<PAGE> 1
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 [No Fee Required] For the fiscal year ended March 31, 1997
----------------
[ ] 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
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Jillian's Entertainment Corporation
-----------------------------------
(Name of Small Business Issuer in Its Charter)
Florida 59-2334472
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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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(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
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None Not Applicable
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value $.001 Per Share
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(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 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. [x]
Issuer's revenues for its most recent fiscal year: $13,216,495.
As of June 20, 1997, the aggregate market value of common stock outstanding
held by non-affiliates of the Registrant was $2,251,283 (computed by reference
to the average bid and, asked price of such stock) and the total number of
shares outstanding was 9,137,704.
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Documents Incorporated by Reference:
None
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TABLE OF CONTENTS
-----------------
Form 10-KSB
Item No. Description Page Number
- -------- ----------- -----------
Part I
- ------
Item 1 Description of Business 3
Item 2 Description of Property 5
Item 3 Legal Proceedings 8
Item 4 Submission of Matters to a Vote of Security-Holders 8
Part II
- -------
Item 5 Market for Common Equity and Related Stockholder
Matters 9
Item 6 Management's Discussion and Analysis or Plan of Operations 9
Item 7 Financial Statements 13
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
Part III
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Item 9 Directors and Executive Officers; Compliance with Section
16(a) of the Exchange Act 14
Item 10 Executive Compensation 16
Item 11 Security Ownership of Certain Beneficial Owners and
Management 17
Item 12 Certain Relationships and Related Transactions 19
Item 13 Exhibits and Reports on Form 8-K 19
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PART I
Item 1. Description of Business
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Formation
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On March 11, 1990, the Board of Directors of 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.
Existing Clubs
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Set forth in the table below are descriptions of the existing Jillian's
clubs.
<TABLE>
<CAPTION>
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Name of Subsidiary Location of Club Date of Description of Space Number of
Owner Commencement of (approximate Brunswick Billiard
Operations footage) Tables; Other
Amenities
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jillian's - Kendall Miami, Florida November 1989 9,600 square feet; 27 tables; other table
located in a shopping top games; high tech
center next to a nine video games; bar and
screen movie theatre food service
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Jillian's - Seattle Seattle, Washington April 1990 18,500 square feet; 34 tables; other table
two-story free top games; high tech
standing building video games;
separate room
available for private
rental; bar and food
service on both floors
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Jillian's - Cleveland Cleveland, Ohio (on July 1990 13,000 square feet; 25 tables; other table
banks of the two floors of a top games; high tech
Cuyahoga River) building video games;
separate room
available for private
rental; bar and food
service on both floors
- -----------------------------------------------------------------------------------------------------------------------------
Jillian's - Cleveland Cleveland Heights, November 1992 9,600 square feet 21 tables; other table
Heights (1) Ohio top games; high tech
video games; bar and
food service
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</TABLE>
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<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jillian's - Pasadena "Old Town" August 1993 (2) 7,200 square feet; 16 tables; bar and
Pasadena, California two floors of a food service on both
building with floors
additional outside
seating on the first
floor
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Jillian's - Worcester Worcester, December 1993 16,000 square feet, 24 tables; other table
(1) Massachusetts (near including a 5,000 top games; high tech
Worcester square foot game video games; bar and
Polytechnic Institute) room; one-story free- food service
standing building
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Jillian's - Champaign Champaign, Illinois August 1994 12,000 square feet; 20 tables; other table
(1) (adjacent to the two-story free- top games; high tech
University of Illinois standing building video games; bar and
campus) food service
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Jillian's - Annapolis Annapolis, Maryland October 1994 10,000 square feet; 16 tables; other table
(1) (near the U.S. Naval one-story free- top games; high tech
Academy and the standing building video games; bar and
Annapolis historical food service
district)
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Jillian's - Long Long Beach, May 1995 16,000 square feet; 16 tables; bar and
Beach California two floors of a 13- food service;
story free-standing nightclub located in
building the basement
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Jillian's - Tacoma Tacoma, Washington December 1995 25,000 square feet 25 tables; other table
(near the University including a game top games; high tech
of Puget Sound room; two-story free- video games; bar and
campus) standing building food service
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Cleveland Heights, Worcester, Champaign and Annapolis clubs are owned
by limited partnership in which the Jillian's subsidiary is the general partner
and owns a substantial (87%, 25%, 43%, and 79%, respectively) interest. The
Jillian's subsidiary receives a management fee for operating the related club
equal to 6.5% of the gross revenues in the case of the Cleveland Heights club,
6% in the case of the Champaign and Annapolis clubs and 5% in the case of the
Worcester club.
(2) The club located in Pasadena was an existing billiard club/diner that
the Company, through Jillian's - Pasadena, acquired in August 1993. As part of
the acquisition, the Company acquired all of the assets located at the existing
club (including all leasehold improvements, furniture, fixtures, bar and kitchen
equipment and billiard tables), all of the seller's interest in the lease for
the premises and all alcoholic beverage licenses necessary to operate the club.
Development Stage Clubs
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The Registrant entered into leases during fiscal 1997 for clubs to be
developed in Raleigh, North Carolina, and Columbia, South Carolina. The
Registrant intends to use funds obtained from the private placement, described
below, to develop these additional clubs.
Summary
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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 and beverage service and are designed to attract a
broader segment of the adult 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,
theme restaurants and night clubs. The Jillian's billiard clubs also compete
with entertainment centers, large facilities which offer diverse forms of
entertainment, such as billiards, virtual reality and other electronic games,
restaurant and bar services and nightclub-style entertainment. Some of these
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competitors operate single outlet facilities, while others operate multi-unit
entertainment facilities. For example, Clicks Billiards, which dominates the
Southwest and Southeast upscale billiard club markets, has opened 26 billiard
clubs in those regions; Pinkies has opened 14 billiard clubs at sites in
Arizona, Colorado, Nevada and other Southwestern states; Boston Billiard Clubs
has opened six billiard clubs in the Northeast region; Fats Billiard Clubs has
established five billiard clubs in Southern California; and Champions Billiards
has opened five billiard clubs in the Washington, D.C. metropolitan area. Total
Entertainment Corporation has established twelve upscale billiard clubs
primarily in the South, including nine Bailey's billiard clubs in the South and
Midwest and three Fox and Hounds billiard clubs in Texas. Other competitors have
opened larger clubs, or entertainment centers, which offer diverse forms of
entertainment, such as billiards, electronic games, restaurant and bar services
and nightclub-style entertainment. For example, Dave & Busters, Inc., a public
company based in Dallas, Texas, operates ten entertainment centers throughout
the United States, and America Live operates a chain of three entertainment
centers throughout the United States. The Jillian's clubs compete with other
billiard clubs, leisure time activities and entertainment centers by providing
adult customers a single stop destination for an entire evening's entertainment.
The Jillian's clubs offer customers an upscale, comfortable setting, billiards
activities, a variety of entertainment activities (e.g., electronic games, darts
and ping-pong) and food and beverage services.
The Company currently is concentrating its efforts on its investment in the
billiard club business. Although no assurance can be given, the Company intends
to develop, through wholly owned subsidiaries of Jillian's, Inc., additional
Jillian's clubs that offer the same forms of entertainment that are offered by
the existing clubs. Currently, the Company is exploring possible acquisition
opportunities which the Company anticipates may be consummated if the private
placement, described below, is consummated. 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 Company 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 Company currently
is investigating potential sites for clubs in Massachusetts and certain other
areas in the Midwest and Mid-Atlantic states. The Company is not considering any
new lines of business, concepts or changes in priorities at this time. The
Company currently has eight full-time employees working at its principal
executive offices.
Recent Developments
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On or about June 20, 1997, the Company mailed to its shareholders proxy
materials relating to a special meeting of the shareholders to be held on July
21, 1997. At the special meeting, the shareholders will consider a proposal to
approve a merger (the "Merger") between the Company and Jillian's Entertainment
Acquisition Corporation, a wholly owned subsidiary of Jillian's Entertainment
Holdings, Inc. ("Holdings"), with the Company surviving as a wholly owned
subsidiary of Holdings. The Merger will be effected subject to the terms and
conditions of an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant
to the terms of the Merger Agreement, among other matters, all holders of the
Company's common stock, other than seven shareholders who each have an ongoing
relationship with the Company (the "Continuing Shareholders"), will be entitled
to receive $0.50 in cash, without interest (a "Merger Payment"), in exchange for
their shares. If the Merger is approved by the Company's shareholders,
immediately prior to consummation of the Merger, the Continuing Shareholders
will participate in a transaction (the "Corporate Formation") whereby, among
other things, each such Continuing Shareholder shall exchange each share of the
Company's common stock owned by the Shareholder for one share of common stock
of Holdings and shall receive options to purchase a predetermined number of
shares of common stock of Holdings. Further, simultaneously with the Corporation
Formation, $12 million of convertible preferred stock of Holdings will be
placed (the "Private Placement") with J.W. Childs Equity Partners, L.P. and
certain related persons or entities. The Company intends to use funds obtained
from the Private Placement to make the Merger Payments.
Item 2. Description of Properties
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Administrative Operations. On June 13, 1995, the Company entered into a written
lease agreement for 3,020 square feet of space for its administrative operations
to be located at 727 Atlantic Avenue in Boston, Massachusetts. The lease began
on July 28, 1995 and expires on July 28, 1998. In addition, the lease has a
two-year renewal period. Under the lease agreement, the Company 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.
On June 1, 1994, the Company entered into a written lease agreement for its
administrative operations in an executive center located at One Alhambra Plaza,
Coral Gables, Florida. The lease is for 1,243 square feet of office space and
began on July 1, 1994 and expires June 30, 1999. The total required monthly
payments are $1,916, all of which is paid by third
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parties who sublease the space.
Jillian's, Inc. leases additional administrative space in an executive
center located at 508 North Second Street, Fairfield, Iowa. The lease began on
April 1, 1994, expired on March 31, 1997, and was extended on a month-to month
basis indefinitely. The required monthly payments are $910.
Jillian's Clubs. Set forth in the table below are descriptions of the
leases for the Jillian's existing and development stage clubs.
