HLEG - Headliners - Business plan explained...
Headliners Entertainment Group, INC.
Headliners Entertainment Group, Inc. is the successor to a business operation commenced in 1983. Until June 1, 2004, Headliners' corporate name was "Rascals International, Inc." Headliners began with a comedy club and restaurant in West Orange, New Jersey that operated under the trade name "Rascal Comedy Club." Until 2003 the West Orange "Rascals" and a sister club/restaurant of the same name in the New Jersey resort area of Ocean Township were the source of substantially all of Headliners' revenue. Nevertheless the success of those clubs in booking and promoting both headliners and rising stars in the field of stand-up comedy made Rascals a name known throughout the comedy industry. Many of today's stars of comedy were helped on their way to fame by appearing at a Rascals Comedy Club. They include talents such as Rosie O'Donnell, Tim Allen, Ray Romano, Chris Rock and Andrew Dice Clay.
In recent years Headliners has acquired new management, a new business plan, and a new determination to exploit the value of the "Rascals" name as leverage for the growth of our company. During the past several years, our business plan has expanded to involve three separate but interrelated aspects of Rascals entertainment: comedy clubs, dance clubs and media distribution.
Comedy Clubs
Comedy shows at our clubs generally consist of three performers: one nationally-known headliner, a featured act and a comic master of ceremonies. Our ticket prices range from $8.00 to $35.00, and are determined by the fees we commit to pay the entertainers. Those fees may on occasion include a percentage of our ticket revenues.
Entertainers are booked for our clubs by our in-house booking staff. As the number of our clubs increases, Rascals should become even more attractive to entertainers due to our ability to offer "block booking." In a block booking arrangement, we commit to multiple dates at multiple loca tions in exchange for a reduced fee per show.
We market our shows through traditional local media: newspaper and radio advertisements, local cable TV commercials, and radio promotions, often involving the performers that will be appearing. In addition, tickets to all of our club locations can be purchased at our Website:
www.Rascalscomedyclub.com.
Our comedy clubs fall into two categories:
Embedded Clubs. An "embedded club" is designed to take advantage of a location where there is a pre-established clientele. The concept of the "embedded club" is aimed at attracting customers for our comedy by offering them a richer entertainment experience. The combined restaurant and comedy club facilities that we operated for most of our history represented a first level of the embedded club. That relationship is replicated today in our Montclair, NJ location, where a Rascals Comedy Club accompanies our premier restaurant as well as a "Red Cheetah" dance club. Another example of an "embedded club" is the Rascals Comedy Club that we opened in May, 2005 in the Palisades Center in West Nyack, New York, which is the second largest shopping mall in the U.S. That club failed and was closed at the end of 2005. Nevertheless, we are today exploring a broad variety of environments in which a Rascals Comedy Club would achieve marketing synergy with other entertainment venues.
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Hotel-Based Clubs. We are underway with a program of establishing "Rascals Comedy Clubs" in premier hotels throughout the U.S. During 2001 we opened a Rascals in the Crowne Plaza Hotel in Phoenix, and another in the Sheraton Springfield at Monarch Place in Springfield, MA. Both of those clubs have since closed. However, since December 2002 we have operated a Rascals Comedy Club in the Hilton Hotel in Cherry Hill, NJ. It consists of a comedy room with a seating capacity of 308 in which we produce six shows per week In each of these arrangements the hotel will provide the facility (rent-free) and operate the food and beverage service. We provide the show and the promotion only, keep all admission proceeds, and receive a share of the food and beverage gross revenue.
The primary advantage of a hotel-based club for Headliners is the efficiency of initiating the club's operations. Since we are moving into an established facility, we are required to make only the minimal capital investment necessary to outfit the comedy room in Rascals' trademark decor. In addition, since the hotels in which we locate are already known as entertainment locations in their communities (even if only as a restaurant location), the expense incurred in "attracting traffic" to the site is generally not much greater than the expense we incur in promoting shows at our established sites. Our estimate is that our capital commitment to a new hotel-based facility, including the working capital required until
the club achieves positive cash flow, will generally not exceed $130,000. Occasionally, however, a particular site will be appropriate for a higher quality build-out, which will require a larger investment. This was the case with our club in Cherry Hill, where we installed cherrywood paneling and a state-of-the-art sound system.
Dance Clubs
At the end of March 2005 we purchased six dance club operations. The clubs are located in Jackson MS, Omaha NE, Louisville KY, Tucson AZ, Cincinnati OH and Kansas City MO. Each operates under one of the followings trade names: "Banana Joe's,""Margarita Mama's," "Red Cheetah," "Parrot Beach" or "Cactus Cafe." Three of the dance clubs were developed jointly by Headliners and JHF Property Holdings during 2004. The other three were developed by JHF Property Holdings in 2003. In July 2005 we severed all relations with JHF Property Holdings, but retained ownership of the six clubs. Subsequently we have closed the clubs in Omaha and Tucson.
In March 2006 we opened a fifth dance club, a Red Cheetah, in the facility in Montclair, NJ that already housed our restaurant and Rascals Comedy Club combination. We believe that this complex of entertainment offerings will attract a wide audience.
