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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended October 31, 1995
Commission File Number 0-16425
SUNRISE PRESCHOOLS, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 86-0532619
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9128 EAST SAN SALVADOR ROAD, SUITE 200, SCOTTSDALE, ARIZONA 85258
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(Address of principal executive offices)
(602) 860-1611
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all annual,
quarterly and other reports required to be filed by section 13 or 15(D) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the company's common stock outstanding as of November
30, 1995 was 2,982,968 shares.
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SUNRISE PRESCHOOLS, INC.
TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets
October 31, 1995 and July 31, 1995 3
Consolidated Statements of Income
For the Three Months Ended October 31,
1995 and 1994 4
Consolidated Statements of Cash Flows
For the Three Months Ended October 31,
1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
SUNRISE PRESCHOOLS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, 1995 JULY 31, 1995
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(Unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ 577,215 $ 581,311
Accounts Receivable, net of allowance for doubtful accounts of
$17,000 at October 31, 1995 and $20,000 at July 31, 1995 378,963 379,253
Prepaid Expenses 115,381 96,242
Deferred Tax Asset, current portion 109,000 109,000
Inventory and Other Current Assets 148,492 16,376
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Total Current Assets 1,329,051 1,182,182
Property and Equipment, net 824,600 642,143
Property and Equipment Held for Lease, net 531,147 514,126
Deferred Tax Asset, net of current portion 586,000 586,000
Note Receivable from Preschool Services, Inc. 256,251 256,251
Deposits and Other Assets 91,259 153,044
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Total Assets $ 3,618,308 $ 3,333,746
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of Credit $ 80,000 $ -
Accounts Payable 195,166 125,628
Accrued Expenses 355,221 302,259
Dividends Payable on Preferred Stock 278,333 265,833
Notes Payable and Capital Leases, current portion 153,988 136,618
Deferred Rent, current portion 106,381 96,241
Deferred Gain on Sale and Leaseback of Preschool Facilities,
current portion 45,003 45,003
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Total Current Liabilities 1,214,092 971,582
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Notes Payable and Capital Leases, net of current portion 451,394 429,402
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Deferred Rent, net of current portion 388,897 416,787
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Deferred Gain on Sale and Leaseback of Preschool Facilities, net
of current portion 121,401 132,651
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Shareholders' Equity
Preferred Stock, $1 par value - 1,000,000 shares authorized,
500,000 shares issued and outstanding 500,000 500,000
Common Stock, $.01 par value - 10,000,000 shares authorized,
2,935,894 shares issued and outstanding 29,359 29,359
Paid-in Capital 3,602,406 3,602,406
Accumulated Deficit (2,689,241) (2,748,441)
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Total Shareholders' Equity 1,442,524 1,383,324
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Total Liabilities and Shareholders' Equity $ 3,618,308 $ 3,333,746
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</TABLE>
The accompanying footnotes are an integral part of these consolidated financial
statements.
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SUNRISE PRESCHOOLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
FOR THE THREE MONTHS
ENDED OCTOBER 31,
------------------------
1995 1994
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<S> <C> <C>
Operating Revenue $2,435,546 $2,536,615
Operating Expenses
Payroll 1,137,410 1,242,316
Facilities and Maintenance 907,537 751,872
General and Administrative 311,451 292,411
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Total Operating Expenses 2,356,398 2,286,599
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Income from Operations 79,148 250,016
Other Income (Expense)
Interest Expense, net (10,548) (11,076)
Other Income 3,100 8,281
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Total Other Income (Expense) (7,448) (2,795)
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Net Income Before Income Taxes 71,700 247,221
Income Tax Expense - 1,500
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Net Income $ 71,700 $ 245,721
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Net Income Available for Common Stock $ 59,200 $ 233,221
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Net Income per Common Share and Common
Share Equivalent (Note 2)
Primary $ 0.02 $ 0.10
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Fully Diluted $ 0.02 $ 0.08
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Weighted Average Number of Common Shares
and Common Share Equivalents Outstanding
Primary 3,337,796 2,454,715
=============================================================================
Fully Diluted 3,837,796 2,954,715
=============================================================================
</TABLE>
The accompanying footnotes are an integral part of these consolidated financial
statements.
