant intercompany transactions and balances have
been eliminated in consolidation. The consolidated group is referred to
collectively and individually as the "Company."
Accounts Receivable
Accounts receivable and revenue are recorded as the stage productions are
run. Accounts receivable represents cash collected subsequent to the year-end in
which the show ran.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-11
<PAGE>
Inventory
Inventory consists of various stage and lighting supplies and are stated at
cost on a first-in, first-out basis.
Property, Equipment and Leasehold Improvements
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Renewals or betterments of
significant items are capitalized. When assets are sold or otherwise disposed of
the cost and related accumulated depreciation or amortization are removed from
the respective accounts, and any resulting gain or loss is recognized.
Depreciation and amortization of property and equipment purchased prior to
January 1, 1996 are provided using accelerated methods while property and
equipment purchased from January 1, 1996 are depreciated on a straight line
basis over the estimated useful lives, as indicated below. Leasehold
improvements are amortized over the lesser of the related assets useful life or
the remaining lease term.
Years
-------------
Buildings.................................... 20
Stage equipment.............................. 5-7
Scenery and wardrobe......................... 5-7
Furniture and fixtures....................... 5-7
Vehicles..................................... 3
Leasehold improvements....................... 10
Impairment of Long-Lived Assets
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS No. 121")
which is effective for financial statements for fiscal years beginning after
December 15, 1995. This standard establishes guidelines regarding when
impairment losses on long-lived assets, which include plant and equipment, and
certain identifiable intangible assets, should be recognized and how impairment
losses should be measured. The Company adopted this accounting standard on
January 1, 1996 and is applying the concepts to intangibles and productive
assets periodically (see Notes 12).
Stock Based Compensation
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from non-employees in exchange for equity
instruments. The Company adopted this accounting standard on January 1, 1996.
SFAS No. 123 also encourages, but does not require companies to record
compensation cost for stock-based employee compensation. The Company has chosen
to continue to account for stock-based compensation utilizing the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees, and comply with pro forma disclosure
requirements." Accordingly, compensation cost for stock options is measured as
the excess, if any, of the fair market price of the Company's stock at the date
of grant over the amount an employee must pay to acquire the stock.
F-12
<PAGE>
Loss Per Share
Statement of Financial Accounting Standard No. 128 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. SFAS 128 is effective for fiscal years and interim periods after December
15, 1997. The Company has adopted this pronouncement during the fiscal year
ended December 31, 1997.
For the years ended December 31, 1998 and 1997, potential diluted
securities representing 896,344 and 720,938 outstanding options and 2,724,917
and 2,077,000 outstanding warrants are not included since their effect would be
anti-dilutive.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Statements", ("SFAS No. 107") issued by the FASB became
effective December 31, 1995. This statement requires the disclosure of estimated
fair values for all financial instruments for which it is practicable to
estimate fair value.
The carrying amounts of financial instruments including cash, accounts
receivable, current maturities of long-term debt, and accounts payable,
approximate fair value because of their short maturity.
The carrying amount of long-term debt approximates fair value because the
interest rates on these instruments approximate the rate the Company could
borrow at December 31, 1998.
The Company has notes receivable from officers of the Company. Due to the
related-party nature of these receivables the fair value cannot be determined.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109 requires an asset
and liability approach to providing deferred income taxes and specifies that all
deferred tax balances be determined by using the tax rate expected to be in
effect when the taxes will actually be paid or refunds received.
F-13
<PAGE>
Cash Equivalents
The Company considers all liquid assets with an initial maturity of
three months or less to be cash and/or cash equivalents.
Foreign Currency Translation
Assets and liabilities of the Company's foreign affiliates are translated
at current exchange rates, while revenue and expenses are translated at average
rates prevailing during the year. Translation adjustments are reported as a
component of other comprehensive income in stockholders' equity.
Concentration of Credit Risk
The Company places its cash and temporary cash investments with banking
institutions. At December 31, 1997 and 1998, the Company had $2,600,788 and
$252,910 on deposit at one bank. Account balances at an individual bank are
insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000.
New Accounting Standards
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130") issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company adopted SFAS No. 130 as of
January 1, 1998 and it had no effect on its financial position or results of
operations.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") issued by
the FASB is effective for financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted. SFAS No. 131 requires that
the public companies report certain information about operating segments,
products, services and geographical areas in which they operate and their major
customers. The Company adopted SFAS No. 131 on January 1, 1998 and it had no
effect on its financial position or results of operations; however, disclosures
on certain of these items was expanded.
Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities," ("SOP 98-5") issued by the American Institute of Certified Public
Accountants is effective for financial statements beginning after December 15,
1998. SOP 98-5 requires that the costs of start-up activities, including
organization costs, be expensed as incurred. Start-up activities are defined
broadly as those one-time activities related to opening a new facility,
introducing a new product
F-14
<PAGE>
or service, conducting business in a new territory, conducting business with a
new class of customers (excluding ongoing customer acquisition costs, such as
policy acquisition costs and loan origination costs) or beneficiary, initiating
a new process in an existing facility, or commencing some new operation. The
Company does not expect the adoption of SOP 98-5 to have a material impact, if
any, on its financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for financial statements with
fiscal years beginning after June 15, 1999. SFAS No. 133 provides a
comprehensive and consistent standards for the recognition and measurement of
derivatives and hedging activities and requires all derivatives to be recorded
on the balance sheet at fair value. The Company does not expect the adoption of
SFAS No. 133 to have a material impact, if any, on its results of operations,
financial position or cash flows.
Reclassifications
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
F-15
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the
following:
<TABLE>
<S> <C> <C>
December 31,
--------------------------------------
1997 1998
--------------- ---------------
Land.................................................. $ - $ 11,329,376
Buildings............................................. - 4,389,287
Stage equipment....................................... 2,267,456 3,743,769
Scenery and wardrobe.................................. 1,047,750 1,286,957
Furniture and fixtures................................ 1,002,674 1,134,555
Vehicles.............................................. 12,757 12,757
Leasehold improvements................................ 678,198 2,233,962
-------------- --------------
5,008,835 24,130,663
Less accumulated depreciation and amortization........ (2,553,347) (4,396,229)
-------------- --------------
Total property, equipment and leasehold improvements, net.. $ 2,455,488 $ 19,734,434
============== ==============
</TABLE>
The cost of assets held under capital leases was $1,008,432 and $2,008,432 at
December 31, 1997 and 1998, respectively.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. The carrying amounts of assets and liabilities presented in
the financial statements do not purport to represent realizable or settlement
values. However, the Company has suffered recurring operating losses and has a
working capital deficit $16,791,000 that impairs its ability to obtain
additional financing. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties
The Company has historically met its working capital requirements through a
combination of cash flow from operations, equity and debt offerings and
traditional bank and financing. The Company anticipates, based on its proposed
plans and assumptions relating to its operations that the Company's current
cash, cash equivalent balances, anticipated revenues from operations are
insufficient to fund the Company's ongoing operations.
The Company intends to manage short-term liquidity concerns through the
renegotiations of its expired working capital line, capital leases and mortgage
facilities. The Company has either closed down or restructed any business units
that are not generating positive cash flow. In addition, the Company has lowered
selling, general and administrative costs as a percent of net revenues from 32%
in 1997 to 22% in 1998 and continues to downsize and restructure its selling,
general and administrative functions.
F-16
<PAGE>
NOTE 2 - GOING CONCERN (continued)
In addition, the Company is continuing its efforts to secure working
capital for operations, expansion and possible acquisitions, mergers, joint
ventures, and/or other business combinations. However, there can be no assurance
that the Company will be able to secure additional capital or that if such
capital is available, whether the terms or conditions would be acceptable to the
Company.
NOTE 3 - WORKING CAPITAL LINE, NOTES PAYABLE AND LONG-TERM DEBT
Working Capital Line
In May 1997, First Security Bank of Nevada ("First Security") issued a line
of credit to the Company for up to $250,000. Borrowings under such facility bear
variable interest at 1.5% over the First Security Bank of Idaho's index (9.25%
at December 31, 1998). On September 28, 1998, First Security increased the line
of credit from $250,000 to $1,000,000 and extended the expiration date of the
line to March 25, 1999. As of December 31, 1998, the Company had drawn
$1,000,000 on the line of credit and the balance outstanding at December 31,
1998 is $999,679. The CEO has personally guaranteed the line of credit.
Long-term debt consists of the following:
<TABLE>
<S> <C> <C>
December 31,
------------------------------------
1997 1998
------------- -------------
ICCMIC Mortgage Loan (a)................................... $ - $ 14,150,000
Capital lease obligations with interest ranging
from 9.7% to 30.7% due in monthly installments
ranging from $265 to $18,202, including interest,
various maturities dates through November 2001,
secured by office communication equipment,
and production equipment................................. 822,250 1,318,714
------------- -------------
Total long-term debt....................................... 822,250 15,468,714
Less current maturities.................................... 271,918 14,682,246
------------- -------------
$ 550,332 $ 786,468
============= =============
</TABLE>
F-17
<PAGE>
NOTE - 3 WORKING CAPITAL LINE (Continued)
As of December 31, 1998 the future minimum principal debt payments and
lease payments under capital leases are as follows:
<TABLE>
<S> <C> <C>
Year ending ICCMIC Capital
December 31, Loan Leases
----------------- -------------- --------------
1999.................................... $ 14,150,000 $ 638,227
2000.................................... - 597,541
2001.................................... - 250,751
-------------- --------------
$ 14,150,000
==============
Total....................................... 1,486,519
==============
Less: Amounts representing interest costs... 167,805
--------------
Net present values.......................... 1,318,714
Less: Capital lease obligations
included in short-term debt............... 532,246
--------------
Long-term capital lease obligations......... $ 786,468
=========
</TABLE>
F-18
<PAGE>
NOTE 3 - WORKING CAPITAL LINE, NOTES PAYABLE AND LONG-TERM DEBT (Continued)
Working Capital Line (Continued)
(a) The Company funded the cash portion of the Gedco Acquisition purchase
price and transaction fees and expenses with $12.5 million of mortgage financing
from Imperial Credit Commercial Mortgage Investment Corp ("ICCMIC")(see Note
11). This mortgage facility matures on March 13, 2029 and installments thereon
are paid monthly at an interest rate of 9.75%. In connection with the financing,
the Company issued ICCMIC and Imperial Capital Group LLC (an affiliate of
ICCMIC), an aggregate of 575,000 warrants immediately exercisable into shares of
Common Stock at an exercise price of $4.44. These warrants were valued at
$500,000 and accounted for as an original issue discount. Additionally, the
Company funded the cash portion of the Fox Family Acquisition (see Note 11) with
$1,000,000 of mortgage financing from ICCMIC. The mortgage facility matures on
June 30, 2029 and installments thereon are paid monthly at a rate of 10.28%.
On October 7, 1998, ICCMIC loaned the Company an additional $550,000,
secured by a first deed of trust on the Company's Legends in Concert Theater in
Surfside Beach, South Carolina. In connection with this additional financing,
the Company modified the Common Stock purchase warrant that the Company issued
to ICCMIC on March 13, 1998 (and the corresponding warrant agreement) by
reducing the exercise price of ICCMIC's 325,000 warrants to purchase shares of
the Company's Common Stock from $4.44 per share to $1.25 per share. The
re-priced warrants were valued at $145,000 and accounted for as an original
issue discount. The Company wrote off the remaining unamortized original value
of the 325,000 warrants of $275,000.
