U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______ .
Commission File No. 0-27780
NEW HORIZON KIDS QUEST, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1719363
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16355 36th Avenue North, Suite 700, Plymouth, MN 55446
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (763) 557-1111
--------------
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES (X) NO ( )
As of August 14, 2000, the Registrant had outstanding 3,293,300 shares of its
Common Stock, $.01 par value.
<PAGE>
NEW HORIZON KIDS QUEST, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
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<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION 3
ITEM 1. Condensed Consolidated Financial Statements
a) Condensed Consolidated Balance Sheets --
June 30, 2000 and December 31, 1999 3
b) Condensed Consolidated Statements of
Operations -- Three and six months ended June 30,
2000 and 1999 5
c) Condensed Consolidated Statements of
Cash Flows -- Six months ended
June 30, 2000 and 1999 6
d) Notes to Condensed Consolidated Financial
Statements 7
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
PART II. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
ITEM 7 FINANCIAL DATA SCHEDULE 13
Signatures 14
</TABLE>
2
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ..................... $ 81,434 $ 155,987
Accounts receivable ........................... 939,997 864,146
Current portion of notes receivable ........... 160,369 156,747
Prepaid expenses and other current assets ..... 230,006 98,016
------------ ------------
Total current assets ........................ 1,411,806 1,274,896
------------ ------------
PROPERTY AND EQUIPMENT:
Furniture, fixtures, equipment and leaseholds . 10,163,057 10,023,548
Less--Accumulated depreciation and amortization (5,617,132) (4,662,433)
------------ ------------
Total property and equipment ................ 4,545,925 5,361,115
OTHER ASSETS:
Goodwill (net of accumulated amortization
of $189,961 and $167,885, respectively) .... 472,324 494,400
Notes receivable, net of current portion ...... 886,893 951,460
Other ......................................... 129,262 167,731
------------ ------------
$ 7,446,210 $ 8,249,602
============ ============
</TABLE>
See accompanying notes which are an integral part of these balance sheets.
3
<PAGE>
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt ................ $ 878,301 $ 1,425,490
Accounts payable .................................... 585,139 834,460
Accrued expenses .................................... 967,370 709,054
----------- -----------
Total current liabilities ......................... 2,430,810 2,969,004
LONG-TERM DEBT, less current maturities ................ 1,007,377 1,381,963
----------- -----------
Total liabilities ................................. 3,438,187 4,350,967
----------- -----------
SHAREHOLDERS' EQUITY:
Undesignated preferred stock, 3,500,000 shares
authorized; no shares issued and outstanding ...... -- --
Series A convertible preferred stock, $.01 par value,
1,500,000 shares authorized; no shares issued and
outstanding ....................................... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,293,300 shares issued and outstanding 32,933 32,933
Additional paid-in capital .......................... 7,196,197 7,196,197
Accumulated deficit ................................. (3,221,107) (3,330,495)
----------- -----------
Total shareholders' equity ........................ 4,008,023 3,898,635
----------- -----------
$ 7,446,210 $ 8,249,602
=========== ===========
</TABLE>
See accompanying notes which are an integral part of these balance sheets.
4
<PAGE>
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE .............................. $ 4,381,515 $ 4,386,647 $ 8,584,328 $ 8,395,719
COSTS AND EXPENSES:
Direct Expenses ................... 3,418,945 3,555,971 6,671,273 6,791,881
Depreciation and Amortization ..... 464,166 466,750 967,678 925,319
Pre-Opening Expenses .............. 8,822 8,869 15,153 49,453
----------- ----------- ----------- -----------
Total Costs and Expenses ........ 3,891,933 4,031,590 7,654,104 7,766,653
----------- ----------- ----------- -----------
CENTER OPERATING INCOME .............. 489,582 355,057 930,224 629,066
Selling, General and Administrative 328,879 369,691 670,980 728,293
Depreciation and Amortization ..... 18,116 28,896 41,077 57,472
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) .............. 142,587 (43,530) 218,167 (156,699)
Interest Expense .................. (52,244) (95,585) (121,719) (192,443)
Interest Income ................... 26,124 28,369 52,631 58,559
Minority Interest ................. (8,162) 11,014 (21,541) 14,847
----------- ----------- ----------- -----------
NET INCOME/(LOSS) BEFORE INCOME TAXES 108,305 (99,732) 127,538 (275,736)
PROVISION FOR INCOME TAXES
12,750 0 18,150 0
----------- ----------- ----------- -----------
NET INCOME/(LOSS) .................... $ 95,555 $ (99,732) $ 109,388 $ (275,736)
=========== =========== =========== ===========
NET INCOME/(LOSS) PER SHARE:
Basic and Diluted ................. $ .03 $ (.03) $ .03 $ (.08)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic ............................. 3,293,300 3,293,300 3,293,300 3,293,300
=========== =========== =========== ===========
Diluted .......................... 3,335,000 3,293,300 3,371,000 3,293,300
=========== =========== =========== ===========
</TABLE>
See accompanying notes which are an integral part of these statements.
