<PAGE> 1
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 January 31, 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 FEBRUARY
29, 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
January 31, 1996 and July 31, 1995 3
Consolidated Statements of Operations
For the Six Months and Three Months
Ended January 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
For the Six Months Ended January 31,
1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Fin-
ancial 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
</TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
SUNRISE PRESCHOOLS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, 1996 JULY 31, 1995
===================================================================================================================
(Unaudited)
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ASSETS
Current Assets
Cash and Cash Equivalents $ 3,620,202 $ 581,311
Accounts Receivable, net of allowance for doubtful accounts of
$17,000 at January 31, 1996 and $20,000 at July 31, 1995 413,732 379,253
Prepaid Expenses 211,967 96,242
Deferred Tax Asset, current portion 109,000 109,000
Inventory and Other Current Assets 30,603 16,376
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Total Current Assets 4,385,504 1,182,182
Property and Equipment, net 894,417 642,143
Property and Equipment Held for Lease, net 497,711 514,126
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 591,603 153,044
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Total Assets $ 7,211,486 $ 3,333,746
==================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 268,879 $ 125,628
Accrued Expenses 321,401 302,259
Dividends Payable on Preferred Stock 54,167 265,833
Notes Payable and Capital Leases, current portion 148,120 136,618
Deferred Rent, current portion 118,016 96,241
Deferred Gain on Sale and Leaseback of Preschool Facilities,
current portion 45,003 45,003
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Total Current Liabilities 955,586 971,582
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Notes Payable and Capital Leases, net of current portion 431,963 429,402
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Deferred Rent, net of current portion 359,511 416,787
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Deferred Gain on Sale and Leaseback of Preschool Facilities, net
of current portion 110,150 132,651
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Shareholders' Equity
Preferred Stock, $1 par value - 1,000,000 shares authorized, 833,333 and
500,000 shares issued and outstanding at January
31, 1996 and July 31, 1995, respectively 833,333 500,000
Common Stock, $.01 par value - 10,000,000 shares authorized,
2,982,968 and 2,935,894 shares issued and outstanding at
January 31, 1996 and July 31, 1995, respectively 29,830 29,359
Paid-in Capital 7,335,481 3,602,406
Accumulated Deficit (2,844,368) (2,748,441)
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Total Shareholders' Equity 5,354,276 1,383,324
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Total Liabilities and Shareholders' Equity $ 7,211,486 $ 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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<CAPTION>
FOR THE SIX MONTHS FOR THE THREE MONTHS
ENDED JANUARY 31 ENDED JANUARY 31
------------------------------ ------------------------------
1996 1995 1996 1995
==============================================================================================================
<S> <C> <C> <C> <C>
Operating Revenue $ 4,739,761 $ 4,862,261 $ 2,304,215 $ 2,325,646
Operating Expenses
Payroll 2,325,317 2,410,869 1,187,907 1,168,552
Facilities and Maintenance 1,787,453 1,464,056 879,916 712,184
General and Administrative 656,683 565,102 345,232 272,692
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Total Operating Expenses 4,769,453 4,440,027 2,413,055 2,153,428
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Income (Loss) from Operations (29,692) 422,234 (108,840) 172,218
Non-operating Income (Expense)
Interest Income (Expense), net 5,665 (13,886) 16,213 (2,809)
Other Income 3,100 12,902 -- 4,621
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Total Non-operating
Income (Expense) 8,765 (984) 16,213 1,812
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Income (Loss) Before Income Taxes (20,927) 421,250 (92,627) 174,030
Income Tax Expense -- 3,500 -- 2,000
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Net Income (Loss) $ (20,927) $ 417,750 $ (92,627) $ 172,030
==============================================================================================================
Net Income (Loss) Available for
Common Stock $ (95,927) $ 392,750 $ (155,127) $ 159,530
==============================================================================================================
Net Income (Loss) per Common
Share and Common Share Equiv-
alent (Note 2)
Primary $ (0.03) $ 0.16 $ (0.05) $ 0.06
==========================================================================================================
Fully Diluted $ 0.14 $ 0.06
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Weighted Average Number of
Common Shares and Common
Equivalent Shares Outstanding
Primary 2,957,103 2,477,604 2,978,312 2,477,604
===========================================================================================================
Fully Diluted 2,977,604 2,977,604
===========================================================================================================
</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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<CAPTION>
FOR THE SIX MONTHS
ENDED JANUARY 31,
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1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (20,927) $ 417,750
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by (Used in) Operating Activities
Depreciation and Amortization 160,450 148,209
