<PAGE> 1
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 July 06, 1997
Commission file number 1-14052
-----------------------------------------
Kiddie Academy International, Inc.
---------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 52-1938283
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
108 Wheel Road, Bel Air, Maryland 21015
----------------------------------------
(Address of principal executive offices)
(410) 515-0788
---------------------------
(Issuer's telephone number)
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 the past 90 days.
Yes X No
----- -----
The number of shares outstanding of common stock, as of July 06, 1997:
2,025,000 shares of common stock.
- ---------------------------------
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE> 2
KIDDIE ACADEMY INTERNATIONAL, INC.
Index
- ----------------------------------------------------------------------------
Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets for July 06, 1997 (Unaudited)
and September 29, 1996 1
Unaudited Consolidated Statements of Operations 2
Unaudited Consolidated Statements of Cash Flows 3
Notes to Unaudited Consolidated Financial Statements 4-5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURE
EXHIBIT 3 SECOND AMENDED AND RESTATED BY-LAWS
EXHIBIT 27 FINANCIAL DATA SCHEDULE
EXHIBIT 99 ADDITIONAL EXHIBITS
<PAGE> 3
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
KIDDIE ACADEMY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 06, September 29,
1997 1996
ASSETS (UNAUDITED)
----------------- -----------------
Current assets:
<S> <C> <C>
Cash and cash equivalent $36,446 $1,232,098
Accounts receivable 116,933 127,972
Prepaid expenses 121,428 60,024
Inventories 86,347 90,347
Notes receivable, current 28,822 15,361
Franchise development costs 756,556 699,527
----------------- ------------------
Total current assets 1,146,532 2,225,329
Property and equipment 958,577 1,057,066
Accumulated depreciation (375,136) (300,086)
----------------- ------------------
Net property and equipment 583,441 756,980
----------------- ------------------
Notes receivable, long-term 128,328 136,635
Goodwill 139,508 116,910
Deposits 58,901 105,437
----------------- ------------------
Total assets $2,056,710 $3,341,291
================= ==================
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Notes payable $8,000 --
Accounts payable and accrued expenses 1,276,725 $787,654
Deferred franchise license fees 1,083,001 1,125,002
Reserve for closed centers 1,306,814 --
Current portion of long-term debt 48,052 111,114
Current portion of deferred rent credits 93,992 93,992
----------------- ------------------
Total current liabilities 3,816,584 2,117,762
Long-term debt 69,203 190,312
Reserve for closed centers 4,563,039 --
Deferred rent payments 132,084 159,005
Deferred rent credits 209,674 281,976
----------------- ------------------
Total liabilities 8,790,584 2,749,055
----------------- ------------------
Stockholders' (deficit) equity:
Preferred stock, par value $0.01 per share:
authorized 1,000,000 shares; no shares issued and
outstanding -- --
Common stock, par value $0.01 per share:
authorized 10,000,000 shares; issued and
outstanding 2,025,000 20,250 20,250
Additional paid-in capital 4,281,582 4,260,280
Accumulated deficit (11,035,706) (3,688,294)
----------------- ------------------
Total stockholders' (deficit) equity (6,733,874) 592,236
================= ==================
Total liabilities and stockholders'
(deficit) equity $2,056,710 $3,341,291
================= ==================
</TABLE>
See notes to consolidated financial statements (unaudited).
1
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KIDDIE ACADEMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
12 weeks 13 weeks 40 weeks 39 weeks
ended July 06, ended June 30, ended July 06, ended June 30,
1997 1996 1997 1996
-------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Company-owned mature centers $490,001 $451,700 $1,526,944 $1,238,601
Company-owned new centers 970,354 451,394 3,008,333 849,841
Franchise license fees 30,000 85,739 260,000 304,149
Franchise royalties 290,402 202,555 884,670 534,555
Product sales 74,180 65,665 412,834 178,513
Administrative fees 22,870 18,668 70,003 56,044
-------------------------------------- ----------------------------------------
Total revenue 1,877,807 1,275,721 6,162,784 3,161,703
OPERATING EXPENSES:
Company-owned mature centers 422,009 425,242 1,332,002 1,161,714
Company-owned new centers 1,225,256 720,470 3,981,753 1,514,339
Cost of product sales 91,393 78,741 345,250 158,994
Restructuring charge 5,963,282 -- 5,963,282 --
General and administrative 689,345 502,606 2,038,082 1,501,725
-------------------------------------- ----------------------------------------
Total operating expenses 8,391,285 1,727,059 13,660,369 4,336,772
-------------------------------------- ----------------------------------------
Loss from operations (6,513,478) (451,338) (7,497,585) (1,175,069)
INTEREST (EXPENSE) INCOME (4,064) 23,957 4,238 21,863
OTHER (EXPENSE) INCOME, net (4,777) -- 145,935 59,187
-------------------------------------- ----------------------------------------
NET LOSS ($6,522,319) ($427,381) ($7,347,412) ($1,094,019)
====================================== ========================================
NET LOSS PER COMMON SHARE ($3.22) ($0.21) ($3.63) ($0.63)
====================================== ========================================
WEIGHTED AVERAGE SHARES OUTSTANDING 2,025,000 2,051,909 2,025,000 1,746,353
====================================== ========================================
</TABLE>
See notes to consolidated financial statements (unaudited).
2
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KIDDIE ACADEMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
40 weeks ended 39 weeks ended
July 06, 1997 June 30, 1996
------------------- --------------------
<S> <C> <C>
Cash flows from operating activities
Net loss ($7,347,412) ($1,094,019)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 132,797 51,118
Loss on disposal of asset 108,376 (56,598)
Gain on extinguishment of debt 66,092 --
Amortization of debt issuance costs -- 26,667
Reserve for closed centers 5,574,853 --
Changes in assets and liabilities:
Accounts receivable 11,039 (35,584)
Inventory 4,000 (70,305)
Notes receivable (5,154) (50,907)
Franchise development costs (57,029) (187,197)
Other assets (14,868) (175,409)
Accounts payable and accrued expenses 598,307 (170,160)
Deferred franchise license fees (42,001) 158,811
Other liabilities -- 89,874
------------------- -----------------
Net cash used in operating activities (1,103,184) (1,513,709)
------------------- -----------------
Cash flows from investing activities:
Disposal of property and equipment 36,872 --
Acquisition of property and equipment (33,862) (520,955)
Proceeds from disposal of property and equipment 9,272 40,000
------------------- ----------------
Net cash provided by (used in) investing
activities 12,282 (480,955)
------------------- -----------------
Cash flows from financing activities:
Borrowings/(payments) on notes payable 8,000 (149,861)
Payments to shareholders -- (87,722)
Proceeds from IPO -- 3,998,613
(Payments)/borrowings of long-term debt (112,750) 224,055
------------------- -----------------
Net cash (used in) provided by financing
activities (104,750) 3,985,085
------------------- -----------------
Net (decrease) increase in cash (1,195,652) 1,990,421
Cash, beginning of period 1,232,098 51,527
------------------- -----------------
Cash, end of period $36,446 $2,041,948
=================== =================
Non-cash investing and financing activities:
Write-off of deferred compensation -- $110,000
Early retirement of long-term debt $110,386 --
Notes received in connection with sale of center 98,815 --
Notes payable in connection with purchase of center 51,435 --
Notes receivable retired in connection with
purchase of center 68,657 --
</TABLE>
See notes to consolidated financial statements (unaudited).
