The owners of Children's Wonderland might find "Nightmareland" a more apt name for their Agoura Hills firm these days.
The once highly touted operator of day-care centers that cater to both children and the elderly has seen its stock price plummet nearly 100% since it went public almost exactly a year ago.
Last month, Children's was thrown off Nasdaq for being undercapitalized, and the company's president abruptly resigned after four months on the job, without giving a reason.
If that wasn't enough, in early May one of the company's underwriters, bogged down by its own financial woes, stopped dealing in the company's stock. Shares of Children's Wonderland fell as low as 2 cents--from an initial offering price of $4--though they have recovered somewhat and closed Wednesday at $1.16 in over-the-counter trading.
"I feel Children's Wonderland has become the victim of something ugly outside," said Debby Bitticks, the company's 52-year-old founder and CEO. "We are doing a full investigation. We are the same business we were before, and nothing we did had anything to do with that drop in stock price."
Others say it's hardly surprising that the firm, badly bleeding red ink and lacking capital, would see its shares plunge--especially in the depressed small-stock market of March and April.
Bitticks stresses that despite the stock problems, it's business as usual among the company's 300 employees and its 14 centers, including those in Lake Forest, Oxnard and Woodland Hills.
On Wednesday, her company filed suit in U.S. District Court against the two investment banking firms and some of the principals there that helped Children's Wonderland sell stock on Wall Street. The suit, claiming more than $10 million in damages, alleges fraud and breach of fiduciary duty.
Whether those allegations are true remains to be seen. From one view, Children's Wonderland can be seen as a classic example of a fast-growing, but unprofitable, company whose stock is highly speculative and volatile and thus suitable only for investors willing to take huge risks.
But Bitticks believes the firm's woes stem from poor decisions related to how it made its initial public offering of stock.
"If I had to do it all again, I would've gone public, but never with the same underwriters," she said. "Every company thinking of selling stock should check out their underwriters. Or, heaven forbid, they'll be where we are now."
In its suit, Children's contends that its lead underwriter threatened to withdraw support for the stock and undermine the offering if the company "elected to do business with any other . . . investment bankers." Children's also contends that the underwriter made "fraudulent promises" about its "ability and inclination to raise capital" for the firm.
The lead underwriter, Royce Investment Group in Long Island, and its co-manager, First Cambridge Securities of New York, would not comment. But they have blamed the stock's problems on "short sellers," traders who profit when a company's share price falls, the suit alleges.
Like many companies, Children's took advantage of a record year for IPOs last year when it decided to go public. And like some other Southern California companies, such as Irvine-based fashion designer Mossimo Inc. and Mission Viejo-based Chicago Pizza & Brewery, its stock is now trading far below its initial offering price.
Started in 1993 by Bitticks and her husband, Kenneth, a former CPA, Children's Wonderland developed a program to deal with a problem facing many working baby boomers: how to manage day care for elderly parents and young children.
Because of a natural affinity between the very young and very old, the couple attempted to put the two groups together as part of "intergenerational" day-care programs, similar to ones already successful in Europe. The bulk of Children's centers are in California and Colorado, with several on the East Coast.
At the company's Oxnard center, the elderly pay an average of $200 a week, which includes nine hours of crafts and games and a hot lunch. The fee for children is about $125 a week.
The biggest obstacle for a company developing a string of intergenerational centers is finding enough initial capital, specialists said. In fact, when Children's went public it already had an accumulated loss of $5.4 million due to expansion and start-up costs, company documents show.
"There are considerable upfront expenses with these types of centers," said Judith Leavitt, executive director of Generations United, a Washington nonprofit that specializes in intergenerational issues.
"You need a lot of facilities that will meet codes for both elderly and children, and you need a lot of staff. It's a wonderful idea, but so far not a big moneymaker for anyone yet," she said.
