<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission File Number 0-28270
CHILDREN'S WONDERLAND, INC.
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(Exact name of small business issuer as specified in its charter)
California 95-4455341
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
28310 Roadside Drive, Suite 220, Agoura, California 91301
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(Address of principal executive offices)
(818) 865-1306
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(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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of February 3, 1997, the Registrant had outstanding 3,955,574 shares of
Common Stock, no par value.
This report, including all exhibits and attachments, contains 50 pages.
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CHILDREN'S WONDERLAND, INC.
FORM 10-QSB
For the Quarterly Period Ended December 31, 1996
INDEX
<TABLE>
<CAPTION>
Page
Numbers
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
(a) Balance Sheets as of December 31, 1996 and June 30, 1996 (unaudited) 3
(b) Statements of Operations for the three months and six months ended
December 31, 1996 and 1995 (unaudited) 5
(c) Condensed Statements of Cash Flows for the six months ended
December 31, 1996 and 1995 (unaudited) 6
(d) Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Plan of Operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Exhibit 10.29 Employment agreement between the Company and
Michael L. Laney 24
Exhibit 10.30 Consulting agreement between the Company and
Kenneth W. Bitticks 31
Exhibit 10.31 Employment agreement between the Company and
Debby S. Bitticks 37
Exhibit 10.32 Consulting agreement between the Company and
Robert M. Wilson 44
Exhibit 27. Financial Data Schedule 50
</TABLE>
2
<PAGE> 3
CHILDREN'S WONDERLAND, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1996 (UNAUDITED)
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ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 3) $ 498,011 $3,210,418
Marketable Securities (Note 4) 548,000
Accounts Receivable, net of allowance for doubtful
accounts of $55,420 and $42,676 as of December 31,
1996 and June 30, 1996, respectively 76,032 64,667
Prepaid Expenses 385,730 104,979
---------- ----------
Total Current Assets 1,507,773 3,380,064
EQUIPMENT & IMPROVEMENTS, NET 1,740,187 429,325
CAPITALIZED LEASES
(Net of accumulated amortization of $336,463 and
$227,991 as of December 31, 1996 and June 30, 1996,
respectively) 2,128,513 2,120,060
INTANGIBLE ASSETS, NET 759,703 633,415
DEPOSITS AND OTHER 494,223 433,650
---------- ----------
TOTAL ASSETS $6,630,399 $6,996,514
========== ==========
</TABLE>
See Notes to Financial Statements
3
<PAGE> 4
CHILDREN'S WONDERLAND, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1996 (UNAUDITED)
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LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $ 1,352,002 $ 480,837
Accrued Expenses 435,521 434,665
Due to Stockholders 370,000 383,000
Short-Term Debt (Note 5) 1,037,500
Current portion of Long-Term Debt (Note 6) 394,921 325,991
Current portion of Capitalized Lease Obligation 309,510 283,103
----------- -----------
Total Current Liabilities 3,899,454 1,907,596
----------- -----------
LONG-TERM DEBT, less current portion (Note 6) 393,678 468,261
----------- -----------
CAPITALIZED LEASE OBLIGATION, less current portion 2,091,115 2,083,483
----------- -----------
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, no par value;
20,000,000 shares authorized; 3,951,171 and
3,925,689 shares issued and outstanding as of
December 31, 1996 and June 30, 1996, respectively 9,661,852 9,638,040
Accumulated Deficit (9,415,701) (7,100,866)
----------- -----------
Total Stockholders' Equity 331,151 2,537,174
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 6,630,399 $ 6,996,514
=========== ===========
</TABLE>
See Notes to Financial Statements
4
<PAGE> 5
CHILDREN'S WONDERLAND, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS
ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 Months Ended December 31, 6 Months Ended December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ 1,266,385 $ 1,093,005 $ 2,408,753 $ 2,169,828
----------- ----------- ----------- -----------
OPERATING EXPENSE:
Payroll and Related Costs 740,865 781,690 1,481,314 1,550,853
Center Facilities Costs 256,217 266,474 511,046 513,561
General and Administrative 792,815 340,835 1,448,615 653,459
Development Costs 441,408 37,157 677,162 54,829
Other 114,106 100,278 223,689 190,740
Depreciation & Amortization 119,070 51,774 194,435 88,724
----------- ----------- ----------- -----------
Total 2,464,481 1,578,208 4,536,261 3,052,166
----------- ----------- ----------- -----------
OPERATING LOSS 1,198,096 485,203 2,127,508 882,338
Interest Expense, net 99,360 62,454 181,646 152,406
Other Non-Operating
(Income)/Expense 26,032 (8,333) 5,681 17,356
----------- ----------- ----------- -----------
NET LOSS $ 1,323,488 $ 539,324 $ 2,314,835 $ 1,052,100
=========== =========== =========== ===========
NET LOSS PER SHARE
(See Note 2) $ (0.34) $ (0.59)
=========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 3,948,003 3,938,178
=========== ===========
</TABLE>
See Notes to Financial Statements
5
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CHILDREN'S WONDERLAND, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996 AND 1995 (UNAUDITED)
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<TABLE>
<CAPTION>
6 Months Ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $(1,442,256) $ (782,941)
CASH FLOWS FROM INVESTING ACTIVITIES (1,587,507) (594,948)
CASH FLOWS FROM FINANCING ACTIVITIES 865,356 1,320,983
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,164,407) (56,906)
CASH AND CASH EQUIVALENTS, Beginning of period 3,210,418 65,072
----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 1,046,011 $ 8,166
=========== ===========
</TABLE>
Non-cash Transactions:
In July 1996, the Company leased several school buses to be used by certain
centers located in Denver, Colorado. The lease transaction has been accounted
for as a capital lease, and accordingly, an asset and a liability in the amount
of $116,924, the net present value of the minimum lease payments, were recorded.
See Notes to Financial Statements
6
<PAGE> 7
CHILDREN'S WONDERLAND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS
ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
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NOTE 1 - GENERAL INFORMATION
The interim financial data is unaudited; however, in the opinion of management,
the interim data includes all adjustments, consisting of normal recurring
adjustments necessary for a fair presentation of the results for the interim
periods. The financial statements included herein have been prepared by
Children's Wonderland, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures included herein are adequate to make the information
presented not misleading.
The accounting policies followed by the Company and other information are
contained in the notes to the Company's financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Children's Wonderland, Inc. owns and operates full service intergenerational
family care centers. At December 31, 1996, the Company operated thirteen centers
located in California and Colorado.
Basis of Presentation
The accounting policies followed during the interim periods reported on are in
conformity with generally accepted accounting principles and are consistent with
those applied for annual periods. Operational comparisons between the second
quarter of fiscal years 1996 and 1995 are affected by the acquisition of a
center in December 1995 and the start-up of two new centers, one each in March
and September 1996 (see "Management's Discussion and Analysis of Plan of
Operations" which follows).
Net Loss Per Share
The weighted average shares used in the computation of net loss per share was
based upon the weighted average common shares; all common stock equivalents are
determined to be anti-dilutive. Loss per share for the three months and the six
months ended December 31, 1995 have not been presented as such information is
not indicative of the Company's performance on an on-going basis due to the
significant amount of shares issued in May 1996 in connection with the Company's
initial public offering.
For a complete discussion of the Company's accounting policies, refer to the
Company's Annual Report on Form 10-KSB for the year ended June 30, 1996,
previously filed.
7
<PAGE> 8
CHILDREN'S WONDERLAND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS
ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
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NOTE 3 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents include checking accounts and certificates of deposit,
$300,000 of which represents a balance held as security for a letter of credit
required by the lease agreement for a certain center facility.
NOTE 4 - MARKETABLE SECURITIES
Marketable securities include short-term investments with original maturities
of less than ninety days, and are stated at cost which approximates market
value. These securities are held as collateral against a promissory note
payable and a revolving promissory note payable to a bank (see Note 5).
NOTE 5 - SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
----------- ----------
<S> <C> <C>
Promissory note payable to a bank, interest at the bank's prime lending rate
(8.25% at December 31, 1996) plus 1% per annum, payable in monthly installments
through August 2000, at which time the entire balance is due and payable. This
note is collateralized by a compensating cash balance (see Note 3) $ 400,000
Promissory notes payable to individuals, interest rates ranging from
10% to 12% per annum. Principal and interest payable in full at
dates ranging from March 1997 through April 1997 387,500
Promissory notes payable to individuals, interest at 10% per annum.
Principal and interest payable in full upon demand. 150,000
Advances on revolving promissory note payable to a bank, interest at the bank's
prime lending rate (8.25% at December 31, 1996) plus 1% per annum, payable in
monthly installments (currently $796) through August 1997, at which time the
remaining outstanding balance is due and payable. This revolving promissory note
payable is collateralized by the Company's assets. 100,000
---------- ------------
Total Short-Term Debt $1,037,500 --
========== ============
</TABLE>
8
<PAGE> 9
CHILDREN'S WONDERLAND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS
ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
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NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
---------- ----------
<S> <C> <C>
Convertible notes payable to individuals, interest at 12% per annum,
payable in quarterly installments of $6,300 through May 31, 1997,
at which time the entire principal is due and payable. At December
31, 1996, $210,000 was due to stockholders and directors $210,000 $252,750
Promissory notes payable to individuals, interest at 8% per annum. Principal and
interest payable in equal monthly installments of $2,827 through January 2002,
collateralized by supplies and equipment 162,997 173,201
Promissory notes payable to individuals, interest at 8% per annum. Principal and
interest payable in equal monthly installments of $2,525 through August 2002,
collateralized by supplies and equipment 137,686 147,104
Other notes payable with interest ranging from 7% to 14.9% per annum 168,387 128,366
Deferred operating lease payments 109,529 92,831
-------- --------
Total 788,599 794,252
Less current portion 394,921 325,991
-------- --------
Total long-term debt $393,678 $468,261
======== ========
</TABLE>
9
<PAGE> 10
CHILDREN'S WONDERLAND, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS
ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
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NOTE 7- SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the Company obtained an additional $250,000
through the issuance of short term promissory notes. Such notes are due and
payable in full upon demand and carry interest at 10% per annum. The Company is
currently discussing the possibility of converting such notes, as well as the
$150,000 in short term demand promissory notes issued in December 1996 (see Note
4) into promissory notes with terms similar to the notes to be issued in the
planned private debt placement discussed below.
Subsequent to December 31, 1996, the Company is in the process of effecting a
private placement of notes and warrants, which is expected to generate gross
proceeds of $800,000 to $1,500,000 before deducting underwriting fees and other
costs of issuance (the Company expects that up to $500,000 of such gross
proceeds will result from the cancellation of demand promissory notes issued by
the Company). The offering includes a minimum of 16 Units to a maximum of 30
Units; each of which consists of an unsecured $50,000 promissory note as well as
25,000 warrants to purchase common stock. Each promissory note carries interest
at 10% per annum and is due at the earlier of the completion of a proposed
secondary public offering or one year from the date of issuance, while each
warrant entitles the holder thereof to purchase one share of the Company's
common stock at $5.00 per share during a period commencing one year from the
completion of the proposed public offering (or January 1, 1998, if such public
offering has not occurred by that date) and expiring May 6, 2001. Assuming the
underlying common stock is registered by the Company, the warrants are subject
to redemption by the Company commencing one year from the registration at $0.05
per warrant upon 30 days' written notice, provided the closing bid price of the
common stock exceeds $9.00 per share for twenty consecutive trading days ending
within five days of the notice of redemption.
