U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2000
[ ] Transition report under Section 13 or 15 (d) of the Exchange Act
For the Transition period from ________ to __________
Commission file number 0-92402
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ON STAGE ENTERTAINMENT, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Registrant as Specified in Its Charter)
NEVADA 88-0214292
- -------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4625 W. NEVSO DRIVE, LAS VEGAS, NEVADA 89103
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (ZIP CODE)
(702) 253-1333
----------------------------------------------
Registrant's Telephone Number, Including Area Code
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
Indicate by check whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the registrant's classes
of common equity, as of the latest practicable date.
Class Outstanding at May 15, 2000
----- ---------------------------
Common Stock, $0.01 par value 7,226,808
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
<TABLE>
TABLE OF CONTENTS
PAGE NO.
<S> <C> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Balance sheets........................................................... 1
Statements of operations................................................. 2
Statements of cash flows................................................. 3
Notes to financial statements............................................ 4-6
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations......................... 7-12
Part II. Other Information
Item 1. Exhibits and Reports on Form 8-K............................................. 13
Signatures.................................................................................. 14
Index of Exhibit............................................................................ 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information relating to potential new show openings, the potential markets for
On Stage's productions, the expansion of existing and potential gaming and
tourist markets, our exposure to various trends in the gaming industry, our
restructuring plans and the benefits we anticipate from restructuring, our
business strategy, our outstanding litigation matters and the defenses available
to us, the seasonality of our business, and liquidity issues, as well as
information contained elsewhere in this report where current statements are
preceded by, followed by or include the words "believes," "expects,"
"anticipates" or similar expressions. For these statements, On Stage claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. The forward-looking statements
in this document are subject to risks and uncertainties that could cause the
assumptions underlying the forward-looking statements and the actual results to
differ materially from those expressed in or implied by the statements.
Item 1. Consolidated Financial Statements
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
December 31, March 31,
1999 2000
------------- ----------
<S> <C> <C>
Assets (Unaudited)
Current assets
Cash and cash equivalents............................................. $ 374,587 430,973
Accounts receivable, net.............................................. 1,249,619 1,180,881
Inventory............................................................. 234,579 215,422
Deposits.............................................................. 198,523 402,684
Prepaid and other assets.............................................. 238,274 302,030
Notes receivable from officers (Note).. ................................ 117,906 226,887
------------- -----------
Total current assets......................................... 2,413,488 2,758,877
------------- -----------
Property, equipment and leasehold improvements.............................. 23,720,804 16,542,215
Less: Accumulated depreciation and amortization............................ (5,176,244) (5,112,133)
------------- -----------
Property, equipment and leasehold improvements, net......................... 18,544,560 11,430,082
------------- -----------
Direct acquisition costs (Note 3)........................................... 597,328 -
Deferred financing costs, net of amortization of $108,813 and $214,976..... 927,190 899,191
------------- -----------
$ 22,472,566 $ 15,088,150
============= ===========
Liabilities and Stockholders' Equity
Current liabilities
Working capital line (Note)............................................. $ 459,162 296,326
Accounts payable and accrued expenses................................... 1,444,878 1,692,706
Accrued payroll and other liabilities................................... 3,937,935 4,651,097
Current maturities of long-term debt.................................... 15,398,282 15,398,282
Note payable to employee (Note)......................................... - 20,0000
------------ -----------
Total current liabilities............................................... $ 21,240,257 $ 22,058,411
------------ -----------
Long-term debt, less current maturities..................................... 30,773 26,360
------------ -----------
Total liabilities and long-term debt.................................... 21,271,030 22,084,771
------------ -----------
Commitments and contingencies (Note 5)
Stockholders' equity (deficiency)
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; 7,226,808 shares issued and outstanding................... 72,268 72,268
Additional paid-in-capital.............................................. 11,430,336 11,430,336
