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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 April 30, 1996
--------------------------
COMMISSION FILE NUMBER 0-16425
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SUNRISE PRESCHOOLS, INC.
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(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
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NO
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THE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK OUTSTANDING AS OF MAY 31,
1996 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
April 30, 1996 and July 31, 1995 3
Consolidated Statements of Operations
For the Nine Months and Three Months
Ended April 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
For the Nine Months Ended April 30,
1996 and 1995 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 4 Submission of Matters to a Vote of Security Holders 13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
SUNRISE PRESCHOOLS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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APRIL 30, 1996 JULY 31, 1995
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(Unaudited)
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ASSETS
Current Assets
Cash and Cash Equivalents $ 3,500,326 $ 581,311
Accounts Receivable, net of allowance for doubtful accounts of
$29,384 at April 30, 1996 and $20,000 at July 31, 1995 466,786 379,253
Prepaid Expenses 174,769 96,242
Deferred Tax Asset, current portion 109,000 109,000
Inventory and Other Current Assets 32,685 16,376
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Total Current Assets 4,283,566 1,182,182
Property and Equipment, net 1,116,171 642,143
Property and Equipment Held for Lease, net 478,107 514,126
Deferred Tax Asset, net of current portion 586,000 586,000
Note Receivable from Preschool Services, Inc. 256,251 256,251
Cost in Excess of Net Assets of Businesses Acquired, net 351,049 -
Deposits and Other Assets 410,109 153,044
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Total Assets $ 7,481,253 $ 3,333,746
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 163,194 $ 125,628
Accrued Expenses 431,351 302,259
Dividends Payable on Preferred Stock 44,366 265,833
Notes Payable and Capital Leases, current portion 139,362 136,618
Deferred Rent, current portion 131,440 96,241
Deferred Gain on Sale and Leaseback of Preschool Facilities,
current portion 45,003 45,003
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Total Current Liabilities 954,716 971,582
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Notes Payable and Capital Leases, net of current portion 456,365 429,402
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Deferred Rent, net of current portion 328,336 416,787
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Deferred Gain on Sale and Leaseback of Preschool Facilities, net
of current portion 98,899 132,651
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Shareholders' Equity
Preferred Stock, $1 par value - 1,000,000 shares authorized,
857,333 and 500,000 shares issued and outstanding at April 30,
1996 and July 31, 1995, respectively 857,333 500,000
Common Stock, $.01 par value - 10,000,000 shares authorized,
2,982,968 and 2,935,894 shares issued and outstanding at April
30, 1996 and July 31, 1995, respectively 29,830 29,359
Paid-in Capital 7,624,681 3,602,406
Accumulated Deficit (2,868,907) (2,748,441)
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Total Shareholders' Equity 5,642,937 1,383,324
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Total Liabilities and Shareholders' Equity $ 7,481,253 $ 3,333,746
================================================================================================
</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 OPERATIONS
(UNAUDITED)
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FOR THE NINE MONTHS FOR THE THREE MONTHS
ENDED APRIL 30, ENDED APRIL 30,
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1996 1995 1996 1995
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Operating Revenue $ 7,420,994 $ 7,392,621 $ 2,681,233 $ 2,530,360
Operating Expenses
Payroll 3,612,407 3,615,525 1,287,090 1,204,656
Facilities and Maintenance 2,728,490 2,182,861 941,037 718,805
General and Administrative 1,044,280 871,123 387,597 306,021
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Total Operating Expenses 7,385,177 6,669,509 2,615,724 2,229,482
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Income from Operations 35,817 723,112 65,509 300,878
Non-operating Income (Expense)
Interest Income (Expense), net 47,684 (29,127) 42,019 (15,241)
Other Income (Expense), net 2,771 20,567 (329) 7,665
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Total Non-operating
Income (Expense) 50,455 (8,560) 41,690 (7,576)
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Income Before Income Taxes 86,272 714,552 107,199 293,302
Income Tax Expense - 6,000 - 2,500
