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 September 30, 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.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 88-0214292
---------------------------- ---------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
4625 W. NEVSO DRIVE, LAS VEGAS, NEVADA 89103
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(Address of Principal Executive Offices) (ZIP CODE)
(702) 253-1333
--------------------------------------------------------------------------------
Issuer's Telephone Number, Including Area Code
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------------------------- --------------------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at November 17, 2000
----- ---------------------------------
Common Stock, $0.01 par value 11,307,930
<PAGE>
ON STAGE ENTERTAINMENT, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
Part I. Financial Information
Item 1. Consolidated Financial Statements
Balance sheets................................... 1
Statements of operations......................... 2-3
Statements of cash flows......................... 4
Notes to financial statements.................... 5-8
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations. 9-16
Part II. Other Information
Item 1. Exhibits and Reports on Form 8-K.................... 17
Signatures....................................................... 18
Exhibits......................................................... 19
<PAGE>
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, markets for On Stage
productions, the expansion of existing and potential gaming and tourist markets,
our exposure to various of 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 1955. 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
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
December 31, September 30,
Assets 1999 2000
--------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents............................................. $ 374,587 $ 816,611
Accounts receivable, net.............................................. 1,249,619 643,580
Inventory............................................................. 234,579 187,421
Deposits.............................................................. 198,523 263,288
Prepaid and other assets.............................................. 238,274 298,039
Notes receivable from officers ........................................ 117,906 267,198
---------------- ----------------
Total current assets......................................... 2,413,488 2,476,137
---------------- ----------------
Property, equipment and leasehold improvements.............................. 23,720,804 14,590,587
Less: Accumulated depreciation and amortization............................ (5,176,244) (5,307,866)
---------------- ----------------
Property, equipment and leasehold improvements, net......................... 18,544,560 9,282,721
Direct acquisition costs (Note 5)........................................... 597,328 -
Deferred financing costs, net of amortization of $192,810 (Note 6).......... 927,190 -
--------------- ---------------
$ 22,482,566 $ 11,758,858
Liabilities and Stockholders' Equity
Current liabilities
Working capital line ................................................... $ 459,146 $ -
Accounts payable and accrued expenses................................... 1,444,878 1,175,351
Accrued payroll and other liabilities................................... 3,937,951 3,995,288
Current maturities of long-term debt.................................... 15,398,282 14,332,096
Note payable to officer ................................................ - 21,371
---------------- ----------------
Total current liabilities............................................... 21,240,257 19,524,106
---------------- ----------------
Long-term debt, less current maturities..................................... 30,773 -
---------------- ----------------
Total liabilities and long-term debt............................. 21,271,030 19,524,106
---------------- ----------------
Commitments and contingencies (Note 4)
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) (19,267,852)
---------------- ----------------
Total stockholders' equity (deficiency)........................... 1,211,536 (7,765,248)
---------------- ----------------
$ 22,482,566 $ 11,758,858
================ ================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
Three months ended
September 30,
-------------------------
1999 2000
--------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues.................................................................... $ 7,792,718 $ 6,393,371
Costs of revenues............................................................... 5,637,613 5,086,094
---------------- -----------------
Gross profit.................................................................... 2,155,105 1,307,277
Selling, general & administrative............................................... 1,023,677 1,040,183
Depreciation and amortization................................................... 306,288 254,843
Write down of assets held for sale and subject for foreclosure.................. - 56,591
Restructuring charges........................................................... 81,060 -
---------------- -----------------
Operating income (loss)......................................................... 744,080 (44,340)
Interest expense, net........................................................... 711,756 32,651
Other (Income).................................................................. (368,786) (292,956)
Loss on disposition of disposition of property plant and equipment.............. 61,237 298,118
---------------- -----------------
Net income (loss)............................................................... $ 339,873 $ (82,153)
================ =================
Basic and diluted loss per share................................................ $ 0.05 $ (0.01)
================ =================
Basic and diluted average number of common shares outstanding................... 7,031,475 7,226,808
================ =================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
Nine months ended
September 30,
--------------------------------------
1999 2000
--------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues.................................................................... $ 21,467,965 $ 19,650,618
Costs of revenues............................................................... 16,467,446 15,978,060
---------------- -----------------
Gross profit.................................................................... 5,000,519 3,672,558
Selling, general & administrative............................................... 3,105,545 2,372,970