Amortized Gain on Sale of Real Estate (22,501) (22,500)
Deferred Rent (35,501) (36,714)
Provision for Doubtful Accounts 18,579 13,215
Gain on Disposal of Property and Equipment (3,100) (12,902)
Changes in Assets and Liabilities, net of effect of business acquired:
Increase in Accounts Receivable (53,058) (67,987)
Increase in Prepaid Expenses (115,725) (84,275)
(Increase) Decrease in Inventory and Other Current Assets (14,227) 14,177
(Increase) Decrease in Deposits and Other Assets (98,559) 7,375
Increase in Accounts Payable 143,251 63,506
Increase (Decrease) in Accrued Expenses 19,142 (54,003)
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Total Adjustments (1,249) (31,899)
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Net Cash Provided by (Used in) Operating Activities (22,176) 385,851
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Child Care Centers (65,000) --
Escrow Deposit for Purchase of Child Care Center (310,000) --
Purchases of Property and Equipment (366,209) (245,371)
Proceeds from Disposal of Property and Equipment 8,000 26,427
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Net Cash Used in Investing Activities (733,209) (218,944)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Exercise of Warrants 40,404 --
Proceeds from Sale of Preferred Stock 4,026,475 --
Payment of Dividends (286,666) --
Proceeds from Notes Payable 88,886 197,516
Increase in Note Receivable from Preschool Services, Inc. -- (130,059)
Payments on Notes Payable and Capital Leases (74,823) (79,378)
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Net Cash Provided by (Used in) Financing Activities 3,794,276 (11,921)
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NET INCREASE IN CASH 3,038,891 154,986
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 581,311 101,781
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,620,202 $ 256,767
=================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for Interest $ 23,290 $ 13,886
=================================================================================================================
</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
JANUARY 31, 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 second quarter ends on the Saturday nearest January 31. However, for
clarity of presentation, all information has been presented as if the first
quarter ended on January 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 six month and three month periods ended January 31, 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
-----------------------------------------------------------------------------
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 diluted 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 six and three month periods ended January 31,
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 six and three month periods ended
January 31, 1995 represents the Company's alternative minimum income tax
liability.
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4. WARRANT EXERCISE
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On November 6, 1995, warrants representing the right to purchase 47,074
shares of common stock were exercised, and the Company issued 47,074 shares
of common stock in exchange for net proceeds of $40,404.
5. PUBLIC OFFERING OF CONVERTIBLE PREFERRED STOCK
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On December 22, 1995, the Company completed a public offering of 333,333
newly issued shares of Series C Convertible 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 13, 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.
6. ACQUISITIONS
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In September 1995, the Company entered into an agreement to purchase the
operations of two child care centers in the Denver, Colorado metropolitan
area at an aggregate purchase price of $65,000 (of which $35,000 was property
and equipment). The purchase of these centers was effective November 1, 1995,
and was accounted for as a purchase in accordance with Accounting Principles
Board Opinion No. 16.
In December 1995, the Company entered into an agreement to purchase the
operations of one child care center in Colorado Springs, Colorado. The
Company has made an escrow deposit of $310,000 for the proposed purchase of
this center. This potential acquisition will be accounted for as a purchase
in accordance with Accounting Principles Board Opinion No. 16. Pro Forma
financial information on this acquisition is not yet available.
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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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SIX MONTHS ENDED JANUARY 31, 1996 (FIRST SIX MONTHS OF FISCAL 1996) COMPARED TO
SIX MONTHS ENDED JANUARY 31, 1995 (FIRST SIX MONTHS OF FISCAL 1995)
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On November 1, 1995, the Company purchased the operations of two child care
centers in the Denver, Colorado metropolitan area. The impact of this
acquisition on the operations of the Company is included in the discussion of
operating revenues and expenses below.
Operating revenue - Operating revenue for the first six months of fiscal 1996
was $4,739,761, a decrease of $122,500, or 2.5% from revenue of $4,862,261 for
the first six months of fiscal 1995. This decrease was due to 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 receives a management
fee; however, the consolidated financial statements for the six months ended
January 31, 1996 no longer include the revenues or expenses of this center. As a
result of this transfer, operating revenue decreased by $127,525 and operating
expenses decreased by $118,525 from the first six months of fiscal 1995. The
impact of this transfer on net income for the first six months of fiscal 1996
was a reduction of $9,000. In addition, revenues decreased $25,000 due to the
deferral of administrative fees from PSI.
