U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A No. 2
(Mark One) [X] Quarterly report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1998
[ ]Transition report under Section 13 or 15 (d) of the Exchange Act For the
Transition period from ________ to __________ Commission file number 0-92402
ON STAGE ENTERTAINMENT, INC.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 88-0214292
- ---------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4625 W. NEVSO DRIVE, LAS VEGAS, NEVADA 89103
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(702) 253-1333
----------------------------------------------
Issuer's Telephone Number, Including Area Code
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 2, 1998
- ---------------------------- -----------------------------------------
Common Stock, $0.01 par value 7,452,350
<PAGE>
ON STAGE ENTERTAINMENT, INC. and SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO. Part I. Financial Information
Item 1. Consolidated Financial Statements
Balance Sheets.................................... 3
Statements of Operations.......................... 4
Statements of Cash Flows.......................... 6
Notes to Financial Statements..................... 7
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations.. 13-24
Part II. Other Information
Item 1. Legal Proceedings.................................... 25
Item 2. Changes in Securities................................ 25
Item 3. Defaults Upon Senior Securities...................... 26
Item 4. Submission of Matters to a Vote of Security Holders.. 26
Item 5. Other Information.................................... 26
Item 6. Exhibits and Reports on Form 8-K..................... 26
Signatures........................................................... 27
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, September 30,
1997 1998
-----------------------------------
(Unaudited) Assets
Current Assets
Cash and cash equivalents............ $ 2,323,559 $ 783,370
Accounts receivable................. 455,340 1,194,241
Inventory ........................... 118,700 227,731
Deposits........................... 342,096 455,248
Prepaid and other assets........... 271,338 458,686
Pre-opening costs, net............ -- 1,071,557
Notes receivable from officers, net 136,194 53,612
------------ ------------
Total current assets ........... 3,647,227 4,244,445
------------ ------------
Property, equipment and leasehold
improvements (Note 5)................. 5,008,835 24,152,219
Less: Accumulated depreciation
and amortization...................... (2,553,347) (3,256,717)
------------ ------------
Property, equipment and leasehold
improvements, net..................... 2,455,488 20,895,502
------------ ------------
Cost in excess of net assets acquired,
net of accumulated amortization
of $7,370 and $18,083............... 116,415 105,703
Direct acquisition costs.............. 258,133 235,474
Deferred financing costs, net of
amortization of $49,121 (Note 5)...... -- 1,346,049
------------ ------------
$ 6,477,263 $26,827,173
============ ============
Liabilities and Stockholders Equity
Current Liabilities
Accounts payable and accrued expenses. $ 880,286 2,058,374
Accrued payroll and other liabilities. 698,499 1,638,662
Current maturities of long-term debt.. 271,918 1,434,440
------------ ------------
Total current liabilities......... 1,850,703 5,131,476
------------ ------------
3
<PAGE>
Long-term debt, less current
maturities (Note 5).................... 550,332 14,569,999
------------ ------------
Total liabilities................. 2,401,035 19,701,475
------------ ------------
Stockholder's equity
Preferred Stock, par value $1 per
share, 1,000,000 shares authorized;
none
issued and outstanding............... -- --
Common Stock, par value $0.01
per share; authorized 25,000,000
shares; 6,595,500 and 7,597,350
shares issued and outstanding..... 65,955 73,973
Additional paid-in capital........ 7,340,013 11,200,307
Accumulated deficit............... (3,329,740) (4,148,582)
------------ ------------
Total stockholder's equity........ 4,076,228 7,125,698
------------ ------------
$ 6,477,263 $ 26,827,173
============ =============
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended
September 30,
1997 1998
-----------------------------------
(Unaudited) (Unaudited)
Net revenues ........................ $ 5,070,727 $ 8,059,669
Cost of revenues.................... 3,470,812 6,051,417
-------------- --------------
Gross profit ........................ 1,599,915 2,008,252
Selling, general and administrative.. 1,375,325 1,271,355
Depreciation and amortization........ 282,707 690,557
-------------- --------------
Operating income loss................ (58,117) 46,340
Interest expense, net ............... 681,084 314,693
Other income......................... -- (1,383)
Net loss before income taxes ........ (739,201) (266,970)
Income taxes......................... 3,644 10,058
-------------- ---------------
Net loss ............................ $ (742,845) $ (277,028)
============== ===============
Basic loss per share ................ $ (0.13) $ (0.04)
Diluted net loss per share .......... (0.13) (0.04)
Basic average number of common
shares outstanding ................ $ 5,675,235 $ 7,397,350
============== ===============
Diluted average number of
common shares outstanding.......... $ 5,675,235 $ 7,397,350
============== ===============
4
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
Nine months ended
September 30,
1997 1998
----------------------------------
(Unaudited) (Unaudited)
Net revenues ........................ $ 11,769,189 $ 22,509,621
Cost of revenues .................... 7,943,564 16,973,103
--------------- --------------
Gross profit......................... 3,825,625 5,536,518
Selling, general and administrative.. 3,322,328 4,092,430
Depreciation and amortization........ 601,816 1,209,117
-------------- --------------
Operating income (loss).............. (98,519) 234,971
Interest expense, net................ 855,095 760,174
Other income......................... -- (84,190)
Subsidiary income for period
not owned ......................... -- 366,516
Net loss before income taxes......... (953,614) (807,529)
Income taxes......................... 5,963 11,313
-------------- -------------
Net loss............................. $ (959,577) $ (818,842)
============== ==============
Basic loss per share ................ $ (0.20) $ (0.12)
Diluted net loss per share .......... $ (0.20) $ (0.12)
Basic average number of common
shares outstanding.................. $ 4,807,972 $ 7,100,870
============== ==============
Diluted average number of common
shares outstanding ................. $ 4,807,972 $ 7,100,870
============== =============
5
<PAGE>
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Nine months ended
September 30,
1997 1998
(Unaudited) (Unaudited)
------------------------------
Cash flows from operating activities
Net loss............................ $ (959,577) $ (818,842)
------------ ------------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization ..... 511,990 773,203
Interest paid in Common Stock ........ 194,228 --