5
<PAGE>
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ............................................. $ 109,388 $ (275,736)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities--
Depreciation and amortization ............................. 1,008,755 982,791
Change in operating assets and liabilities:
Accounts receivable ..................................... (75,851) 324,730
Prepaid expenses and other .............................. (131,990) 72,007
Accounts payable ........................................ (249,321) (233,513)
Other assets ............................................ 37,694 (3,742)
Accrued expenses ........................................ 258,316 311,548
----------- -----------
Net cash provided by operating activities ............. 956,991 1,178,085
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment, net ...................... (170,714) (941,889)
Payments received on notes receivable ......................... 60,945 56,836
----------- -----------
Net cash used in investing activities ....................... (109,769) (885,053)
----------- -----------
FINANCING ACTIVITIES:
Payments on line of credit, net ............................... (250,000) (154,283)
Payments on long-term obligations ............................. (671,775) (563,448)
Additional borrowings of long-term debt ....................... -- 631,094
----------- -----------
Net cash used in financing activities ....................... (921,775) (86,637)
----------- -----------
Net increase (decrease) in cash and cash equivalents ........ (74,553) 206,395
CASH AND CASH EQUIVALENTS,
beginning of period ........................................... 155,987 208,717
----------- -----------
CASH AND CASH EQUIVALENTS,
end of period ................................................. $ 81,434 $ 415,112
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for--
Interest .................................................... $ 92,849 $ 199,448
=========== ===========
Taxes ....................................................... $ 6,148 $ 46,830
=========== ===========
</TABLE>
See accompanying notes which are an integral part of these statements.
6
<PAGE>
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by New Horizon Kids Quest, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
The Company's business is seasonal and, accordingly, interim results are not
indicative of results for a full year. In the opinion of the Company, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of June 30, 2000, and
the results of its operations for the three months and six months ended June 30,
2000 and 1999, have been reflected in the accompanying financial statements.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures provided herein are adequate to make
the information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements for the years ended December 31, 1999 and 1998, and the footnotes
thereto, included in the Company's Form 10-KSB, filed with the Securities and
Exchange Commission.
1. Basis of Presentation:
Principles of Consolidation -- The consolidated financial statements
include the accounts of New Horizon Kids Quest, Inc. and its wholly owned
subsidiaries (together, the "Company"). All intercompany balances and
transactions have been eliminated in consolidation.
2. Earnings Per Share:
Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share is computed similarly to the computation of basic
earnings per share except that the denominator is increased by the assumed
exercise of dilutive options and warrants using the treasury stock method.
Options and warrants totaling 566,100 were excluded from the computation of
diluted earnings per share in 1999 because their effect is antidilutive. A
reconciliation of these amounts is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding:
Basic ...................................... 3,293,300 3,293,300 3,293,300 3,293,300
Dilutive effect of option plan ............. 41,700 -- 77,700 --
--------- --------- --------- ---------
Diluted .................................... 3,335,000 3,293,300 3,371,000 3,293,300
========= ========= ========= =========
</TABLE>
3. Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those estimates.
4. Stock Option Plan:
The Company granted 436,500 options in January of 2000 under a stock option
plan previously approved by the board of directors.