3
<PAGE> 6
KIDDIE ACADEMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 06, 1997 AND JUNE 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission (the "Commission") and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation. The consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany transactions have been
eliminated. 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. The Company believes that the disclosures are adequate to make the
information presented not misleading; however, it is suggested that these
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's annual Form 10-KSB.
(b) Net Loss Per Common Share
Net loss per common share is determined by dividing the net loss by the
weighted average number of common and common share equivalents outstanding.
Weighted average shares used in computing net loss per common share for the
period ended July 06, 1997 consist solely of 2,025,000 shares of common stock
issued, as the effect of the warrants would be antidilutive. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, stock
options and warrants granted during the 12-month period prior to the expected
date of the initial filing of the Registration Statement, with exercise prices
below the initial public offering price, have been included in the calculation
of the period ended June 30, 1996 common share equivalents, using the treasury
stock method, for the period. Weighted average shares used in computing net
loss per common share for the period ended June 30, 1996 consist of 2,051,909
weighted average shares of common stock outstanding and common stock
equivalents.
(c) Fiscal Year-end
During fiscal year 1996, the Company changed its fiscal year to a 52 or
53 week period which ends the Sunday nearest to September 30. As a result, the
first quarter of fiscal year 1997 ended on January 19, 1997, the second quarter
ended April 13, 1997, and the third quarter ended on July 06, 1997.
2. COMMITMENTS AND CONTINGENCIES
In October 1996, the employment agreements with George Miller and
Michael Miller were each extended and will expire on February 19, 2000.
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<PAGE> 7
In many instances, the Company has guaranteed some or all of a
franchisee's obligations under the lease for the franchisee's child care
center.
The Company is subject to complaints and claims arising in the ordinary
course of business, including its business as a franchisor. Except as noted in
Part II, Item 1 the Company believes that none of the current claims or
complaints are material to the Company's consolidated financial position.
3. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (EPS)
which simplifies the standards for computing EPS previously found in APB
Opinion No. 15 and makes them comparable to international EPS standards. The
Statement is effective for financial statements issued for periods ending after
December 15, 1997. Had the following statement been effective for the quarters
and the nine months ended July 06, 1997 and June 30, 1996, earnings per share
would have been presented as follows:
<TABLE>
<CAPTION>
12 weeks 13 weeks 40 weeks 39 weeks
ended July 06, ended June 30, ended July 06, ended June 30,
1997 1996 1997 1996
-------------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
1. Earnings per common share ($3.22) ($0.21) ($3.63) ($0.63)
2. Earning per common share-
assuming dilution ($3.22) ($0.21) ($3.63) ($0.63)
</TABLE>
4. RESTRUCTURING CHARGE
During the quarter ended July 6, 1997, the Company approved a plan to
(i) close nine corporate centers located in areas where conditions no longer
support an economically viable operation and (ii) to restructure its operating
management to better serve the remaining centers. Accordingly, the Company
recorded a $6.0 million restructuring charge to provide for costs associated
with the center closures and restructuring. The charge includes approximately
$5.5 million to reflect the Company's full rent obligations and real estate
taxes for the remaining lease terms of the closed centers. The charge also
includes restructuring and other costs related to the closures as follows:
<TABLE>
<S> <C>
Write-off of furniture, fixtures, equipment and
leasehold improvements abandoned
in connection with closures $169,085
Nonresidential real property lease obligations 5,455,076
Write-off of accounts receivable 44,121
CEO severance benefit 295,000
----------
Total Provision 5,963,282
Asset write-offs (213,206)
Other - deferred rent payments 119,777
----------
Reserved for Closed Centers -- July 06, 1997 $5,869,853
==========
</TABLE>
Revenue and net operating loss of the centers that have been closed
were $1,662,000 and $764,000, respectively, for the period ended July 06, 1997.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes (unaudited). The
financial information and percentages set forth below in Results of Operations
and Liquidity and Capital Resources have been rounded to the nearest thousandth
and to the nearest whole percent, respectively.
FORWARD-LOOKING STATEMENTS
When used in this report, press releases and elsewhere by management of
the Company from time to time, the words "believes," "anticipates," "expects,"
and similar expressions are intended to identify forward-looking statements
that involve certain risks and uncertainties. A variety of factors could cause
actual results to differ materially from those anticipated in the Company's
forward-looking statements; the most important of which is to negotiate
successful resolution of disputes and litigation with creditors as to amounts
owed them. Other factors include the Company's ability to "ramp-up" newly
opened centers to profitable enrollment levels within a reasonable period of
time; the Company's ability to identify and secure on acceptable terms suitable
locations on which to construct franchised centers; the Company's continued
ability to compete in this segment of the market; the relatively small number
of Company-owned and franchised centers currently operating, which could cause
poor operating results at any one center or any unsuccessful new center opening
to have a negative impact on the Company's overall results to a greater extent
than would be the case in a larger chain; the Company's dependence on
franchisees which could cause the Company's revenues from franchise fees and
royalties to be adversely affected if the Company's franchisees experience
business or operational difficulties; the failure of one or more franchisees to
meet its or their obligations under its or their leases, which could have a
material adverse effect on the business, operations and financial condition of
the Company to the extent such obligations have been guaranteed by the Company;
the Company's need to comply with numerous state and local governmental
regulations and licensing requirements; and other risk factors that are
discussed from time to time in the Company's SEC reports. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date thereof. The Company undertakes no obligation to publicly
release the results of any events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
GENERAL
The Company derives revenue from three sources: (i) weekly tuition
generated at the 12 Company-owned and operated centers; (ii) fees from
franchisees, including one-time franchise licensing fees currently totaling
$40,000 per new franchised center, ongoing royalties equal to 7% of each
franchised center's gross revenues, and weekly administrative fees of
approximately $54 per franchised center; and (iii) the sale of school supplies,
educational toys and equipment by Kid's Craft. The Company currently has 49
centers, 12 of which are Company owned and 37 of which are franchised.
6
<PAGE> 9
The number of corporate centers decreased during the 12 week period ended
July 06, 1997, from 20 to 12, as nine centers were closed and one new center
was opened.
The number of franchised centers increased from 36 to 37 during the 12
week period ended July 06, 1997 by the opening of one new center.
Revenue from Company-owned centers is recognized in the period the child
care services are provided. Revenue derived from franchise fees is recognized
when the franchise center opens. Accordingly, the amount of the deferred
franchise fee liability as shown on the Company's consolidated balance sheet is
directly related to the number of centers in development. All franchise fees
collected by the Company for centers in development are accounted for as a
current liability until the center opens, as required by generally accepted
accounting principles. Royalty income is recognized in the same period in which
the related revenue is generated by each franchised center. Revenue from
administrative fees paid by franchisees for services provided by the Company is
recognized when the Company provides such services. During fiscal year 1997, a
change in the Company's fee structure is expected to permit $10,000 of initial
fees paid by each applicant to be recognized approximately 30 days after the
applicant executes a Preliminary Agreement with the Company.
