<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 December 31, 1996
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OR
- ---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-13740
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Jillian's Entertainment Corporation
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(Exact name of registrant as specified in its charter)
Florida 59-2334472
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(State or other Jurisdic- (I.R.S. Employer Identif-
tion of Incorporation) ication Number)
727 Atlantic Avenue, Suite 600, Boston, MA 02111
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(Address of Principal Executive Offices) (Zip Code)
(617) 350-3111
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(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 February 10,
1997 Total number of pages contained in this document: 12
--
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JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Index
Part I. Financial Information Page No.
- --------------------------------- --------
Item 1. Consolidated Condensed Balance Sheets as of
December 31, 1996 and March 31, 1996 3
Consolidated Condensed Statements of Operations
for the Three Month Periods and Nine Month Periods
ended December 31, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows
for the Nine Month Periods ended December 31,
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 7-10
Part II. Other Information
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Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
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<TABLE>
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
December 31, March 31,
1996 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 595,313 $ 646,306
Inventory 187,817 204,581
Accounts receivable 110,221 63,386
Other current assets 212,274 166,035
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Total current assets 1,105,625 1,080,308
Investments 39,725 39,725
Property, leasehold improvements and
equipment, net 6,878,989 7,687,606
Goodwill, net 765,446 805,384
Other assets 278,138 291,248
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Total assets $ 9,067,923 $ 9,904,271
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 943,388 $ 941,707
Accrued expenses and other liabilities 581,904 635,167
Current portion of notes and equipment
leases payable 825,394 712,910
Notes payable to related parties 280,000 --
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Total current liabilities 2,630,686 2,289,784
Deferred rent 1,067,655 1,187,860
Notes payable and equipment
leases payable 1,756,100 1,906,235
Notes payable to related parties -- 280,000
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Total liabilities 5,454,441 5,663,879
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Minority interests 1,271,146 1,395,964
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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 (7,203,079) (6,700,987)
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Total stockholders' equity 2,342,336 2,844,428
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Total liabilities and stockholders' equity $ 9,067,923 $ 9,904,271
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements
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<TABLE>
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Month Period Nine Month Period
Ended December 31, Ended December 31,
------------------------- --------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues from clubs $3,497,637 $3,011,717 $9,799,894 $8,182,344
---------- ---------- ---------- ----------
Cost and expenses:
Cost of club operations:
Cost of food and beverage 781,239 722,221 2,228,647 1,943,988
Wages 756,380 702,471 2,272,936 1,944,404
Rent 495,019 406,129 1,352,252 1,215,532
Direct operating expenses 660,761 570,366 1,982,169 1,710,598
Other operating expenses 300,000 - 300,000 -
General and administrative expenses 342,391 531,368 1,141,954 1,211,652
Depreciation and amortization 221,192 154,226 661,101 449,826
Minority interest 73,221 72,466 115,389 87,864
Start-up costs related to development
stage clubs - 20,216 - 82,575
---------- ---------- ---------- ----------
Total cost and expenses 3,630,203 3,179,463 10,054,448 8,646,439
---------- ---------- ---------- ----------
Other income/(expenses):
Interest income 1,217 907 3,496 12,985
Interest Expense (83,973) (58,220) (251,034) (133,325)
---------- ---------- ---------- ----------
Total other expenses (82,756) (57,313) (247,538) (120,340)
---------- ---------- ---------- ----------
Net loss (215,322) $ (225,059) $ (502,092) $ (584,435)
========== ========== ========== ==========
Net loss per share of common and
common equivalents $ (0.02) $ (0.02) $ (0.05) $ (0.06)
========== ========== ========== ==========
Weighted average common and
common equivalent shares outstanding 9,137,798 9,137,798 9,137,798 9,137,798
========== ========== ========== ==========
See accompanying notes to consolidated condensed financial statements
</TABLE>
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<TABLE>
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Month Period
Ended December 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(502,092) $ (584,435)