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SUNRISE PRESCHOOLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED OCTOBER 31,
----------------------
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 71,700 $ 245,721
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation and Amortization 78,725 73,859
Amortized Gain on Sale of Real Estate (11,250) (11,250)
Deferred Rent (17,750) (18,356)
Provision for Doubtful Accounts 18,579 13,215
Gain on Disposal of Property and Equipment (3,100) (8,281)
Changes in Assets and Liabilities:
Increase in Accounts Receivable (18,289) (76,358)
Increase in Prepaid Expenses (19,139) (34,427)
(Increase) Decrease in Inventory and Other Current Assets (132,116) 11,004
Decrease in Deposits and Other Assets 61,785 4,138
Increase (Decrease) in Accounts Payable 69,538 (4,679)
Increase in Accrued Expenses 52,962 109,436
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Total Adjustments 79,945 58,301
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Net Cash Provided by Operating Activities 151,645 304,022
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment (283,103) (189,888)
Proceeds from Disposal of Property and Equipment 8,000 20,527
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Net Cash Used in Investing Activities (275,103) (169,361)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Notes Payable 74,903 167,052
Draws on Lines of Credit 80,000 -
Increase in Note Receivable from Preschool Services, Inc. - (85,291)
Payments on Notes Payable and Capital Leases (35,541) (49,952)
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Net Cash Provided by Financing activities 119,362 31,809
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NET INCREASE (DECREASE) IN CASH (4,096) 166,470
CASH, BEGINNING OF PERIOD 581,311 101,781
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CASH, END OF PERIOD $ 577,215 $ 268,251
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for Interest $ 10,548 $ 11,076
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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SUNRISE PRESCHOOLS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
The fiscal year of Sunrise Preschools, Inc. (the "Company") consists of eight
four-week periods and four five-week periods. Each quarter of the Company's
fiscal year consists of two four-week periods and one five-week period. The
Company's fiscal year ends on the Saturday nearest July 31 of each year, and the
first quarter ends on the Saturday nearest October 31. However, for clarity of
presentation, all information has been presented as if the first quarter ended
on October 31 and the fiscal year ended on July 31.
The consolidated financial statements included herein have been prepared by the
Company without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of Management, the accompanying interim
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the Company's financial
position and its results of operations and cash flows for the three-month
periods ended October 31, 1995 and 1994.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Certain reclassifications have been made to
amounts previously reported for fiscal 1995 to conform with the fiscal 1996
presentation. It is suggested that these interim financial statements be read in
conjunction with the Company's 1995 Annual Report on Form 10-KSB. The results of
operations for the interim periods are not necessarily indicative of the results
to be expected for the complete fiscal year.
The consolidated financial statements include the accounts of Sunrise
Preschools, Inc. and Sunrise Preschools Hawaii, Inc.
2. NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Primary net income per share is computed by dividing net income available for
common stock (net income less dividends accrued during the period on Series B
Preferred Stock) by the weighted average number of common shares and common
share equivalents outstanding during the period. Shares issuable upon the
exercise of warrants and employee stock options that are considered antidilutive
are not included in the weighted average number of common shares and common
share equivalents outstanding. Fully dilluted net income per share, assumes the
conversion of the Series B Preferred Stock into 500,000 shares of common stock.
3. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
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3. INCOME TAXES (CONTINUED)
As of July 31, 1995, net operating loss carryforwards totaled approximately
$2,000,000, and expire through the year 2006. Accordingly, income taxes on
income generated during the three-month periods ended October 31, 1995 and
1994 have been offset by the available net operating loss carryforwards.
The amount recorded as income tax expense for the three month period ended
October 31, 1994 represents the Company's alternative minimum income tax
liability for that period.
4. PUBLIC OFFERING OF CONVERTIBLE PREFERRED SOCK
The Company entered into a letter of intent for a $5 million, firm
commitment public offering of a new series of convertible preferred stock
in October 1995. The offering is presently scheduled to be completed in
December 1995. The primary purpose of the offering is to provide funds for
the expansion of the Company's operations, both through the opening of
additional Company facilities and the possible acquisition of other child
care centers.
5. ACQUISITIONS
In September 1995, the Company entered into an agreement to purchase the
operations of two child care centers in Colorado. The purchase of these
centers was effective November 1, 1995.
The acquisition discussed will be accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended October 31, 1995 (First Quarter of Fiscal 1996) Compared to
Three Months Ended October 31, 1994 (First Quarter of Fiscal 1995)
Operating revenue for the first quarter of fiscal 1996 was $2,435,546, a
decrease of $101,069, or 4.0% from revenue of $2,536,615 for the first quarter
of fiscal 1995. Of this decrease, $66,449 was due to the transfer of one of the
Company's child care centers to PSI as of August 1, 1995. The Company continues
to manage this child care center under a management agreement with PSI, for
which the Company receives a management fee; however, the consolidated financial
statements for the quarter ended October 31, 1995 no longer include the revenues
or expenses of this center. As a result of this transfer, operating expenses
decreased by $61,949 as discussed more fully below. The impact of this transfer
on net income for the quarter and ended October 31, 1995 was a reduction of
$4,500. The remaining $34,620 decrease in revenues is due to the deferral of
$12,500 in administrative fees from PSI and a $60,255 decrease in revenue at
one of the Company's child care centers due to lower enrollment levels,
partially offset by a net increase of $38,135 at the other child care centers.
