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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 [Fee Required]
For the fiscal year ended March 31, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No Fee Required)
For the transition period from_____________ to _____________
Commission file number 0-13740
Jillian's Entertainment Corporation
(Name of Small Business Issuer in Its Charter)
FLORIDA 59-2334472
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
727 ATLANTIC AVENUE, SUITE 600, BOSTON, MA 02111
(Address of Principal Executive Offices) (Zip Code)
(617) 350-3111
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class On Which Registered
------------------- ---------------------
None Not Applicable
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value $.001 Per Share
(Title of class)
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 past 90 days:
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year $11,875,716.
As of June 18, 1996, the aggregate market value of common stock
outstanding held by non-affiliates of the Registrant was $1,713,337 (computed by
reference to the average bid and asked prices of such stock) and the total
number of shares outstanding was 9,137,798.
Documents Incorporated by Reference:
None
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TABLE OF CONTENTS
Form 10-KSB
<TABLE>
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Item No. Description Page Number
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Part I
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Item 1 Description of Business 3
Item 2 Description of Property 6
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security-Holders 11
Part II
Item 5 Market for Common Equity and Related Stockholder Matters 12
Item 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 7 Financial Statements 16
Item 8 Changes in and Disagreements with Accountants on Acounting and Financial Disclosure 43
Part III
Item 9 Directors and Executive Officers; Compliance with Section 16(a) of the Exchange Act 44
Item 10 Executive Compensation 46
Item 11 Security Ownership of Certain Beneficial Owners and Management 49
Item 12 Certain Relationships and Related Transactions 51
Item 13 Exhibits and Reports on Form 8-K 51
</TABLE>
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PART I
Item 1. Description of Business
On March 11, 1990, the Board of Directors of the Jillian's
Entertainment Corporation (the "Registrant" or the "Company") approved the
acquisition by the Registrant of a majority interest in Jillian's, Inc.,
formerly Jillian's Entertainment Corporation, a Delaware corporation formed to
acquire and operate billiard clubs located in various cities throughout the
United States. The Registrant entered into a Stock Exchange Agreement, dated
April 11, 1990 (the "Acquisition Date"), with Jillian's, Inc. and Steven L.
Foster, The Frank and Celia Foster Family Trust, Steven Rubin and Kevin Troy
(collectively, the "Foster Group") pursuant to which it acquired a 51% ownership
interest in Jillian's, Inc. and the Foster Group acquired the remaining 49%
ownership interest. The Registrant acquired the remaining 49% of Jillian's, Inc.
from the Foster Group on March 14, 1991.
Pursuant to a series of related transactions, on the Acquisition Date,
Jillian's, Inc. acquired all of the outstanding stock of corporations that own
and operate billiard clubs in Seattle, Washington and Miami, Florida. Since the
Acquisition Date, Jillian's, Inc., through wholly-owned subsidiaries, has
constructed new billiard clubs in Cleveland, Ohio; Cleveland Heights, Ohio;
Worcester, Massachusetts; Champaign, Illinois; Annapolis, Maryland; Long Beach,
California; and Tacoma, Washington and additionally, has acquired an existing
billiard club in Pasadena, California.
Set forth below are descriptions of the existing Jillian's clubs.
Existing Clubs
Jillian's Billiard Club of Kendall, Inc. ("Jillian's - Kendall").
Jillian's - Kendall, a Delaware corporation that is wholly-owned by the
Registrant, operates a billiard club on North Kendall Drive in Miami, Florida.
The club has been in operation since November 1989 and is situated in a shopping
center next to a nine screen movie theater. The Miami club has approximately
9,600 square feet of floor space and contains 27 Brunswick billiard tables,
along with other table top games, high tech video games and a bar and food
service.
Jillian's Billiard Club of Seattle, Inc. ("Jillian's - Seattle").
Jillian's - Seattle, a Delaware corporation that is wholly-owned by the
Registrant, operates a billiard club on West Lake Avenue in the South Lake Union
area of Seattle, Washington. The club opened for business on April 5, 1990. The
Seattle club operates in a two-story free-standing building that has
approximately 18,500 square feet of floor space and contains 34 Brunswick
billiard tables along with other table top games, high tech video games, a
separate billiard room that is available for rental by private groups, and a bar
and food service on both floors.
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Existing Clubs, Continued
Jillian's Billiard Club of Cleveland, Inc. ("Jillian's - Cleveland").
Jillian's - Cleveland, a Delaware corporation that is wholly-owned by the
Registrant, operates a billiard club in Cleveland, Ohio. The Cleveland club,
which is located on the banks of the Cuyahoga River in Cleveland, Ohio, opened
for business on July 18, 1990. The Cleveland club has approximately 13,000
square feet of space on two floors of a building and contains 25 Brunswick
billiard tables along with other table top games, high tech video games, a
separate billiard room that is available for rental by private groups and a bar
and food service on both floors.
Jillian's Billiard Club of Cleveland Heights, Inc. ("Jillian's -
Cleveland Heights"). Jillian's - Cleveland Heights, a Delaware corporation that
is wholly-owned by the Registrant, operates a billiard club in Cleveland
Heights, Ohio. The Cleveland Heights club is owned by a limited partnership in
which Jillian's - Cleveland Heights is the general partner and owns an 87%
interest and receives a management fee of 6.5% of gross revenues. The Cleveland
Heights club, which is located on Cedar Road in Cleveland Heights, Ohio, opened
for business on November 5, 1992. The Cleveland Heights club has approximately
9,600 square feet of space and contains 21 Brunswick billiard tables along with
other table top games, high tech video games and a bar and food service.
Jillian's Billiard Club of Pasadena, Inc. ("Jillian's - Pasadena"). On
August 19, 1993, the Registrant, through Jillian's - Pasadena, a California
corporation that is wholly-owned by the Registrant, entered into a series of
agreements with an unrelated third-party to acquire all the assets of an
existing billiard club/diner located in "Old Town" Pasadena, California. The
Pasadena club has approximately 7,200 square feet of space on two floors. The
ground floor is approximately 1,400 square feet, which is operated as a diner
with additional outside seating. The basement space consists of approximately
5,800 square feet and is operated as a billiard club with 16 Brunswick billiard
tables. The Pasadena club also has a bar and food service on both levels. The
assets acquired were (a) all assets located at the billiard club/diner, which
included all leasehold improvements, furniture, fixtures, bar and kitchen
equipment, billiard tables and related items (b) all of the seller's rights,
title and interest as lessee under the leases of the premises, and (c) all
alcoholic beverage licenses and other licenses and permits necessary or useful
for the operation of the billiard club/diner.
Jillian's Billiard Club of Worcester, Inc. ("Jillian's - Worcester").
Jillian's - Worcester, a Massachusetts corporation that is wholly-owned by the
Registrant, was formed to operate a billiard club in Worcester, Massachusetts.
The Worcester club is owned by a limited partnership in which Jillian's -
Worcester is the general partner, owns a 25% interest and receives a management
fee of 5% of gross revenues. The club is located near Worcester Polytechnic
Institute in a residential area. The Worcester club opened for business on
December 3, 1993. The Worcester club has approximately 16,000 square feet of
space and contains 24 Brunswick billiard tables along with other table-top games
and a 5,000 square foot game room. The game room features high tech video games,
including redemption games. The Worcester club also has a bar and food service.
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Existing Clubs, Continued
Jillian's Billiard Club of Champaign - Urbana, Inc. ("Jillian's -
Champaign"). Jillian's Champaign, an Illinois corporation that is wholly-owned
by the Registrant, was formed to operate a billiard club in Champaign, Illinois.
The Champaign club is owned by a limited partnership in which Jillian's -
Champaign is the general partner, owns approximately a 43% interest and receives
a management fee of 6% of gross revenues. The Champaign club is located adjacent
to the University of Illinois campus. The Champaign club opened for business on
August 19, 1994. The Champaign club has approximately 12,000 square feet of
space and contains 20 Brunswick billiard tables, along with other table top
games, high tech video games and a bar and food service.
Jillian's Billiard Club of Annapolis, Inc. ("Jillian's - Annapolis").
Jillian's - Annapolis, a Maryland corporation that is wholly-owned by the
Registrant, was formed to operate a billiard club in Annapolis, Maryland. The
Annapolis club is owned by a limited partnership in which Jillian's - Annapolis
is the general partner, owns approximately a 79% interest and receives a
management fee of 6% of gross revenues. The Annapolis club is located near the
U.S. Naval Academy and the Annapolis historical district. The club opened for
business on October 27, 1994. The Annapolis club has approximately 10,000 square
feet of space and contains 16 Brunswick billiard tables, along with other table
top games, high tech video games and a bar and food service.
Jillian's Billiard Club of Long Beach, Inc. ("Jillian's - Long Beach").
Jillian's - Long Beach, a California corporation that is wholly-owned by the
Registrant, was formed to own and operate a billiard club in the downtown
business district of Long Beach, California. The club opened for business on May
5, 1995. The Long Beach club has approximately 16,000 square feet on two floors
of a thirteen story free standing building, and contains 16 Brunswick billiard
tables, a bar and food service. It also has a night club in the basement.
Jillian's Billiard Club of Tacoma, Inc. ("Jillian's - Tacoma"). On
December 8, 1995, the Registrant, through a wholly-owned Delaware corporation,
opened a new Jillian's billiard club in Tacoma, Washington. The property is
located near the University of Puget Sound. The club occupies approximately
25,000 square feet of space on two floors and contains 25 Brunswick billiard
tables, along with other table top games,a high-tech electronic game room and a
bar and food service.
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Summary
The Jillian's clubs are part of the new generation of upscale billiard
clubs in America. These new billiard clubs offer a wider variety of
entertainment and food service and are designed to attract a broader segment of
the population than traditional pool halls. The clubs are decorated in an
appealing and comfortable style. The Jillian's billiard clubs face competition
in their respective cities from other billiard clubs as well as from other
leisure time activities, such as theaters, bowling centers and night clubs. The
Jillian's clubs compete with other clubs and activities by providing customers
with a comfortable setting, a variety of entertainment activities in each club
(e.g., electronic games, darts, and pingpong) and light food and beverage
services.
The Registrant currently is concentrating its efforts on its investment
in the billiard club business. Although no assurance can be given, the
Registrant intends to develop, through wholly-owned subsidiaries of Jillian's,
Inc., additional Jillian's clubs. These clubs may be owned by Jillian's, Inc.
subsidiaries directly or indirectly through their participation in limited
partnerships or joint ventures that own the clubs. In the case of clubs owned by
limited partnerships, the Registrant expects that in each case a wholly-owned
subsidiary would be the general partner, own a substantial interest in the
limited partnership and receive a management fee. The Registrant currently is
investigating potential sites for clubs in Massachusetts and certain other areas
in the Midwest and Mid-Atlantic states.
Item 2. Description of Property
ADMINISTRATIVE OPERATIONS: On June 13, 1995, the Registrant entered
into a lease agreement for 3,020 square feet of space for its administrative
operations located at 727 Atlantic Avenue in Boston, Massachusetts. The lease
commenced in July 1995 and expires July 1998. In addition, the lease has a
two-year renewal period. Under the lease agreement, the Registrant is obligated
to pay the lessor minimum annual rent equal to $31,710 (payable in monthly
installments of $2,642) for the first year, $34,730 (payable in monthly
installments of $2,894) for the second year and $37,750 (payable in monthly
installments of $3,146) for the third year.
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JILLIAN'S CLUBS: Jillian's - Kendall leases the premises in which the
billiard club is operated pursuant to a lease agreement, dated May 26, 1989. The
triple net lease agreement provides for an initial term of 10 years, with two
five-year renewal periods. Under the terms of the lease, Jillian's - Kendall is
obligated to pay the lessor annual rent equal to $192,000, payable in equal
monthly installments of $16,000. The annual rent is adjusted each year based on
increases in the Consumer Price Index (the "CPI"), with the adjustment in any
lease year limited to six percent of the prior year's annual rent. In addition
to annual rent, Jillian's - Kendall also must pay the lessor percentage rent
equal to six percent of the amount by which gross sales exceed a specified
dollar amount ($1 million for the first year with annual adjustments based on
the CPI) and basic percentage rent in an amount equal to three percent of gross
sales for the first two lease years (1990 and 1991) and four percent for the
remaining term. On March 7, 1994, the lease was amended to eliminate all basic
percentage rents due under the lease from inception of the lease through the
termination of the lease (including all renewal periods). Additionally, all CPI
adjustments were deferred until January 1, 1995. In exchange for the amendment,
Jillian's - Kendall granted the lessor warrants to purchase 65,000 shares of its
common stock at $.50 per share for a five-year period. For the year ended March
31, 1996, Jillian's Kendall paid rental payments of $262,702, which includes
taxes and common area maintenance charges. The lease agreement provides that if
Jillian's-Kendall exercises its option to renew the lease, the rent for the
renewal period shall be under the same terms and conditions as set forth above.
