<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File Number: 33-55254-05
JUMPIN' JAX CORPORATION
(Exact name of registrant as specified in its
charter)
NEVADA 87-0485319
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 27755, Golden Valley, Minnesota 55427
(Address of principal executive offices)
(612) 546-3420
(Registrant's telephone number, including area code)
Check whether the issuer: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange
Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days. [X] Yes [ ] No
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date.
14,637,489 shares of Common Stock as of February 7, 1997
<PAGE>
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets as of September 30, 1996
and December 31, 1995 (unaudited)
Condensed Statements of Operations for the three
months ended September 30, 1996 and 1995
(unaudited)
Condensed Statements of Cash Flows for the three
months ended September 30, 1996 and 1995
(unaudited)
Notes to Condensed Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis or Plan
of Operations
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Jumpin' Jax Corporation
Condensed Balance Sheets
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
ASSETS
<C> <S> <S>
September 30, December 31, er 30, r 31,
1996 1995
------------- -------------
CURRENT ASSETS:
Certificate of deposit $50 $50
Other current assets 20 55
------ ------
70 105
Property and equipment, net 4 5
Investment in subsidiaries - 2,228
------ ------
TOTAL OTHER ASSETS 4 2,233
------ ------
TOTAL ASSETS $74 $2,338
====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accrued expenses $555 $369
Current portion of long term debt 371 295
Current portion of notes payable,
related parties 38 19
------ ------
TOTAL CURRENT LIABILITIES 964 683
Long term debt 70 70
Notes payable, related parties - 19
Reserve for 1996 Playpal losses - 667
Indemnities provided for subsidiary debts 1,190 -
Contingent liability for subsidiary losses 7,021 4,947
------ ------
TOTAL LIABILITIES 9,245 6,386
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value;
50,000,000 shares authorized,
14,637,489 and 12,967,395
issued and outstanding at
September 30, 1996 and
December 31, 1995, respectively 15 13
Additional paid-in capital 5,599 5,492
Common stock issuable 2 2
Accumulated deficit (15,287) (9,555)
-------- -------
TOTAL SHAREHOLDERS' EQUITY (9,171) (4,048)
-------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $74 $2,338
======== =======
See accompanying notes to unaudited condensed financial statements
</TABLE>
<PAGE>
Jumpin' Jax Corporation
Condensed Statement of Operations
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
<C> <S> <S> <S> <S>
Nine months Three months
ended ended
September 30, September 30,
------------------- --------------------
1996 1995 1996 1995
------- ------- ------- -------
Selling, general and
administrative expense $ 224 $ 278 $ 56 $ 102
Gain on sale of investment
in JJAX Entertainment (583) - (583) -
Write-off of investment in
Jumpin' Jax Entertainment 2,782 - 2,782 -
Additional accrual for
subsidiary lease obligation 580 - 580 -
Interest expense (income) 45 - 15 -
------ ------ ------ ------
Net loss $(3,048) $(278) $(2,850) $(102)
====== ====== ====== ======
Loss per share $(0.21) $(0.03) $(0.19) $(0.01)
====== ====== ====== ======
Number of shares used to
compute per share amount 14,280,610 8,923,195 14,637,489 9,487,680
========== ========= ========== =========
</TABLE>
See accompanying notes to unaudited condensed financial statements
<PAGE>
Jumpin' Jax Corporation
Condensed Statement of Cash Flows
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
1996 1996
------------- -------------
<C> <S> <S>
Cash flows from operating activities
Net income (loss) $(2,850) $(3,048)
Adjustments to reconcile
net income to net cash
provided by operating activities
Depreciation - 1
Gain on sale of investment
in JJAX Entertainment (583) (583)
Write-off of investment in
Jumpin' Jax Entertainment 2,782 2,782
Additional accrual for
subsidiary lease obligations 580 580
Changes in operating assets
and liabilities
Prepaid expenses (20) 35
Accrued expenses and
other current liabilities 43 185
-------- --------
Net cash provided by (used
in) operating activities (48) (48)
Cash flows from investing activities:
Investment in subsidiaries (2) (1,221)
-------- --------
Net cash provided by (used in)
investing activities (2) (1,221)
Cash flows from financing activities:
Proceeds from sale of common stock - 610
Proceeds from debt financings 40 732
Principal payments on debt and
notes payable - related parties - (73)
-------- --------
Net cash provided by financing
activities 40 1,269
Net increase (decrease) in cash (10) -
Cash, beginning of period 10 -
-------- --------
Cash, end of period $ - $ -
======== ========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE>
Jumpin' Jax Corporation and Subsidiaries
Notes to Condensed Financial Statements
(Unaudited)
1. Basis of Presentation
The financial statements included in this Form 10-QSB
have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles
have been condensed, or omitted, pursuant to such rules and
regulations. These financial statements should be read in
conjunction with the financial statements and related notes
included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995, as previously filed with
the Securities and Exchange Commission.