10
<PAGE> 11
CHILDREN'S WONDERLAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATIONS
DECEMBER 31, 1996 AND 1995
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ITEM 2:
GENERAL OVERVIEW:
The following discussion should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Form 10-QSB.
Certain statements contained in this Form 10-QSB that are not related to
historical results, including, without limitation, statements regarding the
Company's business strategy and objectives, center development, future financial
position, and estimated cost savings, are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and involve risks and uncertainties. Although
the Company believes that the assumptions on which these forward-looking
statements are based are reasonable, there can be no assurance that such
assumptions will prove to be accurate, and actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
competition in the markets in which the Company competes, the Company's ability
to retain key personnel, unanticipated problems and additional costs relating to
center development, regulatory compliance, construction costs and cost overruns,
natural disasters, inability to secure adequate financing, and other factors
discussed herein. All forward-looking statements contained in this Form 10-QSB
are qualified in their entirety by this cautionary statement.
The Company successfully completed its initial public offering during the fourth
quarter of fiscal year 1996. The financial results for the first half of fiscal
year 1997 reflect the Company's continued emphasis on growth, including the
opening of a new center in Woodland Hills, California in September 1996, the
pre-opening activities for the start-up of another new center in West Haven,
Connecticut in January 1997, the investment of funds generated by the initial
public offering into both the refurbishment of existing centers as well as other
new centers at various stages of development, and increased marketing efforts
geared towards increasing attendance levels at all of the Company's centers.
During the first quarter of fiscal year 1997, the Company opened one new
start-up center. The results of operations of the start-up center are included
in the Company's financial statements from the date of opening. Operating
expenses for this start-up center, as well as for the start-up center which was
opened during the third quarter of fiscal year 1996, have been included in
development costs, so as to facilitate comparisons between periods on a
same-center basis. Historically, the Company's operating revenue has followed
the seasonality of the school year, declining in the summer months which
comprise the first quarter, as well as the year-end holiday period.
In addition to the funds generated by the initial public offering, the Company
has financed the ongoing expansion, refurbishment, and other working capital
requirements from private sources, including short term promissory notes to a
bank and to various individuals.
11
<PAGE> 12
CHILDREN'S WONDERLAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATIONS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
The Company intends to continue its expansion activities in 1997 via the opening
of new centers and the acquisition of existing facilities. In connection with
its acquisition strategy, the Company entered into an agreement to purchase a
child care center in Los Angeles County for $375,000. To fund this and other
acquisitions, the Company has engaged an underwriter in connection with an
$800,000 minimum to $1,500,000 maximum private placement of between 16 and 30
units. The Company anticipates that if the minimum offering is achieved, the
holders of up to $500,000 principal amount demand promissory notes will exchange
their notes for units. Each unit consists of one $50,000 face amount promissory
note (the "Notes") and 25,000 common stock purchase warrants (the "Private
Warrants", collectively with the Notes, the "Units"). The Notes will bear
interest at the rate of 10% per annum and are due at the earlier of the
completion of a secondary public offering or one year from the date of issuance.
The Private Warrants will entitle the holders to purchase one share of common
stock for $5.00 and will expire on May 6, 2001. The net proceeds from the sale
of the Units are expected to be sufficient to fund the Company's operations
through the completion of the proposed secondary public offering described below
(estimated to be completed by March 31, 1997); however, depending upon if and
when such public offering is completed, the Company may require substantial
additional funds to continue to operate its centers and to pursue its expansion
activities.
The Company also signed a non-binding letter of intent to purchase the assets of
companies that operate four assisted living care facilities and provide home
health care. The purchase price for this acquisition is $4.6 million. The
Company intends to execute a non-binding letter of intent with an underwriter to
raise net proceeds of approximately $6,000,000 through the sale of between
1,000,000 and 1,200,000 shares of the Company's common stock in order to fund
this acquisition, repay the Notes and for additional working capital. Based upon
the Company's current level of operations, the Company anticipates that if the
maximum number of Units are sold in the private placement and the secondary
public offering is completed by March 31, 1997, the Company's capital resources
are expected to be adequate to fund its current level of operations for the next
twelve months following such public offering. If the proposed acquisitions
described above are consummated or the Company continues its expansion
activities, and the Company does not obtain additional financing, such capital
resources are expected to be adequate to satisfy the Company's capital and
operational needs for the six months following such public offering. See " --
Recent Developments".
12
<PAGE> 13
CHILDREN'S WONDERLAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATIONS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
The following table sets forth the percentage of center revenue represented in
the Company's statement of operations for the periods indicated:
<TABLE>
<CAPTION>
3 Months Ended December 31, 6 Months Ended December 31,
1996 1995 1996 1995
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
REVENUE 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
OPERATING EXPENSE:
Payroll and Related Costs 58.5% 71.5% 61.5% 71.5%
Center Facilities Costs 20.2% 24.4% 21.2% 23.7%
General & Administrative 62.6% 31.2% 60.1% 30.1%
Development Costs 34.9% 3.4% 28.1% 2.5%
Other 9.0% 9.2% 9.3% 8.8%
Depreciation & Amortization 9.4% 4.7% 8.1% 4.1%
----- ----- ----- -----
Total 194.6% 144.4% 188.3% 140.7%
----- ----- ----- -----
OPERATING LOSS 94.6% 44.4% 88.3% 40.7%
Interest Expense, net 7.8% 5.7% 7.5% 7.0%
Other Non-Operating
(Income)/Expense 2.1% (0.8%) 0.2% 0.8%
----- ----- ----- -----
NET LOSS 104.5% 49.3% 96.0% 48.5%
===== ===== ===== =====
</TABLE>
13
<PAGE> 14
CHILDREN'S WONDERLAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATIONS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1996 TO 1995
Revenues: Revenues increased by 15.9% to $1,266,385 for the second quarter of
fiscal year 1997, as compared to $1,093,005 for the second quarter of fiscal
year 1996. Approximately $208,000 of the increase is attributed to increased
center capacity due to the addition of three centers subsequent to September
1995. This increase in revenue was offset by temporary reductions in capacities
at certain centers for the continued refurbishment of various classrooms and
playgrounds made possible by funds generated by the Company's initial public
offering. Two of the new centers were start-up centers which were opened
directly by the Company subsequent to the second quarter of the prior fiscal
year. The third new center was acquired by the Company in December 1995, so that
the prior year quarter only included one month of revenues for this center. At
December 31, 1995, the Company's state licensed, elder/child capacity for the
eleven centers then in operation was 1,204 persons, as compared to thirteen
centers with a capacity of 1,561 persons at December 31, 1996. The Company
expects revenue to continue to grow as new centers are brought on-line.
Operating Expenses - Payroll & Related Costs: Payroll expense related to center
operations decreased by 5.2% to $740,865 for the second quarter of fiscal year
1997, as compared to $781,690 for the comparable period for fiscal year 1996.
State law for licensed day care facilities requires a specific ratio of teachers
to elders and/or children. With respect to children, the teacher/child ratio
also varies depending on the age of the children. Accordingly, center payroll
expenses generally fluctuate in relationship to attendance levels as well as the
mix of age brackets at each center. Payroll expense as a percent of revenues for
the second quarter of fiscal year 1997 decreased as compared to the second
quarter for the prior year due to increased utilization of center capacities
from higher enrollment levels as well as to continued management emphasis on
labor cost control.
Operating Expenses - Center Facilities Costs: Center facilities expense remained
consistent, decreasing by 3.8% to $256,217 for the three months ended December
31, 1996, as compared to $266,474 for the three months ended December 31, 1995.
This expense consists primarily of rent, repairs and maintenance, utilities, and
other such occupancy costs for the Company's mature centers; the corresponding
expenses related to the start-up centers have been classified as Development
Costs.
Operating Expenses - General and Administrative: General and administrative
expenses increased by 132.6% to $792,815 for the three months ended December 31,
1996, as compared to $340,835 for the three months ended December 31, 1995.
Moreover, general and administrative expenses as a percent of revenue increased
to 62.6% of revenue for the second quarter of fiscal year 1996 from 31.2% of
revenue for the second quarter of the current fiscal year. The increase is due
to increased corporate staffing as well as increased accounting, legal, and
consulting fees in the second quarter of fiscal year 1997. The increase in
corporate staffing reflects the Company's continuing recruitment of professional
personnel required to effectively manage the planned expansion through
acquisition and construction of additional centers. The increase in professional
fees relate primarily to increased exploration of potential acquisitions, the
negotiation and drafting of various equipment and facility leases, compliance
with federal securities laws, and exchange listing fees. General and
administrative expenses are expected to continue to increase somewhat as the
Company continues to install the corporate infrastructure necessitated by the
planned expansion.
14
<PAGE> 15
CHILDREN'S WONDERLAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATIONS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
Operating Expenses - Development Costs: Development costs increased to $441,408
for the three months ended December 31, 1996, as compared to $37,157 for the
comparable period in the prior fiscal year. This expense category includes the
costs related to personnel out in the field working with centers currently under
various stages of development, the cost of Company-wide marketing activities,
and the costs associated with start-up centers. For the second quarter of fiscal
year 1997, the Company has two centers in the start-up phase, one each in
Woodland Hills and Gold River, California, whereas there were no centers in the
start-up phase for the comparable period in the prior year. Moreover,
pre-opening costs related to construction and promotional activities geared up
during the current quarter in preparation for the opening of a third start-up
center in West Haven, Connecticut in January 1997. The Company expects this
expense category to increase in the future, as the Company continues to
emphasize growth through the acquisition and start-up of additional centers.
Operating Expenses - Other: Other expense increased by 13.8% to $114,106 for the
second quarter of fiscal year 1997, as compared to $100,278 for the comparable
period in fiscal year 1996. This expense category includes costs related to
center activities and programs, as well as the cost of food for lunches and
snacks served at the centers, and as such, the expense increases as total
enrollment increases.
Operating Expenses - Depreciation & Amortization: Depreciation and amortization
increased by 130.0% to $119,070 for the three months ended December 31, 1996, as
compared to $51,774 for the three months ended December 31, 1995. The noted
increase is due to the timing of center acquisitions; a center was acquired in
Denver, Colorado in December 1995, and new centers in California commenced
operations in March and September 1996, respectively. Thus, three additional
centers exist for the second quarter of fiscal year 1997 which did not exist
during the second quarter of the prior year. In addition, the Company entered
into new long-term leases for equipment maintained at various centers. These
leases have been accounted for as capital leases, and as such, an asset was
recorded by the Company for the equipment, thus increasing amortization expense.
Interest Expense, net: Net interest expense increased by 59.1% to $99,360 for
the three months ended December 31, 1996, as compared to $62,454 for the three
months ended December 31, 1995. The increase was the result of increased
short-term borrowings during the current quarter, which were required to
maintain the Company's construction and development plans as well as to provide
adequate working capital.
Other Non-Operating Income/Expense: Other non-operating income/expense
fluctuated by $34,365, from a net other income balance of $8,333 for the second
quarter of fiscal year 1996 to an expense balance of $26,032 for the second
quarter of fiscal year 1997. The net other income balance for the prior year was
due to the recovery of funds previously paid to certain vendors in connection
with various construction projects. No such income items were received during
the current quarter to offset the other expense items.