Excluding the items discussed above, operating revenues increased $30,025 from
the first six months of fiscal 1995 due to the inclusion of revenues of the two
centers acquired by the Company in November, which totaled $94,868. In addition,
revenues increased $83,527 due to increased enrollments at certain of the
Company's centers. These increases were offset by a decrease of $72,622 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 $75,748 in revenue at
one of the Company's centers due to lower enrollment levels.
Operating expenses - Operating expenses for the first six months of fiscal 1996
were $4,769,453 (100.6% of operating revenue), an increase of $329,426 or 7.4%
from operating expenses of $4,440,027 (91.3% of operating revenue) for the first
six months 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 - Payroll expense for the first six months of fiscal 1996 was
$2,325,317 (49.1% of operating revenue), a decrease of $85,552 from payroll
expense of $2,410,869 (49.6% of operating revenue) for the first six 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 $112,688. In addition, payroll expense
decreased $111,533 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 $60,074 in salaries at the
two centers acquired, $22,256 in additional staffing costs in connection
with the Company's expansion program, and a $56,339 increase in other
salaries.
Facilities and maintenance - Facilities and maintenance costs for the first
six months of fiscal 1996 were $1,787,453 (37.7% of operating revenue), an
increase of $323,397 or 22.1% from facilities and maintenance costs of
$1,464,056 (30.1% of operating revenue) during the first six months of
fiscal 1995. Of this increase, $42,157 is attributable to the centers
acquired in November. The remaining increase is due to an increase of
$100,453 in rent expense, a $109,657 increase in maintenance costs and a
$72,819 increase in depreciation expense, partially offset by a decrease of
$1,689 in other facilities and maintenance costs.
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SIX MONTHS ENDED JANUARY 31, 1996 (FIRST SIX MONTHS OF FISCAL 1996) COMPARED TO
SIX MONTHS ENDED JANUARY 31, 1995 (FIRST SIX MONTHS OF FISCAL 1995) (CONTINUED)
- --------------------------------------------------------------------------------
The increase in rent expense was due to moderate rent increases at several
of the centers, and to the deferral of $97,581 in sublease payments payable
by PSI under the PSI Agreement. Maintenance costs increased $111,533 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). This was partially offset by a decrease of $1,876 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 $66,884 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 six months of fiscal 1996 were $656,683 (13.9% of operating revenue),
an increase of $91,581, or 16.2%, from general and administrative expenses
of $565,102 (11.6% of operating revenue) during the first six months of
fiscal 1995. Of this increase, $18,152 was attributable to the two acquired
centers. In addition, advertising costs increased $20,030 due to the
implementation of a new advertising program during January. The remaining
increase was due to $23,400 in expenditures related to developing the
Company's strategic growth and acquisition plans, a $20,883 increase in
insurance costs, and moderate increases in other general and administrative
costs such as licenses & fees and bad debt expense.
Net Income (Loss) - Net loss for the first six months of fiscal 1996 was
$20,927 ($0.03 per share) compared to net income of $417,750 ($0.16 per share)
for the first six months of fiscal 1995, which was the most profitable six month
period in the Company's history. This decrease is primarily due to the deferral
of approximately $190,000 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 JANUARY 31, 1996 (SECOND QUARTER OF FISCAL 1996) COMPARED TO
THREE MONTHS ENDED JANUARY 31, 1995 (SECOND QUARTER OF FISCAL 1995)
- --------------------------------------------------------------------------------
On November 1, 1995, the Company purchased the operations of two child care
centers in the Denver, Colorado metro area. The impact of this acquisition on
the operations of the Company is included in the discussion of operating
revenues and expenses below.
Operating revenue - Operating revenue for the second quarter of fiscal 1996 was
$2,304,215, a decrease of $21,431, or 1.0% from revenue of $2,325,646 for the
second quarter of fiscal 1995. This decrease 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
revenue decreased $61,076 and operating expenses decreased by $56,576 from the
second quarter of fiscal 1995, as discussed more fully below. The impact of this
transfer on net income for the quarter ended January 31, 1996 was a reduction of
$4,500. In addition, revenues decreased $12,500 due to the deferral of
administrative fees from PSI.
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THREE MONTHS ENDED JANUARY 31, 1996 (SECOND QUARTER OF FISCAL 1996) COMPARED TO
THREE MONTHS ENDED JANUARY 31, 1995 (SECOND QUARTER OF FISCAL 1995) (CONTINUED)
- --------------------------------------------------------------------------------
Excluding the items discussed above, operating revenues at the Company's child
care centers increased $52,145 from the second quarter of fiscal 1995 due to the
inclusion of revenues of the two centers acquired in November, which totaled
$94,868. In addition, revenues increased $16,862 due to increased enrollments at
certain of the Company's centers. These increases were offset by a decrease of
$36,008 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
$23,577 in revenue at one of the Company's centers due to lower enrollment
levels.