Depreciation and amortization................................................... 909,889 1,456,665
Write down of assets held for sale and subject for foreclosure.................. - 6,918,309
Restructuring charges .......................................................... 343,853 -
---------------- -----------------
Operating income (loss)........................................................ 641,232 (7,075,386)
Interest expense, net........................................................... 2,140,905 1,890,380
Other (income).................................................................. (368,786) (292,956)
Loss on disposition of property plant and equipment............................. 61,237 303,974
---------------- -----------------
Net loss........................................................................ $ (1,192,124) $ (8,976,784)
================ =================
Basic and diluted loss per share................................................ $ (0.16) $ (1.24)
================ =================
Basic and diluted average number of common shares outstanding................... 7,288,497 7,226,808
================ =================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
Nine months ended
September 30,
------------------------------------------
1999 2000
----------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss.............................................................. $ (1,192,124) $ (8,976,784)
------------------ --------------------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 985,911 1,456,665
Direct acquisition costs...................................... (596,356) 597,328
Write off of debt financing costs............................. - 927,190
Write-down of assets held for sale and subject to foreclosure. - 6,918,309
Loss on disposal of property plant and equipment............. 61,236 303,974
Accounts receivable.................................. (75,151) 606,039
Inventory............................................ (21,286) 47,158
Deposits............................................. (127,794) (64,765)
Prepaid and other assets............................. 134,362 (59,765)
Accounts payable and accrued expenses................ (142,234) (653,867)
Accrued payroll and other liabilities................ 1,336,231 57,337
------------------ ------------------
Total adjustments................................................... 1,554,919 10,135,503
------------------ ------------------
Net cash provided (used in) operating activities............................. 362,795 1,158,819
------------------ ------------------
Cash flows from investing activities
Proceeds from sale of assets................................... - 2,000,000
Advances on notes receivable from officer...................... - (149,292)
Pay down on note receivable from officer....................... 14,272 -
Capital expenditures........................................... (179,055) (107,770)
------------------ ------------------
Net cash provided (used in) investing activities............................. (164,783) 1,742,938
------------------ ------------------
Cash used in financing activities
Repayments under working capital line......................... (377,842) -
Repayment on long-term borrowing.............................. (348,529) (2,481,104)
Notes payable to officer...................................... 36,968 -
Cash received on notes payable from officer................... - 21,371
Issuance of common stock...................................... 182,493 -
------------------ ----------------
Net cash provided by (used in) financing activities.......................... (506,910) (2,459,733)
------------------ -----------------
Effect of exchange rate changes on cash and cash equivalents................. (89,292) -
------------------ -----------------
Net decrease in cash and cash equivalents.................................... (398,190) 442,024
Cash and cash equivalents at beginning of period............................. 1,009,768 374,587
------------------ -----------------
Cash and cash equivalents at end of period................................... $ 611,578 $ 816,611
================== =================
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest............................................................. $ 675,984 $ 10,380
================== =================
</TABLE>
See notes to consolidated financial statements.
Supplemental Schedule of Non-Cash Investing and Financing Activities
In June 2000 On Stage sold equipment with an historical cost of
approximately $8,000, at a loss of $5,856.
4
<PAGE>
On Stage Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2000
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
Subsidiaries, the accompanying unaudited consolidated financial statements
include all normal adjustments considered necessary to present fairly the
financial position as of September 30, 2000, and the results of operations and
cash flows for the nine months ended September 30, 2000 and 1999. Interim
results are not necessarily indicative of results for full year. The
consolidated financial statements and notes are presented as permitted by form
10-Q, and do not contain information included in our audited consolidated
financial statements and notes for the fiscal year ended December 31, 1999.
(1) 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 $17,048,000 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. The report of our
independent certified public accountant for the year ended December 31, 1999
contains an explanatory paragraph regarding the uncertainty of our ability to
continue as a going concern.
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 anticipates 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
14.5% for the nine months ended September 30, 1999, to 12.1% for the nine months
ended September 30, 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.
5
<PAGE>
(2) Sale of Surfside Beach Theater
On September 15, 2000, On Stage Entertainment subsidiary, On Stage Theaters
Surfside Beach, Inc. sold its Legends in Concert Theater in Surfside Beach,
South Carolina to LIC Theatres, LLC for $2.0mm. In connection with the sale of
the Theater, Legends Surfside entered into a ten (10) year lease agreement with
LIC Theatres, LLC, to ensure that the performances of its Legends in Concert
production at the Theater, which is one of our largest revenue sources, will
continue for many years to come. The proceeds from the sale of the Theater were
given to the Company's first mortgage lender, Imperial Credit Commercial
Mortgage Investment Corp., in accordance with the terms of its partial
settlement agreement with ICCMIC.