15
<PAGE> 16
CHILDREN'S WONDERLAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATIONS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1996 TO 1995
Revenues: Revenues increased by 11.0% to $2,408,753 for the first half of fiscal
year 1997, as compared to $2,169,828 for the first half of fiscal year 1996.
Approximately $300,000 of the increase is attributed to increased center
capacity due to the addition of three centers subsequent to September 1995; such
increase was offset by temporary reductions in capacities at certain centers
during the summer months for the refurbishment of various classrooms and
playgrounds made possible by funds generated by the Company's initial public
offering. Two of the three new centers were start-up centers which were opened
directly by the Company, one each in March 1996 and September 1996, while the
third new center was a mature center acquired by the Company from an outside
party in December 1995. Thus, the revenue contribution from these three new
centers for the comparable prior year period was minimal. At December 31, 1995,
the Company's state licensed, elder/child capacity for the eleven centers then
in operation was 1,204 persons, as compared to thirteen centers with a capacity
of 1,561 persons at December 31, 1996. The Company expects revenue to continue
to grow as new centers are brought on-line.
Operating Expenses - Payroll & Related Costs: Payroll expense related to center
operations decreased by 4.5% to $1,481,314 for the first six months of fiscal
year 1997, as compared to $1,550,853 for the comparable period for fiscal year
1996. State law for licensed day care facilities requires a specific ratio of
teachers to elders and/or children. With respect to children, the teacher/child
ratio also varies depending on the age of the children. Accordingly, center
payroll expenses generally fluctuate in relationship to attendance levels as
well as the mix of age brackets at each center. Payroll expense as a percent of
revenues for the first half of fiscal year 1997 decreased as compared to the
first half of the prior year due to increased utilization of center capacities
from higher enrollment levels as well as to continued management emphasis on
labor cost control.
Operating Expenses - Center Facilities Costs: Center facilities expense remained
consistent, decreasing by 0.5% to $511,046 for the six months ended December 31,
1996, as compared to $513,561 for the six months ended December 31, 1995. This
expense consists primarily of rent, repairs and maintenance, utilities, and
other such occupancy costs for the Company's mature centers; the corresponding
expenses related to the start-up centers have been classified as Development
Costs.
Operating Expenses - General and Administrative: General and administrative
expenses increased by 121.7% to $1,448,615 for the six months ended December 31,
1996, as compared to $653,459 for the six months ended December 31, 1995.
Moreover, general and administrative expenses increased to 60.1% of revenue for
the first half of fiscal year 1996 from 30.1% of revenue for the comparable
period of the current fiscal year. The increase is due to increased corporate
staffing as well as increased accounting, legal, and consulting fees for the
first half of fiscal year 1997. The increase in corporate staffing reflects the
Company's continuing recruitment of professional personnel required to
effectively manage the planned expansion through acquisition and construction of
additional centers. The noted increase in professional fees relate primarily to
increased exploration of potential acquisitions, the negotiation and drafting of
various equipment and facility leases, compliance with federal securities laws,
and exchange listing fees. Management expects general and administrative
expenses to continue to increase somewhat as the Company continues to install
the corporate infrastructure necessitated by the planned expansion.
16
<PAGE> 17
CHILDREN'S WONDERLAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATIONS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
Operating Expenses - Development Costs: Development costs increased to $677,162
for the six months ended December 31, 1996, as compared to $54,829 for the
comparable period in the prior fiscal year. This expense category includes the
costs related to personnel out in the field working with centers currently under
various stages of development, the cost of Company-wide marketing activities,
and the costs associated with start-up centers. For the first half of fiscal
year 1997, the Company has two centers in the start-up phase, one each in
Woodland Hills and Gold River, California, whereas there were no centers in the
start-up phase for the comparable period in the prior year. Moreover,
pre-opening costs related to construction and promotional activities geared up
during the current quarter in preparation for the opening of a third start-up
center in West Haven, Connecticut in January 1997. The Company expects this
expense category to increase in the future, as the Company continues to
emphasize growth through the acquisition and start-up of additional centers.
Operating Expenses - Other: Other expense increased by 17.3% to $223,689 for the
first half of fiscal year 1997, as compared to $190,740 for the comparable
period in fiscal year 1996. This expense category includes costs related to
center activities and programs, as well as the cost of food for lunches and
snacks served at the centers, and as such, the expense increases as total
enrollment increases.
Operating Expenses - Depreciation & Amortization: Depreciation and amortization
increased by 119.2% to $194,435 for the six months ended December 31, 1996, as
compared to $88,724 for the six months ended December 31, 1995. The noted
increase is due to the timing of center acquisitions; a center was acquired in
Denver, Colorado in December 1995, and new centers in California commenced
operations in March and September 1996, respectively. Thus, three additional
centers exist for the first half of the current fiscal year which did not exist
during the comparable period of the prior year. In addition, the Company entered
into new long-term leases for equipment maintained at various centers. These
leases have been accounted for as capital leases, and as such, an asset was
recorded by the Company for the equipment, thus increasing amortization expense.
Interest Expense, net: Net interest expense increased by 19.2% to $181,646 for
the six months ended December 31, 1996, as compared to $152,406 for the six
months ended December 31, 1995. The increase was primarily due to increased
short-term borrowings during the second quarter, which were required to maintain
the Company's construction and development plans as well as to provide adequate
working capital.
Other Non-Operating Income/Expense: Other non-operating income/expense decreased
by $11,675, from $17,356 for the first half of fiscal year 1996 to $5,681 for
the first half of fiscal year 1997. The current year to date balance represents
expenses net of the first quarter receipt of insurance funds for the loss of
certain equipment which was maintained in storage facilities.
17
<PAGE> 18
CHILDREN'S WONDERLAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATIONS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES:
The Company's operations resulted in a net cash outflow of $1,442,256 for the
six months ended December 31, 1996. Moreover, an additional $1,587,507 of cash
was used for investment purposes, primarily for the development of two new
start-up centers in California plus an additional start-up center in
Connecticut, the expansion and refurbishment of existing center facilities, and
the purchase of fixed assets for new and existing centers.
To date, the Company has financed its operating cash needs primarily from vendor
credit, the sale of equity securities, loans from certain stockholders, the
private placement of promissory notes and convertible promissory notes, and the
delivery of promissory notes to the sellers of certain acquired centers. In May
1996, the Company successfully completed an initial public offering of common
stock and warrants to purchase common stock. The offering resulted in gross
proceeds of $8,050,000 before deducting underwriters' fees and other costs of
the offering. In addition, the Company negotiated a $100,000 line of credit and
a $400,000 multiple disbursement term promissory note agreement with a bank in
August 1996. As of February 1997, the entire $500,000 has been drawn down, and
no additional funds are available under these two note agreements.
In addition to planned expansion, funds generated from the sources discussed
above have enabled the Company to increase spending on marketing and advertising
campaigns which are geared towards increasing enrollment levels at the existing
centers, as reflected in the increased development costs for the first half of
the current fiscal year. Prior to the Company's initial public offering,
spending on advertising was limited due to a lack of adequate resources. Under
the direction of the Company's new President, the Company plans to modify center
capacities and instigate changes in the product mix to increase profitability at
existing centers. Management believes that the increased advertising efforts
combined with the planned modifications will increase center profitability
levels for the existing centers. However, there can be no assurance that either
the increased advertising efforts or the modifications will be successful or
that they will result in increased profitability levels.
The Company intends to maintain its aggressive growth strategy, although
continued expansion, be it through acquisition or otherwise, will require the
Company to raise additional cash. To that end, the Company has engaged an
underwriter in connection with an $800,000 minimum - $1,500,000 maximum private
placement of between 16 and 30 units. The Company anticipates that if the
minimum offering is achieved, the holders of up to $500,000 principal amount
demand promissory notes will exchange their notes for units. Each unit consists
of one $50,000 face amount promissory note (the "Notes") and 25,000 common stock
purchase warrants (the "Private Warrants", collectively with the Notes, the
"Units"). The Notes will bear interest at the rate of 10% per annum and are due
at the earlier of the completion of a secondary public offering or one year from
the date of issuance. The Private Warrants will entitle the holders to purchase
one share of common stock for $5.00 per share during a period commencing one
year from the completion of the proposed public offering (or January 1, 1998 if
such public offering has not occurred by that date) and expiring May 6, 2001.
The net proceeds from the sale of the Units are expected to be sufficient to
fund the Company's operations through the completion of the proposed secondary
public offering described below (estimated to be completed by March 31, 1997);
however, depending upon if and when such public offering is completed, the
Company may require substantial additional funds to continue to operate its
centers and to pursue its expansion activities.
18
<PAGE> 19
CHILDREN'S WONDERLAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATIONS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
The Company also intends to execute a non-binding letter of intent with an
underwriter to raise net proceeds of approximately $6,000,000 through the sale
of between 1,000,000 and 1,200,000 shares of the Company's common stock in order
to fund acquisitions, repay the Notes, and for additional working capital (See
"--Recent Developments").
Based upon the Company's current level of operations, the Company anticipates
that if the maximum number of Units are sold in the private placement and the
secondary public offering described below is completed by March 31, 1997, the
Company's capital resources are expected to be adequate to fund its current
level of operations for the next twelve months following such public offering.
If the proposed acquisitions described below are consummated or the Company
continues its expansion activities and the Company does not obtain additional
financing, such capital resources are expected to be adequate to satisfy the
Company's capital and operational needs for the six months following such public
offering. However, there can be no assurance that the Company will be able to
obtain such funds, nor any additional financing in the future.
RECENT DEVELOPMENTS:
Planned Acquisitions
The Company is in escrow to purchase a child care center in Los Angeles County,
California. The center is currently operating at approximately fifty percent of
its licensed capacity of 156 children. The purchase price is $375,000, payable
$175,000 in cash and the balance pursuant to a promissory note payable over nine
years with interest at eight percent per annum. The Company is in the process of
completing its due diligence review of the center. If the review is satisfactory
to the Company, the Company expects to complete the purchase within a few weeks
of the completion of the private placement described below and will use a
portion of the proceeds from the private placement for the purchase. However,
there can be no assurance that the Company will complete the purchase of this
center due to numerous reasons, including, but not limited to, the Company's
decision not to proceed with the purchase, the Company being unable to complete
the private placement or the Company not having sufficient funds to complete the
purchase.
The Company also has entered into a non-binding letter of intent to purchase the
assets of companies engaged in operating four assisted living care facilities
and in providing home health care. These companies have combined annual revenues
in excess of $14 million. The Company is in the process of conducting its due
diligence review of these companies and preparing definitive purchase documents.
The purchase price is $4.6 million, payable in a combination of cash, promissory
notes and the Company's Common Stock. If the Company desires to proceed with the
purchase, neither the funds on hand nor the proceeds from the private placement
will be sufficient to enable the Company to complete such purchase. However, as
described below, the Company intends, if the private placement is completed, to
file a registration statement for a secondary offering of its common stock, a
portion of the proceeds of which would be used to complete such acquisition.
There can be no assurance that the Company will complete this purchase due to
numerous reasons, including, but not limited to, the Company's decision not to
proceed with the purchase, the Company not being able to enter into binding
agreements for the purchase of the assets, or the Company being unable to
complete the secondary offering necessary to fund this purchase.