Operating expenses - Operating expenses for the second quarter of fiscal 1996
were $2,413,055 (104.7% of operating revenue), an increase of $259,627 or 12.1%
from operating expenses of $2,153,428 (92.6% of operating revenue) for the
second 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 second quarter of fiscal 1996 was
$1,187,907 (51.6% of operating revenue), an increase of $19,355 from
payroll expense of $1,168,552 (50.2% of operating revenue) for the second
quarter of fiscal 1995. This increase is due to payroll costs of $60,074 at
the two acquired centers, $22,256 in additional staffing costs in
connection with the Company's expansion program, and a $46,035 increase in
other salaries. These increases were partially offset by a decrease of
$54,502 due to the transfer of one of the Company's centers to PSI, as
discussed above. In addition, payroll expense decreased $54,508 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
second quarter of fiscal 1996 were $879,916 (38.2% of operating revenue),
an increase of $167,732 or 23.6% from facilities and maintenance costs of
$712,184 (30.6% of operating revenue) during the second quarter of fiscal
1995. Of this increase, $42,157 is attributable to the centers acquired in
November. The remaining increase is due to an increase of $35,137 in rent
expense, a $53,526 increase in maintenance costs and a $37,447 increase in
depreciation expense, partially offset by a decrease of $535 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
$48,385 in sublease payments payable by PSI under the PSI Agreement.
Maintenance costs increased $54,508 due to the Company's decision, in May
1995, to outsource its maintenance operations (see Payroll above). This was
partially offset by a decrease of $982 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 $33,407 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 - General and administrative expenses for the
second quarter of fiscal 1996 were $345,232 (15.0% of operating revenue),
an increase of $72,540, or 26.6%, from general and administrative expenses
of $272,692 (11.7% of operating revenue) during the second quarter of
fiscal 1995. Of this increase, $18,152 was attributable to the two acquired
centers. In addition, advertising costs increased $14,839 due to the
implementation of a new advertising program during January. The remaining
increase was due to $14,400 in expenditures related to developing the
Company's stategic growth and acquisition plans, an $8,749 increase in
insurance costs, and moderate increases in other general and administrative
costs such as licenses & fees and bad debt expense.
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THREE MONTHS ENDED JANUARY 31, 1996 (SECOND QUARTER OF FISCAL 1996) COMPARED TO
THREE MONTHS ENDED JANUARY 31, 1995 (SECOND QUARTER OF FISCAL 1995) (CONTINUED)
- --------------------------------------------------------------------------------
Net Income (Loss) - Net loss for the second quarter of fiscal 1996 was $92,627
($0.05 per share) compared to net income of $172,030 ($0.06 per share) for the
second quarter of fiscal 1995, which was the most profitable second 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, 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.
TRENDS
- --------------------------------------------------------------------------------
School enrollments, while remaining strong, were lower than during the first six
months of fiscal 1995. To boost enrollment levels, the Company implemented a
new multi-media advertising program in January. 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
- --------------------------------------------------------------------------------
Net cash used in operating activities for the six months ended January 31, 1996
was $22,176. 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 $3,219,318, from $210,600 at July 31,
1995 to $3,429,918 at January 31, 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 13, 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 $733,209, consisting of purchases of
property and equipment totaling $366,209; $65,000 in costs related to two
centers acquired by the Company in November; and an escrow deposit of $310,000
made by the Company in connection with an acquisition that is expected to close
on March 15, 1996. These uses were partially offset by $8,000 in proceeds from
disposals of property and equipment.
Net cash provided by financing activities was $3,794,276, consisting of proceeds
from the sale of warrants and preferred stock of $4,066,879 and additional
borrowings of $88,886, offset by repayments of notes payable and capital leases
of $74,823 and payment of dividends on Series B Preferred Stock of $286,666. The
additional borrowings consisted of notes payable for the purchase of four
vehicles. Dividends payable on Series B and C Preferred Stock as of January 31,
1996 were $54,167.
-11-
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- --------------------------------------------------------------------------------
The Company is current on all principal and interest payments on its notes
payable and capital leases. On March 7, 1996, the Company obtained a commitment
letter from a financial institution for three lines of credit totaling
$2,000,000: 1) a $250,000 revolving working capital line, bearing interest at
prime (8.5% at January 31, 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 preschool centers or
the start up of new centers, bearing interest at prime plus 1.00%. These lines
of credit will be renewable each year on January 31, and will be secured by the
Company's accounts receivable, inventory, furniture, vehicles and equipment. The
lines are subject to the negotiation and execution of final loan documents
between the Company and the financial institution.
