U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File No. 0-27780
NEW HORIZON KIDS QUEST, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1719363
------------------------------------ --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16355 36th Avenue North, Suite 700, Plymouth, MN 55446
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (763) 557-1111
--------------
Check whether the registrant (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 ( )
As of November 13, 2000, the Registrant had outstanding 3,293,300 shares of its
Common Stock, $.01 par value.
<PAGE>
NEW HORIZON KIDS QUEST, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
Page
----
PART I. FINANCIAL INFORMATION 3
ITEM 1. Condensed Consolidated Financial Statements
a) Condensed Consolidated Balance Sheets --
September 30, 2000 and December 31, 1999 3
b) Condensed Consolidated Statements of
Operations -- Three and nine months ended
September 30, 2000 and 1999 5
c) Condensed Consolidated Statements of
Cash Flows -- Nine months ended
September 30, 2000 and 1999 6
d) Notes to Condensed Consolidated Financial
Statements 7
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
PART II. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signatures 14
2
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 131,226 $ 155,987
Accounts receivable .............................. 999,408 864,146
Current portion of notes receivable .............. 162,334 156,747
Prepaid expenses and other current assets ........ 141,311 98,016
------------ ------------
Total current assets ............................ 1,434,279 1,274,896
------------ ------------
PROPERTY AND EQUIPMENT:
Furniture, fixtures, equipment and leaseholds .... 10,526,309 10,023,548
Less--Accumulated depreciation and amortization .. (6,058,307) (4,662,433)
------------ ------------
Total property and equipment ................... 4,468,002 5,361,115
OTHER ASSETS:
Goodwill (net of accumulated amortization
of $200,999 and $167,885, respectively) ........ 461,286 494,400
Notes receivable, net of current portion ......... 853,354 951,460
Other ............................................ 70,633 167,731
------------ ------------
$ 7,287,554 $ 8,249,602
============ ============
</TABLE>
See accompanying notes which are an integral part of these balance sheets.
3
<PAGE>
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt ..................... $ 821,640 $ 1,425,490
Accounts payable ......................................... 429,781 834,460
Accrued expenses ......................................... 1,004,571 709,054
------------ ------------
Total current liabilities ............................... 2,255,992 2,969,004
LONG-TERM DEBT, less current maturities .................... 860,909 1,381,963
------------ ------------
Total liabilities ....................................... 3,116,901 4,350,967
------------ ------------
SHAREHOLDERS' EQUITY:
Undesignated preferred stock, 3,500,000 shares
authorized; no shares issued and outstanding ............ -- --
Series A convertible preferred stock, $.01 par value,
1,500,000 shares authorized; no shares issued and
outstanding ............................................. -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,293,300 shares issued and outstanding ..... 32,933 32,933
Additional paid-in capital ............................... 7,196,197 7,196,197
Accumulated deficit ...................................... (3,058,477) (3,330,495)
------------ ------------
Total shareholders' equity .............................. 4,170,653 3,898,635
------------ ------------
$ 7,287,554 $ 8,249,602
============ ============
</TABLE>
See accompanying notes which are an integral part of these balance sheets.
4
<PAGE>
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE ............................................ $ 4,845,574 $ 4,863,992 $ 13,429,902 $ 13,259,711
COSTS AND EXPENSES:
Direct Expenses .................................. 3,779,419 3,870,788 10,450,692 10,662,669
Depreciation and Amortization .................... 435,637 495,200 1,403,315 1,420,519
Pre-opening Expenses ............................. 10,801 74,172 25,954 123,625
Write-down of Fixed Assets ....................... 0 367,272 0 367,272
------------ ------------ ------------ ------------
Total Costs and Expenses ........................ 4,225,857 4,807,432 11,879,961 12,574,085
------------ ------------ ------------ ------------
CENTER OPERATING INCOME ............................ 619,717 56,560 1,549,941 685,626
Selling, General, and Administrative ............. 377,621 313,668 1,048,601 1,041,961
Depreciation and Amortization .................... 16,804 21,977 57,881 79,449
Write-down of Goodwill ........................... 0 431,441 0 431,441
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) ............................ 225,292 (710,526) 443,459 (867,225)
Interest Expense ................................. (53,042) (102,323) (174,761) (294,766)
Interest Income .................................. 25,778 30,170 78,409 88,729
Minority Interest ................................ (7,648) 9,545 (29,189) 24,392
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES .............. 190,380 $ (773,134) $ 317,918 $ (1,048,870)
PROVISION FOR INCOME TAXES ......................... 27,750 0 45,900 0
------------ ------------ ------------ ------------
NET INCOME/(LOSS) .................................. 162,630 (773,134) 272,018 (1,048,870)
============ ============ ============ ============
INCOME (LOSS) PER SHARE:
Basic and Diluted ................................ .05 $ (.23) $ .08 $ (.32)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic and Diluted ................................ 3,332,000 3,293,300 3,359,000 3,293,300
============ ============ ============ ============
</TABLE>
See accompanying notes which are an integral part of these statements.
