<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended September 30, 1996
---------------------------
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file number: 0-13740
--------------------
Jillian's Entertainment Corporation
-----------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2334472
------- ----------
(State or other Jurisdic- (I.R.S. Employer Identif-
tion of Incorporation) ication Number)
727 Atlantic Avenue, Suite 600, Boston, MA 02111
-----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(617) 350-3111
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
9,137,798 shares of common stock, $.001 par value as of November 13, 1996
Total number of pages contained in this document: 11
----
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<PAGE> 2
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Index
Part I. Financial Information Page No.
- -------------------------------- --------
Item 1. Consolidated Condensed Balance Sheets as of
September 30, 1996 and March 31, 1996 3
Consolidated Condensed Statements of Operations
for the Three Month Periods and Six Month Periods
ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows
for the Six Month Periods ended September 30,
1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
Part II Other Information
- ----------------------------
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
-2-
<PAGE> 3
<TABLE>
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
September 30, March 31,
1996 1996
----------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 469,745 $ 646,306
Inventory 192,307 204,581
Accounts receivable 26,416 63,386
Other current assets 208 187 166,035
----------- -----------
Total current assets 896,655 1,080,308
Investments 39,725 39,725
Property, leasehold improvements and
equipment, net 7,338,391 7,687,606
Goodwill, net 778,758 805,384
Other assets 285,543 291,248
----------- -----------
Total assets $ 9,339,072 $ 9,904,271
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 918,397 $ 941,707
Accrued expenses and other liabilities 556,725 635,167
Current portion of notes and equipment
leases payable 841,901 712,910
Notes payable to related parties 280,000 --
----------- -----------
Total current liabilities 2,597,023 2,289,784
Deferred rent 1,078,345 1,187,860
Notes payable and equipment
leases payable 1,881,514 1,906,235
Notes payable to related parties -- 280,000
----------- -----------
Total liabilities 5,556,882 5,663,879
----------- -----------
Minority interests 1,224,532 1,395,964
----------- -----------
Commitments and contingencies
Stockholders' equity:
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 9,138
Paid-in capital 9,536,277 9,536,277
Accumulated deficit (6,987,757) (6,700,987)
----------- -----------
Total stockholders' equity 2,557,658 2,844,428
----------- -----------
Total liabilities and stockholders' equity $ 9,339,072 $ 9,904,271
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements
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<PAGE> 4
<TABLE>
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Month Period Six Month Period
Ended September 30, Ended September 30,
-------------------------- --------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues from clubs $3,020,520 $2,702,302 $6,302,257 $5,170,627
---------- ---------- ---------- ----------
Cost and expenses:
Cost of club operations:
Cost of food and beverage 707,839 622,024 1,447,408 1,221,767
Wages 730,653 664,203 1,516,556 1,241,933
Rent 424,552 421,863 857,233 809,403
Direct operating expenses 677,866 600,814 1,321,408 1,140,232
Start-up costs related to development
stage clubs - 4,383 - 62,359
General and administrative expenses 379,206 385,314 799,563 680,284
Depreciation and amortization 230,689 152,052 439,909 295,600
Minority interest 3,902 (3,986) 42,168 15,398
---------- ---------- ---------- ----------
Total cost and expenses 3,154,707 2,846,667 6,424,245 5,466,976
---------- ---------- ---------- ----------
Other income/(expenses):
Interest income 1,088 6,040 2,279 12,078
Interest expense (82,993) (29,887) (167,061) (75,105)
---------- ---------- ---------- ----------
Total other income/(expenses) (81,905) (23,847) (164,782) (63,027)
---------- ---------- ---------- ----------
Net loss $ (216,092) $ (168,212) $ (286,770) $ (359,376)
========== ========== ========== ==========
Net loss per share of common and
common equivalents $ (0.02) $ (0.02) $ (0.03) $ (0.04)
========== ========== ========== ==========
Weighted average common and
common equivalent shares outstanding 9,137,798 9,137,798 9,137,798 9,137,798
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements
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<PAGE> 5
<TABLE>
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Month Period
Ended September 30,
-------------------------
1996 1995
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(286,770) $ (359,376)