Accumulated deficit.................................................... (10,291,068) (18,499,225)
------------ ------------
Total stockholders' equity (deficiency)........................... 1,211,536 (6,996,621)
------------ ------------
$22,482,566 $ 15,088,150
============ ============
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
Three months ended
March 31,
---------------------
1999 2000
-------- -------
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues.................................................................... $ 6,272,239 $ 6,105,757
Costs of revenues............................................................... 5,450,509 5,217,904
----------- ----------
Gross profit.................................................................... 821,730 887,853
Selling, general & administrative............................................... 1,045,916 595,015
Depreciation and amortization................................................... 250,067 941,471
Write down of assets held for sale and subject to foreclosure (Note 6).......... - 6,861,719
----------- ----------
Operating loss................................................................. (474,253) (7,510,352)
Interest expense, net........................................................... 409,311 697,805
----------- ----------
Net loss........................................................................ $ (883,564) $(8,208,157)
=========== ===========
Basic Loss per share............................................................ $ (0.12) $ (1.14)
Diluted Loss per share.......................................................... $ (0.12) $ (1.14)
=========== ===========
Basic average of common shares outstanding...................................... 7,565,683 7,226,808
=========== ===========
Diluted average number of common shares outstanding............................. 7,565,683 7,226,808
=========== ===========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
Three months ended
March 31,
-------------------------------
1999 2000
---------- --------
<S> <C> <C>
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss.............................................................. $ (883,564) $ (8,208,157)
------------ -----------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization....................................... 387,552 941,471
Write down of assets held for sale and subject to foreclosure....... - 6,861,719
Increase (decrease) from changes in operating assets and liabilities
Accounts receivable............................... 145,544 68,738
Inventory......................................... 11,750 19,157
Deposits.......................................... (201,399) (204,161)
Prepaid and other assets.......................... (63,597) (63,756)
Accounts payable and accrued expenses............. (774,700) 247,828
Accrued payroll and other liabilities............. 391,575 713,162
------------ -----------
Total adjustments................................................... (103,275) 8,584,158
------------ -----------
Net cash provided by (used in) operating activities.......................... (986,839) 376,001
------------ -----------
Cash flows from investing activities
Advances on notes receivable from officers.......................... (1,531) (108,981)
Payments received on notes receivable from officers................. 2,008 -
Capital expenditures................................................ (12,718) (63,387)
------------ -----------
Net cash provided by (used in) investing activities.......................... (12,241) (172,368)
------------ -----------
Cash used in financing activities
Payments under working capital line.................................... - (162,836)
Repayment on long-term borrowing....................................... (126,236) (4,411)
Cash received on note payable from officer / employee.............. 100,000 20,000
Issuance of common stock........................................... 100,050 -
------------ -----------
Net cash provided by (used in) financing activities.......................... 73,814 (147,247)
Effect of exchange rate changes on cash and cash equivalents................. 196,754 -
------------ -----------
Net increase in cash and cash equivalents.................................... (728,512) 56,386
Cash and cash equivalents at beginning of period............................. 1,009,768 374,587
------------ -----------
Cash and cash equivalents at end of period................................... $ 281,256 $ 430,973
============ ===========
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest................................................................. $ 53,195 $ 7,299
============ ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000
(1) Basis of Presentation
The financial statements included in this report include the accounts of On
Stage Entertainment, Inc., a publicly traded Nevada corporation and its
subsidiaries: Legends in Concert, Inc., a Nevada corporation; On Stage
Marketing, Inc., a Nevada corporation; On Stage Theaters, Inc., a Nevada
corporation; Wild Bill's California, Inc., a Nevada corporation; Blazing Pianos,
Inc., a Nevada corporation; King Henry's Inc., a Nevada corporation; On Stage
Merchandise, Inc., a Nevada corporation; On Stage Events, Inc., a Nevada
corporation; On Stage Casino Entertainment, Inc., a Nevada corporation; On Stage
Productions, Inc., a Nevada corporation; On Stage Theaters North Myrtle Beach,
Inc., a Nevada corporation; and On Stage Theaters Surfside Beach, Inc., a Nevada
corporation.