<TABLE>
<CAPTION>
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Lessee/ Lease Lease Term & Minimum Percentage Rent Other
Sublessee Date Renewal Annual Rent --------------- &
--------- ---- Option ----------- Rental Payments
------ for the Year
Ended 3/31/97
-------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jillian's - 5/26/89; triple net; 10 $192,000 ($16,000 per month); 6% of gross sales in under 3/7/94
Kendall amended years; two five- adjusted each year based on excess of $1,000,000 amendment, lessor
3/7/94 year renewal increases in the Consumer Price was granted warrants
options Index ("CPI"), but limited to 6% of to purchase 65,000
the prior year's annual rent; all CPI shares of lessee's
adjustments deferred until 1/1/95 by common stock at
3/7/94 amendment $0.50 per share for a
five-year period rental
payments for FY-97
of $283,513, which
includes taxes and
common area
maintenance charges
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Jillian's - 8/29/89 triple net; 10 $258,000 ($21,500 per month); 3% of gross sales in FY-97 rental
Seattle years; one five- beginning 3/91 and every 12th excess of $750,000; payments totaled
year renewal month thereafter, monthly rent will adjusted annually $359,947, which
option increase based on increase in CPI, based on increases in included taxes,
but no more than 6% annually; if CPI, but no more common area
option to renew lease is exercised, than 6%; all payments maintenance charges
rent shall be agreed to by both are to be made in and percentage rent of
parties and based on fair market cash $52,618 in cash
value ("FMV") of comparable
rentals
- -----------------------------------------------------------------------------------------------------------------------------------
Jillian's - 4/20/90; triple net; 10 $69,615 ($5,801 per month) for 5% of gross sales in 11/24/93 amendment
Cleveland amended years; two five- years 1-4; $80,325 ($6,694 per excess of $1,392,300 temporarily limited
11/24/93 year renewal month) thereafter; beginning year 7, for years 1-4, rent and common area
options rent will be increased to an amount $1,606,500 maintenance charges
equal to the lesser of (i) 105% of thereafter and lessor and lessee
annual rent payable for the prior subsequently verbally
lease year, or (ii) the annual rent agreed to limit the
payable for the prior lease year rents indefinitely to
adjusted for increases in CPI; if $6,833 per month
option to renew lease is exercised, from October through
rent shall be negotiated, but will March and $9,833 per
not be less than the greater of month from April
comparable rentals or the rent through September
payable for the last month of the
preceding term; rent for each year FY-97 rental
of first renewal period may not be payments totaled
greater than 115% of annual rent of $74,502, which
last year of initial term included taxes and
common area
maintenance charges
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</TABLE>
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<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jillian's - 10/17/91 triple net; 10 $57,240 ($4,770 per month starting none FY-97 rental
Cleveland years; two five- 5/92) for years 1 and 2; $68,688 payments for primary
Heights year renewal ($5,724 per month) for years 3-6; and option space
options $76,320 ($6,360 per month) for totaled $108,399,
years 7-10; if renewal option is which included taxes
exercised, minimum annual rent for and common area
each of the options will be $91,584 maintenance charges
and $106,848, respectively
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Jillian's - 8/19/93 1st sublease: 10 $33,048 ($2,754 per month) for none FY-97 rental
Pasadena years; two five- each year through 9/96; thereafter, payments (for both
year renewal rent will be equal to FMV of subleases) totaled
options (1,377 sq. comparable rentals with CPI $165,656, which
ft. on ground adjustments starting 4/1/98 included taxes and
floor) common area
$68,928 ($5,744 per month) for maintenance charges
2nd sublease: 5 each year through 9/30/94;
years; expires thereafter, rent will be increased by
9/30/01; CPI
three five-year
renewal options both subleases provide that if a
(5,744 sq. ft. in renewal option is exercised, rent for
basement) such period shall be agreed upon by
the parties and based on FMV of
comparable rentals with certain CPI
adjustments
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Jillian's - 4/21/93 triple net; 10 $123,780 ($10,315 per month none separate lease for
Worcester years; two five- starting 8/93) for years 1-3; parking spaces for the
year renewal $140,284 ($11,690 per month) for same term as building
options years 4-5; $165,040 ($13,753 per lease; annual rent is
month) for years 6-10; if renewal $13,200 for years 1-5
option exercised, rent for each year and $15,840 for years
of the first 5-year period will be 6-10; for the first and
$198,048, and of the second 5-year second renewal
period will be greater of $198,048 periods, rent will be
or 80% of the then FMV for similar $19,000 and $22,800,
space respectively
FY-97 rental payments
totaled $189,728, which
included taxes,
parking rental and
common area
maintenance charges
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Jillian's - 4/14/93 triple net; 10 $64,800 ($5,400 per month starting none in 10/94, lessee
Champaign years; two five- 8/93) for years 1 and 2; from April entered into separate
year renewal 1, 1995, and on April 1 of each year leasing agreement for
options thereafter, during the initial term parking; annual rent is
and any extension term, the $5,220 ($435 per
monthly rental amount shall be month) and the lease
adjusted by increases in CPI expires on 9/1/97
FY-97 rental
payments totaled
$97,368, which
included taxes,
parking rental and
common area
maintenance charges
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</TABLE>
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<TABLE>
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<S> <C> <C> <C> <C> <C>
Jillian's - 4/20/93 triple net; 10 $79,992 ($6,666 per month starting none FY-97 rental
Annapolis years; two five- 4/26/93) for year 1; $90,000 payments totaled
year renewal ($7,500 per month) for year 2; $125,838, which
options $99,996 ($8,333 per month) for included taxes and
year 3; beginning year 4, the common area
minimum annual rent will be maintenance charges
adjusted upward to an amount equal
to 66 2/3% of the annual increase in
CPI, with the adjustment in any
year limited to 5% of prior year's
annual rent; if a renewal is
exercised, 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
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Jillian's - 7/12/93 triple net; 10 $178,935 ($14,911 per month none FY-97 rental
Long Beach years, two five- starting 1/94) for year 1; $220,790 payments totaled
year renewal ($18,399 per month) for years 2-3; $286,612, which
options yearly increases of 5% for years 4- included taxes and
10; if renewal option is
exercised, common area minimum
annual rent will be equal
maintenance charges to annual
base rent payable for
immediately preceding year,
increased by 5% per annum
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Jillian's - 12/21/94; triple net; 10 $223,119 ($18,593 per month none FY-97 rental
Tacoma amended years starting commencement of payments totaled
6/15/95 operations or 1/1/96) for years 1-3; $180,33, which
$224,119 ($20,343 per month) for included taxes and
years 4-6; $265,116 ($22,093 per common area
month) for years 7-10 maintenance charges
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</TABLE>
Item 3 Legal Proceedings
- ------ -----------------
Neither the Company nor any of its properties currently is subject to any
litigation nor, to the knowledge of the Board of Directors of the Company, is
any material litigation currently threatened against the Company or any of its
properties, other than ordinary litigation routine to the Company's business,
except as follows. In October 1995, an action to enforce a mechanic's lien was
filed against the Company in the California Superior Court for Los Angeles
County by Building Trade Services Construction, Inc. ("BTS") for approximately
$123,000, plus interest. BTS alleged that the Company had failed to pay for
improvements to the restaurant at Jillian's - Long Beach, with respect to which
BTS had served as the original contractor. The Company filed an answer and cross
complaint to the suit in January 1996. On April 14, 1997, the Company and BTS
executed a settlement agreement and release, whereby the Company agreed to pay
$42,500 to BTS in exchange for the release of the Company from the mechanic's
lien and the dismissal of the action with prejudice.
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 and
is included for quotation on the NASDAQ Small Cap Market under the symbol
"QBAL". 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
------------- -------- -------
- --------------------------------------------------------------------------------
<S> <C> <C>
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
- --------------------------------------------------------------------------------
6/30/96 5/16 1/4
- --------------------------------------------------------------------------------
9/30/96 3/8 3/16
- --------------------------------------------------------------------------------
12/31/96 3/8 3/16
- --------------------------------------------------------------------------------
3/31/97 7/32 3/32
- --------------------------------------------------------------------------------
</TABLE>
As of June 20, 1997, the Registrant's common stock was held by
approximately 2,200 holders of record. 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
-------------
Results of Operations
- ---------------------
The Company had a net loss of approximately $941,900 for the fiscal year
ended March 31, 1997 as compared to a net loss of approximately $393,700 for the
fiscal year ended March 31, 1996. The increase in the net loss of approximately
$548,200 for the fiscal year ended March 31, 1997 as compared to the same period
in 1996 was primarily due to a non-cash charge for the impairment of long-lived
assets of $450,000 (specifically related to the Long Beach club), increased
depreciation and amortization expense of approximately $308,100 and additional
interest expense of approximately $120,400. These increases were offset
partially by a decrease in general and administrative expenses of approximately
$17,700 and an improvement in club level operating income of approximately
$339,000. Increases in depreciation and interest expense are primarily related
to a full year of operations at the Tacoma club. The Company's operations
include approximately 3.5 months of Tacoma results in fiscal 1996 compared to a
full year in fiscal 1997. The Tacoma club's operating income also increased by
approximately $320,000 in fiscal 1997 compared to fiscal 1996.
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The Company had revenues from the clubs of approximately $13,216,500 for
the fiscal year ended March 31, 1997 as compared to approximately $11,999,800
for the fiscal year ended March 31, 1996. The increase of approximately
$1,216,700 for the fiscal year ended March 31, 1997 as compared to the fiscal
year March 31, 1996 was primarily due to an increase in comparable club sales of
approximately $250,000 and increased revenues from the Tacoma club of
approximately $1,296,700, which opened in December 1995. These increases were
partially offset by decreased revenues of approximately $330,000 from the Long
Beach club, which opened in May 1995. The increase in comparable club revenue of
approximately $250,000 or 3 percent was primarily attributed to an increase in
the majority of club revenues, with Seattle being the most noteworthy at 16
percent. These increases were offset by a combined decrease in club revenues at
Miami and Annapolis of approximately 9 percent.
During the third quarter of fiscal 1997, the Company analyzed numerous
options regarding the Long Beach club, which continues to incur operating
losses, including a sale of the unit. In this regard, the Company recorded a
write down of certain long-lived assets of its Long Beach club based upon its
determination that the projected cash flow from a sale would not be sufficient
for the Company 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 was
recorded during the third quarter of 1997. Since the third quarter, the Company
has not been able to attract a buyer at the current proposed selling price for
the Long Beach club. Accordingly, the Company recorded an additional charge of
$150,000 in the last quarter of fiscal 1997. A charge of $450,000 for the Long
Beach impairment is included as an expense of club operations in the
consolidated statements of operations for the fiscal year ended March 31, 1997.
During the fiscal years ended March 31, 1997 and 1996, the Company pursued
various financing alternatives to meet working capital and club development cash
needs. During fiscal 1997, such activities primarily consisted of negotiating
and structuring the Private Placement and the Merger. In connection with the
Company's proposed financing activities, the Company has incurred legal and
other professional fees of approximately $412,000 and $394,000 in fiscal 1997
and 1996, respectively, which are included in general and administrative
expenses.
Interest expense was approximately $331,900 in fiscal 1997 as compared to
approximately $211,500 in fiscal 1996. This 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
- -------------------------------
The Company's cash and cash equivalents decreased by approximately $24,000
during the fiscal year ended March 31, 1997. Cash provided by operating
activities was approximately $706,000 as a result of the net loss incurred of
approximately $941,900 offset by a non-cash charge for impairment of long-lived
assets, depreciation and amortization and changes in operating assets and
liabilities totaling approximately $1,648,000. The Company also purchased
approximately $201,000 in property and equipment primarily related to club
leasehold improvements and made distributions of approximately $347,500 to
minority interest limited partners during fiscal 1997. The Company obtained bank
and investor financing totaling $500,000 during fiscal 1997. The proceeds from
such borrowings were primarily used to fund required debt maturities totaling
approximately $681,600 for the fiscal year ended March 31, 1997.
-10-
<PAGE> 11
The Company had ten clubs fully operational as of March 31, 1997. The
Company continues to experience significant cash flow and liquidity problems and
had a working capital deficiency of approximately $1,934,000 as of March 31,
1997. In addition, current maturities of notes and equipment leases payable
totaled approximately $1,222,900 as of March 31, 1997. The total monthly
payments, including interest, for such notes and leases in fiscal 1998 are set
out in the table below. Certain notes payable are scheduled to mature during
fiscal 1998. Such maturities include $280,000 due in June 1997 and $300,000 due
in August 1997.
The Company's material commitments for capital expenditures as of the end
of the fiscal year ending March 31, 1997 primarily consisted of payments for
leases and loans incurred to develop, operate and renovate the Jillian's clubs,
as well as certain cash distributions to limited partners, as described below.
The following table indicates the Company's aggregate lease payments, including
both equipment and building leases, and the aggregate amount of debt maturing
each month during fiscal 1998. Except for June and August, when final payment
comes due for the bridge notes and the note for The Blind Trust UDT 3/26/93,
respectively, aggregate loan payments average $34,919 per month. Aggregate
equipment lease payments amount to $29,629 per month. Aggregate building rent
payments average $157,951 per month. The Company intends to use some of the
proceeds from the Private Placement to meet the aggregate lease and debt
payments when they come due.
<TABLE>
<CAPTION>
Fiscal Year 1998
=================================================================================================================================
April May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. March
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Loans $ 37,091 $ 37,148 $352,072$ 37,148 $334,336 $ 34,260 $ 34,336 $ 34,260 $ 34,336 $ 34,336 $ 33,099 $ 33,175
=================================================================================================================================
Total Equip.
Leases 29,629 29,629 29,629 29,629 29,629 29,629 29,629 29,629 29,629 29,629 29,629 29,629
=================================================================================================================================
Total Bldg.
Rents 158,160 158,160 158,160 158,994 159,994 159,994 156,994 156,994 156,984 156,994 156,994 156,994
=================================================================================================================================
Total Monthly
Payments $224,880 $224,937 $539,861 $225,771 $523,959 $223,883 $220,959 $220,883 $220,949 $220,959 $219,722 $219,798
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
=================================================================================================================================
</TABLE>
Due to the Company's working capital deficiency and the significant amount
of fiscal 1998 debt maturities, the report of BDO Seidman, LLP, independent
certified public accountants to the Company, upon which the financial statements
of the Company as of March 31, 1997 and 1996 rely, contains an explanatory
paragraph regarding the Company's ability to continue as a going concern. The
Company's ability to meet its obligations and to continue as a going concern is
dependent upon consummation of the Merger and the Private Placement. The Company
also plans to refinance and consolidate certain debt upon consummation of the
Merger and the Private Placement. However, there can be no assurance that the
Merger will be approved by the shareholders of the Company, that the Merger will
be consummated or that the Private Placement will be consummated.