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Adjustments to reconcile net loss to net cash provided by operations:
Charge for impairment of long-lived assets 300,000 -
Depreciation and amortization 661,101 449,826
Changes in operating assets in liabilities:
Accounts receivables (46,835) (38,553)
Inventory 16,764 (46,895)
Other assets (53,659) (367)
Accounts payable 1,681 324,883
Accrued expenses and other liabilities (173,468) 106,826
Minority interest 115,389 87,864
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Total adjustments 820,973 883,584
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Cash provided by operating activities 318,881 299,149
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Cash flows from investing activities:
Purchases of property and equipment (92,016) (1,137,932)
Collections of notes receivable - 103,413
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Cash used by investing activities (92,016) (1,034,519)
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Cash flows from financing activities:
Repayment of notes and leases payables (537,651) (432,571)
Proceeds from borrowings 500,000 630,253
Distributions to minority interest shareholders (240,207) (126,483)
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Cash used by financing activities (277,858) 71,199
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Net decrease in cash and cash equivalents (50,993) (664,171)
Cash and cash equivalents at beginning of year 646,306 1,254,120
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Cash and cash equivalents at end of period $ 595,313 $ 589,949
========= ===========
</TABLE>
Supplemental cash flow information:
During the nine months ended December 31, 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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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 nine months ended December 31, 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 nine months ended December 31, 1995 have been
reclassified to conform to the December 31, 1996 presentation.
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Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Results of Operations
- ---------------------
The Registrant had net losses of approximately $215,300 and $502,100,
respectively, for the three and nine month periods ended December 31, 1996 as
compared to net losses of approximately $225,100 and $584,400, respectively,
during the three and nine month periods ended December 31, 1995. The decrease in
the net loss for the three months ended December 31, 1996 of approximately
$9,800 as compared to the same period in 1995 was primarily due to a decrease in
general and administrative expenses of approximately $189,000 offset in part by
an increase in depreciation and amortization of approximately $67,000, an
increase in interest expense of approximately $25,800 and a decrease in net club
operating income of approximately $106,300. The decrease in the net loss for the
nine months ended December 31, 1996 of approximately $82,300 compared to the
same period in 1995 was primarily attributed to a cumulative increase in net
club operating income of approximately $296,100 and a decrease in general and
administrative expenses of approximately $69,700 and decreased start-up costs of
approximately $82,600. These decreases were offset in part by increased
depreciation and amortization expense relating to new units of approximately
$211,300 and an increase in interest expense of approximately $117,700 as a
result of additional borrowings related to club development.
The Registrant had revenues from the clubs of approximately $3,497,600 and
$9,799,900, respectively, for the three and nine month periods ended December
31, 1996 as compared to $3,011,700 and $8,182,300, respectively, for the three
and nine month periods ended December 31, 1995. The increase of $1,617,600 for
the nine month period ended December 31, 1996 as compared to the same period in
1995 was due to increases in comparable club sales of $232,300 and increased
revenues of $1,618,000 from the Tacoma club, which opened in December 1995.
These increases were partially offset by decreased revenues of approximately
$139,800 from the Long Beach club, which opened in May 1995.
During the third quarter of Fiscal 1997, the Registrant analyzed numerous
options regarding the Long Beach club, which continues to incur operating
losses, including selling the unit. In connection with this direction, the
Registrant wrote down certain long-lived assets of its Long Beach club based
upon its determination that the projected cash flow from a sale will not be
sufficient for the Registrant to recover the historic carrying amount of the
club's long-lived assets. A charge of $300,000 for the impairment of long-lived
assets is included as an expense of club operations in the accompanying
consolidated condensed statements of operations for the three month and nine
month periods ended December 31, 1996.
The increase in comparable club revenue of $232,300, or approximately 3.3%, was
primarily attributed to an increase in the majority of club revenues, with
Seattle being the most noteworthy at 16.7%. These increases were offset by a
combined decrease in club revenues at Miami and Annapolis of approximately 7.6%.