In the opinion of the management of On Stage Entertainment, Inc. and
Subisidaries (the "Company"), the accompanying unaudited consolidated financial
statements include all normal adjustments considered necessary to present fairly
the financial position as of March 31, 2000, and the results of operations and
cash flows for the three months ended March 31, 2000 and 1999. Interim results
are not necessarily indicative of results for a full year. The consolidated
financial statements and notes are presents as permitted by Form 10-Q, and do
not contain certain information included in the Company's audited consolidated
financial statements and notes for the fiscal year ended December 31, 1999.
(2) Going Concern
The accompanying consolidated financial statements have been prepared
assuming that On Stage 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, On Stage has suffered recurring operating losses, has a working
capital deficit of $19,299,534, and has defaulted on its long-term debt. These
factors raise substantial doubt about the ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of those uncertainties.
On Stage has historically met its working capital requirements through a
combination of cash flow from operations, equity and debt offerings and
traditional bank financing. On Stage anticipate, based on our proposed plans and
assumptions relating to our operations that the current cash, cash equivalent
balances, anticipated revenue from operations are insufficient to fund our
ongoing operations.
Management plans to manage short-term liquidity concerns through the
renegotiations of its expired working capital line, capital leases and mortgage
facilities. On Stage has either closed down or restructured any business units
that are not generating positive cash flow. In addition, the we have lowered
selling, general and administrative costs as a percent of net revenues from
16.7% for the quarter ended March 31, 1999, 9.7% for the quarter ended March 31,
2000 and continues to downsize and restructure its selling, general and
administrative functions.
In addition, On Stage 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 ON
Stage will be able to secure additional capital or that if such capital is
available, whether the terms or conditions would be acceptable to us. While we
are currently in settlement negotiations with ICCMIC and First Security Bank,
there can be no assurance that we will be successful with reaching a settlement
with either party.
(3) Direct acquisition costs
On March 31, 2000, the Company wrote off direct acquisition costs totaling
$597,238, which had no future value.
4
<PAGE>
(4) Loss Per Share
Statement of Financial Accounting Standard No. 128 ("SFAS 128") provides
for the calculation of Basic and Diluted earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share 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. On Stage adopted this pronouncement during the
fiscal year ended December 31, 1997.
For the three months ended March 31, 1999, potential dilutive securities
representing 896,550 outstanding stock options and 2,724,917 outstanding
warrants are not included, since their effect would be anti-dilutive. For the
three months ended March 31, 2000, potential dilutive securities representing
1,225,000 outstanding stock options and 2,724,917 outstanding warrants are not
included, since their effect would be anti-dilutive.
(5) Commitments and Contingencies
On Stage is a party to various legal proceedings in the ordinary course of
business. While there can be no assurance that any of the instituted or
threatened lawsuits will be settled or decided in favor of On Stage, our
management 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
<PAGE>
(6) Subsequent Events
Theater Foreclosures. On May 1, 2000, we entered into a partial settlement
with our first mortgage lender, Imperial Credit Commercial Mortgage Investment
Corp. ("ICCMIC"), pursuant to which we agreed not to take measures to prevent
ICCMIC from foreclosing upon the Fort Liberty and King Henry's Feast theaters in
exchange for: (1) an aggregate credit of $9.0mm for its Fort Liberty ($3.0mm),
King Henry's Feast ($4.0mm) and Legends in Concert Surfside Beach ($2.0mm)
theaters; and (2) a thirty (30) day extension of time during which ICCMIC has
agreed: (i) to forego collection on its deficiency judgment in Nevada; and (ii)
to extend the foreclosure date on the Legends in Concert Surfside Beach theater.