The financial statements presented herein as of
September 30, 1996 and for the three months ended September
30, 1996 and 1995 reflect, in the opinion of management, all
adjustments necessary for a fair presentation of financial
position and the results of operations for the periods
presented. The results of operations for the periods
presented are not necessarily indicative of operating
results to be expected for the full year.
2. Organization and Business Acquisitions
The Company was originally incorporated in April 1988
under the name Four Star Ranch, Inc. The Company initially
was formed without any specific business plan, other than to
seek potential business opportunities for acquisition, and
was essentially inactive until 1994.
In November 1994, as the first step of the December
1994 acquisition of the net assets of GymMania Venture
Capital Corporation ("GVCC"), a predecessor business
discussed below, the Company issued an aggregate of
6,708,394 shares of Common Stock to certain investors who
held the majority voting common stock control of GVCC in
exchange for $30,772 in stock subscription and a $180,063
note receivable from GVCC and changed its business plan to
that of developing indoor fun centers. In addition, as the
first step of the December 1994 acquisition of Gymania
Corporation ("Gymania"), another predecessor business
discussed below, the Company entered into a stock purchase
agreement with shareholders of Gymania to issue 450,868
shares of the Company's Common Stock at $.0074 per share and
register such shares. In December 1994, the Company changed
its corporate name to Jumpin' Jax Corporation.
On December 30, 1994, the Company acquired
substantially all of the assets of GVCC, a corporation
existing under the laws of the Province of Ontario, Canada
for no cash consideration. The transaction was a reverse
acquisition whereby certain shareholders of GVCC became the
controlling shareholders of the Company. The principal
asset of GVCC was an advance receivable of approximately
$492,000 from Gymania. GVCC was formed in June 1994 to
finance the development of indoor fun centers.
Also on December 30, 1994, the Company, through its
wholly-owned subsidiary, Jumpin' Jax Entertainment, Inc.
("Jumpin' Jax Entertainment"), acquired substantially all of
the assets (totaling $512,361) of Gymania in exchange for
assuming substantially all of Gymania's obligations
(totaling $1,012,187), including the $492,000 advances
payable to GVCC. During 1994, prior to the acquisition of
Gymania, the Company advanced $159,288 to Gymania. Gymania
was formed in 1991 and had developed and was operating, on a
limited basis, indoor fun centers since its inception.
On March 13, 1995, the Company issued 351,000 shares of
Common Stock and committed to pay $310,000 cash in exchange
for all of the issued and outstanding capital stock of
Playpal, Inc. of Rockledge, Florida ("Playpal"). Playpal
was a manufacturer of modular soft-play equipment for indoor
fun centers and playgrounds. On or about the same time, the
Company established Playpal Sales Corporation, a wholly-
owned subsidiary formed to distribute those products
manufactured by Playpal, Inc.. In April, 1996, Playpal,
Inc. filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. Since that time, Playpal, Inc. has ceased
all operations and the bankruptcy case has been converted to
a Chapter 7 liquidation proceeding. Playpal Sales
Corporation has also ceased operations; it is insolvent but
has yet to file a petition with the bankruptcy court as it
has no assets available for liquidation. A bankruptcy
filing may occur in the future.