The significant growth in the number of Company-owned centers experienced
by the Company during fiscal year 1996 and continued growth during the first
three quarters of fiscal year 1997 contributed significantly to the Company's
continued losses. During this period, the number of Company-owned or operated
centers increased from seven to 20, but by the end of the quarter the number
decreased to 12 due to nine center closings and one new center opening. Of
these 21 centers, fifteen were not performing to expected levels at the end of
the period ended July 06, 1997 and the losses from these fifteen centers were
greater than the income earned by the remaining six centers. As a result, of
this the Company decided to close nine under-performing centers. Of the six
remaining under-performing centers, two are new (open less then one year) and
the remaining four are still in ramp-up. These six centers, while not yet
performing up to expected levels, were not closed because they were
logistically and geographically easier to manage as compared with the nine
which were closed.
The Company believes that its continued losses are attributable to three
major causes: first, the fixed rent structure which causes high expenses in
relation to revenue, second, new centers require up to twenty-four months to
"ramp-up" to expected performance levels, and, finally, all of the newly
acquired centers are still in the "ramp-up" stage, approximately two-thirds of
the Company-owned centers were managed by or acquired from franchisees, and the
"ramp-up" period for those centers has been longer than anticipated.
New centers typically require 24 months to "ramp-up." Of the Company-owned
centers, only five have been operated by the Company for more than 24 months.
In addition, many of the centers acquired by the Company during fiscal years
1996 and 1997 were pruchased from franchisees.
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<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
information from the Company's Consolidated Statements of Operations (except
for systemwide centers open at end of the period and systemwide revenues), and
amounts expressed as a percentage of revenues from operations. Due to the
Company changing to a 52/53 week fiscal year, the quarter ended July 06, 1997
consisted of 12 weeks and the quarter ended June 30, 1996 consisted of 13
weeks. The year to date comparisons include 40 weeks for the period ended July
06, 1997 and 39 weeks for the period ended June 30, 1996. While this has a
minor impact on comparability, it was not deemed material enough to provide a
pro forma of these results.
8
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<TABLE>
<CAPTION>
12 WEEKS 13 WEEKS
ENDED JULY 06, ENDED JUNE 30,
1997 1996
----------------------- -----------------------
1997 1997
<S> <C> <C>
Systemwide centers open 49 46
Systemwide revenues $5,609,000 $3,797,000
============== =============
Revenues from operations:
Company-owned centers $1,460,000 78% $903,000 71%
Franchise operations $344,000 18% $307,000 24%
Product sales $74,000 4% $66,000 5%
-------------- --------------
Total Revenues $1,878,000 100% $1,276,000 100%
Operating Expenses $2,428,000 129% $1,727,000 135%
Restructuring charge 5,963,000 (318)% -- --
Net operating loss ($6,513,000) (347)% ($451,000) (35)%
Interest (expense) income ($4,000) 0% $24,000 2%
Other (expense) income ($5,000) 0% -- --
-------------- --------------
Net Loss ($6,522,000) (347)% ($427,000) (33)%
============== ==============
</TABLE>
<TABLE>
<CAPTION>
40 WEEKS 39 WEEKS
ENDED JULY 06, ENDED JUNE 30,
1997 1996
--------------------- -----------------------
<S> <C> <C>
Systemwide centers open 49 40
Systemwide revenues $17,173,000 $9,725,000
=============== ===============
Revenues from operations:
Company-owned centers $4,535,000 74% $2,088,000 66%
Franchise operations $1,215,000 20% $895,000 28%
Product sales $413,000 6% $179,000 6%
---------------- ----------------
Total Revenues $6,163,000 100% $3,162,000 100%
Operating Expenses $7,698,000 125% $4,337,000 137%
Restructuring charge 5,963,000 (97)% -- --
Net operating loss ($7,498,000) (122)% ($1,175,000) (37)%
Interest (expense) income $4,000 0% $22,000 1%
Other (expense) income $146,000 2% $59,000 2%
---------------- ----------------
Net Loss ($7,348,000) (119)% ($1,094,000) (35)%
================ ================
</TABLE>
9
<PAGE> 12
TWELVE-WEEK PERIOD ENDED JULY 06, 1997 COMPARED
TO THIRTEEN-WEEK PERIOD ENDED JUNE 30, 1996
Revenues
Systemwide revenues (tuition fees from Company-owned and franchised
centers) for the period ended July 06, 1997 increased by 48%, to $5,609,000
from $3,797,000 for the period ended June 30, 1996. This increase was due to an
increase in the total number of centers open for the majority of the period to
58 (this number includes nine corporate centers closed during the last two
weeks of the quarter which resulted in 49 open centers as of July 06, 1997), as
compared to 46 open at June 30, 1996, and an increase in average enrollment
levels at centers which were open during both periods.
The Company's revenues from operations for the period ended July 06, 1997
increased by 47%, to $1,878,000 from $1,276,000 for the period ended June 30,
1996. This increase was primarily due to the increase in revenues generated by
an increased number of Company-owned centers, as well as an increase in
revenues generated by franchising activities and increased revenues generated
by Kid's Craft, and increased enrollment at existing centers.
Aggregate revenues generated by Company-owned centers for the period ended
July 06, 1997, which constituted 78% of revenues from operations, increased by
62% to $1,460,000, from $903,000 for the period ended June 30, 1996. This
increase was due primarily to the increase in (i) the number of Company-owned
centers owned and operated during the majority of the period ended July 06,
1997 to 21 (9 of the 21 were closed during the last two weeks of the quarter
ended July 06, 1997) as compared to 14 Company-owned centers at the end of the
period ended June 30, 1996 and (ii) the average enrollment in the centers open
during both periods.
Revenues from franchising activities (franchising fees, royalties and
administrative fees) for the period ended July 06, 1997, which constituted 18%
of revenues from operations, increased by 12%, to $344,000 as compared with
$307,000 for the period ended June 30, 1996. Revenues from franchise fees for
the period ended July 06, 1997 decreased by 65%, to $30,000 from $86,000 for
the period ended June 30, 1996. Royalties for the period ended July 06, 1997
increased by 43%, to $290,000 from $203,000 for the period ended June 30, 1996.
Administrative fees for the period ended July 06, 1997 increased by 21%, to
$23,000 from $19,000 for the period ended June 30, 1996. The decrease in
franchise fees is primarily attributable to the decrease in the number of
franchised centers opening during the applicable period. One franchised center
opened in the period ended July 06, 1997 as compared with four in the period
ended June 30, 1996. The increase in revenues from royalties and administrative
fees paid by franchisees resulted primarily from an increase in enrollment
levels for centers open in both periods and an increase in the number of
franchised centers to 37 as of the end of the period ended July 06, 1997 as
compared to 32 centers open as of June 30, 1996.
Sales revenues generated by Kid's Craft for the period ended July 06,
1997, which constituted 4% of revenues from operations, increased by 12%, to
$74,000 as compared with $66,000 for the period ended June 30, 1996, primarily
as the result of sales to new franchised
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<PAGE> 13
centers opened during this period, improved ongoing sales to existing franchise
centers, the opening of a retail store and the implementation of catalog sales.