Jillian's - Seattle leases the building in which the Seattle club
operates pursuant to a lease agreement, dated August 29, 1989. The triple net
lease agreement for the Seattle club provides for an initial term of 10 years,
with one additional five-year renewal period. Under the terms of the lease,
Jillian's - Seattle is obligated to pay the lessor annual rent equal to
$258,000, payable in equal monthly installments of $21,500. Beginning in the
nineteenth month of the lease (which was March 1991) and every twelfth month
thereafter, the monthly rent will increase based on increases in the CPI, but in
no event will the rate of increase exceed six percent annually. In addition to
the monthly rent, in each year of the lease, Jillian's - Seattle must pay the
lessor percentage rent equal to three percent of gross sales in excess of
$750,000. The percentage rent is adjusted annually based on increases in the CPI
up to a maximum annual adjustment of six percent. Under the terms of an
amendment to this lease, the lessor and Jillian's - Seattle have agreed that the
percentage rental payments may be made one-third in cash and two-thirds by
issuing the lessor warrants to purchase shares of the Registrant's common stock
in an amount equal to one share for each dollar of percentage rent owing. A
warrant will be issued on the fifteenth day following the end of each fiscal
year and will be exercisable for a five-year period at an exercise price equal
to the average bid and asked prices of the common stock for the ten-
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day period prior to issuance. For the year ended March 31, 1996, Jillian's -
Seattle paid rental payments of $304,610, which included taxes, common area
maintenance charges and percentage rent equal to $14,054 in cash. Additionally,
for fiscal 1996, the Registrant issued warrants to purchase 28,108 shares of the
Registrant's common stock at an exercise price of $.27 per share. The lease
agreement provides that if Jillian's -Seattle exercises its option to renew the
lease, the rent for the renewal period shall be as agreed upon by Jillian's
Seattle and the lessor and based on the fair market value of comparable rentals.
Jillian's - Cleveland leases the premises in which the Cleveland club
is operated pursuant to a lease agreement, dated April 20, 1990. The triple net
lease agreement provides for an initial term of ten years, with two five-year
renewal periods. Under the lease agreement, Jillian's - Cleveland is obligated
to pay the lessor minimum annual rent equal to $69,615 (payable in monthly
installments of $5,801) for lease years one through four and $80,325 (payable in
monthly installments of $6,694) thereafter, subject to the adjustment described
below. Beginning in the seventh lease year, the minimum annual rent will be
adjusted upward to an amount equal to the lesser of (i) 105% of the annual rent
payable for the prior lease year, or (ii) the annual rent payable for the prior
lease year adjusted for increases in the CPI. In addition to annual rent,
Jillian's - Cleveland must pay percentage rent equal to five percent of the
amount by which gross sales exceed $1,392,300 for lease years one through four
and $1,606,500 thereafter. On November 24, 1993, the lease was amended to
temporarily limit all rent and common area maintenance charges to $6,000 per
month from October 1993 through March 1994, $9,000 per month from April 1994
through September 1994 and $6,000 per month from October 1994 through December
1994. The lessor and Jillian's - Cleveland verbally agreed to indefinitely
continue the limited rents as noted above. In exchange for the reduction,
Jillian's-Cleveland agreed to pay the landlord 8.5% of all gross sales in excess
of $650,000 until such time as the landlord received 100% of the reduced rents
and common area maintenance. For the year ended March 31, 1996, Jillian's -
Cleveland paid rental payments of $118,478, which included taxes and common area
maintenance charges. The lease agreement provides that if Jillian's Cleveland
exercises its option to renew the lease, the rent for each renewal period shall
be negotiated by the parties, but will not be less than the greater of
comparable rentals or the rent payable for the last month of the preceding term
(on an annualized basis). In addition, the rent for each year of the first
renewal period may not be greater than 115% of the annual rent for the last year
of the initial term.
Jillian's - Cleveland Heights leases the premises in which the
Cleveland Heights club is operated pursuant to a lease agreement, dated October
17, 1991. Jillian's - Cleveland Heights has a primary lease of approximately
7,600 rentable square feet. The space is ground floor space with an equal amount
of basement space, although the rent is based on the ground floor space only.
The triple net lease agreement provides for an initial term of ten years, with
two five-year renewal periods. Under the lease agreement, Jillian's Cleveland
Heights is obligated to pay the lessor minimum annual rent equal to $57,240
(payable in monthly installments of $4,770 starting in May 1992) for each of
lease years one and two, $68,688 (payable in monthly installments of $5,724) for
each of lease years three through six and $76,320 (payable in monthly
installments of $6,360) for each of the lease
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years seven through ten. The lease agreement provides that if Jillian's -
Cleveland Heights exercises its option to renew the lease, the minimum annual
rent for each of the first and second five-year renewal periods will be $91,584
and $106,848, respectively. In August, 1992, Jillian's - Cleveland Heights
exercised an option to lease another 2,000 square feet of ground floor space
(with an equal amount of basement space) adjacent to the primary space discussed
above. This space was opened for use by the club in February, 1993 and contains
6 of the 21 billiard tables in the club. The terms for rental of such additional
space is at the same rates on a per square foot basis as set forth above, and
subject to all other terms and conditions of the lease for the primary space.
For both the primary lease and the option space, Jillian's-Cleveland Heights
paid rental payments of $110,656 for the year ended March 31, 1996, which
included taxes and common area maintenance charges.
Jillian's - Pasadena entered into two sub-leases for the Pasadena club
on August 19, 1993. The first sub-lease is for 1,377 square feet on the ground
floor, which is operated as a diner with additional outside seating. The initial
term is for ten years, which expires on September 30, 2000, and there are two
five-year renewal options. Under the first sub-lease agreement, Jillian's -
Pasadena is obligated to pay the lessor minimum annual rent equal to $33,048
(payable in monthly installments of $2,754) for each lease year through
September 30, 1996. Thereafter, the minimum annual rent will be equal to the
fair market value of comparable rentals with CPI adjustments starting on April
1, 1998. The second sub-lease is for 5,744 square feet of basement space, which
is operated as a billiard club. The initial term is for five years, which
expires on September 30, 1996, and there are three five-year renewal options.
Under the second sub-lease agreement, Jillian's - Pasadena is obligated to pay
the lessor minimum annual rent equal to $68,928 (payable in monthly installments
of $5,744) for each lease year through September 30, 1994. Thereafter, the
minimum annual rent will be increased by the CPI. Both the first and second
sub-lease agreements provide that if Jillian's - Pasadena exercises its options
to renew the sub-leases, the rent for the renewal period shall be as agreed upon
by Jillian's - Pasadena and the lessor and based on the fair market value of
comparable rentals with certain CPI adjustments. For the year ended March 31,
1996, Jillian's - Pasadena paid rental payments of $147,985 for both leases,
which included taxes and common area maintenance charges.
Jillian's - Worcester entered into a lease agreement for the Worcester
club on April 21, 1993. The Worcester club is located in a one-story
free-standing building consisting of approximately 16,000 rentable square feet.
The triple net lease agreement provides for an initial term of ten years with
two five-year renewal periods. Under the lease agreement, Jillian's - Worcester
is obligated to pay the lessor minimum annual rent equal to $123,780 (payable in
monthly installments of $10,315 starting in August 1993) for each of lease years
one through three, $140,284 (payable in monthly installments of $11,690) for
each of lease years four and five and $165,040 (payable in monthly installments
of $13,753) for each of lease years six through ten. The lease agreement
provides that if Jillian's -Worcester exercises its option to renew the lease,
the minimum annual rent for each year of the first five-year renewal period will
be $198,048. The minimum annual rent for each year of the second five-year
renewal period will be the greater of $198,048 or 80% of the then fair market
value for similar space. Jillian's - Worcester also has entered into a separate
lease for 28 additional parking spaces for the same term as the building lease.
The annual rent
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for the parking spaces is $13,200 for the first five years and $15,840 for the
second five-years of the initial ten-year term. If the parking lease is renewed
for the first and second five-year renewal periods, annual rent payments will be
$19,000 and $22,800, respectively. For the year ended March 31, 1996, Jillian's
- - Worcester paid rental payments of $183,176, which included taxes, parking
rental and common area maintenance charges.
Jillian's - Champaign entered into a lease agreement for the Champaign
club on April 14, 1993. The Champaign club is located in a two-story
free-standing building consisting of 20,000 square feet, 12,000 of which are on
the first floor and used for the billiard club. The remaining 8,000 square feet
on the second floor of the building is used for office and storage space. The
triple net lease agreement provides for an initial term of ten years, with two
five-year renewal periods. Under the lease agreement, Jillian's Champaign will
be obligated to pay the lessor minimum annual rent equal to $64,800 (payable in
monthly installments of $5,400 starting in August 1993) for each of lease years
one and two. Commencing on April 1, 1995, and on April 1 of each year
thereafter, during the initial term and any extension term, the monthly rental
amount shall be adjusted by increases in the CPI. In October 1994, Jillian's -
Champaign entered into a separate leasing agreement for premises to be used for
parking. For the year ended March 31, 1996, the parking rental paid was $5,785.
The lease expires on September 1, 1997. For the year ended March 31, 1996,
Jillian's-Champaign paid rental payments of $89,586, which included taxes and
common area maintenance charges.
Jillian's - Annapolis entered into a lease agreement for the Annapolis
club on April 26, 1993. The Annapolis club is located in a one-story
free-standing building consisting of approximately 10,000 square feet. The
triple net lease agreement provides for an initial term of ten years with two
five-year renewal periods. Under the lease agreement, Jillian's Annapolis is
obligated to pay the lessor minimum annual rent equal to $79,992 (payable in
monthly installments of $6,666 starting in August 1993) for the first lease
year, $90,000 (payable in monthly installments of $7,500) for the second lease
year and $99,996 (payable in monthly installments of $8,333) for the third lease
year. Beginning in the fourth lease year, the minimum annual rent will be
adjusted upward to an amount equal to 66 2/3% of the annual increase in the CPI,
with the adjustment in any year limited to 5% of the prior year's annual rent.
The lease agreement provides that if Jillian's - Annapolis exercises its option
to renew the lease, the minimum annual rent for each of the first and second
five-year renewal periods will be the same as the tenth year's rent with the
same CPI adjustment. For the year ended March 31, 1996, Jillian's - Annapolis
paid rental payments of $127,969, which included taxes and common area
maintenance.
Jillian's - Long Beach entered into a lease agreement for the Long
Beach club on July 12, 1993 and the club opened for business on May 5, 1995. The
Long Beach club is located on the first floor and basement level of a
thirteen-story free-standing building. The club has 16,000 square feet, 9,215 of
which are on the first floor and is used for the billiard club. The remaining
6,785 square feet in the basement of the building is used as a night club
(approximately 4,000 square feet) and for administrative and support space. The
triple net lease agreement provides for an initial term of ten years, with two
five-year renewal periods. Under the lease agreement, Jillian's - Long Beach is
obligated to pay the lessor
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minimum annual rent equal to $178,935 (payable in monthly installments of
$14,911 starting in January 1994) for the first lease year and $220,790 (payable
in monthly installments of $18,399) for the second and third years. Beginning in
the fourth lease year, the minimum annual rent will increase by approximately 5%
per year through year ten. The lease agreement provides that if Jillian's-Long
Beach exercises its option to renew the lease, the minimum annual rent for each
of the first and second five-year renewal periods will be equal to the annual
base rent payable for the immediately preceding year, increased by five percent
per annum. For the year ended March 31, 1996, Jillian's - Long Beach paid rental
payments of $297,196, which included taxes and common area maintenance charges.
Jillian's - Tacoma entered into a lease agreement for the Tacoma club
on December 21, 1994. The Tacoma club is located in a two-story free-standing
building consisting of approximately 25,000 square feet. The triple net lease
agreement provides for an initial term of ten years. Under the lease agreement,
Jillian's - Tacoma will be obligated to the lessor for minimum annual rent equal
to $223,119 (payable in monthly installments of $18,593 starting in December
1995) for lease years one through three, $244,119 (payable in monthly
installments of $20,343) for lease years four through six and $265,116 (payable
in monthly installments of $22,093) for lease years seven trough ten. For the
year ended March 31, 1996, Jillian's - Tacoma paid rental payments of $70,338,
which included taxes and common area maintenance charges.
Item 3. Legal Proceedings
On October 13, 1995, an action foreclosing a mechanics lien was filed
against the Registrant in a California Superior Court for Los Angeles County for
approximately $123,000, plus interest. The Registrant filed an answer and cross
complaint on January 3, 1996. While the Registrant is vigorously defending the
action and believes that it has meritorious defenses, no assurance can be given
of a favorable outcome.