5
<PAGE>
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ...................................................... $ 272,018 $ (1,048,870)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities--
Depreciation and amortization ....................................... 1,461,196 1,499,968
Write-down of fixed assets and goodwill ............................. 0 798,713
Change in operating assets and liabilities:
Accounts receivable ................................................ (135,262) 189,984
Prepaid expenses and other ......................................... (43,295) 86,444
Accounts payable ................................................... (404,679) (282,660)
Other assets ....................................................... 96,095 177
Accrued expenses ................................................... 295,517 211,967
------------ ------------
Net cash provided by operating activities ........................ 1,541,590 1,455,723
------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment, net ............................... (533,966) (1,333,019)
Payments received on notes receivable .................................. 92,519 53,264
------------ ------------
Net cash used in investing activities ................................. (441,447) (1,279,755)
------------ ------------
FINANCING ACTIVITIES:
Payments on line of credit, net ........................................ (250,000) (243,556)
Payments on long-term obligations ...................................... (947,912) (982,861)
Additional borrowings of long-term debt ................................ 73,008 889,920
------------ ------------
Net cash used in financing activities ................................. (1,124,904) (336,497)
------------ ------------
Net decrease in cash and cash equivalents ............................. (24,761) (160,529)
CASH AND CASH EQUIVALENTS,
beginning of period .................................................... 155,987 208,717
------------ ------------
CASH AND CASH EQUIVALENTS,
end of period .......................................................... $ 131,226 $ 48,188
============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for--
Interest .............................................................. $ 98,710 $ 302,358
============ ============
Taxes ................................................................. 936 --
============ ============
</TABLE>
See accompanying notes which are an integral part of these statements.
6
<PAGE>
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by New Horizon Kids Quest, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
The Company's business is seasonal and, accordingly, interim results are not
indicative of results for a full year. In the opinion of the Company, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of September 30, 2000,
and the results of its operations for the three months and nine months ended
September 30, 2000, and 1999, have been reflected in the accompanying financial
statements. Certain information in 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, although the Company believes that the disclosures provided herein
are adequate to make the information presented not misleading. It is suggested
that these consolidated financial statements be read in conjunction with the
financial statements for the years ended December 31, 1999 and 1998, and the
footnotes thereto, included in the Company's Form 10-KSB, filed with the
Securities and Exchange Commission.
1. Basis of Presentation:
Principles of Consolidation -- The consolidated financial statements include
the accounts of New Horizon Kids Quest, Inc. and its wholly owned subsidiaries
(together, the "Company"). All intercompany balances and transactions have been
eliminated in consolidation.
2. Earnings Per Share:
Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share is computed similarly to the computation of basic
earnings per share except that the denominator is increased by the assumed
exercise of dilutive options and warrants using the treasury stock method.
Options and warrants totaling 566,100 were excluded from the computation of
diluted earnings per share in 1999 because their effect is antidilutive. A
reconciliation of these amounts is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding:
Basic ................................. 3,293,300 3,293,300 3,293,300 3,293,300
Dilutive effect of option plan ........ 38,700 -- 65,700 --
---------- ---------- ---------- ----------
Diluted ............................... 3,332,000 3,293,300 3,359,000 3,293,300
========== ========== ========== ==========
</TABLE>
3. Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those estimates.
4. Stock Option Plan:
The Company granted 436,500 options in January of 2000 under a stock option
plan previously approved by the board of directors.
7
<PAGE>
5. Segment Disclosures:
The Company has two segments reportable under the guidelines of SFAS No. 131:
Idaho Traditional Care and New Horizon Kids Quest, Inc.