Operating Expenses
Operating expenses include the expenses associated with operating the
Company-owned child care centers (including payroll and related expenses,
occupancy costs, and the costs of food, supplies, utilities, advertising and
insurance); expenses associated with administering the Company's franchise
operations (including payroll and related expenses, occupancy costs, travel and
utilities); and expenses associated with the operation of Kid's Craft
(including costs of products, freight, occupancy and utilities); and other
general and administrative expenses.
Operating expenses for the period ended July 06, 1997 increased by 41%, to
$2,428,000 as compared with $1,727,000 in the period ended June 30, 1996. As a
percentage of operating revenues, operating expenses decreased to approximately
129% for the period ended July 06, 1997 from approximately 135% for the period
ended June 30, 1996. This decrease as a percent is due to higher revenues and
economics of scale gained on corporate overhead.
A restructuring charge of approximately $6.0 million was incurred in
the third quarter of fiscal year 1997 due to the closure of nine
under-performing centers. This closure includes recognizing the future lease
obligations for these locations ($5.5 million), the write-off of all furniture
fixtures and leasehold improvements ($169,000), accounts receivable ($147,000)
and the severance benefit of the former CEO ($295,000) (Also see footnote
number four). The Company intends to work with certain landlords to obtain
replacement tenants for these properties and enforce their legal rights with
respect to other landlords in an effort to mitigate the Company's damages under
these leases. The severance benefit of the former CEO is also subject to an
obligation to mitigate damages and the condition precedent that the CEO execute
a general release for the benefit of the Company. Neither the amount owing on
the Company's future lease obligations for these locations nor the amount owed
to the former CEO can be determined with certainty at this time. The Company
intends to raise all of its defenses, including mitigation, with regard to
these amounts.
Operating expenses relating to Company-owned centers for the period ended
July 06, 1997, which constituted 23% of total operating expenses, increased by
44%, to $1,647,000 from $1,146,000 for the period ended June 30, 1996. The
increase in operating expenses for Company-owned and operated centers for the
period ended July 06, 1997, as compared to the period ended June 30, 1996, is
due to the increase in the number of centers and the related increases in rent,
payroll, food costs and other cost increases in proportion to the number of
centers operated and the number of enrollees. As centers in the "ramp-up" phase
mature beyond their initial period of high start-up expenses and low
enrollment, the Company believes that expenses, as a percentage of revenues,
will decrease. Furthermore, the Company is continually in the process of
attempting to manage and minimize variable expenses such as payroll, food
costs, and supplies.
Costs of goods sold by Kid's Craft for the period ended July 06, 1997,
which constituted 1% of total operating expenses, increased by 28%, to $91,000
from $79,000 for the period ended June 30, 1996. This increase was primarily
due to an corresponding increase in product sales.
11
<PAGE> 14
General and administrative expenses, which constituted 9% of total
operating expenses and which included the costs of corporate overhead,
franchising operations and operating expenses for Kid's Craft, for the period
ended July 06, 1997 increased by 34%, to $675,000 from $503,000 for the period
ended June 30, 1996. Increases occurred due to the substantial increase in the
number of centers open and under development and because of additional legal,
accounting and consulting expenses resulting from the Company's attempts to
obtain additional financing.
Depreciation and Amortization
Depreciation and amortization expenses consisted of the depreciation or
amortization of certain equipment, furniture and fixtures, vehicles and
leasehold improvements, and goodwill. Depreciation and amortization expense,
for the period ended July 06, 1997 increased to $55,000 from $15,000 for the
period ended June 30, 1996. This increase was primarily due to depreciation
expense resulting from the increase in property and equipment, and amortization
of goodwill.
Interest
Interest expense, net of interest income, for the period ended July 06,
1997 was $4,000 as compared to interest income of $24,000 for the period ended
June 30, 1996. This change was attributable to the borrowings on the
Certificate of Deposit (CD) line of credit offset by interest earned on the CD.
In the quarter ended June 30, 1996 interest income was higher due to overnight
investments on available cash balances.
Other Income
For the period ended July 06, 1997, the Company recorded other expenses of
$5,000, and in the period ended June 30, 1996, $0.
Summary
As a result of the foregoing, the Company recorded a net loss for the
period ended July 06, 1997 of $6,522,000, which includes the $5,963,000
restructuring charge, as compared to a net loss of $427,000 for the period
ended June 30, 1996.
FORTY WEEKS ENDED JULY 06, 1997 COMPARED
TO THIRTY-NINE WEEKS ENDED JUNE 30, 1996
Revenues
Systemwide revenues (tuition fees from Company-owned and franchised
centers) for the period ended July 06, 1997 increased by 77%, to $17,173,000
from $9,725,000 for the period ended June 30, 1996. This increase was due to an
increase in the total number of centers open for the majority of the period to
58 (this number includes 9 corporate centers closed during the last two weeks of
the quarter which resulted in 49 open centers as of July 06, 1997) as compared
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to 46 open at June 30, 1996 and an increase in average enrollment levels at
centers which were open during both periods.
The Company's revenues from operations for the period ended July 06, 1997
increased by 77%, to $6,163,000 from $3,162,000 for the period ended June 30,
1996. This increase was due to an increase in the number of Company-owned
centers, an increase in revenues generated by franchising activities, increased
revenues generated by Kid's Craft, and increased enrollment at existing
centers.
Aggregate revenues generated by Company-owned centers for the period
ended July 06, 1997, which constituted 74% of revenues from operations,
increased by 117%, to $4,535,000 as compared with $2,088,000 for the period
ended June 30, 1996. This increase was due primarily to the increase in the
number of Company-owned centers owned and operated during the period ended July
06, 1997 to 21 (nine of the 21 were closed during the last two weeks of the
quarter ended July 06, 1997) as compared to 14 Company-owned centers at the end
of the period ended June 30, 1996 as well as an increase in average enrollment.
Revenues from franchising activities (franchising fees, royalties and
administrative fees) for the period ended July 06, 1997, which constituted 20%
of revenues from operations, increased by 36%, to $1,215,000 from $895,000 for
the period ended June 30, 1996. Revenues from franchise fees for the period
ended July 06, 1997 decreased by 14%, to $260,000 from $304,000 for the period
ended June 30, 1996. Royalties for the period ended July 06, 1997 increased by
65%, to $885,000 from $535,000 for the period ended June 30, 1996.
Administrative fees for the period ended July 06, 1997 increased by 25%, to
$70,000 from $56,000 for the period ended June 30, 1996. The decrease in
franchise fees is primarily attributable to an increase in the number of
franchise applicants who forfeited their franchise fee in the prior year before
opening a center. There were 10 franchised centers which opened in the period
ended July 06, 1997 and ten in the period ended June 30, 1996. The increase in
revenues from royalties and administrative fees paid by franchisees, was due to
an increase in enrollment levels for franchised centers open in both periods
and an increase in the franchised centers open as of the end of the period
ended July 06, 1997 (which included nine new franchised centers opened reduced
by the four that were acquired by the Company, increased by one that was bought
from the Company, and reduced by one that was allowed to drop out of the
system) compared to the period ended June 30, 1996.