Item 4. Submission of Matters to a Vote of Security-Holders
None
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PART II
Item 5. Market For Common Equity and Related Stockholder Matters
The Registrant's common stock is traded in the over-the-counter market
on NASDAQ. The following table sets forth the range of high and low bid prices
for the Registrant's common stock for each full quarterly period, for the
periods indicated, in which such stock was regularly quoted. Such quotations
reflect interdealer prices without retail markup, markdown or commissions and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
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6/30/94 25/32 11/16
9/30/94 23/32 5/8
12/31/94 3/4 7/16
3/31/95 5/8 7/16
6/30/95 15/32 5/16
9/30/95 7/16 11/32
12/31/95 15/32 7/32
3/31/96 5/16 1/4
</TABLE>
As of June 18, 1996, the Registrant's common stock was held
beneficially by approximately 3,400 holders. The Registrant has never declared a
cash dividend and does not intend to do so in the future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources:
The Registrant's cash and cash equivalents decreased $607,814 during
fiscal 1996. This decrease was primarily due to the purchase of property and
equipment of approximately $1,677,000, offset in part by approximately
$1,072,000 from cash provided from continuing operations. Capital expenditures
for property and equipment, net of accumulated depreciation and amortization,
was $7,687,606 as of March 31, 1996, increasing $2,698,982 or 54.1% over March
31, 1995. The new club development of Long Beach and Tacoma accounted for the
majority of the Registrant's capital additions.
The total cost of building out and equipping the Long Beach club was
$1,500,000. The Long Beach club was financed primarily by a $250,000 landlord
contribution, a $450,000 eleven-year loan from the City of Long Beach, equipment
financing and cash generated from the Company's club operations.
-12-
<PAGE> 13
Liquidity and Capital Resources, Continued:
On December 8, 1995, the Company, through a wholly owned Delaware
corporation, opened a new Jillian's billiard club in Tacoma, Washington. The
property is located near the University of Puget Sound. The club occupies
approximately 25,000 square feet of space on two floors and contains 25
Brunswick billiard tables, along with other table top games, dart boards and a
high-tech electronic game room. The cost of building out and equipping the club
was approximately $2,100,000. The Tacoma club was financed primarily by a
$638,000 landlord contribution, $300,000 in equipment financing, $245,000 in
vendor financing, $300,000 in bank financing, $280,000 in bridge financing and
cash generated from the Company's club operations.
The Registrant has no other material commitments for capital
expenditures as of March 31, 1996. As of March 31, 1996, there were no other
development stage clubs.
As of March 31, 1996, inventory was $204,581 as compared to $155,567 as
of March 31, 1995. The increase was primarily due to the Long Beach and Tacoma
clubs, which opened in May 1995 and December 1995, respectively.
As of March 31, 1996, total assets of $9,904,271 were $2,056,799 or
26.2% higher than at March 31, 1995. Capital expenditures for new clubs were the
primary reason for this increase. As of March 31, 1996, property and equipment,
net of depreciation, was $7,687,606 and represented 78% of total assets.
As of March 31, 1996, total notes and equipment leases payable were
$2,899,145 as compared to $2,052,329 as of March 31, 1995. The majority of the
increase is attributed to the development of the Long Beach and Tacoma clubs.
As of March 31, 1996, total current liabilities were $2,289,784 as
compared to $1,731,770 as of March 31, 1995. The increase is primarily due to
the increase of $228,752 in the current portion of long-term debt, increased
accounts payable and accrued expenses relating to the Long Beach and Tacoma
clubs, professional services and the accrued salary of Steven L. Foster, Chief
Executive Officer of the Registrant.
The Registrant had ten clubs fully operational in the last quarter of
1996 and had cash provided from continuing operations of approximately $773,000
for such quarter. However, the Registrant continues to experience a cash
shortage. The Registrant is currently pursuing various alternatives, including
bank financing and issuing additional equity or debt securities, to raise funds
to meet its working capital needs and to finance the cost incurred in the
build-out of the Tacoma Club. The Registrant believes that the cash provided
from these ten clubs, other bank financing and the issuance of additional
equity or debt securities should be sufficient to fund the corporate general
and administrative expenses.
The Registrant, as of March 31, 1996, had goodwill of $805,384, net of
amortization. The Registrant evaluates the potential impairment of its
long-lived assets, including goodwill related thereto, in accordance with the
Statement of Financial Accounting Standards No. 121 "Accounting for Improvement
of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and evaluates
other goodwill in accordance with Accounting Principle Board Opinion No. 17
"Intangible Assets". The Registrant does not believe that its long-lived assets
or goodwill has been impaired.
-13-
<PAGE> 14
Liquidity and Capital Resources, Continued
The Registrant intends to develop, through wholly-owned subsidiaries of
Jillian's, Inc., additional Jillian's clubs. These clubs may be owned by
Jillian's, Inc.'s subsidiaries directly or indirectly through their
participation in limited partnerships or joint ventures that own the clubs. In
the case of clubs owned by limited partnerships, the Registrant expects that in
each case, a wholly-owned subsidiary would be the general partner, would own a
substantial interest in the limited partnership and would receive a management
fee. The Registrant currently is investigating potential sites for clubs in
Massachusetts and certain other areas in the Midwest and Mid-Atlantic states.
There can be no assurance that the Registrant will be successful in developing
additional billiard clubs.
Results of Operations:
The Registrant had a net loss of $393,731 for the year ended March 31,
1996 as compared to a net loss of $863,056 for the year ended March 31, 1995.
This improvement from 1995 to 1996 was primarily due to higher net club
operating income of $779,628 and decreased start-up costs relating to
development stage clubs of $452,233, offset in part by increased general and
administrative expenses of $520,699, increased depreciation and amortization of
$133,268 and increased income applicable to minority interest of $79,382.
The Registrant had revenues from club operations of $11,875,716 and
$7,969,247 for the years ended March 31, 1996 and 1995, respectively. The
increase of $3,906,469 for the year ended March 31, 1996, as compared to the
same period ended March 31, 1995, was due to increases in comparable sales of
$603,492, increased revenues of $973,457, from full operating years for second
year clubs (i.e., the Champaign and Annapolis clubs, which opened for business
on August 19, 1994 and October 27, 1994, respectively) and increased revenues of
$2,329,520 from new clubs opened in fiscal 1996 (i.e., the Long Beach and Tacoma
clubs, which opened for business on May 5, 1995 and December 8, 1995,
respectively).
The increase of $603,492 or 12.2% in comparable sales for the year
ended March 31, 1996, as compared to the same period ended March 31, 1995, was
primarily due to increases of $374,631 or 21.1% in Seattle, $79,940 or 9.5% in
Cleveland, $77,417 or 9.1% in Cleveland Heights and $71,504 or 8.9% in Pasadena.
The Registrant had total costs and expenses of $12,196,941 and
$8,788,984 for the years ended March 31, 1996 and March 31, 1995, respectively.
The increase of $3,407,957 for the year ended March 31, 1996, as compared to the
same period ended March 31, 1995, was due to increased cost of club operations
of $3,126,841, increased general and administrative expenses of $520,699,
increased depreciation and amortization expenses of $133,268 and increased
income applicable to minority interest of $79,382, offset by a decrease of
$452,233 relating to start-up costs for development stage clubs.
The increase of $3,126,841 in cost of club operations was primarily due
to increased costs associated with the Champaign, Annapolis, Long Beach and
Tacoma clubs. The increase in general and administrative expenses for the year
ended March 31, 1996, as compared to the same period ended March 31, 1996, was
primarily due to increased wages,
-14-
<PAGE> 15
Results of Operations, Continued:
professional services and travel expenses of approximately $394,000, $64,000 and
$90,000, respectively. The increase in wages and travel expenses from 1995 to
1996 was primarily attributed to the hiring of a new President and Chief
Operating Officer, Controller, Vice President of Operations, Vice President of
Development and support personnel. In addition, Mr. Foster began accruing a
salary on October 1, 1995. The increase in professional fees was primarily due
to consulting and legal fees associated with the preparation and filing with the
Securities and Exchange Commission of a preliminary proxy statement relating to
a proposed transaction that, if approved by the shareholders, could result in
the de-registration of the Registrant's common stock.
The decrease in start-up costs relating to development stage clubs of
$452,233 was primarily due to the fact that during fiscal 1996, the Registrant
developed one new club (Tacoma) as compared to three new clubs in fiscal 1995
(Champaign, Annapolis and Long Beach). In addition, the Long Beach club was
required to pay rent totaling approximately $284,000 during fiscal 1995, but did
not open for business until May 5, 1995.
-15-
<PAGE> 16
Item 7. Financial Statements
-16-
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Jillian's Entertainment
Corporation:
We have audited the accompanying consolidated balance sheet of Jillian's
Entertainment Corporation and subsidiaries as of March 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jillian's
Entertainment Corporation and subsidiaries at March 31, 1996, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Boston, Massachusetts
July 2, 1996
-17-
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Jillian's Entertainment
Corporation:
We have audited the consolidated statements of operations, changes in
stockholders' equity and cash flows of Jillian's Entertainment Corporation and
subsidiaries (the "Company") for the year ended March 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of the Company for
the year ended March 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
June 27, 1995
-18-
<PAGE> 19
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 646,306
Inventory 204,581
Accounts receivable 63,386
Other current assets 166,035
----------
Total current assets 1,080,308
Investments (Note 2) 39,725
Property, leasehold improvements and equipment,
net (Notes 3 and 4) 7,687,606
Goodwill, net 805,384
Other assets 291,248
----------
Total assets $ 9,904,271
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 941,707
Accrued expenses and other liabilities 635,167
Current portion of notes and equipment
leases payable (Note 4) 712,910
----------
Total current liabilities 2,289,784
Deferred rent 1,187,860
Notes payable and equipment
leases payable (Note 4) 1,906,235
Notes payable to related parties (Note 4) 280,000
----------
Total liabilities 5,663,879
----------
Minority interests (Note 11) 1,395,964
----------
Commitments and contingencies (Notes 6, 8 and 11)
Stockholders' equity (Notes 4, 7, 8, 9 and 11):
Cumulative preferred stock, $.001 par
value, 1,000,000 shares authorized, none
issued or outstanding -
Common stock, $.001 par value, 25,000,000
shares authorized, 9,137,798 shares issued
and outstanding 9,138
Paid-in capital 9,536,277
Accumulated deficit (6,700,987)
----------
Total stockholders' equity 2,844,428
----------
Total liabilities and stockholders' equity $9,904,271
==========
</TABLE>
See accompanying notes to consolidated financial statements
-19-
<PAGE> 20
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues from club operations $ 11,875,716 $ 7,969,247
------------ ------------
Costs and expenses:
Cost of club operations:
Cost of goods sold 2,736,704 1,749,269
Wages 2,745,768 1,870,360
Rent 1,685,014 1,223,785
Direct operating costs 2,393,039 1,590,270
Start-up costs related to development
stage clubs 82,575 534,808
General and administrative expenses 1,707,460 1,186,761
Depreciation and amortization expense 656,768 523,500
Income applicable to minority
interest (Note 11) 189,613 110,231
------------ ------------
Total costs and expenses 12,196,941 8,788,984
------------ ------------
Other income/(expenses):
Gain on sale of investment -- 4,785
Interest expense (211,520) (98,021)
Other income 139,014 49,917
------------ ------------
Total other expenses, net (72,506) (43,319)
------------ ------------
Net loss $ (393,731) $ (863,056)
============ ============
Net loss per common and
common equivalents share $ (0.04) $ (0.11)
============ ============
Weighted average common and common
equivalent shares outstanding 9,137,798 8,116,291
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
-20-
<PAGE> 21
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER EQUITY
For the years ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Total
-------------------- Paid-in Accumulated Notes Stockholders'
Shares Amount Capital Deficit Receivable Equity
------ ------ ------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 8,032,798 $8,033 $9,188,132 $(5,444,200) $(151,667) $3,600,298
Shares issued, stock options
exercised (Note 7) 1,105,000 1,105 275,145 276,250
Collection of notes receivable 48,254 48,254
Services contributed by
shareholder (Note 6) 50,000 50,000
Net loss (863,056) (863,056)
--------- ------ ---------- ----------- --------- ----------
Balance at March 31, 1995 9,137,798 9,138 9,513,277 (6,307,256) (103,413) 3,111,746
Collection of notes receivable 103,413 103,413
Services contributed by
shareholder (Note 6) 23,000 23,000
Net loss (393,731) (393,731)
--------- ------ ---------- ----------- --------- ----------
Balance at March 31, 1996 9,137,798 $9,138 $9,536,277 $(6,700,987) $ -- $2,844,428
========= ====== ========== =========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements
- 21 -
<PAGE> 22
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (393,731) $ (863,056)
----------- -----------
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 656,768 523,500
Gain on sale of investments -- (4,785)
Provision for losses on receivables -- 41,587
Increase in paid-in capital for contribution
of services 23,000 50,000
(Increase)/decrease in accounts receivable (29,698) 5,706
Increase in inventory (49,014) (38,484)
Decrease/(increase) in other assets 29,706 (103,015)
Increase in accounts payable 362,922 284,592
Increase in accrued expenses and other liabilities 282,518 294,102
Increase in minority interest 189,613 110,231
----------- -----------
Total adjustments 1,465,815 1,163,434
----------- -----------
Cash provided by operating activities 1,072,084 300,378
----------- -----------
Cash flow from investing activities:
Purchase of property and equipment (1,677,301) (1,775,960)
Collection of note receivable 103,413 6,667
Proceeds from sale of investments -- 9,470
----------- -----------
Net cash used in investing activities (1,573,888) (1,759,823)
----------- -----------
Cash flows from financing activities:
Issuance of notes payable 630,253 1,419,320
Repayment of notes and leases payable (506,829) (261,505)
Proceeds from issuance of common stock -- 276,250
Proceeds from sale of partnership interests -- 258,084
Distributions to minority interest partners (229,434) (108,145)
----------- -----------
Net cash (used)/provided by financing activities (106,010) 1,584,004
----------- -----------
Net (decrease)/increase in cash and cash equivalents (607,814) 124,559
Cash and cash equivalents at beginning of year 1,254,120 1,129,561
----------- -----------
Cash and cash equivalents at end of year $ 646,306 $ 1,254,120
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 211,520 $ 98,021
=========== ===========
Non-cash investing and financing activity:
Acquisition of equipment through capital leases $ 723,392 $ --
=========== ===========
Acquisition of leasehold improvements through
landlord contributions $ 872,682 $ --
=========== ===========
Conversion of notes payable into limited partner-
ship interest $ -- $ 100,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
-22-
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
Jillian's Entertainment Corporation (the "Company"), owns, operates and manages,
through wholly-owned subsidiaries, billiard clubs in Miami, Florida; Seattle,
Washington; Cleveland, Ohio; Cleveland Heights, Ohio; Pasadena California;
Worcester, Massachusetts; Champaign, Illinois; Annapolis, Maryland; Long Beach,
California and Tacoma, Washington. The Cleveland Heights, Worcester, Champaign
and Annapolis clubs are owned by limited partnerships in which wholly-owned
subsidiaries of Jillian's, Inc. are the general partners and own 87%, 25%, 43%
and 79% interests, respectively.