19
<PAGE> 20
CHILDREN'S WONDERLAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATIONS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
Private Placement of Units
The Company has engaged an underwriter in connection with an $800,000 minimum -
$1,500,000 maximum private placement of between 16 and 30 units. The Company
anticipates that if the minimum offering is achieved, the holders of up to
$500,000 principal amount demand promissory notes will exchange their notes for
units. Each unit consists of one $50,000 face amount promissory note (the
"Notes") and 25,000 common stock purchase warrants (the "Private Warrants",
collectively with the Notes, the "Units"). The Notes will bear interest at the
rate of 10% per annum and are due at the earlier of the completion of a
secondary public offering or one year from the date of issuance. The Private
Warrants will entitle the holders to purchase one share of common stock for
$5.00 and will expire on May 6, 2001. It is anticipated that the private
placement will be completed by March 3, 1997. However, there can be no assurance
that the Company will sell all or any part of the foregoing Units due to
numerous reasons, including, but not limited to, the underwriter's inability to
sell the Units due to a lack of demand or a decline in general market conditions
or a decision by the underwriter, the Company, or both, to terminate the private
placement.
Secondary Offering
The Company intends to execute a non-binding letter of intent with an
underwriter to raise net proceeds of approximately $6,000,000 through the sale
of between 1,000,000 and 1,200,000 shares of the Company's common stock in order
to fund acquisitions, repay the Notes and for additional working capital. Based
upon the Company's current level of operations, the Company anticipates that if
the maximum number of Units are sold in the private placement and the secondary
public offering is completed by March 31, 1997, the Company's capital resources
are expected to be adequate to fund its current level of operations for the next
twelve months following such public offering. If the proposed acquisitions
described below are consummated or the Company continues its expansion
activities, and the Company does not obtain additional financing, such capital
resources are expected to be adequate to satisfy the Company's capital and
operational needs for the six months following such public offering.
Additionally, there can be no assurance that the secondary offering will be
completed, or that sufficient cash will be raised to meet the Company's cash
requirements, due to numerous contingencies, including, but not limited to, the
inability of the Company and the underwriter to agree on terms of the secondary
offering, general market conditions, failure to execute a binding agreement with
respect to the $4.6 million acquisition discussed above, and the performance of
the Company and its common stock.
20
<PAGE> 21
EMPLOYMENT AGREEMENTS
On January 6, 1997, the Company made certain changes in its executive personnel
and their terms of employment. Mr. Michael L. Laney, a director of the Company,
was appointed President and Chief Financial Officer. Mr. Laney also entered into
an employment agreement that provided for a signing bonus of $85,000, which has
not yet been paid, and an initial salary of $160,000 per year. At July 1, 1997,
Mr. Laney's salary will increase to $175,000 if the Company's annualized
revenues are reasonably expected to exceed $10,000,000. Mr. Laney also received
options to purchase 175,000 shares of common stock, 50,000 of which vested
immediately and the balance will vest equally in January 1998, 1999, and 2000
provided that the employment agreement is still in effect. The options have a
$7.00 exercise price. The agreement expires January 5, 2000 but can be
terminated earlier pursuant to certain thresholds. Ms. Sandra Goldstein, a vice
president of the Company, was appointed the Company's Secretary. The Company
also entered into a consulting agreement with Mr. Kenneth W. Bitticks, the
Company's Chairman. The consulting agreement provides for the payment of $15,000
per month and expires on January 5, 2000. Mr. Bitticks also received options to
purchase 75,000 shares of common stock, 25,000 of which vested immediately and
the balance will vest equally in January 1998, 1999, and 2000 provided that the
consulting agreement is still in effect. The options have a $7.00 exercise
price. The agreement expires January 5, 2000 but can be terminated earlier
pursuant to certain thresholds. The Company also modified the employment
agreement of Ms. Debby S. Bitticks, the Company's Chief Executive Officer. Ms.
Bitticks will receive an annual salary of $165,000. At July 1, 1997, Ms.
Bitticks will increase to $190,000 if the Company's annualized revenues are
reasonably expected to exceed $10,000,000. Ms. Bitticks also received options to
purchase 125,000 shares of common stock, 50,000 of which vested immediately and
the balance will vest equally in January 1998, 1999, and 2000 provided that the
employment agreement is still in effect. The options have a $7.00 exercise
price. The agreement expires January 5, 2000 but can be terminated earlier
pursuant to certain thresholds. Mr. Robert M. Wilson, a director of the Company,
resigned as its President, Chief Financial Officer and Secretary of the Company.
He also entered into a consulting agreement that provides for the payment of a
one-time $25,000 bonus, of which $5,000 has been paid, and $9,000 per month,
and a commission based upon the value of acquisitions that Mr. Wilson
negotiates on behalf of the Company. The agreement expires in January 1999
but commencing October 1, 1997, either Mr. Wilson or the Company may terminate
the agreement on three months notice.
21
<PAGE> 22
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the stockholders of the Company was held on December 11,
1996 for the purpose of electing five directors to hold office until the next
annual meeting of stockholders, to approve the Company's 1996 Stock Option Plan
and to authorize 400,000 shares of common stock for issuance under such plan,
to ratify the selection of Deloitte & Touche LLP as the Company's independent
accountants for the Company's fiscal year ending June 30, 1997, and to transact
such other business as may properly come before the annual meeting.
Each of the Company's five directors were reelected to board of directors. The
names of the five directors and the votes received by each director are as
follows:
<TABLE>
<CAPTION>
Name For Withheld
---- -------- --------
<S> <C> <C>
Debby S. Bitticks 3,584,913 21,350
Kenneth W. Bitticks 3,577,413 28,850
James W. Gott 3,578,413 28,850
Michael L. Laney 3,578,913 27,350
Robert M. Wilson 3,584,413 21,850
</TABLE>
With respect to the motion for the approval of the 1996 Stock Option Plan and
the authorization of 400,000 shares of common stock for issuance under such
plan, of the 3,606,263 shares represented at the meeting, 948,263 shares voted
in favor or the motion, 265,490 shares voted against, 23,900 abstained and the
balance of 2,368,637 consisted of broker non-votes. As a majority of the
shares represented (including abstentions and non-votes) did not vote in favor
of the motion, the motion did not pass.
With respect to the motion for the ratification of Deloitte & Touche LLP as the
Company's accountants, of the 3,606,263 shares represented at the meeting,
3,560,463 shares voted in favor of the motion, 34,900 shares voted against and
10,900 abstained. As a majority of the shares represented (including
abstentions) voted in favor of the motion, the motion passed.
ITEM 6. EXHIBITS
10.29 Employment agreement between the Company and Michael L.
Laney dated January 6, 1997
10.30 Consulting agreement between the Company and Kenneth W.
Bitticks dated January 6, 1997
10.31 Employment agreement between the Company and Debby S.
Bitticks dated January 6, 1997
10.32 Consulting agreement between the Company and Robert M.
Wilson dated January 6, 1997
27. Financial Data Schedule
REPORTS ON FORM 8-K
None
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
CHILDREN'S WONDERLAND, INC.
(Registrant)
/s/ Michael L. Laney February 12, 1996
- -------------------------------------------------
Mr. Michael L. Laney
President & Chief Financial Officer
23
<PAGE> 24
EXHIBIT INDEX
EXHIBITS
10.29 Employment agreement between the Company and Michael L.
Laney dated January 6, 1997
10.30 Consulting agreement between the Company and Kenneth W.
Bitticks dated January 6, 1997
10.31 Employment agreement between the Company and Debby S.
Bitticks dated January 6, 1997
10.32 Consulting agreement between the Company and Robert M.
Wilson dated January 6, 1997
27. Financial Data Schedule
REPORTS ON FORM 8-K
None
<PAGE> 1
EXHIBIT 10.29: EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND MICHAEL L. LANEY
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is effective as of January 6,
1997, between Children's Wonderland, Inc. ("Employer") and Michael L. Laney
("Executive").
RECITALS
A. Executive is a member of the Board of Directors of Employer (the
"Board"). Employer wishes to employ Executive as its President and
Chief Financial Officer.
B. Employer desires assurance of the continued association and services of
Executive in order to retain his experience, skills, abilities,
background, and knowledge, and is therefore willing to engage his
services on the terms and conditions set forth below.
C. Executive wishes to enter the employ of Employer and is willing to do
so on those terms and conditions.
NOW, THEREFORE, in consideration of the above recitals and of the
mutual promises and conditions in this Agreement, it is agreed as follows:
AGREEMENT
1. EXECUTIVE'S DUTIES AND AUTHORITY.
Employer shall employ Executive as President and Chief Financial
Officer or such other positions as Employer and Executive may agree upon.
Employer shall include Executive as a management nominee to the Board each year
during the term of this Agreement and shall use its best efforts to cause
Executive to be elected as a Director.
2. TIME AND EFFORT REQUIRED.
During his employment, Executive shall devote his full business time,
attention and energy to Employer exclusively and he will give his best efforts
and skills to further the best interests of the Company. Executive shall be
allowed to teach for approximately one week per year for the American Management
Association and to serve on the Advisory Board for the California State
University System. Executive shall also be allowed to serve on other boards of
directors to the extent that this service does not substantially interfere with
his duties for Employer.
24
<PAGE> 2
3. COVENANT NOT TO COMPETE DURING EMPLOYMENT TERM.
During the employment term, Executive shall not, directly or
indirectly, whether as a partner, owner, employee, consultant, creditor,
shareholder, or otherwise, promote, participate, or engage, directly or
indirectly, in any activity or other business competitive with Employer's
business; provided, however, that Executive shall have not violated this
covenant if Executive owns a nominal amount of stock of any publicly-traded
corporation that competes with Employer's business, provided Executive does not
serve as an employee, director, consultant or any other similar active
participant in such corporation.
4. TERM OF EMPLOYMENT.
Executive's term of employment will begin on January 6, 1997 and will
end on January 5, 2000, subject to earlier termination as provided in this
Agreement.
5. SALARY.
Employer shall pay a basic salary to Executive at the rate of
$160,000 per year, payable in equal semi-monthly installments. The basic salary
shall increase to at least $175,000 when Employer's annualized sales are
reasonably expected to equal or exceed $10,000,000, but no such increase shall
take effect until July 1, 1997. The basic salary payable to Executive under this
section shall be reviewed annually by the Compensation Committee of the Board,
and the Board in its sole discretion may increase (but not decrease) the basic
salary.
6. INCENTIVE COMPENSATION.
Executive and Employer agree that in addition to his basic salary,
Executive shall be entitled to receive incentive compensation for each year of
the term of this Agreement, but Executive and Employer have not agreed on an
appropriate incentive compensation plan. During the first 90 days of the term of
this Agreement, Executive and Employer will consult with each other and will
formulate an appropriate incentive compensation plan for Executive, satisfactory
to both Executive and Employer. Any incentive compensation that is paid on the
basis of a fiscal year of Employer will be prorated for any period less than a
full a fiscal year that Executive is employed by Employer. When the plan is
agreed on, the plan will be reflected in an amendment to this Agreement, signed
by both Executive and Employer.
7. STOCK OPTION.
Upon commencement of his employment Employer shall grant to Executive
a stock option to purchase 175,000 shares of Employer's common stock. The
purchase price under the stock option shall be $7.00 per share. The option shall
vest immediately as to 50,000 shares and the balance shall vest in three equal
installments on January 5, 1998, January 5, 1999 and January 5, 2000, provided
this Agreement is in effect on the date the installments vest. The vesting of
the option will accelerate upon a "change in control" as defined in paragraph 19
below.