If the Merger and the Private Placement are not consummated, the Company,
at that time, will assess whether it will seek to structure another transaction
or retain a placement agent to raise funds for the Company.
The Merger Agreement provides that all fees and expenses incurred in
connection with the transactions contemplated thereby will be paid by the party
incurring such expenses, except that if the Merger is consummated, (i) the
Company will pay all of the fees and expenses of Childs, and (ii) the
-11-
<PAGE> 12
Company will pay Childs a one-time transaction fee of $100,000. In addition,
pursuant to the Merger Agreement, the Company is obligated to pay Childs a
termination fee of $500,000 if the Merger Agreement is terminated under certain
circumstances, including, but not limited to, the failure of the shareholders of
the Company to approve the Merger and the withdrawal of the Board of Director's
recommendation that such shareholders vote in favor of the Merger.
Upon consummation of the Merger and the Private Placement, the Company
intends to develop additional Jillian's clubs. The Company is currently
investigating potential sites for clubs in Massachusetts and certain other areas
in the Midwest and Mid-Atlantic states. In fiscal 1997, the Company executed new
leases for clubs to be developed in Raleigh, North Carolina, and Columbia, South
Carolina. The new leases provide for minimum monthly lease payments of
approximately $20,400 through 2007. There can be no assurance that the Company
will be successful in developing additional billiard clubs or that it can meet
its new lease obligations without consummating the Merger and the Private
Placement.
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 percent, 75 percent, 57
percent and 21 percent of the partnership interests 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
partnerships to require the Company to repurchase the respective limited
partnership interests at a price calculated as described in the following
paragraph. Such requirement for a 3 percent limited partner investor in the
Cleveland Heights club was December 31, 1995. The Company has offered to
purchase the 3 percent interest for $22,500 in cash payments. To date, the
Company and the 3 percent 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 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 common stock of the Company 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 such
common stock for sale to the public. The Company's ability to fulfill its
obligations and the future value of its common stock is dependent on the success
of the Company's business and consummation of the Merger and the Private
Placement. In addition, the Company 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. There
can be no assurance that the Company can meet its future cash distribution and
other obligations to the partnerships or to the limited partners, including its
obligations under its guarantee to the limited partners. In addition, there is
no assurance as to the value of the common stock of the Company in the event the
limited partners exercise their options to sell their units to the Company in
exchange for common stock.
The Company intends to negotiate the acquisition of the limited partnership
interests described above upon consummation of the Merger and the Private
Placement. In March 1997, the Company entered into a purchase and sale agreement
to acquire the limited partnership interest in the Worcester
-12-
<PAGE> 13
Limited Partnership for an aggregate purchase price of $500,000, payable to each
seller on a pro rata basis. The purchase price is subject to certain adjustments
depending on the date of closing of the sale. The sale is also contingent upon
the Company completing a $7,000,000 private placement on or before December 31,
1997.
Anticipated Effects of New Accounting Pronouncements
- ----------------------------------------------------
Stock Options and Warrants. Effective April 1, 1996, the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 allows the
Company to account for its stock-based compensation plans based upon either a
fair value method or the intrinsic value method previously followed by the
Company. The Company has retained the intrinsic value method of accounting for
stock-based compensation plans, and therefore, the adoption of SFAS No. 123 had
no impact on the Company's financial position or results of operations. As
required by SFAS No. 123, the Company has disclosed the effects of applying the
fair value method on the net loss and net loss per share on a pro forma basis.
Earnings Per Share. SFAS No. 128, "Earnings Per Share," issued by the
Financial Accounting Standards Board is effective for financial statements for
fiscal years ending after December 15, 1997. The new standard establishes
standards for computing and presenting earnings per share. The Company does not
expect the adoption of this standard to have a material effect on its
consolidated financial statements. The effect of adopting SFAS No. 128 has not
been estimated. The Company is required to adopt the disclosure required by SFAS
No. 128 during the year ending March 31, 1998.
-13-
<PAGE> 14
Item 7. Financial Statements
--------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Jillian's Entertainment Corporation
Boston, Massachusetts
We have audited the accompanying consolidated balance sheets of Jillian's
Entertainment Corporation and subsidiaries as of March 31, 1997 and 1996, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years 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 audits.
We conducted our audits 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 audits provide 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred substantial cash
flow and liquidity problems and has a significant working capital deficiency.
These factors raise substantial doubt about its ability to continue as a going
concern. Management's plan in regard to these matters is also described in Note
2. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ BDO SEIDMAN, LLP
May 21, 1997
-14-
<PAGE> 15
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(NOTE 2)
<TABLE>
<CAPTION>
===========================================================================================================================
March 31, 1997 1996
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 622 259 $ 646 306
Inventory 178 401 204 581
Accounts receivable 52 611 63 386
Other current assets 234 017 166 035
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 1 087 288 1 080 308
PROPERTY, LEASEHOLD IMPROVEMENTS AND
EQUIPMENT, net (Notes 3 and 4) 6 556 245 7 687 606
GOODWILL, net of accumulated amortization of
$315,000 and $262,000 752 133 805 384
OTHER ASSETS 308 795 330 973
- ---------------------------------------------------------------------------------------------------------------------------
$ 8 704 461 $ 9 904 271
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 890 031 $ 941 707
Accrued expenses and other liabilities 608 452 535 167
Due to shareholder 300 000 100 000
Current portion of notes and equipment
leases payable (Note 4) 1 222 881 712 910
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 3 021 364 2 289 784
DEFERRED RENT 1 030 674 1 187 860
NOTES PAYABLE AND EQUIPMENT LEASES PAYABLE,
less current maturities (Note 4) 1 494 674 2 186 235
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 5 546 712 5 663 879
- ---------------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS (NOTE 8) 1 255 249 1 395 964
- ---------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 6, 7 and 8):
STOCKHOLDERS' EQUITY (Note 4 and 7):
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 (7 642 915) (6 700 987)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1 902 500 2 844 428
- ---------------------------------------------------------------------------------------------------------------------------
$ 8 704 461 $ 9 904 271
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 16
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
========================================================================================================================
For the years ended March 31, 1997 1996
========================================================================================================================
<S> <C> <C>
REVENUES FROM CLUB OPERATIONS $13 216 495 $11 999 825
- ------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of club operations:
Cost of goods sold 2 983 936 2 736 704
Wages 3 045 320 2 745 768
Rent (Note 6) 1 868 901 1 685 014
Direct operating costs 2 622 356 2 475 614
Charge for impairment of long-lived
assets (Note 3) 450 000 -
General and administrative expenses 1 689 800 1 707 460
Depreciation and amortization expense 964 826 656 768
Income applicable to minority interest 206 790 189 613
- ------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 13 831 929 12 196 941
- ------------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (615 434) (197 116)
- ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (331 904) (211 520)
Interest income 5 410 14 905
- ------------------------------------------------------------------------------------------------------------------------
Total other expense, net (326 494) (196 615)
- ------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (941 928) $ (393 731)
========================================================================================================================
NET LOSS PER SHARE OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS $ (.10) $ (.04)
========================================================================================================================
WEIGHTED AVERAGE COMMON STOCK AND COMMON
STOCK EQUIVALENT SHARES OUTSTANDING 9 137 798 9 137 798
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 17
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Total
For the years ended ------------------- Paid-in Accumulated Notes Stockholders'
March 31, 1997 and 1996 Shares Amount Capital Deficit Receivable Equity
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
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 - - 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
Net loss - - - (941 928) - (941 928)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, at
March 31, 1997 9 137 798 $9 138 $9 536 277 $(7 642 915) $ - $1 902 500
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 18
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended March 31, 1997 1996
========================================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (941 928) $ (393 731)
- ------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 964 826 656 768
Charge for impairment of long-lived assets 450 000 -
Increase in paid-in capital for contribution of services - 23 000
Changes in operating assets and liabilities:
Inventory 26 180 (49 014)
Accounts receivable 10 775 (29 698)
Other assets (74 851) 29 706
Accounts payable (51 676) 362 922
Accrued expenses and other liabilities 116 099 282 518
Minority interest 206 790 189 613
- ------------------------------------------------------------------------------------------------------------------------
Total adjustments 1 648 143 1 465 815
- ------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 706 215 1 072 084
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (201 167) (1 677 301)
Collection of notes receivable - 103 413
- ------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (201 167) (1 573 888)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 500 000 630 253
Repayment of notes and leases payables (681 590) (506 829)
Distributions to minority interest shareholders (347 505) (229 434)
- ------------------------------------------------------------------------------------------------------------------------
Cash used by financing activities (529 095) (106 010)
- ------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (24 047) (607 814)
CASH AND CASH EQUIVALENTS, beginning of year 646 306 1 254 120
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 622 259 $ 646 306
========================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 350 044 $ 157 742
Income taxes $ - $ -
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 19
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
Organization 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 are the general partners and own
87%, 25%, 43% and 79% interests,
respectively.
Principles of
Consolidation The consolidated financial statements include
the accounts of Jillian's Entertainment
Corporation, and its wholly-owned
subsidiaries. The limited partnerships which
own the Cleveland Heights, Worcester,
Champaign and Annapolis clubs are
consolidated herein, since the Company
controls the operations of the limited
partnership. All significant intercompany
accounts and transactions have been
eliminated.
Use of Estimates The preparation 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.
Reclassifications Certain reclassifications have been made to
the March 31, 1996 consolidated financial
statements to conform with the March 31, 1997
presentation.
Cash Equivalents Cash equivalents include interest-bearing
deposits with banks and short-term highly
liquid investments, with original maturities
of less than three months.
19
<PAGE> 20
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
(Continued)
Inventory Inventory, primarily food and beverage, is
stated at cost. Cost is determined by the
first-in, first-out 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 expected renewal periods) or the useful
lives of the improvement which primarily
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 The excess of the cost 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 reviews at
each balance sheet date the value of its
long-lived assets and the goodwill related to
such assets for impairment in accordance with
Statement of Financial Accounting Standards
("SFAS") No. 121. The Company's valuation is
principally based on the profitability of the
clubs acquired in the original acquisitions
(Kendall, Seattle, and Cleveland) and the
ongoing value of the Jillian's concept based
on the clubs' estimated future cash flows
(undiscounted and without interest charges)
expected to result from the use of such
assets in accordance with SFAS No. 121.
Income Taxes The Company follows the liability method of
accounting for income taxes, as set forth in
SFAS No. 109, "Accounting for Income Taxes".
SFAS No. 109 prescribes an asset and
liability approach, which requires the
recognition of deferred tax liabilities and
assets for the expected future tax
consequences of temporary differences between
the carrying amounts and the tax basis of
assets and liabilities. The Company's policy
is to record a valuation allowance against
deferred tax assets
20
<PAGE> 21
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
(Continued)
Income Taxes
(Continued) unless it is more likely than not that such
assets will be realized in future periods.
The Company considers estimated future
taxable income or loss and other available
evidence when assessing the need for its
deferred tax valuation allowance.
Due to Shareholder The amount due to shareholder of $300,000 and
$100,000 at March 31, 1997 and 1996,
respectively, represents amounts owed for
services rendered by an officer and
shareholder of the Company. The amount due
is non-interest bearing and has no fixed
repayment terms.
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.
Operating 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 concessions are recorded as
deferred rent and are amortized over the
terms of the lease.
Earnings/Loss
Per Share Primary 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. Fully diluted earnings per
share assumes that the proceeds were used to
purchase common shares outstanding at the
higher of the fair market value per share as
of the end of each period or 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 general and
administrative expenses incurred prior to a
club opening for business.
21
<PAGE> 22
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
(Continued)
Start-up Costs
(Continued) The Company incurred no start-up costs for
the year ended March 31, 1997. Direct
operating costs included start-up costs
related to development stage clubs of
approximately $82,600 for the year ended
March 31, 1996.
Advertising Costs Advertising costs are charged to operations
as incurred. Advertising expense was
approximately $390,000 and $317,000 for the
years ended March 31, 1997 and 1996,
respectively.
New Accounting
Pronouncements Stock Options and Warrants - Effective April
1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation".
SFAS No. 123 allows the Company to account
for its stock-based compensation plans based
upon either a fair value method or the
intrinsic value method previously followed by
the Company. The Company has retained the
intrinsic value method of accounting for
stock-based compensations plans, and
therefore, the adoption of SFAS No. 123 had
no impact on the Company's financial position
or results of operations. As required by
SFAS No. 123, the Company has disclosed the
effects of applying the fair value method on
the net loss and net loss per share on a pro
forma basis (see Note 7).