Certain amounts in the accompanying consolidated financial statements as of and
for the year ended March 31, 1995, have been reclassified to conform to the
presentation as of and for the year ended March 31, 1996.
The following is a summary of significant accounting policies followed in the
preparation of these consolidated financial statements:
Principles of Consolidation
The consolidated financial statements include the accounts of Jillian's
Entertainment Corporation, Jillian's, Inc. and subsidiaries and Carom Financial
Corporation. The Cleveland Heights, Worcester, Champaign and Annapolis clubs are
owned by limited partnerships in which wholly-owned subsidiaries of the Company
have an 87%, 25%, 43% and 79% ownership interest, respectively. All of the
limited partnerships are consolidated herein, since the Company controls the
operations of the limited partnerships. All significant intercompany accounts
and transactions have been eliminated.
Use of Estimates
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from banks and
interest-bearing deposits with banks, with original maturities of less than
three months.
-23-
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS,
CONTINUED
Inventory
Inventory, primarily food and beverage, is stated at cost. Cost is determined by
the first-in, first-out method.
Investments
Investments in equity securities and non-billiard club limited partnerships,
which do not have readily determinable fair values, are carried at the lower of
cost or estimated fair market value. Gains and losses on the sale of investments
are calculated on the "specific identification" method.
Property, Leasehold Improvements and Equipment
Property, leasehold improvements and equipment are stated at cost. Property and
equipment are depreciated using the straight-line method over the estimated
useful lives of the assets which range from five to ten years. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term (including all renewal periods) or the useful lives of the
improvement which range from ten to twenty years. When items are retired or
otherwise disposed of, the related costs and accumulated depreciation are
removed from the accounts and any resulting gains or losses are recognized.
Goodwill
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No.
121 requires, among other things, that impairment losses on assets held, and
gains or losses from assets that are expected to be disposed of, be included as
a component of income from continuing operations.
The excess of the cost of the investment in Jillian's, Inc. over the fair value
of net assets acquired is being amortized on a straight-line basis over twenty
years from the acquisition dates. The Company evaluates the potential impairment
of its long-lived assets, including goodwill related thereto, in accordance with
SFAS No. 121 and evaluates other goodwill in accordance with Accounting
Principle Board Opinion No. 17 "Intangible Assets". The Company does not believe
that its long-lived assets or goodwill has been impaired.
-24-
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS,
CONTINUED
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes". Under SFAS 109, current income taxes are
provided based upon taxes currently payable and deferred taxes are provided to
reflect the temporary difference in the tax basis of assets and liabilities and
their reported amounts in the financial statements. A valuation allowance is
recorded to reduce deferred tax assets to an amount which is considered more
likely than not to be realized.
Earnings/Loss Per Share
Earnings (loss) per share amounts are computed based upon the average number of
common and common equivalent shares outstanding, assuming proceeds from the
assumed exercise of options were used to purchase common shares outstanding at
the average fair market value during each period, unless such exercise is
anti-dilutive.
Start-up Costs
Start-up costs related to development stage clubs are expensed as incurred.
These costs include all wages, rents and direct general and administrative
expenses incurred prior to a club opening for business.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising expense was
approximately $317,000 and $168,000 for the years ended March 31, 1996 and 1995,
respectively.
Leases
The Company has entered into operating lease agreements which contain scheduled
rent increases during the term of the lease. Such scheduled rent increases are
recorded on a straight-line basis over the term of the lease. Landlord
incentives are recorded as deferred rent and amortized over the terms of the
lease.
Fair Value of Financial Instruments
The Company believes that the carrying amount of notes and equipment leases
payable, as reported in the accompanying consolidated balance sheet,
approximates fair value.
-25-
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. INVESTMENTS
Investments at March 31, 1996 consisted of the following:
<TABLE>
<S> <C>
North American Venture Capital
Fund II, L.P. $25,000
Tellurado Assoc., Ltd. 14,725
-------
Total $39,725
=======
</TABLE>
North American Venture Capital Fund II, L.P. and Tellurado Assoc., Ltd represent
limited partnership interests purchased in fiscal 1990 and fiscal 1992,
respectively. These partnerships were formed primarily to invest in marketable
securities and real estate, respectively.
3. PROPERTY, LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET
Property, leasehold improvements and equipment consists of the following at
March 31, 1996:
<TABLE>
<S> <C>
Leasehold improvements $ 5,487,014
Game equipment 1,391,937
Club and office equipment 1,772,683
Furniture and fixtures 720,323
-----------
9,371,957
Less accumulated depreciation (1,684,351)
-----------
Total $ 7,687,606
===========
</TABLE>
4. NOTES AND EQUIPMENT LEASES PAYABLE
Notes Payable
Notes payable at March 31, 1996 consist of the following:
<TABLE>
<S> <C>
Note payable to U.S. Government. (See Note 8). $199,792
Note payable to City of Cleveland Heights collateralized by personal
property and fixtures in the Cleveland Heights club. Interest
payable at 7%. Principal and interest payable in monthly
installments of $1,161. Balance due in April 1998. 76,219
Note payable to seller of Pasadena club. Interest payable monthly
at 8%. Principal due in August, 1996. (See Note 10). 175,000
</TABLE>
-26-
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. NOTES AND EQUIPMENT LEASES PAYABLE, CONTINUED
Notes Payable, Continued
<TABLE>
<S> <C>
Note payable to unaffiliated third parties. Interest at 15%.
(Currently payable at 12%). Principal and accrued interest due
October 20, 1999. 185,000
Note payable to bank collateralized by stock in Seattle club
Interest payable at 9.5%. Principal and interest payable in
monthly installments of $4,205. Balance due May 18, 1999. 144,538
Note payable to Champaign club landlord. Interest payable at 10%. Principal and
interest payable in monthly installments of $3,187.
Balance due September 1, 1999. 110,301
Note payable to City of Long Beach. Interest accrues at 7% for first year,
thereafter, principal and interest is payable in monthly installments of $5,507
beginning April 1, 1996.
Balance due April 2006. 450,000
Note payable to unaffiliated third party. Interest payable
quarterly at 8.5%. Balance due August 1, 1996. 50,000
Note payable to bank collateralized by equipment in
Tacoma club and by stock in Seattle club. Interest payable
in monthly installments of $6,306. Balance due December
2000. 284,357
---------
Total 1,675,207
Notes Payable to Related Parties
Notes payable to affiliated third parties. Interest payable
at 25%. Interest payable semi-annually. Principal and accrued
interest due May and June 1997. 280,000
---------
Total notes payable 1,955,207
---------
Capitalized Equipment Leases Payable
Equipment leases payable to unaffiliated third party. Payable in monthly
installments of $6,673. $30,000 buy-out due June 1, 1999. 214,633
Other equipment leases payable to unaffiliated third party. 178,923
</TABLE>
-27-
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. NOTES AND EQUIPMENT LEASES PAYABLE, CONTINUED
Capitalized Equipment Leases Payable, Continued
<TABLE>
<S> <C>
Equipment leases payable to unaffiliated third party. Payable
in monthly installments of $6,762. $30,000 buyout due January
2001. 294,556
Equipment leases payable to unaffiliated third party. Payable in
monthly installments of $11,953. Balance due in March 1998. 255,826
----------
Total capital leases payable 943,938
----------
Total notes and equipment leases payable 2,899,145
Less current portion of notes and equipment leases payable 712,910
----------
Long term portion of notes and equipment leases payable $2,186,235
==========
</TABLE>
The aggregate amount of required payments under the notes payable at March 31,
1996 are as follows:
Years Ending March 31,
<TABLE>
<S> <C>
1997 $ 420,626
1998 549,154
1999 309,254
2000 322,767
2001 99,433
Thereafter 253,973
----------
Total $1,955,207
==========
</TABLE>
As collateral on the City of Long Beach loan, the Company has issued the City of
Long Beach a warrant to receive 225,000 shares of its common stock at no charge.
This warrant is only exercisable if the Company defaults on the loan and fails
to cure such default. Any net proceeds the City of Long Beach receives on the
sale of such warrant would be used to offset the outstanding loan balance. If
such net proceeds were not sufficient to repay the outstanding loan balance, the
Company has agreed to continue to issue additional shares of its common stock
until the outstanding loan balance is paid in full.
-28-
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. NOTES AND EQUIPMENT LEASES PAYABLE, CONTINUED
Future minimum lease payments under capital lease obligation together with the
present value of the net minimum lease payments are as follows:
Years Ending March 31,
<TABLE>
<S> <C>
1997 $ 395,662
1998 355,550
1999 202,095
2000 140,035
2001 77,947
----------
Total minimum
lease payments 1,171,289
Less amounts repre-
senting interest 227,351
----------
Present value of net
minimum lease pay-
ments $ 943,938
==========
Current $ 292,284
Long-term 651,654
----------
$ 943,938
==========
</TABLE>
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes and operating loss carryforwards.
The tax effects of significant items comprising the Company's net deferred tax
assets as of March 31, 1996 are as follows:
-29-
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. INCOME TAXES, CONTINUED
<TABLE>
<CAPTION>
1996
----
<S> <C>
Gross deferred tax liabilities $ --
-----------
Deferred tax assets:
Contribution carryforward 8,000
Net operating loss carryforward 2,202,300
Capital loss carryforward 31,600
-----------
Gross deferred tax assets 2,241,900
-----------
Deferred tax asset 2,241,900
Valuation allowance (2,241,900)
-----------
Net deferred asset $ --
===========
</TABLE>
No provision or benefit for income taxes was recorded in the accompanying
consolidated financial statements for the years ended March 31, 1996 and 1995.
As of March 31, 1996, the Company has unused operating loss carryforwards of
approximately $5,850,000 for federal income tax purposes. Approximately
$4,000,000 of these carryforwards are limited under Section 382 of the Internal
Revenue Code to approximately $350,000 per year. These carryforwards begin to
expire in the year 2006.
The Company's provision for income taxes differs from the amounts determined by
applying the statutory federal income tax rate to income before income taxes as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Amount % Amount %
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Tax (benefit) at federal rate $(137,800) (35.0) $(302,070) (35.0)
Benefit of graduated rate 4,200 1.0 8,631 1.0
Goodwill amortization 18,600 4.7 18,637 2.2
Change in valuation allowance 94,402 24.0 260,545 30.1
Accrued officers compensation 35,000 8.9 -- --
Other, net (14,402) (3.6) 14,257 1.7
--------- ----- --------- -----
Total $ 0 0% $ 0 0%
========= ===== ========= =====
</TABLE>
The valuation allowance increased by $94,402 in the year ended March 31, 1996.
6. COMMITMENTS AND CONTINGENCIES
Leases
On June 13, 1995, the Company entered into a lease agreement for 3,020 square
feet of space for its administrative operation located at 727 Atlantic Avenue in
Boston, Massachusetts. The lease commenced in July, 1995 and expires July, 1998.
In addition, the lease has a two-year renewal period. Under the lease agreement,
the Company will be obligated to pay the lessor minimum annual rent equal to
$31,710 (payable in monthly installments of $2,642) for the first year, $34,730
(payable in monthly installments of $2,894) for the second year and $37,750
(payable in monthly installments of $3,146) for the third year.
-30-
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. COMMITMENTS AND CONTINGENCIES, CONTINUED
The Company also leases the premises in which its billiard clubs are operated.