8. SIGNING BONUS.
In consideration for Executive's agreement to forego other
opportunities and to accept employment by Employer, Employer shall pay to
Executive a signing bonus of $85,000 upon commencement of Executive's
employment.
25
<PAGE> 3
9. ADDITIONAL BENEFITS.
During the employment term, Executive shall be entitled to receive all
other benefits of employment generally available to Employer's other executive
and managerial employees when and as he becomes eligible for them, including
group health and life insurance benefits and an annual vacation of four weeks.
Up to one year's unused vacation time may be carried over from one year to the
next.
If Executive so elects, in lieu of participating in Employer's medical
plan, Executive may continue his coverage under the medical insurance plan he
has participated in prior to his employment with Employer and Employer will
reimburse Executive for the periodic cost of such continued coverage.
Included in the benefits for Executive will be (i) an automobile
allowance consistent with Employer's current policies and practice, and (ii)
reimbursement Executive's reasonable legal fees in connection with this
Agreement and any renegotiation or extension thereof.
10. EXPENSES.
During the employment term, Employer shall reimburse Executive for
reasonable out-of-pocket expenses incurred in connection with Employer's
business, including, without limitation, travel expenses, food, lodging while
away from home, telephone expenses, and automobile expenses, subject to such
policies as Employer may from time to time reasonably establish for its
executive and managerial employees.
11. INDEMNIFICATION BY EMPLOYER.
Employer shall, to the maximum extent permitted by law, indemnify and
hold Executive harmless against expenses, including reasonable attorney's fees
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of Executive's
employment by Employer or his service on the Board of Directors. Employer shall
advance to Executive any expense incurred in defending any such proceeding to
the maximum extent permitted by law.
12. INDEMNITY INSURANCE.
Employer shall purchase and maintain indemnity insurance on behalf of
Executive against any liability asserted against or incurred by Executive
arising out of his employment by Employer or his service on the Board.
13. TERMINATION FOR CAUSE.
(a) Employer (acting through the Board) may terminate this Agreement
at any time without notice if Executive commits any material act of dishonesty.
Employer (acting through the Board) may terminate this Agreement at any time
upon sixty days notice if Executive (i) breaches this Agreement (including a
breach of the confidential information provisions of paragraph 20), (ii) is
guilty of gross carelessness or misconduct, or unjustifiably neglects his duties
under this Agreement, or (iii) acts in any way that has a direct, substantial,
and adverse effect on Employer's reputation. The notice shall specify the
grounds upon which Employer proposes to terminate this Agreement, and Executive
shall have sixty days to cure any of such grounds. If such grounds are not
susceptible of being cured in sixty days, Employer may not terminate this
Agreement if Executive makes a good faith continuing effort to cure such
grounds, provided they are capable of cure.
26
<PAGE> 4
(b) Executive may terminate this Agreement at any time upon ten (10)
days notice if Employer breaches this Agreement The notice shall specify the
grounds upon which Executive proposes to terminate this Agreement, and Employer
shall have ten days to cure any of such grounds. If such grounds are not
susceptible of being cured in ten days, Executive may not terminate this
Agreement if Employer makes a good faith continuing effort to cure such grounds
provided they are capable of cure.
(c) If Employer breaches this Agreement, Employer does not cure the
breach and Executive terminates this Agreement, in addition to any other damages
Executive is entitled to by law, Executive shall also be entitled to severance
pay in the amount set forth in paragraph 0 below.
14. TERMINATION ON RETIREMENT.
This Agreement may be terminated by Executive's voluntary retirement,
which retirement shall be effective on the last day of any fiscal year, provided
that day occurs after Executive's 60th birthday, and provided three months'
prior written notice of the retirement shall have been given by Executive to
Employer.
15. TERMINATION ON DISABILITY.
If Executive is unable due to mental or physical illness or injury to
perform the essential functions of his job for a continuous period of six months
with reasonable accommodations under this Agreement, this Agreement shall be
then terminated.
16. DISABILITY INSURANCE.
Employer shall obtain and maintain disability insurance covering
Executive, to the extent such insurance is available at reasonable cost, during
the term of this Agreement.
17. TERMINATION ON DEATH.
If Executive dies during the initial term or during any renewal term
of this Agreement, this Agreement shall be terminated on the last day of the
calendar month of his death.
18. EARLY TERMINATION BY EXECUTIVE.
(a) Executive shall have the right to terminate this Agreement at any
time after the end of the second year of the term of this Agreement if the
aggregate salary and bonus paid to him with respect to the second year of the
term does not equal or exceed the sum of the first year's salary set forth in
paragraph 5 and the signing bonus set forth in paragraph 8.
(b) Executive shall have the right to terminate this Agreement at any
time if neither Debby Bitticks nor Kenneth Bitticks is serving as Chief
Executive Officer or Chairman of the Board, respectively, of Employer.
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<PAGE> 5
19. CHANGE IN CONTROL.
Executive shall have the right to terminate this Agreement prior to
the end of its term at any time after a "change in control" of Employer has
occurred. For purposes of this Agreement, a "change in control" of Employer
means:
(a) the acquisition by any person or group of persons (as such terms are used
in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended), is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of Employer representing 50%
or more of the combined voting power of Employer's then outstanding securities;
(b) the consummation of a merger or consolidation of Employer with or into
another corporation (other than a merger or consolidation in which Employer is
the surviving corporation and which does not result in any capital
reorganization or reclassification or other change in Employer's then
outstanding shares of common stock);
(c) the consummation of a sale or disposition of all or substantially all of
Employer's assets; or
(d) the liquidation or dissolution of Employer.
If Executive acts to terminate this Agreement pursuant to this
paragraph 19, Employer or the surviving business entity or the business entity
to which such assets shall be transferred, as the case may be, shall pay
Executive severance pay equal to the compensation Executive would have received
for the balance of the term of this Agreement if this Agreement were to be
continued for a term of two years following the "change in control". The
severance pay shall not exceed the threshold that would make it an "excess
parachute payment" and thus non-deductible under Section 280G of the Internal
Revenue Code.
If Executive does not act to terminate this Agreement pursuant to
this paragraph 19, the provisions of this Agreement shall be binding on and
inure to the benefit of Employer or the surviving business entity or the
business entity to which such assets shall be transferred, as the case may be.
20. DISCLOSURE OF CONFIDENTIAL INFORMATION AND TRADE SECRETS PROHIBITED.
In the course of his employment, Executive may have access to
confidential information and trade secrets relating to Employer's business.
Confidential information includes but is not limited to inventions, processes,
designs, improvements, programs, specifications, techniques, data relating to
creation, manufacture and marketing of any product or product concept, customer
and prospective customer names and addresses, sales records, vendor names and
addresses, financial data, information provided by third parties that Employer
is required to keep confidential, and any other proprietary information of
Employer (unless such information is lawfully obtainable from other sources).
Except (a) as required in the course of his employment by Employer and in
furtherance of Employer's best interests, (b) is required by applicable law, (c)
authorized by Employer, Executive will not, without Employer's prior written
consent, either during his employment by Employer or for five years after
termination of that employment, directly or indirectly disclose to any person or
entity any such confidential information or trade secrets.
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<PAGE> 6
21. INTEGRATION.
This Agreement contains the entire agreement between the parties and
supersedes all prior oral and written agreements, understandings, commitments,
and practices between the parties, including all prior employment agreements,
whether or not fully performed by Executive before the date of this Agreement.
No amendments to this Agreement may be made except by a writing signed by both
parties.
22. APPLICABLE LAW AND ARBITRATION.
This Agreement will be governed by the laws of the State of
California, and all controversies relating to it, including work-related
controversies between Executive and other the Company employees, will be settled
by final and binding arbitration held in Los Angeles, pursuant to the Model
Employment Arbitration Procedures of the American Arbitration Association, by an
arbitrator chosen by the parties from the AAA Labor Arbitrators Panel. Any such
arbitration must be requested in writing not later than one year from the date
the controversy arose. The losing party will pay all reasonable attorneys' fees
incurred by the prevailing party.
23. NOTICES.
Any notice to Employer required or permitted under this Agreement
shall be given in writing to Employer, either by personal service or by
registered or certified mail, postage prepaid, addressed to the Chief Executive
Officer of Employer at its then principal place of business. Any such notice to
Executive shall be given in a like manner and, if mailed, shall be addressed to
Executive at his home address then shown in Employer's files. For the purpose of
determining compliance with any time limit in this Agreement, a notice shall be
deemed to have been duly given (a) on the date of service, if served personally
on the party to whom notice is to be given, or (b) on the second business day
after mailing, if mailed to the party to whom the notice is to be given in the
manner provided in this section.
24. RENEGOTIATION.
Employer and Executive agree to negotiate an extension of this
Agreement (or a new agreement to take effect when this Agreement terminates) by
the end of the second year of the term of this Agreement. Neither Employer nor
Executive will be bound to such extension (or new agreement), until each has
executed it.
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<PAGE> 7
25. SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable,
the remainder of this Agreement shall nevertheless remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
Executed by the parties as of the day and year first above written.
Children's Wonderland, Inc.
By: ________________________
Its:________________________
(Employer)
_____________________________
Michael L. Laney
(Executive)
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<PAGE> 1
EXHIBIT 10.30: CONSULTING AGREEMENT BETWEEN THE COMPANY AND KENNETH BITTICKS.
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is effective as of January 6,
1997, between Children's Wonderland, Inc. (the "Company") and Kenneth W.
Bitticks ("Consultant").
RECITALS
A. Consultant is and has been the Chairman of the Board, a member of the
Board of Directors of the Company (the "Board") and a consultant to the
Company. Through such experience, he has acquired outstanding and
special skills and abilities and an extensive background in and
knowledge of the Company's business and the industry in which it is
engaged.
B. The Company desires assurance of the continued association and services
of Consultant in order to retain his experience, skills, abilities,
background, and knowledge, and is therefore willing to continue to
engage his services on the terms and conditions set forth below.
C. Consultant desires to continue to consult for the Company and is
willing to do so on those terms and conditions.
NOW, THEREFORE, in consideration of the above recitals and of the
mutual promises and conditions in this Agreement, it is agreed as follows:
AGREEMENT
1. CONSULTANT'S DUTIES AND AUTHORITY.
The Company shall engage Consultant and Consultant shall accept the
engagement to render such services as are required from time to time by the
Chief Executive Officer or the Board of Directors. The Company shall include
Consultant as a management nominee to the Board each year during the term of
this Agreement and shall use its best efforts to cause Consultant to be elected
as a Director.
2. REASONABLE TIME AND EFFORT REQUIRED.
During the term of this Agreement, Consultant shall devote such time,
interest and effort to the performance of this Agreement as may be fairly and
reasonably necessary.
3. COVENANT NOT TO COMPETE DURING TERM OF THIS AGREEMENT.
During the term of this Agreement, Consultant shall not, directly or
indirectly, whether as a partner, owner, employee, consultant, creditor,
shareholder, or otherwise, promote, participate, or engage, directly or
indirectly, in any activity or other business competitive with the Company's
business; provided, however,
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<PAGE> 2
(a) that Consultant shall have not violated this covenant if
Consultant owns a nominal amount of stock of any publicly-traded corporation
that competes with the Company's business, provided Consultant does not serve as
an employee, director, consultant or any other similar active participant in
such corporation; and
(b) that Consultant may create toys, games, cartoon or other
characters, stories, television or other media shows, or other creative works
generally, none of which shall constitute a violation this covenant, and all of
which shall be the exclusive property of Consultant (even if they relate to the
Company's business or result from any work performed by Consultant for the
Company) provided they are developed without the use of the Company's resources.