--------- ----------
Adjustments to reconcile loss to net
cash used by operations:
Depreciation and amortization 439,909 295,600
Changes in operating assets in liabilities:
Accounts receivables 36,970 28,000
Inventory 12,274 (23,527)
Other assets (50,932) 17,358
Accounts payable (23,310) 9,485
Other liabilities (187,957) 50,507
Minority interest 42,168 15,398
--------- ----------
Total adjustments 269,122 392,821
--------- ----------
Cash provided by/(used) by operating activities (17,648) 33,445
--------- ----------
Cash flows from investing activities:
Purchases of property and equipment (49,583) (652,217)
Collections of notes receivable - 103,413
--------- ----------
Cash used in investing activities (49 583 (548,804)
--------- ----------
Cash flows from financing activities:
Repayment of notes and leases payables (395,730) (375,540)
Proceeds from borrowings 500,000 50,000
Distributions to minority interest shareholders (213,600) (72,411)
--------- ----------
Cash used by financing activities (109,330) (397,951)
--------- ----------
Net decrease in cash and cash equivalents (176,561) (913,310)
Cash and cash equivalents at beginning of year 646,306 1,254,120
--------- ----------
Cash and cash equivalents at end of period $ 469,745 $ 340,810
========= ==========
</TABLE>
Supplemental cash flow information:
During the six months ended September 30, 1995, the Registrant acquired
equipment by entering into capital leases in the amount of $167,566.
See accompanying notes to consolidated condensed financial statements
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<PAGE> 6
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
Note A - General
- ------------------
The unaudited consolidated condensed financial statements include the accounts
of Jillian's Entertainment Corporation (the "Registrant"), Jillian's, Inc. and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Net 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 and warrants were used to purchase common shares outstanding
at the average complete market value during each period, unless such exercise is
anti-dilutive.
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the instructions for Form 10-QSB and therefore do
not include all information and footnotes necessary for a complete presentation
of financial position, results of operations and changes in cash flow in
conformity with generally accepted accounting principles. The unaudited
consolidated condensed financial statements should be read in conjunction with
the consolidated financial statements and related notes included in the
Registrant's Annual Report on Form 10-KSB for the year ended March 31, 1996. In
the opinion of management, the unaudited consolidated condensed financial
statements contain all adjustments necessary for a fair presentation of the
results of operations for the interim periods presented and all such
adjustments are of a normal and recurring nature. The results of operations for
the three and six months ended September 30, 1996 are not necessarily
indicative of the results which may be expected for the entire fiscal year.
Certain amounts in the unaudited accompanying condensed consolidated financial
statements for the three and six months ended September 30, 1995 have been
reclassified to conform to the September 30, 1996 presentation.
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<PAGE> 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Results of Operations
- ---------------------
The Registrant had net losses of $216,092 and $286,770, respectively, for the
three and six month periods ended September 30, 1996 as compared to net losses
of $168,212 and $359,376, respectively, during the three and six month periods
ended September 30, 1995. The increase in the net loss of $47,880 for the three
months ended September 30, 1996 compared to the same period of 1995 was
primarily due to increased depreciation and amortization and interest expense of
$78,637 and $53,106, respectively, primarily attributed to new club development
and related borrowings. Such increases were offset in part by an increase in net
club operating income of $86,212. The decrease in the net loss of $72,606 for
the six months ended September 30, 1996 compared to the same period of 1995 was
primarily attributed to higher net club operating income of $402,360 and a
reduction in start-up costs related to development stage clubs of $62,359,
offset in part by increased general and administrative expenses of $119,279 and
depreciation and amortization of $144,309. During the six months ended September
30, 1996 compared to the same period of 1995, interest expense also increased by
$91,956, as a result of additional borrowings due to new club development,
and minority interest expenses increased by $26,770 primarily due to improved
operating income at the Worcester and Champaign clubs.