(3) Loss per share
Statement of Financial Accounting Standard No. 128, Earnings per Share
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.
For the nine months ended September 30, 1999, potential dilutive securities
representing 1,125,550 outstanding stock options and 3,660,155 outstanding
warrants are not included, since their effect would be anti-dilutive. For the
nine months ended September 30, 2000, potential dilutive securities representing
1,224,850 outstanding stock options and 3,660,155 outstanding warrants are not
included, since their effect would be anti-dilutive.
(4) Commitments and Contingencies
We are a party to various legal proceedings in which the adverse parties
are seeking damages from us. While there can be no assurance that any of the
instituted or threatened lawsuits will be settled or decided in favor of us, the
management of On Stage does not believe the final resolution of these matters
will have a material adverse effect upon the our financial condition and results
of operations.
(5) Direct acquisition costs
On March 31, 2000, On Stage wrote-off direct acquisition costs totaling
$597,328, which had no future value.
(6) Deferred financing charges
On June 30, 2000, On Stage wrote-off deferred financing charges totaling
$927,190, which had no future value.
(7) Segment information
The following information is presented in accordance with SFAS No. 131,
which was adopted by the Company in the fourth quarter of 1998.
6
<PAGE>
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. The Theaters segment derives revenues from the sale of tickets
along with food and beverages to patrons who attend our live theatrical
productions.
o Events. The Events segment sells live theatrical productions to commercial
clients, which include corporations, theme and amusement parks and cruise
lines for a fixed fee. Revenues generated from the Events segment are
included in the Casinos segment.
o Merchandise. The Merchandise segment sells merchandise and souvenir
photography products to patrons who attend our Casinos, Theaters, and
Events productions. Revenues generated from the merchandise segment are
included in the Theaters segment.
o Production Services. The Production Services segment sells technical
equipment and services to commercial clients. However, the Production
Services segment's primary focus is to provide technical support for all of
the Casinos, Theaters, Events and Merchandise segments.
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. On Stage 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.
The following table sets forth the segment profit/(loss) and asset information
<TABLE>
For the nine months ended September 30, 1999
-------------- -------------- ------------- ------------- ----------------
Total
Casino Production Theaters OSE Consolidated
-------------- -------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 7,356,231 $ 92,867 $14,018,867 $ - $ 21,467,965
Interest expense $ 75 $ 1,123 $ 1,986,763 $ 152,944 $ 2,140,905
Depreciation and amortization $ 277,238 $ 65,989 $ 424,883 $ 141,779 $ 909,889
Segment profit (loss) $ 1,826,751 $ (464,995) $ (899,679) $(1,654,201) $ (1,192,124)
Segment assets $ 3,205,079 $ 811,917 $18,252,412 $ 1,861,594 $ 24,131,002
Additions to long-lived assets $ 103,777 $ 7,354 $ 61,546 $ 6,378 $ 179,055
For the nine months ended September 30, 2000
-------------- -------------- ------------- ------------- ----------------
Total
Casino Production Theaters OSE Consolidated
-------------- -------------- ------------- ------------- ----------------
Revenues from external customers $ 7,307,227 $ 27,718 $ 12,315,673 $ - $ 19,650,618
Interest expense $ 1,834 $ - $ 1,757,811 $ 130,735 $ 1,890,380
Depreciation and amortization $ 299,276 $ 82,275 $ 320,383 $ 754,731 $ 1,456,665
Segment profit (loss) $ 1,599,911 $ (640,241) $ (8,119,537) $(1,816,917) $ (8,976,784)
Segment assets $ 3,169,863 $ 922,744 $ 1,207,621 $ 1,822,567 $ 7,122,795
Additions to long-lived assets $ 18,853 $ 12,503 $ 54,549 $ 19,865 $ 105,770
</TABLE>
7
<PAGE>
(8) Subsequent Event
On October 12, 2000, On Stage restructured our debt with Imperial Credit
Commercial Mortgage Investment Corp ("ICCMIC"), and First Security Bank ("FSB").