NEW
HORIZON IDAHO
FOR THE THREE MONTH PERIOD KIDS TRADITIONAL
ENDED SEPTEMBER 30, QUEST, INC. CARE CONSOLIDATED
----------------------------------- ----------- ----------- ------------
2000
----
Revenue............................ $ 3,922,481 $ 923,093 $ 4,845,574
Depreciation and amortization...... 409,345 43,096 452,441
Interest income.................... 25,778 -- 25,778
Net income (loss).................. 310,961 (148,331) 162,630
Capital expenditures............... 340,420 22,832 363,252
1999
----
Revenue............................ $ 3,894,606 $ 969,386 $ 4,863,992
Depreciation and amortization...... 466,177 51,000 517,177
Interest income.................... 30,170 -- 30,170
Net income (loss).................. 111,780 (884,914) (773,134)
Capital expenditures............... 300,314 90,816 391,130
NEW
HORIZON IDAHO
FOR THE NINE MONTH PERIOD KIDS TRADITIONAL
ENDED SEPTEMBER 30, QUEST, INC. CARE CONSOLIDATED
----------- ----------- ------------
2000
----
Revenue............................ $10,447,798 $ 2,982,104 $13,429,902
Depreciation and amortization...... 1,326,411 134,785 1,461,196
Interest income.................... 78,409 -- 78,409
Net income (loss).................. 441,604 (169,586) 272,018
Capital expenditures............... 503,207 30,759 533,966
1999
----
Revenue............................ $10,270,578 $ 2,989,133 $13,259,711
Depreciation and amortization...... 1,329,913 170,055 1,499,968
Interest income.................... 88,729 -- 88,729
Net income (loss).................. 88,606 (1,137,476) (1,048,870)
Capital expenditures............... 1,105,914 227,105 1,333,019
There have been no material changes in segment assets since December 31,
1999.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company currently provides hourly child care at twenty locations in ten
states, including three with supervised video entertainment centers. The Company
also provides traditional child care at ten New Horizon Child Care centers in
Idaho, one location in Joliet, Illinois; at its Mall of America location in
Bloomington, Minnesota; at The Venetian Resort~Hotel~Casino in Las Vegas,
Nevada; and in Morton, Minnesota, at Jackpot Junction Casino Hotel in
conjunction with its hourly care facility.
One of the Company's Kids Quest centers operates in an enclosed shopping mall
in Knott's Camp Snoopy at Mall of America in Bloomington, Minnesota. The Mall of
America center was licensed in June 1999 to provide traditional care in addition
to hourly care. Nineteen of the Company's Kids Quest centers are operated in
conjunction with casinos, including two Kids Quest centers in Minnesota casinos
owned and managed by the Mille Lacs Band, one Kids Quest center in a Louisiana
casino owned and managed by the Tunica-Biloxi Tribe of Louisiana, one Kids Quest
center in a Louisiana casino managed by Lakes Gaming, Inc., three Kids Quest
centers in Mississippi casinos owned and managed by Park Place Entertainment
Corporation, and four centers in casinos owned or managed by Station Casinos,
Inc. in Nevada and Missouri. Station Casinos, Inc. has also agreed to include
Kids Quest centers in three additional Station Casinos, Inc. properties. The
Company's newest centers opened August 22, 2000, at Jackpot Junction Casino
Hotel in Morton, Minnesota, and July 4, 2000, at the Ho-Chunk Resort and Casino
in the Wisconsin Dells. The Jackpot Junction center is a combination hourly and
employee child care facility. The Ho-Chunk center also includes a supervised,
non-violent video entertainment center. In addition, the Company opened an
hourly care facility at the Cliff Castle Casino in Camp Verde, Arizona, on
December 22, 1999, and at the Avi Hotel and Casino in Laughlin, Nevada, on July
16, 1999. The Company closed its traditional care and video entertainment
facilities at Treasure Island Hotel and Casino in Red Wing, Minnesota, on April
2, 1999, its hourly care and video entertainment facilities at Bullwhackers in
Blackhawk, Colorado, on October 31, 1999, and its hourly care facility in Eden
Prairie, Minnesota, on October 16, 2000. The closures were primarily the result
of poor financial performance. The Company continues to operate an hourly child
care facility at Treasure Island.