Sales revenues generated by Kid's Craft for the period ended July 06,
1997, which constituted 6% of revenues from operations, increased by 131%, to
$413,000 from $179,000 for the period ended June 30, 1996, primarily as a
result of sales to new franchised centers opened during this period, improved
ongoing sales to existing franchise centers, the opening of a retail store and
the implementation of catalog sales.
Operating Expenses
Operating expenses include the expenses associated with operating the
Company-owned child care centers (including payroll and related expenses,
occupancy costs, and the costs of food, supplies, utilities, advertising and
insurance); expenses associated with administering the Company's
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franchise operations (including payroll, commissions and related expenses,
occupancy costs, advertising, travel and utilities); and expenses associated
with the operation of Kid's Craft (including costs of products, freight,
occupancy and utilities); and other general and administrative expenses.
Operating expenses for the period ended July 06, 1997 increased by 77%, to
$7,698,000 as compared with $4,337,000 in the period ended June 30, 1996. As a
percentage of operating revenues, operating expenses decreased to approximately
125% for the period ended July 06, 1997 from approximately 137% for the period
ended June 30, 1996. This decrease as a percent is due to higher revenues in
the period as compared to last period and some economies of scale gained on
corporate overhead.
A restructuring charge of approximately $6.0 million was incurred in
the third quarter of fiscal year 1997 due to the closure of nine under
performing centers. This closure includes recognizing the future lease
obligations for these locations ($5.5 million), the write-off of all furniture,
fixtures, and leasehold improvement ($169,000), accounts receivable ($147,000)
and the severance benefit of the former CEO ($295,000) (Also see footnote
number four). The Company intends to work with certain landlords to obtain
replacement tenants for these properties and enforce their legal rights with
respect to other landlords in an effort to mitigate the Company's damages
under these leases. The severance benefit of the former CEO is also subject to
an obligation to mitigate damages and the condition precedent that the CEO
execute a general release for the benefit of the Company. Neither the amount
owing on the Company's future lease obligations for these locations nor the
amount owed to the former CEO can be determined with certainty at this time.
The Company intends to raise all of its defenses, including mitigation, with
regard to these amounts.
Operating expenses relating to Company-owned centers for the period ended
July 06, 1997, which constituted 42% of total operating expenses, increased by
99%, to $5,314,000 from $2,676,000 for the period ended June 30, 1996. The
increase in operating expenses for Company-owned and operated centers for the
period ended July 06, 1997, as compared to the period ended June 30, 1996, is
due to the increase in the number of centers and the related increases in rent,
payroll, food costs and other cost increases in proportion to the number of
centers operated and the number of enrollees. As centers in the "ramp-up" phase
mature beyond their initial period of high start-up expenses and low
enrollment, the Company believes that expenses, as a percentage of revenues,
will decrease. Furthermore, the Company is continually in the process of
attempting to manage and minimize variable expenses such as payroll, food
costs, and supplies.
Costs of goods sold by Kid's Craft for the period ended July 06, 1997,
which constituted 3% of total operating expenses, increased by 117%, to
$345,000 from $159,000 for the period ended June 30, 1996. This increase was
primarily due to a corresponding increase in product sales.
General and administrative expenses, which constituted 16% of total
operating expenses and which included the costs of corporate overhead,
franchising operations and operating expenses for Kid's Craft, for the period
ended July 06, 1997 increased by 35%, to $2,024,000 from $1,502,000 for the
period ended June 30, 1996. Expenses increased in all expense items due to
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the increase in the number of centers open and under development, and the
legal, accounting and consulting expenses resulting from the Company's
attempts to obtain additional financing.
Depreciation and Amortization
Depreciation and amortization expenses consisted of depreciation or
amortization of certain equipment, furniture and fixtures, vehicles and
leasehold improvements, and goodwill. Depreciation and amortization expense,
for the period ended July 06, 1997 increased to $133,000 from $51,000 for the
period ended June 30, 1996. This increase was primarily due to depreciation
expense resulting from the increase in property and equipment, and amortization
of additional goodwill.
Interest
Interest income, net of interest expense, for the period ended July 06,
1997 was $4,000 as compared to interest income of $22,000 for the period ended
June 30, 1996. This change was attributable to borrowings on a line of credit
in fiscal year 1997 as compared to fiscal year 1996 in which the Company's line
of credit was paid off in December 1995 and the Company had overnight
investments in the Company's sweep account resulting from the proceeds of the
initial public offering, as well as the elimination of capital lease obligations
and the amortization of debt issuance costs which were included in interest
expense during fiscal 1996.
Other Income
For the period ended July 06, 1997, the Company recorded other income of
$146,000 as compared with $59,000 in the period ended June 30, 1996. This
income was attributable to the gain on the sale of one Company-owned center to
a franchisee, the early retirement of certain debt obligations at a favorable
discount and the commission earned from the transfer of one franchised center
to another franchisee.
Summary
As a result of the foregoing, the Company recorded a net loss for the
period ended July 06, 1997 of $7,348,000, which includes the $5,963,000
restructuring charge, as compared to a net loss of $1,094,000 for the period
ended June 30, 1996.
Seasonality
Due to the annual seasonal reduction in enrollment during the summer
months, which occurs throughout the child care industry, the Company has
historically experienced a decrease in tuition revenues during the fourth
quarter of each fiscal year (July through September). The Company expects to
continue to experience decreases in tuition revenues during the fourth quarter
of its current fiscal year. As a result, the Company's annual earnings have
been and will continue to be heavily dependent on the results of operations
during the first three quarters of each year.
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LIQUIDITY AND CAPITAL RESOURCES
During the period ended July 06, 1997, the Company satisfied its cash
requirements from cash flow from operations, the remaining proceeds from the
initial public offering, the sale of one Company-owned center and draws on the
line of credit secured by a CD. The primary uses of cash have been for
operations, the purchase of supplies, financing the start-up of two new
Company-owned centers, the acquisition of four centers from franchisees and
capital expenditures.
Net cash used in operating activities for the period ended July 06, 1997
totaled approximately $1,103,000, reflecting, primarily, the net loss of
$7,348,000 (which included a $6.0 million restructuring charge), increases in
the reserve for closed centers and increases in accounts payable. Net cash
provided by investing activities for the period ended July 06, 1997 totaled
approximately $12,000, reflecting the sale of one Company-owned center, offset
by the acquisition of two centers and capital expenditures.
The Company was advised on June 2, 1997 its $200,000 bank line of credit
(of which $8,000 was drawn on as of May 30, 1997) was withdrawn by Sparks State
Bank. During the period ended July 06, 1997, the Company used $112,000 to
re-pay long-term debts.
As of July 06, 1997, the Company's total debt obligations (exclusive of
trade credit) consisted of $117,000 which included a $39,000 equipment loan, an
$11,000 vehicle loan and various notes payable as a result of the purchase of
franchisee centers.
The Company continues to engage in a variety of measures aimed at
obtaining profitability. During this quarter the Company reduced its corporate
staff by six and has discontinued operations of nine non-profitable centers. As
of the end of this quarter, the existing company owned locations operate in the
States of Maryland and Pennsylvania which creates geographical economics of
scale with respect to administrative management costs.