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Net Income $ 86,272 $ 708,552 $ 107,199 $ 290,802
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Net Income (Loss) Available for
Common Stock $ (120,466) $ 671,052 $ (24,710) $ 278,302
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Net Income (Loss) per Common
Share and Common Share
Equivalent (Note 2)
Primary $ (0.04) $ 0.27 $ (0.01) $ 0.11
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Fully Dilluted $ 0.24 $ 0.09
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Weighted Average Number of
Common Shares and Common
Equivalent Shares Outstanding
Primary 2,965,725 2,500,613 2,982,968 2,619,652
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Fully Dilluted 3,000,613 3,119,652
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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 CASH FLOWS
(UNAUDITED)
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FOR THE NINE MONTHS
ENDED APRIL 30,
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1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 86,272 $ 708,552
Adjustments to Reconcile Net Income to
Net Cash Provided by (Used in) Operating Activities
Depreciation and Amortization 243,864 222,805
Amortized Gain on Sale of Real Estate (33,752) (33,751)
Deferred Rent (53,252) (55,071)
Provision for Doubtful Accounts 55,977 43,665
Gain on Disposal of Property and Equipment (3,100) (20,567)
Changes in Assets and Liabilties, net of effect
of business acquired:
Increase in Accounts Receivable (143,510) (122,787)
Increase in Prepaid Expenses (78,527) (58,294)
(Increase) Decrease in Inventory and Other
Current Assets (16,309) 12,410
Increase in Deposits and Other Assets (257,065) (14,151)
Increase (Decrease) in Accounts Payable 37,566 (20,312)
Increase in Accrued Expenses 129,092 20,367
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Total Adjustments (119,016) (25,686)
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Net Cash Provided by (Used in) Operating Activities (32,744) 682,866
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Child Care Centers (537,199) -
Purchases of Property and Equipment (500,623) (309,645)
Proceeds from Disposal of Property and Equipment 8,000 59,104
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Net Cash Used in Investing Activities (1,029,822) (250,541)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Exercise of Warrants 40,404 469,882
Proceeds from Sale of Preferred Stock 4,339,675 -
Payment of Dividends (428,205) -
Proceeds from Notes Payable 140,736 204,301
Increase in Note Receivable from Preschool Services, Inc. - (226,368)
Payments on Lines of Credit - (100,000)
Payments on Notes Payable and Capital Leases (111,029) (99,605)
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Net Cash Provided by Financing activities 3,981,581 248,210
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NET INCREASE IN CASH AND CASH EQUIVALENTS 2,919,015 680,535
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 581,311 101,781
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,500,326 $ 782,316
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SUPPLEMENTAL DISCLOURE OF CASH FLOW INFORMATION
Cash Paid During the Period for Interest $ 23,290 $ 29,127
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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
APRIL 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
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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 third quarter ends on the Saturday nearest April 30.
However, for clarity of presentation, all information has been presented
as if the first quarter ended on April 30 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 nine month and three month periods ended April 30, 1996
and 1995.
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 (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT
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Primary net income (loss) per share is computed by dividing net income
available for common stock (net income less dividends accrued during the
period on Series B and Series C 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 for fiscal 1995 assumes
the conversion of the Series B Preferred Stock into 500,000 shares of
common stock.
3. INCOME TAXES
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The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
As of July 31, 1995, net operating loss carryforwards totaled
approximately $2,000,000, and expire through the year 2008. Accordingly,
income taxes on income generated during the nine and three month periods
ended April 30, 1996 and 1995 have been offset by the available net
operating loss carryforwards. The amount recorded as income tax expense in
the accompanying consolidated financial statements for the nine and three
month periods ended April 30, 1995 represents the Company's alternative
minimum income tax liability.