4. TERM OF THIS AGREEMENT.
Consultant's term of engagement as a consultant under this Agreement
will begin on January 6, 1997 and will end on January 5, 2000, subject to
earlier termination as provided in this Agreement.
5. BASE FEE.
The Company shall pay Consultant a base fee of $15,000 per month,
payable at the end of each month against an invoice by Consultant to the
Company. The fee shall be delinquent if not paid within ten days of invoice. The
fee may be increased or decreased from time to time with the agreement of both
the Company and Consultant.
6. INCENTIVE COMPENSATION.
Consultant and the Company agree that in addition to his base fee,
Consultant shall be entitled to receive incentive compensation for each year of
the term of this Agreement, but Consultant and the Company have not agreed on an
appropriate incentive compensation plan. During the first 90 days of the term of
this Agreement, Consultant and the Company will consult with each other and will
formulate an appropriate incentive compensation plan for Consultant,
satisfactory to both Consultant and the Company. Any incentive compensation that
is paid on the basis of a fiscal year of the Company will be prorated for any
period less than a full a fiscal year that Consultant is engaged by the Company.
When the plan is agreed on, the plan will be reflected in an amendment to this
Agreement, signed by both Consultant and the Company.
7. STOCK OPTION
The Company shall grant to Consultant a stock option to purchase
75,000 shares of the Company's common stock promptly after this Agreement
becomes effective. The purchase price under the stock option shall be $7.00 per
share. The option shall vest immediately as to 25,000 shares and the balance
shall vest in three equal installments on January 5, 1998, January 5, 1999 and
January 5, 2000, provided this Agreement is in effect on the date the
installments vest. The vesting of the option will accelerate upon a "change in
control" as defined in paragraph 13 below.
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<PAGE> 3
8. EXPENSES.
During the term of this Agreement, the Company shall reimburse
Consultant for reasonable out-of-pocket expenses incurred in connection with the
Company's business, including, without limitation, travel expenses, food,
lodging while away from home, telephone expenses, and automobile expenses.
9. INDEMNIFICATION BY THE COMPANY.
The Company shall, to the maximum extent permitted by law, indemnify
and hold Consultant harmless against expenses, including reasonable attorney's
fees judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of Consultant's
engagement by the Company or his service on the Board of Directors. The Company
shall advance to Consultant any expense incurred in defending any such
proceeding to the maximum extent permitted by law.
10. INDEMNITY INSURANCE.
The Company shall purchase and maintain indemnity insurance on behalf
of Consultant against any liability asserted against or incurred by Consultant
arising out of his engagement by the Company or his service on the Board.
11. TERMINATION FOR CAUSE.
(a) The Company (acting through the Board) may terminate this Agreement
at any time without notice if Consultant commits any material act of dishonesty.
The Company (acting through the Board) may terminate this Agreement at any time
upon sixty days notice if Consultant (i) breaches this Agreement (including a
breach of the confidential information provisions of paragraph 14), (ii) is
guilty of gross carelessness or misconduct, or unjustifiably neglects his duties
under this Agreement, or (iii) acts in any way that has a direct, substantial,
and adverse effect on the Company's reputation. The notice shall specify the
grounds upon which the Company proposes to terminate this Agreement, and
Consultant shall have sixty days to cure any of such grounds. If such grounds
are not susceptible of being cured in sixty days, the Company may not terminate
this Agreement if Consultant makes a good faith continuing effort to cure such
grounds, provided they are capable of cure.
(b) Consultant may terminate this Agreement at any time upon sixty days
notice if the Company breaches this Agreement The notice shall specify the
grounds upon which Consultant proposes to terminate this Agreement, and the
Company shall have sixty days to cure any of such grounds. If such grounds are
not susceptible of being cured in sixty days, Consultant may not terminate this
Agreement if the Company makes a good faith continuing effort to cure such
grounds provided they are capable of cure.
(c) If the Company breaches this Agreement, the Company does not cure
the breach and Consultant terminates this Agreement, in addition to any other
damages Consultant is entitled to by law, Consultant shall also be entitled to a
severance fee in the amount set forth in paragraph 13 below.
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<PAGE> 4
12. EARLY TERMINATION BY CONSULTANT.
Consultant shall have the right to terminate this Agreement at any
time if neither Debby Bitticks nor Michael Laney is serving as Chief Executive
Officer or President, respectively, of Employer.
13. CHANGE IN CONTROL.
Consultant shall have the right to terminate this Agreement prior to
the end of its term at any time after a "change in control" of the Company has
occurred. For purposes of this Agreement, a "change in control" of the Company
means:
(a) the acquisition by any person or group of persons (as such terms are
used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended), is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of the Company representing
50% or more of the combined voting power of the Company's then outstanding
securities;
(b) the consummation of a merger or consolidation of the Company with or
into another corporation (other than a merger or consolidation in which the
Company is the surviving corporation and which does not result in any capital
reorganization or reclassification or other change in the Company's then
outstanding shares of common stock);
(c) the consummation of a sale or disposition of all or substantially
all of the Company's assets; or
(d) the liquidation or dissolution of the Company.
If Consultant acts to terminate this Agreement pursuant to this
paragraph 13, the Company or the surviving business entity or the business
entity to which such assets shall be transferred, as the case may be, shall pay
Consultant a severance fee equal to the compensation Consultant would have
received for the balance of the term of this Agreement if this Agreement were to
be continued for a term of two years following the "change in control".
If Consultant does not act to terminate this Agreement pursuant to
this paragraph 13, the provisions of this Agreement shall be binding on and
inure to the benefit of the Company or the surviving business entity or the
business entity to which such assets shall be transferred, as the case may be.
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<PAGE> 5
14. DISCLOSURE OF CONFIDENTIAL INFORMATION AND TRADE SECRETS PROHIBITED.
In the course of his engagement, Consultant may have access to
confidential information and trade secrets relating to the Company's business.
Confidential information includes but is not limited to inventions, processes,
designs, improvements, programs, specifications, techniques, data relating to
creation, manufacture and marketing of any product or product concept, customer
and prospective customer names and addresses, sales records, vendor names and
addresses, financial data, information provided by third parties that the
Company is required to keep confidential, and any other proprietary information
of the Company (unless such information is lawfully obtainable from other
sources). Except (a) as required in the course of his engagement by the Company
and in furtherance of the Company's best interests, (b) is required by
applicable law, (c) authorized by the Company, Consultant will not, without the
Company's prior written consent, either during his engagement by the Company or
for five years after termination of that engagement, directly or indirectly
disclose to any person or entity any such confidential information or trade
secrets.
15. INTEGRATION.
This Agreement contains the entire agreement between the parties and
supersedes all prior oral and written agreements, understandings, commitments,
and practices between the parties and all other prior consulting agreements,
whether or not fully performed by Consultant before the date of this Agreement.
No amendments to this Agreement may be made except by a writing signed by both
parties.
16. APPLICABLE LAW AND ARBITRATION.
This Agreement will be governed by the laws of the State of
California, and all controversies relating to it, including work-related
controversies between Consultant and any of the employees of the Company, will
be settled by final and binding arbitration held in Los Angeles, pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. Any such
arbitration must be requested in writing not later than one year from the date
the controversy arose. The losing party will pay all reasonable attorneys' fees
incurred by the prevailing party.
17. NOTICES.
Any notice to the Company required or permitted under this Agreement
shall be given in writing to the Company, either by personal service or by
registered or certified mail, postage prepaid, addressed to the president of the
Company at its then principal place of business. Any such notice to Consultant
shall be given in a like manner and, if mailed, shall be addressed to Consultant
at his home address then shown in the Company's files. For the purpose of
determining compliance with any time limit in this Agreement, a notice shall be
deemed to have been duly given (a) on the date of service, if served personally
on the party to whom notice is to be given, or (b) on the second business day
after mailing, if mailed to the party to whom the notice is to be given in the
manner provided in this section.
18. RENEGOTIATION.
The Company and Consultant agree to negotiate an extension of this
Agreement (or a new agreement to take effect when this Agreement terminates) by
the end of the second year of the term of this Agreement. Neither the Company
nor Consultant will be bound to such extension (or new agreement), until each
has executed it.
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<PAGE> 6
19. SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable,
the remainder of this Agreement shall nevertheless remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
Executed by the parties as of the day and year first above written.
Children's Wonderland, Inc.
By: ________________________
Its:________________________
(the Company)
________________________________
Kenneth W. Bitticks (consultant)
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<PAGE> 1
EXHIBIT 10.31: EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND DEBBY S. BITTICKS
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is effective as of January 6,
1997, between Children's Wonderland, Inc. ("Employer") and Debby S. Bitticks
("Executive").
RECITALS
A. Executive is and has been employed by Employer as its Chief Executive
Officer and Executive is a member of the Board of Directors of Employer
(the "Board"). Through such experience, she has acquired outstanding
and special skills and abilities and an extensive background in and
knowledge of Employer's business and the industry in which it is
engaged.
B. Employer desires assurance of the continued association and services of
Executive in order to retain her experience, skills, abilities,
background, and knowledge, and is therefore willing to engage her
services on the terms and conditions set forth below.
C. Executive and Employer are parties to an Employment Agreement dated
December 1, 1993, which has been amended effective December 15, 1995
(the "Prior Agreement").
D. Employer and Executive have agreed to modify the terms on which
Executive is employed and to extend her term of employment.
E. Executive desires to continue in the employ of Employer and is willing
to do so on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the above recitals and of the
mutual promises and conditions in this Agreement, it is agreed as follows:
AGREEMENT
1. PRIOR AGREEMENT SUPERSEDED.
This Agreement supersedes and replaces the Prior Agreement as of the
effective date first set forth above.
2. EXECUTIVE'S DUTIES AND AUTHORITY.
Employer shall employ Executive as its Chief Executive Officer.
Employer shall include Executive as a management nominee to the Board each year
during the term of this Agreement and shall use its best efforts to cause
Executive to be elected as a Director.
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<PAGE> 2
3. REASONABLE TIME AND EFFORT REQUIRED.
During her employment, Executive shall devote such time, interest and
effort to the performance of this agreement as may be fairly and reasonably
necessary.
4. COVENANT NOT TO COMPETE DURING EMPLOYMENT TERM.
During the employment term, Executive shall not, directly or
indirectly, whether as a partner, owner, employee, consultant, creditor,
shareholder, or otherwise, promote, participate, or engage, directly or
indirectly, in any activity or other business competitive with Employer's
business; provided, however,
(a) that Executive shall have not violated this covenant if Executive
owns a nominal amount of stock of any publicly-traded corporation that competes
with Employer's business, provided Executive does not serve as an employee,
director, consultant or any other similar active participant in such
corporation; and
(b) that Executive may create toys, games, cartoon or other
characters, stories, television or other media shows, or other creative works
generally, none of which shall constitute a violation of this covenant, and all
of which shall be the exclusive property of Executive (even if they relate to
Employer's business or result from any work performed by Executive for Employer)
provided they are developed without the use of Employer's resources.
5. TERM OF EMPLOYMENT.
Executive's term of employment under this Agreement will begin on
January 6, 1997 and will end on January 5, 2000, subject to earlier termination
as provided in this Agreement.