During 1995, the Company conducted a private placement of debentures
originally due on August 31, 1997, (the "Original Debentures") with aggregate
proceeds of $1,989,064 (the "1995 Private Placement"). In order to (i) extend
the maturity date of the Original Debentures and (ii) eliminate certain
covenants in the Original Debentures that were disadvantageous to the Company,
the Company offered to either (a) exchange the outstanding original Debentures
for Debentures due January 4, 1999, or (b) to repurchase the original Debentures
upon the terms and subject to the conditions set forth in an Offer to Exchange
or Repurchase the original Debentures (the "Exchange or Repurchase Offer"). In
connection with the Exchange or Repurchase Offer, the holders of $1,714,064
principal amount of the Original Debentures tendered their original Debentures
in exchange for Debentures in the same principal amount and holders of $275,000
principal amount of the Original Debentures opted to have them repurchased. On
August 13, 1997, the Company converted the entire $1,714,064 principal amount of
Debentures into an aggregate of 505,649 shares of common stock. The
aforementioned conversion was based upon a ratio of 295 shares of common stock
F-19
<PAGE>
NOTE 3 - WORKING CAPITAL LINE, NOTES PAYABLE AND LONG-TERM DEBT (Continued)
Working Capital Line (continued)
per each $1,000 principal amount of Debentures. The conversion resulted in a
onetime, non-recurring, interest expense charge in the amount of $194,228 (based
on an imputed value of $ 4.00 per share of common stock).
On February 29, 1996, On Stage entered into a loan agreement with DYDX
Legends Group, L.P. ("DYDX") pursuant to which On Stage borrowed $1,000,000 from
DYDX(the "DYDX Loan"). The DYDX Loan accrued interest at a rate of 8% per annum,
was to mature on January 1, 1998 and was secured by a security agreement
pursuant to which DYDX had a lien on substantially all of the present and future
assets of On Stage. In addition, if On Stage did not file an initial public
offering registration statement by June 30, 1996, it would be in default under
the DYDX Loan.
The Company and DYDX entered into several extension agreements, one of
which included the repayment of $250,000.
In order to effect the bridge financing (defined below), On Stage and DYDX
entered into an Amended and Restated Loan Agreement as of March 19, 1997 in
connection with which the security agreement executed in connection with the
DYDX Loan and DYDX's security interest in the Company's assets were terminated,
the maturity date of the DYDX Loan was extended to coincide with that of the
bridge financing notes and its interest rate was increased to 9% per annum. On
August 13, 1997, the Company paid off, in full, all outstanding principal and
accrued interest of $773,014, owed by the Company under the DYDX loan.
Bridge Financing
On March 26, 1997, On Stage completed a bridge financing of $1,000,000 of
unsecured non-negotiable notes, common stock and warrants (the "Bridge
Financing") through On Stage's underwriter, Whale Securities Co., L.P. (the
"Placement Agent"). The net proceeds to the Company after deducting the
Placement Agent's commissions and other offering expenses were $875,000. The
common stock was assigned a value of $444,000 less expenses of $77,700 resulting
in a credit to equity of $366,300. As no consideration was paid for the common
stock, this amount is considered an original issue discount and interest expense
over the term of the related notes payable. On August 13, 1997, the Company paid
off, in full, all outstanding principal and accrued interest of $1,036,746, owed
by the Company under the Bridge Financing notes.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Leases
On Stage leases various offices, condominiums, warehouses and theaters
under operating leases ranging in monthly payments from $1,026 to $38,994. Rent
and lease expenses included in cost of revenues for the years ended December
31,1997 and 1998 was $595,425 and $1,301,771, respectively. Rent and lease
expenses included in selling, general and administrative expense for the years
ended December 31, 1997 and 1998 was $252,905 and $323,048, respectively.
F-20
<PAGE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
The total minimum rental commitment at December 31, 1998 is as follows:
Year ending
December 31, Amount
-------------------- --------------
1999............................................ $ 1,223,346
2000............................................ 1,166,987
2001............................................ 1,048,471
2002............................................ 1,017,408
2003............................................ 547,421
Thereafter...................................... 4,496,638
--------------
$ 9,500,271
==============
Employment Contracts
On February 1, 1997, the Company entered into an employment agreement with
the principal stockholder to employ him as its Chairman of the Board and Chief
Executive Officer until May 31, 2000. In accordance with this employment
agreement, the principal stockholder will receive an annual salary of $250,000.
and may be entitled to receive an annual 10% increase of his base salary amount.
The Company has the right to terminate the principal stockholder's employment at
any time without cause, provided that the Company pays the principal stockholder
a lump sum payment equal to one year's base salary, car allowance and insurance
allowance. Also in February 1997, the Company amended the employment agreements
with the CFO and the President which, among other things, extended their current
employment agreements through May 31, 2000. In connection with each of their
respective employment agreements, the CEO, President and CFO also entered into
confidentiality and non-competition agreements with the Company.
The Company has employment agreements with certain executive officers and
employees, the terms of which expire at various dates through May, 2000. Such
agreements provide for minimum salary levels and incentive bonuses based on
prescribed formulas over their terms.
Aggregate commitments related to employment contracts are as follows:
Year ending
December 31, Amount
-------------------- -------------
1999.......................................... $ 668,940
2000.......................................... 320,270
2001.......................................... 47,482
-------------
$ 1,036,692
============
Executive Bonus Plan
In March 1997, On Stage implemented a three-year Executive Bonus Plan,
administered by the Board of Director's Compensation Committee. Under the
Executive Bonus Plan, an annual bonus pool of up to 5% of On Stage's audited
pre-tax earnings, after non-recurring charges such as original issue discount,
F-21
<PAGE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
compensation and interest expense charges, but excluding extraordinary
items("Pre-Tax Earnings"), may be established for distributions at the
discretion of On Stage's Board of Directors, to On Stage's executive officers
(other than the Chairman and CEO who is not eligible for bonuses under the
Executive Bonus Plan)in 1998, 1999 and 2000, provided that On Stage achieves
minimum Pre-Tax Earnings for the respective preceding year as follows:
Minimum
Year ending Pre-Tax
December 31, Earnings
- -------------------- --------------
1998............................................ $ 5,000,000
1999............................................ 8,700,000
2000............................................ 8,900,000
--------------
$ 22,600,000
==============
Legal Proceedings
The Company is a party to various legal proceeding in the ordinary course
of its business. The Company believes that the nature of the proceedings are
typical for a company of its size and scope in the entertainment industry, and
that none of these proceedings are material to its financial position, results
of operations and changes in cash flows.
NOTE 5 - STOCKHOLDER'S EQUITY
Initial Public Offering
On August 13, 1997, the Company completed an initial public offering of
1,400,000 shares of Common Stock at $5.00 per share and redeemable warrants to
purchase 1,610,000 shares of Common Stock at $0.10 per warrant (the "IPO"). The
net proceeds to the Company of the IPO after underwriting discounts, commissions
and expenses was approximately $4,855,975.
Stock Split
On March 18, 1997, On Stage effectuated a 1 for 1.814967 reverse stock
split of On Stage's common stock ("Reverse Split"). Accordingly, $29,828 was
transferred from accumulated deficit to common stock and On Stage has retired
26,422 of the principal stockholder's shares of common stock. All common stock,
common stock warrants, options and grants and income (loss) per share
information disclosed in the financial statements and notes have been adjusted
to give effect to the Reverse Split and the retirement of the principal
stockholder common stock.
DY/DX Corp. Common Stock Purchase Agreement
On October 2, 1998, the Company entered into a common stock purchase
agreement with DY/DX Corp., an Illinois corporation, to sell up to 500,000
shares of On Stage's common stock at an aggregate purchase price of $500,000. As
of December 31, 1998, DY/DX Corp. had purchased 55,000 shares of On Stage's
common stock pursuant to this agreement.
F-22
<PAGE>
NOTE 5 - STOCKHOLDER'S EQUITY (Continued)
Warrants Converted to Common Stock
In connection with the closing of the DYDX Loan and subsequent extensions
(see Note 3), the lender was issued warrants to purchase 550,974 shares of the
Company's common stock in February 1996 at an original exercise price per share
equal to the initial public offering price of the Company's common stock (the
"DYDX Warrant"). In connection with the Third Extension of the DYDX Loan, the
Company split the DYDX Warrant into two warrants, one in the name of DYDX for
the purchase of 440,779 shares of Common Stock and the other in the name of an
affiliate of DYDX, for the purchase of 110,195 shares of Common Stock, and
reduced the exercise price of both warrants to $3.99 per share, which
approximates fair market value at the date of the reduction.
On March 17, 1997, the Company exchanged all of its outstanding warrants
for shares of its common stock (the "Warrant Exchange Shares") on a cashless
basis(the "Warrant Exchange"). The number of Warrant Exchange Shares issued to
each warrant holder in the Warrant Exchange was equal to the number of warrants
held by such holder divided by the exercise price of the holder's warrants,
based on the number and price of the warrants prior to the Reverse Split. As a
result of the Warrant Exchange, all of the Company's currently outstanding
warrants were canceled and exchanged for a total of 799,956 Warrant Exchange
Shares on a pre-Reverse Split basis, which amount was reduced to 440,755 shares
in connection with the Reverse Split. The Warrant Exchange had no effect upon
the Company's earnings.
1996 Stock Option Plan
The Board of Directors and the Company's then sole stockholder approved the
Company's Incentive Stock Option Plan on August 7, 1996 (the "Option Plan").
Pursuant to an amendment to the Option Plan, effected on March 19, 1997, an
aggregate of 785,000 shares of common stock have been reserved for issuance
pursuant to options granted and available for grant under the Option Plan. The
Option Plan is designed to further the interests of the Company by providing
incentives their employees to continue to work for the betterment of the Company
in return for sharing in the success of the Company through the Option Plan.
Under the Option Plan, a committee (the "Committee") has been appointed by
the Board of Directors to administer the Option Plan and is authorized to grant
options thereunder to all eligible employees of the Company, including certain
officers and directors of the Company as well as to others providing services to
the Company. The Option Plan provides for the granting of both: (i) "incentive
stock options" as defined in Section 422 of the Internal Revenue Code of 1986,
as amended, which are intended to qualify for special federal income tax
treatment ("ISOs") to employees (including officers and employee directors)
and(ii) "non-qualified stock options" ("NQSOs") to employees (including officers
and employee directors) non-employee directors, and consultants. Options can be
granted under the Option Plan on such terms and at such prices as determined by
the Committee, except that in the case of ISOs, the per share exercise price of
such options cannot be less than the fair market value of the Common Stock on
the date of grant. In the case of an ISO granted to a 10% stockholder the per
share exercise price cannot be less than 110% of such fair market value. To the
extent that the grant of an option results in the aggregate fair market value of
the shares with respect to which incentive stock options are exercisable by a
grantee for the first time in any calendar year exceed $100,000, such option
will be treated under the Option Plan as an NQSO.
Options granted under the Option Plan will become exercisable after
successful completion of the vesting period or periods specified in each option
agreement. Except as otherwise determined by the Committee, options become
exercisable as to one-third of the shares subject to the option on each of the
first, second and third anniversaries of the date of grant of the option.
Options are not exercisable, however, after the expiration of ten years from the
date of grant(or five years from such date in the case of an ISO granted to a
10% Stockholder) and are not transferable other than by will or by the laws of
descent and distribution.
F-23
<PAGE>
NOTE 5 - STOCKHOLDER'S EQUITY (Continued)
Except as the Committee may determine with respect to NQSOs, if the holder
of an option granted under the Option Plan ceases to be an employee, options
granted to such holder shall terminate three months (12 months if the
termination is a result of the death or disability of the employee) from the
date of termination of employment and shall be exercisable as to only those
options exercisable as of the date of termination.
In March 1996, On Stage hired a new President and Chief Operating Officer
(the "President"). As part of the President's employment agreement, On Stage
granted him options to purchase 311,300 shares of the Company's common stock.