Earnings Per Share - SFAS No. 128,"Earnings
Per Share", issued by the Financial
Accounting Standards Board is effective for
financial statements for fiscal years ending
after December 15, 1997. The new standard
establishes standards for computing and
presenting earnings per share. The Company
does not expect the adoption of this standard
to have a material effect on its consolidated
financial statements.
The effect of adopting SFAS No. 128 has not
been estimated. The Company is required to
adopt the disclosure required by SFAS No. 128
during the year ending March 31, 1998.
22
<PAGE> 23
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. GOING CONCERN AND
PROPOSED PRIVATE
PLACEMENT AND
MERGER TRANSACTION The Company's consolidated financial
statements have been prepared on the basis
that it will be able to continue as a going
concern. The Company has incurred
substantial cash flow and liquidity problems
and has a significant working capital
deficiency. Accordingly, the Company's
ability to continue as a going concern is
dependent upon the anticipated proceeds from
its proposed private placement and merger
transaction described below.
In March 1997, the Company entered into a
non-binding letter of intent providing for
the preliminary terms and conditions of a
proposed private placement and merger
transaction. Such transaction is subject to
the Company's stockholders' consideration and
vote. The proposed Merger Agreement by and
between the Company and Jillian's
Entertainment Acquisition Corporation, a
Florida corporation ("Sub") and a wholly
owned subsidiary of Jillian's Entertainment
Holdings, Inc., a Delaware corporation
("Holdings") provides, among other matters,
for the following:
(i) Sub will be merged with and into the
Company, and the Company will be the
surviving company in the Merger.
(ii) Each share of common stock of Sub
will be converted into the right to
receive one share of Series A common
stock, par value $.001 per share, of
the surviving company and one share
of Series B common stock, par value
$.001 per share, of the surviving
company.
(iii) Each share of common stock held by a
non-continuing shareholder will be
converted into the right to receive a
merger payment.
(iv) Each warrant to purchase a share or
shares of common stock held by a
continuing warrant holder will be
exchanged for a warrant to purchase
the same number of shares of common
stock of Holdings.
23
<PAGE> 24
JILLIAN'S ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. GOING CONCERN AND
PROPOSED PRIVATE
PLACEMENT AND
MERGER TRANSACTION
(Continued) The Company has determined that approximately
$2,600,000 in cash will be required in order
to make the merger payments. The Company
intends to use funds obtained from a private
placement of $12,000,000 of convertible
preferred stock of Holdings, pursuant to the
terms and conditions of a Purchase Agreement,
to make the merger payments. If the Merger
is approved by the Company's shareholders,
subject to the terms and conditions of the
Purchase Agreement, the private placement
will be consummated immediately prior to
consummation of the Merger.
If the Merger is not approved by the
Company's shareholders, the Company, at that
time, will assess whether it will seek to
structure another transaction or continue to
retain the placement agent to raise funds for
the Company. Approval of the Merger will
require the favorable vote of the majority
of all outstanding shares of common stock.
The Merger Agreement also provides that all
fees and expenses incurred in connection with
the Merger Agreement and the Purchase
Agreement and the transactions contemplated
thereby will be paid by the party incurring
such expenses, except that if the Merger is
consummated, (i) the Company will pay all of
the proposed investor group's fees and
expenses and (ii) the Company will pay the
proposed investor group a one-time
transaction fee of $200,000. In addition,
pursuant to the Merger Agreement, the Company
is obligated to pay the proposed investor
group a termination fee of $500,000 if the
Merger Agreement is terminated under certain
circumstances, including, but not limited to,
the failure of the shareholders to approve
the Merger and the withdrawal of the Board of
Director's recommendation that the
shareholders vote in favor of the Merger.
24
<PAGE> 25
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY,
LEASEHOLD
IMPROVEMENTS AND
EQUIPMENT, NET Property, leasehold improvements and
equipment consist of the following:
<TABLE>
<CAPTION>
March 31, 1997 1996
======================================================================================
<S> <C> <C>
Leasehold improvements $ 4 564 345 $ 5 487 014
Game equipment 1 393 477 1 391 937
Club and office equipment 1 598 990 1 772 683
Furniture and fixtures 629 231 720 323
Assets held for sale, net 747 032 -
--------------------------------------------------------------------------------------
8 933 075 9 371 957
Less accumulated depreciation (2 376 830) (1 684 351)
--------------------------------------------------------------------------------------
$ 6 556 245 $7 687 606
======================================================================================
</TABLE>
The Company has analyzed numerous options
regarding its Long Beach club, which has
continued to incur operating losses. During
the fourth quarter of 1997, the Company began
actively pursuing the sale of its Long Beach
club and, accordingly, has classified the
club's leasehold improvements and equipment
as "assets held for sale". The Company
wrote-down the value of its Long Beach
long-lived assets based upon its
determination that the estimated net proceeds
from a sale will not be sufficient for the
Company to recover the carrying value of the
club's long-lived assets. A charge of
$450,000 for the estimated impairment of the
club's long-lived assets is included as an
expense of club operations for the year ended
March 31, 1997 in the accompanying
consolidated statements of operations.
25
<PAGE> 26
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NOTES AND
EQUIPMENT
LEASES PAYABLE Notes and equipment leases payable consist of the
following:
<TABLE>
<CAPTION>
March 31, 1997 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable:
7% note payable to City of Long Beach, collateralized by the
assets of the Long Beach club and shares of the Company's
common stock as described below. The note is also guaranteed
by Jillian's Billiard Club of Pasadena, Inc. and Jillian's
Entertainment Corporation. Principal and interest is payable
in monthly installments of $5,507 beginning April 1, 1996.
Balance due 2006.
$ 440 322 $ 450 000
Note payable to unaffiliated third party with interest at prime
plus 3% (11.25% at March 31, 1997), collateralized by certain
assets of the Long Beach club, the Pasadena club and Jillian's
Entertainment Corporation. Principal and interest due on
August 1, 1997. The Company also issued the lender 50,000
warrants to purchase the Company's common stock (see Note 7).
300 000 -
25% notes payable to affiliated third parties. Interest only
payable semi-annually. Principal and accrued interest due May
and June 1997.
280 000 280 000
9.5% note payable to bank, collateralized by the assets of the
Tacoma club and by certain assets of the Seattle club.
Principal and interest payable in monthly installments of
$6,306. Balance due December 2000.
237 868 284 357
</TABLE>
26
<PAGE> 27
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NOTES AND
EQUIPMENT
LEASES PAYABLE
(Continued)
<TABLE>
<CAPTION>
March 31, 1997 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank note payable with interest at the bank's base rate plus
1.5% (9.75% at March 31, 1997), collateralized by certain
property and equipment. Principal and interest payable in
monthly installments of $6,945. Balance due September 9,
1999.
201 389 -
Note payable to unaffiliated third parties with interest
accruing at 15% per annum (currently payable at 12%).
Principal and accrued interest due October 20, 1999.
185 000 185 000
Note payable to U.S. Government without interest. Payable in
monthly installments of $3,000 with principal balance due
April 28, 1998. Collateralized by 200,000 shares of the
Company's common stock.
166 792 199 792
9.5% note payable to bank collateralized by the assets of the
Seattle club. Principal and interest payable in monthly
installments of $4,205. Balance due May 18, 1999.
102 722 144 538
10% note payable to Champaign club landlord, collateralized by
certain assets of the Champaign club. Principal and interest
payable in monthly installments of $3,187. Balance due
September 1, 1999.
81 804 110 301
</TABLE>
27
<PAGE> 28
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NOTES AND
EQUIPMENT
LEASES PAYABLE
(Continued)
<TABLE>
<CAPTION>
March 31, 1997 1996
==================================================================================================
<S> <C> <C>
7% note payable to City of Cleveland Heights collateralized by
personal property and fixtures in the Cleveland Heights club.
Principal and interest payable in monthly installments of
$1,161. Balance due in March 1998.
67 340 76 219
8% note payable to seller of Pasadena club. Principal balance
paid in August, 1996.
- 175 000
8.5% note payable to unaffiliated third party. Principal
balance paid in August, 1996.
- 50 000
-----------------------------------------------------------------------------------------------
Total notes payable 2 063 237 1 955 207
-----------------------------------------------------------------------------------------------
Collateralized equipment lease payable:
12.6% leases payable collateralized by Tacoma club assets.
Payable in monthly principal and interest installments of
$6,762. Balance due December 2000.
245 772 294 556
11.9% equipment leases payable to unaffiliated third party.
Payable in monthly principal and interest installments of
$6,673. $30,000 buy-out due June 1999.
157 219 214 633
11.25% equipment leases payable to unaffiliated third party.
Payable in monthly installments of $11,953. Balance due in
March 1998.
135 068 255 826
</TABLE>
28
<PAGE> 29
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NOTES AND
EQUIPMENT
LEASES PAYABLE
(Continued)
<TABLE>
<CAPTION>
March 31, 1997 1996
=================================================================================================
<S> <C> <C>
Various other equipment leases payable to unaffiliated third
party. Payable in principal and interest installments
aggregating $4,240 per month, maturing in May 1998 through
September 2001.
116 259 178 923
------------------------------------------------------------------------------------------------
Total capital leases payable 654 318 943 938
------------------------------------------------------------------------------------------------
Total notes and equipment leases payable 2 717 555 2 899 145
Less current portion of notes and
equipment leases payable 1 222 881 712 910
------------------------------------------------------------------------------------------------
Long-term portion of notes
and equipment leases payable $1 494 674 $2 186 235
================================================================================================
</TABLE>
The aggregate amount of required payments
under the notes payable are as follows:
<TABLE>
<CAPTION>
Year Ending March 31, Amount
================================================================================================
<S> <C>
1998 $ 932 486
1999 395 586
2000 357 492
2001 99 432
2002 48 114
Thereafter 230 127
------------------------------------------------------------------------------------------------
$2 063 237
================================================================================================
</TABLE>
As collateral on the City of Long Beach note
payable, 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
29
<PAGE> 30
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NOTES AND
EQUIPMENT
LEASES PAYABLE
(Continued) Company has agreed to continue to issue
additional shares of its common stock until
the outstanding loan balance is paid in full.
Future minimum lease payments under capital
lease obligation together with the present
value of the net minimum lease payments are
as follows:
<TABLE>
<CAPTION>
Year ending March 31, Amount
================================================================================================
<S> <C>
1998 $355 550
1999 202 095
2000 140 035
2001 77 947
------------------------------------------------------------------------------------------------
Total minimum lease payments 775 627
Less amounts representing interest 121 309
------------------------------------------------------------------------------------------------
Present value of net minimum lease payments $654 318
================================================================================================
</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. The tax
effects of significant items comprising the
Company's net deferred tax asset are as
follows:
<TABLE>
<CAPTION>
March 31, 1997 1996
================================================================================================
<S> <C> <C>
Gross deferred tax liabilities $ - $ -
================================================================================================
Deferred tax assets:
Accruals not yet deductible
for tax purposes $ 113 000 $ -
Charge for long-lived asset
impairment not yet deductible
for tax purposes 169 000 -
Contribution carryforward 8 700 8 000
Net operating loss carryforward 1 970 000 2 202 300
Capital loss carryforward 31 600 31 600
------------------------------------------------------------------------------------------------
Gross deferred tax assets 2 292 300 2 241 900
</TABLE>
30
<PAGE> 31
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
5. INCOME TAXES
(Continued) March 31, 1997 1996
================================================================================================
<S> <C> <C>
Deferred tax asset
valuation allowance (2 292 300 ) (2 241 900)
------------------------------------------------------------------------------------------------
Net deferred tax asset $ - $ -
================================================================================================
</TABLE>
As of March 31, 1997, the Company has unused
operating loss carryforwards of approximately
$6,200,000 for federal income tax purposes,
subject to review by the Internal Revenue
Service. Approximately $4,000,000 of this
carryforward is limited, under Section 382 of
the Internal Revenue Code, to approximately
$350,000 per year. The Company may also
experience an additional reduction in its
loss carryforwards as a result of a change in
ownership in excess of 50% upon completion of
its proposed private placement and merger
transactions as described in Note 2. The
Company's loss 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 the Company's loss before income
taxes as follows:
<TABLE>
<CAPTION>
Year ending March 31, 1997 1996
================================================================================================
<S> <C> <C>
Income tax expense (benefit)
at federal statutory rate (34.0) % (34.0) %
Goodwill amortization 2.0 2.2
Operating losses generating
no current tax benefit 32.0 31.8
------------------------------------------------------------------------------------------------
Effective income tax rate 0.0 % 0.0 %
------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 32
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. OPERATING 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 is
obligated to pay the lessor minimum annual
rent equal to approximately $34,700 for the
second lease year and $37,800 for the third
lease year.