Operating expenses for the first quarter of fiscal 1996 were $2,356,398
(96.8% of operating revenue), an increase of $69,799 or 3.1% from operating
expenses of $2,286,599 (90.1% of operating revenue) for the first quarter of
fiscal 1995. This increase was due to an increase in facilities and maintenance
costs and general and administrative expenses, partially offset by a decrease in
payroll expense.
Payroll expense for the first quarter of fiscal 1996 was $1,137,410
(46.7% of operating revenue), a decrease of $104,906 from payroll expense of
$1,242,316 (49.0% of operating revenue) for the first quarter of fiscal 1995. Of
this decrease, $58,186 is due to the transfer of one of the Company's centers to
PSI. In addition, payroll expense decreased $57,025 due to the Company's
decision, in May 1995, to outsource its maintenance operations. Accordingly, the
Company now pays a monthly fee for maintenance services, which is included in
facilities and maintenance costs, rather than paying for staffing directly as
part of payroll expense. These decreases were offset by small increases in other
salaries.
Facilities and maintenance costs for the first quarter of fiscal 1996
were $907,537 (37.3% of operating revenue), an increase of $155,665 or 20.7%
from facilities and maintenance costs of $751,872 (29.6% of operating revenue)
during the first quarter of fiscal 1995. This increase is primarily due to an
increase of $65,316 in rent expense, a $56,131 increase in maintenance costs and
a $35,372 increase in depreciation expense. The increase in rent expense was due
to moderate rent increases at several of the centers, and to the deferral of
$49,196 in sublease payments payable by PSI under the PSI Agreement. Maintenance
costs increased $57,025 due to the Company's decision, in May 1995, to outsource
its maintenance operations. This was partially offset by a decrease of $894 due
to the transfer of one of the Company's child care centers to PSI, as discussed
above. The increase in depreciation expense is primarily due to the deferral of
$33,477 in lease payments payable under the PSI Agreement. These increases were
partially offset by decreases in other costs, such as auto expenses and taxes.
General and administrative expenses for the first quarter of fiscal 1996
were $311,451 (12.8% of operating revenue), an increase of $19,040, or 6.5%,
from general and administrative expenses of $292,411 (11.5% of operating
revenue) during the first quarter of fiscal 1995. This increase was due in part
to expenditures related to developing the Company's strategic growth and
acquisition plans, as well as small increases in other general and
administrative costs; partially offset by a decrease of $7,639 due to the
transfer of one of the Company's child care centers to PSI.
Net income for the first quarter of fiscal 1996 was $71,700 ($0.02 per
share) compared to $245,721 ($0.10 per share) for the first quarter of fiscal
1995, which was the most profitable first quarter in the Company's history. This
decrease is primarily due to the deferral of approximately $95,000 in payments
payable under the PSI Agreement and a decrease in the enrollments and operating
results at one of the Company's centers.
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TRENDS
The first three months of fiscal 1996 were the second most profitable first
quarter in the Company's history. These profitable operating results continue a
trend that began in the third quarter of fiscal 1994. School enrollments, while
remaining strong, were slightly lower than during the first quarter of fiscal
1995. Management believes that continuing strong enrollments, should continue to
have a positive effect on the Company. However, there can be no assurance that
such trends will continue.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended October 31,
1995 was $151,645, which was sufficient to meet the normal operating
requirements of the Company. Due to the purchase of $208,200 in property and
equipment during the quarter for cash, working capital decreased by $95,641,
from $210,600 at July 31, 1995 to $114,959 at October 31, 1995.
Net cash used in investing activities was $275,103, consisting of purchases of
property and equipment totaling $283,103, offset by $8,000 in proceeds from
disposals of property and equipment.
Dividends payable on preferred stock as of October 31, 1995 were $278,333 as
reflected in the accompanying Consolidated Balance Sheet.
Net cash provided by financing activities was $119,362, consisting of additional
borrowings of $154,903 offset by repayments of notes payable and capital leases
of $35,541. Notes payable and capital leases increased from $566,020 at July 31,
1995 to $605,382 at October 31, 1995, an increase of 7.0%. The additional
borrowings consisted of notes payable for the purchase of three vehicles and an
$80,000 drawdown on the Company's working capital line of credit.