7
<PAGE>
5. Segment Disclosures:
The Company has two segments reportable under the guidelines of SFAS No.
131: Idaho Traditional Care and New Horizon Kids Quest, Inc.
<TABLE>
<CAPTION>
NEW HORIZON IDAHO
KIDS QUEST, TRADITIONAL
FOR THE THREE MONTH PERIOD ENDED JUNE 30, INC. CARE CONSOLIDATED
----------- ----------- -----------
<S> <C> <C> <C>
2000
----
Revenue ................................ $ 3,363,107 $ 1,018,408 $ 4,381,515
Depreciation and amortization .......... 438,081 44,201 482,282
Interest income ........................ 26,124 -- 26,124
Income (loss) from continuing operations 125,110 (29,555) 95,555
Capital expenditures ................... 167,952 (2,028) 165,924
1999
----
Revenue ................................ $ 3,345,643 $ 1,041,004 $ 4,386,647
Depreciation and amortization .......... 433,782 61,864 495,646
Interest income ........................ 28,369 -- 28,369
Income (loss) from continuing operations 44,231 (143,963) (99,732)
Capital expenditures ................... 287,628 15,326 302,954
NEW HORIZON IDAHO
KIDS QUEST, TRADITIONAL
FOR THE SIX MONTH PERIOD ENDED JUNE 30, INC. CARE CONSOLIDATED
----------- ----------- -----------
2000
----
Revenue ................................ $ 6,525,317 $ 2,059,011 $ 8,584,328
Depreciation and amortization .......... 917,066 91,689 1,008,755
Interest income ........................ 52,631 -- 52,631
Income (loss) from continuing operations 130,643 (21,255) 109,388
Capital expenditures ................... 162,787 7,927 170,714
1999
----
Revenue ................................ $ 6,375,972 $ 2,019,747 $ 8,395,719
Depreciation and amortization .......... 863,736 119,055 982,791
Interest income ........................ 58,559 -- 58,559
Loss from continuing operations ........ (23,204) (252,532) (275,736)
Capital expenditures ................... 805,600 136,289 941,889
</TABLE>
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company currently provides hourly child care at twenty locations in ten
states, including three with supervised video entertainment centers. The Company
also provides traditional child care at ten New Horizon Child Care Centers in
Idaho, one location in Joliet, Illinois, at its Mall of America location in
Bloomington, Minnesota, and at The Venetian Resort~Hotel~Casino in Las Vegas,
Nevada
Two of the Company's Kids Quest centers operate in enclosed shopping malls,
including a center in Knott's Camp Snoopy at Mall of America in Bloomington,
Minnesota. The Mall of America center was licensed in June 1999, to provide
traditional care in addition to hourly care. Eighteen of the Company's Kids
Quest centers are operated in conjunction with casinos, including two Kids Quest
centers in Minnesota casinos owned and managed by the Mille Lacs Band, one Kids
Quest center in a Louisiana casino owned and managed by the Tunica-Biloxi Tribe
of Louisiana, one Kids Quest center in a Louisiana casino managed by Lakes
Gaming, Inc., three Kids Quest centers in Mississippi casinos owned and managed
by Park Place Entertainment Corporation, and four centers in casinos owned or
managed by Station Casinos, Inc. in Nevada and Missouri. Station Casinos, Inc.
has also agreed to include Kids Quest centers in three additional Station
Casinos, Inc. properties. The Company's newest hourly care centers opened
December 22, 1999, at the Cliff Castle Casino in Camp Verde, Arizona, and July
4, 2000, at the Ho-Chunk Resort and Casino in the Wisconsin Dells. The Ho-Chunk
center also includes a supervised, non-violent video entertainment center. In
addition, the Company opened an hourly care facility at the Avi Hotel and Casino
in Laughlin, Nevada, on July 16, 1999. The Company closed its traditional care
and arcade facilities at Treasure Island Hotel and Casino in Red Wing,
Minnesota, on April 2, 1999, and its hourly care and arcade facilities at
Bullwhackers in Blackhawk, Colorado, on October 31, 1999. The closures were
primarily the result of poor financial performance. The Company will continue to
operate an hourly child care facility at Treasure Island. The Company currently
has a contract to open an additional Kids Quest center in August of 2000 at the
Jackpot Junction Hotel and Casino in Morton, Minnesota.