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
approximately as follows:
<TABLE>
<CAPTION>
Year ending March 31, Amount
================================================================================================
<S> <C>
1998 $ 1 839 000
1999 1 935 000
2000 1 587 000
2001 1 398 000
2002 1 306 000
Thereafter 3 275 000
------------------------------------------------------------------------------------------------
$11 340 000
================================================================================================
</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. The Company was
required to pay approximately $53,000 and
$42,000 in additional rent for the years ended
March 31, 1997 and 1996, respectively.
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.
32
<PAGE> 33
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCK OPTIONS
AND WARRANTS At March 31, 1997, outstanding warrants and
options to purchase shares of the Company's
common stock were as follows:
<TABLE>
<CAPTION>
Amount
================================================================================================
<S> <C>
Warrants issued in connection with the Seattle club lease (a) 76 984
Warrants issued to public relations firm (b) 50 000
Warrants issued to former directors and officers (c) 262 500
Warrants issued in connection with the Miami club lease (d) 65 000
Consolidated Stock Option Plan (e) 145 500
1994 Stock Option Plan (f) 124 000
1995 Stock Option Plan (g) 1,595,000
Warrants issued to the City of Long Beach
note payable (see Note 4) 225 000
Warrants issued in connection with note payable (see Note 4) 50 000
------------------------------------------------------------------------------------------------
Total number of common shares issuable upon exercise
of warrants and stock options 2,593,984
================================================================================================
</TABLE>
(a) Under the terms of an amendment to
the Seattle club lease, the lessor
and the Company 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
were issued on the 15th 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:
<TABLE>
<CAPTION>
For Fiscal Warrants Exercise
Year Issued Price/Share
============================================================================
<S> <C> <C>
1993 12 608 .75
1994 15 637 .70
1995 20 631 .45
1996 28 108 .27
----------------------------------------------------------------------------
76 984
============================================================================
</TABLE>
33
<PAGE> 34
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCK OPTIONS
AND WARRANTS
(Continued) (b) 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 $.50 per share.
(c) 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>
================================================================================
8/4/93 40 000 $.78
3/31/94 40 000 .70
1/23/95 40 000 .66
2/17/95 67 500 .66
2/17/95 75 000 .33
--------------------------------------------------------------------------------
262 500
================================================================================
</TABLE>
(d) 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). In exchange for the
amendment, the Company issued the
lessor 40,000 shares of its common
stock and granted the lessor warrants
to purchase 65,000 shares of its
common stock at $.50 per share. The
warrants are exercisable for a
five-year period.
34
<PAGE> 35
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCK OPTIONS
AND WARRANTS
(Continued) (e) 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. As of March 31, 1997,
145,500 of these options are
outstanding. The outstanding options
are exercisable at $.66 per share to
the extent vested which is as
follows: 1) 141,300 options were
exercisable as of March 31, 1997 and
2) 4,200 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) 68,000 options in
fiscal 2004.
(f) On March 31, 1994, the Board of
Directors adopted the 1994 Director,
Adviser and Key Employee Stock Option
Plan (the "1994 Plan"). The following
1994 plan options are outstanding and
fully vested as of March 31, 1997:
<TABLE>
<CAPTION>
Options Exercise
Issued Price/Share Expiration Date
<S> <C> <C>
================================================================================
20 000 $.45 March 31, 2005
104 000 .66 March 31, 2004
--------------------------------------------------------------------------------
124 000
================================================================================
</TABLE>
(g) 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, allowed for the purchase of
1,645,000 shares of the Company's
common stock. As of March 31, 1997,
1,595,000 options remain outstanding.
The outstanding options are
exercisable at $.40 per share to the
extent vested, which is as follows:
1) 775,000 options were exercisable
35
<PAGE> 36
JILLIAN'S ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCK OPTIONS
AND WARRANTS
(Continued) as of March 31, 1997, 2) 395,000
options will vest during 1998 and
1999, and 3) 30,000 options will vest
during 2000. All outstanding options
issued under the 1995 plan expire in
October 2005.
(h) On July 31, 1996, the Company issued
50,000 warrants to an unaffiliated
third party lender in connection with
a $300,000 loan payable. The
warrants have an exercise price of
$.50 per share and are fully vested
at March 31, 1997. The 50,000
warrants expire on July 31, 2001.
The Company accounts for its stock-based
compensation plans using the intrinsic value
method. Accordingly, no compensation cost
has been recognized since the option's
exercise price to purchase shares of the
Company's common stock was not less than the
common stock's market value on the date of
grant. The Company granted no stock-based
compensation options for the year ended March
31, 1997. Had compensation cost for the
Company's fiscal 1996 stock options (issued
under the 1995 Stock Option Plan) been
determined based on the fair value method,
using an option pricing model in accordance
with SFAS No. 123, the Company's net loss and
net loss per share would have been increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ending March 31, 1997 1996
=====================================================================================
<S> <C> <C>
Net loss (in thousands):
As reported $ (942) $ (394)
Pro forma $ (1 026) $ (502)
Net loss per common share:
As reported $ (.10) $ (.04)
Pro forma $ (.11) $ (.05)
</TABLE>
36
<PAGE> 37
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCK OPTIONS
AND WARRANTS
(Continued) In determining the pro forma amounts above,
the Company estimated the fair value of the
1996 options using the Black-Scholes option
pricing model with the following
weighted-average assumptions: dividend yield
of 0%, volatility of 35%, risk-free rates
ranging from 6.1% to 6.2% with an expected
life of ten years. The weighted average fair
value of options granted in fiscal 1996 was
approximately $200,000 and have a weighted-
average remaining life of 7.8 years.
8. MINORITY INTERESTS
General 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 interest. 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 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
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.
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.
37
<PAGE> 38
JILLIAN'S ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. MINORITY INTERESTS
(Continued)
Jillian's Billiard
Club of Cleveland
Heights, Ltd.
(Continued) A 3% limited partner had the option to sell
their three Units to the Company upon the
transmittal to the limited partner of the
financial statements for the partnership for
the 12 months ended December 31, 1995. The
Company has offered to purchase such Units at
a cash price equal to the amount paid by a
limited partner for his Units ($22,500). To
date, the limited partner and the Company
have not agreed upon the terms of the
purchase.
A 10% limited partner will have the option to
sell its interest to the Company anytime
after January 1, 1997. The Company has
agreed to purchase the 10% interest at a
price equal to 500% of the annualized cash
flow of JBC 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 10-
day average bid and ask price prior to the
limited partner exercising its option to sell
its interest. To date, the Company and the
10% limited partner have not entered into a
purchase agreement.
Jillian's Billiard
Club of Worcester,
Ltd. The Worcester, Massachusetts club is owned by
Jillian's Billiard Club of Worcester Limited
Partnership (the "Worcester 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% limited partnership interest
was sold for $850,000.
The limited partners will have the option to
sell their Units to the Company during the
60-day period after the transmittal to the
limited partners of the financial statements
of the Partnership for the 12 months ending
December 31, 1998.
38
<PAGE> 39
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. MINORITY INTERESTS
(Continued)
Jillian's Billiard
Club of Worcester,
Ltd.
(Continued) In March 1997, the Company entered into
Purchase and Sale Agreements (the
"Agreements") to acquire the 75% limited
partners interest in the Worcester
Partnership for an aggregate purchase price
of $500,000, payable to each seller on a pro
rata basis. The purchase price is subject to
certain adjustments depending on the date of
closing, as defined in the Agreements. The
Agreements are also contingent upon the
Company completing a private placement (see
Note 2) on or before December 31, 1997.
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% limited partnership interest
was sold for $325,000.
Forty-seven percent (47%) of the limited
partners had the option to sell their Units
to the Company, during the 60-day period
after the transmittal to the limited
partners of the financial statements for the
Partnership for the 12 months ending December
31, 1996. The limited partners did not
exercise their option to sell.
A 10% limited partner will have the option to
sell its interest to the Company 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 JBC 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 a 10-day
average bid and ask price, as defined in the
Partnership Agreement. The limited partner
does not have a demand registration right.
The Company has also guaranteed that owners
of the Units will receive distributions from
the Partnership equal to 140% of their
investment over a 6-year period. The
guarantee period commenced at the beginning
of first calendar quarter after the closing
of the sale of Units.
39
<PAGE> 40
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. MINORITY INTERESTS
(Continued)
Jillian's Billiard
Club of Annapolis,
Ltd. The Annapolis, Maryland club is owned by
Jillian's Billiard Club of Annapolis Limited
Partnership ("the 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
79% interest. The remaining 21% limited
partnership interest was sold for $133,084.
The limited partners will have the option to
sell their Units to the Company during the
60-day period after the transmittal to the
limited partners of the financial statements
for the Partnership for the 12 months ending
December 31, 1997. If a limited partner
exercises their option, the purchase price
for the Units would be payable 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 is four times 50% of the net
income of the Partnership for the 12 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 also has agreed to
provide a right to the limited partners, for
a limited time, to register their 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 6-year
period. The guarantee period commenced at
the beginning of the first calendar quarter
after the closing of the sale of Units.
40
<PAGE> 41
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. MINORITY INTERESTS
(Continued)
Summary
Information The following is a summary of the limited
partnerships terms:
<TABLE>
<CAPTION>
Percent of
Original Minimum Purchase Price
Investment Annual Purchase Payable
by Limited Return Price in Cash/
Partners Guaranteed Put Date Multiple Common Stock
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
Cleveland Heights $ 22 500 - 12/31/95 5 (a) 100%/ 0%
Cleveland Heights 100 000 - 01/01/97 5 0%/ 100%
Worcester 850 000 15% (b) 12/31/98 5 50%/ 50%
Champaign 325 000 23.33% (c) 12/31/96 - Put not exercised
Champaign 100 000 - 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 Company's ability to fulfill the above
obligations and the future value of the
Company's common stock is dependent on the
success of the business and the outcome of
the proposed transaction described at Note 2.
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.
41
<PAGE> 42
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. MINORITY INTERESTS
(Continued)
Summary
Information
(Continued) The minority interest liability balance in
the accompanying consolidated balance sheets
consists of the following:
<TABLE>
<CAPTION>
March 31, 1997 1996
<S> <C> <C>
========================================================================================
Cleveland Heights Limited
Partnership $ 109 400 $ 113 532
Worcester Limited Partnership 570 861 632 930
Champaign Limited Partnership 388 426 446 974
Annapolis Limited Partnership 186 562 202 528
----------------------------------------------------------------------------------------
$1 255 249 $1 395 964
========================================================================================
</TABLE>
42
<PAGE> 43
Item 8. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosures
---------------------
On March 28, 1996, the Registrant filed a Form 8-K to report the
resignation of Deloitte & Touche LLP ("Deloitte"), the Registrant's principal a
ccountant, effective March 21, 1996.
On June 14, 1996, the Registrant filed a Form 8-K to report the engagement
of BDO Seidman, LLP ("BDO") as the Registrant's principal accountant,
effective June 11, 1996.
BDO was engaged by the Company as its principal accountant on June 11, 1996
after the resignation of Deloitte on March 21, 1996 (the "Resignation Date").
Deloitte had served as principal accountant to the Company since 1989.
Deloitte's report on the financial statements of the Company for the fiscal
years ended March 31, 1995 and 1994 did not contain an adverse opinion or a
disclaimer of opinion, and such reports were not qualified or modified as to
uncertainty, audit scope, or accounting principals. During the two fiscal years
in the period ended March 31, 1995 and in the subsequent period through the
Resignation Date, there were no disagreements between the Company and Deloitte
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. In addition, during the two fiscal
years in the period ended March 31, 1995 and in the subsequent period through
the Resignation Date, there were no reportable events as defined in Item
304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934, as
amended.
PART III
Item 9. Directors and Executive Officers; Compliance with Section 16 (a) of the
-----------------------------------------------------------------------
Exchange Act
------------
(a) Set forth below is the name age and principal occupation or employment
during the past five years of each executive officer and director of the
Company, each of whom is a citizen of the United States. 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.