Issuance of Common Stock to CFO....... 162,129 --
Non-cash interest ............... 444,000 --
Forgiveness of note receivable
from stockholder ................ 221,521 --
Increase (decrease) from changes
in operating assets and
liabilities...................... -- --
Accounts receivable ............. (184,334) (738,911)
Inventory ....................... (23,008) 11,053
Deposits ........................ (231,078) (113,152)
Pre-opening costs ............... (452,131) (1,071,557)
Prepaid and other assets......... (296,728) (29,832)
Accounts payable and accrued
expenses....................... 182,329 89,692
Accrued Payroll and other
liabilities ................... 21,726 940,183
Litigation settlement accrual.... (100,000) --
------------- ------------
Total adjustments ................. 450,644 (139,231)
------------- ------------
Net cash used in operating
activities.......................... (508,933) (958,173)
------------- ------------
Cash investing activities
Advances on note receivable from
stockholder......................... (221,521) 82,582
Capital expenditures ............... (506,235) (886,424)
Direct acquisition costs ........... -- 678,844
Payment for acquisitions, less cash
received .......................... -- (14,602,829)
------------- -------------
Net cash used in investing
activities .......................... (727,756) (14,727,827)
------------- -------------
6
<PAGE>
Cash used in financing activities:
Borrowing under line of credit..... -- 1,000,000
Proceeds from long-term borrowing..... -- 13,727,237
Repayments on long-term borrowing... (750,000) (581,426)
Proceeds from bridge notes ........ 875,000 --
Payments of bridge notes ........ (875,000) --
Net proceeds from sale of
common stock and warrants ....... 5,289,215 --
------------- --------------
Net cash provided by financing
activities ......................... 4,539,215 14,145,811
------------- --------------
Net increase in cash and cash
equivalents......................... 3,302,526 (1,540,189)
------------- --------------
Cash and cash equivalents at
beginning of period................. 290,751 2,323,559
------------ --------------
Cash and cash equivalents at end
of period .......................... 3,593,277 783,370
============ ==============
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest ........................... $ 218,879 $ 675,984
Taxes .............................. $ 5,963 $ 11,313
============ =============
Supplemental schedule of non-cash investing and financing activities During the
nine months ended September 30, 1997 and 1998, $704,000 and $1,082,236 of lease
assets and other obligations, principally pre-opening costs, were capitalized,
respectively.
In connection with mortgage financing related to the Gedco Acquisition (as
defined in Note 5 of Part I), the Company issued 575,000 warrants to purchase
the Company's Common Stock to the lender and an affiliate of the lender, which
were valued at $500,000 and accounted for as an original issue discount.
7
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
(1) Basis of Presentation
The financial statements included herein include the accounts 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 coporation
("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"). In the opinion of the Company's management,
all adjustments considered necessary for fair presentation have been reflected
in the financial statements. These adjustments are of a normal, recurring
nature. Operating results for the nine months ended September 30, 1998, are not
necessarily indicative of those expected for the full year. Certain prior period
amounts have been adjusted and reclassified to conform to this period
presentation.
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and the rules and
regulations of the Securities and Exchange Commission. These consolidated
financial statements have been prepared under the presumption that users of the
unaudited interim consolidated financial information have either read or have
access to the Company's audited financial statements and footnotes thereto for
the year ended December 31, 1997, included in the Company's Form 10-KSB, as
amended filed with the Securities and Exchange Commission. Accordingly, footnote
disclosures, which would substantially duplicate the disclosures contained in
the Company's December 31, 1997 audited financial statements, have been omitted
from these interim consolidated financial statements. Certain information and
footnote disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such instructions, rules and regulations. These
unaudited interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the footnotes
thereto for the year ended December 31, 1997, included in the Company's Form
10-KSB as amended.
8
<PAGE>
(2) Subsquent Events
Additional ICCMIC Financing
On October 7, 1998, the Company's first mortgage lender, Imperial Credit
Commercial Mortgage Investment Corp. ("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 $1.00 per
share.
DY/DX Corp. Common Stock Purchase Agreement
On October 2, 1998, the Company entered into a stock purchase agreement with
DY/DX Corp., an Illinois corporation, to sell up to 500,000 shares of the
Company's Common Stock at an aggregate purchase price of $500,000. As of
November 4, 1998, DY/DX Corp. had purchased 55,000 shares of the Company's
Common Stock pursuant to this agreement.
Election of Board Members
On July 15, 1998, the Company's Board of Directors elected Mel Woods, President
of Fox Family Worldwide, as a director on its board, to fill the vacancy created
by Nelson Foster's resignation from his post as a director of the Company on
June 26, 1998.
On September 8, 1998, the Company's underwriter, Whale Securities Co., LP
("Whale") exercised its right to appoint a designee to the Company's board of
directors. In order to create a vacancy for Whale's designee, director Jules
Haimovitz resigned his post as a director of the Company on September 8, 1998.
Whale named Matt Gohd as its designee, who was subsequently elected to the board
of directors on September 9, 1998
(3) Loss Per Share
On March 3, 1997, the FASB issued Statement of Financial Accounting Standard No.
128. Earnings per share (SFAS 128). This pronouncement provides a different
method of calculating earnings per share than is currently used in accordance
with APB 15, Earnings per Share. SFAS 128 provides for the calculation of Basic
and Diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of the entity, similar to fully diluted earnings per
share. Except where the provisions of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 98 are applicable, potential dilutive securities
have been excluded in all years presented in the Statements of Operations when
the effect of their inclusion would be anti-dilutive.
For the nine months ended September 30, 1997, potential dilutive securities
representing 421,094 outstanding options and 2,077,000 outstanding warrants are
not included, since their effect would be anti-dilutive. For the nine months
ended September 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.