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 prior to Fall, 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.
On November 1, 1995, the Company purchased the operations of two child care
centers in the Denver, Colorado metropolitan area. In December 1995, the Company
entered into an agreement for the potential purchase the operations of one child
care center in Colorado. 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
Items 1 - 3 Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
The 1995 Annual Meeting of Stockholders was held on January 26, 1996. At the
meeting, Dr. Richard H. Hinze was elected to serve on the Board of Directors for
a three-year term. The stockholders also ratified the 1995 Stock Option Plan and
the Non-Employee Directors Stock Option Plan. The number of shares represented
in person or by proxy at the meeting was 2,243,274. Based on the shares
represented at the meeting, voting results were as follows:
<TABLE>
<S> <C>
For Dr. Richard H. Hinze 2,241,728 - 99.93%
Withheld 1,546 - 0.07%
For the 1995 Stock Option Plan 1,326,226 - 59.12%
Against 83,082 - 3.70%
Withheld 833,966 - 37.18%
For the Non-Employee Directors
Stock Option Plan 1,290,545 - 57.53%
Against 118,763 - 5.29%
Withheld 833,966 - 37.18%
</TABLE>
The terms of office for James R. Evans, Barbara L.
Owens and Robert A. Rice continued after the meeting.
Item 5 Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement Re: Computation of per
share earnings
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended January 31, 1996.
-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.
<TABLE>
<CAPTION>
SUNRISE PRESCHOOLS, INC.
<S> <C>
Date: March 12, 1996 By: /s/ JAMES R. EVANS
-------------------------- ----------------------------------------------
James R. Evans
Chairman of the Board of Directors
and President (Principal Executive
Officer)
SIGNATURE CAPACITY DATE
- ---------------------------------------- ---------------------------------------------- -----------------------
/S/ RONALD J. O'CONNOR March 12, 1996
- ---------------------------------------- Controller (Principal Financial Officer, -----------------------
Ronald J. O'Connor Principal Accounting Officer)
</TABLE>
-14-
<PAGE> 1
EXHIBIT 11
SUNRISE PRESCHOOLS, INC. AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------------------- ------------------------------
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 -- 7,737 -- 7,737
Exercise of Warrants 21,209 42,418
Assumed exercise of warrants -- 33,973 -- 33,973
- --------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common
Shares and Common Share
Equivalents Outstanding 2,957,103 2,477,604 2,978,312 2,477,604
====================================================================================================================
Net Income (Loss) Available for
Common Stock $ (95,927) $ 392,750 $ (155,127) $ 159,530
====================================================================================================================
Net Income (Loss) per Common Share
and Common Share Equivalent $ (0.03) $ 0.16 $ (0.05) $ 0.06
====================================================================================================================
FULLY DILUTED:
Common Shares Outstanding,
Beginning of Year 2,435,894 2,435,894
Effect of Weighting Shares:
Employee Stock Options Outstanding 7,737 7,737
Assumed Exercise of Warrants 33,973 33,973
Assumed Conversion of Preferred Stock 500,000 500,000
- --------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common
Shares and Common Share
Equivalents Outstanding 2,977,604 2,977,604
====================================================================================================================
Net income available for common stock $ 417,750 $ 172,030
====================================================================================================================
Net income per common share and common
share equivalent $ 0.14 $ 0.06
====================================================================================================================
</TABLE>
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE SIX MONTHS
ENDED JANUARY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-QSB FOR THE QUARTER ENDED JANUARY 31, 1996.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-1-1995
<PERIOD-END> JAN-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,620,202
<SECURITIES> 0
<RECEIVABLES> 430,732
<ALLOWANCES> 17,000
<INVENTORY> 30,603
<CURRENT-ASSETS> 4,385,504
<PP&E> 3,917,707
<DEPRECIATION> 2,525,579
<TOTAL-ASSETS> 7,211,486
<CURRENT-LIABILITIES> 955,586
<BONDS> 0
833,333
0
<COMMON> 29,830
<OTHER-SE> 4,491,113
<TOTAL-LIABILITY-AND-EQUITY> 7,211,486
<SALES> 0
<TOTAL-REVENUES> 4,739,761
<CGS> 0
<TOTAL-COSTS> 4,769,543
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,665)
<INCOME-PRETAX> (20,927)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,927)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,927)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