Additionally, we have orally agreed with ICCMIC to temporarily operate the King
Henry's and Fort Liberty Theaters for an indefinite period of time and are
currently engaged in active negotiations with ICCMIC to resolve the issue of the
deficiency judgment.
(7) Segment Information
The Company derives its net revenues from five reportable segments:
o Casinos. The Casinos segment primarily sells live theatrical productions to
casinos worldwide for a fixed fee. In addition, this Casinos segment also
operates our Legends show at the Imperial Palace in Las Vegas, Nevada and
Biloxi, Mississippi and at Bally's Park Place in Atlantic City, New Jersey.
o Theaters. The Theaters segment owns and /or rents live theaters and dinner
theaters in urban and resort tourist locations primarily in the United
States. This Theaters segment derives revenues from the sale of tickets
along with food and beverages to patrons who attend our live theatrical
productions.
o 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 merchandising segment are
included in the Theaters segment.
o Production Services. The Production Services segment sells technical
equipment and services to commercial clients. However, the Production
Services segment's primary focus is to provide technical support for all of
the Casinos, Theaters, Events and Merchandise segments.
6
<PAGE>
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following table sets forth the segment profit/(loss) and asset
information
For the period ended March 31, 1999
<TABLE>
-------------- -------------- ------------- ------------- ----------------
Total
Casino Production Theaters OSE Consolidated
-------------- -------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers........ $ 2,589,886 $ 1,877 $ 3,680,476 $ - $ 6,272,239
Interest expense........................ $ - $ 1,124 $ 356,890 $ 51,297 $ 409,311
Depreciation and amortization........... $ 99,379 $ 21,894 $ 80,673 $ 48,121 $ 250,067
Segment profit (loss)................... $ 654,332 $ (193,905) $ (718,413) $ (625,578) $ (883,564)
Segment assets.......................... $ 961,971 $ 554,348 $16,135,092 $ 5,411,566 $ 23,062,977
Additions to long-lived assets.......... $ 38,831 $ 653 $ 1,388 $ 316 $ 41,188
</TABLE>
For the period ended March 31, 2000
<TABLE>
-------------- -------------- ------------- ------------ ---------------
Total
Casino Production Theaters OSE Consolidated
-------------- -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers....... $ 2,512,437 $ 10,670 $ 3,582,650 $ - $ 6,105,757
Interest expense....................... $ 1,964 $ - $ 669,032 $ 26,809 $ 697,805
Depreciation and amortization.......... $ 100,085 $ 27,010 $ 157,169 $ 657,207 $ 941,471
Segment profit (loss).................. $ 670,012 $ (202,243) $(7,690,043) $ (985,883) $ (8,208,157)
Segment assets......................... $ 3,258,853 $ 887,626 $10,539,141 $ 1,856,895 $ 16,542,215
Additions to long-lived assets......... $ 61,575 $ 532 $ 431 $ 849 $ 63,387
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Results of Operations
The following tables sets forth, the results of operations by operating
divisions for the period indicated:
<TABLE>
For the quarter ended March 31, 1999
-------------- ------------- -------------- --------------- ------------------ --------------
Sub-Total
Operating Total
Casino Production Theaters Divisions OSE Consolidated
-------------- ------------- -------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................$ 2,589,886 $ 1,877 $ 3,680,476 $ 6,272,239 $ - $ 6,272,239
Cost of revenues.............$ 1,644,778 $ 172,764 $ 3,632,967 $ 5,450,509 $ - $ 5,450,509
-------------- ------------- -------------- --------------- ----------------- --------------
Gross profit (loss)..........$ 945,108 $ (170,887) $ 47,509 $ 821,730 $ - $ 821,730
Selling, general &
administrative...............$ 191,397 $ - $ 328,359 $ 519,756 $ 526,160 $ 1,045,916
Depreciation &