As a result of the reduction in corporate staff and closing the company
owned operations of the nine non-performing centers, aggregate annualized
revenue decreased 27%, payroll was decreased by 43% and rent expenses decreased
by 50%.
The Company also faces a number of claims from creditors some of which
have been filed and some of which are threatened or pending litigation. These
claims if taken in the aggregate would create extreme liquidity problems.
Despite the above measures the Company still faces a serious liquidity
problem. It is uncertain if the Company will be able to meet its debt
and working capital obligations. The Company believes that by the beginning of
the next fiscal year (September 29, 1997) a positive cash flow can be achieved
from current operations, but there is no certainty of this happening.
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EFFECTS OF INFLATION
The impact of general inflation on the Company's business has been
insignificant to date and the Company believes that it will continue to be
insignificant for the foreseeable future.
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PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS.
The Company is a party to the following litigation:
Merrill Corporation v. Kiddie Academy International, Inc., Circuit Court for
Harford County, Maryland, Case No. 26591/59/681. This matter was instituted on
September 23, 1996 by Merrill Corporation in connection with financial printing
services rendered to the Company in connection with the Company's initial
public offering. Merrill asserted a claim for $129,000. This case has been
settled for $110,000.
Elgin Oaks II v. Kiddie Academy Child Care Learning Centers, Inc. and Kiddie
Academy International, Inc., In the Circuit of the Sixteenth Judicial Circuit,
Kane County, Illinois. Gen. No. L KA 97 0361 - Plaintiff, a landlord, filed a
complaint on June 20, 1997 alleging that the Company terminated its lease with
the Plaintiff prematurely and seeking possession of the property subject to
that lease and also seeking past and future rent in the amount of
$1,008,424.80, plus attorneys' fees and other expenses. The Company and
plaintiff have stipulated that the Company vacated the property and may be
liable for certain unpaid rent, but that the amount of damages cannot be
determined at this time. The Company intends to defend the damages component of
this case and to raise all its defenses, including the plaintiff's duty to
mitigate.
There have been no material developments in other previously reported
litigation. (See the Company's 10-QSB dated April 13, 1997).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 30, 1997, the holders of 1,017,000 shares of the Company's issued and
outstanding common stock, constituting a majority of the Company's 2,025,000
shares of issued and outstanding common stock, executed and delivered a written
consent to shareholder action without a meeting pursuant to Section 228 of the
Delaware General Corporation Law. The holders of the 1,017,000 shares by
written consent (a) amended the by-laws to (i) remove a provision prohibiting
the removal of directors by less than two-thirds of the shareholders and (ii)
increase the number of directors from six to nine; (b) elected three new
directors: (i) Pauline J. Miller, (ii) Gary Miller, and (iii) Diane Amato; (c)
removed two existing directors: (i) Angelo D. Bizzarro, and (ii) Carl J. Meil,
Jr; and (d) elected two directors, Glenn J. Brainer and Larry V. Fila, to fill
the vacancies created by the removal of Messrs. Bizzarro and Meil, contingent
upon the approval of Barington Capital Group, L.P. under the terms of the
Underwriting Agreement. All of the newly elected directors were elected by the
consent of the holders of 1,017,000 shares. No votes were cast against these
directors or the other actions referenced above, or withheld or abstained,
because of the nature of the written consent under Delaware law. No proxies
were solicited in connection with this action.
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ITEM 5. OTHER INFORMATION.
MANAGEMENT CHANGE
On Thursday, June 12, 1997, the Board of Directors terminated the
employment of Angelo D. Bizzarro, the Company's Chief Executive Officer, and
appointed George Miller as the Chief Executive Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits required by Item 601 Regulation S-B:
Exhibit 3 - Second Amended and Restated By-Laws
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Additional Exhibits
b. Reports on Form 8-K
On June 11, 1997, the Company filed a report on form 8-K reporting a
change in control of the Company.
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SIGNATURE
===============================================================================
In accordance with the requirements of the Securities and Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIDDIE ACADEMY INTERNATIONAL, INC.
August 20, 1997 BY: /s/ George Miller
- ---------------------- -------------------------------
Date Geeorge Miller
Chief Executive Officer
August 20, 1997 BY: /s/ Guy A. Matta
- ---------------------- -------------------------------
Date Guy A. Matta
Chief Financial Officer
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<PAGE> 1
EXHIBIT 3
SECOND AMENDED AND RESTATED
BY-LAWS
OF
KIDDIE ACADEMY INTERNATIONAL, INC.
<PAGE> 2
KIDDIE ACADEMY INTERNATIONAL, INC.
A DELAWARE CORPORATION
SECOND AMENDED AND RESTATED
BY-LAWS
-------------------------------------------
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting.
An annual meeting of stockholders for the purpose of electing directors
and of transacting such other business as may come before it shall be held
each year at such date, time, and place, either within or without the State of
Delaware, as may be specified by the Board of Directors.
Section 1.2 Special Meetings.
Special meetings of stockholders for any purpose or purposes may be held
at any time upon call of the Chairman or Vice Chairman of the Board, if any,
or the Chief Executive Officer ("CEO"), President or any Vice President, at
such time and place either within or without the State of Delaware as may be
stated in the notice. A special meeting of stockholders shall be called by
the Chairman of the Board, Vice Chairman of the Board, CEO, President, any
Vice President, or the Secretary upon the written request, stating time,
place, and the purpose or purposes of the meeting, of stockholders who
together own of record 10% of the outstanding stock of all classes entitled to
vote at such meeting.
Section 1.3 Notice of Meetings.
Written notice of stockholders meetings, stating the place, date, and
hour thereof, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by the Chairman or Vice
Chairman of the Board, if any, the CEO, President, any Vice President, the
Secretary, or any Assistant Secretary, to each stockholder entitled to vote
thereat at least ten days but not more than sixty days before the date of the
meeting, unless a different period is prescribed by law.
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Section 1.4 Quorum.
Except as otherwise provided by law or in the Certificate of
Incorporation or these By-Laws, at any meeting of stockholders, the holders
of a majority of the outstanding shares of each class of stock entitled to
vote at the meeting shall be present or represented by proxy in order to
constitute a quorum for the transaction of any business. In the absence of a
quorum, a majority in interest of the stockholders present or the chairman of
the meeting may adjourn the meeting from time to time in the manner provided
in Section 1.5 of these By-Laws until a quorum shall attend.
Section 1.5 Adjournment.
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 1.6 Organization.
The Chairman of the Board, or in his or her absence the Vice Chairman, or
in their absence the President, or in their absence the CEO, or in their
absence any Vice President, shall call to order meetings of stockholders and
shall act as chairman of such meetings. The Board of Directors or, if the
Board fails to act, the stockholders, may appoint any stockholder, director,
or officer of the Corporation to act as chairman of any meeting in the absence
of the Chairman of the Board, Vice Chairman of the Board, the CEO, the
President, and all Vice Presidents.
The Secretary of the Corporation shall act as secretary of all meetings
of stockholders, but, in the absence of the Secretary, the chairman of the
meeting may appoint any other person to act as secretary of the meeting.
Section 1.7 Voting.