9
<PAGE>
(4) Commitments and Contingencies
The Company is a party to various legal proceedings in which the adverse parties
are seeking damages from the Company. While there can be no assurance that any
of the instituted or threatened lawsuits will be settled or decided in favor of
the Company, the management of the Company does not believe the final resolution
of these matters will have a material adverse effect upon the Company's
financial condition and results of operations. (5) Business Acquisition Gedco
USA, Inc. Acquisition
On March 13, 1998, the Company completed its acquisition of certain assets from
Gedco USA, Inc. and its affiliates for a purchase price of $14,000,000,
consisting of $11,500,000 in cash and 595,238 shares of Common Stock valued at
$2,500,000 (the "Gedco 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.
The Company funded the cash portion of the purchase price and transaction fees
and expenses with $12.5 million of mortgage financing from Imperial Credit
Commercial Mortgage Investment Corp. ("ICCMIC"). ICCMIC has committed a total of
$20,000,000, of which $7,500,000 is remaining to finance the Company's future
real estate related acquisitions. In connection with the loan agreement entered
into between the Company and ICCMIC on March 13, 1998 (the "Loan Agreement"),
the Company granted ICCMIC the right to provide the Company with up to an
additional $30 million of similar mortgage financing. In connection with the
financing, the Company issued ICCMIC and Imperial Capital Group LLC (an
affiliate of ICCMIC), an aggregate of 575,000 warrants immediately exercisable
into shares of Common Stock at an exercise price of $4.44, which price was
adjusted on October 7, 1998. See "Additional ICCMIC Financing" in Note 2 above.
In addition, concurrently with the ICCMIC financing, Mark Karlan, the President
of ICCMIC, was named a member of the Company's Board of Directors, filling a
vacancy created by the resignation of Kenneth Berg.
The components of the purchase price and its allocation to the assets and
liabilities are as follows:
Purchase Price:
Liabilities assumed ..................................... $ 986,044
Issuance of 595,238 restricted shares of common stock.... 2,500,000
------------
3,486,044
Cost of acquisition incurred............................. 1,645,874
Cash paid................................................ 11,500,000
------------
$16,631,918
============
10
<PAGE>
Cash paid for the purchase of Gedco, USA, Inc. Net of cash received is as
follows:
Cash paid to sellers .................................... $11,500,000
Acquisition costs........................................ 1,645,874
-------------
13,145,874
Less cash received....................................... (383,444)
-------------
$12,762,430
=============
The costs of acquisition increased primarily relates to the lenders origination
fee of $750,000, legal fees of $240,000, financing fees of $100,000, recording
fees of $100,000, and accounting fees of $125,000.
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:
Cash.................................................... $ 383,444
Inventory............................................... 120,084
Prepaid Expenses........................................ 157,516
Land.................................................... 11,275,507
Building................................................ 3,214,740
Equipment............................................... 730,627
Deferred financing acquisition expenses................. 750,000
------------
Deferred financing acquisition expenses ................ $16,631,918
============
The assets acquired and liabilities assumed were transferred to either the
Company's wholly-owned subsidiary, On Stage Theaters, Inc., or a wholly owned
subsidiary of On Stage Theaters, Inc., concurrent with the acquisition. The
Company has elected to consolidate the operations of the assets acquired in the
Gedco Acquisition retroactively to January 1, 1998. Therefore, the
pre-acquisition gain of $366,516 has been added to the consolidated statement of
operations for the nine months ended September 30, 1998. The effect of this
consolidation of operations prior to acquisition was an increase in net sales of
approximately $3,099,071.
11
<PAGE>
Calvin Gilmore Productions, Inc.
On June 30, 19998, the Company completed its acquisition of certain assets from
Calvin Gilmore Productions, Inc. ("CGP"), an affiliate of Fox Family Worldwide,
for a purchasep rice of $1,000,000 in cash and 206,612 shares of Common Stock
valued at $723, 142 (the "Fox Acquistion").
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 has leased from CGP for its presentation of its
flagship Legends in Concert production since 1995, and a leasehold interest in
The Eddie Miles Theater. In connection with the Fox Acquisition, Mel Woods, the
Chief Operating Officer of Fox Family Worldwide, was subsequently elected as a
member of the Company's Board of Directors, filling a vacancy created by the
resignation of Nelson Foster.
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.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This document contains certain forward-looking statements that are subject to
risks and uncertainties. Forward-looking statements include certain information
relating to its outstanding litigation matters and the defenses available to the
Company, the seasonality of the Company's business, and liquidity as well as
information contained elsewhere in this report where statements are preceded by,
followed by or include the words "believes," "expects," "anticipates" or similar
expressions. Such statements use forward-looking terminology such as "believes",
"expects", "may", "will", "should", "seeks", "pro forma", "anticipates",
"intends", or the negative of any therof, or of other variations thereon or
comparable terminology, or by discussion of strategy or intentions. For such
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. The forward-looking statements in this document are subject to
risks and uncertainties that could cause the assumptions underlying such
forward-looking statements and the actual results to differ materially from
those expressed in or implied by the statements.
The most important factors that could prevent the Company from achieving its
goals and cause the assumptions underlying the forward-looking statements and
the actual results of the Company to differ materially from those expressed in
or implied by those forward-looking statements include, but are not limited to,
those identified in pages _____ of Amendment No. 5 to the Company's Registration
Statement on Form SB-2 filed with the Commission on June 12, 1998 (Registration
No. 333-56785), as amended as well as the following: (i) the Company's
dependence on its flagship productions Legends in Concert, Wild Bill's Dinner
Extravaganza, Blazing Pianos, King Henry's Feast and its principal production
venues; (ii) the ability of the Company to successfully produce and market new
productions and to manage the growth associated with the any new productions;
(iii) risks associated with the Company's acquisition strategy, including the
Company's ability to successfully identify, complete and integrate strategic
acquisitions; (iv) the Company's ability to obtain financing on commercially
reasonable terms; (v) the Company's ability to service its substantial
indebtedness; (vi) the competitive nature of the leisure and entertainment
industry and the ability of the Company to continue to distinguish its services;
(vii) fluctuations in quarterly operating results and the highly seasonal nature
of the Company's business; (viii) the ability of the Company to reproduce the
performance, likeness and voice of various celebrities without infringing on the
publicity rights of such celebrities or their estates as well as its ability to
protect its intellectual property rights; (ix) the ability of the Company to
successfully manage the litigation pending against it and to avoid future
litigation; and (x) the results of operations which depend on numerous factors
including, but not limited to, the commencement and expiration of contracts, the
timing and amount of new business generated by the Company, the Company's
revenue mix, the timing and level of additional selling, general and
administrative expense and the general competitive conditions in the leisure and
entertainment industry as well as the overall economy.