Our dance club operations currently produce over 80% of our revenues.
Rascals Comedy Library
Between 1985 and 1992 Headliners developed a library of videotapes of the comedy performances at its West Orange club. The performers on the videotapes include many who achieved stardom: Denis Leary, Drew Carey, Jeff Foxworthy, Rosie O'Donnell, Tim Allen, Ray Romano and others. In exchange for the opportunity to appear at Rascals Comedy Club, each of these performers signed a release giving Headliners the right to reproduce and market the videotapes. Until 2002 the videotapes were co-owned by Headliners and Rob Perna d/b/a Stand and Deliver. In 2002 we divided the library, with Headliners retaining over 200 hours of performances. These videotapes comprise the Rascals Library of Comedy Classics, an inventory of raw material that Headliners can use to develop products and content in a variety of media.
In 2004, we entered into a relationship with Brian Sheil, a media producer and promoter based in California. Mr. Sheil is supervising an expansion of the Rascals Library. We are again videotaping performances at our club in Montclair as well as producing the "Rascals on the Road" series of performances. At the same time, Mr. Sheil has been actively developing distribution outlets for the Rascals Library in a variety of media. During 2005 we initiated relationships with several broadcasters:
- Microsoft MSN Video Downloads and Windows Media Entertainment. Rascals Comedy Classics is currently the exclusive stand-up comedy channel available on these outlets.
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- TVNet. This broadcaster makes Rascals Comedy videos available to cell phones with wireless video capabilities.
- XM Satellite Radio. We recently contracted to have the Rascals Comedy Hour distributed through this service, which, with over 4.4 million subscribers, is the largest satellite radio service in the U.S.
- RipeTV. This download service has a client base of 20 million. Rascals Comedy became available on its menu recently.
- SmartVideo Technologies. In June 2005 we contracted to add Rascals Comedy to the programming lineup that this service makes available for mobile video devices. Currently there are more than 50 million smart phones and mobile video devices in use. The segmented nature of our comedy, which can be enjoyed in 30 second or 30 minute intervals, makes it ideal for this audience.
Each of these relationships was formed only recently, and revenues to date from our use of the Library have been minimal. We intend, however, to continue to expand this fertile opportunity to generate additional revenue streams from our existing assets.
Employees
The Company currently employs 329 individuals, of whom 75 are full- time employees. The other 254 employees are primarily hosting staff, wait staff, bartenders, and kitchen employees. Of these 9 full-time employees and 38 part-time employees work during the evenings at our Montclair restaurant and club, one full-time employee and two part-time employees work during the performances at our club in Cherry Hill, and sixty full-time employees and 210 part-time employees work at our dance clubs. None of our employees is represented by a union. We believe that our relations with our employees are good.
Insurance
As a dispenser of alcoholic beverages, Headliners is subject to state liquor liability ("dram shop") laws. These laws vary from state to state. In general, dram shop laws impose liability on the proprietor of an establishment for damage caused by a customer of the establishment, if the service of alcoholic beverages by the establishment to that customer was a cause of the damage and the establishment service was negligent or otherwise culpable. Since alcoholic beverages are served in all of our clubs, it is particularly important that we maintain insurance against liability.
At the present time, Headliners is insured by a policy which provides $2,000,000 general and aggregate liability coverage as well as a $10,000,000 commercial umbrella policy. The annual premium for our insurance, which includes the liability insurance, is $102,700.
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Properties
Since February 2004 the executive offices of Headliners Entertainment Group, Inc. have been located in the building in Montclair, New Jersey adjacent to our new restaurant and Rascals Comedy Club. The offices and the restaurant/club facility is leased to Rascals Montclair, Inc. for a term ending in 2014. Rascals Montclair pays $19,000 and a percentage of its gross receipts as monthly rent. It is also responsible for an allocated portion of the landlord's taxes and operating costs. Pursuant to the terms of a management agreement between Rascals Montclair and Headliners, Headliners reimburses Rascals Montclair for its rental expenses.
Each of the four remaining dance clubs that we acquired in 2005 leases the premises where they are located. Each club is operated by a subsidiary of Headliners, and the subsidiary is solely responsible for the lease payments. Our Cherry Hill comedy club is located in the Hilton Hotel, which provides the comedy room to us free of charge.
Now that we have undisputed control over the new dance clubs, we expect that the cash flow from those clubs will be sufficient to enable us to sustain our operations and meet the cash obligations noted above. We do not expect that we will require additional capital during the next twelve months, except in connection with new development projects that we may undertake. At this time we have not committed to any specific new development project nor obtained any financing commitment.
Once we have passed the current period of rapid expansion, our capital requirements will be much easier to control. Once clubs are established, they either operate profitably or they are closed. So the capital requirements of ongoing operations should not be significant. Our plan is to continue to expand, but at a pace commensurate with available capital and capital commitments, either from equity sources or secured lending sources that should become available once we have a portfolio of assets to offer as collateral.
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