The President has elected to classify 75,132 of the options as ISOs which vest
in three equal annual installments commencing on the date of the grant. The
remaining 236,168 are to be classified as NQSOs, of which one-half vest
immediately, one-quarter vest on the first anniversary of the grant date, and
the balance vest on the second anniversary of such grant. The exercise price of
all of the President's stock options is $3.99 per share, which was the fair
value at the date of grant.
In August and December 1996, the Company granted options to purchase a
total of 120,359 shares of the Company's common stock to certain other employees
of the Company. These options were granted under the Company's 1996 Stock Option
Plan and have an exercise price of $5.00 per share. Unless otherwise determined
by the Committee, the options have a term of ten years from the date of grant
and are subject to earlier termination in certain events related to the
termination of employment. The options vest in three equal annual installments
commencing on the first anniversary of the date of the grant.
In February 1997, the CFO entered into an amended employment agreement
under which he was granted 85,000 additional stock options (see Note 4).
Non-employee Directors' Options
In March 1997, the Company provided for each non-employee director of the
Company to receive, in addition to reimbursement of expenses incurred in
attending Board meetings, an option to purchase 10,000 shares of Common Stock
each year that he or she serves as such a director (each such year, a "Grant
Year"), partially contingent upon the director's attendance at the Company's
four scheduled Board of Director meetings during the Grant Year. One-quarter of
the annual option grant shall vest as of each of the Grant Year's first three
scheduled Board of Director meetings and the remainder of such option will vest
as of the fourth scheduled meeting, provided, in the latter case, that the
director has attended all four of that Grant Year's scheduled Board meetings.
In June 1998, the Company increased its number of shares of common stock
reserved for issuance pursuant to the exercise of options under the option Plan
from 765,000 to 1,400,000 options.
F-24
<PAGE>
NOTE 5 - STOCKHOLDER'S EQUITY (Continued)
Non-employee Directors' Options (Continued)
The option and warrant activity during the years ended December 31, 1997
and 1998 is as follows:
<TABLE>
<S> <C> <C>
Weighted
Number of Average
Options Exercise
and Warrants Price
-------------- -------------
Outstanding at December 31, 1996......................... $ 456,453 $ 4.31
Cancelled................................................ (8,000) (5.00)
Granted.................................................. 2,790,240 5.63
Exercised................................................ (440,755) (5.00)
-------------- -------------
Options and warrants outstanding at December 31, 1997..... 2,797,938 5.52
Granted................................................... 1,399,511 2.33
Canceled.................................................. (576,188) (4.31)
-------------- -------------
Options and warrants outstanding at December 31, 1998..... $ 3,621,261 $ 3.90
-------------- -------------
Options and warrants exercisable at December 31, 1998..... $ 3,480,845 $ 4.06
-------------- -------------
</TABLE>
Information relating to stock options and warrants at December 31, 1998
summarized by exercise price are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Outstanding Exercisable
Exercise Weighed Average Weighed Average
Price ----------------------------------------- --------------------------
Share Shares Life (Year) Exercise Price Shares Exercise Price
- ---------- -------- ----------- -------------- -------- --------------
$1.25 325,000 4.3 $1.25 325,000 $1.25
$1.50 664,094 9.7 $1.50 664,094 $1.50
$4.38 75,000 9.5 $4.38 - $4.38
$4.44 250,000 4.3 $4.44 250,000 $4.44
$5.00 230,167 8.8 $5.00 164,751 $5.00
$5.50 1,822,500 3.5 $5.50 1,822,500 $5.50
$8.25 114,500 3.5 $8.25 114,500 $8.25
$9.08 140,000 3.5 $9.08 140,000 $9.08
--------- --------- ------------ ---------- ------------
3,621,261 5.2 $3.90 3,480,845 $4.06
========== ========= ============ ========== ============
</TABLE>
F-25
<PAGE>
NOTE 5 - STOCKHOLDER'S EQUITY (Continued)
Non-employee Directors' Options (Continued)
All stock options issued to employees have an exercise price not less than
the fair market value of the Company's common stock on the date of grant, and in
accordance with accounting for such options utilizing the intrinsic value method
there is no related compensation expense recorded in the Company's financial
statements. Had compensation cost for stock-based compensation been determined
based on the fair value at the grant dates consistent with the method of SFAS
123, the Company's net income and earnings per share for the years ended
December 31, 1997 and 1998 would have been reduced to the pro forma amounts
presented below:
1997 1998
--------------- --------------
Net loss
As reported.................. $ (2,946,056) $ (4,870,989)
Pro forma.................... $ (3,335,419) (5,374,773)
Basic and diluted loss per share
As reported.................. $ (0.55) (0.68)
Pro forma.................... $ (0.62) (0.75)
The fair value of option grants is estimated on the date of grants
utilizing the Black-Schools option-pricing with the following weighted average
assumptions for in 1997, expected life of 10 years: expected volatility of
38.06%, risk-free interest rates of 6.0%, and a 0% dividend yield. The fair
value was calculated in 1998 using the following assumptions: expected life of
10 years, expected volatility of 17.59%, risk-free interest rates of 6%, and a
0% dividend yield. The weighted average fair value at date of grant for options
granted during 1997 and 1998 approximated $1.71 and $0.87 per option,
respectively.
Due to the fact that the Company's stock option programs vest over many
years and additional awards are made each year, the above pro forma numbers are
not indicative of the financial impact had the disclosure provisions of FASB No.
123 been applicable to all years of previous option grants.
F-26
<PAGE>
NOTE 6 - SIGNIFICANT VENUES AND CONCENTRATION OF CREDIT RISK
Revenues from certain venues comprised 10% or more of total revenues. The
following table shows the percentage of revenues of these venues to total
revenues.
Years ended December 31,
------------------------------
1997 1998
------------ ----------
Venue A............................ 25 % 12 %
Venue B............................ 28 15
Venue C............................ 10 6
Venue D............................ - 11
----------- ----------
$ 63 % $ 44 %
=========== ==========
NOTE 7 - NOTES RECEIVABLE FROM OFFICERS
In March 1997, the Company agreed with its Underwriter, that it would
neither loan nor advance any sums to or on behalf of Mr. Stuart other than those
sums advanced to Mr. Stuart from December 31, 1996 through the date of the IPO,
without the Underwriter's prior written consent. The Company also received the
authorization from the Underwriter, to advance John Stuart up to another
$150,000 for settlement of certain litigation pending against Mr. Stuart for his
involvement in the Legends in Concert, Hawaii show.
On October 23, 1997 and November 17, 1997, the Company obtained the written
consent of the Underwriter to advance the CEO the amounts totaling $100,000 (the
"Advances"), which advances bear interest at a rate of 10% per annum, mature
December 31, 1998 and are evidenced by promissory notes executed by the CEO in
favor of the Company.
At December 31, 1997, the notes receivable balance was $136,194 including
accrued interest income of $1,041. The difference ($35,153) between the December
31, 1997 ending balance ($136,194) and the note receivable were personal charges
($17,007) to the corporate credit card and $18,146 in show fees received by
Stuart on behalf of the Company. Mr. Stuart has since repaid the $35,153 to the
Company. The Company has agreed with its Underwriter not to loan or advance any
further sums to Mr. Stuart, without the prior consent of the Underwriter. As of
December 31, 1998, the amount due from the Chief Executive Officer was $8,306.
During 1998, the Company advanced $63,213 to an officer of the Company.
This advance is payable April 12, 1999 and bears interest at 8%. For the year
ended December 31, 1998, $3,803 of interest was accrued and added to the balance
of the advance. The note is secured by the officer's 40,532 shares of common
stock. In April 1999, the Company extended the maturity date of the note to
December 31, 1999.
On April 16, 1999, the officer sold to the CEO 40,532 shares of the
Company's common stock. In exchange, the CEO agreed to assume the officer's
$60,798 note in favor of the Company, with recourse only to the 40,532 shares of
common stock purchased from the officer. The officer executed a new promissory
note in the principal amount of $7,472, which was subsequently forgiven as part
of the officer's employment restructuring.
F-27
<PAGE>
NOTE 8 - EXPENSES AT DISCONTINUED LOCATION
The Company decided to close its Legends production in Daytona Beach,
Florida on December 31, 1997. As part of the closing, the Company incurred
additional expenses of $489,285 during 1997. Additionally, in 1998 the Company
wrote-off $443,096 in net assets. The Company has plans to transfer all the
remaining furniture and equipment at the Daytona Beach facility to other
locations which have performances in 1999.
NOTE 9 - INTEREST EXPENSE
As more fully discussed in Note 3, the conversion of the Debentures
resulted in a one time, non-recurring, interest expense charge of $194,228 and
the Bridge Financing resulted $366,000 original issue discount and interest
expense during 1997.
NOTE 10 - INCOME TAXES
Income taxes in the statement of operations consists of the following:
1997 1998
------------- -------------
Current
Federal.................................. $ - $
State.................................... 6,673
------------ -------------
$ 6,673 $
============ =============
Deferred taxes are as follows:
Years ended December 31,
-------------------------------
1997 1998
------------- -------------
Deferred tax assets
Litigation accrual..................... $ 21,080 $ 74,480
Allowance for doubtful accounts........ - 94,872
Impairment loss........................ - 155,464
Start-up costs......................... - 222,938
Net operating loss carryforward........ 848,426 2,399,773
------------- ---------------
Total deferred tax assets................. 869,506 2,947,527
Less: Valuation allowance................. (869,506) (2,947,527)
------------- ---------------
$ - $ -
============= ===============
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.
F-28
<PAGE>
NOTE 10 - INCOME TAXES (Continued)
Income taxes in the statement of operations differs from the amount
computed by applying the U.S. Federal income tax rate (34%) because of the
effect of the following items:
Years ended December 31, 1997 1998
- ----------------------------------------- ------------- -------------
U.S. Federal statutory rate applied
to pretax income (loss)................... $ (999,390) $(1,641,139)
Permanent differences........................ 5,663 144,149
State income taxes, net of Federal benefit... 2,269 -
Tax effect of unrecognized net
operating loss carry forward............... 998,131 1,496,990
------------- -------------
$ 6,673 $ 0
============= =============
At December 31, 1998, the Company had Federal and state net operating loss
carryforwards of approximately $3,138,544 and $6,315,193, respectively, which
expires in 2018. Under Federal Tax Law IRC Section 382, certain significant
changes in ownership that the Company is currently undertaking may restrict the
future utilization of these tax loss carryforwards.
NOTE 11 - BUSINESS ACQUISITIONS
Interactive Purchase and Disposition
On November 1, 1996, On Stage entered into a Common Stock Purchase
Agreements with Interactive Events, Inc. ("Interactive"), which created and
implemented interactive events for parties and conventions. On Stage issued
19,284 and 11,020 shares of its common stock on November 1, 1996 and November 1,
1997, respectively, as payment. On Stage recorded $129,180 as the excess of the
purchase price over the net assets acquired, which was being amortized over ten
years. At December 31, 1998, On Stage determined there was an impairment in the
value of the excess of the purchase price over the net assets acquired in
connection with the Interactive purchase and wrote off the remaining unamortized
balance of $102,131.
On February 23, 1999, the Company entered into a Common Stock Purchase
Agreement with Richard S. Kanfer, the Company's former Vice President of Sales
and former owner of Interactive Events, Inc. ("Kanfer"), pursuant to which the
Company agreed to reconvey all of the assets of Interactive Events, Inc. to
Kanfer, in exchange for 30,304 shares of the Company's Common Stock, a non-plan
option to purchase 15,000 shares of the Company's Common Stock and 19,835
incentive stock options to purchase shares of the Company's Common Stock. In
addition, the Company and Kanfer agreed to mutually release each other from any
liability arising out of the original purchase of Interactive Events, Inc. by
the Company from Kanfer and any claim relating to Kanfer's subsequent employment
with the Company. Contemporaneous therewith, the Company and Kanfer entered into
a right of representation agreement, pursuant to which the Company granted to
Kanfer the right to exclusively represent its "Legends" production in designated
areas in return for a division of the gross proceeds generated from any
production thereof.