6. SALARY.
Employer shall pay a basic salary to Executive at the rate of
$165,000 per year, payable in equal semi-monthly installments. The basic salary
shall increase to $190,000 when Employer's annualized sales are reasonably
expected to equal or exceed $10,000,000, but no such increase shall take effect
until July 1, 1997. The basic salary shall be reviewed annually by the
Compensation Committee of the Board, and the Board in its sole discretion may
increase (but not decrease) the basic salary.
7. INCENTIVE COMPENSATION.
Executive and Employer agree that in addition to her basic salary,
Executive shall be entitled to receive incentive compensation for each year of
the term of this Agreement, but Executive and Employer have not agreed on an
appropriate incentive compensation plan. During the first 90 days of the term of
this Agreement, Executive and Employer will consult with each other and will
formulate an appropriate incentive compensation plan for Executive, satisfactory
to both Executive and Employer. Any incentive compensation that is paid on the
basis of a fiscal year of Employer will be prorated for any period less than a
full a fiscal year that Executive is employed by Employer. When the plan is
agreed on, the plan will be reflected in an amendment to this Agreement, signed
by both Executive and Employer.
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<PAGE> 3
8. STOCK OPTION.
Employer shall grant to Executive a stock option to purchase 125,000
shares of Employer's common stock promptly after this Agreement becomes
effective. The purchase price under the stock option shall be $7.00 per share.
The option shall vest immediately as to 50,000 shares and the balance shall vest
in three equal installments on January 5, 1998, January 5, 1999 and January 5,
2000, provided this Agreement is in effect on the date the installments vest.
The vesting of the option will accelerate upon a "change in control" as defined
in paragraph 18 below.
9. ADDITIONAL BENEFITS.
During the employment term, Executive shall be entitled to receive all other
benefits of employment generally available to Employer's other executive and
managerial employees when and as she becomes eligible for them, including group
health and life insurance benefits and an annual vacation of four weeks. Up to
one year's unused vacation time may be carried over from one year to the next.
Included in the benefits for Executive will be (i) an automobile allowance
consistent with Employer's current policies and practice, and (ii) reimbursement
Executive's reasonable legal fees in connection with this Agreement and any
renegotiation or extension thereof.
10. EXPENSES.
During the employment term, Employer shall reimburse Executive for
reasonable out-of-pocket expenses incurred in connection with Employer's
business, including, without limitation, travel expenses, food, lodging while
away from home, telephone expenses, and automobile expenses, subject to such
policies as Employer may from time to time reasonably establish for its
executive and managerial employees.
11. INDEMNIFICATION BY EMPLOYER.
Employer shall, to the maximum extent permitted by law, indemnify and
hold Executive harmless against expenses, including reasonable attorney's fees
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of Executive's
employment by Employer or her service on the Board of Directors. Employer shall
advance to Executive any expense incurred in defending any such proceeding to
the maximum extent permitted by law.
12. INDEMNITY INSURANCE.
Employer shall purchase and maintain indemnity insurance on behalf of
Executive against any liability asserted against or incurred by Executive
arising out of her employment by Employer or her service on the Board.
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<PAGE> 4
13. TERMINATION FOR CAUSE.
(a) Employer (acting through the Board) may terminate this Agreement
at any time without notice if Executive commits any material act of dishonesty.
Employer (acting through the Board) may terminate this Agreement at any time
upon sixty days notice if Executive (i) breaches this Agreement (including a
breach of the confidential information provisions of paragraph (20), (ii) is
guilty of gross carelessness or misconduct, or unjustifiably neglects her duties
under this Agreement, or (iii) acts in any way that has a direct, substantial,
and adverse effect on Employer's reputation. The notice shall specify the
grounds upon which Employer proposes to terminate this Agreement, and Executive
shall have sixty days to cure any of such grounds. If such grounds are not
susceptible of being cured in sixty days, Employer may not terminate this
Agreement if Executive makes a good faith continuing effort to cure such
grounds, provided they are capable of cure.
(b) Executive may terminate this Agreement at any time upon ten (10)
days notice if Employer breaches this Agreement The notice shall specify the
grounds upon which Executive proposes to terminate this Agreement, and Employer
shall have ten (10) days to cure any of such grounds. If such grounds are not
susceptible of being cured in ten (10) days, Executive may not terminate this
Agreement if Employer makes a good faith continuing effort to cure such grounds
provided they are capable of cure.
(c) If Employer breaches this Agreement, Employer does not cure the
breach and Executive terminates this Agreement, in addition to any other damages
Executive is entitled to by law, Executive shall also be entitled to severance
pay in the amount set forth in paragraph 18 below.
14. TERMINATION ON RETIREMENT.
This Agreement may be terminated by Executive's voluntary retirement,
which retirement shall be effective on the last day of any fiscal year, provided
that day occurs after Executive's 60th birthday, and provided three months'
prior written notice of the retirement shall have been given by Executive to
Employer.
15. TERMINATION ON DISABILITY.
If Executive is unable due to mental or physical illness or injury to
perform the essential functions of her job for a continuous period of six months
with reasonable accommodations under this Agreement, this Agreement shall be
then terminated.
16. DISABILITY INSURANCE.
Employer shall obtain and maintain disability insurance covering
Executive, to the extent such insurance is available at reasonable cost, during
the term of this Agreement.
17. TERMINATION ON DEATH.
If Executive dies during the initial term or during any renewal term
of this Agreement, this Agreement shall be terminated on the last day of the
calendar month of her death.
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18. EARLY TERMINATION BY EXECUTIVE.
Executive shall have the right to terminate this Agreement at any
time if neither Kenneth Bitticks nor Michael Laney is serving as Chairman of the
Board or President, respectively, of Employer.
19. CHANGE IN CONTROL.
Executive shall have the right to terminate this Agreement prior to
the end of its term at any time after a "change in control" of Employer has
occurred. For purposes of this Agreement, a "change in control" of Employer
means:
(a) the acquisition by any person or group of persons (as such terms are used
in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended), is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of Employer representing 50%
or more of the combined voting power of Employer's then outstanding securities;
(b) the consummation of a merger or consolidation of Employer with or into
another corporation (other than a merger or consolidation in which Employer is
the surviving corporation and which does not result in any capital
reorganization or reclassification or other change in Employer's then
outstanding shares of common stock);
(c) the consummation of a sale or disposition of all or substantially all of
Employer's assets; or
(d) the liquidation or dissolution of Employer.
If Executive acts to terminate this Agreement pursuant to this
paragraph 18, Employer or the surviving business entity or the business entity
to which such assets shall be transferred, as the case may be, shall pay
Executive severance pay equal to the compensation Executive would have received
for the balance of the term of this Agreement if this Agreement were to be
continued for a term of two years following the "change in control". The
severance pay shall not exceed the threshold that would make it an "excess
parachute payment" and thus non-deductible under Section 280G of the Internal
Revenue Code.
If Executive does not act to terminate this Agreement pursuant to
this paragraph 18, the provisions of this Agreement shall be binding on and
inure to the benefit of Employer or the surviving business entity or the
business entity to which such assets shall be transferred, as the case may be.
41
<PAGE> 6
20. DISCLOSURE OF CONFIDENTIAL INFORMATION AND TRADE SECRETS PROHIBITED.
In the course of her employment, Executive may have access to
confidential information and trade secrets relating to Employer's business.
Confidential information includes but is not limited to inventions, processes,
designs, improvements, programs, specifications, techniques, data relating to
creation, manufacture and marketing of any product or product concept, customer
and prospective customer names and addresses, sales records, vendor names and
addresses, financial data, information provided by third parties that Employer
is required to keep confidential, and any other proprietary information of
Employer (unless such information is lawfully obtainable from other sources).
Except (a) as required in the course of her employment by Employer and in
furtherance of Employer's best interests, (b) is required by applicable law, (c)
authorized by Employer, Executive will not, without Employer's prior written
consent, either during her employment by Employer or for five years after
termination of that employment, directly or indirectly disclose to any person or
entity any such confidential information or trade secrets.
21. INTEGRATION.
This Agreement contains the entire agreement between the parties and
supersedes all prior oral and written agreements, understandings, commitments,
and practices between the parties, including the Prior Agreement and all other
prior employment agreements, whether or not fully performed by Executive before
the date of this Agreement. No amendments to this Agreement may be made except
by a writing signed by both parties.
22. APPLICABLE LAW AND ARBITRATION.
This Agreement will be governed by the laws of the State of
California, and all controversies relating to it, including work-related
controversies between Executive and other the Company employees, will be settled
by final and binding arbitration held in Los Angeles, pursuant to the Model
Employment Arbitration Procedures of the American Arbitration Association, by an
arbitrator chosen by the parties from the AAA Labor Arbitrators Panel. Any such
arbitration must be requested in writing not later than one year from the date
the controversy arose. The losing party will pay all reasonable attorneys' fees
incurred by the prevailing party.
23. NOTICES.
Any notice to Employer required or permitted under this Agreement
shall be given in writing to Employer, either by personal service or by
registered or certified mail, postage prepaid, addressed to the president of
Employer at its then principal place of business. Any such notice to Executive
shall be given in a like manner and, if mailed, shall be addressed to Executive
at her home address then shown in Employer's files. For the purpose of
determining compliance with any time limit in this Agreement, a notice shall be
deemed to have been duly given (a) on the date of service, if served personally
on the party to whom notice is to be given, or (b) on the second business day
after mailing, if mailed to the party to whom the notice is to be given in the
manner provided in this section.
42
<PAGE> 7
24. RENEGOTIATION.
Employer and Executive agree to negotiate an extension of this
Agreement (or a new agreement to take effect when this Agreement terminates) by
the end of the second year of the term of this Agreement. Neither Employer nor
Executive will be bound to such extension (or new agreement), until each has
executed it.
25. SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable,
the remainder of this Agreement shall nevertheless remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
Executed by the parties as of the day and year first above written.
Children's Wonderland, Inc.
By: ________________________
Its: _______________________
(Employer)
_____________________________
Debby S. Bitticks
(Executive)
43
<PAGE> 1
EXHIBIT 10.32: CONSULTING AGREEMENT BETWEEN THE COMPANY AND ROBERT M. WILSON
CONSULTING AGREEMENT AND GENERAL RELEASE
THIS CONSULTING AGREEMENT AND GENERAL RELEASE ("Agreement") is made and
entered into as of January 6, 1997 by and between Robert M. Wilson ("Wilson")
and Children's Wonderland, Inc., a California corporation (the "Company").
RECITALS
A. Wilson is currently an officer (President and Chief Financial Officer),
employee and a member of the Board of Directors of the Company.
B. Wilson and the Company are parties to an Employment Agreement dated as
of June 1, 1995 which provides for the employment of Wilson by the
Company for a term that expires May 31, 1998, subject to earlier
termination as provided therein (the "Employment Agreement").
C. Wilson has resigned as an officer of the Company effective January 6,
1997.
D. Wilson has agreed to resign as an employee of the Company (but not as a
member of the Board of Directors) on the terms set forth in this
Agreement.
E. Wilson and the Company have agreed that Wilson shall serve as a
consultant to the Company on the terms set forth in this Agreement.
F. Wilson has agreed to give the Company and its officers, directors,
employees and agents a general release of liability on the terms set
forth in this Agreement.
AGREEMENT
IN WITNESS WHEREOF, Wilson and the Company have agreed as follows:
1. RESIGNATIONS.
Wilson hereby resigns as an employee of the Company on the Effective
Date (defined in Section 21, below). Wilson does not resign as a member of the
Board of Directors of the Company.