The future minimum lease payments under the administrative and clubs operating
leases are as follows:
<TABLE>
<CAPTION>
Years ending Leases as of
March 31, March 31, 1996
------------ --------------
<S> <C> <C>
1997 $ 1,607,000
1998 1,553,000
1999 1,561,000
2000 1,213,000
2001 1,011,000
Thereafter 2,878,000
-----------
Total $ 9,823,000
===========
</TABLE>
Some of the billiard clubs lease agreements contain clauses that provide for
additional rental expense based on gross sales exceeding specified dollar
amounts. Such rental clauses differ by club. During the year ended March 31,
1996, none of the clubs were required to pay any material amounts of additional
rent. Additionally, the Company is using the straight line method for certain
lease payments under the lease agreements and, therefore, current expenses are
greater than the actual cash payments.
Litigation
On October 13, 1995, an action foreclosing a mechanics lien was filed against
the Company in a California Superior Court for Los Angeles County for
approximately $123,000, plus interest. The Company filed an answer and cross
complaint on January 3, 1996. While the Company is vigorously defending the
action and believes that it has meritorious defenses, no assurance can be given
of a favorable outcome.
Employment Agreement
On March 14, 1991, Steven L. Foster entered into an employment agreement with
the Company. The term of the employment agreement was for four years at an
annual salary of $50,000 plus annual incentive compensation and was extended to
September 14, 1995. There was no annual incentive compensation earned during the
term of the agreement. Mr. Foster has waived his annual salary from May 1, 1992
through September 14, 1995 in order to reduce the Company's general and
administrative expenses. For fiscal 1995 and 1996, the Company recognized an
expense of $50,000 and $23,000, respectively for the fair value of the service
rendered by Mr. Foster and a corresponding credit to paid-in capital.
-31-
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. STOCKHOLDERS' EQUITY
During fiscal 1993, the Company offered for sale its common stock through a
private placement. The Company sold 2,043,022 shares of its common stock for
approximately $874,000 net of offering expenses and sales commissions. In
accordance with the terms of the subscription agreement for the private
placement, the Company filed with the Securities and Exchange Commission a
registration statement with respect to the shares sold in the private placement.
The registration statement became effective February 5, 1993 and continues to be
effective.
On March 14, 1991 the Company issued 1,000,000 shares of common stock in
connection with the Jillian's, Inc. acquisition. Additionally, on such date, the
Company and Steven Foster, Steven Rubin, Kevin Troy and The Frank and Celia
Foster Family Trust (collectively, the "Foster Group") entered into a
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
the Foster Group has a one time demand registration right to require the Company
to register its stock for sale to the public and certain rights to participate
in registrations of securities by the Company, subject to certain restrictions.
The Registration Rights Agreement also contains an anti-dilution provision
providing that for a period of 18 months from March 14, 1991, the Company would
not engage in any offering and sale of any of its equity securities or
securities convertible into or exchangeable into equity securities without the
prior written consent of Steven Rubin acting as the representative of the Foster
Group. Steven Rubin was required to negotiate on behalf of the Foster Group in
good faith with the Company in an effort to achieve the Company's capital
requirements while minimizing the dilutive effect on the Foster Group of the
sale of any securities in any such offering. On April 28, 1993, the Company and
Steven Rubin negotiated a settlement with respect to the anti-dilution provision
for the River Club Limited Partnership transaction (see Note 9) and the 1993
private placement of common stock discussed above. The Company issued the Foster
Group an additional 650,000 shares of common stock pursuant to its anti-dilution
rights. The Company also granted the Foster Group a warrant, for the purchase of
100,000 shares of the Company's common stock at an exercise price of $1.50. The
warrant is exercisable for a three-year period commencing April 28, 1993.
-32-
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. STOCKHOLDERS' EQUITY, CONTINUED
At March 31, 1996, outstanding warrants and options to purchase shares of the
Company's common stock were as follows:
<TABLE>
<S> <C>
Warrants issued to investment banker (a) 125,000
Warrants issued in connection with the River Club
Limited Partnership transaction (See Note 9) 75,995
Warrants issued in connection with the Seattle club lease (b) 86,885
Warrants issued to public relations firm (c) 50,000
Warrants issued to former directors and officers (d) 262,500
Warrants issued in connection with the California clubs' acquisition (e) 10,000
Warrants issued to the Foster Group in connection with the anti-dilution
provision, discussed above 100,000
Warrants issued in connection with the Miami club lease (f) 65,000
Consolidated Stock Option Plan (g) 150,500
1994 Stock Option Plan (h) 124,000
1995 Stock Option Plan (i) 1,645,000
Warrants issued to the City of Long Beach (See Note 4) 225,000
---------
Total number of common shares issuable upon exercise of warrants
and stock options 2,919,880
=========
</TABLE>
(a) On December 31, 1988, the Company entered into a letter agreement with
an investment banking firm (the "Firm"), pursuant to which the Company
retained the Firm to assist the Company in its efforts to locate
suitable acquisition opportunities. The Firm failed to locate an
acquisition opportunity for the Company and the Company and the Firm
informally agreed on March 7, 1990 to terminate the agreement. The
Company and the Firm negotiated a settlement with respect to the
investment banking services rendered. Under the terms of the
settlement, the Firm was granted warrants to purchase 100,000 shares
and 25,000 shares of the Company's common stock exercisable for a five
year period commencing May 15, 1991 at an exercise price of $1.00 and
$2.00 per share, respectively.
(b) Under the terms of an amendment to the Seattle club lease, the lessor
and Jillian's - Seattle have agreed that the percentage rental payments
may be made one-third in cash and two-thirds by issuing the lessor
warrants to purchase shares of the Company's common stock in an amount
equal to one share for each dollar of percentage rent owing. The
warrants will be issued on the fifteenth day following the end of each
fiscal year and will be exercisable for a five-year period at an
exercise price equal to the average bid and asked prices of the common
stock for the ten-day period prior to issuance. The warrants issued
under this amendment are as follows:
-33-
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. STOCKHOLDERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
For Fiscal Warrants Exercise
Year Issued Price/Share
---------- -------- -----------
<S> <C> <C> <C>
1992 9,901 $0.97
1993 12,608 0.745
1994 15,637 0.70
1995 20,631 0.45
1996 28,108 0.27
------
86,885
======
</TABLE>
(c) On September 10, 1992, the Company issued to its public relations firm,
for services rendered, a warrant to purchase 50,000 shares of the
Company's common stock for a five-year period commencing at the time of
issuance at an exercise price of $0.50 per share.
(d) The Board of Directors has issued former directors and a former officer
of the company common stock purchase warrants exercisable for a
five-year period from the date of grant. The warrants have various
restrictions and registration rights. The warrants issued are as
follows:
<TABLE>
<CAPTION>
Date Warrants Exercise
Granted Issued Price/Share
------- -------- -----------
<S> <C> <C> <C>
3/23/93 40,000 $0.78
3/31/94 40,000 0.70
1/23/95 40,000 0.656
2/17/95 67,500 0.656
2/17/95 75,000 0.33
-------
262,500
=======
</TABLE>
(e) On August 19, 1993, the Company issued to an unaffiliated broker, for
services rendered in connection with the acquisition of the Pasadena
club and negotiating the City of Long Beach loan, a warrant to purchase
10,000 shares of the Company's common stock for a three-year period,
commencing on the date of issuance, at an exercise price of $1.00 per
share.
(f) On March 7, 1994, under the terms of an amendment to the Miami club
lease, the lessor and the Company have agreed to eliminate all basic
percentage rents due from inception of the lease through the
termination of the lease (including all renewal periods) and delay all
CPI increases until January 1, 1995. The basic percentage rent was 3%
of gross revenues up to $1,000,000 for years 1990 and 1991 of the lease
and 4% thereafter. In exchange for the amendment, the Company issued
the lessor
-34-
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. STOCKHOLDERS' EQUITY, CONTINUED
40,000 shares of its common stock and granted the lessor warrants to
purchase 65,000 shares of its common stock at $0.50 per share. The
warrants are exercisable for a five-year period.
(g) On June 28, 1994, the Board of Directors cancelled all options (786,000
shares of the Company's common stock in the aggregate) previously
granted to directors, advisors and key employees under all stock option
plans adopted prior to March 31, 1994. Such plans were replaced with
the Consolidated Stock Option Plan which provided that options to
purchase 786,000 shares of the Company's common stock could be awarded.
On the same date, the Stock Option Committee granted options to
purchase 786,000 shares of the Company's common stock. On December 20,
1994, the Company reduced the exercise price of 520,000 options held by
Mr. Foster and Mr. Troy to $0.25 per share and all such options were
exercised during the fourth quarter of fiscal 1995. As of March 31,
1996, 520,000 of these options were exercised, 150,500 of these options
remained outstanding and 115,500 of these options were surrendered by
the option holder and/or terminated by the Company. The outstanding
options are exercisable at $.656 per share to the extent vested which
is as follows: 1) 132,100 options were exercisable as of March 31,
1996, 2) 9,200 options vest during fiscal 1997 and 3) 9,200 options
vest during fiscal 1998. The outstanding options expire as follows: 1)
5,000 options in fiscal 1998, 2) 5,000 options in fiscal 1999, 3) 5,500
options in fiscal 2000, 4) 32,000 options in fiscal 2001, 5) 30,000
options in fiscal 2002 and 6) 73,000 options in fiscal 2004.
(h) On March 31, 1994, the Board of Directors adopted, subject to
shareholder approval, the 1994 Director, Adviser and Key Employee Stock
Option Plan (the "1994 Plan"). Under the 1994 Plan, options to purchase
804,000 shares of the Company's common stock could be awarded. On the
same date, the Stock Option Committee granted options to the Board of
Directors and to key employees which, in the aggregate, allowed for the
purchase of 774,000 shares of the Company's common stock. The options
were exercisable to the extent vested under the vesting schedule, which
is 100% vested on the date of grant for 660,000 of the options and 50%
on the date of grant and 50% one year thereafter for the remaining
114,000 options. The exercise price was $0.656 per share for 114,000
options and $0.33 for the remaining 660,000 options. On December 20,
1994, the Company reduced the exercise price of 585,000 options held by
Mr. Foster and Mr. Troy to $0.25 per share and all such options were
exercised during the fourth quarter of fiscal 1995. On March 31, 1995,
the Board of Directors granted 20,000 additional options with an
exercise price of $0.45 per share to the outside directors, exclusive
of Mr. Foster; these options were 50% vested upon grant and were fully
vested on March 31, 1996. As of March 31, 1996, 585,000 of
-35-
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. STOCKHOLDERS' EQUITY, CONTINUED
these options were exercised, 124,000 options remained outstanding and
85,000 options were surrendered by the option holder and terminated by
the Company. The outstanding options are currently fully vested, of
which 104,000 and 20,000 options are exercisable at $.656 and $.45,
respectively. The outstanding options expire as follows: 1) 104,000
options on March 31, 2004 and 2) 20,000 options on March 31, 2005.
(i) On October 2, 1995, the Board of Directors, adopted a new 1995
Director, Adviser and Key Employee Stock Option Plan (the "1995 Plan").
Under the 1995 Plan, options to purchase 1,650,000 shares of the
Company's common stock can be awarded. In October 1995, the Stock
Option Committee granted options to key employees which, in the
aggregate, allow for the purchase of 1,645,000 shares of the Company's
stock. As of March 31, 1996, 1,645,000 options remained outstanding.
The outstanding options are exercisable at $.40 per share to the extent
vested, which is as follows: 1) 380,000 options were exercisable as of
March 31, 1996, 2) 411,250 options will vest during fiscal 1997, 1998
and 1999 and 3) 31,250 options will vest during fiscal 2000. The
outstanding options expire in October 2005.
8. SETTLEMENT AGREEMENT
Precious Metals Operation
On April 30, 1992, the United States Attorney executed a Settlement Agreement
with the Company concerning certain litigation. The litigation related to the
Company's discontinued precious metals operations that were sold in March 1989
to Advent Technology, Inc. ("Advent") prior to the Company's involvement in the
Jillian's billiard club business.
Under the Settlement Agreement, the Company specifically denied any wrongdoing
but agreed, because the Company may have unknowingly received property subject
to forfeiture, and therefore, desired to prevent the expenditure of monies in
defense of any such claim, that a newly-incorporated subsidiary would deliver to
the government 100,000 shares of the common stock of the Company owned by the
subsidiary and a secured promissory note in the amount of $250,000 payable over
eight years commencing April 30, 1993. The promissory note is secured by the
Company's obligation to issue 200,000 shares of the Company's common stock in
the event of default.
On March 31, 1994, the Company amended the promissory note to provide that the
Company would, starting April 30, 1994, make six monthly payments of $1,000,
followed by six monthly payments of $1,500, followed by twelve monthly payments
of $2,500, followed by twenty-four monthly payments of $3,000, and one final
payment of $127,792 on April 30, 1998.
-36-
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. THE RIVER CLUB LIMITED PARTNERSHIP PRIVATE PLACEMENT
On February 4, 1992 (the "closing date"), the Company entered into an agreement
(the "Agreement") and two $100,000 promissory notes with the River Club Limited
Partnership ("River Club"). Pursuant to the Agreement, River Club delivered to
the Company $325,000 in exchange for 311,377 shares of the Company's common
stock. The offering of the common stock issued to River Club was registered
pursuant to a registration statement which became effective April 14, 1993.