F-29
<PAGE>
NOTE 11 - BUSINESS ACQUISITION (continued)
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 Acquisition"). Included in the Gedco Acquisition were
substantially all of the income producing assets and associated real property of
Orlando Entertains and LA Entertains, consisting of King Henry's Feast, Blazing
Pianos piano bar, the Fort Liberty shopping complex that includes a Wild Bill's
Dinner Theater, each of which is located in greater Orlando, Florida, and a
second Wild Bill's Dinner Theater located in Buena Park, California. Gerard
O'Riordan, President of Gedco USA, Inc., joined the Company as President of On
Stage Theaters, Inc., a wholly subsidiary of the Company that manages the
acquired dinner theaters and piano bar as well as other selected theaters.
On May 27, 1999, Hanover Restaurants, Inc. ("Hanover") returned the 595,238
shares of On Stage Common Stock originally issued to Hanover in connection with
the Gedco Acquisition (the "Hanover Shares"). The Hanover Shares were returned
to On Stage pursuant to the terms of a Mutual Release and Settlement Agreement,
which was entered into by and between On Stage and Gedco USA, Inc. as a result
of a dispute that arose in connection with the Gedco Acquisition (the
"Settlement Agreement"). In exchange for the return of the Hanover Shares, On
Stage: (1) Granted Hanover a warrant to purchase 595,238 shares of its' Common
Stock at a purchase price of $1.50; and (2) Released its' claim to approximately
$925,000 which was being held in escrow as security for certain representations
and warranties made by Gedco USA, Inc. representatives in connection with the
Gedco Acquisition.
On March 13, 1998, Imperial Credit Commercial Mortgage Investment
Corporation ("ICCMIC") signed an agreement with On Stage to fund up to
$20,000,000 of mortgage financing. On the same day, On Stage used $12,500,000 of
the facility to fund the cash portion of the Gedco Acquisition. On June 30,
1998, On Stage used an additional $1,100,000 to fund the cash portion of the
purchase of a fee simple interest in the Legends Theater in Surfside Beach,
South Carolina, and the purchase of a leasehold interest in the Eddie Miles
Theater in North Myrtle Beach, South Carolina. On October 7, 1998, On Stage used
an additional $550,000 for working capital purposes. In addition, On Stage
granted Imperial Credit and related entity warrants to purchase an aggregate of
575,000 shares of common stock at an exercise price of $4.44 per share. In
consideration for Imperial Credit's October 7, 1998 funding of $550,000, On
Stage reset the strike price on 325,000 of the Imperial Credit warrants from
$4.44 to $1.25 per share.
The Company made January, February and March 1999 payments to ICCMIC after
the due date for those payments. As a result of those delinquencies, the Company
has incurred late charges and default interest, which the Company has not paid.
The Company is in default under the ICCMIC facility and the Company is unable to
borrow additional funds under the facility. As of August 6, 1999, the Company
had not made the Company payments to ICCMIC due April 1, 1999, May 1, 1999, June
1, 1999, July 1, 1999 or August 1, 1999. The Company is currently negotiating
with ICCMIC to extend some of the repayment terms under this facility and to
obtain waivers or amendments with respect to other defaults under the facility,
including a breach of debt service coverage ratio warranties.
The components of the purchase price and its allocation to the assets and
liabilities are as follows:
Amount
-------------
Purchase price:
Liabilities assumed................................... $ 986,044
Cost of acquisition incurred.......................... 1,645,874
Cash paid............................................. 11,500,000
-------------
$ 14,131,918
=============
F-30
<PAGE>
NOTE 11 - BUSINESS ACQUISITION (continued)
Cash paid for the purchase of Gedco, USA, Inc. net of cash received is as
follows:
Amount
-------------
Cash paid to sellers............................ $ 11,500,000
Acquisition costs............................... 1,645,874
--------------
13,145,874
Less cash received......................... (383,444)
--------------
$ 12,762,430
--------------
The costs of acquisition increase 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 acquisition was accounted for as a purchase and the assets acquired
were recorded at a fair market value. The building and equipment are being
depreciated over twenty and three years, respectively, under the straight-line
method. The costs of acquisition incurred primarily relates to the lenders
origination fee of $750,000, legal fees of $240,000, financing fees of $100,000,
recording fees of $100,000, and accounting fees of $125,000. The allocation of
the purchase price was as follows:
Amount
--------------
Cash.................................................... $ 383,444
Inventory............................................... 120,084
Prepaid expenses........................................ 157,516
Land.................................................... 9,423,977
Building................................................ 2,690,990
Equipment............................................... 605,607
Deferred financing acquisition expenses................. 750,000
--------------
Deferred financing acquisition expenses................. $ 14,131,918
--------------
The difference between previously reported purchase price of $16,631,918
and the above-reported $14,131,918 is primarily due to the re-conveyance of the
595,238 shares of common stock issued to Hanover in connection with the Gedco
Acquisition, valued at $2,500,000 as of March 13, 1998. 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 Gedco acquisition was accounted for as a purchase and the operations of
Gedco are included in the Company's operations as of the date of the
acquisition.
F-31
<PAGE>
The unaudited pro forma results of operations presented below reflect the
Company's operations as though the acquisition had taken place at the beginning
of each period presented. The pro forma results have been prepared for
comparative purposes only, and are not necessarily indicative of what the actual
result of operations would have been had such acquisitions occurred at the
beginning of the periods presented, or what results of operations will be in the
future.
Years ended December 31,
-----------------------------------
1997 1998
----------- -----------
Revenues............................ $ 29,601,646 $ 30,328,361
Operating income (loss)............. 618,756 (3,003,214)
Net loss............................ (1,922,522) (4,758,688)
Basic and diluted loss per share.... (.30) (0.65)
Basic and diluted average number
of common shares outstanding....... 6,396,079 7,307,062
Calvin Gilmore Productions, Inc. Acquisition
On June 30, 1998, the Company completed its acquisition of certain assets
from Calvin Gilmore Productions, Inc. ("CGP"), an affiliate of Fox Family
Worldwide, Inc. for a purchase price of $1,000,000 in cash and 206,612 shares of
common stock valued at $723,142 (the "Fox Acquisition").
Included in the Fox Acquisition were substantially all of CGP's income
producing assets and associated real and personal property in the greater Myrtle
Beach, South Carolina area, consisting of the fee simple purchase of The
Surfside Beach Theater, which the Company had leased from CGP for its
presentation of its flagship Legends in Concert production since 1995, and a
leasehold interest in The Eddie Miles Theater.
The Company funded the cash portion of the purchase price and transaction
fees and expenses with $1,100,000 million of mortgage financing from ICCMIC (see
Note 3).
NOTE 12 - IMPAIRMENT OF TORONTO ASSETS
Our Legends in Concert production opened at the Sheraton Centre Toronto
Hotel in May 1997. Unfortunately, for reasons discussed below, this Legends
production did not prove to be successful and was discontinued in April 1999
after generating an operating loss of $717,000 for the year ended December 31,
1998 and $264,000 for the four months ended April 1999. At December 31, 1998, On
Stage had an impairment of net assets associated with the Toronto show and wrote
off net assets of $409,000.
The Company believes that the operating performance of Legends at the
Sheraton Centre Toronto Hotel suffered from inadequate sales and marketing
resulting in less than optimal ticket sales in the start-up phase of the
production. The lower than anticipated revenue levels, combined with high
indirect production costs associated with the "four wall" costs structure
resulted in the losses.
F-32
<PAGE>
NOTE 13 - SEGMENT INFORMATION
The following information is presented in accordance with SFAS No. 131,
which was adopted by the Company in the fourth quarter of 1998.
The Company derives its net revenues from six reportable segments. The
Casino Segment ("Casinos") primarily sells live theatrical productions to
Casinos worldwide for a fixed fee. In addition, this segment also operates the
Company's Legends show at the Imperial Palace. The Theaters Segment ("Theaters")
owns or rents live theaters and dinner theaters in urban and resort tourist
locations primarily in the United States. This segment derives its revenues from
the sale of tickets and food and beverage to patrons who attend live theatrical
performances at these venues. The Events Segment ("Events") sells live
theatrical productions to commercial clients, which include corporations, theme
and amusement parks and cruise lines for a fixed fee. The Merchandise
Segment("Merchandise") sells merchandise and souvenir photography products to
patrons who attend On Stage's productions. The Production Services
Segment("Production") sells technical equipment and services to commercial
clients, however, this segment's primary focus is to technically support all of
the other divisions. The On Stage Entertainment segment is responsible for the
corporate and finance portion of the Company's ("OSE")operations.
The accounting policies of the reportable operating segments are the same
as those described in the Summary of Accounting Policies. The Company's
management evaluates the performance of its operating segments based upon the
profit or loss from operations.
The Company's reportable segments are strategic business units because each
business unit services a different market or performs a specialized function in
support of a given market.
F-33
<PAGE>
NOTE 13 - SEGMENT INFORMATION (Continued)
The following table sets forth the segment profit/(loss) and asset
information:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended December 31, 1998
---------------------------------------------------------------
Casinos Events Merchandise Theaters
------------ -------------- -------------- ------------
Revenues from
external customer........ $ 6,977,020 $ 2,554,942 $ 1,243,451 $ 17,064,071
Interest expense.......... $ 4,712 $ 1,292 $ 193 $ 1,354,370
Depreciation and
amortization............ $ 268,780 $ 140,455 $ 5,055 $ 1,086,822
Segment profit (loss)..... $ 1,763,584 $ (223,386) $ 252,561 $ (2,463,460)
Segment assets............ $ 828,652 $ 439,549 $ 53,606 $ 20,238,655
Additions to long-lived
assets.................. $ 327,365 $ 178,341 $ 43,318 $ 643,860
</TABLE>
Year Ended December 31, 1998
(continued)
---------------------------------------------------
Total
Production OSE Consolidated
------------ ------------ -----------------
Revenues from
external customer....... $ 7,992 $ - $ 27,847,476
Interest expense......... $ - $ 194,310 $ 1,554,877
Depreciation
and amortization....... $ 47,705 $ 260,709 $ 1,806,526
Segment profit (loss).... $ (558,204) $(3,642,084) $ (4,870,989)
Segment assets........... $ 571,692 $ 1,957,065 $ 24,089,219
Additions to long-lived
assets................. $ 60,001 $ 840,450 $ 2,093,335
F-34
<PAGE>
NOTE 13 - SEGMENT INFORMATION (Continued)
<TABLE>
Year Ended December 31, 1997
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Casinos Events Merchandise Theaters
------------ -------------- --------------- ---------------
Revenues from external customer.....$ 6,326,952 $ 2,552,440 $ 454,842 $ 6,391,840
Interest expense....................$ - $ (297) $ - $ -
Depreciation and amortization.......$ 141,275 $ 6,221 $ - $ 323,336
Segment profit (loss)...............$ 2,048,288 $ 196,550 $ 315,153 $ (281,821)
Segment assets......................$ 642,428 $ 196,388 $ - $ 865,202
Additions to long-lived assets......$ 248,688 $ 45,093 $ - $ 724,232
</TABLE>
Year Ended December 31, 1997
(continued)
---------------------------------------------------------
Total
Production OSE Consolidated
------------- ------------- -----------------
Revenues from
external customer..$ - $ - $ 15,726,074
Interest expense....$ - $ 834,630 $ 834,333
Depreciation
and amortization..$ - $ 511,348 $ 982,180
Segment profit
(loss)............$ (194,694) $ (4,188,526) $ (2,105,050)
Segment assets......$ 494,949 $ 4,278,296 $ 6,477,263
Additions to
long-lived assets..$ 120,868 $ 156,058 $ 1,294,939
F-35
<PAGE>
NOTE 14 - SUBSEQUENT EVENTS
Note Payable to Principal Stockholder
On March 4, 1999, the Board of Directors approved the acceptance of a
$100,000 loan from John W. Stuart, the Company's Chairman, Chief Executive
Officer and Principal Stockholder (the "Stuart Loan"). The Stuart Loan is
evidenced by a promissory note bearing twelve percent (12%) interest, which
matures one year from the date of issuance, or on March 3, 2000. In
consideration for the Stuart Loan, the Board of Directors approved the issuance
of 100,000 warrants to purchase shares of the Company's common stock at a strike
price of $1.00, which was market price on the closing date of the Stuart Loan.