13
<PAGE>
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company's computer
equipment and software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process accounting, payroll, database, network, and software transactions,
possible disruption of environmental, lighting, and security controls, possible
disruption of copier and fax capabilities, and loss of telephone voicemail
messages, in addition to other similar normal business activities. The Company
has undertaken various initiatives intended to ensure that its computer
equipment and software will function properly with respect to dates in the Year
2000 and thereafter. For this purpose, the term "computer equipment and
software" includes systems that are commonly thought of as Information
Technology ("IT") systems, including accounting, data processing, and
telephone/PBX systems and other miscellaneous systems, as well as systems that
are not commonly thought of as IT systems, such as alarm systems, fax machines,
air conditioning units, internally developed software and other miscellaneous
systems. Both IT and non-IT systems may contain embedded technology, which
complicates the Company's Year 2000 identification, assessment, remediation, and
testing efforts. Based upon its identification and assessment efforts to date,
the Company believes that certain of the computer equipment and software it
currently uses may require replacement or modification. In addition, in the
ordinary course of replacing computer equipment and software, the Company
attempts to obtain replacements that are Year 2000 compliant. Utilizing both
internal and external resources to identify and assess needed Year 2000
remediation, the Company currently anticipates that its Year 2000
identification, assessment, remediation and testing efforts, which began in
February 1998, will be completed by June 30, 1999. The Company estimates that as
of September 30, 1998, it had completed approximately 25% of the initiatives
that it believes will be necessary to fully address potential Year 2000 issues
relating to its computer equipment and software. The projects comprising the
remaining 75% of the initiatives are in process and expected to be completed on
or about June 30, 1999. Additionally, the Company has recently commenced its
initiatives relating to the non-IT systems. The following table describes the
Year 2000 initiatives as well as the Company's progress and the anticipated
completion dates as of September 30, 1998:
Time Percent Year 2000 Initiatives Table Complete
Initial IT system identification........................... 2/98 - 10/98 100%
Initial IT system assessment............................... 2/98 - 11/98 95%
Remediation and testing regarding central system issues.... 2/98 - 6/99 15%
14
<PAGE>
Identification, assessment, remediation and testing
regarding desktop and individual system issues............ 2/98 - 6/99 35%
Identification regarding non-IT system issues.............. 2/98 - 10/98 100%
Assessment regarding non-IT system issues.................. 2/98 - 11/98 65%
Remediation and testing regarding non-IT system issues..... 2/98 - 6/99 35%
The Company is in the process of communicating with its significant vendors and
service providers and strategic partners to determine the extent to which
interfaces with such entities are vulnerable to Year entities are Year 2000
compliant. This process is expected to be completed in December 1998. The
Company believes that the cost of its Year 2000 assessment, remediation and
testing efforts, as well as those costs related to Year 2000 issues of third
parties, are expected to approximate $250,000. As of September 30, 1998, the
Company had not incurred any external costs related to its Year 2000
identification, assessment, remediation and testing efforts. Other non-Year 2000
IT efforts have not been materially delayed or impacted by Year 2000
initiatives. The Company presently believes that the Year 2000 issue will not
pose significant operational problems for the Company. However, if all Year
2000issues are not properly identified, or assessment, remediation and testing
are not effected timely with respect to Year 2000 problems that are identified,
there can be no assurance that the Year 2000 issue will not materially adversely
impact the Company's results of operations or adversely affect the Company's
relationships with vendors, or others. Additionally, there can be no assurance
that the Year 2000 issues of other entities will not have a material adverse
impact on the Company's results of operations.
15
<PAGE>
Results of Operations
The following table sets forth, the results of operations by the Company for the
period indicated:
Three Months Ended September 30, 1997
----------------------------------------------------------
Casinos Events Merchandise Theaters
- ----------------- ---------- -------- ----------- ----------
Net revenues........ $1,736,111 $ 568,899 $ 165,761 $2,599,956
Cost of revenues.... 1,073,185 284,816 43,008 2,028,898
---------- -------- ----------- ----------
Gross profit........ 662,926 284,083 122,753 571,058
Selling, general
& administrative... 86,391 142,448 665 127,524
Depreciation &
amortization....... 33,844 597 -- 118,596
---------- --------- ----------- ----------
Operating income(loss) 542,691 141,038 122,088 1,130,755
Interest expense(net) -- (31) -- (31)
---------- --------- ----------- ----------
Net income (loss)
before income taxes. 542,691 141,069 122,088 324,938
Income taxes......... -- 1,306 -- --
========== ========= =========== ==========
Net income (loss) $ 542,691 $139,763 $ 122,088 $ 324,938
Three Months Ended September 30, 1997
----------------------------------------------------------
Sub-Total