Under the terms of the agreement, ICCMIC agreed to covert its outstanding loan
to the Company of approximately $10 million for 4,061,122 shares of common
stock, which approximates $2.46 per share. As part of the transaction, Timothy
J. Parrott, the new President & CEO, purchased 2,630,000 shares from ICCMIC for
$1.0 million. In connection with this transaction, the Company restructured its
only remaining debt of approximately $1.2 million with FSB. Under the terms of
the agreement with FSB, effective August 1, 2000, On Stage is paying $50,000 per
month. The loan accrues interest at the rate of Prime plus 2%. On Stage recorded
a gain on debt restructuring of $10,982,000 based on a market value of $0.31 per
share.
Also joining Mr. Parrott at On Stage is Jeff Victor, as Executive Vice
President. Most recently Victor served as Vice President and General Manager of
"Star Trek: The Experience" at the Las Vegas Hilton Hotel. Previously, Victor
worked directly for Parrott as Vice President of Entertainment for all of the
Boomtown casinos.
8
<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 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
acquisition plans and the benefits we anticipate from these acquisitions, 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.
The most important factors that could prevent On Stage from achieving our
goals and cause the assumptions underlying the forward-looking statements and
the actual results to differ materially from those expressed in or implied by
those forward-looking statements include the information provided under the
heading "Description of Business-Risk Factors" in Item 1 of our Annual Report on
Form 10-KSB for the year ended December 31, 1999, as well as the following:
o On Stage's dependence on our flagship Legends in Concert production and our
principal production venues;
o The ability to successfully produce and market new productions and to
manage the growth associated with the any new productions;
o Risks associated with our acquisition strategy, including our ability to
successfully identify, complete and integrate strategic acquisitions;
o The ability to meet our commitments, obtain alternative and additional
financing on commercially reasonable terms;
o The ability to continue as an ongoing concern;
o The competitive nature of the leisure and entertainment industry and the
ability to continue to distinguish our services;
o Fluctuations in quarterly operating results and the highly seasonal nature
of our business;
o The ability to reproduce the performance, likeness and voice of various
celebrities without infringing on the publicity rights of those celebrities
or their estates, as well as our ability to protect our intellectual
property rights;
o The ability to successfully manage the litigation pending against us and to
avoid future litigation;and
o The results of operations which depend on numerous factors, including the
commencement and expiration of contracts, the timing and amount of new
business generated by us, our 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.
9
<PAGE>
Results of Operations
The following tables set forth, the results of operations for the
reportable segments indicated:
<TABLE>
For the quarter ended September 30, 1999
-------------- ------------- -------------- --------------- ---------------- ---------------
Sub-Total
Operating Total
Casino Production Theaters Segments OSE Consolidated
-------------- ------------- -------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................$ 2,508,181 $ 47,368 $ 5,237,169 $ 7,792,718 $ - $ 7,792,718
Cost of revenues............. 1,705,468 147,358 3,784,787 5,637,613 - 5,637,613
-------------- ------------- -------------- --------------- ---------------- ---------------
Gross profit (loss).......... 802,713 (99,990) 1,452,382 2,155,105 - 2,155,105
Selling, general &
administrative............... 200,514 - 382,286 582,800 440,877 1,023,677
Depreciation & amortization.. 91,657 22,066 144,484 258,207 48,081 306,288
Restructuring charges 22,423 - 8,052 30,475 50,585 81,060
-------------- ------------- -------------- --------------- ---------------- ---------------
Operating income (loss)...... 488,119 (122,056) 917,560 1,283,623 (539,543) 744,080
Interest expense, net........ 48 - 663,069 663,117 48,639 711,756
Loss on disposal of
property plant and equipment. - - 61,237 61,237 - 61,237
Other (income) expense...... (92,500) - - (92,500) (276,286) (368,786)