During 1995 and 1996, the Company acquired an aggregate of twelve existing
child care centers in Boise, Idaho, which the Company now operates as New
Horizon Child Care centers. The Company has subsequently opened two additional
facilities in August of 1996 and January of 1999. In July and August of 1999,
the Company closed two of its centers in Boise, Idaho, and a third center was
closed in January 2000. The centers did not meet the Company's quality standards
and were located in areas where an over supply of child care facilities existed.
In August of 1999, one of the Company's centers was partially destroyed by fire.
The fire occurred after hours, and the Company's loss from destroyed property is
fully covered by insurance. The Company will not resume providing child care at
this location. The Company now operates a total of ten traditional child care
centers in the Boise market.
The Company operates an employee child care center in Joliet, Illinois, for
the employees of Empress Casino and Mobil Oil Corporation, and on April 19,
2000, the Company opened a New Horizon Child Care center providing employee
child care at The Venetian Resort~Hotel~Casino in Las Vegas, Nevada. The
Venetian, a $1.2 billion property, is the first casino to provide on-site child
care for its employees on the Las Vegas strip.
Since its inception as an hourly children's entertainment and recreational
facility, Kids Quest has expanded its product line to include supervised video
arcades, traditional child care, and employee child care. The Company plans to
continue to seek opportunities for additional venues for all of its product
lines.
The Company's business is seasonal with revenues and operating income for
Kids Quest being the highest and New Horizon Child Care being the lowest in the
summer months. Consequently, results of operations for any interim period may
not be indicative of results to be achieved for a full fiscal year.
9
<PAGE>
Results of Operations
Revenue for the three months ended June 30, 2000, decreased $5,132, or less
than 1%, to $4,381,515 from $4,386,647 for the same period in 1999. The Company
opened two new Kids Quest hourly care centers, one employee child care center
and one New Horizon child care center since the second quarter of 1999, which
accounted for $257,451 of additional revenue. Revenue for the Kids Quest centers
open during both periods decreased $144,662 to $3,104,177 for the three months
ended June 30, 2000, from $3,248,839 for the same period in 1999. The Company
attributes this decrease to the fact that the Company's hourly child care center
and video entertainment center at Mohegan Sun were relocated to a significantly
smaller space in November 1999. The move was necessary to allow for construction
of Mohegan's $800 million hotel addition and casino expansion, which is
scheduled to open in August 2001 and will include a new 15,075 square foot Kids
Quest and non-violent video entertainment center. All relocation costs were paid
by Mohegan Sun. Mohegan Sun is also obligated to reimburse New Horizon Kids
Quest for all lost profits during the relocation period. The calculation of lost
profits is based on prior year revenues adjusted for CPI increases. Revenues for
the Idaho New Horizon Child Care centers open during both periods increased
$159,401, or 19%, to $1,018,447 for the three months ended June 30, 2000, from
$859,046 for the same period in 1999. The Kids Quest and Idaho centers that were
closed since the second quarter of 1999 accounted for revenue declines of
$277,322 for the three-month period ended June 30, 2000, as compared to the same
period in 1999.
Revenue for the six months ended June 30, 2000 increased $188,609 or 2% to
$8,584,328 from $8,395,719 for the same period in 1999. Since the beginning of
1999, the company opened three new Kids Quest Hourly Care centers, one employee
child care center and one New Horizon Child Care center, which accounted for
$517,136 of additional revenue. Revenue for the Kids Quest Centers open during
both periods decreased $171,313, or 3%, to $5,672,474 for the six-month period
ended June 30, 2000, from $5,843,787 for the same period in 1999. The company
attributes this decrease to the Mohegan Sun temporary relocation. Revenues for
the Idaho New Horizon Child Care centers open during both periods increased
$404,832, or 25%, to $2,053,567 for the six-month period ended June 30, 2000,
from $1,648,735 for the same period in 1999. The Kids Quest and Idaho centers
that were closed since the beginning of 1999 accounted for revenue declines of
$562,046 for the six-month period ended June 30, 2000, as compared to the same
period in 1999.