amortization.................$ 99,379 $ 21,894 $ 80,673 $ 201,946 $ 48,121 $ 250,067
-------------- ------------- -------------- --------------- ----------------- --------------
Operating income (loss)......$ 654,332 $ (192,781) $ (361,523) $ 100,028 $ (574,281) $ (474,253)
Interest expense, net........$ - $ 1,124 $ 356,890 $ 358,014 $ 51,297 $ 409,311
Net income (loss)............$ 654,332 $ (193,905) $ (718,413) $ (257,986) $ (625,578) $ (883,564)
============== ============= ============== =============== ================= ==============
</TABLE>
<TABLE>
For the quarter ended March 31,2000
-------------- ------------- -------------- --------------- ---------------- ---------------
Sub-Total
Operating Total
Theaters Divisions OSE Consolidated
Casino Production
-------------- ------------- -------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................$ 2,512,437 $ 10,670 $ 3,582,650 $ 6,105,757 $ - $ 6,105,757
Cost of revenues.............$ 1,579,317 $ 186,903 $ 3,452,684 $ 5,217,904 $ - $ 5,217,904
-------------- ------------- -------------- --------------- ---------------- ---------------
Gross profit (loss)..........$ 933,120 $ (175,233) $ 129,966 $ 887,853 $ - $ 887,853
Selling, general &
administrative...............$ 161,059 $ - $ 132,089 $ 293,148 $ 301,867 $ 595,015
Depreciation &
amortization.................$ 100,085 $ 27,010 $ 157,169 $ 284,264 $ 657,207 $ 941,471
Loss on write down of
assets.......................$ - $ - $ 6,861,719 $ 6,861,719 $ - $ 6,861,719
-------------- ------------- -------------- --------------- ---------------- ---------------
Operating income (loss)......$ 671,976 $ (202,243) $ (7,021,011) $ (6,551,278) $ (959,074) $ (7,510,352)
Interest expense, net........$ 1964 $ - $ 669,032 $ 670,996 $ 28,809 $ 697,805
-------------- ------------- -------------- --------------- ---------------- ---------------
Net income (loss)............ $ 670,012 $ (202,243) $ (7,690,043) $ (7,222,274) $ (985,883) $ (8,208,157)
============== ============= ============== =============== ================ ===============
</TABLE>
8
<PAGE>
Quarter Ended March 31, 1999 versus Quarter Ended March 31, 2000
Net Revenues. Revenues decreased by $166,000 or 2.7% to $6,106,000 for the
quarter ended March 31, 2000 compared to $6,272,000 for the quarter ended March
31, 1999. The Company's revenue is derived from five principal operating
segments: Casinos, Events, Merchandise, Productions and Theaters. Revenues from
Events and Merchandise are included in the Casino and Theater segments.
Casino Entertainment revenues were approximately $2,512,000 for the quarter
ended March 31, 2000 compared to $2,590,000 for the quarter ended March 31,
1999, a decrease of $78,000, or 3.1%. Contributing to this increase was the
addition of new show at the Imperial palace in Biloxi, Mississippi, partially
offset by the discontinuation of the following shows; a variety ice show at the
River Palms Resort and Casino on Laughlin, Nevada, Taj Mahal Hotel and Casino
and Hilton Hotel and Casino both in Atlantic City
Production revenues were approximately $11,000 for the quarter ended March
31, 2000 compared to $2,000 for the quarter ended March 31, 1999. The increase
was attributable to equipment rentals.
Theaters revenues were approximately $3,583,000 for the quarter ended March
31, 2000 compared to $3,680,000 for the quarter ended March 31, 1999, a decrease
of $97,000, or 2.7%. This was primarily attributable to the discontinuation of
the Legends show in Toronto.
Costs of Revenues. Total costs of revenues were $5,218,000 for the quarter
ended March 31, 2000 compared to $5,451,000 the quarter ended March 31, 1999, a
decrease of $233,000, or 4.3%. Costs of revenues decreased to 85.5% of net
revenues for the quarter ended March 31, 2000, as compared to 86.9% for the
quarter ended March 31, 1999. This decrease in cost of sales as percentage of
revenues was primarily attributable to a change in the mix of our revenues.