-------------- ------------- -------------- --------------- ---------------- ---------------
Net income (loss)............ $ 580,571 $ (122,056) $ 193,254 $ 651,769 $ (311,896) $ 339,873
============== ============= ============== =============== ================ ===============
</TABLE>
<TABLE>
For the quarter ended September 30, 2000
-------------- ------------- -------------- --------------- ---------------- ---------------
Sub-Total
Operating Total
Casino Production Theaters Segments OSE Consolidated
-------------- ------------- -------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................$ 2,347,545 $ 3,643 $ 4,042,183 $ 6,393,371 $ - $ 6,393,371
Cost of revenues.............$ 1,844,086 $ 203,238 $ 3,038,770 $ 5,086,094 $ - $ 5,086,094
-------------- ------------- -------------- --------------- ---------------- ---------------
Gross profit (loss)..........$ 503,459 $ (199,595) $ 1,003,413 $ 1,307,277 $ - $ 1,307,277
Selling, general &
administrative...............$ 90,880 - $ 464,451 $ 555,331 $ 484,852 $ 1,040,183
Depreciation & amortization..$ 99,219 $ 28,129 $ 78,509 $ 205,857 $ 48,986 $ 254,843
Loss on write-down of assets.$ - $ - $ 56,591 $ 56,591 $ - $ 56,591
-------------- ------------- -------------- --------------- ---------------- ---------------
Operating income (loss)......$ 313,360 $ (227,724) $ 403,862 $ 489,498 $ (533,838) $ (44,340)
Interest expense, net........$ (194) $ - $ (51,704) $ (51,898) $ 84,549 32,651
Loss on disposition of
property plant & equipment...$ 22,064 $ - $ 276,054 $ 298,118 - 298,118
Other (income) expense.......$ - $ - $ - $ - $ (292,956) $ (292,956)
-------------- ------------- -------------- --------------- ---------------- ---------------
Net income (loss)............$ 291,490 $ (227,724) $ (179,512) $ 243,278 $ (325,431) $ (82,153)
============== ============= ============== =============== ================ ===============
</TABLE>
10
<PAGE>
<TABLE>
For the nine months ended September 30, 1999
-------------- ------------- -------------- --------------- ----------------- --------------
Sub-Total
Operating Total
Casino Production Theaters Segments OSE Consolidated
-------------- ------------- -------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................$ 7,356,231 $ 92,867 $ 14,018,867 $ 21,467,965 $ - $ 21,467,965
Cost of revenues............$ 4,788,217 $ 490,750 $ 11,188,479 $ 16,467,446 $ - $ 16,467,446
-------------- ------------- -------------- --------------- ----------------- --------------
Gross profit (loss).........$ 2,568,014 $ (397,883) $ 2,830,388 $ 5,000,519 $ - $ 5,000,519
Selling, general &
administrative..............$ 524,027 - 1,135,773 $ 1,659,800 1,445,745 $ 3,105,545
Depreciation & amortization.$ 277,238 $ 65,989 $ 424,883 $ 768,110 $ 141,779 $ 909,889
Restructuring charges.......$ 32,423 $ - $ 121,411 $ 153,834 $ 190,019 $ 343,853
-------------- ------------- -------------- --------------- ----------------- --------------
Operating income (loss).....$ 1,734,326 $ (463,872) $ 1,148,321 $ 2,418,775 $ (1,777,543) $ 641,232
Interest expense, net.......$ 75 $ 1,123 $ 1,986,763 $ 1,987,961 $ 152,944 $ 2,140,905
Loss on disposition of
property plant & equipment..$ - $ - $ 61,237 $ 61,237 $ - $ 61,237
Other (income)expense.......$ (92,500) $ - $ - $ (92,500) $ (276,286) $ (368,786)
-------------- ------------- -------------- --------------- ----------------- --------------
Net income (loss)...........$ 1,826,751 $ (464,995)$ (899,679) $ 462,077 $ (1,654,201) $ (1,192,124)
============== ============= ============== =============== ================= ==============
</TABLE>
<TABLE>
For the nine months ended September 30, 2000
-------------- ------------- -------------- --------------- ---------------- ---------------
Sub-Total
Operating Total
Casino Production Theaters Segments OSE Consolidated
-------------- ------------- -------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................$ 7,307,227 $ 27,718 $ 12,315,673 $ 19,650,618 $ - $ 19,650,618
Cost of revenues.............$ 5,051,374 $ 585,684 $ 10,341,002 $ 15,978,060 $ - $ 15,978,060
-------------- ------------- -------------- --------------- ---------------- ---------------
Gross profit (loss)..........$ 2,255,853 $ (557,966) $ 1,974,671 $ 3,672,558 $ - $ 3,672,558
Selling, general &
administrative...............$ 332,768 $ - $ 815,795 $ 1,148,563 $ 1,224,407 $ 2,372,970
Depreciation & amortization..$ 299,276 $ 82,275 $ 320,383 $ 701,934 $ 754,731 $ 1,456,665