Positions with the Company;
Name and Business Address Principal Occupation and Business Experience
- ------------------------- --------------------------------------------
Steven L. Foster, age 48 Mr. Foster has been Chief Executive
727 Atlantic Avenue, Suite 600 Officer of the Company since March
Boston, MA 02111 1991, Chairman of the Board of the
Company since March 1994 and a
Director of the Company since April
1991. He is the principal founder
and co-creator of the Jillian's
billiard club concept. He has been
actively involved in creating and
operating entertainment clubs since
1979 and is co-owner of a Jillian's
billiard club in Boston,
Massachusetts. In addition, Mr.
Foster is co-founder of United
Fuels International, Inc., an
international energy brokerage
firm, and its affiliates. Mr.
Foster graduated magna cum laude
from Boston University School of
Law in 1978 with a Juris Doctor
(J.D.) degree.
Daniel M. Smith, age 35 Mr. Smith has been President, Chief
727 Atlantic Avenue, Suite 600 Operating Officer and a Director of
Boston, MA 02111 the Company since January 1995. Mr.
Smith was most recently a Vice
President of KFC (Kentucky Fried
Chicken), where he was employed
from 1990 to 1995 and prior to that
was employed as Vice
President-European Operations of
Domino's Pizza during his tenure
from 1986 to 1990. He received a
Masters of Management (M.M.A.)
degree from Northwestern
University.
43
<PAGE> 44
Ronald Widman, age 32 Mr. Widman has been Vice President
727 Atlantic Avenue, Suite 600 of Development of the Company since
Boston, MA 02111 June 1995. Prior to joining the
Company, Mr. Widman was employed by
KFC/PepsiCo. for over 11 years where
he was most recently responsible
for the creation, implementation
and turn-key development of new
concepts, including the cross
functional development of Taco Bell
and KFC facilities. He received a
Masters of Business Administration
(M.B.A.) degree from the University
of Louisville.
Stephen M.Weis, age 31 Mr. Weis has been Vice President of
727 Atlantic Avenue, Suite 600 Operations of the Company since
Boston, MA 02111 June 1995. Mr. Weis was Delivery
Operations Manager of KFC from 1991
to 1995 where he oversaw the field
operations of over 100 delivery
restaurants. Prior to that, Mr.
Weis was Senior Operations
Supervisor of Domino's Pizza in the
Mid-Atlantic region from 1987 to
1991. He received a Bachelor of
Arts (B.A.) degree in marketing
from The American University.
John L. Kidde, age 62 Mr. Kidde has been a Director of
727 Atlantic Avenue, Suite 600 the Company since its inception.
Boston, MA 02111 Mr. Kidde is currently the
President of KDM Development
Corporation, an investment
management firm. Mr. Kidde
currently serves as a member of the
board 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;
Continental Europe '90, Cayman
Islands; International Agritech
Resources, New York; Juniper
Partners, Inc., New York; and HFG
Expansion Management Inc.,
Massachusetts. He currently serves
as a trustee of Stevens Institute
of Technology, Hoboken, New Jersey;
Open Space Institute, New York; and
the Frost Valley YMCA, Montclair,
New Jersey. He is a general partner
of Claflin Capital Management I-VII
and The Opportunity Fund, both of
Boston, Massachusetts, and North
American Venture Capital II, L.P.
of Madison, New Jersey. From June
1968 through January 1988, Mr.
Kidde was Vice President and
Director of International
Operations of Kidde, Inc., a
multi-industrial conglomerate.
44
<PAGE> 45
Donald R. Leopold, age 46 Mr. Leopold has been a Director of
727 Atlantic Avenue, Suite 600 the Company since April 1991. For
Boston, MA 02111 the past six years, he 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
in Marketing of Services and
Management of Service Operations.
He earned a Bachelor of Arts (B.A.)
degree, cum laude, from Harvard
College in general studies, and a
Masters in Business Administration
(M.B.A.) degree from the Harvard
University Graduate School of
Business Administration.
(b) Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Section 16(a) reports furnished to the
Registrant during the fiscal year ended March 31, 1997, all Section 16(a)
reporting requirements were met.
Item 10. Executive Compensation
- -------------------------------
(a) Summary Compensation Table
The following table sets forth the compensation for each of the last three
fiscal years earned by or awarded to the Chief Executive Officer ("CEO") and
Chairman of the Board and the Chief Operating Officer ("COO") and President 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>
Annual Compensation
Name and ----------------------------------
Principal Position Year Salary Bonus
- ------------------ ---- ------ -----
<S> <C> <C> <C>
Steven L. Foster 1997* $200,000 --
(Chairman of the Board and CEO) ======== =======
1996** $123,000 --
======== =======
1995 $ 50,000 --
======== =======
Daniel M. Smith 1997 $150,000 $30,000
(President and COO) ======== =======
1996 $148,333 --
======== =======
1995 N/A N/A
</TABLE>
* In order to reduce the Company's general and administrative cash
payments, Mr. Foster has agreed to defer payment of his salary until the
Company's cash resources increase.
** Mr. Foster has agreed to waive $23,000 of this amount and to defer
$100,000.
(b) Option Grants in Fiscal 1997
----------------------------
None.
(c) Aggregate Option Exercises in Fiscal 1997 and Fiscal
----------------------------------------------------
Year-End Option Values
----------------------
The following table sets forth certain information with respect to options
exercised by the CEO and COO during the fiscal year ended March 31, 1997 and
unexercised options to purchase shares of the Registrant's common stock held by
the CEO and the COO at March 31, 1997.
45
<PAGE> 46
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at End of Fiscal the-Money Options at End
Shares Year of Fiscal Year
Acquired Value Realized
Name on Exercise ($) Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Steven L. Foster --- $-0- 375,000 / 375,000 $-0- / -0-
Daniel M. Smith --- $-0- 230,000 / 230,000 $-0- / -0-
</TABLE>
(d) Long-Term Incentive Plan Awards
-------------------------------
None.
(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. Each of the
members of the Board of Directors has 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, except
that Mr. Kidde received $4,000 in director's compensation during fiscal 1997.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------
The following table sets forth, as of June 20, 1997, the beneficial
ownership of shares of Common Stock and shares of common stock of the Company's
subsidiaries, by (i) each person known to the Company to own more than five
percent of such shares, (ii) each executive officer of the Company, (iii) each
director of the Company, and (iv) all executive officers and directors of the
Company as a group. Under rules of the Commission, beneficial ownership includes
any shares as to which a person has the sole or shared voting power or
investment power and also any shares which a person has the right to acquire
within 60 days through the exercise of any stock option or other right.
<TABLE>
<CAPTION>
Name, Position & Number of Shares Percent of Outstanding Shares
---------------- ---------------- -----------------------------
Business Address
----------------
<S> <C> <C>
Steven L. Foster, Chief Executive 1,708,600(1) 18.7%
Officer, Chairman of the Board
and a Director of the Company
727 Atlantic Avenue, Suite 600
Boston, MA 02111
Daniel M. Smith, President, Chief 230,000(2) 2.5%
Operating Officer and a Director
of the Company
727 Atlantic Avenue, Suite 600
Boston, MA 02111
</TABLE>
46
<PAGE> 47
<TABLE>
<S> <C> <C>
Stephen M. Weis, Vice President 30,000(3) (6)
of Operations of the Company
727 Atlantic Avenue, Suite 600
Boston, MA 02111
Ronald Widman, Vice President of 30,000(4) (6)
Development of the Company
727 Atlantic Avenue, Suite 600
Boston, MA 02111
John L. Kidde, Director of the 68,250(5) (6)
Company
KDM Development Corporation
The Livery
209 Cooper Avenue
Upper Montclair, NJ 07043
Donald R. Leopold, Director of 50,000(7) (6)
the Company
Sherbrooke Associates, Inc.
52 Waltham Street
Lexington, MA 02173
Kevin Troy 676,667(8) 7.4%
145 Ipswich Street
Boston, MA 02215
Steven Rubin 1,240,765(9) 13.6%
508 North Second Street
Fairfield, IA 52556
All executive officers and 2,116,850(10) 23.2%
directors as a group (six 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 Mr. Foster, beneficially owns 10,000 shares, (iii) 375,000 shares
issuable pursuant to options held by Mr. Foster that have vested and are or will
become exercisable within 60 days of June 10, 1997, (iv) 5,000 shares held by
Mr. Foster's spouse, and (v) 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
10,00 shares owned by Mr. Rubin, the 5,000 shares owned by his spouse, and the
8,600 shares owned by his children. Excludes 375,000 shares issuable pursuant to
options held by Mr. Foster.
(2) All shares issuable pursuant to options held by Mr. Smith that have vested
and are or will become exercisable within 60 days of June 10, 1997. Excludes
230,000 shares issuable pursuant to options held by Mr. Smith.
(3) All shares issuable pursuant to options held by Mr. Weis that have vested
and are or will become exercisable within 60 days of June 10, 1997. Excludes
30,000 shares issuable pursuant to options held by Mr. Weis.
(4) All shares issuable pursuant to options held by Mr. Widman that have vested
and are or will become exercisable within 60 days of June 10, 1997. Excludes
30,000 shares issuable pursuant to options held by Mr. Widman.
(5) Consists of (i) 1,000 shares owned by Mr. Kidde son, (ii) 17,250 shares held
by Mr. Kidde, and (iii) 50,000 shares issuable pursuant to options held by Mr.
Kidde that have vested and are or will become exercisable within 60 days of
47
<PAGE> 48
June 10, 1997. Mr. Kidde disclaims any beneficial ownership of the 1,000 shares
owned by his son.
(6) Less than one percent.
(7) All shares issuable pursuant to options held by Mr. Leopold that have vested
and are or will become exercisable within 60 days of June 10, 1997.
(8) Consists of (i) 551,667 shares, and (ii) 125,000 shares issuable pursuant to
options held by Mr. Troy that have vested and are or will become exercisable
within 60 days of June 10, 1997. Excludes 125,000 shares issuable pursuant to
options held by Mr. Troy.
(9) Consists of (i) 10,000 shares purchased by Mr. Foster in Mr. Foster's name
and beneficially owned by Mr. Rubin, and (ii) 1,230,765 shares held by Mr.
Rubin.
(10) Includes 375,000, 230,000, 30,000, 30,000, 50,000, and 50,000 shares
issuable pursuant to options held by Mr. Foster, Mr. Smith, Mr. Weis, Mr.
Widman, Mr. Kidde, and Mr. Leopold, respectively, that have vested and are or
will become exercisable within 60 days of June 10, 1997. Excludes 375,000,
230,000, 30,000, and 30,000 shares issuable pursuant to options held by Mr.
Foster, Mr. Smith, Mr. Weis, and Mr. Widman, respectively.
Item 12. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
See Notes 7, 8, and 9 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. 2-93949A (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 Form 10-K is hereby incorporated by reference.
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.
48
<PAGE> 49
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, Advisor and Key Employee Stock Option Plan dated
March 31, 1994 (the "1994 Plan"). Exhibit 10(1) 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
19(j) to the Form 10-K is hereby incorporated by reference.
10(j) Director, Advisor and Key Employee Sock Option Plan dated
October 2, 1995. Filed herewith.
11 Statement of computation of earnings per share. Filed herewith.
21 Subsidiaries of the Registrant. Filed herewith.
23 Consent of Independent Auditors. Filed herewith.
(b) Reports on Form 8-K
-------------------
On March 17, 1997, the Registrant filed a Form 8-K dated March 13, 1997 to
report under Item 5(i) the execution of a binding letter of intent with J.W.
Childs Equity Partners, L.P., providing for the merger of the Registrant with
Jillian's Entertainment Acquisition Corporation ("Sub") and (ii) the receipt of
a letter from The Nasdaq Stock Market, Inc. informing the Registrant that it had
failed to satisfy the bid price requirement.
On June 24, 1997, the Registrant filed a Form 8-K to report under Item 5
the issuance of a press release relating to the execution of a definitive
Agreement and Plan of Merger and a definitive Purchase Agreement under which the
Registrant will merge with Sub.