Selling, General and Administrative. Selling, general and administrative
costs were approximately $595,000 for the quarter ended March 31, 2000 as
compared to $1,046,000 for the quarter ended March 31, 1999, a decrease of
$451,000 or 43.1%. Selling, general and administrative costs decreased to 9.7%
of net revenues for the quarter ended March 31, 1999, as compared to 16.7% for
the quarter ended March 31, 1999, which was primarily attributable to the
downsizing and restructuring plan adopted on April 30,1999.
Write down of Assets held for Sale and Subject to Foreclosure. On March 31,
2000, the Company recorded a write down of fixed assets subject to foreclosure
to reflect the assets at their net realizable value.
Depreciation and Amortization. Depreciation and amortization for the
quarter ended March 31, 2000 increased by $691,000, or 276.5% as compared to the
quarter ended March 31, 1999. The increase was primarily due to the write-off of
the direct acquisition costs.
Operating Loss. The Company's operating loss was approximately $7,510,000
for the quarter ended March 31, 2000, compared to an operating loss of $474,000
for the quarter ended March 31, 1998, an increase of $7,036,000, or 1,483.6%.
Interest Expense, Net. Interest expense for the quarter ended March 31,
2000 increased by $288,000, or 70.5% as compared to the quarter ended March 31,
1998. The increase was primarily due to interest on debt incurred from the Gedco
Acquisition.
Income Taxes. The Company is a Nevada corporation with a substantial
portion of revenue and income derived in Nevada. There are no state or local
income taxes in Nevada. The Company accrued no federal income tax for the
quarter ended March 31, 2000. At March 31, 1999 and 2000, the Company had
federal net operating loss carryforwards of approximately $7,185,000 and
$16,613,689 respectively. Under Section 382 of the Internal Revenue Code,
certain significant changes in ownership that the Company is currently
undertaking may restrict the future utilization of these tax loss carryforwards.
The net deferred tax assets have a 100% valuation allowance, as management
cannot determine if it is more likely than not that the deferred tax assets will
be realized.
9
<PAGE>
Seasonality and Quarterly Results
The Company's business has been, and is expected to remain, highly
seasonal, with the majority of its revenue being generated during the months of
April through October. Part of the Company's business strategy is to increase
sales in tourist markets that experience their peak seasons from November
through March, so as to offset this seasonality in revenues. The Gedco
Acquisition should also help to decrease the seasonality of the Company's
business since Gedco's revenue has historically been less seasonal.
The following table sets forth the Company's net revenue for each of the
last five quarters ended March 31, 2000:
<TABLE>
Net Revenues ($ in thousands)
March 31, June 30, September 30, December 31,
<S> <C> <C> <C> <C>
--------- -------- ------------- ------------
Fiscal 1999............. $ 6,272 $ 7,403 $ 8,059 $ 7,819
Fiscal 2000............. $ 6,106
</TABLE>
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 not be
sufficient to fund its current operations and contemplated capital requirements
over the next 12 months.
Going Concern
On Stage has suffered recurring operating losses, has a working capital
deficit of $19,299,534, and has defaulted on its long-term debt. These factors
raise substantial doubt about our ability to continue as a going concern. The
consolidated finanical statements do not include any adjustments that might
result from the outcome of those uncertainties. The report of the Company's
independent certified public accountants for the year ended December 31, 1999
contains an explanatory paragraph regarding the uncertainity of the Company's
ability to continue as a going concern.
Management plans to manage short-term liquidity concerns through the
renegotiation of its expired working capital line, capital leases and mortgage
facilities. The Company has either closed down or restructured any business
units that are not generating positive cash flow. In addition, the Company has
lowered selling, general and administrative costs as a percent of net revenues
from 16.7% for the quarter ended March 31, 1999, 9.7% for the quarter ended
March 31, 2000 and continues to downsize and restructure its selling, general
and administrative functions.