Additionally, the Company agreed to pay Mr. Stuart's legal fees associated with
this transaction.
On April 5, 1999, the Company entered into an agreement with John W.
Stuart, the Company's Chairman, Chief Executive Officer and Principal
Stockholder ("Mr. Stuart"), pursuant to which Company agreed to accept a bridge
loan from Mr. Stuart in an amount up to $500,000 in return for a one year
promissory note bearing 12% interest, a 5% origination fee and one warrant to
purchase shares of the Company's Common Stock for each $1.00 invested. To date,
the Company has accepted $200,000 of the potential $500,000 from Mr. Stuart.
On April 16, 1999, Mr. Sidhu agreed to restructure his current employment
agreement with the Company in an attempt to assist the Company with facilitating
its restructuring plan. Pursuant to the terms of his employment restructuring,
Mr. Sidhu agreed to forego any rights he has to his current employment, option,
and confidentiality agreements, in return for the following: (1) a new
employment agreement with the Company which he will be an "at-will" consultant
at a flat rate of $50.00 per hour; (2) a new option agreement which affords him
the right to purchase 140,000 shares of On Stage's common stock at a strike
price of $1.50 per share; (3) a reimbursement of $25,000 for unpaid insurance,
car allowances and expenses; (4) $17,887.25 for all his accrued, but unused
vacation pay; (5) all earned, but unpaid salary under his old employment
agreement; and (6) forgiveness of a promissory note in the amount of $7,472 held
in favor of the Company. Additionally, the Company agreed to pay Mr. Sidhu
$25,000 within ninety (90) days of this restructuring, in consideration for Mr.
Sidhu's execution of a new confidentiality and non-competition agreement with
the Company.
On April 16, 1999, Mr. Sidhu sold Mr. Stuart 40,532 shares of the Company's
common stock. In exchange, Mr. Stuart agreed to assume Mr. Sidhu's $60,798 note
in favor of On Stage, with recourse only to the 40,532 shares of common stock
purchased from Mr. Sidhu. Mr. Sidhu executed a new promissory note in the
principal amount of $7,472, which was subsequently forgiven as part of Mr.
Sidhu's employment restructuring.
On July 9, 1999 David Hope resigned from his positions with On Stage as its
President, Chief Operating Officer and Director to pursue other interests.
However, Mr. Hope has agreed to provide consulting services to On Stage on a
part-time basis to assist On Stage with the consummation of its' restructuring
and strategic growth strategies.
On July 12, 1999, First Security Bank of Nevada ("First Security") filed a
complaint against On Stage, its' subsidiaries and John W. Stuart in the District
Court of Nevada in Clark County, Nevada. The complaint alleges that On Stage has
breached its' contract with First Security by refusing to repay certain loan and
lease lines with First Security that have recently matured. The Complaint prays
for repayment of the matured loan and lease lines in the amount of approximately
$1,955,998, together with interest, attorneys' fees and costs associated
therewith. Additionally, the Complaint seeks to enforce the personal guaranty of
John W. Stuart to repay this outstanding balance and prays for writs of
garnishment and attachments of On Stage's personal property.
On July 14, 1999, James Nederlander resigned his post as a Director for On
Stage. The reason given for such resignation was that Mr. Nederlander's other
business interests were increasingly consuming the majority of his time, which
left him unable to attend to his Director responsibilities to On Stage.
F-36
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
On Stage Entertainment, Inc. and SubsidiariesOn Stage Entertainment, Inc.
and Subsidiaries Consolidated Balance SheetsConsolidated Balance Sheets
<TABLE>
<S> <C> <C>
December 31, June 30,
1998 1999
Assets --------------- --------------
(Unaudited)
Current assets
Cash and cash equivalents......................... $ 1,009,768 $ 466,077
Accounts receivable, net.......................... 1,264,526 1,072,708
Inventory......................................... 243,413 247,851
Deposits.......................................... 125,784 346,135
Prepaid and other assets.......................... 594,777 667,928
Notes receivable from officers...................... 77,330 93,754
--------------- ------------
Total current assets.............................. 3,315,598 2,894,453
--------------- ------------
Property, equipment and leasehold improvements.......... 24,130,663 24,156,527
Less: Accumulated depreciation and amortization........ (5,020,946) (4,396,229)
--------------- ------------
Property, equipment and leasehold improvements, net..... 19,135,581 19,734,434
--------------- -------------
Deferred financing costs, net of amortization of
$80,813 and $136,812................................ 983,188 1,039,187
=============== =============
$ 24,089,219 $23,013,222
=============== =============
Liabilities and Stockholders' Equity
Current liabilities
Working capital line .............................. $ 999,679 $ 871,845
Accounts payable and accrued expenses.............. 2,533,232 2,389,736
Accrued payroll and other liabilities.............. 1,891,924 2,677,693
Current maturities of long-term debt............... 14,682,246 14,665,016
Note payable to officer ........................... - 217,000
-------------- ------------
Total current liabilities.......................... 20,107,081 20,821,290
-------------- ------------
Long-term debt, less current maturities................ 786,468 539,722
-------------- ------------
Total liabilities and long-term debt............... 20,893,549 21,361,012
-------------- ------------
</TABLE>
Commitments and contingencies (Note 4)
<TABLE>
<S> <C> <C>
Stockholders' 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;
7,452,350 and 6,985,279 shares issued
and outstanding....................................... 74,523 69,853
Additional paid-in-capital............................. 11,332,250 11,254,587
Currency exchange adjustment....................... 67,289 (17,167)
Accumulated deficit................................ (8,200,729) (9,732,726)
------------ -------------
Total stockholders' equity......................... 3,195,670 1,652,210
------------ -------------
$ 24,089,219 $23,013,222
============ =============
</TABLE>
F-37
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended
June 30,
--------------------------
1998 1999
----------- -----------
(Unaudited) (Unaudited)
Net revenues.............................. $ 8,244,581 $ 7,403,008
Costs of revenues......................... 6,466,463 5,379,324
----------- -----------
Gross profit.............................. 1,778,118 2,023,684
Selling, general & administrative......... 1,076,753 1,035,952
Depreciation and amortization............. 329,939 353,534
Restructuring charges (Note 10)........... - 262,793
------------ ------------
Operating income.......................... 371,426 371,405
Interest, net............................. 384,514 1,019,838
------------ ------------
Net loss.................................. $ (13,088) $ (648,433)
============ ============
Basic and diluted loss per share.......... $ (0.00) $ (0.09)
============ ============
Basic and diluted average number of
common shares outstanding............... 7,193,008 7,354,676
============ ============
F-38
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
Six months ended
June 30,
-------------------------------------
1998 1999
--------------- ----------------
(Unaudited) (Unaudited)
Net revenues........................... $11,969,067 $ 13,675,247
Costs of revenues...................... 9,130,737 10,829,833
--------------- -----------------
Gross profit........................... 2,838,330 2,845,414
Selling, general & administrative...... 2,461,414 2,081,868
Depreciation and amortization.......... 463,896 603,601
Restructuring charges (Note 10)........ - 262,793
---------------- -----------------
Operating loss......................... (86,980) (102,848)
Interest, net.......................... 454,834 1,429,149
---------------- -----------------
Net loss............................... $ (541,814) $ (1,531,997)
================ =================
Basic and diluted loss per share....... $ (0.08) $ (0.21)
================ =================
Basic and diluted average number of
common shares outstanding............ 7,459,597 6,883,421
================ =================
F-39
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<S> <C> <C>
Six months ended
June 30,
------------------------------
1998 1999
------------- ------------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss............................................ $ (541,814) $ (1,531,997)
-------------- -------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization..................... 318,799 676,087
Increase (decrease) from changes in operating
assets and liabilities
Accounts receivable............................ (898,311) 180,505
Inventory...................................... 11,687 (4,438)
Deposits....................................... (152,127) (223,792)
Pre-opening costs.............................. (1,256,382) -
Prepaid and other assets....................... (8) (73,151)
Accounts payable and accrued expenses.......... 297,458 (143,496)
Accrued payroll and other liabilities.......... 808,063 794,769
--------------- ---------------
Total adjustments....................................... (870,821) 1,206,484
--------------- ---------------
Net cash used in operating activities..................... (1,412,635) (325,513)
--------------- ---------------
Cash flows from investing activities
Advances on notes receivable from officer..... (81,127) (31,950)
Payments received on notes receivable from
officer...................................... 32,626 15,526
Capital expenditures.......................... (167,920) (42,538)
Direct acquisition costs ..................... 829,665 -
Payment for purchase of Gedco, USA, net
of cash received (Note 5).................... (14,602,005) -
---------------- --------------
Net cash used in investing activities.................... (13,988,761) (58,962)
---------------- --------------
Cash used in financing activities
Borrowings/repayments under working
capital line (Note 5).......................... 1,000,000 (127,834)
Proceeds from long-term borrowing.................. 13,727,237 -
Repayment on long-term borrowing................... (561,426) (263,976)
Notes payable to officer........................... - 300,000
Cash received on notes payable from officer........ - (83,000)
Issuance of common stock........................... 100,050 -
--------------- -------------
Net cash provided by (used in) financing activities...... 14,165,811 (74,760)
--------------- -------------
Effect of exchange rate changes on cash
and cash equivalents................................ (84,456) -
--------------- -------------
Net decrease in cash and cash equivalents................ (1,235,585) (543,691)
Cash and cash equivalents at beginning of period......... 2,323,559 1,009,768
--------------- ------------
Cash and cash equivalents at end of period............... $ 1,087,974 466,077
=============== =============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest......................................... $ 539,303 460,827
=============== =============
</TABLE>
F-40
<PAGE>
Supplemental schedule of non-cash investing and financing activitiesSupplemental
schedule of non-cash investing and financing activities
On February 23, 1999, On Stage entered into a Common Stock Purchase
Agreement with Richard S. Kanfer, effectively unwinding the November 1996
acquisition of Interactive Events, Inc. Under the Interactive Re-Conveyance, On
Stage re-conveyed all of the assets of Interactive to Kanfer in consideration
for Kanfer's re-conveyance of the 30,304 shares of On Stage's common stock
valued at $1.125 per share, issued to Kanfer during On Stage's original
acquisition of Interactive along with the cancellation of a non-plan option to
purchase 15,000 shares of common stock and incentive stock options to purchase
19,835 shares of common stock at a price of $5.00 per share. In addition, the
parties agreed to release one another from any liability arising out of the
acquisition of Interactive by On Stage and any claim relating to Kanfer's
subsequent employment with us. Kanfer also entered into an exclusive right of
representation agreement with us in February 1999, under which we granted to
Kanfer the right to represent our Legends production in designated areas in
consideration for a portion of the gross proceeds generated by the
representation.