Loss on write-down of assets.$ - $ - $ 6,918,309 $ 6,918,309 $ - $ 6,918,309
-------------- ------------- -------------- --------------- ---------------- ---------------
Operating income (loss)......$ 1,623,809 $ (620,241) $ (6,079,816) $ (5,096,248) $ (1,979,138) $ (7,075,386)
Interest expense, net........$ 1,834 $ - $ 1,757,811 $ 1,759,645 $ 130,735) $ 1,890,380
Loss on disposition of
property plant & equipment...$ 22,064 $ - $ 281,910 $ 303,974 $ - $ 303,974
Other income.................$ - $ - $ - $ - $ (292,956) $ (292,956)
-------------- ------------- -------------- --------------- ---------------- ---------------
Net income (loss)............$ 1,599,911 $ (640,241) $ (8,119,537) $ (7,159,867) $ (1,816,917) $ (8,976,784)
============== ============= ============== =============== ================ ===============
</TABLE>
11
<PAGE>
Quarter Ended September 30, 1999 versus Quarter Ended September 30, 2000
Net Revenues. Revenues were approximately $6,393,000 for the quarter ended
September 30, 2000 compared to $7,792,000 for the quarter ended September 30,
1999 a decrease of $1,399,000, or 18.0%. Our revenue is derived from five
principal operating segments: Casinos, Events, Merchandise, Production Services,
and Theaters. Revenues from Events are included in the Casino segment. Revenues
from Merchandise are included in the Theaters segment.
Casinos revenues were approximately $2,347,000 for the quarter ended
September 30, 2000 compared to $2,508,000 for the quarter ended September 30,
1999, a decrease of $161,000, or 6.4%. This decrease was primarily attributable
to a decrease in limited engagements and corporate events.
Production Services revenues were approximately $4,000 for the quarter
ended September 30, 2000 compared to $47,000 for the quarter ended September 30,
1999. The decrease was attributable to a decrease in equipment rentals.
Theaters revenues were approximately $4,042,000 for the quarter ended
September 30, 2000 compared to $5,237,000 for the quarter ended September 30,
1999, a decrease of $1,195,000, or 22.8%. This decrease was primarily
attributable to the discontinuation of our dinner theaters in Orlando, Florida.
Costs of Revenues. Total costs of revenues were $5,086,000 for the quarter
ended September 30, 2000 compared to $5,638,000 for the quarter ended September
30, 1999, a decrease of $552,000, or 9.8%. Costs of revenues increased to 79.6%
of net revenues for the quarter ended September 30, 2000, as compared to 72.3%
for the quarter ended September 30, 1999. This increase in cost of revenue, as a
percentage of revenue was primarily attributable to a change in the mix of our
revenues.
Selling, General and Administrative. Selling, general and administrative
costs were approximately $1,040,000 for the quarter ended September 30, 2000 as
compared to $1,023,000 for the quarter ended September 30, 1999, an increase of
$17,000, or 1.7%. This is primarily attributable to an increase in legal
expenses. Selling, general and administrative costs increased to 16.3% of net
revenues for the quarter ended June 30, 2000, as compared to 13.1% for the
quarter ended September 30, 1999.
Depreciation and Amortization. Depreciation and amortization for the
quarter ended September 30, 2000 decreased by $52,000, or 1.7%, as compared to
the quarter ended September 30, 1999. The decrease was primarily due to the
write down of assets held for sale and subject to foreclosure.
Restructuring Charges. Restructuring charges represents expenses related to
the closing of the Legends show in Toronto, Canada, payment of
employment-related severance and termination benefits, legal expenses, and
relocation expenses of a key executive.
Operating Income (Loss). Our operating loss was approximately $44,000 for
the quarter ended September 30, 2000 compared to an operating income of $744,000
for the quarter ended September 30, 1999.
Interest Expense, Net. Interest expense for the quarter ended September 30,
2000 decreased by $679,000, or 95.4% as compared to the quarter ended September
30, 1999. The decrease was primarily due due to interest accrued on the Imperial
Credit debt, together with penalties and default interest rates.
Other Income. Other income for the quarter ended September 30, 2000
decreased by $76,000, or 20.6% as compared to the quarter ended September 30,
1999. The decrease was primarily attributable to the implementation of the
accounts payable rescheduling measure of our restructuring plan.