In addition, the Company is continuing its efforts to secure working
capital for operations, expansion and possible acquisitions, mergers, joint
ventures, and/or other business combinations. However, there can be no assurance
that the Company will be able to secure additional capital or that if such
capital is available, whether the terms or conditions would be acceptable to the
Company. While we are currently in settlement negotiations with ICCMIC and First
Security Bank, there can be no assurance that we will be successful with
reaching a settlement with either party.
Cash Flows
For the quarter ended March 31, 1999, the Company had net cash deficit used
by operations of approximately $987,000. As of March 31, 1999, the Company had
approximately $281,000 in cash and cash equivalents. The operating deficit was
primarily attributable to business seasonality. For the quarter ended March 31,
2000, the Company had net cash provided by operations of approximately $376,000.
As of March 31, 2000, the Company had approximately $431,000 in cash and cash
equivalents. The cash provided by operations was primarily attributable to the
write down of assets.
10
<PAGE>
The net cash used in investing activities for the quarter ended March 31,
1999 of $12,000, was primarily attributable to capital expenditures. The net
cash used in investing activities for the quarter ended March 31, 2000 of
$172,000, was primarily attributable to advances on note receivable from
stockholder, capital expenditures and direct acquisition costs.
Net cash provided by financing activities for the quarter ended March 31,
1999 of $74,000, was primarily attributable to notes payable from officer, and
the issuance of common stock. Net cash used in financing activities for the
quarter ended March 31, 2000 of $147,000, was primarily attributable to
repayment of line of credit and long-term debt.
Working Capital
At March 31, 1999, we had working capital deficit of approximately
$19,827,000 which resulted primarily, from an increase in the accrued expenses,
accrued payroll and other liabilities, note payable to officer, and the
classification of the ICCMIC mortgage loan as a current liabilities. At March
31, 2000 we had working capital deficit of approximately $19,299,000 which
resulted primarily, from an increase in the accrued expenses, accrued payroll
and other liabilities, note payable to officer, and the classification of the
ICCMIC mortgage loan as a current liabilities.
Working Capital Line
In May 1997, First Security Bank of Nevada ("First Security") issued a line
of credit to the Company for up to $250,000. Borrowings under such facility bear
variable interest at 1.5% over the First Security Bank of Idaho's index (10% per
year as of the facility's inception) and are due on demand. John W. Stuart has
personally guaranteed the line of credit.
On March 28, 1998, First Security agreed to increase the line of credit
from $250,000 to $1,000,000 and the expiration date was extended to March 25,
1999. As of December 31, 1998, the Company had drawn $1,000,000 on the line of
credit. As of March 31, 1999, the Company had failed to pay off any part of the
line of credit and, is in default under its terms. On April 29, 1999, we
received a notice of default under the line of credit from First Security. As of
March 31, 2000, amounts owed under the line of credit was $297,000.
Capital Equipment Financing Commitment
On September 29, 1997, First Security Leasing Company ("First Security
Leasing"), a Utah corporation, approved the Company for a $1,000,000 lease line.
Advances under the lease line incur interest at a rate of 9.75% per annum. The
lease line has been utilized in the following amounts: $389,290, $442,997 and
$167,713, commencing in April, 1998, April 1998 and May, 1998, respectively, and
terminating on October, 2001, September, 2001 and November, 2001. We also
received a notice of default under this line on April 29, 1999. As of March 31,
2000, amounts owed under the lease line was $1,800,000.
11
<PAGE>
Mortgage Financing Commitment
As of October 7, 1998, we borrowed an aggregate of $14,150,000 from
Imperial Credit Commercial Mortgage Investment Corp. ("ICCMIC"). While we made
our January, February and March 1999 payments under this loan after the due date
for those payments, no other payments under this loan have been made to date. As
a result of these delinquencies, we have incurred late charges and default
interest, which we have not paid.