During 1995 and 1996, the Company acquired an aggregate of twelve existing
child care centers in Boise, Idaho, which the Company now operates as New
Horizon Child Care centers. The Company has subsequently opened two additional
facilities in August of 1996 and January of 1999. In July and August of 1999,
the Company closed two of its centers in Boise, Idaho, and a third center was
closed in January 2000. The centers did not meet the Company's quality standards
and were located in areas where an over supply of child care facilities existed.
In August of 1999, one of the Company's centers was partially destroyed by fire.
The fire occurred after hours, and the Company's loss from destroyed property is
fully covered by insurance. The Company will not resume providing child care at
this location. The Company now operates a total of ten traditional child care
centers in the Boise market.
The Company operates an employee child care center in Joliet, Illinois, for
the employees of Empress Casino and Mobil Oil Corporation, and on April 19,
2000, the Company opened a New Horizon Child Care center providing employee
child care at The Venetian Resort~Hotel~Casino in Las Vegas, Nevada. The
Venetian, a $1.2 billion property, is the first casino to provide on-site child
care for its employees on the Las Vegas strip.
Since its inception as an hourly children's entertainment and recreational
facility, Kids Quest has expanded its product line to include supervised video
entertainment centers, traditional child care, and employee child care. The
Company plans to continue to seek opportunities for additional venues for all of
its product lines.
The Company's business is seasonal with revenues and operating income for
Kids Quest being the highest and New Horizon Child Care being the lowest in the
summer months. Consequently, results of operations for any interim period may
not be indicative of results to be achieved for a full fiscal year.
9
<PAGE>
Results of Operations
Revenue for the three months ended September 30, 2000, decreased $18,418, or
less than 1%, to $4,845,574 from $4,863,992 for the same period in 1999. The
Company opened four new Kids Quest hourly care centers and one employee child
care center since the second quarter of 1999, which accounted for $330,332 of
additional revenue. Revenue for the Kids Quest centers open during both periods
decreased $187,682 to $3,542,786 for the three months ended September 30, 2000,
from $3,730,468 for the same period in 1999. The Company attributes this
decrease primarily to the fact that the Company's hourly child care center and
video entertainment center at Mohegan Sun were relocated to a significantly
smaller space in November 1999. The move was necessary to allow for construction
of Mohegan's $800 million hotel addition and casino expansion, which is
scheduled to open in August 2001 and will include a new 15,075 square foot Kids
Quest and non-violent video entertainment center. All relocation costs were paid
by Mohegan Sun. Mohegan Sun is also obligated to reimburse New Horizon Kids
Quest for all lost profits during the relocation period. The calculation of lost
profits is based on prior year revenues adjusted for CPI increases. Revenues for
the Idaho New Horizon Child Care centers open during both periods increased
$52,158, or 6%, to $923,093 for the three months ended September 30, 2000, from
$870,934 for the same period in 1999. The Kids Quest and Idaho centers that were
closed since the second quarter of 1999 accounted for revenue declines of
$213,226 for the three-month period ended September 30, 2000, as compared to the
same period in 1999.
Revenue for the nine months ended September 30, 2000, increased $170,191, or
1%, to $13,429,902 from $13,259,711 for the same period in 1999. Since the
beginning of 1999, the Company opened five new Kids Quest hourly care centers,
one employee child care center and one New Horizon Child Care center, all of
which accounted for $905,923 of additional revenue. Revenue for the Kids Quest
centers open during both periods decreased $417,450, or 4%, to $8,910,311 for
the nine-month period ended September 30, 2000, from $9,327,761 for the same
period in 1999. The Company attributes this decrease to the Mohegan Sun
temporary relocation. Revenues for the Idaho New Horizon Child Care centers open
during both periods increased $456,990, or 18%, to $2,976,660 for the nine-month
period ended September 30, 2000, from $2,519,670 for the same period in 1999.
The Kids Quest and Idaho centers that were closed since the beginning of 1999
accounted for revenue declines of $775,272 for the nine-month period ended
September 30, 2000, as compared to the same period in 1999. During the third
quarter of 1999, the Company recorded a charge to operations of $798,713, or
$.24 per share. The charge included a write-down of assets and lease termination
costs of $367,272 and a write-off of goodwill of $431,441. The charge reflected
the costs associated with four of the Company's centers in Boise, Idaho, and one
of its Kids Quest locations. In July and August of 1999, the Company closed
three of its centers in Boise, Idaho, and a fourth center was closed in January
2000. The Kids Quest location at Bullwhackers in Black Hawk, Colorado, was
closed on October 31, 1999.