Except as otherwise provided by law or in the Certificate of
Incorporation or these By-Laws and except for the election of directors, at
any meeting duly called and held at which a quorum is present, a majority of
the votes cast at such meeting upon a given question by the
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holders of outstanding shares of stock of all classes of stock of the
Corporation entitled to vote thereon who are present in person or by proxy
shall decide such question. At any meeting duly called and held for the
election of directors at which a quorum is present, directors shall be elected
by a plurality of the votes cast by the holders (acting as such) of shares of
stock of the Corporation entitled to elect such directors.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office.
The business, property, and affairs of the Corporation shall be managed
by or under the direction of a Board of nine (9) directors; provided, however,
that the Board, by resolution adopted by a vote of a majority of the then
authorized directors, may, subject to the authority of the stockholders,
increase or decrease the number of directors. The directors shall be elected
by the holders of shares entitled to vote thereon at the annual meeting of
stockholders, and each shall serve (subject to the provisions of Article IV)
until the next succeeding annual meeting of stockholders and until his or her
respective successor has been elected and qualified.
Section 2.2 Chairman of the Board.
The directors may elect one of their members to be Chairman of the Board
of Directors. The Chairman shall be subject to the control of, and may be
removed by, the Board of Directors. He or she shall perform such duties as may
from time to time be assigned to him or her by the Board.
Section 2.3 Meetings.
Regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be determined by the Board.
Special meetings of the Board of Directors shall be held at such time and
place as shall be designated in the notice of the meeting whenever called by
the Chairman or Vice Chairman of the Board, if any, the CEO, the President, or
a majority of the directors then in office.
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Section 2.4 Notice of Special Meetings.
The Secretary, or in his or her absence any other officer of the
Corporation, shall give each director notice of the time and place of holding
of special meetings of the Board of Directors by mail at least ten days before
the meeting, or by facsimile transmission, telecopy, telegram, cable,
radiogram, or personal service at least one day before the meeting. Unless
otherwise stated in the notice thereof, any and all business may be transacted
at any meeting without specification of such business in the notice.
Section 2.5 Quorum and Organization of Meetings.
A majority of the total number of members of the Board of Directors as
constituted from time to time shall constitute a quorum for the transaction of
business, but, if at any meeting of the Board of Directors (whether or not
adjourned from a previous meeting) there shall be less than a quorum present,
a majority of those present may adjourn the meeting to another time and place,
and the meeting may be held as adjourned without further notice or waiver
provided that a majority of the total number of members of the Board of
Directors are then present. Except as otherwise provided by law or in the
Certificate of Incorporation or these By-laws, a majority of the directors
present at any meeting at which a quorum is present may decide any questions
brought before such meeting. Any action to (i) elect, remove or terminate the
employment of the Chairman of the Board or any executive officer of the
Corporation, (ii) fill any vacancy on the Board resulting from the death or
resignation of a director, or (iii) amend this Section 2.5, shall require the
approval of the greater of four directors or a majority of the total number of
members of the Board of Directors (or, if there are less than four directors
then in office, all directors then in office). Meetings shall be presided
over by the Chairman of the Board, if any, or in his or her absence by the
Vice Chairman of the Board, or in their absence the President, or in their
absence the CEO, or in their absence by such other person or as the directors
may select. The Secretary of the Corporation shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 2.6 Committee.
The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of
one or more of the directors of
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the Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business, property, and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have power or
authority in reference to amending the Certificate of Incorporation of the
Corporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock
adopted by the Board of Directors pursuant to authority expressly granted to
the Board of Directors by the Corporation's Certificate of Incorporation, fix
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation, or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation), adopting an agreement of merger or consolidation
under Section 251 or 252 of the General Corporation law of the State of
Delaware, recommending to the stockholders the sale, lease, or exchange of all
or substantially all of the Corporation's property and assets, recommending to
the stockholders a dissolution of the Corporation or a revocation of
dissolution, or amending these By-Laws; and, unless the resolution expressly
so provided, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation law of
the State of Delaware. Each committee which may be established by the Board
of Directors pursuant to these By-laws may fix its own rules and procedures.
Notice of meetings of committees, other than of regular meetings provided for
by the rules, shall be given to committee members. All action taken by
committees shall be recorded in minutes of the meetings.
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Section 2.7 Action Without Meeting.
Nothing contained in these By-Laws shall be deemed to restrict the power
of members of the Board of Directors or any committee designated by the Board
of Directors to take any action required or permitted to be taken by them
without a meeting.
Section 2.8 Telephone Meetings.
Nothing contained in these By-Laws shall be deemed to restrict the power
of members of the Board of Directors or any committee designated by the Board
of Directors, to participate in a meeting of the Board of Directors, or
committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
ARTICLE III
OFFICERS
Section 3.1 Executive Officers.
The executive officers of the Corporation shall be a CEO, President, one
or more Executive Vice Presidents, a Treasurer, and a Secretary, each of whom
shall be elected by the Board of Directors. The Board of Directors may
further elect or appoint such other officers (including a Controller, Chief
Financial Officer, and one or more Vice Presidents, Assistant Vice Presidents,
Assistant Treasurers and Assistant Secretaries) as it may deem necessary or
desirable. Each officer shall hold office for such term as may be prescribed
by the Board of Directors from time to time. Any person may hold at one time
two or more offices.
Section 3.2 Powers and Duties.
The Chairman of the Board, if any, or, in his or her absence, the Vice
Chairman of the Board, if any, or, in his or her absence, the President, or in
his or her absence the CEO, shall preside at all meetings of the stockholders
and of the Board of Directors. The CEO shall be the chief executive officer
of the Corporation. In the absence of the CEO, the President shall perform
all duties of the CEO. In the absence of the President, a Vice President
appointed by the President or, if the President fails to make such
appointment, by the Board of Directors, shall perform all the duties of the
CEO. The officers and agents of the Corporation shall each have
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<PAGE> 8
such powers and authority and shall perform such duties in the management of
the business, property, and affairs of the Corporation as generally pertain to
their respective offices, as well as such powers and authorities and such
duties as from time to time may be prescribed by the Board of Directors.
ARTICLE IV
RESIGNATIONS, REMOVALS, AND VACANCIES
Section 4.1 Resignations.
Any director or officer of the Corporation, or any member of any
committee, may resign at any time by giving written notice to the Board of
Directors, the CEO, the President, or the Secretary of the Corporation. Any
such resignation shall take effect at the time specified therein or, if the
time be not specified therein, then upon receipt thereof. The acceptance of
such resignation shall not be necessary to make it effective.
Section 4.2 Removals.
Subject to the provisions of Section 2.5 hereto, the Board of Directors,
by a vote of not less than a majority of the entire Board, at any meeting
thereof, or by written consent, at any time, may, to the extent permitted by
law, remove with or without cause form office any officer or member of any
committee and may, with or without cause, disband any committee.
Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares entitled at the time
to vote at an election of directors.
Section 4.3 Vacancies.
Subject to the provisions of Section 2.5 hereof, any vacancy in the
office of any director or officer through death, resignation, removal,
disqualification, or other cause, and any additional directorship resulting
from increase in the number of directors, may be filled at any time by the
holders of shares entitled at the time to vote for election of director by
vote of not less than a majority of such shares, and, subject to the
provisions of this Article IV, the person so chosen shall hold office until
his or her successor shall have been elected and qualified.