Operating Total
Corporations Production OSE Consolidated
- ----------------- ------------ ---------- ----------- ------------
Net revenues........ $5,070,727 $ -- $ -- $5,070,727
Cost of revenues.... 3,429,907 40,905 -- 3,470,812
---------- -------- ----------- ----------
Gross profit........ 1,640,820 (40,905) -- 1,599,915
Selling, general
& administrative... 357,028 15,751 1,002,546 1,375,325
Depreciation &
amortization....... 153,037 -- 129,670 282,707
---------- --------- ----------- ----------
Operating income(loss) 1,130,755 (56,656) (1,132,216) (58,117)
Interest expense(net) (31) -- 681,115 681,084
---------- --------- ----------- ----------
Net income (loss)
before income taxes. 1,130,755 (56,656) (1,813,331) (731,201)
Income taxes......... 1,306 -- 2,338 3,644
========== ========= =========== ==========
Net income (loss) $1,129,480 $(56,656) $(1,815,669) $ (742,845)
16
<PAGE>
Three Months Ended September 30, 1998
----------------------------------------------------------
Casinos Events Merchandise Theaters
- ----------------- ---------- -------- ----------- ----------
Net revenues........ $1,355,908 $ 774,688 $ 785,830 $5,143,243
Cost of revenues.... 908,706 529,616 467,911 4,095,460
---------- -------- ----------- ----------
Gross profit........ 447,202 245,072 317,919 1,047,783
Selling, general
& administrative... 40,506 216,655 -- 327,932
Depreciation &
amortization....... 90,507 12,646 1,565 517,461
---------- --------- ----------- ----------
Operating income(loss) 316,189 15,771 316,354 202,930
Interest expense(net) -- (3) 75 255,655
---------- --------- ----------- ----------
Other
income......... (1,383)
Net income (loss)
before income taxes. 316,189 15,774 316,279 (51,882)
Income taxes......... -- -- -- --
========== ========= =========== ==========
Net income (loss) $ 316,189 $ 15,774 $ 316,279 $ (51,882)
Three Months Ended September 30, 1998
----------------------------------------------------------
Sub-Total
Operating Total
Corporations Production OSE Consolidated
- ----------------- ------------ ---------- ---------- ------------
Net revenues........ $8,059,669 $ -- $ -- $8,059,669
Cost of revenues.... 6,001,693 49,724 -- 6,051,417
---------- -------- ----------- ----------
Gross profit........ 2,057,976 (49,724) -- 2,008,252
Selling, general
& administrative... 585,093 112,736 573,526 1,271,355
Depreciation &
amortization....... 662,179 22,265 46,113 690,557
---------- --------- ----------- ----------
Operating income(loss) 850,704 (184,725) (619,639) 46,340
Interest expense(net) 255,727 -- 58,966 314,693
---------- --------- ----------- ----------
Other income......... (1,383) (1,383)
Net income (loss)
before income taxes. 596,360 (184,725) (678,605) (266,970)
Income taxes......... -- -- 10,058 10,058
========== ========= =========== ==========
Net income (loss) $ (596,360) $(184,725) $ (688,663) $ (277,028)
17
<PAGE>
Results of Operations
The following tables set forth, the results of operations by the Company for the
period indicated:
Nine Months Ended September 30, 1997
----------------------------------------------------------
Casinos Events Merchandise Theaters
- ----------------- ---------- ---------- ----------- ----------
Net revenues........ $5,068,327 $1,707,262 $ 319,672 $4,673,928
Cost of revenues.... 3,058,872 1,047,288 82,986 3,653,376
---------- ---------- ----------- ----------
Gross profit........ 2,009,455 659,974 236,686 1,020,552
Selling, general
& administrative... 228,681 447,893 665 226,379
Depreciation &
amortization....... 102,133 745 -- 132,560
---------- ---------- ----------- ----------
Operating income(loss) 1,678,641 211,336 236,021 661,613
Interest expense(net) -- (277) -- --
---------- ---------- ----------- ----------
Net income (loss)
before income taxes. 1,678,641 211,613 236,021 661,613
Income taxes......... -- 3,029 -- --
========== ========== =========== ==========
Net income (loss) $1,678,641 $ 208,584 $ 236,021 $ 661,613
Nine Months Ended September 30, 1997
----------------------------------------------------------
Sub-Total
Operating Total
Corporations Production OSE Consolidated
- ----------------- ------------ ---------- ----------- ------------
Net revenues........ $11,769,189 $ -- $ -- $11,769,189
Cost of revenues.... 7,842,522 101,042 -- 7,943,564
---------- -------- ----------- ----------
Gross profit........ 3,926,667 (101,042) -- 3,825,625
Selling, general
& administrative... 903,618 51,780 2,366,930 3,322,328
Depreciation &
amortization....... 235,438 -- 366,378 601,816
---------- --------- ----------- ----------
Operating income(loss) 2,787,611 (152,822) (2,733,308) (98,519)
Interest expense(net) (277) -- 855,372 855,095
---------- --------- ----------- ----------
Net income (loss)
before income taxes. 2,787,888 (152,822) (2,733,308) (953,614)
Income taxes......... 3,029 -- 2,934 5,963
========== ========= =========== ==========
Net income (loss) $2,784,859 $(152,822) $(3,591,614) $ (959,577)
18
<PAGE>
Nine Months Ended September 30, 1998
----------------------------------------------------------
Casinos Events Merchandise Theaters
- ----------------- ---------- ---------- ----------- ----------
Net revenues........ $4,415,580 $2,184,450 $ 1,001,519 $14,908,072
Cost of revenues.... 2,913,506 1,434,141 541,171 11,908,301
---------- ---------- ----------- ----------
Gross profit........ 1,502,074 750,309 460,348 2,999,771
Selling, general
& administrative... 138,336 633,795 4,702 1,370,436
Depreciation &
amortization....... 172,174 27,027 3,809 772,355
---------- ---------- ----------- ----------
Operating income(loss) 1,191,564 89,487 451,837 856,980
Interest expense(net) -- (36) 75 594,826
---------- ---------- ----------- ----------
Other income.........