Costs and expenses for the three months ended September 30, 2000, decreased
$214,303, or 5%, to $4,225,857 from $4,440,160 for the same period in 1999
without taking into account the asset write-down. Centers opened since the
second quarter of 1999 accounted for an increase of $262,227. Costs and expenses
for existing Kids Quest locations decreased $300,090, or 9%, to $2,958,002 from
$3,258,092 for the same period in 1999. This decrease was due primarily to the
temporary Mohegan Sun relocation. Costs and expenses for the Idaho New Horizon
Child Care centers open during both periods increased $80,047, or 9%, to
$972,647 for the three months ended September 30, 2000, compared to $892,600 for
the same period in 1999. The cost increases were due primarily to increased
operating costs as a result of enrollment transfers from the four closed
centers. Costs and expenses for the Kids Quest and Idaho centers that were
closed since the first quarter of 1999 decreased $256,487 for the three-month
period ended September 30, 2000, as compared to the same period in 1999.
Costs and expenses for the nine months ended September 30, 2000, decreased
$326,852, or 3%, to $11,879,961 from $12,206,813 for the same period in 1999
without taking into account the asset write-down. Costs and expenses for centers
opened since the beginning of 1999 accounted for an increase of $633,856 for the
nine-month period ended September 30, 2000, as compared to the same period in
1999. Costs and expenses for existing Kids Quest locations decreased $430,645,
or 5%, to $7,772,513 from $8,203,158 for the same period in 1999. This decrease
was due primarily to the temporary Mohegan Sun relocation. Costs and expenses
for the Idaho New Horizon Child Care centers open during both periods increased
$395,231, or 16%, to $2,885,756 from $2,490,525 for the same period in 1999.
This increase was due primarily to higher operating costs at several centers as
a result of enrollment transfers from the four closed centers. Costs and
expenses for the Kids Quest and Idaho centers that were closed since the
beginning of 1999 decreased $925,294 for the nine-month period ended September
30, 2000, as compared to the same period in 1999.
10
<PAGE>
Selling, general, and administrative expenses increased $63,953, or 20%, to
$377,621 for the three-month period ended September 30, 2000, from $313,668 for
the same period in 1999. Selling, general, and administrative expenses increased
$6,640, or less than 1%, to $1,048,601 for the nine-month period ended September
30, 2000, from $1,041,961 for the same period in 1999. Management expects
selling, general, and administrative expenses to increase with the addition of
and negotiation for new locations; however, such expenses should decrease as a
percentage of revenue with the continued expansion of the Company's business.
Pursuant to the terms of the Company's contracts with casino operators,
casino operators are entitled to establish a discounted rate below the fair
market value for Kids Quest's services to be charged by Kids Quest to the public
in order to attract customers to Kids Quest and ultimately to their casinos. The
casino operator must reimburse the Company for the difference between such
amount charged and the fair market value. The Company received $295,641 of
reimbursements for rate discounts for the three-month period ended September 30,
2000, versus $310,931 for the same period in 1999, a decrease of $15,290, or 5%.
For the nine-month period ended September 30, 2000, the Company received
$849,654 versus $864,839 for the same period in 1999, a decrease of $15,185, or
2%. The majority of these rate discount reimbursements were from three casinos
owned by Park Place Entertainment Corporation and four Indian casinos currently
or previously managed by Lakes Gaming, Inc. (formerly Grand Casinos, Inc.) There
can be no assurance that such discounts and reimbursements will not be modified
or be discontinued altogether or that future Kids Quest agreements will provide
for a discounted rate to the public. In the event that casino operators choose
not to provide for a discounted hourly rate, the Company may charge higher
hourly rates. While this may cause patronage to decline and ultimately result in
lower revenues, the Company currently has ten locations that operate without any
rate discount and has found no evidence to conclude that higher non-discounted
rates to customers have a significant impact on a location's patronage and
resulting revenue.
Interest expense for the three-month period ended September 30, 2000,
decreased $49,281, or 48%, to $53,042 from $102,323 for the same period in 1999.
Interest expense for the nine months ended September 30, 2000, decreased
$120,005, or 41%, to $174,761 from $294,766 for the same period in 1999. The
decrease in interest expense is due primarily to the expiration of three
equipment leases.