The Company is current on all principal and interest payments on its notes
payable and capital leases. The Company has three bank lines of credit: 1) a
$200,000 working capital line secured by the Company's accounts receivable, and
bearing interest at prime (8.75% at October 31, 1995) plus 1.75%; 2) a $200,000
revolving line of credit for the purchase of equipment secured by the Company's
equipment, and bearing interest at prime plus 2.00%, and; 3) a $100,000
revolving line of credit for the purchase of vehicles secured by the vehicles
financed through this line, and bearing interest at prime plus 2.00%.
These lines of credit are renewable each year on December 31. As of October 31,
1995, the balance on the working capital line was $80,000. As of October 31,
1995 there were no borrowings under the equipment line. Borrowings under the
vehicle line consisted of $100,000 in drawdowns which were then converted to
five year notes payable.
The Company currently expects that it will be able to renew the lines of credit
under similar terms upon their maturity. However, if the lines of credit are not
renewed, there is no assurance that they can be replaced. If the Company were
unable to renew or replace these lines of credit and was then unable to repay
any outstanding balance, the bank could foreclose on the collateral.
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company entered into a letter of intent for a $5 million, firm commitment
public offering of a new series of convertible preferred stock in October 1995.
The offering is presently scheduled to be completed in December 1995. The
primary purpose of the offering is to provide funds for the expansion of the
Company's operations, both through the opening of additional Company facilities
and the possible acquisition of other child care centers.
Management believes the Company's operations will generate sufficient cash flow
to satisfy the needs at its existing schools for the next 12 months. However,
alternative sources of capital will be necessary in order for the Company to
finance its current expansion plans.
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PART II OTHER INFORMATION
Items 1 - 5 Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement Re: Computation of per share earnings.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended October 1995.
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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.
SUNRISE PRESCHOOLS, INC.
Date: Dec 12, 1995 By: /s/ James R. Evans
----------------------------------
James R. Evans
Chairman of the Board of Directors
and President (Principal Executive
Officer)
SIGNATURE CAPACITY DATE
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/s/ Ronald J. O'Connor
- ---------------------- Controller (Principal Financial Officer, Dec 12, 1995
Ronald J. O'Connor Principal Accounting Officer)
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EXHIBIT 11
SUNRISE PRESCHOOLS, INC. AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
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1995 1994
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PRIMARY:
Common shares outstanding, beginning of year 2,935,894 2,435,894
Effect of weighting shares:
Employee stock options outstanding 283,893 5,771
Assumed exercise of warrants 118,009 13,050
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Weighted average number of common shares and
common share equivalents outstanding 3,337,796 2,454,715
================================================================================
Net income available for common stock $ 59,200 $ 233,221
================================================================================
Net income per common share and common
share equivalent $ 0.02 $ 0.10
================================================================================
FULLY DILUTED:
Common shares outstanding, beginning of year 2,935,894 2,435,894
Effect of weighting shares:
Employee stock options outstanding 283,893 5,771
Assumed exercise of warrants 118,009 13,050
Assumed conversion of preferred stock 500,000 500,000
- --------------------------------------------------------------------------------
Weighted average number of common shares and
common share equivalents outstanding 3,837,796 2,954,715
================================================================================
Net income available for common stock $ 71,700 $ 245,721
================================================================================
Net income per common share and common
share equivalent $ 0.02 $ 0.08
================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements of the Company for the three months
ended October 31, 1995 and is qualified in its entirety by reference to such
Form 10-QSB for the quarter ended October 31, 1995.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<EXCHANGE-RATE> 1
<CASH> 577,215
<SECURITIES> 0
<RECEIVABLES> 395,963
<ALLOWANCES> 17,000
<INVENTORY> 148,492
<CURRENT-ASSETS> 1,329,051
<PP&E> 3,799,886
<DEPRECIATION> 2,444,139
<TOTAL-ASSETS> 3,618,308
<CURRENT-LIABILITIES> 1,214,092
<BONDS> 0
<COMMON> 29,359
500,000
0
<OTHER-SE> 913,165
<TOTAL-LIABILITY-AND-EQUITY> 3,618,308
<SALES> 0
<TOTAL-REVENUES> 2,435,546
<CGS> 0
<TOTAL-COSTS> 2,356,398
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,548
<INCOME-PRETAX> 71,700
<INCOME-TAX> 0
<INCOME-CONTINUING> 71,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,700
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