Subsidiary operations
for period not owned. 366,516
Net income (loss)
before income taxes. 1,191,564 89,523 451,762 (104,362)
Income taxes......... -- -- -- --
========== ========== =========== ==========
Net income (loss) $1,191,564 $ 89,523 $ 451,762 $(104,362)
Nine Months Ended September 30, 1998
----------------------------------------------------------
Sub-Total
Operating Total
Corporations Production OSE Consolidated
- ----------------- ------------ ---------- ---------- ------------
Net revenues........ $22,509,621 $ -- $ -- $ 22,509,621
Cost of revenues.... 16,797,119 175,984 -- 16,973,103
---------- -------- ----------- ------------
Gross profit........ 5,712,502 (175,984) -- 5,536,518
Selling, general
& administrative... 2,147,269 121,144 1,824,017 4,092,430
Depreciation &
amortization....... 975,365 22,324 211,428 1,209,117
---------- --------- ----------- ------------
Operating income(loss) 2,589,868 (319,452) (2,035,445) 234,971
Interest expense(net) 594,865 -- 81,119 675,984
---------- --------- ----------- ------------
Other income.........
Subsidiary operations
for period not owned. 366,516 366,516
Net income (loss)
before income taxes. 1,628,487 (319,452) (2,116,564) (807,529)
Income taxes......... -- -- 11,313 11,313
========== ========= =========== ===========
Net income (loss) $1,628,487 $ (319,452) $(2,127,877) $ (818,842)
19
<PAGE>
Three Months Ended September 30, 1997 versus Three Months Ended September 30,
1998
Net Revenues. Revenues increased by 58.9% to $8,060,000 for the three months
ended September 30, 1998 compared to $5,071,000 for the three months ended
September 30, 1997. The Company's revenue is derived from four principal
operating corporations: Casinos, Events, Merchandise and Theaters.
Casinos revenues were approximately $1,356,000 for the three months ended
September 30, 1998 compared to $1,736,000 for the three months ended September
30, 1997, a decrease of $380,000, or 21.9%. The decrease was primarily
attributable to decrease in revenue generated from limited run casino shows and
the Legends' show at the Imperial Palace Hotel and Casino.
Events revenues were $775,000 for the three months ended September 30, 1998
compared to $569,000 for the three months ended September 30, 1997, an increase
of $206,000 or 36.2%. This increase was mainly attributable to increase in
business.
Merchandise revenues were approximately $786,000 for the three months ended
September 30, 1998 compared to $166,000 for the three months ended September 30,
1997, an increase of $621,000 or 374.1% . This increase was mainly attributable
to an increase in photo sales and the inclusion of Gedco Acquisition properties.
Theaters revenues were approximately $5,143,000 for the three months ended
September 30, 1998 compared to $2,600,000 for the three months ended September
30, 1997, an increase of $2,543,000, or 97.8%. This increase in revenues was
primarily attributed to new show openings in Branson, Missouri, and Toronto,
Canada and the inclusion of Gedco Acquisition properties.
Costs of Revenues. Total costs of revenues were $6,051,000 for the three months
ended September 30, 1998 compared to $ 3,471,000 for the three months ended
September 30, 1997, an increase of $2,580,000, or 74.4%. Costs of revenues
increased to 75.1% of net revenues for the three months ended September 30,
1998, as compared to 68.4% for the three months ended September 30, 1997. This
increase in cost of revenues as a % of net revenues was primarily attributable
to a change in the mix of the Company's revenues from primarily theater shows to
theater and dinner theater shows.
Selling, General and Administrative. Selling, general and administrative costs
were approximately $1,271,000 for the three months ended September 30, 1998 as
compared to $1,375,000 for the three months ended September 30, 1997, a decrease
of $104,000, or 7.6%. Selling, general and administrative costs decreased to
15.8% of net revenues for the three months ended September 30, 1998, as compared
to 27.1% for the three months ended September 30, 1997, which was primarily
attributable to staff reductions.
20
<PAGE>
Operating Income. The Company's operating income was approximately $46,000 for
the three months ended September 30, 1998, compared to an operating loss of
$58,000 for the three months ended September 30, 1997, an increase of $104,000.
Depreciation and Amortization. Depreciation and amortization were $576,000 for
the three months ended September 30, 1998 increased by $408,000 or 144.3%, as
compared to the three months ended September 30, 1997, and increase of $293,000
or 103.6%. The increase was primarily due to capital additions to current shows,
new shows, and an increase in assets as a result of the Gedco Acquisition.
Interest Expense, Net. Interest expense was $427,000 for the three months ended
September 30, 1998 decreased by $391,000, or 55.4%, as compared to $681,000 for
the three months ended September 30, 1997, a decrease of $279,00 or 39.4%. The
decrease was primarily due to one-time interest expense related to the
conversion of debentures and the original issue discount of the bridge
financing, which was incurred in 1997, but not in 1998.
Three Months Ended September 30, 1997 versus Three Months Ended September 30,
1998
Other Income. Other income for the three months ended September 30, 1998 was
attributable to a sign-on bonus received from a new supplier.
Income Taxes. The Company is a Nevada corporation with a substantial portion of
revenue and income derived in Nevada. There are no state or local income taxes
in Nevada. The Company accrued no federal income tax for the three months ended
September 30, 1998 three months ended 1997. Income taxes for the three months
ended September 30, 1997 and 1998, relate to income taxes due in those states
other than Nevada in which the Company conducts business. At September 30, 1997
and 1998, the Company had federal net operating loss carryforwards of
approximately $1,616,791 and $3,958,386, respectively. Under Section 382 of the
Internal Revenue Code, certain significant changes in ownership that the Company
is currently undertaking may restrict the future utilization of these tax loss
carryforwards. The net deferred tax assets have a 100% valuation allowance, as
management cannot determine if it is more likely than not that the deferred tax
assets will be realized.
Nine months Ended September 30, 1997 versus Nine months Ended September 30, 1998
Net Revenues. Revenues increased by 91.3% to $22,510,000 for the nine months
ended September 30, 1998 compared to $11,769,000 for the nine months ended
September 30, 1997.
Theaters revenues were approximately $14,908,000 for the nine months ended June,
1998 compared to $4,674,000 for the nine months ended September 30, 1997, an
increase of $10,234,000, or 219.9%. The increase was attributable to the
inclusion of Gedco USA acquisition.
Events revenues were $2,184,000 for the nine months ended September 30, 1998
compared to $1,707,000 for the nine months ended September 30, 1997, an increase
of $477,000 or 28.0%. This increase was attributable to an increase in business
as a result of an increase in sales people.