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4. PUBLIC OFFERING OF CONVERTIBLE PREFERRED SOCK
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On December 22, 1995, the Company completed a public offering of 333,333
newly issued shares of Series C Preferred Stock at $15 per share.
Net proceeds from the offering were $4,026,475, which will be used
primarily for expansion of the Company's operations, both through the
opening of additional Company facilities and the acquisition of existing
child care centers.
On February 12, 1996, the underwriters of the public offering exercised
their option to purchase 24,000 additional shares of Series C Preferred
Stock to cover over-allotments. These shares were sold by the Company at
the same price and same terms as those applicable to the initial offering
of Series C Preferred Stock.
5. ACQUISITIONS
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In December 1995, the Company entered into an agreement to purchase the
operations of one child care center in Colorado Springs, Colorado at an
aggregate purchase price of $310,000 (of which $101,455 was property and
equipment). The purchase of this center was effective April 5, 1996 and
was accounted for as a purchase in accordance with Accounting Principles
Board Opinion No. 16.
In April 1995, the Company entered into an agreement to purchase the
operations of one child care center in Sierra Vista, Arizona at an
aggregate purchase price of $95,000 (of which $49,695 was property and
equipment). The purchase of this center was effective April 16, 1996 and
was 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
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NINE MONTHS ENDED APRIL 30, 1996 (FIRST NINE MONTHS OF FISCAL 1996) COMPARED
TO NINE MONTHS ENDED APRIL 30, 1995 (FIRST NINE MONTHS OF FISCAL 1995)
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During the current fiscal year, the Company has purchased the operations of the
following child care centers: two child care centers in the Denver, Colorado
metropolitan area on November 1, 1995, one center in Colorado Springs, Colorado
on April 5, 1996, and one center in Sierra Vista, Arizona on April 16, 1996. The
impact of these acquisitions on the operations of the Company are included in
the discussion of operating revenues and expenses below.
Operating revenue - Operating revenue for the first nine months of fiscal 1996
was $7,420,994, an increase of $28,373, or 0.4% from revenue of $7,392,621 for
the first nine months of fiscal 1995. This increase was due to the inclusion of
revenues of the four acquired centers of $257,264. This increase was partially
offset by the transfer of one of the Company's child care centers to Preschool
Services, Inc. ("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 earns a management fee; however, the consolidated financial statements
for the nine months ended April 30, 1996 no longer include the revenues or
expenses of this center. As a result of this transfer, operating revenue
decreased by $208,396 and operating expenses decreased by $194,896 from the
first nine months of fiscal 1995. The impact of this transfer on net income for
the first nine months of fiscal 1996 was a reduction of $13,500. In addition,
revenues decreased $37,500 due to the deferral of administrative fees from PSI.
Excluding the items discussed above, operating revenues increased $17,005 from
the first nine months of fiscal 1995. Due to increased enrollments at certain of
the Company's centers and a moderate tuition increase in January, revenues at
these centers increased $231,634. This was offset by a decrease of $130,037 in
revenues received under one of the Company's employer child care contracts as a
result of large layoffs by the employer, and a decrease of $84,592 in revenue at
one of the Company's centers due to lower enrollment levels.
Operating expenses - Operating expenses for the first nine months of fiscal
1996 were $7,385,177 (99.5% of operating revenue), an increase of $715,668 or
10.7% from operating expenses of $6,669,509 (90.2% of operating revenue) for the
first nine months of fiscal 1995. Of this increase, $288,826 was due to the
inclusion of the four acquired centers. The remaining 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 - Payroll expense for the first nine months of fiscal 1996 was
$3,612,407 (48.7% of operating revenue), a decrease of $3,118 from payroll
expense of $3,615,525 (48.9% of operating revenue) for the first nine
months of fiscal 1995. A portion of this decrease is due to the transfer of
one of the Company's centers to PSI, as discussed above. As a result of
this transfer, payroll expense decreased $174,153. In addition, payroll
expense decreased $165,703 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 $147,739 in salaries at the
four acquired centers, $55,880 for additional corporate staff added in
connection with the Company's expansion program, and a $133,119 increase in
other salaries.