On November 5, 1999, we received a formal demand from ICCMIC to pay them
the sum of $16,163,305 as a guarantor under the loan, which represented all of
the indebtedness due as of that date. On November 12, 1999, ICCMIC filed a
complaint against us in the District Court for Clark County, Nevada, alleging,
among other things, that we breached the guaranty. On December 10, 1999, we
agreed to allow them to obtain a judgment against us for the amount of the
guaranty, in return for forbearance on the collection of this judgment until
March 31, 2000. ICCMIC has extended the date for collection on this judgment
until June 1, 2000.
On May 1, 2000, we entered into a partial settlement with ICCMIC, pursuant
to which we agreed not to take measures to prevent ICCMIC from foreclosing upon
the Fort Liberty and King Henry's Feast theaters in exchange for: (1) an
aggregate credit of $9.0mm for its Fort Liberty ($3.0mm), King Henry's Feast
($4.0mm) and Legends in Concert Surfside Beach ($2.0mm) theaters; and (2) a
thirty (30) day extension of time during which ICCMIC has agreed: (i) to forego
collection on its deficiency judgment in Nevada; and (ii) to extend the
foreclosure date on the Legends in Concert Surfside Beach theater. Additionally,
we have orally agreed with ICCMIC to temporarily operate the King Henry's and
Fort Liberty Theaters for an indefinite period of time and are currently engaged
in active negotiations with ICCMIC to resolve the issue of the deficiency
judgment.
In the event that First Security Bank or ICCMIC enforces their respective
rights upon our assets, all or us or a portion of our property and assets
securing the credit facilities and mortgage financing extended by those lenders
may be sold to satisfy our commitments under the terms of those facilities.
While we are currently in settlement negotiations with ICCMIC and First Security
Bank, there can be no assurance that we will be successful with reaching a
settlement with either party.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Exhibits & Reports on Form 8-K
(a) Exhibits
See Index of Exhibits on page 15.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on May 5, 2000
(Commission File No.:000-29402).
13
<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: May 19, 2000 /s/ John W. Stuart
------------------------
John W Stuart, Chairman
and Chief Executive Officer
Date: May 19, 2000 /s/ Pedro Perez
--------------------------
Pedro Perez, Chief Accounting Officer
14
<PAGE>
INDEX OF EXHIBITS
<TABLE>
Exhibit No. Description
- ----------- ------------------
<S> <C>
10.1 Warrant Agreement between Imperial Credit Commercial Mortgage
Investment Corp., Imperial Capital Group LLC and the Registrant,
dated as of March 13,1998.[1]
10.2 Loan Agreement by and between Imperial Credit Commercial Mortgage Investment Corp. and Wild Bill's
California, Inc., King Henry's, Inc. and Fort Liberty, inc., dated as of March 13, 1998. [1]
10.3 Guaranty Loan Agreement between Imperial Credit Commercial Mortgage Investment Corp. and the
Registrant, dated as of March 13, 1998.[1]
</TABLE>
- -----------------
[1] Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1998 filed May 15, 1998 (Commission File
No. 333-24681).
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements set forth in the Form 10-QSB On Stage Entertainment, Inc.
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001035514
<NAME> On Stage Entertainment, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 431
<SECURITIES> 0
<RECEIVABLES> 1181
<ALLOWANCES> 0
<INVENTORY> 215
<CURRENT-ASSETS> 2759
<PP&E> 16542
<DEPRECIATION> 5112
<TOTAL-ASSETS> 15088
<CURRENT-LIABILITIES> 22058
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> (7069)
<TOTAL-LIABILITY-AND-EQUITY> 15088
<SALES> 6106
<TOTAL-REVENUES> 6106
<CGS> 2480
<TOTAL-COSTS> 5218
<OTHER-EXPENSES> 8398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 698
<INCOME-PRETAX> (8208)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8208)
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<CHANGES> 0
<NET-INCOME> (8208)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