The Registrant had revenues from the clubs of $3,020,520 and $6,302,257,
respectively, for the three and six month periods ended September 30, 1996 as
compared to $2,702,302 and $5,170,627, respectively, for the three and six
months periods ended September 30, 1995. The increase of $1,131,630 for the six
month period ended September 30, 1996 as compared to the same period in 1995
was due to increases in comparable club sales of $67,191 and increased combined
revenues of $1,064,439 from the Tacoma club which opened in December 1995
and from the Long Beach club which opened in May 1995. The Long Beach club
incurred an operating loss of approximately $14,000 for the six month period
ended September 30, 1996. The Registrant has increased promotional activities
and has implemented cost cutting strategies at Long Beach. However, if the
trend at Long Beach continues it could have a materially adverse effect on the
Registrant's operations. The Registrant is reviewing all options regarding the
Long Beach location, including selling the club.
The increase in comparable club revenues of $67,191 or approximately 2% was
primarily attributed to an increase in the majority of such clubs with Seattle
being the most noteworthy at 16%. These increases were partially offset by a
combined decrease in club revenues at Miami and Annapolis of approximately 12%.
Total costs and expenses increased $308,040 and $957,269, respectively, for the
three and six month periods ended September 30, 1996 as compared to the same
periods ended September 30, 1995. The increase in total expenses was due
primarily to increased cost of club operations of $232,006 and $729,270,
respectively, for the three and six month periods ended September 30, 1996 as
compared to the same periods ended September 30, 1995. Such increase is
primarily attributed to the Tacoma club with cost of operations of approximately
$757,000 for the six months ended September 30, 1996 compared to no operations
during the same period of 1995, partially
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<PAGE> 8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Results of Operations (Continued)
offset by a reduction in club rent expense of approximately $100,000 during the
six months ended September 30, 1996 related to changes in the Registrant's
estimated straight line rent expense. The increase in general and administrative
expenses of $119,279 for the six months ended September 30, 1996 compared to the
same period in 1995 is primarily attributed to increased wages of approximately
$169,000 for the six months ended September 30, 1996, offset in part primarily
by a decrease in travel expenses of approximately $41,000, for the six months
ended September 30, 1996. The increase in wages was primarily attributed to the
hiring of a vice president of operations, vice president of development and
other support personnel, as well as a first time salary for the CEO which were
not in place during the entire six months ended September 30, 1995. During the
six months ended September 30, 1996 and 1995, the Registrant pursued various
financing alternatives to meet working capital and club development cash needs,
including investigating the issuance of additional equity or debt securities. In
connection with such activities, the Registrant has incurred professional fees
of approximately $96,000 and $89,000 , respectively, for the six months ended
September 30, 1996 and 1995 which is included in general and administration
expenses.
Interest expense was $82,993 and $167,061, respectively, for the three and six
month periods ended September 30, 1996 as compared to $29,887 and $75,105,
respectively, during the three and six month periods ended September 30, 1995.
The increase was primarily due to additional borrowings associated with the
development and openings of the Long Beach and Tacoma clubs in 1995.
Liquidity and Capital Resources
- -------------------------------
The Registrant's cash and cash equivalents decreased by $176,561 during the six
month period ended September 30, 1996. Cash used by operating activities was
$17,648 for the six months ended September 30, 1996 as a result of the net loss
incurred of $286,770 offset by depreciation and amortization and changes in
operating assets and liabilities of $269,122. The Registrant also purchased
$49,583 in property and equipment primarily related to club leasehold
improvements and made distributions of $213,600 to minority interest limited
partners during the six months ended September 30, 1996. The Company obtained
bank and investor financing totalling $500,000 during the six months ended
September 30, 1996. The proceeds from such loans were primarily used to fund
required debt maturities of $395,730 and for general working capital purposes.