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NINE MONTHS ENDED APRIL 30, 1996 (FIRST NINE MONTHS OF FISCAL 1996) COMPARED TO
NINE MONTHS ENDED APRIL 30, 1995 (FIRST NINE MONTHS OF FISCAL 1995) (CONTINUED)
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Facilities and maintenance - Facilities and maintenance costs for the first
nine months of fiscal 1996 were $2,728,490 (36.8% of operating revenue), an
increase of $545,629 or 25.0% from facilities and maintenance costs of
$2,182,861 (29.5% of operating revenue) during the first nine months of
fiscal 1995. Of this increase, $95,147 is attributable to the acquired
centers. The remaining increase is due to an increase of $154,211 in rent
expense, a $208,056 increase in maintenance costs and a $112,976 increase
in depreciation expense, partially offset by a decrease of $24,761 in other
facilities and maintenance costs.
The increase in rent expense was due to moderate rent increases at several
of the centers, and to the deferral of $140,007 in sublease payments
payable by PSI under the PSI Agreement. Maintenance costs increased
$165,703 due to the Company's decision, in May 1995, to outsource its
maintenance operations (see Payroll above for discussion of corresponding
decrease in payroll costs). The increase in depreciation expense is
primarily due to the deferral of $95,107 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 adminstrative - General and administrative expenses for the
first nine months of fiscal 1996 were $1,044,280 (14.1% of operating
revenue), an increase of $173,157, or 19.9%, from general and
administrative expenses of $871,123 (11.8% of operating revenue) during the
first nine months of fiscal 1995. Of this increase, $45,940 was
attributable to the four acquired centers. In addition, advertising costs
increased $50,925 due to the implementation of a new advertising program.
The remaining increase was due to $40,500 in expenditures related to
developing the Company's strategic growth and acquisition plans, a $25,330
increase in insurance costs, and moderate increases in other general and
administrative costs such as office supplies, licenses & fees and bad debt
expense.
Net Income - Net income for the first nine months of fiscal 1996 was $86,272
compared to net income of $708,552 for the first nine months of fiscal 1995,
which was the most profitable nine month period in the Company's history. This
decrease is primarily due to the deferral of approximately $273,000 in payments
payable under the PSI Agreement, a decrease in enrollments under one of the
Company's employer child care contracts due to layoffs by the employer, and a
decrease in the enrollments and operating results at one of the Company's
centers. In addition, costs incurred in connection with the Company's
advertising and expansion programs, and in developing the Company's strategic
growth plan have, in the current period, decreased net income.
THREE MONTHS ENDED APRIL 30, 1996 (THIRD QUARTER OF FISCAL 1996) COMPARED TO
THREE MONTHS ENDED APRIL 30, 1995 (THIRD QUARTER OF FISCAL 1995)
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During the current fiscal year, the Company has purchased the operations of the
following child care centers: two child care centers in the Denver, Colorado
metropolitan area on November 1, 1995, one center in Colorado Springs, Colorado
on April 5, 1996, and one center in Sierra Vista, Arizona on April 16, 1996. The
impact of these acquisitions on the operations of the Company are included in
the discussion of operating revenues and expenses below.
Operating revenue - Operating revenue for the third quarter of fiscal 1996 was
$2,681,233, an increase of $150,873, or 6.0% from revenue of $2,530,360 for the
third quarter of fiscal 1995. This increase was due to the inclusion of revenues
of the four acquired centers of $162,396. This increase was partially offset by
the transfer of one of the Company's child care centers to PSI as of August 1,
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THREE MONTHS ENDED APRIL 30, 1996 (THIRD QUARTER OF FISCAL 1996) COMPARED TO
THREE MONTHS ENDED APRIL 30, 1995 (THIRD QUARTER OF FISCAL 1995) (CONTINUED)
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1995. The Company continues to manage this child care center under a management
agreement with PSI, for which the Company earns a management fee; however, the
consolidated financial statements for the quarter ended April 30, 1996 no longer
include the revenues or expenses of this center. As a result of this transfer,
operating revenue decreased $80,871 and operating expenses decreased by $76,371
from the third quarter of fiscal 1995, as discussed more fully below. The impact
of this transfer on net income for the quarter ended April 30, 1996 was a
reduction of $4,500. In addition, revenues decreased $12,500 due to the deferral
of administrative fees from PSI.