49
<PAGE> 50
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
------------------------------
Steven Foster, Chairman of the Board and
Chief Executive Officer
Dated: June 30, 1997
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
Dated: June 30, 1997 Dated: June 30, 1997
By: /s/ Don Leopold By: /s/ Daniel M. Smith
--------------------------- ---------------------------
Don Leopold, Director Daniel M. Smith, President, Chief Operating
Officer, Director, Treasurer, Secretary
and Principal Accounting Officer
Dated: June 30, 1997 Dated: June 30, 1997
50
<PAGE> 1
Exhibit 10(j)
As approved by the Board of
Directors on October 2, 1995
JILLIAN'S ENTERTAINMENT CORPORATION
1995 DIRECTOR, ADVISER AND KEY EMPLOYEE
NONQUALIFIED STOCK OPTION PLAN
1. Purpose of the Plan.
--------------------
The purpose of the 1995 Director, Adviser and Key Employee Nonqualified
Stock Option Plan (the "Plan") of Jillian's Entertainment Corporation (the
"Corporation") is to give the Corporation a significant advantage in attracting,
retaining and motivating directors, advisers, officers and key employees and to
provide the Corporation and its Subsidiaries with the ability to provide
incentives more directly linked to the profitability of the Corporation's
businesses and increases in stockholder value.
2 Definitions.
------------
A. "Adviser" means any special adviser to the Corporation who is
designated as such by the Board for purposes of this Plan.
B. "Board" means the Board of Directors of the Corporation.
C. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
D. "Common Stock" means the common shares, $0.001 par value per share, of
the Corporation.
E. "Corporation" means Jillian's Entertainment Corporation.
F. "Date of Grant" means the date on which an Option granted.
G. "Director" means a member of the Corporation's Board of Directors.
H. "Disinterested Person" means a Director who was not granted during the
one (1) year immediately preceding the Director's appointment to the
Stock Option Committee, and is not granted while a member of the Stock
Option Committee, equity securities under the Plan or any other plan
of the Corporation or an affiliate of the Corporation, except as may
be otherwise permitted by Rule 16b-3 promulgated under the Exchange
Act.
I. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
J. "Fair Market Value" shall mean, with respect to a share of Common
Stock, either (i) the average of the closing bid and asked quotations
for the Common Stock on the National Association of Securities Dealers
Automatic Quotation System ("NASDAQ") on the date the fair market
value is to be determined, (ii) the closing price of the Common Stock
on the NASDAQ in the national market or on an established stock
exchange, or (iii) if the Common Stock is not traded on NASDAQ or
another exchange, the fair market value as determined by the Board of
Directors, on the date the fair market value is to be determined.
<PAGE> 2
Notwithstanding the above, Fair Market Value shall not be less than
the par value of the Common Stock.
K. "Insider" means any person subject to the provisions of Section 16 of
the Exchange Act, including an "officer" of the Corporation within the
meaning of Section 16 of the Exchange Act, a "director" within the
meaning of Section 3(a)(7) of the Exchange Act, and a "beneficial
owner" of more than ten percent (10%) of any class of the equity
securities of the Corporation within the meaning of Section 16 of the
Exchange Act.
L. "Key Employee" means any employee, including employees who are also
officers or directors, but not including directors who are not also
employees, of the Corporation or any Subsidiary Corporation who have
substantial responsibility in the direction and management of the
Corporation or a Subsidiary Corporation as determined by the Board.
M. "Option" means a nonqualified stock option granted under this Plan.
N. "Parent Corporation" has the same meaning used in Section 424(e) of
the Code.
O. "Plan" means the Jillian's Entertainment Corporation 1995 Director,
Adviser and Key Employee Nonqualified Nonqualified Stock Option Plan
as set forth herein, which may be amended from time to time.
P. "Stock Option Committee" means two (2) or more Directors each of whom
is a Disinterested Person.
Q. "Subsidiary" or "Subsidiary Corporation" has the same meaning used in
Section 424(f) of the Code.
R. "Termination of Employment" means the termination of the Participant's
employment with the Corporation, any Parent or Subsidiary.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
3. Shares of Common Stock Subject to the Plan.
-------------------------------------------
A. Subject to the provisions of Section 8 of the Plan, the aggregate
number of authorized but unissued shares of Common Stock that may be
issued pursuant to Options granted under the Plan will not exceed one
million, six hundred and fifty thousand (1,650,000) shares. Shares
that by reason of expiration or cancellation of an Option or that are
otherwise no longer subject to purchase pursuant to an Option granted
under the Plan may again be available for issuance pursuant to Options
under the Plan.
B. Upon the exercise of an Option, the Corporation may issue new shares
or reissue shares of Common Stock previously repurchased by or on
behalf of the Corporation. If shares are to be repurchased and
reissued, the Corporation will determine, on or before the last day of
each fiscal quarter, the amount, if any, of the Corporation's Common
Stock to be purchased by a broker or other independent agent
-2-
<PAGE> 3
designated by the Corporation (the "Broker") in the following quarter
for delivery under the Plan. Common Stock so purchased by the Broker
will be restored to the status of authorized but unissued shares. The
amounts of stock to be purchased may be all or less than all of the
projected requirements of the Plan. It is not the intent of the
Corporation that purchases by the Broker exceed actual Plan
requirements for the quarter. In such an event, however, excess shares
would be carried over to help satisfy Plan requirements on the
following quarter. To the extent that the amounts purchased by the
Broker do not meet actual Plan requirements, the Corporation will
issue original shares. The Broker will be free to purchase such stock
at such times, at such prices, and in such amounts as the Broker deems
appropriate, whether through brokers or by purchase from securities
dealers, both on and off the national exchanges, or by private sale or
otherwise, provided that the purchases will be consistent with such
conditions as may be prescribed from time to time by law or by the
Securities and Exchange Commission ("SEC") in any rule or regulation
or in any exemptive order or no-action letter issued by the SEC to the
Corporation or the Broker with respect to the making of such
purchases, or otherwise. As commitments for such purchases are made by
the Broker, the Corporation will, upon written instruction of the
Broker, deliver to the Broker the funds necessary to consummate such
purchases and pay any brokerage and related incidental charges. All
amounts transferred to the Broker by the Corporation will be promptly
invested in the Corporation's Common Stock, and in no event later than
thirty (30) days after delivery of such funds by the Corporation.
4. Administration of the Plan.
---------------------------
The Plan will be administered by the Board except that grants of Options to
Insiders will be made, consistent with the terms of the Plan, only in the
discretion of the Stock Option Committee. Grants of Options to Key Employees
(other than Insiders) and Advisers will be made in the discretion of the Board.
All questions of interpretation of the Plan, or of any Options granted under it,
will be determined by the Board and such determination will be final and binding
upon all persons having an interest in the Plan. Any or all powers and
discretion vested in the Board under this Plan may be exercised by the Stock
Option Committee or any other subcommittee so authorized by the Board.
Among other things, the Board shall have the authority, subject to the
terms of the Plan:
(a) to select the eligible employees to whom awards may from time to time
be granted;
(b) to determine whether and to what extent Options are to be granted
hereunder;
(c) to determine the number of shares of Common Stock to be covered by
each award granted hereunder;
(d) to determine the terms and conditions of any award granted hereunder
(including, but not limited to, subject to Section 6, the option
price, any vesting restrictions or limitation and any vesting
acceleration or forfeiture waiver regarding any award
-3-
<PAGE> 4
and the shares of Common Stock relating thereto, based on such factors
as the Board shall determine); and
(e) to modify, amend or adjust the terms and conditions of any Option, at
any time or from time to time, including, but not limited to, with
respect to performance goals and measurements applicable to
performance-based awards pursuant to the terms of the Plan.
The Board shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreement relating thereto),
and to otherwise supervise the administration of the Plan.
The Board may act with respect to the Plan only by a majority of its
members then in office, except that the members thereof may authorize any one or
more of their number or any officer of the Corporation to execute and deliver
documents on behalf of the Board.
Any determination made by the Board or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any award shall be made
in the sole discretion of that body at the time of the grant of the award or,
unless in contravention of any express term of the Plan, at any time thereafter.
With respect to Options grants to Insiders, the Stock Option Committee
shall have the same rights and authority under the Plan as the Board. All
decisions made by the Board or the Stock Option Committee pursuant to the
provisions of the Plan shall be final and binding on all persons, including the
Corporation and Plan participants.
5. Eligibility.
------------
Directors, Advisers, and Key Employees of the Corporation, the Parent
Company, and any Subsidiary Corporation will be eligible to participate in the
Plan.
6. Terms and Conditions of Options.
--------------------------------
Each Option granted under this Plan will be evidenced by an Option
agreement between the Corporation and the recipient which sets forth the
exercise price of the Option, the vesting schedule (if any) of the Option, the
expiration date of the Option, and any other terms or conditions approved by the
Board or the Stock Option Committee, as appropriate, subject to the following
terms and conditions:
A. OPTION GRANTS. Options may be granted to a Director, an Adviser or a
Key Employee in the discretion of the Board except that grants of
Options to Insiders may be made only in the discretion of the Stock
Option Committee. The option exercise price per share for the shares
subject to an Option granted to an Adviser or a Key Employee shall be
determined by the Stock Option Committee; such option price may be
less than 100% of the Fair Market Value of the Common Stock on the
Date of Grant.
-4-
<PAGE> 5
B. TERM OF OPTIONS. Notwithstanding any other provisions of the Plan or
any Option agreement, no Option will be exercisable after the
expiration of ten (10) years from the Date of Grant.
C. VESTING OF OPTIONS. An Option will be exercisable only to the extent
that it is vested on the date of exercise. Vesting of an Option will
cease on the date that an optionee is no longer an employee, Adviser
or Director of the Corporation or a Parent Corporation or Subsidiary
Corporation (the "termination date"), and the Option will be
exercisable only to the extent the Option is vested on the date of
termination. The Board retains the right to accelerate the vesting of
any Option in its sole discretion, except that the Stock Option
Committee has sole authority to change the vesting terms of Options
granted to Insiders.
D. TERMINATION OF EMPLOYMENT. Except as otherwise provided in an Option
agreement, any Option granted pursuant to the Plan will become
exercisable in full upon the retirement of the optionee because of age
or total and permanent disability or upon the death of the optionee.
Except as otherwise provided in an Option agreement, if an optionee
terminates service for any reason other than death, the optionee shall
be entitled to exercise the Option to the extent vested as of the
optionee's termination date until the date the Option expires. If an
optionee terminates service because of death, the optionee's heirs,
legatees or legal representative may exercise any portion of the
Option within one (1) year of the date of the Optionee's death. No
Option will be exercisable after the expiration date stated in the
stock option agreement executed by the Corporation and the Optionee.
Each Option will be subject to termination before its date of
expiration as hereinafter provided.
E. EXERCISE. Options may be exercised only by written notice to the
Corporation at its head office accompanied by payment of the full
consideration for the shares as to which they are exercised. Payment
of the exercise price may be in cash or, in the sole discretion of the
Board, (a) by exchange of Common Stock of the Corporation, or (b)
partly in cash and partly by exchange of such Common Stock. The value
of exchanged Common Stock will be the Fair Market Value on the date of
exercise. The Board may also permit deferred payment of all or any
part of the purchase price of shares purchased pursuant to the Plan.
F. TRANSFERABILITY. Unless provided otherwise by the Board or Stock
Option Commitee, as appropriate, no Option granted under the Plan,
contingent or otherwise, will be transferable, assignable or subject
to any encumbrance, pledge, or charge of any nature, except by will or
the laws of descent and distribution. The Board or Stock Option
Committee, as appropriate, may provide that an Option granted under
the Plan, contingent or otherwise, is, subject to such terms and
conditions as the Board or Stock Option Committee shall provide,
transferable by the Option holder and the transferee shall be entitled
to exercise the Option to the extent such Option would have been
exercisable by the transferor. The transferability rights and the
terms and conditions applicable to such rights may be provided at the
time of grant of an Option or by subsequent amendment of an
outstanding Option. If
-5-
<PAGE> 6
an Option is not transferable, then during the lifetime of an
optionee, an Option will be exercisable only by the optionee or by the
optionee's legal representative. The executor or administrator of the
estate of the optionee may transfer any rights with respect to such
Option to the person or persons or entity (including a trust) entitled
thereto under the will of the optionee or under the laws of intestacy.
G. SALE OF COMMON STOCK. No Common Stock acquired as a result of an
exercise of Options may be sold by the optionee within the six (6)
month period commencing on the date of grant of the Option.
7. Termination and Amendment of the Plan and Options.
--------------------------------------------------
The Board may terminate the Plan at any time except with respect to any
outstanding Options. The Board may amend the Plan in any manner with respect to
future grants of Options and may amend outstanding Options in any manner
consistent; provided that, no amendment will be effective if the amendment
alters or impairs any rights or obligations of any outstanding Option without
the written consent of the optionee.