The Registrant had ten clubs fully operational as of September 30, 1996 as
compared to nine as of September 30, 1995. The Registrant continues to
experience a cash shortage. The Registrant has a working capital deficit of
$1,700,368 as of September 30, 1996, and current maturities of notes and
equipment leases payable totalling $1,121,901 as of September 30, 1996. The
Registrant plans to retire certain debt through its proposed issuance of
additional equity or debt securities if such offerings are successful. The
Registrant believes that the cash provided from its club operations, and the
issuance of additional equity or debt securities should be sufficient to fund
its working capital needs, debt maturity requirements and its new club
development plans.
-8-
<PAGE> 9
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Liquidity and Capital resources (Continued)
However, there can be no assurance that the Registrant will be successful with
its proposed equity or debt security offering.
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. 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. In October, 1996, the Registrant
executed a new lease for a club to be developed in Raleigh, North Carolina. The
new lease provides for minimum monthly lease payments of approximately $4,400
from April, 1997 through April, 2007. There can be no assurance that the
Registrant will be successful in developing additional billiard clubs or that it
can meet its new lease obligation without a successful equity or debt security
offering.
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, beginning at various dates between January 1997 through October 1998,
(the "Put Date"), to require the Company to repurchase their limited partnership
interests at a price calculated as described in the following paragraph.. The
Put Date for a 3% limited partner investor in the Cleveland Heights club was
December 31, 1995. The Registrant has offered to purchase the 3% interest for
$22,500 in cash payments. To date, the Registrant and the 3% investor have not
agreed upon the terms or payment of purchase price.
The purchase price for the interest of a limited partner in any of the clubs
located in Cleveland Heights, Worcester, Champaign or Annapolis 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 are entitled to 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'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. In addition, the Registrant is required to make cash
distributions to the limited partners based on club operating income before
depreciation and amortization with certain minimum annual return on investment
guarantees. Since the inception of the limited partnerships, the Registrant has
paid all required cash distributions, through June 30, 1996. Distributions for
the quarter ended September 30, 1996 of approximately $32,000 will be paid in
November 1996. There can be no assurance that the Registrant can meet its future
cash distribution and other obligations to the partnership or to the limited
partners, including its obligations under its guarantee to the limited
-9-
<PAGE> 10
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Liquidity and Capital resources (Continued)
partners. There is also 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.
The Registrant, as of September 30, 1996, had goodwill of $778,758, 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". The
Registrant does not believe that its long-lived assets or goodwill has been
impaired.
-10-
<PAGE> 11
Part II
Other Information
-----------------
Item 1. 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. On August 27, 1996 a trial
date was established for April 18, 1997. 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
None
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
JILLIAN'S ENTERTAINMENT CORPORATION
(Registrant)
By: /s/ Daniel M. Smith
------------------------------
Daniel M. Smith
President and Chief Operating Officer
Dated: November 13, 1996
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000759855
<NAME> JILLIAN'S ENTERTAINMENT CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 469,745
<SECURITIES> 0
<RECEIVABLES> 26,416
<ALLOWANCES> 0
<INVENTORY> 192,307
<CURRENT-ASSETS> 896,655
<PP&E> 7,338,391
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,339,072
<CURRENT-LIABILITIES> 2,597,023
<BONDS> 1,881,514
<COMMON> 9,138
0
0
<OTHER-SE> 2,548,520
<TOTAL-LIABILITY-AND-EQUITY> 9,339,072
<SALES> 3,020,520
<TOTAL-REVENUES> 3,020,520
<CGS> 707,839
<TOTAL-COSTS> 3,154,707
<OTHER-EXPENSES> 1,088
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (82,993)
<INCOME-PRETAX> (216,092)
<INCOME-TAX> 0
<INCOME-CONTINUING> (216,092)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (216,092)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
<FN>
Other Current Assets 208,187 Current Portion of Notes & equip 841,901
Investments, NET 39,725 Deferred Rent 1,078,345
GOODWILL, NET 778,758 Minority Interest 1,224,532
Other Asset 285,543 Paid in Capital 9,536,277
A/P 918,397 Accumulated Deficit (6,987,757)
Accrued Exp & Other Liab. 556,725
</FN>
</TABLE>