Additionally, under the Agreement the Company has granted River Club 75,995
common stock purchase warrants (which includes warrants issued pursuant to an
anti-dilution provision) exercisable for five years from the closing date at
$1.50 per share. The promissory notes were four-year convertible notes accruing
interest at a rate of 12.5% per annum.
On January 1, 1993 and October 1, 1994 the River Club converted each of the
promissory notes for a 10% interest in each of the limited partnerships which
own the Cleveland Heights club and the Champaign club, respectively. After River
Club holds the limited partnerships' equity for a four year period, it can
exchange its equity interest in the limited partnership for the Company's common
stock. The number of shares issuable by the Company in the exchange will equal
River Club's percentage of the limited partnerships' cash flow times five
divided by the average bid and asked prices of the Company stock for the last
ten trading days before the exchange.
10. ACQUISITION OF PASADENA CLUB
On August 19, 1993, the Company, through Jillian's Billiard Club of Pasadena,
Inc., a wholly-owned California corporation ("Jillian's-Pasadena"), entered into
a series of related agreements with an unrelated third-party to acquire all the
assets of an existing billiard club/diner located in the downtown business
district of Pasadena, California. The Pasadena club contains approximately 7,200
square feet of space on two floors. The ground floor is approximately 1,400
square feet, which is operated as a diner with additional outside seating. The
downstairs space is approximately 5,800 square feet and is operated as a
billiard club with 16 Brunswick billiard tables. The Pasadena club also has a
bar and food service. The assets acquired were (a) all assets located at the
billiard club/diner, which includes all leasehold improvements, furniture,
fixtures, bar and kitchen equipment, billiard tables and related items, (b) all
of the seller's rights, title and interest as lessee under the leases of the
premises, and (c) all alcoholic beverage licenses and other licenses and permits
necessary or useful for the operation of the billiard club/diner.
Jillian's-Pasadena paid $150,000 in cash and delivered a $275,000 note payable
for the assets. The note bears interest at the rate of 8% per annum.
Jillian's-Pasadena will pay interest monthly with all principal and any unpaid
interest due three years from the closing date. (See Note 4). The obligations of
Jillian's-Pasadena under the note are guaranteed by the Company.
-37-
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. MINORITY INTERESTS
In order to partially finance the costs of renovating and equipping the
Jillian's billiard clubs located in Cleveland Heights, Worcester, Champaign and
Annapolis, the Company sold limited partnership interests in limited
partnerships that own those clubs. The Company sold 13%, 75%, 57% and 21% of the
partnership interests in the partnerships that own the billiard clubs in
Cleveland Heights, Worcester, Champaign and Annapolis, respectively.
Wholly-owned subsidiaries of the Company own the remaining interests. Each of
the limited partnership agreements for the partnerships allows the limited
partners, after a certain date (the "Put Date"), to require the Company to
repurchase their limited partnership interests.
The purchase price is a multiple (ranging from four to five) times the limited
partner's allocable share of the limited partnership's net income for the twelve
month period preceding the Put Date. The limited partners will receive part of
their purchase price in the form of the Company's common stock and the balance
in cash. The limited partners also will have the right for a certain period of
time after receipt of the common stock to require that the Company register its
shares of common stock for sale to the public. The Company receives a fee from
each limited partnership for managing the related club and the partnership,
ranging from 5% to 6.5% of the gross revenues of the club.
JILLIAN'S BILLIARD CLUB OF CLEVELAND HEIGHTS, LTD.
The Cleveland Heights, Ohio club is owned by Jillian's Billiard Club of
Cleveland Heights Limited Partnership, an Ohio limited partnership, in which a
wholly-owned subsidiary of Jillian's, Inc. (Jillian's Billiard Club of Cleveland
Heights, Inc., a Delaware corporation) is the general partner and owns an 87%
interest. The remaining 13% of the limited partnership interest was sold for
$122,500.
A 3% limited partner will have the option to sell its three units to the
Company, the parent corporation of the general partner, during the sixty day
period after the transmittal to limited partners of the financial statements for
the partnership for the twelve months ending December 31, 1995. The Company has
agreed to purchase such units at a price equal to the greater of (a) the price
paid by a limited partner for units, ($22,500) or (b) 500% of the "Adjusted Net
Income" of the partnership for the twelve months ending December 31, 1995,
multiplied by a fraction representing the percentage interest in partnership
profits and losses of the units to be sold by the partner to the Company.
Adjusted Net Income is the net income of the Partnership determined in
accordance with general accounting principles, plus any depreciation taken by
the partnership in determining net income.
A 10% limited partner will have the option to sell its interest to the Company
any time after January 1, 1997. The Company has agreed to purchase the 10%
interest at a price equal to
-38-
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. MINORITY INTERESTS, CONTINUED
500% of the annualized cash flow of Jillian's Billiard Club of Cleveland
Heights, Ltd, times 10%. The full purchase price is to be paid in common stock
of the Company and such common stock will be valued based on the average of the
bid and asked prices, for the ten trading days immediately prior to the limited
partner exercising its option to sell its interest.
The Company's ability to fulfill its obligations and the future value of the
Company's common stock is dependent on the success of the Company's business.
There is no assurance that the Company will be able to fulfill its obligations
to the partnership or to the limited partners, including its obligations under
its guarantee to the limited partners, and there can be no assurance that the
Company's common stock will have value in the event the limited partners
exercise their options to sell their units to the Company in exchange for the
Company's common stock.
JILLIAN'S BILLIARD CLUB OF WORCESTER, LTD.
The Worcester, Massachusetts club is owned by Jillian's Billiard Club of
Worcester Limited Partnership, a Massachusetts limited partnership, in which a
wholly-owned subsidiary of Jillian's, Inc. (Jillian's Billiard Club of
Worcester, Inc., a Massachusetts corporation) is the general partner and owns a
25% interest. The remaining 75% of the limited partnership interest was sold for
$850,000.
The limited partners will have the option to sell their units to the Company
during the sixty day period after the transmittal to limited partners of the
financial statements of the partnership for the twelve months ending December
31, 1998. If a limited partner exercises its option, the purchase price for the
units will be paid partly in cash (50% of the purchase price) and partly in
common stock of the Company (50% of the purchase price), with the stock to be
valued at 80% of its market price. Assuming all limited partners elect to sell
their units, the purchase price is five times 75% of the net profits of the
partnership for the twelve months ending December 31, 1998, determined in
accordance with generally accepted accounting principles, with a maximum
purchase price equal to 200% of the price paid by the limited partners for their
units. The Company has agreed to provide a right to the limited partners, for a
limited time, to register the Company's common stock for sale to the public. The
Company has guaranteed that owners of the units will receive distributions from
the partnership equal to 8% per annum of their investment in the partnership
from the close of escrow in connection with the sale of units until the sooner
of the opening of the partnership's club or November 30, 1993, and 15% per annum
of their investment in the partnership thereafter.
-39-
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. MINORITY INTERESTS, CONTINUED
The Company's ability to fulfill its obligations and the future value of the
Company's common stock is dependent on the success of the Company's business.
There is no assurance that the Company will be able to fulfill its obligations
to the partnership or to the limited partners, including its obligations under
its guarantee to the limited partners, and there can be no assurance that the
Company's common stock will have value in the event the limited partners
exercise their option to sell their units to the Company in exchange for the
Company's common stock.
JILLIAN'S BILLIARD CLUB OF CHAMPAIGN-URBANA, LTD.
The Champaign-Urbana, Illinois club is owned by Jillian's Billiard Club of
Champaign-Urbana Limited Partnership, an Illinois limited partnership, in which
a wholly-owned subsidiary of Jillian's, Inc. (Jillian's Billiard Club of
Champaign-Urbana, Inc., an Illinois corporation) is the general partner and owns
a 43% interest. The remaining 57% of the limited partnership interest was sold
for $325,000.
Limited partners, owning a 47% interest in the partnership, will have the
option to sell their units to the Company, the parent corporation of the
general partner, during the sixty day period after the transmittal to limited
partners of the financial statements for the partnership for the twelve months
ending December 31, 1996. If a limited partner exercises its option, the
purchase price for the units will be partly in cash (15% of the purchase
price) and partly in common stock of the Company (85% of the purchase price).
Assuming all limited partners elect to sell their units, the purchase price
would be five times 50% of the net income of the partnership multiplied by
their respective limited partnership interest, for the twelve months ending
December 31, 1996, determined in accordance with general accounting principles.
The Company has agreed to provide a right to the limited partners for a limited
time to register the Company's stock for sale to the public.
A 10% limited partner will have the option to sell its interest to the Company,
the parent of the general partner, anytime after October 1, 1998. The Company
has agreed to purchase the 10% interest at a price equal to 500% of the
annualized cash flow of Jillian's Billiard Club of Champaign-Urbana, Ltd. times
10%. The full purchase price is to be paid in common stock of the Company and
such common stock will be valued based on the average bid and asked prices for
the ten trading days immediately prior to the limited partner exercising its
option to sell its interest. The limited partner does not have a demand
registration right.
If the limited partners do not exercise their right to sell, the Company has
guaranteed that owners of the units will receive distributions from the
partnership
-40-
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. MINORITY INTERESTS, CONTINUED
equal to 140% of their investment over a six year period. The guarantee period
will commence at the beginning of the first calendar quarter after the closing
of the sale of units.
The Company's ability to fulfill its obligations and the future value of the
Company's common stock is dependent on the success of the Company's business.
There is no assurance that the Company will be able to fulfill its obligations
to the partnership or to the limited partners, including its obligations under
its guarantee to the limited partners, and there can be no assurance that the
Company's common stock will have value in the event the limited partners
exercise their option to sell their units to the Company in exchange for the
Company's common stock.
JILLIAN'S BILLIARD CLUB OF ANNAPOLIS, LTD.
The Annapolis, Maryland club is owned by Jillian's Billiard Club of Annapolis
Limited Partnership, a Maryland limited partnership, in which a wholly-owned
subsidiary of Jillian's, Inc. (Jillian's Billiard Club of Annapolis, Inc., a
Maryland corporation) is the general partner and owns a 79% interest. The
remaining 21% of the limited partnership interest was sold for $133,084. The
limited partners will have the option to sell their units to the Company, the
parent corporation of the general partner, during the sixty day period after the
transmittal to limited partners of the financial statements for the partnership
for the twelve months ending December 31, 1997. If a limited partner exercises
its option, the purchase price for the units will be partly in cash (15% of the
purchase price) and partly in common stock of the Company (85% of the purchase
price). Assuming all limited partners elect to sell their units, the purchase
price would be four times 50% of the net income of the partnership multiplied
by their respective limited partnership interest, for the twelve months ending
December 31, 1997, determined in accordance with generally accepted accounting
principles, with the maximum price being an amount equal to 100% of the
investment of the limited partners in this offering. The Company has agreed to
provide a right to the limited partners, for a limited time, to register the
Company's common stock for sale to the public.
If the limited partners do not exercise their right to sell, the Company has
guaranteed that owners of the units will receive distributions from the
partnership equal to 140% of their investment over a six year period. The
guarantee period will commence at the beginning of the first calendar quarter
after the closing of the sale of units.
The Company's ability to fulfill its obligations and the future value of the
Company's common stock is dependent on the success of the Company's business.
There is no assurance that the Company will be able to fulfill its obligations
to the partnership or to the
-41-
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. MINORITY INTERESTS, CONTINUED
limited partners, including its obligations under its guarantee to the limited
partners, and there can be no assurance that the Company's common stock will
have value in the event the limited partners exercise their options to sell
their units to the Company in exchange for the Company's common stock.
The following is a summary of the limited partnerships terms:
<TABLE>
<CAPTION>
Minimum Percent of
Original Annual Purchase Purchase Price
Investment by Return Put Price Payable in Cash/
Limited Partners Guaranteed Date Multiple Common Stock
---------------- ---------- ---- -------- ------------
<S> <C> <C> <C> <C> <C>
Cleveland Heights $ 22,500 0 12/31/95 5(a) 100%/0%
Cleveland Heights 100,000 0 1/01/97 5 0%/100%
Worcester 850,000 15%(b) 12/31/98 5 50%/50%
Champaign 325,000 23.33%(c) 12/31/96 5 15%/85%
Champaign 100,000 0 10/01/98 5 0%/100%
Annapolis 133,084 23.33%(c) 12/31/97 4 15%/85%
</TABLE>
- ----------------
(a) Minimum return of original investment.
(b) Minimum annual return guaranteed until put date.
(c) Minimum annual return guaranteed over a six-year period, assuming
partners do not exercise their right to sell.
The minority interest at March 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Cleveland Heights Limited Partnership $ 113,532
Worcester Limited Partnership 632,930
Champaign Limited Partnership 446,974
Annapolis Limited Partnership 202,528
----------
Total $1,395,964
==========
</TABLE>
-42-
<PAGE> 43
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On March 28, 1996, the Registrant filed Form 8-K to report the resignation of
Deloitte & Touche LLP, the Registrant's principal accountant, effective March
21, 1996.