8. Change in Capital Structure.
----------------------------
A. The existence of outstanding Options shall not affect in any way the
right or power of the Corporation or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations
or other changes in the Corporation's capital structure or its
business, or any merger or consolidation of the Corporation, or any
issue of bonds, debentures, preferred or prior preference stock ahead
of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Corporation, or any sale or transfer
of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
B. If the Corporation shall effect a subdivision or consolidation of
shares or other capital readjustment, the payment of a stock dividend,
or other increase or reduction of the number of shares of the Common
Stock outstanding, without receiving compensation therefore in money,
services or property, then (i) the number, class, and per share price
of shares of Common Stock subject to outstanding Options hereunder
shall be appropriately adjusted in such a manner as to entitle an
optionee to receive upon exercise of an Option, for the same aggregate
cash consideration, the same total number and class of shares as he
would have received had the optionee exercised his or her Option in
full immediately prior to the event requiring the adjustment; and (ii)
the number and class of shares then reserved for issuance under the
Plan shall be adjusted by substituting for the total number and class
of shares of Common Stock then reserved that number and class of
shares of Common Stock that would have been received by the owner of
an equal number of outstanding shares of each class of Common Stock as
the result of the event requiring the adjustment.
C. After a merger of one or more corporations into the Corporation or
after a consolidation of the Corporation and one or more corporations
in which the Corporation
-6-
<PAGE> 7
shall be the surviving corporation, each optionee shall, at no
additional cost, be entitled upon exercise of such Option to receive
(subject to any required action by stockholders) in lieu of the number
and class of shares as to which such Option shall then be so
exercisable, the number and class of shares of stock or other
securities to which such optionee would have been entitled pursuant to
the terms of the agreement of merger or consolidation if, immediately
prior to such merger or consolidation, such optionee had been the
holder of record of the number and class of shares of Common Stock
equal to the number and class of shares as to which such Option shall
be so exercised.
D. If the Corporation is merged into or consolidated with another
corporation under circumstances where the Corporation is not the
surviving corporation, or if the Corporation is liquidated, or sells
or otherwise disposes of substantially all of its assets to another
corporation while unexercised Options remain outstanding under the
Plan, unless provisions are made in connection with such transaction
for the continuance of the Plan and/or the assumption or substitution
of such Options with new options covering the stock of the successor
corporation, or parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices, then all
outstanding Options shall be fully vested. Notwithstanding the
preceding provisions if in the opinion of counsel to the Corporation
the immediate exercisability of such Options (or cash payment), when
taken into consideration with all other "parachute payments" as
defined in Section 280G of the Code, would result in an "excess
parachute payment" as defined in such section, such Option shall not
become immediately exercisable and shall be cancelled as of the
effective date of the corporate event, except and to the extent the
Board in its discretion shall otherwise determine.
E. Except as hereinbefore expressly provided, the issuance by the
Corporation of shares of stock of any class, or securities convertible
into shares of stock of any class, for cash or property, or for labor
or services either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or
obligations of the Corporation convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number, class or price of shares of
Common Stock then subject to outstanding Options. Adjustment under the
preceding provisions of this section will be made by the Board, whose
determination as to what adjustments will be made and the extent
thereof will be final, binding, and conclusive. No fractional interest
will be issued under the Plan on account of any such adjustment.
9. Taxes.
------
A. AUTOMATIC WITHHOLDING. When any portion of an Option is exercised, the
Corporation either shall require the Optionee to pay cash or the
Corporation shall withhold from the Common Stock acquired upon such
exercise the number of shares sufficient to satisfy the Corporation's
obligations, if any, to withhold taxes under Federal, state, or local
law as a result of such exercise. The Fair Market Value of the Common
Stock withheld must, as of the date the Option is exercised, at least
-7-
<PAGE> 8
equal the aggregate unsatisfied withholding obligations for the
portion of the Option that is exercised.
B. NONQUALIFIED OPTIONS. Options granted under the Plan are not intended
to qualify as Incentive Stock Options within the meaning of Section
422 of the Code.
10. General Provisions.
-------------------
A. The Corporation shall not be required to sell or issue any shares
under any Option if the issuance of such shares shall constitute a
violation by the optionee or the Corporation of any provision of any
law, statute, or regulation of any stock exchange upon which the
Common Stock may be listed or any governmental authority whether it be
Federal or State. Unless a registration statement is in effect under
the Securities Act of 1933, as amended (the "Securities Act") with
respect to the shares of Common Stock covered by an Option, the
Corporation shall not be required to issue shares upon exercise of any
Option (i) unless the Stock Option Committee has received evidence
satisfactory to it to the effect that the optionee is acquiring such
shares for investment and not with a view to the distribution thereof
or (ii) unless an opinion of counsel to the Corporation has been
received by the Corporation, in a form and substance which is deemed
acceptable by the Board, to the effect that a registration statement
is not required. Any determination in this connection by the Stock
Option Committee shall be final, binding and conclusive. In the event
the shares issuable on exercise of an Option are not registered under
the Securities Act, the Corporation may imprint the following legend
or any other legend which counsel for the Corporation considers
necessary or advisable to comply with the Securities Act, the terms of
the Plan or other law:
"The shares of stock represented by this certificate have
not been registered under the Securities Act of 1933 or
under the securities laws of any State and may not be sold
or transferred except pursuant to an effective registration
statement or upon receipt by the Corporation of any opinion
of counsel, in form and substance satisfactory to the
Corporation, that registration is not required for such sale
or transfer."
The Corporation may, but shall in no event be obligated to, register
any securities covered hereby pursuant to the Securities Act and, in
the event any shares are so registered, the Corporation may remove any
legend on certificates representing such shares. The Corporation shall
not be obligated to take any affirmative action in order to cause the
exercise of an Option or the issuance of shares pursuant thereto to
comply with any law or regulation of any governmental authority.
B. No optionee and no beneficiary or other person claiming under or
through an optionee will have any right, title or interest in or to
any shares of Common Stock allocated or reserved under the Plan or
subject to any Option except as to such shares of Common Stock, if
any, that have been issued or transferred to such optionee or
beneficiary.
-8-
<PAGE> 9
C. The Plan and all determinations made and actions taken pursuant
thereto will be governed by the laws of the State of Florida and
construed in accordance therewith.
D. Options may be granted under this Plan from time to time in
substitution for stock options held by employees of other corporations
who become employees of the Corporation or a Subsidiary Corporation as
a result of a merger or consolidation of the employing corporation
with the Corporation or a Subsidiary Corporation or the acquisition by
the Corporation or a Subsidiary Corporation of the assets of the
employing corporation, or the acquisition by the Corporation or a
Subsidiary Corporation of at least 50% of the issued and outstanding
stock of the employing corporation as the result of which it becomes a
Subsidiary Corporation of the Corporation. The terms and conditions of
the substitute options so granted may vary from the terms and
conditions set forth in this Plan to such extent as the Board at the
time of grant may deem appropriate to conform, in whole or in part, to
the provisions of the stock options in substitution for which they are
granted. At the time of grant, the Board may provide in connection
with any grant made under the Plan that the shares of Common Stock
received as a result of such grant shall be subject to a right of
first refusal pursuant to which the optionee shall be required to
offer to the Corporation any shares that the optionee wishes to sell
at the then Fair Market Value of the Common Stock, subject to such
other terms and conditions as the Stock Option Committee may specify
at the time of grant.
E. All headings in this Plan are for convenience of reference only and
are to be ignored in construing the Plan. Any masculine pronoun shall
include the feminine and the singular shall include the plural, and
vice versa.
11. Indemnification of Board and Compensation Committees.
-----------------------------------------------------
The members of the Board of Directors and the Stock Option Committee will
be indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or Option
agreements, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by legal counsel selected by the Corporation) or
paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it is adjudged in such
action, suit or proceeding that the member is liable for negligence or
misconduct in the performance of the member's duties; provided that within sixty
(60) days after institution of any such action, suit or proceeding a member will
in writing offer the Corporation the opportunity, at its own expense, to defend
the same. The foregoing right of indemnification shall inure to the benefit of
the heirs, executors or administrators of each such member of the Board of
Directors and the Stock Option Committee and shall be in addition to any and all
other rights of indemnification to which such members may be entitled to as a
matter of law, contract, or otherwise.
12. Limitation of Rights.
---------------------
Neither the adoption and maintenance of the Plan nor the grant of Options
will:
-9-
<PAGE> 10
A. limit the right of the Corporation, Parent Corporation or Subsidiary
Corporation to discharge or discipline any employee, or otherwise
terminate or modify the terms of any employment agreement, or
B. confer upon any optionee any contract or other right or interest other
than as specifically provided in the Plan and the Option agreement.
13. EFFECTIVE DATE OF THE PLAN, DURATION OF THE PLAN. The Plan is effective as
of October 2, 1995. Unless previously terminated, the Plan will terminate
ten (10) years after the date the Plan is adopted by the Board, except that
Options that are granted under the Plan before its termination will
continue to be administered under the terms of the Plan until the Options
terminate or are exercised.
-10-
<PAGE> 1
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS
EXHIBIT 11
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1997 March 31, 1996
-------------- --------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 9,137,704 9,137,704 9,137,704 9,137,704
--------- --------- --------- ---------
Net loss per share $ (0.10) $ (0.10) $ (.04) $ (.04)
--------- --------- --------- ---------
</TABLE>
<PAGE> 1
JILLIAN'S ENTERTAINMENT CORPORATION AND SUBSIDIARIES
LIST OF SUBSIDIARIES
EXHIBIT 21
<TABLE>
<CAPTION>
Percentage of Ownership Percentage of Ownership
as of March 31, 1997 as of June 20, 1997
-------------------- -------------------
<S> <C> <C>
Jillian's, Inc. (a Delaware corporation) 100% 100%
Jillian's Billiard Club of Kendall, Inc. 100% 100%
(a Delaware corporation)
Jillian's Billiard Club of Seattle, Inc. 100% 100%
(a Delaware corporation)
Jillian's Billiard Club of Cleveland, Inc. 100% 100%
(a Delaware corporation)
Jillian's Billiard Club of Coconut Grove, Inc. 100% 100%
(an inactive Delaware corporation)
Jillian's Billiard Club of Cleveland Heights, Inc. 100% 100%
(a Delaware corporation)
Carom Financial Corporation 100% 100%
(an inactive Florida corporation)
Jillian's Billiard Club of Champaign-Urbana, Inc. 100% 100%
(an Illinois corporation)
Jillian's Billiard Club of Worcester, Inc. 100% 100%
(a Massachusetts corporation)
Jillian's Billiard Club of Annapolis, Inc. 100% 100%
(a Maryland corporation)
Jillian's Billiard Cafe, Inc. 100% 100%
(a Washington corporation)
Jillian's Billiard Club of Long Beach, Inc. 100% 100%
(a California corporation)
Jillian's Billiard Club of Tacoma, Inc. 100% 100%
(a Delaware corporation)
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Jillian's Entertainment Corporation
Boston, Massachusetts
We hereby consent to the use in Jillian's Entertainment Corporation's
Form 10-KSB, of our report dated May 21, 1997 relating to the Jillian's
Entertainment Corporation and subsidiaries consolidated balance sheet as of
March 31, 1997 and 1996 and the consolidated statements of operations, changes
in stockholders' equity and cash flows for the years then ended.
BDO Seidman, LLP
Boston, Massachusetts
May 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 622,259
<SECURITIES> 0
<RECEIVABLES> 52,611
<ALLOWANCES> 0
<INVENTORY> 178,401
<CURRENT-ASSETS> 1,087,288
<PP&E> 6,556,245
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,704,461
<CURRENT-LIABILITIES> 3,021,364
<BONDS> 1,494,674
0
0
<COMMON> 9,138
<OTHER-SE> 1,893,362
<TOTAL-LIABILITY-AND-EQUITY> 8,704,461
<SALES> 13,216,495
<TOTAL-REVENUES> 13,216,495
<CGS> 2,983,936
<TOTAL-COSTS> 13,831,929
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (326,494)
<INCOME-PRETAX> (941,928)
<INCOME-TAX> 0
<INCOME-CONTINUING> (941,928)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (941,928)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
<FN>
Other Current Assets 234,017
Investments, Net 0
Goodwill, Net 752,133
Other Assets 308,795
A/P 890,031
Accrued Expenses and Other Liabilities 608,452
Current Portion of Notes and Equipment 1,222,881
Deferred Rent 1,030,674
Minority Interest 1,255,249
Paid in Capital 9,536,277
Accumulated Deficit (7,642,915)
</FN>
</TABLE>