Jumpin' Jax Entertainment owned and operated two family
entertainment centers in the Minneapolis / St. Paul
metropolitan area. The space for these centers was
subleased from a related party, Jumpin' Jax Corporation, a
Minnesota Corporation ("JJC"), who leased the space from a
mall operator. Due to a lack of working capital, JJC filed
for Chapter 11 bankruptcy protection in July, 1996. This
case converted to a Chapter 7 liquidation proceeding in
September, 1996 and all assets of JJC have been turned over
to its secured creditor. Jumpin' Jax Entertainment ceased
operation of the two centers in August, 1996 and has turned
all of its assets over to secured creditors; it is not
expected that the proceeds from the liquidation of these
assets will exceed the outstanding balance of the
indebtedness they secured. Jumpin' Jax Entertainment is
insolvent but has yet to file a petition with the bankruptcy
court as it has no further assets available for liquidation.
A bankruptcy filing may occur in the future.
The Company has discontinued substantially all
operations. There is currently no source of revenue and
Company staff are acting without cash compensation. The
Company has obligations which exceed $1.8 million and
ongoing expenses which it cannot continue to incur without
securing additional capital. Failure to raise such capital
will necessitate a liquidation of the Company; the Company
is unable to raise such capital without a reorganization and
recapitalization of its financial structure.
3. Other Financial Statement Data:
Certificate of Deposit:
The Company owns a $50,000 certificate of deposit which
has been pledged as additional collateral for a loan to
Playpal, Inc. primarily secured by Playpal's land and
building. Assuming that the proceeds from the bankruptcy
court's sale of the land and building exceed the
approximately $925,000 loan balance, the certificate of
deposit will be returned to the Company; however, there is
no assurance that this will be achieved.
4. Indemnities provided for subsidiary debts
The Company has agreed to indemnify certain creditors
of Jumpin' Jax Entertainment, Playpal, Inc. and Playpal
Sales Corporation for certain obligations incurred by these
subsidiaries and owed to these creditors.
5. Contingent liability for subsidiary losses
Subsequent to their acquisition by the Company, Jumpin'
Jax Entertainment, Playpal, Inc. and Playpal Sales
Corporation experienced losses totaling approximately $7.6
million. Although the Company believes that it is only
liable for the subsidiary obligations which it specifically
guaranteed or agreed to indemnify for (classified as
"Indemnities for subsidiary debts" on the balance sheet),
GAAP requires that all obligations of subsidiaries be
reflected in the Company's statement of financial position.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
During calendar year 1995 and the first six months of 1996,
the Company raised capital in the debt and equity markets
and invested the majority of these funds in its Jumpin' Jax
Entertainment, Playpal, and Playpal Sales subsidiaries (all
of which ceased operations during the third quarter of
1996). The remainder of the funds were expended toward
further development of the Jumpin' Jax and Playpal concepts
and for overhead costs related to being a publicly traded
corporation burdened with a heavy debt load (i.e. legal and
professional fees, public reporting costs, etc.).
The Company does not have any source of revenue, nor does it
currently have any funds available to pay outstanding
obligations.
Liquidity and Capital Resources
The Company does not currently possess any liquid assets,
with the only prospect for the future being a distribution
from the Playpal, Inc. bankruptcy estate and the $50,000
certificate of deposit, also tied up in the Playpal
proceedings. The Company intends to restructure its
financial position by filing for bankruptcy protection and
issuing equity securities in lieu of its current debt and
working capital obligations. Post restructuring, the
Company intends to identify merger or acquisition candidates
and consummate a transaction with one of these candidates.
This should result in the Company becoming a viable entity,
although there is no assurance that this will occur. In the
event that this strategy is not successful, the assets of
the Company will most probably be liquidated and the
proceeds distributed to the creditors. As the first step in
this restructuring plan, the Company filed a voluntary petition
under Chapter 11 in the U.S. Bankruptcy Court on February 7, 1997.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
No material legal proceedings exist against the
Company, its officers or directors except as follows:
In October 1995, the Company was served with a
complaint in Hennepin County (Minnesota) District Court by a
real estate brokerage firm seeking payment of $29,000 for a
commission on the sublease of the space formerly occupied by
Gymania Corporation. The Company executed a confession of
judgment for such amount and agreed to repay the obligation,
with interest, in four quarterly installments of
approximately $8,000 beginning November 30, 1995. The
Company paid the first three installments but failed to pay
the final amount due.