Net income for the three-month period ended September 30, 2000, was $162,630
compared to $25,579 for the same period in 1999 without taking into account the
write-down of assets and goodwill. Centers opened since the second quarter of
1999 accounted for an increase in center operating income of $68,104. Center
operating income for the Kids Quest centers open during both periods increased
$112,408 as compared to the same period in 1999. Kids Quest centers closed since
the second quarter of 1999 resulted in an improvement in center operating income
of $7,584 for the period as compared to the same period in 1999. Center
operating income for the Idaho operations improved $7,789 to a loss of $52,997
for the three months ended September 30, 2000, compared to a loss of $60,786 for
the prior year period.
Net income for the nine-month period ended September 30, 2000, was $272,018
compared to a net loss of $250,157 for the same period in 1999 without taking
into account the write-down of assets and goodwill. Centers opened since the
beginning of 1999 accounted for an increase in center operating income of
$272,066. Center operating income for the Kids Quest centers open during both
periods increased $13,196 as compared to the same period in 1999. Kids Quest
centers closed since the first quarter of 1999 resulted in an improvement in
center operating income of $35,981 for the period as compared to the same period
in 1999. Center operating income for the Idaho New Horizon Child Care centers
increased $175,800 to $83,733 for the nine months ended September 30, 2000,
compared to a loss of $92,067 for the prior year period. The improvement in
Idaho is primarily due to the closing of four centers and the transfer of a
majority of their enrollment to other Company centers.
Liquidity and Capital Resources
During the nine-month period ended September 30, 2000, the Company generated
$1,541,590 from operations, invested $533,966 in property and equipment, and
received payments on notes receivable of $92,519. Additionally, the Company made
payments on its line of credit of $250,000 and payments on long-term obligations
of $947,912. During the period, the Company borrowed an additional $73,008 for
equipment purchases. The Company ended the period with a cash balance of
$131,226. During the same period in 1999, the Company generated $1,455,723 from
operations, invested $1,333,019 in property and equipment, and received payments
on notes receivable of $53,264. Additionally, the Company made payments on its
line of credit of $243,556 and payments on long-term obligations of $982,861.
The Company ended the period with a cash balance of $48,188. During the period,
the Company borrowed $889,920 for new equipment, including the opening of
Columbia Village in Idaho and Texas Station and Avi in Nevada.
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The Company's capital needs depend upon the Company's expansion efforts. The
Company incurs pre-opening expenses in connection with each of its Kids Quest
centers as well as acquisition or development expenses to add traditional child
care centers. The Company is actively seeking additional Kids Quest contracts
and has engaged in site analysis for the construction of additional New Horizon
Child Care centers. The Company will require additional financing in 2000 and
2001 as it adds Kids Quest or New Horizon Child Care locations or if the Company
were to pursue additional acquisitions during the year. In addition, the Company
is currently obligated to loan Station Casinos, Inc. up to $500,000 for
leasehold improvements in connection with the Kids Quest location at Texas
Station in Las Vegas, Nevada, which opened in February of 1999. The Company is
currently seeking financing. The Company believes that it will be able to
arrange such additional financing and will be able to fund additional expansion
with the additional financing and with cash flow from operations. However, if
financing is not obtained, the Company may be required to reduce expenditures
for the future.
Private Securities Litigation Reform Act
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-QSB
(as well as information included in oral statements or other written statements
made or to be made by the Company) may contain statements that are forward
looking, such as statements relating to plans for future expansion and other
business development activities, as well as other capital spending, financial
sources, and the effects of regulation and competition. Such forward-looking
information involves important risks and uncertainties that could significantly
affect future results and, accordingly, such results may differ from those
expressed in any forward-looking statement made by or on behalf of the Company.
These risks and uncertainties include, but are not limited to, those relating to
development and construction activities, access to sources for additional
capital, dependence on existing management and third party contracts, domestic
or global economic conditions, changes in federal or state laws or the
administration or enforcement of such laws, litigation or claims, year 2000
compliance, as well as all other risks and uncertainties described in the
Company's filings.
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PART II. - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits List
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a form 8-K on July 24, 2000, and on October 10, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEW HORIZON KIDS QUEST, INC.
By: /s/ William M. Dunkley
---------------------------------
William M. Dunkley
Chief Executive Officer
By: /s/ Patrick R. Cruzen
---------------------------------
Patrick R. Cruzen
Chief Financial Officer
Date: November 13, 2000
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