ARTICLE V
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<PAGE> 9
CAPITAL STOCK
Section 5.1 Stock Certificates.
The certificates representing shares of the capital stock of the
Corporation shall be in such form as shall be prescribed by law and approved,
from time to time, by the Board of Directors.
Section 5.2 Transfer of Shares.
Shares of the capital stock of the Corporation may be transferred on the
books of the Corporation only by the holder of such shares or by his or her
duly authorized attorney, upon the surrender to the Corporation or its
transfer agent of the certificate representing such stock properly endorsed.
Section 5.3 Fixing Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which,
unless otherwise provided by law, shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior to
any other action.
Section 5.4 Lost Certificates.
The Board of Directors or any transfer agent of the Corporation may
direct a new certificate or certificates representing stock of the Corporation
to be issued in place of any certificate or certificates theretofore issued by
the Corporation, alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate to
be lost, stolen, or destroyed. When authorizing such issue for a new
certificate or certificates, the Board of Directors (or any transfer agent of
the Corporation authorized to do so by a resolution of the Board of Directors)
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the Corporation a
bond in such sum as the Board of Directors (or any transfer agent so
authorized) shall direct to indemnify the Corporation against any claim that
may
- 8 -
<PAGE> 10
be made against the Corporation with respect to the certificate alleged to
have been lost, stolen, or destroyed or the issuance of such new certificates,
and such requirement may be general or confined to specific instances.
Section 5.5 Regulations.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer,
registration, cancellation, and replacement of certificates representing stock
of the Corporation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Corporate Seal.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal" and
"Delaware."
Section 6.2 Fiscal Year.
The fiscal year of the Corporation shall be determined by resolution of
the Board of Directors.
Section 6.3 Notices and Waivers Thereof.
Whenever any notice whatever is required by law, the Certificate of
Incorporation, or these By-laws to be given to any stockholder, director, or
officer, such notice, except as otherwise provided by law, may be given
personally, or by mail, or, in the case of directors of officers, by facsimile
transmission, telecopy, telegram, cable, or radiogram, addressed to such
address as appears on the books of the Corporation. Any notice given by
facsimile transmission, telecopy, telegram, cable, or radiogram shall be
deemed to have been given when it shall have been delivered for transmission
and any notice given by mail shall be deemed to have been given when it shall
have been deposited in the United States mail with postage thereon prepaid.
Whenever any notice is required to be given by law, the Certificate of
Incorporation, or these By-Laws, a written waiver thereof, signed by the
person entitled to such notice, whether before or after the meeting or the
time stated therein, shall be deemed equivalent in all respects to such notice
to the full extent permitted by law.
- 9 -
<PAGE> 11
Section 6.4 Stock of Other Corporations or Other Interests.
Unless otherwise ordered by the Board of Directors, the Chairman of the
Board, Vice Chairman of the Board, CEO, the President, the Secretary, and such
attorneys or agents of the Corporation as may be, from time to time,
authorized by the Board of Directors or the CEO, shall have full power and
authority on behalf of this Corporation to attend and to act and vote in
person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which this Corporation may own or hold shares
or other securities, and at such meetings shall possess and may exercise all
the rights and powers incident to the ownership of such shares or other
securities which this Corporation, as the owner or holder thereof, might have
possessed and exercised if present. The Chairman of the Board, Vice Chairman
of the Board, the CEO, the President, the Secretary, or such attorneys or
agents, may also execute and deliver on behalf of this Corporation powers of
attorney, proxies, consents, waivers, and other instruments relating to the
shares or securities owned or held by this Corporation.
ARTICLES VII
AMENDMENTS
The holders of shares entitled at the time to vote for the election of
directors shall have power to adopt, amend, or repeal the By-laws of the
Corporation by vote of not less than a majority of such shares, and, except as
otherwise provided by law, the Board of Directors shall have power equal in
all respects to that of the stockholders to adopt, amend, or repeal the By-Laws
by vote of not less than a majority of the entire Board. However, any
By-law adopted by the Board may be amended or repealed by vote of the holders
of a majority of the shares entitled at the time to vote for the election of
directors.
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM KIDDIE ACADEMY
INTERNATIONAL, INC.'S UNAUDITED FINANCIAL STATEMENTS FOR THE FORTY WEEKS ENDED
JULY 06, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> APR-14-1997
<PERIOD-END> JUL-06-1997
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 117
<ALLOWANCES> 0
<INVENTORY> 86
<CURRENT-ASSETS> 1,147
<PP&E> 959
<DEPRECIATION> 375
<TOTAL-ASSETS> 2,057
<CURRENT-LIABILITIES> 3,817
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> (6,734)
<TOTAL-LIABILITY-AND-EQUITY> 2,057
<SALES> 6,163
<TOTAL-REVENUES> 6,163
<CGS> 13,660
<TOTAL-COSTS> 13,660
<OTHER-EXPENSES> 146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (7,347)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,347)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,347)
<EPS-PRIMARY> (3.63)
<EPS-DILUTED> (3.63)
</TABLE>
<PAGE> 1
EXHIBIT 99
TO THE STOCKHOLDERS OF
KIDDIE ACADEMY INTERNATIONAL, INC.:
This is to notify you, as required by Section 228(d) of the Delaware
General Corporation Law, that written consents of the holders of a majority of
the issued and outstanding stock of the Company were delivered to the Company
on Friday, May 30, 1997, at 3:15 p.m., taking the following actions of the
stockholders without a meeting:
1. Repeal of any bylaws that may have been adopted by the Board of
Directors of the Company since the version of the Amended and Restated Bylaws
(the "Bylaws") filed with the Company's SEC Form 10-KSB for the period ending
September 30, 1996.
2. Amendment of the Bylaws to increase the size of the Board of
Directors of the Company from six to nine.
3. Election of Pauline J. Miller, Diane Amato and Gary Miller,
CPA, as directors to fill the vacancies resulting from the increase of the
size of the Board.
4. Repeal of Section 2.9 of the Company's Bylaws requiring the
vote of the holders of two-thirds of the shares to remove a director.
5. Removal of Angelo D. Bizzarro and Carl J. Meil, Jr., as
Directors of the Company.
6. Election of Glenn J. Brainer and Larry V. Fila as Directors to
fill the vacancies created by the removal of Messrs. Bizzarro and Meil. The
appointment of these directors is subject to the approval of Barington Capital
Group, L.P. (the "Underwriter") pursuant to the terms of an Underwriting
Agreement between the Company and the Underwriter dated December 12, 1995.
The Bylaw amendments and repeals were adopted pursuant to the
authority granted in Article VII of the Company's Bylaws, which permits the
holders of a majority of the shares of the Company entitled to vote for
directors to adopt, amend or repeal the Bylaws of the Company.
Any questions concerning the foregoing actions should be directed to
John J. Ghingher, III, Weinberg & Green LLC, counsel to the Company at 100
South Charles Street, Suite 1500, Baltimore, Maryland 21201 or by telephone at
(410) 332-8748.
Michael J. Miller,
President and Secretary