In August 1995, the former President of Playpal
commenced suit against Playpal and the Company in Brevard
County (Florida) Circuit Court seeking specific performance,
injunctive relief, and damages for, among other matters, an
alleged breach of the stock purchase agreement between the
Company and the former President. In November 1995, the
claim was settled by the Company's agreement to pay him
$120,000 in two installments of $60,000 each prior to
February 1996. The first payment of $60,000 was made in
December 1995, however Playpal did not pay the balance.
Summary judgment was granted in March 1996 against Playpal
and the Company in the amount of approximately $65,000.
In April 1996, a complaint was filed against the
Company in Hennepin County (Minnesota) by William Auer
seeking repayment of a note and interest in the amount of
$40,000. The Company believes that Jumpin' Jax
Entertainment, Inc., and not the Company, is the party
subject to the claim. The Company has filed an answer to
the complaint.
In July 1996, a complaint was filed against the
Company in Orange County (Florida) by a supplier of
materials to Playpal seeking payment under a guaranty
agreement provided by the Company for the collection of
Playpal's obligations to this supplier. The complaint seeks
$48,579. The Company is currently negotiating a settlement
agreement for this matter..
The Company has received claims for
indemnification pursuant to certain provisions of a stock
purchase agreement, under which the Company allegedly agreed
to indemnify certain individuals for sales tax liabilities
in connection with certain sales tax owed by Playpal. To
date, claims totaling $274,000 have been made. The Company
believes that it is not required to provide such
indemnification and intends to defend such action if funds
are available for such purpose.
In May 1995, Jumpin' Jax Entertainment entered
into a ten-year lease agreement, guaranteed by the Company,
for approximately 15,000 square feet of space located in a
shopping center in Green Bay, Wisconsin. Base rent is
approximately $12,000 per month and began accruing in
September 1995. The lease also requires additional rent of
12% of gross sales in excess of $925,000 plus 3% of gross
sales in excess of $1,100,000 per lease year. Jumpin' Jax
Entertainment has informed the landlord that it will not be
occupying the space and, in September 1995, the landlord
instituted an action against the Company for breach of
contract. In January 1996, a motion for summary judgment on
the issue of liability was granted to the landlord. In June
1996, the landlord filed a motion for summary judgment as to
the issue of damages; such judgement was granted in
February 1997 for approximately $680,000.
In September 1996, an action was instituted
against the Company, Jumpin' Jax Entertainment, and certain
of its officers by Riverside Bank and Cynthia Powell (a
former officer of Jumpin' Jax Entertainment). The action
seeks recovery of amounts owed to Riverside Bank which are
guaranteed by both the Company and Mrs. Powell and her
husband (the former President of Playpal), which guaranty is
secured by a mortgage on the Powell's residence. The amount
sought is approximately $74,000. The Company is vigorously
defending against this matter.
In September 1996, a judgment in the amount of
$79,000 was entered against the Company by Allstate
Financial Corporation in connection with an accounts
receivable financing engaged in by the Company in June 1996.
All pending litigation has been stayed by the
February 7, 1997 bankruptcy filing.
In addition, the following are material legal
proceedings which have been brought against wholly-owned
subsidiaries of the Company. The Company does not believe
it is responsible for any of the claims, although there is
no assurance thereof.
In December 1994, Playpal was served with a third
party complaint in the 24th Judicial District Court,
Jefferson Parish, Louisiana, relating to an alleged personal
injury claim for unspecified damages by a patron of a fun
center operated by a Playpal customer. Playpal's insurance
carrier has agreed to defend the matter.
In 1994, Playpal was served with a complaint in
Suffolk County (New York) Supreme Court alleging personal
injury suffered by a customer of an indoor fun center
containing a Playpal modular soft-play unit. Playpal's
insurance carrier at the time of the incident has refused to
defend or pay the claim. Playpal believes that liability,
if any, lies with the center operator as a result of the
facts and circumstances.
In September 1995, Jumpin' Jax Entertainment was
served with a complaint in Hennepin County (Minnesota)
District Court by an advertising agency seeking payment of
$44,000 for unpaid advertising, publication, and printing
services. In January 1996, Jumpin' Jax Entertainment agreed
to repay the obligation over an eleven month period and
executed a confession of judgment for such amount; Jumpin'
Jax Entertainment has made some, but not all of the
payments.