Excluding the items discussed above, operating revenues at the Company's child
care centers increased $81,848 from the third quarter of fiscal 1995. Due to
increased enrollments at certain of the Company's centers and a moderate tuition
increase in January, revenues increased $139,263. This was offset by a decrease
of $57,415 in revenues received under one of the Company's employer child care
contracts as a result of large layoffs by the employer.
Operating expenses - Operating expenses for the third quarter of fiscal 1996
were $2,615,724 (97.6% of operating revenue), an increase of $386,242 or 17.3%
from operating expenses of $2,229,482 (88.1% of operating revenue) for the third
quarter of fiscal 1995. This increase was due to increases in facilities and
maintenance costs and general and administrative expenses, along with a small
increase in payroll expense.
Payroll - Payroll expense for the third quarter of fiscal 1996 was
$1,287,090 (48.0% of operating revenue), an increase of $82,434 from
payroll expense of $1,204,656 (47.6% of operating revenue) for the third
quarter of fiscal 1995. This increase is due to payroll costs of $87,665 at
the newly acquired centers, $32,692 for additional corporate staff added in
connection with the Company's expansion program, and a $77,712 increase in
other salaries. These increases were partially offset by a decrease of
$61,465 due to the transfer of one of the Company's centers to PSI, as
discussed above. In addition, payroll expense decreased $54,170 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.
Facilities and maintenance - Facilities and maintenance costs for the
third quarter of fiscal 1996 were $941,037 (35.1% of operating revenue),
an increase of $222,232 or 30.9% from facilities and maintenance costs of
$718,805 (28.4% of operating revenue) during the third quarter of fiscal
1995. Of this increase, $52,990 is attributable to the centers acquired
this year. The remaining increase is due to an increase of $53,758 in rent
expense, a $69,650 increase in maintenance costs and a $40,157 increase in
depreciation expense as well as small increases in other facilities and
maintenance costs. The increase in rent expense was due to moderate rent
increases at several of the centers, and to the deferral of $42,426 in
sublease payments payable by PSI under the PSI Agreement. The increase in
maintenance costs is primarily due to a $54,170 increase due to the
Company's decision, in May 1995, to outsource its maintenance operations
(see Payroll above). The increase in depreciation expense is primarily due
to the deferral of $28,223 in lease payments payable under the PSI
Agreement.
General and adminstrative - General and administrative expenses for the
third quarter of fiscal 1996 were $387,597 (14.5% of operating revenue), an
increase of $81,576, or 26.7%, from general and
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THREE MONTHS ENDED APRIL 30, 1996 (THIRD QUARTER OF FISCAL 1996) COMPARED TO
THREE MONTHS ENDED APRIL 30, 1995 (THIRD QUARTER OF FISCAL 1995) (CONTINUED)
- -------------------------------------------------------------------------------
administrative expenses of $306,021 (12.1% of operating revenue) during the
third quarter of fiscal 1995. Of this increase, $27,788 was attributable to
the four acquired centers. In addition, advertising costs increased $30,895
due to the implementation of a new advertising program. The remaining
increase was due to $17,100 in expenditures related to developing and
implementing the Company's strategic growth and acquisition plans, a $4,447
increase in insurance costs, and moderate increases in other general and
administrative costs such as licenses & fees and bad debt expense.