On April 23, 1999, On Stage granted it securities counsel, Nida & Maloney,
P.C. an option to purchase 40,000 shares of common stock at a purchase price of
$1.00 per share as payment for $38,469 in legal services performed for On Stage
by Nida & Maloney, P.C. The securities were issued under the exception from
registration provided by Section 4 (2) of the Securities Act.
On May 7, 1999, On Stage issued 8,471 shares of common stock valued at
$1.06 per share to Jim Owen, a former performer with On Stage. These shares were
issued in connection with the resolution of litigation that arose several years
ago between On Stage and Owen with regard to the right to the use of certain
photographs taken of Owen by On Stage. The securities were issued under the
exception from registration provided by Section 4 (2) of the Securities Act.
On May 27, 1999, Hanover Restaurants, Inc. returned 595,238 shares of On
Stage common stock originally issued to Hanover in connection with On Stage's
purchase of substantially all of the income producing assets of Gedco USA, Inc.
The Hanover shares were returned to On Stage under to the terms of a Mutual
Release and Settlement Agreement, which was entered into by and between On Stage
and Gedco as a result of a dispute that arose in connection with the Gedco asset
acquisition. In exchange for the return of the Hanover shares, On Stage: (1)
granted Hanover a warrant to purchase 595,238 shares of common stock at a
purchase price of $1.50; and (2) released its claim to approximately $925,000
which was being held in escrow as security for certain representations and
warranties made by Gedco representatives as part of the Gedco asset acquisition.
F-41
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1999
Basis of Presentation
The financial statements include herein included the accounts of On Stage
Entertainment, Inc., a publicly traded Nevada corporation and its subsidiaries:
Legends in Concert, Inc., a Nevada corporation; On Stage Marketing, Inc., a
Nevada corporation; On Stage Theaters, Inc., a Nevada corporation; Wild Bill's
California, Inc., a Nevada corporation; Blazing Pianos, Inc., a Nevada
corporation; King Henry's Inc., a Nevada corporation; On Stage Merchandise,
Inc., a Nevada corporation; On Stage Events, Inc., a Nevada corporation; On
Stage Casino Entertainment, Inc., a Nevada corporation; On Stage Productions,
Inc., a Nevada corporation; On Stage Theaters North Myrtle Beach, Inc., a Nevada
corporation; On Stage Theaters Surfside Beach, Inc., a Nevada corporation; and
Interactive Events, Inc., a Georgia corporation.
On Stage derives net revenues from five reportable segments:
o Casinos. The Casinos segment primarily sells live theatrical productions to
casinos worldwide for a fixed fee. In addition, this Casinos segment also
operates our Legends show at the Imperial Palace in Las Vegas, Nevada and
Biloxi, Mississippi and at Bally's Park Place in Atlantic City, New Jersey.
o Theaters. The Theaters segment owns and/or rents live theaters and dinner
theaters in urban and resort tourist locations primarily in the United
States. This Theaters segment derives revenues from the sale of tickets,
along with food and beverages to patrons who attend our live theatrical
productions.
o Events. The Events segment sells live theatrical productions to commercial
clients, which include corporations, theme and amusement parks and cruise
lines for a fixed fee. Revenues generated from the Events segment are
included in the Casinos segment.
o Merchandise. The Merchandise segment sells merchandise and souvenir
photography products to patrons who attend our Casinos, Theaters and Events
segment productions. Revenues generated from the Merchandise segment are
included in the Theaters segment.
o Production Services. The Production Services segment sells technical
equipment and services to commercial clients. However, the Productions
Services segment's primary focus is to provide technical support for all of
the Casinos, Theaters, Events and Merchandise segments.
(1) Subsequent Events
On July 9, 1999 David Hope resigned from his positions with On Stage as its
President, Chief Operating Officer and Director to pursue other interests.
However, Mr. Hope has agreed to provide consulting services to On Stage on a
part-time basis to assist On Stage with the consummation of its restructuring
and strategic growth strategies.
On July 14, 1999, James Nederlander resigned his post as a Director for On
Stage. The reason given for such resignation was that Mr. Nederlander's other
business interests were increasingly consumming the majority of his time, which
left him unable to devote sufficient time to his future duties as a Director of
On Stage.
F-42
<PAGE>
On July 12, 1999, First Security Bank of Nevada filed a complaint against
On Stage, its subsidiaries and John W. Stuart in the District Court of Nevada in
Clark County, Nevada. The complaint alleges that On Stage has breached its
contract with First Security by refusing to repay the loan and lease lines with
First Security that have recently matured. The Complaint prays for repayment of
the matured loan and lease lines in the amount of approximately $1,955,998,
together with interest, attorneys' fees and associated costs. Additionally, the
Complaint seeks to enforce the personal guaranty of Mr. Stuart to repay this
outstanding balance and prays for writs of garnishment and attachments of On
Stage's personal property.
(2) New Accounting Pronouncements
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities"
("SOP 98-5") issued by the American Institute of Certified Public Accountants is
effective for financial statements beginning after December 15, 1998. SOP 98-5
requires that the costs of start-up activities, including organization costs, be
expensed as incurred. Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customers (excluding ongoing customer acquisition costs, such as policy
acquisition costs and loan origination costs) or beneficiary, initiating a new
process in an existing facility, or commencing some new operation. We do not
expect the adoption of SOP 98-5 to have a material impact, if any, on our
financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") effective for financial
statements with fiscal years beginning after June 15, 1999. SFAS No. 133
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities and requires all derivatives
to be recorded on the balance sheet at fair value. We do not expect the adoption
of SFAS No. 133 to have a material impact, if any, on our results of operations,
financial position or cash flows.
(3) Loss Per Share
Statement of Financial Accounting Standard No. 128 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 reflect the potential dilution of securities that could share
in the earnings of the entity, similar to fully diluted earnings per share. SFAS
128 is effective for fiscal years and interim periods after December 15, 1997.
We have adopted this pronouncement during the fiscal year ended December 31,
1997.
F-43
<PAGE>
For the six months ended June 30, 1998, potential dilutive securities
representing 773,853 outstanding stock options and 4,480,956 outstanding
warrants are not included, since their effect would be anti-dilutive. For the
six months ended June 30, 1999, potential dilutive securities representing
1,121,550 outstanding stock options and 3,660,155 outstanding warrants are not
included, since their effect would be anti-dilutive.
(4) Commitments and Contingencies
We are a party to various legal proceedings in which the adverse parties
are seeking damages from us. While there can be no assurance that any of the
instituted or threatened lawsuits will be settled or decided in favor of us, the
management of On Stage does not believe the final resolution of these matters
will have a material adverse effect upon the our financial condition and results
of operations.
(5) Business Acquisition
Interactive Events, Inc. Acquisition and Re-Conveyance
On November 1, 1996, On Stage entered into Common Stock Purchase Agreement
with Interactive Events, Inc. Under this agreement, Interactive sold all of its
assets to On Stage in exchange for an aggregate of 30,304 share of On Stage's
common stock. Additionally, Richard S. Kanfer, President of Interactive, agreed
to join On Stage as our Vice President of Sales. On Stage recorded $129,180 as
the excess of the purchase price over the net assets acquired, which was being
amortized over ten years. At December 31, 1998, On Stage determined there was an
impairment in the value of the excess of the purchase price over the net assets
acquired in connection with the Interactive purchase and wrote off the remaining
unamortized balance of $102,131.
On February 23, 1999, On Stage entered into a Common Stock Purchase
Agreement with Richard S. Kanfer, effectively unwinding the November 1996
acquisition of Interactive Events, Inc. Under the Interactive Re-Conveyance, On
Stage re-conveyed all of the assets of Interactive to Kanfer in consideration
for Kanfer's re-conveyance of the 30,304 shares of On Stage's common stock
valued at $1.125 per share, issued to Kanfer during On Stage's original
acquisition of Interactive along with the cancellation of a non-plan option to
purchase 15,000 shares of common stock and incentive stock options to purchase
19,835 shares of common stock at a price of $5.00 per share. In addition, the
parties agreed to release one another from any liability arising out of the
acquisition of Interactive by On Stage and any claim relating to Kanfer's
subsequent employment with us. Kanfer also entered into an exclusive right of
representation agreement with us in February 1999, under which we granted to
Kanfer the right to represent our Legends production in designated areas in
consideration for a portion of the gross proceeds generated by that
representation.
Gedco USA, Inc. Acquisition
On March 13, 1998, we completed our 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. Included in the Gedco asset acquisition were substantially all of
the income producing assets and associated real property of Orlando Entertains
and LA Entertains, consisting of King Henry's Feast, Blazing Pianos piano bar,
the Fort Liberty shopping complex that includes a Wild Bill's Dinner Theater,
each of which is located in greater Orlando, Florida, and a second Wild Bill's
Dinner Theater located in Buena Park, California. Gerard O'Riordan, President of
Gedco joined us as President of On Stage Theaters, Inc., a wholly subsidiary
have On Stage that manages the acquired dinner theaters and piano bar as well as
other selected theaters.
F-44
<PAGE>
On May 27, 1999, Hanover Restaurants, Inc. returned 595,238 shares of On
Stage common stock originally issued to Hanover in connection with On Stage's
purchase of substantially all of the income producing assets of Gedco USA, Inc.
The Hanover shares were returned to On Stage under to the terms of a Mutual
Release and Settlement Agreement, which was entered into by and between On Stage
and Gedco as a result of a dispute that arose in connection with the Gedco asset
acquisition. In exchange for the return of the Hanover shares, On Stage: (1)
granted Hanover a warrant to purchase 595,238 shares of common stock at a
purchase price of $1.50; and (2) released its claim to approximately $925,000
which was being held in escrow as security for certain representations and
warranties made by Gedco representatives as part of the Gedco asset acquisition.
On March 13, 1998, Imperial Credit Commercial Mortgage Investment
Corporation signed an agreement with On Stage to fund up to $20,000,000 of
mortgage financing. On the same day, On Stage used $12,500,000 of the facility
to fund the cash portion of the Gedco asset acquisition. On June 30, 1998, On
Stage used an additional $1,100,000 to fund the cash portion of the purchase of
a fee simple interest in the Legends Theater in Surfside Beach, South Carolina,
and the purchase of a leasehold interest in the Eddie Miles Theater in North
Myrtle Beach, South Carolina. On October 7, 1998, On Stage used an additional
$550,000 for working capital purposes. In addition, On Stage granted Imperial
Credit and related entity warrants to purchase an aggregate of 575,000 shares of
common stock at an exercise price of $4.44 per share. In consideration for
Imperial Credit's October 7, 1998 funding of $550,000, On Stage reset the strike
price on 325,000 of the Imperial Credit warrants from $4.44 to $1.25 per share.
We made January, February and March 1999 payments to Imperial Credit after
the due date for those payments. As a result of those delinquencies, we have
incurred late charges and default interest, which we have not paid. We are in
default under the Imperial Credit facility and we are unable to borrow
additional funds under the facility. As of August 6, 1999, we have not made our
payments to Imperial Credit due April 1, 1999, May 1, 1999, June 1, 1999, July
1, 1999 or August 1, 1999. We are currently negotiating with Imperial Credit to
extend some of the repayment terms under this facility and to obtain waivers or
amendments with respect to other defaults under the facility, including a breach
of debt service coverage ratio warranties.
The components of the purchase price and its allocation to the assets and
liabilities are as follows:
<TABLE>
<S> <C>
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
==============
</TABLE>
F-45
<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 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 to
our wholly owned subsidiary, On Stage Theaters, Inc., or a wholly owned
subsidiary of On Stage Theaters, Inc., concurrent with the acquisition.