21
<PAGE>
Merchandise revenues were approximately $1,002,000 for the nine months ended
September 30, 1998 compared to $320,000 for the nine months ended September 30,
1997, an increase of $682,000 or 213.3%. This increase was attributable to an
increase in business and the inclusion of the Gedco Acquisition. Casino revenues
were approximately $4,415,000 for the nine months ended September 30, 1998
compared to $6,068,000 for the nine months ended September 30, 1997, an decrease
of $663,000, or 12.9 % . The decrease was primarily attributable to a reduction
in revenue generated from limited run casino shows.
Costs of Revenues. Total costs of revenues were $16,973,000 for the nine months
ended September 30, 1998 compared to $7,944,000 for the nine months ended
September 30, 1997, an increase of $9,030,000, or 113.7%. Costs of revenues
increased to 75.4% of net revenues for the nine months ended September 30, 1998,
as compared to 67.5% for the nine months ended September 30, 1997. This increase
in cost of sales as percentage of revenues was primarily attributable to a
change in the mix of the Company's revenues from primarily theater shows to
theater and dinner theater shows.
Selling, General and Administrative. Selling, general and administrative costs
were approximately $4,092,000 for the nine months ended September 30, 1998 as
compared to $3,322,000 for the nine months ended September 30, 1997, an increase
of $770,000 or 23.2%. Selling, general and administrative costs decreased to
18.2% of net revenues for the nine months ended September 30, 1998, as compared
to 28.2% for the nine months ended September 30, 1997. The decrease in total
cost is primarily the result of head cost reductions.
Operating Income. The Company's operating income was approximately $235,000 for
the nine months ended September 30, 1998, compared to an operating loss of
$98,000 for the nine months ended September 30, 1997, an increase of $333,000.
Depreciation and Amortization. Depreciation and amortization for the nine months
ended September 30, 1998 increased by $607,000, or 100.9%, as compared to the
nine months ended September 30, 1997. The increase was primarily due to capital
additions to current shows, new shows, and an increase in assets as a result of
the Gedco Acquisition.
Interest Expense, Net. Interest expense for the nine months ended September 30,
1998 decreased by $120,000, or 13.6%, as compared to the nine months ended
September 30, 1997. The decrease was primarily due to one-time interest expense
related to the conversion of debentures and the original issue discount of the
bridge financing, which was incurred in 1997, but not 1998. Other Income. Other
income for the nine months ended September 30, 1998 was attributable to a
sign-on bonus received from a new supplier.
22
<PAGE>
Income Taxes. The Company is a Nevada corporation with a substantial portion of
revenue and income derived in Nevada. There are no state or local income taxes
in Nevada. The Company accrued no federal income tax for the nine months ended
September 30, 1998. Income taxes for the nine months ended September 30, 1997
and 1998, relate to income taxes due in those states other than Nevada in which
the Company conducts business. At September 30, 1997 and 1998, the Company had
federal net operating loss carryforwards of approximately $1,616,791 and
$3,958,386 respectively. Under Section 382 of the Internal Revenue Code, certain
significant changes in ownership that the Company is currently undertaking may
restrict the future utilization of these tax loss carryforwards. The net
deferred tax assets have a 100% valuation allowance, as management cannot
determine if it is more likely than not that the deferred tax assets will be
realized.
Liquidity and Capital Resources
General
The Company has historically met its working capital requirements through a
combination of cash flow from operations, equity and debt offerings and
traditional bank financing. The Company anticipates, based on its proposed plans
and assumptions relating to its operations (including assumptions regarding the
anticipated timetable of its new show openings and the costs associated
therewith), that the Company's current cash, cash equivalent balances,
anticipated revenue from operations and its working capital line will be
sufficient to fund its current operations and contemplated capital requirements
through December 31, 1998. However, the Company's acquisition strategy also will
require additional debt and/or equity financing. In the event the Company's
plans or assumptions change, prove to be incorrect, or if balances and/or
anticipated revenues otherwise prove to be insufficient, the Company would need
to revise its expansion strategy (which revision could include the curtailment,
delay or elimination of certain of its anticipated productions or the funding of
such productions through arrangements with third parties, which would require it
to relinquish rights to a substantial portion of its revenues) and/or seek
additional financing prior to the end of such period. The Company is currently
seeking private equity financing and has hired Imperial Capital, LLC.
For the nine months ended September 30, 1997, the Company had a net cash deficit
from operations of $509,000 in operations. As of September 30, 1997, the Company
had approximately $3,593,000 in cash and cash equivalents. For the nine months
ended September 30, 1998, the Company had a net cash deficit from operations of
$958,000 in operations. As of September 30, 1998, the Company had $784,000 in
cash and cash equivalents. The operating deficits for both periods were
primarily attributable to business seasonality and pre-opening costs for new
shows.
The net cash used in investing activities for the nine months ended September
30, 1997 of $728,000. The net cash used in investing activities for the quarter
ended September 30, 1998 of $14,728,000, was primarily attributable to direct
acquisition costs related to acquisitions.
Net cash provided by financing activities for the nine months ended September
30, 1997 of $4,539,000 was primarily attributable to proceeds from sale of
common stock. Net cash provided by financing activities for the nine months
ended September 30, 1998 of $14,146,000, was primarily attributable to ICCMIC's
funding of $12,500,000 for the Gedco Acquisition and $1,100,000 million for the
Fox Acquisition.
At September 30, 1997, the Company had working capital of approximately
$4,127,000, primarily attributable from proceeds of the sale of common stock. At
September 30, 1998, the Company had a working capital deficit of approximately
$887,031, primarily attributable to the pre-opening costs of new shows.