Net Income - Net income for the third quarter of fiscal 1996 was $107,199
compared to $290,802 for the third quarter of fiscal 1995. This decrease is
primarily due to the deferral of approximately $83,000 in payments payable under
the PSI Agreement, a decrease in enrollments under one of the Company's employer
chld care contracts due to layoffs by the employer, and a decrease in the
enrollments and operating results at one of the Company's centers. In addition,
costs incurred in connection with the Company's advertising and expansion
programs, and in developing the Company's strategic growth plan have, in the
current period, decreased net income.
TRENDS
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School enrollments, while remaining strong, were lower than during the first
nine months of fiscal 1995. To boost enrollment levels, the Company implemented
a new multi-media advertising program in January. This program continued during
the third quarter. Management believes that this program, coupled with a
moderate January tuition increase, should continue to have a positive effect on
the Company. In addition, it is anticipated that the costs incurred by the
Company in connection with developing its strategic growth plan and implementing
its expansion program will benefit the Company in the future. However, there can
be no assurance that this will occur.
LIQUIDITY AND CAPITAL RESOURCES
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Net cash used in operating activities for the nine months ended April 30, 1996
was $32,744. Cash was sufficient to meet the normal operating requirements of
the Company. Due to the Company's public offering of preferred stock in
December, working capital increased by $3,118,250, from $210,600 at July 31,
1995 to $3,328,850 at April 30, 1996.
On December 22, 1995, the Company completed a $5 million public offering of a
new series of convertible preferred stock. Net proceeds from the offering were
$4,026,475, which will be used primarily for expansion of the Company's
operations, both through the opening of additional Company facilities and the
acquisition of other existing child care centers. On February 12, 1996, the
underwriters of the offering exercised their option to purchase 24,000
additional shares of preferred stock to cover over-allotments. These shares were
sold by the Company at the same price and same terms as those applicable to the
initial offering of the preferred stock.
On November 6, 1995, holders of warrants representing the right to purchase
47,074 shares of the Company's common stock were exercised. Net proceeds from
this exercise were $40,404.
Net cash used in investing activities was $1,029,822, consisting of purchases of
property and equipment totaling $537,199 and $500,623 in costs related to four
centers acquired by the Company during the year. These uses were partially
offset by $8,000 in proceeds from disposals of property and equipment.
-11-
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------------------------------------------
Net cash provided by financing activities was $3,981,581, consisting of proceeds
from the exercise of warrants and the sale of preferred stock of $4,380,079 and
additional borrowings of $140,736, offset by repayments of notes payable and
capital leases of $111,029 and payment of dividends on Series B and C Preferred
Stock of $428,205. The additional borrowings consisted of notes payable for the
purchase of six vehicles. Dividends payable on Series B and C Preferred Stock
as of April 30, 1996 were $44,366.
The Company is current on all principal and interest payments on its notes
payable and capital leases. The Company has three lines of credit with a
financial institution totaling $2,000,000: 1) a $250,000 revolving working
capital line, bearing interest at prime (8.5% at April 30, 1996) plus 1.00%; 2)
a $250,000 nonrevolving line of credit for the purchase of vehicles and
equipment, bearing interest at prime plus 1.25%, and; 3) a $1,500,000
nonrevolving line of credit for the financing of fixed assets associated with
the acquisition of existing child care centers or the start up of new centers,
bearing interest at prime plus 1.00%. These lines of credit are renewable
each year on January 31, and are secured by the Company's accounts receivable,
inventory, furniture, vehicles and equipment.
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.
The Company plans to open several centers in the Fall and Winter of 1996. New
centers opened by the Company will be constructed by a third party and the
Company will then enter into long term leases for the land and buildings.
Preopening costs of a center normally range between $90,000 and $110,000 per
center. Management expects cash generated from operations and cash on hand as a
result of the public offering and the warrant exercise to be sufficient to
satisfy the needs at its existing schools for the next 12 months and to open the
new centers as planned.