12
<PAGE>
Loss on Disposition of Property Plant and Equipment. Loss on disposal for
the three months ended September 30, 1999 increased by $237,000, as compared to
the three months ended September 30, 1999. The increase was primarily
attributable to the sale of the Legends in Concert Theater in Surfside Beach,
South Carolina.
Income Taxes. On Stage is a Nevada corporation with a substantial portion
of revenue and income derived in Nevada. There are no state or local income
taxes in Nevada. We have not accrued any federal income tax for the quarter
ended September 30, 2000. At September 30, 1999 and 2000, we had federal net
operating loss carryforwards of approximately $3,958,000 and $17,745,000,
respectively. Under Section 382 of the Internal Revenue Code, certain
significant changes in ownership that On Stage is currently undertaking may
restrict the future utilization of these tax loss carryforwards. The net
deferred tax assets have a 100% valuation allowance, as management cannot
determine if it is more likely than not that the deferred tax assets will be
realized.
Nine Months Ended September 30, 1999 versus Nine Months Ended September 30, 2000
Net Revenues. Revenues were approximately $19,651,000 for the nine months
ended September 30, 2000 compared to $21,468,000 for the nine months ended
September 30, 1999 a decrease of $1,817,00, or 8.5%. Our revenue is derived from
five principal operating segments: Casinos, Events, Merchandise, Productions and
Theaters. Revenues from Events are included in the Casino segment. Revenues from
Merchandise are included in the Theaters segment.
Casinos revenues were approximately $7,307,000 for the nine months ended
September 30, 2000 compared to $7,356,000 for the nine months ended September
30, 1999, a decrease of $49,000, or .07%. This decrease was primarily
attributable to decrease in revenue generated by the Legends shows at the
Imperial Palace in Las Vegas, and Limited Engagements and corporate events.
These increases were partially offset by the addition of the new Legends show on
Premier Cruise Lines and at the Legends show at the Imperial Palace and Casino,
in Biloxi, Mississippi.
Production Services revenues were approximately $28,000 for the nine months
ended September 30, 2000 compared to $93,000 for the nine months ended September
30, 1999. The decrease was attributable to a decrease in equipment rentals.
Theaters revenues were approximately $12,316,000 for the nine months ended
September 30, 2000 compared to $14,019,000 for the nine months ended September
30, 1999, a decrease of $1,703,000, or 12.1%. This decrease was primarily
attributable to the discontinuation of our theaters in Orlando, Florida.
Costs of Revenues. Total costs of revenues were $15,978,000 for the nine
months ended September 30, 2000 compared to $16,467,000 for the nine months
ended September 30, 1999, a decrease of $489,000, or 3.0%. Costs of revenues
increased to 81.3% of net revenues for the nine months ended September 30, 2000,
as compared to 76.7% for the nine months ended September 30, 1999. This increase
in cost of revenue, as a percentage of revenue was primarily attributable to a
change in the mix of our revenues.
Selling, General and Administrative. Selling, general and administrative
costs were approximately $2,372,000 for the nine months ended September 30, 2000
as compared to $3,106,000 for the nine months ended September 30, 1999, a
decrease of $734,000, or 23.6%. Selling, general and administrative costs
decreased to 12.1% of net revenues for the nine months ended September 30, 2000,
as compared to 14.5% for the nine months ended September 30, 1999. This is
primarily attributable to our reduction of overhead associated with the
discontinuation of our " roll-out" strategy.
13
<PAGE>
Depreciation and Amortization. Depreciation and amortization for the nine
months ended September 30, 2000 increased by $547,000, or 60.2%, as compared to
the nine months ended September 30, 1999. The increase was primarily due to the
write-off of direct acquisition costs.
Restructuring Charges. Restructuring charges represent expenses related to
the closing of the Legends show in Toronto, Canada, payment of
employment-related severance and termination benefits, legal expenses, and
relocation expenses of a key executive.
Operating Income (Loss). Our operating loss was approximately $7,075,000
for the nine months ended September 30, 2000, compared to an operating income of
$641,000 for the nine months ended September 30, 1999, an increase of
$6,434,000.
Interest Expense, Net. Interest expense for the nine months ended September
30, 2000 decreased by $251,000, or 11.7% as compared to the nine months ended
September 30, 1999. The decrease was primarily due to interest accrued on the
Imperial Credit debt, together with penalties and default interest rates.
Other Income. Other income for the nine months ended September 30, 2000
decreased by $76,000, or 20.6% as compared to the nine months ended September
30, 1999. The decrease was primarily attributable to the implementation of the
accounts payable rescheduling measure of our restructuring plan.