The unaudited pro-forma results of operations presented below reflect our
operations as though the acquisition had taken place at the beginning of each
period presented. The pro-forma results have been prepared for comparative
purposes only, and are not necessarily indicative of what the actual result of
operations would have been had such acquisitions occurred at the beginning of
the periods presented, or what results of operations will be in the future.
<TABLE>
Six months ended June 30,
-----------------------------------
<S> <C> <C>
1998 1999
----------------- -------------
Revenues .............................................. $ 14,449,952 13,675,247
Operating income (loss)................................ 188,632 (102,848)
Net loss............................................... (175,298) (1,531,997)
Basic and diluted loss per share....................... $ (0.04) (0.21)
Basic and diluted average number of common
Shares outstanding.................................. 6,883,421 7,459,597
</TABLE>
(6) Going Concern
The accompanying consolidated financial statements have been prepared
assuming that we will continue as a going concern which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The carrying amounts of assets and liabilities presented in the
financial statements do not purport to represent realizable or settlement
values. However, we have suffered recurring operating losses and have a working
capital deficit that impairs our ability to obtain additional financing. Our
auditors have included an explanatory paragraph in their report for the year
ended December 31, 1998, indicating that there is substantial doubt regarding
our ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of any uncertainty.
F-46
<PAGE>
We have historically met our working capital requirements through a
combination of cash flow from operations, equity and debt offerings, and
traditional bank financing. We anticipate, based on our proposed plans and
assumptions relating to our operations that our current cash, cash equivalent
balances, anticipated revenues from operations are insufficient to fund our
ongoing operations.
On Stage intends to manage short-term liquidity concerns through the
renegotiation of our expired working capital line, capital leases and mortgage
facilities. We have either closed down or restructured any business units that
are not generating positive cash flow. In addition, we have lowered selling,
general and administrative costs as a percent of net revenues from 20.6% in the
six months ended June 30, 1998 to 15.2% in the six months ended June 30, 1999
and continue to downsize and restructure our selling, general and administrative
functions.
In addition, we are continuing our efforts to secure working capital for
operations, expansion and possible acquisitions, mergers, joint ventures, and/or
other business combinations. However, there can be no assurance that we will be
able to secure additional capital or that if such capital is available, whether
the terms or conditions would be acceptable to us.
(7) Year 2000
We believe that our accounting and financial reporting systems are in full
compliance with Year 2000 preparedness. We have invested in the latest hardware
and software and have implemented standards that require Year 2000 compliance
from all vendors. We do not anticipate any problems in maintaining this
compliance in the future.
However, On Stage is continuing to assess Year 2000 preparedness, through
actively coordinating with vendors, creditors, and financial organizations to
prepare for possible repercussions of non-compliance. On Stage is also
undertaking exhaustive surveys in each of our geographic locations to further
determine preparedness. We have a full-time certified in-house management
information systems employee who has with authority to hire local computer
certification companies to visit each site and physically re-certify that each
machine, microprocessor and software program in use is Year 2000 compliant. We
have allocated $25,000 to complete our certification program and anticipate
completion by September 30, 1999.
F-47
<PAGE>
(8) Segment Information
The following tables set forth the segment profit/loss and asset
information.
<TABLE>
For the six months ended June 30, 1998
<S> <C> <C> <C> <C> <C>
-------------- -------------- ------------- ------------- -------------
Total
Casino Production Theaters OSE Consolidated
-------------- -------------- ------------- ------------- -------------
Revenues from external customers $ 4,498,359 $ - $ 7,470,708 $ - $ 11,969,067
Interest expense $ (33) $ - $ 432,713 $ 22,154 $ 454,834
Depreciation and amortization $ 96,048 $ 59 $ 200,230 $ 167,559 $ 463,896
Segment profit (loss) $ 964,534 $ (134,727) $ 74,541 $(1,446,162) $ (541,814)
Segment assets $ 2,763,234 $ 740,828 $ 18,288,553 $ 1,641,129 $ 23,433,744
Additions to long-lived assets $ 241,897 $ 33,089 $ 2,155,928 $ 625,212 $ 3,056,126
</TABLE>
<TABLE>
For the six months ended June 30, 1999
-------------- -------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Total
Casino Production Theaters OSE Consolidated
-------------- -------------- ------------- ------------- ----------------
Revenues from external customers $ 4,848,049 $ 45,499 $ 8,781,699 $ - $ 13,675,247
Interest expense $ 27 $ 1,123 $ 1,323,694 $ 104,305 $ 1,429,149
Depreciation and amortization $ 185,583 $ 43,923 $ 280,397 $ 93,698 $ 603,601
Segment profit (loss) $ 1,246,182 $ (342,939) $ (1,092,935) $(1,342,305) $ (1,531,997)
Segment assets $ 3,182,401 $ 775,783 $ 18,336,767 $ 1,861,576 $ 24,156,527
Additions to long-lived assets $ 20,091 $ - $ 22,447 $ - $ 42,538
</TABLE>
F-48
<PAGE>
(9) Possible Delisting of Securities from the Nasdaq SmallCap Market
In order to continue to be listed on The Nasdaq SmallCap Market, On Stage
must maintain $2,000,000 in total assets, a $200,000 market value of the public
float and $1,000,000 in total capital and surplus. In addition, continued
inclusion requires two market-makers and a minimum bid price of $1.00 per share;
provided, however, that if On Stage falls below that minimum bid price, we will
remain eligible for continued inclusion on The Nasdaq SmallCap Market if the
market value of the public float is at least $1,000,000 and we have $2,000,000
in capital surplus. Our stock price has been below $1.00 per share for most of
1999. Nasdaq has recently proposed new maintenance criteria which, if
implemented, would eliminate the foregoing exception to the minimum bid price
requirement and require, among other things, $2,000,000 in net tangible assets,
$1,000,000 market value of the public float and adherence to certain governance
provisions.
On April 20, 1999, On Stage received a letter of inquiry from The Nasdaq
Stock Market, Inc. requesting that we submit a detailed letter describing our
plan to address the specific items that led to the issuance of "going concern"
opinion from our independent auditors. The letter further requested that we
discuss why we believe we will be able to sustain compliance with the continued
listing standards of Nasdaq. We were required to provide a responsive answer by
June 4, 1999, which we did. The failure to meet the maintenance criteria in the
future, and the failure to adequately assure Nasdaq that we will be able to meet
the listing criteria in the future, may result in the delisting of our
securities from The Nasdaq SmallCap Market. If this occurs, the trading, if any,
in our securities would be conducted in the non-Nasdaq over-the-counter market.
As a result of such a delisting, an investor would find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of our
securities.
On June 4, 1999, On Stage responded to the April 30, 1999, letter from
Nasdaq. providing information regarding the auditors' "going concern" and On
Stage's growth strategy and the ability to comply with the continued listing
standards of The Nasdaq SmallCap Market.
On June 8, 1999, On Stage received a response letter from Nasdaq, pursuant
to which Nasdaq afforded On Stage ninety (90) days in which to raise its minimum
bid price to $1.00 or more for a minimum of ten (10) consecutive trading days.
In the event, we are unsuccessful in our attempt to accomplish this requirement,
our securities will be delisted at the opening of business on September 9, 1999.
F-49
<PAGE>
(10) Downsizing and Restructuring
On April 30, 1999, the board of directors adopted a restructuring plan. The
restructuring plan focuses on four key areas:
o overhead reduction;
o debt restructuring;
o accounts payable rescheduling; and
o overall cost containment.
We have already implemented the initial phase of the plan by reducing
overhead by approximately $707,000 on an annualized basis. We also expect the
cost containment measures implemented to yield another $100,000 of annualized
savings, for a total savings of $807,000 for the two measures. Subsequent
overhead reductions were implemented by June 30, 1999. In addition to these
measures, we are also in the process of attempting to restructure our debts and
rescheduling payments of our accounts payable in order to maximize cash flow.
(11) Toronto Closing
Our Legends in Concert production opened at the Sheraton Centre Toronto
Hotel in May 1997. Unfortunately, for reasons discussed below, this Legends
production did not prove to be successful and was discontinued in April 1999
after generating an operating loss of $717,000 for the year ended December 31,
1998 and $264,000 for the four months ended April 1999. At December 31, 1998, On
Stage had an impairment of net assets associated with the Toronto show and wrote
off net assets of $409,000.
We believe that the operating performance of Legends at the Sheraton Centre
Toronto Hotel suffered from inadequate sales and marketing resulting in less
than optimal ticket sales in the start-up phase of the production. The lower
than anticipated revenue levels, combined with high indirect production costs
associated with the "four wall" costs structure resulted in the losses.
F-50
<PAGE>
=======================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, that information or representation must not be relied
upon as having been authorized by On Stage, the underwriters or any other
person. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any securities by any one in any jurisdiction in which an
offer or solicitation is not authorized, or in which the person making the offer
or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made under this Prospectus shall under any circumstances
create an implication that information contained in this Prospectus is correct
as of any time subsequent to its date.
-------------------------
TABLE OF CONTENTS
Page
Prospectus Summary...........................................
Risk Factors.................................................
Use of Proceeds..............................................
Dividend Policy..............................................
Price Range of Common Stock..................................
Capitalization...............................................
Selected Financial Data......................................
Management's Discussion and Analysis
of Financial Condition and Results of
Operations..............................................
Business.....................................................
Management...................................................
Principal Stockholders.......................................
Certain Transactions.........................................
Selling Stockholders.........................................
Plan of Distribution.........................................
Description of Securities....................................
Shares Eligible for Future Sale..............................
Legal Matters................................................
Experts......................................................
Available Information........................................
Index to Financial Statements................................
--------------------
Until January 5, 2000 (90 days after the date of this Prospectus), all
dealers effecting transactions in the common stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
=======================================
<PAGE>
3,894,494 SHARES
ON STAGE ENTERTAINMENT, INC.
COMMON STOCK
----------------------------
PROSPECTUS
---------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Subsection 1 of Section 78.751 of Chapter 78 of the Nevada Revised Statutes
(the "NGCL") empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe his action was unlawful.
Subsection 2 of Section 78.751 of the NGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above, against expenses, including
amounts paid in settlement and attorneys' fees, actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if he
acted in accordance with the standard set forth above, except that no
indemnification may be made in respect of any claim, issue or mater as to which
such person shall have been adjudged by a court of competent jurisdiction after
exhaustion of all appeals therefrom to be liable to the corporation or for
amounts paid in settlement to the corporation unless and only to the extent that
the court in which such action or suit was brought or other court of competent
jurisdiction determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper.
Section 78.751 of the NGCL further provides that, to the extent a director
or officer of a corporation has been successful on the merits or otherwise in
the defense of any action, suit or proceeding referred to in subsection (1) and
(2), or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 78.751 of the NGCL shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled and that the scope of
indemnification shall continue as to directors, officers, employees or agents
who have ceased to hold such positions, and to their heirs, executors and
administrators. Finally, Section 78.752 of the NGCL empowers the corporation to
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the corporation would have the authority to indemnify him against such
liabilities and expenses.