During the current fiscal year, the Company has purchased the operations of the
following child care centers: two child care centers in the Denver, Colorado
metropolitan area on November 1, 1995, one center in Colorado Springs, Colorado
on April 5, 1995, and one center in Sierra Vista, Arizona on April 16, 1996. The
Company is also considering various acquisitions of established child care
centers operated in the southwestern United States, as well as in other
geographic areas. The Company intends to finance these acquisitions through a
combination of cash and long-term notes.
-12-
<PAGE> 13
PART II OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
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 durirng the
quarter ended April 30, 1996.
</TABLE>
-13-
<PAGE> 14
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: June 10, 1996 By: /s/ James R. Evans
------------- ----------------------------------------------
James R. Evans
Chairman of the Board of Directors
and President (Principal Executive
Officer)
<TABLE>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Ronald J. O'Connor Controller (Principal Financial Officer, June 10, 1996
---------------------- Principal Accounting Officer) ------------
Ronald J. O'Connor
</TABLE>
-14-
<PAGE> 1
EXHIBIT 11
SUNRISE PRESCHOOLS, INC. AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
April 30, April 30,
----------------------- ---------------------
1996 1995 1996 1995
==================================================================================================
<S> <C> <C> <C> <C>
PRIMARY:
Common Shares Outstanding,
Beginning of Year 2,935,894 2,435,894 2,935,894 2,435,894
Effect of weighting shares:
Employee stock options outstanding -- 9,163 -- 17,091
Exercise of Warrants 29,831 55,556 47,074 166,667
- --------------------------------------------------------------------------------------------------
Weighted Average Number of Common
Shares and Common Share
Equivalents Outstanding 2,965,725 2,500,613 2,982,968 2,619,652
==================================================================================================
Net Income (Loss) Available for
Common Stock $ (120,466) 671,052 $ (24,710) $ 278,302
==================================================================================================
Net Income (Loss) per Common Share
and Common Share Equivalent $ (0.04) 0.27 $ (0.01) $ 0.11
==================================================================================================
FULLY DILUTED:
Common Shares Outstanding,
Beginning of Year -- 2,435,894 -- 2,435,894
Effect of Weighting Shares:
Employee Stock Options Outstanding -- 9,163 -- 17,091
Exercise of Warrants -- 55,556 -- 166,667
Assumed Conversion of Preferred Stock -- 500,000 -- 500,000
- --------------------------------------------------------------------------------------------------
Weighted Average Number of Common
Shares and Common Share
Equivalents Outstanding -- 3,000,613 -- 3,119,652
==================================================================================================
Net Income Available for Common Stock -- $ 708,552 -- $ 290,802
==================================================================================================
Net Income per Common Share and Common
Share Equivalent -- $ 0.24 -- $ 0.09
==================================================================================================
</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 NINE MONTHS
ENDED APRIL 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10QSB FOR THE QUARTER ENDED APRIL 30, 1996.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> APR-30-1996
<EXCHANGE-RATE> 1
<CASH> 3,500,326
<SECURITIES> 0
<RECEIVABLES> 496,170
<ALLOWANCES> 29,384
<INVENTORY> 32,685
<CURRENT-ASSETS> 4,283,566
<PP&E> 4,206,518
<DEPRECIATION> 2,612,240
<TOTAL-ASSETS> 7,481,253
<CURRENT-LIABILITIES> 954,716
<BONDS> 0
857,333
0
<COMMON> 29,830
<OTHER-SE> 4,755,774
<TOTAL-LIABILITY-AND-EQUITY> 7,481,253
<SALES> 0
<TOTAL-REVENUES> 7,420,994
<CGS> 0
<TOTAL-COSTS> 7,385,177
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (47,684)
<INCOME-PRETAX> 86,272
<INCOME-TAX> 0
<INCOME-CONTINUING> 86,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,272
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> 0
</TABLE>