Loss on Disposition of Property Plant and equipments. Loss on disposal for
the nine months ended September 30, 200 increased by $243,000, as compared to
the nine months ended September 30, 1999. The increase was primarily
attributable to the sale of the Legends in Concert Theater in Surfside Beach,
South Carolina.
Income Taxes. On Stage is a Nevada corporation with a substantial portion
of revenue and income derived in Nevada. There are no state or local income
taxes in Nevada. We have not accrued any federal income tax for the nine months
ended September 30, 2000. At September 30, 1999 and 2000, we had federal net
operating loss carryforwards of approximately $3,958,000 and $17,745,000
respectively. Under Section 382 of the Internal Revenue Code, certain
significant changes in ownership that On Stage is currently undertaking may
restrict the future utilization of these tax loss carryforwards. The net
deferred tax assets have a 100% valuation allowance, as management cannot
determine if it is more likely than not that the deferred tax assets will be
realized.
14
<PAGE>
Seasonality and Quarterly Results
On Stage's business has been, and is expected to remain, highly seasonal,
with the majority of our revenue being generated during the months of April
through October. Part of our business strategy is to increase sales in tourist
markets that experience their peak seasons from November through March, so as to
offset this seasonality in revenues.
The following table sets forth On Stage's net revenue for each of the last
seven quarters ended September 30, 2000:
Net Revenues ($ in thousands)
<TABLE>
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Fiscal 1999.....................$ 6,272 $ 7,403 $ 7,793 $ 7,819
Fiscal 2000.....................$ 6,106 $ 7,151 $ 6,393
</TABLE>
Liquidity and Capital Resources
General
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 anticipates, based on our proposed plans
and assumptions relating to our operations (including assumptions regarding the
anticipated timetable of our new show openings and the costs associated
therewith), that On Stage current cash, cash equivalent balances, anticipated
revenue from operation and our working capital line will not be sufficient to
fund our ongoing 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 $17,048,000, and has defaulted on our long-term debt. These factors
raise substantial doubt about our 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. The report of our independent
certified public accountant for the year ended December 31, 1999 contains an
explanatory paragraph regarding the uncertainty of our 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. On Stage has either closed down or restructured any business units
that are not generating positive cash flow. In addition, On Stage has lowered
selling, general and administrative costs as a percentage of revenues from 14.5%
for the nine months ended September 30, 1999, 12.1% for the nine months ended
September 30, 2000 and continues to downsize and restructure our selling,
general and administrative costs.
15
<PAGE>
Cash Flow
For the nine months ended September 30, 1999, On Stage had net cash
provided by operations of approximately $363,000. As of September 30, 1999, On
Stage had approximately $612,000 in cash and cash equivalents. The cash provided
by operations was primarily attributable to an increase in accrued payroll and
other liabilities. For the nine months ended September 30, 2000, On Stage had
net cash provided by operations of approximately $1,158,000. As of September 30,
2000, On Stage had approximately $817,000 in cash and cash equivalents. The cash
provided by operations was primarily attributable to the write-down of assets
and write-off of debt financing costs.
The net cash used in investing activities for the nine months ended
September 30, 1999 of $165,000 was primarily attributable to capital
expenditures. The net cash provided from investing activities for the nine
months ended September 30, 2000 of $1,742,000, was primarily attributable to
proceeds from the sale of assets.
Net cash used by financing activities for the nine months ended September
30, 1999 of $507,000, was attributable to repayment of long-term borrowing and
repayment under working capital lines, partially offset by the issuance of
common stock and notes payable to officer. Net cash used in financing activities
for the nine months ended September 30, 2000 of $2,459,000, was primarily
attributable to the repayment of line of credit and long-term debt.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Exhibits & Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Form 8-K dated September 12, 2000 and filed with the Securities
and Exchange Commission on September 15, 2000 (Commission File No:
000-29402) with respect to a press release announcing the sale of its
Legends in Concert Theater in Surfside Beach, South Carolina.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ON STAGE ENTERTAINMENT, INC.
Date: November 19, 2000 By: /s/ Timothy J. Parrott
------------------------------
Timothy J. Parrott
President and Chief Executive Officer
Date: November 19, 2000 By: /s/ Pedro Perez
-------------------------------
Pedro Perez
Treasurer and Chief Accounting Officer
18