23
<PAGE>
Working Capital Line
In May 1997, First Security Bank of Nevada ("First Security") issued a line of
credit to the Company for up to $250,000. Borrowings under such facility bear
variable interest at 1.5% over the First Security Bank of Idaho's index (10% per
year as of the facility's inception) and are due on demand. On March 28, 1998,
First Security increased the line of credit from $250,000 to $1,000,000 and
extended the expiration date of the line to March 25, 1999. As of September 30,
1998, the Company had drawn $1,000,000 on the line of credit. Mortgage Financing
Commitment
On March 13, 1998, the Company entered into the Loan Agreement with ICCMIC
pursuant to which ICCMIC agreed to provide the Company with up to $20,000,000 of
mortgage financing. On March 28, 1998, the Company used $12,500,000 of said
facility to fund the cash portion of the Gedco Acquisition and related fees
subsequently used $1,100,000 on June 30, 1998 to fund the cash portion of the
Fox Acquisition and $550,000 on October 7, 1998 to help the Company with it's
working capital needs. In connection with the Loan Agreement, the Company
provided ICCMIC with the right to provide the Company with up to an additional
$30,000,000 of mortgage related financing. In addition concurrent with the
ICCMIC financing, Mark Karlan, the President of ICCMIC, was named a member of
the Company's Board of Directors, filling a vacancy created by the resignation
of Kenneth Berg.
New Accounting Pronouncements
Reporting on the Costs of Start-up Activities
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities,"
(SOP 98-5) issued by the American Institute of Certified Public Accountants is
effective for financial statements beginning after December 15, 1998. SOP 98-5
requires that the costs of start-up activities, including organization costs, be
expensed as incurred. Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customers (excluding ongoing customer acquisition costs, such as policy
acquisition costs and loan origination costs) or beneficiary, initiating a new
process in an existing facility, or commencing some new operation. The adoption
of SOP 98-5 will require the Company to expense all capitalized pre-opening
costs. Such costs were $1,071,557 at September 30, 1998.
Diclosure About Segments of an Enterprise and Related Information
Statement of Financial Accounting Standards No. 131, "Disclosure About Segments
Of An Enterprise and Related Information," (SFAS No. 131) issued by the FASB is
effective for financial statemetns with fiscal years beginning after December
15, 1997. Earlier application is permitted. SFAS No. 131 requires that public
companies report certain information about operating segments, products,
services and geographical areas in which they operate and their major customers.
The Company adopted SFAS 131 as of January 1, 1998 and it had no effect on its
financial position or results of operations.
Accounting for Derivative Instruments and Hedging Activities
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.
24
<PAGE>
PART II . OTHER INFORMATION
Item 1. Legal Proceedings.
On May 28, 1998, Silver State Property Management, a Nevada corporation, Roger
A. Bergmann Enterprises, a Nevada corporation, and R.E. Lyle Corp., a Nevada
corporation filed a complaint in the Second Judicial District Court of the State
of Nevada in and for the County of Washoe alleging, among other things, that
John W. Stuart, acting as an agent, Chairman of the Board and Chief Executive
Officer of On Stage Entertainment, Inc., breached an alleged oral agreement to
purchase the Plaintiff's respective interests in the Legends in Concert
production in Hawaii for an aggregate purchase price of $1,000,000. The Company
has filed an answer to this complaint.
This suit is currently in the discovery stage of litigation.
On August 20, 1998, a complaint was filed against the Company by the trustee of
the United States Bankruptcy Court for the District of Nevada, alleging Breach
of Contract, Monies Due and Owing and Turnover of the Property to the Estate.
The basis of the complaint stems from the purchase of certain furniture by an
unauthorized third party who purchased the furniture while purporting to be a
representative of the Company. The Company believes it has a valid defense for
this claim based upon fraud and misrepresentation. The Company has recently
filed its Answer to this Complaint.
On September 25, 1998, the Company successfully defended all three counts of the
complaint filed in March 1997 by Benny R. Pittman, a shareholder of Grand Strand
Entertainment, Inc. This suit arose out of dispute as to whether the Company
wrongfully terminated a licensing agreement with Mr. Pittman for the control of
the Company's Legend in Concert production in Surfside Beach, South Carolina.
While the Company prevailed on all the counts alleged in the complaint, the
Company stipulated to allow the arbitrator to resolve an equity claim of quantum
meruit, so as to avoid the possibility of the suit being re-filed against the
Company alleging this cause of action, among others, which claim was resolved by
the arbitrator in the favor of the plaintiff for a total of $15,400 in
consideration for the substantial amount of work the plaintiff provided on
behalf of the Company to open the Legends production.
Item 2. Changes in Securities
Not applicable
25
<PAGE>
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a vote of Security Holders
Not applicable
Item 5. Other Information
Country Tonite Acquisition
(a) On September 21, 1998, the Company signed an agreement to purchase certain
assets from Casino Resource Corporation and its affiliates, for a purchase price
of $13,800,000, consisting of $12,500,000 in cash and a $1,300,000 promissory
note (the "Country Tonite Acquisition"). Included in the Country Tonite
Acquisition are all of the income producing assets of the Country Tonite dinner
theater business, as well as the Branson Theater in Branson, Missouri. The
Country Tonite Acquisition is subject to the various conditions, including the
Company's procurement of financing and the approval of Casino Resource
Corporation's stockholders.
(b) Please see Note 2 to consolidated financial statements regarding DXDX Common
Stock Purchase Agreement
(c) Letter of Agreement with Imperial Capital, LLC On September 10, 1998, the
Company engaged Imperial Capital, LLC, a Beverly Hills based investment bank, to
advise the Company on potential strategic financing alternative. On Stage's
board of directors has formed a special committee to work with Imperial Capital
in this regard.
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K. The Registrant was not required to file any reports on
Form 8-K for the three months ended September 30, 1998.
26
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ON STAGE ENTERTAINMENT, INC.
Date: April 27, 1999 /s/ John W. Stuart
-----------------------------------------
John W Stuart, Chairman and
Chief Executive Officer
Date: April 27, 1999 /s/ Kiranjit S. Sidhu
------------------------------------------
Kiranjit S. Sidhu, Senior Vice President
Finance and Administration, and Chief
Financial Officer
27
<PAGE>