Costs and expenses for the three months ended June 30, 2000, decreased
$139,657, or 4%, to $3,891,933 from $4,031,590 for the same period in 1999.
Centers opened since the second quarter of 1999 accounted for an increase of
$168,855. Costs and expenses for existing Kids Quest locations decreased
$119,408, or 4%, to $2,730,356 from $2,849,764 for the same period in 1999.
Costs and expenses for the Idaho New Horizon Child Care centers open during both
periods increased $129,515, or 16%, to $962,245 for the three months ended June
30, 2000, compared to $832,730 for the same period in 1999. The cost increases
were due primarily to increased operating costs as a result of enrollment
transfers from the four closed centers. These increases were offset by a
decrease of $318,619 for the three-month period ended June 30, 2000, as compared
to the same period in 1999 for the Kids Quest and Idaho centers that were closed
since the first quarter of 1999.
Costs and expenses for the six months ended June 30, 2000, decreased
$112,549, or 1% to $7,654,104 from $7,766,653 for the same period in 1999. Costs
and expenses for centers opened since the beginning of 1999 accounted for an
increase of $363,067 for the six-month period ended June 30, 2000 as compared to
the same period in 1999. Costs and expenses for existing Kids Quest locations
decreased $121, 994, or 2%, to $5,052,054 from $5,174,048 for the same period in
1999. This decrease was due primarily to the temporary Mohegan Sun relocation.
Costs and expenses for the Idaho New Horizon Child Care centers open during both
periods increased $315,184, or 20%, to $1,913,109 from $1,597,925 for the same
period in 1999. This increase was due primarily to higher operating costs at
several centers as a result of enrollment transfers from the four closed
centers. Costs and expenses for the Kids Quest and Idaho centers that were
closed since the beginning of 1999 decreased $668,806 for the six-month period
ended June 30, 2000, as compared to the same period in 1999.
Selling, general, and administrative expenses decreased $40,812, or 11%, to
$328,879 for the three-month period ended June 30, 2000, from $369,691 for the
same period in 1999. Selling, general, and administrative expenses decreased
$57,313, or 8%, to $670,980 for the six-month period ended June 30, 2000, from
$728,293 for the same period in 1999. Management expects selling, general, and
administrative expenses to increase with the addition of and negotiation for new
locations; however, such expenses should decrease as a percentage of revenue
with the continued expansion of the Company's business.
10
<PAGE>
Pursuant to the terms of the Company's contracts with casino operators,
casino operators are entitled to establish a discounted rate below the fair
market value for Kids Quest's services to be charged by Kids Quest to the public
in order to attract customers to Kids Quest and ultimately to their casinos. The
casino operator must reimburse the Company for the difference between such
amount charged and the fair market value. The Company received $273,769 of
reimbursements for rate discounts for the three-month period ended June 30,
2000, versus $286,093 for the same period in 1999, a decrease of $12,324, or 4%.
For the six-month period ended June 30, 2000, the company received $554,013
versus $553,908 for the same period in 1999, an increase of $105 or less than
1%. The majority of these rate discount reimbursements were from three casinos
owned by Park Place Entertainment Corporation and four Indian casinos currently
or previously managed by Lakes Gaming, Inc. (formerly Grand Casinos, Inc.) There
can be no assurance that such discounts and reimbursements will not be modified
or be discontinued altogether or that future Kids Quest agreements will provide
for a discounted rate to the public. In the event that casino operators choose
not to provide for a discounted hourly rate, the Company may charge higher
hourly rates. While this may cause patronage to decline and ultimately result in
lower revenues, the Company currently has ten locations that operated without
any rate discount and has found no evidence to conclude that higher
non-discounted rates to customers have a significant impact on a location's
patronage and resulting revenue.
Interest expense for the three-month period ended June 30, 2000, decreased
$43,341, or 45%, to $52,244 from $95,585 for the same period in 1999. Interest
expense for the six months ended June 30, 2000, decreased $70,724, or 37% to
$121,719 from $192,433 for the same period in 1999. The decrease in interest
expense is due primarily to the expiration of three equipment leases.