2. PAYMENTS BY THE COMPANY.
On the Effective Date, Wilson shall be paid (a) his accrued salary
through the Effective Date (based on an annual salary rate of $98,000 per year,
less necessary withholding and payroll taxes), (b) his accrued unused vacation
pay, and (c) his outstanding unreimbursed out-of-pocket expenses incurred in
connection with the Company's business.
44
<PAGE> 2
3. BONUS PAY
Wilson is not entitled to any bonus or incentive compensation that
has not already been paid to him. Nonetheless, as consideration for Wilson's
agreements made in this Agreement, including Sections 1, 5, and 6 of this
Agreement, the Company shall pay to Wilson a bonus for his service as an
employee and officer in the amount of $25,000, as follows: (a) $5,000 shall be
paid on the date the parties execute this Agreement and (b) the balance of
$20,000 shall be paid within 45 days thereafter.
4. COBRA
Wilson is eligible to elect continuation of medical and related
insurance coverage for himself and his dependents under the Comprehensive
Omnibus Budget Reconciliation Act (COBRA) at Wilson's expense in accordance with
its terms.
5. GENERAL RELEASE.
As a material provision of this Agreement, Wilson for himself, his
heirs and assigns, hereby releases and forever discharges the Company and each
and all of the Company's owners, stockholders, predecessors, successors,
assigns, agents, directors, officers, employees, representatives and attorneys,
from any and all claims, liabilities, demands, rights and interests of
whatsoever kind and character, known or unknown, including, but not limited to,
those arising or attributable from Wilson's employment with the Company to the
date of this Agreement and the termination of that employment, including claims
for breach of contract, breach of implied covenant, breach of oral or written
promise, wrongful termination, race, aged, sex, national origin, physical
handicap, medical condition or other discrimination, including any claims under
the federal Age Discrimination in Employment Act of 1967 or the Americans With
Disabilities Act and their state law counterparts.
6. KNOWING AND VOLUNTARY WAIVER.
Wilson expressly waives and relinquishes all rights and benefits
afforded by Section 1542 of the Civil Code of the State of California (as well
as any similar statue under any applicable jurisdiction), and does so
understanding and acknowledging the significance of such specific waiver of
Section 1542. Section 1542 of the Civil Code of the State of California states
as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor."
7. TERMINATION OF THE EMPLOYMENT AGREEMENT.
This Agreement supersedes and terminates any and all rights and
claims he may or later have under the Employment Agreement which is hereby
terminated, with the exception of Paragraph 9 thereof.
Paragraph 9 reads in full as follows:
"9. INDEMNIFICATION BY EMPLOYER. Employer shall, to the maximum
extent permitted by law, indemnify and hold Executive [Wilson]
harmless against expenses, including reasonable attorney's fees
judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding arising by
reason of Executive's employment by Employer. Employer shall
advance to Executive any expense incurred in defending any such
proceeding to the maximum extent permitted by law."
45
<PAGE> 3
8. CONSULTING ASSIGNMENT
As additional consideration for Wilson's agreements made in this
Agreement, including Sections 1, 5, and 6 of this Agreement, on the Effective
Date, the Company agrees to engage Wilson as a consultant and Wilson agrees to
act as a consultant for the Company.
9. CONSULTING DUTIES.
Wilson's duties as a consultant will be to seek out, analyze and
negotiate acquisitions. Wilson will also carry out other duties as assigned to
him by the President and/or CEO of the Company. Wilson shall have no authority
to enter into any agreement on behalf of the Company.
10. TIME COMMITMENT BY WILSON
Wilson will devote the time necessary to carry out his duties as a
consultant to the Company. Subject to this commitment, Wilson may engage in
other business pursuits.
11. TERM OF CONSULTING ASSIGNMENT.
The term of Wilson's consulting assignment shall be two years from
the Effective Date, subject to earlier termination by the Company or Wilson, for
any reason whatsoever, with or without cause, on or after the first twelve-month
anniversary of the Effective Date on three month's written notice to the other
given on or after the first nine-month anniversary of the Effective Date.
12. CONSULTING FEE
For his services as a consultant, the Company shall pay Wilson a
consulting fee of $9,000 per month. The consulting fee shall be payable in
advance on the first day of the month and shall be delinquent on the 10th day of
the month. Wilson will invoice the Company for the consulting fee due him. The
consulting fee for any partial month shall be prorated.
13. FINDER'S FEE
In addition to his consulting fee, the Company shall pay Wilson a
finder's fee for business acquisitions completed by the Company during the term
of the Consulting Agreement for those businesses that Wilson identifies and
(with the agreement of the Company) negotiates with on behalf of the Company, or
business acquisitions identified by others but which the Company assigns to
Wilson to analyze and negotiate. Wilson is not entitled to a finder's fee for
the Company's acquisition of Pacifica Manor & Senior Home Care .
14. CALCULATION OF FINDER'S FEE
The finder's fee under Section 13 shall equal 2% of the first
$500,000 of consideration (cash, stock, notes, etc.) paid by the Company for the
net assets of the acquired business (assets acquired less liabilities assumed)
and 1% of any excess over $500,000. If Wilson identifies the acquired business
himself and no other broker or finder is involved on behalf of the Company, the
finder's fee under Section 13 shall equal 2% of the first $1,000,000 of
consideration (cash, stock, notes, etc.) paid by the Company for the net assets
of the acquired business (assets acquired less liabilities assumed) and 1% of
any excess over $1,000,000. No fee shall be paid with respect to the acquisition
of the Company by a third party.
46
<PAGE> 4
15. STOCK OPTION
The Incentive Stock Option Agreement dated June 1, 1995 between the
Company and Wilson shall remain in effect and may be exercised by Wilson until
the second anniversary of the Effective Date, when the stock option shall
expire. The stock option shall be exercisable whether or not this Agreement has
terminated early pursuant to Section 11.
16. DISCLOSURE OF CONFIDENTIAL INFORMATION AND TRADE SECRETS PROHIBITED.
In the course of his employment with the Company and during the
course of consulting for the Company, Wilson has had and will have access to
confidential information and trade secrets relating to the Company's business.
Confidential information includes but is not limited to inventions, processes,
designs, improvements, programs, specifications, techniques, data relating to
creation, manufacture and marketing of any service or service concept, customer
and prospective customer names and addresses, sales records, vendor names and
addresses, financial data, information concerning possible acquisitions or
business combinations, expansion plans, information provided by third parties
that the Company is required to keep confidential, and any other proprietary
information of the Company (unless such information is lawfully obtainable from
other sources). Except (a) as required in the course of his engagement by the
Company as a consultant and in furtherance of the Company's best interests, (b)
is required by applicable law, (c) authorized by the Company, Wilson will not,
without the Company's prior written consent, either during the term of this
Agreement or for five years after termination of this Agreement, directly or
indirectly disclose to any person or entity any such confidential information or
trade secrets.
17. ARBITRATION.
All claims of any type between Wilson and the Company (including any
claims against any of the Company's owners, stockholders, predecessors,
successors, assigns, agents, directors, officers, employees, representatives and
attorneys) including but not limited to any claims arising out of or in any way
related to this Agreement or any successor agreement (written, oral or implied)
and claims concerning its interpretation, validity, enforceability or breach,
shall be settled and finally determined by one arbitrator in Los Angles County,
California in accordance with the Model Employee Dispute Procedures of the
American Arbitration Association and judgment by the arbitrator may be entered
in any court having jurisdiction thereof. The agreement to arbitrate includes
any claims for breach of contract, wrongful termination, discrimination of any
type and all other claims of any type to the maximum extent permissible.
18. CALIFORNIA LAW.
This Agreement is to be interpreted pursuant to California
substantive law.
19. INVALID PROVISIONS.
Should any portion of this Agreement for any reason be declared
invalid, the validity and binding effect of any remaining portion shall not be
affected, and the remaining portion of this Agreement shall remain in full force
and effect as if this Agreement had been executed with the invalid provision
eliminated.
47
<PAGE> 5
20. ENTIRE AGREEMENT.
This Agreement contains the entire agreement between the parties with
respect to the legal relationship of the parties and supersedes all prior and
contemporaneous agreements, representations and understanding of the parties. No
modification, amendment or waiver of any of the provisions of this Agreement
shall be effective unless in writing and signed by both parties.
21. WAITING PERIOD AND RIGHT OF REVOCATION.
(a) WILSON ACKNOWLEDGES THAT HE IS HEREBY ADVISED THAT HE HAS THE RIGHT
TO CONSIDER THE AGREEMENT FOR TWENTY-ONE DAYS BEFORE SIGNING IT AND THAT IF HE
SIGNS THIS AGREEMENT PRIOR TO THE EXPIRATION OF TWENTY-ONE DAYS, HE IS WAIVING
THIS RIGHT FREELY AND VOLUNTARILY.
(b) HE ALSO ACKNOWLEDGES THAT HE IS HEREBY ADVISED OF HIS RIGHT TO
REVOKE THIS AGREEMENT FOR A PERIOD OF SEVEN DAYS FOLLOWING THE EXECUTION OF THIS
AGREEMENT AND THAT IT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE
REVOCATION PERIOD HAS EXPIRED. THE "EFFECTIVE DATE" IS THE DATE THE REVOCATION
PERIOD EXPIRES. TO REVOKE THIS AGREEMENT, HE MUST NOTIFY THE COMPANY WITHIN
SEVEN DAYS OF EXECUTING IT.
(c) IF WILSON REVOKES THIS AGREEMENT, HE WILL RETURN THE INITIAL BONUS
PAYMENT PROVIDED FOR IN SECTION 3.
22. ATTORNEY ADVICE.
WILSON ACKNOWLEDGES THAT HE IS AWARE OF HIS RIGHT TO CONSULT AN
ATTORNEY, THAT HE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO
EXECUTING THIS AGREEMENT, AND THAT HE HAS HAD THE OPPORTUNITY TO CONSULT WITH AN
ATTORNEY.
23. UNDERSTANDING OF AGREEMENT
Wilson states that he has carefully read this Agreement, that he
fully understands its final and binding effect, that the only promises made to
him to sign this Agreement are those stated above, and he is signing this
Agreement voluntarily.
48
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates set forth below as of the date first above written.
CHILDREN'S WONDERLAND, INC
a California Corporation
By:
-------------------------------- -----------------------------
An Authorized Officer Robert M. Wilson
Date of Execution: __________, 1997 Date of Execution: _________, 1997
49
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's balance sheets and statements of operations as of and for the quarter
ended December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 498,011
<SECURITIES> 548,000
<RECEIVABLES> 131,452
<ALLOWANCES> 55,420
<INVENTORY> 0
<CURRENT-ASSETS> 1,507,773
<PP&E> 2,069,464
<DEPRECIATION> (329,277)
<TOTAL-ASSETS> 6,630,399
<CURRENT-LIABILITIES> 3,899,454
<BONDS> 0
0
0
<COMMON> 9,661,852
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,630,399
<SALES> 1,266,385
<TOTAL-REVENUES> 1,266,385
<CGS> 0
<TOTAL-COSTS> 2,463,681
<OTHER-EXPENSES> 26,032
<LOSS-PROVISION> 12,744
<INTEREST-EXPENSE> 99,360
<INCOME-PRETAX> (1,323,488)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,323,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,323,488)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> 0
</TABLE>