On June 14, 1996, the Registrant filed Form 8-K to report the engagement of BDO
Seidman, LLP as the Registrant's principal accountant, effective June 11, 1996.
-43-
<PAGE> 44
PART III
Item 9. Directors and Executive Officers; Compliance with Section 16(a) of
the Exchange Act
(a) Directors and Executive Officers
<TABLE>
<CAPTION>
Position
Name and Address Age Position Held Since
- ---------------- --- -------- ----------
<S> <C> <C>
Steven L. Foster 47 Chairman of the Board, 1991
508 North 2nd Street Chief Executive Officer
Suite 200 and Director of the
Fairfield, IA 52556 Registrant
Daniel M. Smith 34 President, Chief 1995
727 Atlantic Avenue Operating Officer
Suite 600 and Director of the
Boston, MA 02116 Registrant
Richard F. Landry 39 Vice President of 1995
2 Spring Street Finance, Treasurer,
Duxbury, MA 02332 Secretary and Principal
Accounting Officer of the
Registrant
John L. Kidde 62 Director 1988
209 Cooper Avenue
Suite 9B
Upper Montclair, NJ 07043
Don R. Leopold 46 Director 1991
15 Fern Street
Lexington, MA 02173
</TABLE>
The Registrant's executive officers and directors serve for a period of
one year from their date of election and until their successors are elected and
qualified. Richard F. Landry, who served as Vice President of Finance and
Controller of the Registrant since January 16, 1995, has resigned those
positions effective close of business on July 2, 1996.
Steven L. Foster has been President and Chief Executive Officer of the
Registrant since March 14, 1991. Mr. Foster resigned from the office of
President on January 23, 1995 when Mr. Daniel M. Smith was hired. Mr. Foster was
elected to the Board of Directors on April 30, 1991 and became Chairman of the
Board on March 31, 1994. He is the principal founder and co-creator of the
Jillian's billiard club concept. Mr. Foster is a co-owner of a Jillian's
billiard club in Boston, Massachusetts. The Registrant has no ownership interest
-44-
<PAGE> 45
Directors and Executive Officers; Compliance with Section 16(a) of the Exchange
Act, Continued
in the Boston club. Mr. Foster has been actively involved in creating and
operating entertainment clubs since 1979. In addition, Mr. Foster is co-founder
of United Fuels International, Inc. and its affiliates, an international energy
brokerage firm. Mr. Foster is an attorney, having graduated from Boston
University School of Law in 1978, magna cum laude. The Registrant has obtained a
key-man term insurance policy on the life of Mr. Foster in the amount of
$1,000,000.
Daniel M. Smith has been President and Chief Operating Officer and a
Director of Jillian's since January 1995. Mr. Smith was a Senior Director at
K.F.C. (Kentucky Fried Chicken) from 1990-1994 and a Vice President of K.F.C.
from 1994 to 1995. Prior to that, Mr. Smith held multiple positions in Domino's
Pizza from 1986 to 1990 culminating in the position of Vice President-European
Operations. Mr. Smith received a Masters in Business Administration from
Northwestern University.
Richard F. Landry was appointed as Controller of the Registrant,
effective January 16, 1995 and subsequently promoted to Vice President of
Finance. Mr. Landry was employed by Dunkin' Donuts from 1985 to 1994 and served
as Controller of Development and Operations from 1990 to 1994, Regional
Controller of Development and Operations from 1989 to 1990 and Corporate
Accounting Manager from 1985 to 1989. Mr. Landry graduated from Bentley College
with a B.S. in Accounting. Mr. Landry also is a Certified Public Accountant.
John L. Kidde has served as a member of the Registrant's Board of
Directors since 1988. Mr. Kidde is currently the President of KDM Development
Corporation, an investment management firm. From June 1968 through January 1988,
Mr. Kidde was Vice President and Director of International Operations of Kidde,
Inc., a multi-industrial conglomerate. Mr. Kidde is a member of the boards of
directors of The Futures Group of Washington, D.C.; Asset Management Advisors,
Inc., Palm Beach, Florida; International Resources Group, Washington, D.C.;
Australasia Inc., Cayman Islands; International Agritech Resources, New York;
Juniper Partners, Inc., New York; and HFG Expansion Management Inc.,
Massachusetts. From 1985 to 1989, Mr. Kidde served as a member of the
Registrant's Board of Advisers. He currently serves as a trustee of Stevens
Institute of Technology, Hoboken, New Jersey; Open Space Institute, New York;
and the Montclair Kimberly Academy, Montclair, New Jersey. He is a general
partner of Claflin Capital Management I-V and The Opportunity Fund, both of
Boston, Massachusetts, and North American Venture Capital II, L.P. of Madison,
New Jersey.
Don R. Leopold was elected to the Board of Directors on April 30, 1991.
For the past five years Mr. Leopold has been President of Game Plan, Inc., a
Boston-area based marketing and strategic planning consulting firm. Game Plan
provides marketing research, marketing planning and strategic planning
consulting services to clients in the sports, recreation, leisure and consumer
goods industries. Mr. Leopold is also on the faculty of the Harvard University
Extension School, where he teaches graduate level courses on Marketing of
Services and Management of Service Operations. Mr. Leopold earned a B.A. from
Harvard College, cum laude in general studies, and an M.B.A. from Harvard
Business School.
-45-
<PAGE> 46
Item 9. Directors and Executive Officers: Compliance with Section 16(a) of
the Exchange Act, Continued
(b) Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Section 16(a) reports furnished to the
Registrant for the fiscal year ended March 31, 1996, all Section 16(a) reporting
requirements were met.
Item 10. Executive Compensation
(a) Summary Compensation Table
The following table sets forth the cash and non-cash compensation for
each of the last three fiscal years earned by or awarded to the Chief Executive
Officer ("CEO") and the Chief Operating Officer ("COO") of the Registrant, as
applicable. None of the other executive officers of the Registrant earned more
than $100,000 in salary and bonus for these fiscal years.
<TABLE>
<CAPTION>
Name and Annual Compensation
-------------------
Principal Position Year Salary
- ------------------ ---- ------
<S> <C> <C>
Steven L. Foster, 1996 $123,000
========
Chairman of the Board 1995 $ 50,000
========
and CEO* 1994 $ --
========
Daniel M. Smith, COO 1996 $148,333
========
</TABLE>
* Mr. Foster was appointed CEO of the Registrant on March 14, 1991 and Chairman
of the Board on March 31, 1994. Mr. Foster was President of the Registrant from
March 14, 1991 through January 21, 1995.
(b) Option Grants, Option Exercises and Fiscal Year-End Values
As of March 31, 1994, Mr. Foster held two options to purchase 400,000
and 450,000 shares of the Registrant's common stock at exercise prices of $.656
and $.33 per share, respectively. On December 20, 1994, the Registrant reduced
the exercise price to $.25 per share and decreased the exercise period of these
options to March 31, 1995. Mr. Foster exercised all of these options during the
fourth quarter of fiscal 1995. In October 1995, Mr. Foster and Mr. Smith were
granted 750,000 and 460,000 options, respectively, at an exercise price of $.40.
The options vest 25% each year, beginning January 1, 1996 and expire October
2005.
(c) Aggregate Option Exercises and Fiscal Year-End Option Values
The following table sets forth certain information with respect to
options exercised by the CEO and the COO during the fiscal year ended March 31,
1996 and unexercised warrants to purchase shares of the Registrant's common
stock held by the CEO and the COO at March 31, 1996. All of such unexercised
warrants are exercisable.
-46-
<PAGE> 47
Item 10. Executive Compensation, Continued
<TABLE>
<CAPTION>
Number of Value of
Shares Unexercised Unexercised
Acquired Value Realized Warrants and Warrants and
Name on Exercise ($) Options Options
- ---- ----------- -------------- ------- -------
<S> <C> <C> <C> <C>
Steven L. Foster - $ - 790,000 $ -0-
Daniel M. Smith - - 460,000 -0-
</TABLE>
(d) Employment Agreements
On March 14, 1991, Steven L. Foster entered into an employment
agreement (the "Foster Employment Agreement") with the Registrant. The term of
the Foster Employment Agreement is for four years at an annual salary of $50,000
plus a percentage of his annual salary equal to the increase in the CPI. On
December 20, 1994, the Registrant and Mr. Foster agreed to extend the Foster
Employment Agreement to September 14, 1995.
In addition to the salary, Mr. Foster is entitled to annual incentive
compensation based upon consolidated earnings before taxes of all of the clubs
operated by the Registrant and its subsidiaries for each fiscal year beginning
on or after April 1, 1991, and ending during the employment period.
Under a retructuring plan, Mr. Foster waived his annual salary and
annual incentive compensation from May 1, 1992 through April 30, 1993 in order
to reduce the Registrant's corporate general and administrative expenses. On
March 31, 1994, Mr. Foster agreed to cancel all annual salary and annual
incentive compensation due under the Foster Employment Agreement.
The Foster Employment Agreement provides that Mr. Foster shall devote
such time to the Registrant as he deems is reasonably required to perform his
duties in a manner consistent with his past activities on behalf of the
Jillian's clubs and with his other nonJillian's business responsibilities and
that he is not prohibited from engaging in business in which the Registrant is
not actively involved, which is defined in the Foster Employment Agreement to
include the restaurant/bar and night club businesses. Mr. Foster is co-owner of
a Jillian's club in Boston, Massachusetts, in which the Registrant has no
ownership interest.
The Registrant has the right to terminate the Foster Employment
Agreement for cause. In the event Mr. Foster's employment is terminated "without
cause," or Mr. Foster's employment is terminated "for cause" and such
termination is found by a court of competent jurisdiction to have been improper
under the terms and conditions of the Foster Employment Agreement, then
notwithstanding any provision therein to the contrary, (1) Mr. Foster shall
receive all then unpaid compensation to which he is entitled thereunder, as and
when such compensation is otherwise payable thereunder, for the full employment
period (as defined in the Foster Employment Agreement) as if Mr. Foster had been
employed by
-47-
<PAGE> 48
Item 10. Executive Compensation, Continued
the Registrant until such date, all of which shall be deemed to be liquidated
damages, without having to fulfill his obligations or perform his duties
thereunder, (2) Mr. Foster shall be released from any and all restrictive
provisions contained therein or in the NonCompetition Agreement to which Mr.
Foster is subject or any other non-compete or confidentiality agreements between
Mr. Foster and the Registrant, during both the employment period and any periods
thereafter, and (3) any options of Mr. Foster to purchase stock of the
Registrant shall become immediately vested.
In the event (i) a third party assumes control of the Registrant, (ii)
such change in control has not been unanimously approved or recommended by the
Registrant's Board of Directors, and (iii) Mr. Foster shall within three months
from the date of such assumption, terminate his employment with the Registrant
because, in his sole discretion, he believes such assumption of control to be
detrimental to his ability to effectively render services to the Registrant, Mr.
Foster may thereupon terminate the Foster Employment Agreement and shall
immediately receive all compensation which Mr. Foster would have been paid from
the effective date of such termination through the unexpired term of the Foster
Employment Agreement, without Mr. Foster having to fulfill his obligations or
perform his duties thereunder. The Foster Employment Agreement provides that in
such event he shall be released from any and all restrictive provisions
contained therein during the employment period and any periods thereafter, and
all the options of Mr. Foster to purchase shares of stock of the Registrant
shall become immediately vested.
The Foster Employment Agreement shall also be deemed to be terminated
on the death of Mr. Foster or upon the total or partial disability of Mr. Foster
which renders him unable to perform his duties. In the event that the employment
shall be terminated by reason of such death or disability, Mr. Foster (or his
estate, as the case may be) shall be entitled to receive all compensation which
Mr. Foster would have been paid through the end of the full employment period,
as and when such compensation is otherwise payable hereunder, as if Mr. Foster
had been employed by the Registrant until such date, and all the options of Mr.
Foster to purchase shares of stock of the Registrant shall become immediately
vested.
(e) Director Compensation
Each director, adviser or member of a committee of the Registrant's Board
of Directors, exclusive of officers, receives the following amounts in
compensation for their respective services to the Registrant: (i) $150 per
month; (ii) $500 per meeting of the Board for each meeting in which such
director or adviser participated; (iii) $200 per committee meeting for each
committee meeting in which such committee member participated if the committee
meeting is held on the same day as a meeting of the Board, or $400 per committee
meeting if such meeting is held on a date other than a date of a meeting of the
Board. In addition, such persons are reimbursed for reasonable expenses incurred
in attending such meetings or otherwise performing their duties. Under the
Restructuring Plan, each of the members of the Board of Directors agreed to
waive any directors' compensation to which he may be entitled from May 1, 1992
to date in order to reduce the Registrant's corporate general and administrative
expenses.