In August 1995, Jumpin' Jax Entertainment was
served with a complaint in Hennepin County (Minnesota)
District Court by a sign construction company which
installed signage at Jumpin' Jax Entertainment's Maplewood
and Burnsville, Minnesota indoor fun centers. In January,
Jumpin' Jax Entertainment agreed to repay the obligation
over an eleven month period and executed a confession of
judgment for such amount; the Company has made some, but not
all of the payments.
In December 1995, Playpal was served with a
complaint in Brevard County (Florida) Circuit Court by a
transportation company seeking payment of $128,000 for
unpaid shipping charges. Plaintiff was awarded summary
judgment in the amount of $140,279 in April 1996.
In July 1996, a complaint was filed against
Jumpin' Jax Entertainment in Hennepin County (Minnesota)
District Court by a supplier of equipment to the existing
Centers seeking repayment of a note in the amount of
$90,000. Jumpin' Jax Entertainment has returned the
equipment securing this obligation to the supplier but the
value of this equipment is not expected to be adequate to
discharge the full amount of the claim.
In June 1996, a notice of eviction was served upon
JJC in connection with its leaseholds for the Centers. The
action was stayed under the provisions of the Chapter 11
bankruptcy proceeding filed by JJC. On August 22, 1996, the
bankruptcy court granted the landlord's motion to lift the
stay and the landlord has again begun eviction proceedings.
Jumpin' Jax Entertainment ceased operations in the locations
August 25, 1996 and is seeking to vacate the premises in an
orderly manner.
In January 1996, Jumpin' Jax Entertainment entered
into a ten-year lease agreement for approximately 20,000
square feet of space located in a shopping center in
Nashville, Tennessee. Base rent is approximately $13,000 per
month for the first five years of the lease and
approximately $15,000 per month for the second five years of
the lease and began accruing in July 1996. The lease also
requires additional rent of 6% of gross sales in excess of
$4,013,000 per lease year for the first five years of the
lease and in excess of $4,514,625 for the second five years
of the lease. Jumpin' Jax Entertainment does not have the
funds required to construct and equip the facility and has
informed the landlord that it will not be able to begin this
process unless working capital funds can be obtained, which
is highly improbable. Therefore, Jumpin' Jax Entertainment
does not intend to continue with respect to this project
although it is liable for amounts under this lease.
ITEM 5. Other Information
During the first nine months of 1996, the Company
raised $1.35 million in the debt and equity markets, all of
which has been expended to fund deficit operations and
service existing obligations. Such amounts include a
private placement offering in May 1996 (the "May Offering")
of 12.5 units for $625,000. Each unit, which was
purchasable for $50,000, consisted of (1) a $50,000
principal amount 10% subordinated promissory note due on the
earlier of (a) the closing date of any public debt or equity
offering by the Company (the "Public Offering") or (b) one
year from the initial closing date of the May Offering and
(2) the issuance on the effective date of a registration
statement filed with the Securities and Exchange Commission
of (a) 30,000 shares of Common Stock and (b) a total of
300,000 warrants to purchase shares of Common Stock which
warrants were to be identical to any warrants to be issued
to the public in connection with any secondary public
offering. In the event that the Company does not complete a
secondary public offering by April 30, 1997, the investor is
to be issued, on April 30, 1997 (a) 210,000 shares of Common
Stock; (b) warrants to purchase 1,050,000 shares of Common
Stock, exercisable at $.75 per share for a period of five
years from the initial closing; and (c) warrants to purchase
1,050,000 shares of Common Stock, exercisable at a price of
$1.00 per share for a period of five years from the initial
closing. The securities contain certain piggyback
registration rights. All obligations of the Company with
regard to this financing have been waived in return for a
majority ownership position in JJAXE, formerly a wholly-
owned subsidiary of the Company.
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SIGNATURES
Pursuant to the requirements of Section 13 or l5(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.
JUMPIN' JAX CORPORATION
By: /s/ Richmond W. A. Chandler
Richmond W. A. Chandler
Chairman and Chief Executive Officer
Principle Financial Officer