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The Registrant's By-laws provide a right to indemnification to the full
extent permitted by law, for expenses (including attorney's fees), damages,
punitive damages, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by any director or officer whether or not the
indemnified liability arises or arose from any threatened, pending or completed
proceeding by or in the right of the Registrant (a derivative action) by reason
of the fact that such director or officer is or was serving as a director,
officer, employee or agent of the Registrant or, at the request of the
Registrant, as a director, officer, partner, fiduciary or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, unless the act or failure to act giving rise to the claim for
indemnification is financially determined by a court to have constituted willful
misconduct or recklessness. The By-laws provide for the advancement of expenses
to an indemnified party upon receipt of an undertaking by the party to repay
those amounts if it is finally determined that the indemnified party is not
entitled to indemnification. II-1 The Registrant's By-laws authorize the
Registrant to take steps to ensure that all persons entitled to the
indemnification are properly indemnified, including, if the board so determines,
purchasing and maintaining insurance.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are as follows:
Securities and Exchange Commission registration fee........... $ _______
Printing and engraving expenses............................... 10,000
Legal fees and expenses....................................... 20,000
Accounting fees and expenses.................................. 10,000
Nasdaq listing fees........................................... _______
Total.................................................... $ _______
Item 26. Recent Sales of Unregistered Securities
Within the three years preceding the filing of this Registration Statement,
the Registrant has sold the following securities without registration under the
Securities Act of 1933. Unless otherwise indicated, all share numbers set forth
below have been updated to reflect the Registrant's 1-for-1.814967 reverse split
of its common stock effected on March 18, 1997 reverse stock split:
(a) On a number of different dates between June and November 1995, the
Registrant sold, through a private placement with 15 investors, 39.78 debenture
units, each consisting of (i) an 8% convertible subordinated debenture in the
principal amount of $50,000 due on August 31, 1997 and (ii) the right, under
certain circumstances, to receive one Class A and one Class B Warrant. The
Registrant received net proceeds of $1,989,064 in connection with the 1995
Private Placement. The Registrant completed the 1995 Private Placement without
the assistance of a placement agent. The rights to reserve such A or B Warrants
were subsequently terminated prior to the issuance of such Warrants.
(b) In September 1995, the Registrant issued, as compensation for services
provided in connection with the 1995 Private Placement, warrants to purchase an
aggregate of (i) 355,378 shares of common stock at an exercise price of $3.76
per share to JDK & Associates (for financial consulting services provided ),
(ii) 11,019 shares of common stock at an exercise price of $3.76 per share to
Harry Stahl, Esquire (for legal services rendered) and (iii) 27,549 shares of
common stock at an exercise price of $3.76 per share to Lance Hall (for
financial consulting services provided).
(c) In February 1996, the Registrant borrowed $1,000,000 from DYDX LP. In
connection with the DYDX loan, the Registrant issued to DYDX a warrant to
purchase 550,974 shares of common stock at an exercise price per share equal to
the initial public offering price of the common stock, exercisable for a period
of 60 months commencing upon the consummation of an initial public offering. In
June 1996, the exercise price of the warrant was changed to the imputed price
per share of the Common Stock as of the closing date, if any, of the next debt
or equity financing of the Registrant. In February 1997, the exercise price of
the warrant was reduced to $3.99 per share and the Registrant, at the request of
DYDX, split the warrant into two warrants, one in the name of DYDX for the
purchase of 440,779 shares of common stock and the other in the name of Senna,
an affiliate of DYDX, for the purchase of 110,195 shares of common stock.
(d) In July 1996, pursuant to an Offer to Exchange or Repurchase, the
holders of $1,714,064 in principal amount of the Original Debentures tendered
their Debenture Units in exchange for new Debentures due January 4, 1999 (the
"New Debentures") and holders of $275,000 in principal amount of the Original
Debentures opted to have such debentures repurchased by the Registrant.
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(e) In March 1997, the Registrant exchanged all of its outstanding warrants
for shares of common stock on a cashless basis. Prior to the warrant exchange
(and the reverse split) there were warrants outstanding to purchase 1,000,000
shares of common stock at $2.20 per share (550,974 shares of common stock at
$1.21 per share on a post-reverse split basis) and 715,000 shares of common
stock at $2.07 per share (393,947 shares of common stock at $1.14 per share on a
post-reverse split basis). As a result of the warrant exchange, all of the
Registrant's outstanding warrants as of March 17, 1997 were canceled and
exchanged for a total of 799,956 warrant exchange shares which amount was
subsequently reduced to 440,755 shares of common stock in connection with the
Registrant's reverse split.
(f) In March 1997, the Registrant sold, through a private placement of
bridge financing with 21 investors, 20 investment bridge units, each consisting
of (i) a note in the principal amount of $50,000, (ii) 10,000 shares of common
stock and (iii) warrants to purchase an aggregate of 12,500 shares of common
stock. After payment of $125,000 in placement fees to Whale Securities Co.,
L.P., the placement agent for the Registrant in connection with the Bridge
Financing, and other offering expenses of approximately $75,000, the Registrant
received net proceeds of approximately $800,000 in connection with the Bridge
Financing. The 21 investors include the following: 1. Avedon Construction &
Design Corp., Peter M. Avedon, President; 2. Kenneth Berg; 3. Steven H. Brooks;
4. Lance Hall; 5. David Hope; 6. Jim Huntley and Melanie Huntley, JTWRS; 7.
Daniel M. Keenan; 8. Alexander S. Mark, M.D. and Thais R. Mark, JTWRS; 9.
Michael Miller; 10. William J. Reese and Cheryl A. Reese, JTWRS;11. Kiranjit
Sidhu; 12. Edward Weston and Ann Weston, JTWRS; 13. Robert H. Winnerman; 14.
Theodore Winston; 15. Dependable Contractors, Inc.; 16. Baytree Associates, Inc.
Retirement Plan; 17. Delaware Charter Guarantee & Trust Co. FBO; Ronald I.
Heller, IRA; 18. Delaware Charter Guarantee & Trust FBO: David S. Nagelbert,
IRA; 19. Norton Herrick; 20. Westminster Capital, Inc.; and 21. Minor Metals,
Inc. Ramy Y. Weisfisch. In August 1997, an aggregate of 4,500 Bridge Shares and
37,500 Bridge Warrants were returned to the Company by two investors in the
Bridge Financing for no compensation, as a result of a regulatory determination
that such securities would have been deemed to be compensation to the IPO
Underwriter.
(g) In June 1998, On Stage purchased from Calvin Gilmore for $1 million in
cash and 206,612 shares of common stock, certain live entertainment assets,
including a fee simple in the Legends in Concert Theater, and a leasehold
interest in the Eddie Miles Theater, both located in Myrtle Beach.
The issuances of the aforementioned securities were made in reliance upon
an exemption from the registration provision of the Securities Act afforded by
Section 4(2) thereof, as transactions by an issuer not involving a public
offering. The purchasers of the securities described above acquired them for
their own account and not with a view to any distribution thereof to the public.
Item 27. Exhibits
See Exhibit Index at page II-6.
Item 28. Undertakings
The undersigned registrant hereby undertakes to:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the Securities Act;
(ii) reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth in
the Registration Statement;
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(iii)include any additional or changed material information on the plan of
distribution;
(2) for determining liability under the Act, treat each such post-effective
amendment as a new registration of the securities offered, and the offering
of such securities at that time to be the initial bona fide offering; and
(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the termination of this offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes (1) that for the purpose of
determining any liability under the Act, treat the information omitted from the
form of prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act; as a part of this Registration
Statement as of the time the Securities and Exchange Commission declares it
effective; and (2) that for the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement for the securities offered in the
Registration Statement therein, and treat the offering of the securities at that
time as the initial bona fide offering of those securities.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned, in
the city of Las Vegas, State of Nevada on August 31, 1999.
ON STAGE ENTERTAINMENT, INC.
(Registrant)
Dated: October 7, 1999 By: /s/ John W. Stuart
----------------------------
John W. Stuart, Chairman of the Board
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
- ------------------- ------------------- -----------------
/s/ John W. Stuart Chairman and Chief Executive October 7, 1999
- -------------------- Officer and Director
John W. Stuart (principal executive officer)
/s/ Pedro Perez Chief Accounting Officer October 7, 1999
- --------------------
Pedro Perez
/s/ Mel Woods Director October 7, 1999
- --------------------
Mel Woods
/s/ Matthew Gohd Director October 7, 1999
- --------------------
Matthew Gohd
/s/ Mark Tratos Director October 7, 1999
- --------------------
Mark Tratos
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<TABLE>
<S> <C> <C>
EXHIBIT INDEX
Number Description
3.1 Articles of Incorporation of the Registrant (1)
3.2 Bylaws of the Registrant (3)
4.1 Specimen Stock Certificate Representing the Common Stock (3)
4.2 Specimen Warrant Certificate Representing the Warrants (3)
4.3 Form of Public Warrant Agreement (3)
4.4 Form of Underwriter's Warrant Agreement (3)
10.1 Employment Agreement between the Registrant and John W. Stuart (1)
10.2 Employment Agreement between the Registrant and David Hope (1)
10.3 Employment Agreement between the Registrant and Kiranjit S. Sidhu (1)
10.4 Confidentiality and Non-Competition Agreement between the Registrant and John W. Stuart (1)
10.5 Confidentiality and Non-Competition Agreement between the Registrant and David Hope (1)
10.6 Confidentiality and Non-Competition Agreement between the Registrant and Kiranjit S Sidhu (1)
10.7 Amended and Restated 1996 Stock Option Plan (1)
10.8 Contribution Agreement between the Registrant and John W. Stuart (1)
10.9 Security and Pledge Agreement between the Registrant and John W. Stuart Relating to
Contribution of LVHE shares (1)
10.10 Security and Pledge Agreement between the Registrant and John W. Stuart relating to LVHE
Litigation Indemnity (1)
10.11 Indemnification Agreement between the Registrant, John W. Stuart and Grand Strand
Entertainment, Inc. (1)
10.12 Security and Pledge Agreement between the Registrant and John W. Stuart relating to Grand
Strand Entertainment, Inc. Litigation Indemnity (1)
10.13 Promissory Note to John Stuart dated March 4, 1999+
10.14 Entertainment Production Agreement between the Registrant, Imperial Palace, Inc. and John W.
Stuart dated December, 1995 (3) (Filed in redacted form pursuant to Rule 406 promulgated under the
Securities Act. Filed separately in unredacted form subject to a request for confidential
treatment pursuant to Rule 406 under the Securities Act.)
10.15 Agreement between the Registrant and Bally's Park Place, Inc. dated September 1, 1994 and
subsequent renewal letters (3) (Filed in redacted form pursuant to Rule 406 promulgated under the
Securities Act. Filed separately in unredacted form subject to a request for confidential
treatment pursuant to Rule 406 under the Securities Act.)
10.16 Common Stock Purchase Agreement between Registrant and Interactive Events, Inc. (2) (Exhibit
No. 10.18)
10.17 (a) Show Production Agreement between the Registrant and Kurz Management (3) (Exhibit No.
10.19)
10.18 Portions of 1998 Annual Report to Stockholders+
10.19 Promissory Note to John Stuart dated April 5, 1999+
10.20 First Security Bank Agreement+
10.21 Common Stock Purchase Agreement with Whale Securities dated December 1998+
10.22 Common Stock Purchase Agreement between On Stage Entertainment, Inc. and Richard S.
Kanfer+
13 Management's Discussion and Analysis of Financial Condition and Results of Operations; Report
on Audited Consolidated Financial Statements For the Years Ended December 31, 1997 and 1998+
21 Subsidiaries of the Registrant+
23.2 Consent of Independent Certified Public Accounts
27 Financial Data Schedule+
</TABLE>
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- ------------------
+ Previously filed.
(1) Filed as an exhibit to the Company's Registration Statement on Form SB-2 on
April 7, 1997 (Registration No. 333-24681).
(2) Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 on June 3, 1997(Registration No. 333-24681)
(3) Filed as an exhibit to Amendment No. 3 to the Company's Registration
Statement on Form SB-2 on August 6,1997 (Registration No. 333-24681)
(4) Reports on Form 8-K
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EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
On Stage Entertainment, Inc.
Las Vegas, Nevada
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 5, 1999, for the years ended
December 31, 1997 and 1998, relating to the consolidated financial statements of
On Stage Entertainment, Inc., which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
-----------------------------
BDO Seidman, LLP
Los Angeles, California
August 31, 1999