Total costs and expenses increased $450,700 and $1,408,000, respectively, for
the three and nine month periods ended December 31, 1996, as compared to the
same periods ended December 31,
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Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Results of Operations (Continued)
1995. The increase in total expenses was due primarily to increased cost of club
operations of $592,200 and $1,321,500, respectively, for the three and nine
month periods ended December 31, 1996 as compared to the same periods ended
December 31, 1995. Such increase in cost of club operations is primarily
attributed to the Tacoma club, with cost of operations of approximately
$1,146,800 for the nine months ended December 31, 1996 compared to approximately
two weeks of operation during the same period of 1995 as well as the
aforementioned $300,000 Long Beach impairment of long-lived asset charge offset
partially by reduction of $82,600 in start-up costs and $69,700 in general and
administrative expenses. The $69,700 decrease is primarily due to reorganization
efforts, which decreased overhead by approximately $39,400 during the quarter
ended December 31, 1996.
During the nine months ended December 31, 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 $113,000 and $217,000, respectively, for the
nine months ended December 31, 1996 and 1995, which is included in general and
administrative expenses.
Interest expense was approximately $84,000 and $251,000, respectively, for the
three and nine month periods ended December 31, 1996 as compared to $58,200 and
$133,300, respectively, during the three and nine month periods ended December
31, 1995. The increase was primarily due to additional borrowing associated with
the development and openings of the Long Beach and Tacoma clubs in 1995.
Liquidity and Capital Resources
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The Registrant's cash and cash equivalents decreased by approximately $51,000
during the nine month period ended December 31, 1996. Cash provided by operating
activities was approximately $318,900 for the nine months ended December 31,
1996 as a result of the net loss incurred of $502,100 offset by a charge for
impairment of long-lived assets, depreciation and amortization and changes in
operating assets and liabilities totaling $821,000. The Registrant also
purchased approximately $92,000 in property and equipment primarily related to
club leasehold improvement and made distributions of $240,200 to minority
interest limited partners during the nine months ended December 31, 1996. The
Registrant obtained bank and investor financing totaling $500,000 during the
nine months ended December 31, 1996. The proceeds from such loans were primarily
used to fund required debt maturities totaling $537,700 for the nine months
ended December 31, 1996.
The Registrant had ten clubs fully operational as of December 31, 1996 and 1995.
The Registrant continues to experience a cash shortage. The Registrant had a
working capital deficit of approximately $1,525,100 as of December 31, 1996, and
current maturities of notes and equipment
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Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources (Continued)
- -------------------------------------------
leases payable totaled $1,105,400 as of December 31, 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. 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 Registrant sold limited partnership interests in limited
partnerships that own those clubs. The Registrant 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 Registrant own the remaining interests. Each of
the limited partnership agreements for the partnerships allows the limited
partnerships to require the Registrant to repurchase their limited partnership
interests at a price calculated as described in the following paragraph. Such
requirement 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 the 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
required repurchase date. The limited partners are entitled to receive part of
their purchase price in the form of the Registrant'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 Registrant
register its shares of common stock for sale to the public. The Registrant's
ability to fulfill its obligations and the future value of the Registrant's
common stock is dependent on the success of the Registrant's business. In
addition, the Registrant is required to make cash
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Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Liquidity and Capital resources (Continued)
- -------------------------------------------
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 December 31, 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 partners.
There is also no assurance that the Registrant's common stock will have value in
the event the limited partners exercise their option to sell their units to the
Registrant in exchange for the Registrant's common stock.
The Registrant, as of December 31, 1996, had goodwill of approximately $765,400,
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". During the
third quarter ended December 31, 1996, the Registrant recorded a charge of
$300,000 for the impairment of its Long Beach club's long-lived assets, as
described above. The Registrant does not believe that its other clubs'
long-lived assets or goodwill have been impaired.
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Part II
Other Information
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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
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None
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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: February 14, 1997
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