-48-
<PAGE> 49
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the ownership of the Registrant's and its
subsidiaries' common stock at June 18, 1996, by each person who is known to the
Registrant to be the beneficial owner of more than 5% of the Registrant's common
stock and the beneficial ownership by each officer and director and by all
officers and directors as a group of the common stock of the Registrant:
<TABLE>
<CAPTION>
Name, Position & Business Address Number of Shares Percent of Outstanding Shares
- --------------------------------- ---------------- -----------------------------
<S> <C> <C>
Steven L. Foster, Chief Executive 1,551,100 (1) 14.5%
Officer, Chairman of the Board
and a Director of the Registrant
508 North 2nd Street Suite 200
Fairfield, IA 52556
Daniel M. Smith, President, Chief 115,000 (2) 1.1%
Operating Officer and a Director
of the Registrant
727 Atlantic Avenue, Suite 600
Boston, MA 02111
Richard F. Landry, Vice President 15,000 (3) (7)
of Finance, Treasurer, Secretary
and Principal Accounting Officer
of the Registrant
727 Atlantic Avenue, Suite 600
Boston, MA 02111
Stephen M. Weis, Vice President of 0 (4) 0.0%
Operations of the Registrant
727 Atlantic Avenue, Suite 600
Boston, MA 02111
Ronald Widman, Vice President of 0 (5) 0.0%
Development of the Registrant
727 Atlantic Avenue, Suite 600
Boston, MA 02111
John L. Kidde, Director of the 67,250 (6) (7)
Registrant
727 Atlantic Avenue, Suite 600
Boston, MA 02111
Donald R. Leopold, Director of the 50,000 (8) (7)
Registrant
727 Atlantic Avenue, Suite 600
Boston, MA 02111
</TABLE>
-49-
<PAGE> 50
Item 11. Security Ownership of Certain Beneficial Owners and Management,
Continued
<TABLE>
<CAPTION>
Name, Position & Business Address Number of Shares Percent of Outstanding Shares
- --------------------------------- ---------------- -----------------------------
<S> <C> <C>
Kevin Troy 634,167 (9) 5.9%
145 Ipswich Street
Boston, MA 02115
Steven Rubin 1,280,765 (10) 12.0%
508 North Second Street
Fairfield, IA 52556
All executive officers and 1,798,350 (11) 16.8%
directors as a group (five
persons)
</TABLE>
(1) Consists of (i) 300,000 shares owned by a trust, (ii) 1,020,000 shares held
by Mr. Foster, of which Mr. Steven Rubin, a personal friend and business
associate of Mr. Foster, beneficially owns 10,000 shares, (iii) 187,500 shares
issuable pursuant to options held by Mr. Foster, (iv) 40,000 shares issuable
pursuant to a warrant held by Mr. Foster, (v) 5,000 shares held by Mr. Foster's
spouse and (vi) 8,600 shares, of which 4,300 shares are held by each of Mr.
Foster's sons. Mr. Foster disclaims any beneficial ownership of the 10,000
shares owned by Mr. Rubin, the 5,000 shares owned by his spouse and the 8,600
shares owned by his children. Excludes 562,500 shares issuable pursuant to
options held by Mr. Foster.
(2) All shares issuable pursuant to options held by Mr. Smith. Excludes 345,000
shares issuable pursuant to options held by Mr. Smith.
(3) All shares issuable pursuant to options held by Mr. Landry. Excludes 45,000
shares issuable pursuant to options held by Mr. Landry.
(4) Excludes 60,000 shares issuable pursuant to options held by Mr. Weis.
(5) Excludes 60,000 shares issuable pursuant to options held by Mr. Widman.
(6) Consists of (i) 1,000 shares owned by Mr. Kidde's son, (ii) 17,250 shares
held by Mr. Kidde and (iii) 50,000 shares issuable pursuant to options held by
Mr. Kidde. Mr. Kidde disclaims any beneficial ownership of the 1,000 shares
owned by his son.
(7) Less than one percent.
(8) All shares issuable pursuant to options held by Mr. Leopold.
(9) Consists of (i) 551,667 shares, (ii) 62,500 shares issuable pursuant to
options held by Mr. Troy and 20,000 shares issuable pursuant to a warrant held
by Mr. Troy. Excludes 187,500 shares issuable pursuant to options held by Mr.
Troy.
-50-
<PAGE> 51
Item 11. Security Ownership of Certain Beneficial Owners and Management,
Continued
(10) Consists of (i) 10,000 shares purchased by Mr. Foster in Mr. Foster's name
and beneficially owned by Mr. Rubin, (ii) 1,230,765 shares held by Mr. Rubin and
(iii) 40,000 shares issuable pursuant to warrants held by Mr. Rubin.
(11) Includes 40,000, 20,000 and 40,000 shares issuable pursuant to warrants
held by Mr. Foster, Mr. Troy and Mr. Rubin, respectively, but excludes 562,000,
345,000, 45,000, 60,000, 60,000 and 187,500 shares issuable pursuant to options
held by Mr. Foster, Mr. Smith, Mr. Landry, Mr. Weis, Mr. Widman and Mr. Troy,
respectively.
(12) Calculated based on 10,717,070 shares, which reflects shares issued and
outstanding at June 18, 1996 of 9,137,798 and 1,579,272 shares issuable pursuant
to warrants and options as described in Note 7 in the consolidated financial
statements and Item 7, herein.
Item 12. Certain Relationships and Related Transactions
See Notes 6 and 7 to the Consolidated Financial Statements in Item 7,
herein, with respect to certain relationships and transactions between
management and others and the Registrant.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
3(a) Articles of Incorporation, as amended. Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K for the year ended
March 31, 1990 ("1990 Form 10-K") is hereby incorporated by
reference.
3(b) By-Laws, Exhibit 3(b) to the Registrant's Registration
Statement on Form S-18, File No. 2-93949-A (the "1985
Registration Statement") is hereby incorporated by reference.
4(a) Stock Option Agreement, dated March 1, 1992, issued to Steven
Foster. Exhibit 4(c) to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1991 ("1991 Form
10-K") is hereby incorporated by reference.
4(b) Warrant Agreements dated April 28, 1993, by and between the
Registrant and the Foster Group. Exhibit 4(i) to the
Registrant's Annual Report on Form 10-K for fiscal year ended
March 31, 1995 ("1994 Form 10-K) is hereby incorporated by
reference.
10(a) Employment Agreement, dated March 14, 1991 by and between the
Registrant and Steven Foster. Exhibit 1 to the Form 8-K dated
March 14, 1991, is hereby incorporated by reference.
10(b) Amendment No. 1 to Employment Agreement dated April 1, 1994 by
and between the Registrant and Mr. Foster. Exhibit 10(b) to
the 1994 Form 10-K is hereby incorporated by reference.
-51-
<PAGE> 52
Item 13. Exhibits and Reports on Form 8-K, Continued
10(c) Stock Exchange Agreement, dated April 11, 1990, among the
Registrant, Jillian's, Inc., Steven L. Foster, Steven Rubin,
and Kevin Troy. Exhibit 10(a) to the Form 8-K dated June 29,
1990, is hereby incorporated by reference.
10(d) Agreement and Plan of Merger, dated March 14, 1991, including
Exhibits thereto by and between the Registrant and Jillian's
Entertainment Corporation. Exhibit 1 to the Form 8-K dated
March 14, 1991, is hereby incorporated by reference.
10(e) Agreement, dated February 4, 1992, by and between the
Registrant and The River Club Limited Partnership. Exhibit (a)
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1991 is hereby incorporated by
reference.
10(f) Asset Purchase Agreement, dated August 18, 1993, among
Jillian's Billiard Club of Pasadena, Inc., Jake's Corporation,
Jake's Billiards, Inc. and Salvatore and Joan Cosola. Exhibit
10(a) to the Form 8-K dated August 18, 1993, is hereby
incorporated by reference.
10(g) Director, Adviser and Key Employee Stock Option Plan dated
March 31, 1994 (the "1994 Plan"). Exhibit 10(l) to the 1994
Form 10-K is hereby incorporated by reference.
10(h) Separation Agreement, dated March 31, 1994, by and between the
Registrant and Howard M. Glicken. Exhibit 1 to the Form 8-K
dated March 31, 1994, is hereby incorporated by reference.
10(i) Consolidated Stock Option Plan, dated June 28, 1994. Exhibit
10(j) to the 1994 Form 10-K is hereby incorporated by
reference.
11 Statement of computation of earnings per share. Filed
herewith.
21 Subsidiaries of the Registrant. Filed herewith.
(b) Reports on Form 8-K
On March 28, 1996, the Registrant filed a Form 8-K dated March
21, 1996, reporting under Item 4, Changes in Registrant's Certifying
Accountant that Deloitte and Touche resigned as the Registrant's
principal accountant.
On June 11, 1996, the Registrant filed a Form 8-K dated June
11, 1996, reporting under Item 4, Changes in Registrant's Certifying
Accountant, that the Registrant has engaged BDO Seidman LLP as the
Registrant's principal accountant.
-52-
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JILLIAN'S ENTERTAINMENT CORPORATION
(Registrant)
By: /S/ Steven Foster By: /S/ Richard F. Landry
---------------------------- ------------------------------------
Steven Foster, Richard F. Landry,
Chairman of the Board and Vice President, Treasurer, Secretary
Chief Executive Officer and Principal Accounting Officer
Date: July 2, 1996 Date: July 2, 1996
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated:
By: /S/ Steven Foster By: /S/ John Kidde
---------------------------- ------------------------------------
Steven Foster, Director John Kidde, Director
Date: July 2, 1996 Date: July 2, 1996
By: /S/ Don Leopold By: /S/ Daniel M. Smith
---------------------------- ------------------------------------
Don Leopold, Director Daniel M. Smith, President, Chief
Operating Officer and Director
Date: July 2, 1996
Date: July 2, 1996
-53-
<PAGE> 54
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
<TABLE>
<CAPTION>
Year ended Year ended
March 31, 1996 March 31, 1995
-------------- --------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 9,137,798 9,137,798 8,116,291 8,116,291
========= ========= ========= =========
Net loss per share $(0.04) $(0.04) $(0.11) $(0.11)
========= ========= ========= =========
</TABLE>
-54-
<PAGE> 55
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
LIST OF SUBSIDIARIES
EXHIBIT 21
<TABLE>
<CAPTION>
Percentage Percentage
of Ownership of Ownership
as of as of
March 31, 1996 June 18, 1996
-------------- -------------
<S> <C> <C>
Jillian's, Inc. (a Delaware corporation) 100% 100%
Jillian's Billiard Club of Kendall, Inc. (a Delaware
corporation) 100% 100%
Jillian's Billiard Club of Seattle, Inc. (a Delaware
corporation) 100% 100%
Jillian's Billiard Club of Cleveland, Inc. (a Delaware
corporation) 100% 100%
Jillian's Billiard Club of Coconut Grove, Inc.
(an inactive Delaware corporation) 100% 100%
Jillian's Billiard Club of Cleveland Heights, Inc. (a
Delaware corporation) 100% 100%
Carom Financial Corporation (an inactive Florida
corporation) 100% 100%
Jillian's Billiard Club of Champaign-Urbana, Inc.
(an Illinois corporation) 100% 100%
Jillian's Billiard Club of Worcester, Inc. (a
Massachusetts corporation) 100% 100%
Jillian's Billiard Club of Annapolis, Inc. (a
Maryland corporation) 100% 100%
Jillian's Billiard Cafe, Inc. (a Washington
corporation) 100% 100%
Jillian's Billiard Club of Long Beach, Inc.
(a California corporation) 100% 100%
Jillian's Billiard Club of Tacoma, Inc.
(a Delaware corporation) 100% 100%
</TABLE>
-55-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000759855
<NAME> JILLIAN'S ENTERTAINMENT CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 646,306
<SECURITIES> 0
<RECEIVABLES> 63,386
<ALLOWANCES> 0
<INVENTORY> 204,581
<CURRENT-ASSETS> 1,080,308
<PP&E> 9,371,957
<DEPRECIATION> (1,684,351)
<TOTAL-ASSETS> 9,904,271
<CURRENT-LIABILITIES> 2,289,784
<BONDS> 2,186,235<F1>
<COMMON> 9,138
0
0
<OTHER-SE> 2,835,290
<TOTAL-LIABILITY-AND-EQUITY> 9,904,271
<SALES> 0
<TOTAL-REVENUES> 11,875,716
<CGS> 2,736,704
<TOTAL-COSTS> 12,196,941
<OTHER-EXPENSES> 72,506<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 211,520
<INCOME-PRETAX> (393,731)
<INCOME-TAX> 0
<INCOME-CONTINUING> (393,731)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (393,731)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
<FN>
<F1>COMPRISE OF NOTES AND EQUIPMENT LEASES PAYABLE.
<F2>INCLUDES INTEREST EXPENSE OF $211,520
<F3>
<S> <C> <C> <C>
Other Current Assets 166,035 Current Portion of Notes - equip. payable 712,910
Investments 39,725 Deferred Rent 1,187,860
Goodwill Net 805,384 Minority Interest 1,395,964
Other Assets 291,248 Paid in Capital 9,536,277
AIP 941,707 Accumulated deficit (6,700,987)
Accrued Exp. & other liabilities 635,167
</FN>
</TABLE>