Net income for the three-month period ended June 30, 2000, was $95,555
compared to a net loss of $99,732 for the same period in 1999. Centers opened
since the second quarter of 1999 accounted for an increase in center operating
income of $88,596. Center operating income for the Kids Quest centers open
during both periods decreased $25,254 as compared to the same period in 1999.
Kids Quest centers closed since the second quarter of 1999 resulted in an
improvement in center operating income of $4,339 for the period as compared to
the same period in 1999. Center operating income for the Idaho New Horizon Child
Care centers increased $66,844 to $50,909 for the three months ended June 30,
2000 compared to a loss of $15,935 for the prior year period. The improvement in
Idaho is primarily due to the closing of four centers and the transfer of a
majority of their enrollment to other Company centers.
Net income for the six-month period ended June 30, 2000, was $109,388
compared to a net loss of $275,736 for the same period in 1999. Centers opened
since the beginning of 1999 accounted for increase in center operating income of
$154,069. Center operating income for the Kids Quest centers open during both
periods decreased $49,319 as compared to the same period in 1999. Kids Quest
centers closed since the first quarter of 1999 resulted in an improvement in
center operating income of $28,397 for the period as compared to the same period
in 1999. Center operating income for the Idaho New Horizon Child Care centers
increased $168,011 to $136,729 for the six months ended June 30, 2000 compared
to a loss of $31,282 for the prior year period. The improvement in Idaho is
primarily due to the closing of four centers and the transfer of a majority of
their enrollment to other Company centers.
Liquidity and Capital Resources
During the six-month period ended June 30, 2000, the Company generated
$956,991 from operations, invested $170,714 in property and equipment, and
received payments on notes receivable of $60,945. Additionally, the Company made
payments on its line of credit of $250,000 and payments on long-term obligations
of $671,775. The Company ended the period with a cash balance of $81,434. During
the same period in 1999, the Company generated $1,178,085 from operations,
invested $941,889 in property and equipment, and received payments on notes
receivable of $56,836. Additionally, the company made payments on its line of
credit of $154,283 and payments on long-term obligations of $563,448. The
Company ended the period with a cash balance of $415,112.
11
<PAGE>
The Company's capital needs depend upon the Company's expansion efforts.
The Company incurs pre-opening expenses in connection with each of its Kids
Quest centers as well as acquisition or development expenses to add traditional
child care centers. The Company is actively seeking additional Kids Quest
contracts and has engaged in site analysis for the construction of additional
New Horizon Child Care centers. The Company will require additional financing in
2000 as it adds Kids Quest or New Horizon Child Care locations or if the Company
were to pursue additional acquisitions during the year. In addition, the Company
is currently obligated to loan Station Casinos, Inc. up to $500,000 for
leasehold improvements in connection with the Kids Quest location at Texas
Station in Las Vegas, Nevada, which opened in February of 1999. The Company is
currently seeking financing. The Company believes that it will be able to
arrange such additional financing and will be able to fund additional expansion
with the additional financing and with cash flow from operations. However, if
financing is not obtained, the Company may be required to reduce expenditures
for 2000.
Private Securities Litigation Reform Act
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-QSB (as well as information included in oral statements or other written
statements made or to be made by the Company) may contain statements that are
forward-looking, such as statements relating to plans for future expansion and
other business development activities, as well as other capital spending,
financial sources, and the effects of regulation and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect future results and, accordingly, such results may
differ from those expressed in any forward-looking statement made by or on
behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities, access to
sources for additional capital, dependence on existing management and third
party contracts, domestic or global economic conditions, changes in federal or
state laws or the administration or enforcement of such laws, litigation or
claims, year 2000 compliance, as well as all other risks and uncertainties
described in the Company's filings.
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PART II. - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits List
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a form 8-K on July 24, 2000.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEW HORIZON KIDS QUEST, INC.
By: /s/ William M. Dunkley
----------------------------
William M. Dunkley
Chief Executive Officer
By: /s/ Patrick R. Cruzen
---------------------------
Patrick R. Cruzen
Chief Financial Officer
Date: August 14, 2000
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