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, 1997
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COMMISSION FILE NUMBER 0-16425
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SUNRISE EDUCATIONAL SERVICES, 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
-----------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(602) 860-1611
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SUNRISE PRESCHOOLS, INC.
------------------------
(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 February
28, 1997 was 3,075,871 shares.
<PAGE>
SUNRISE EDUCATIONAL SERVICES, INC.
TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets
January 31, 1997 and July 31, 1996 3
Consolidated Statements of Operations
For the Six Months and Three Months Ended
January 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
For the Six Months Ended
January 31, 1997 and 1996 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 12
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
SUNRISE EDUCATIONAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, 1997 JULY 31, 1996
- ------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ 1,536,494 $ 2,630,616
Accounts Receivable, net of allowance for doubtful accounts of
$8,000 at January 31, 1997 and $12,000 at July 31, 1996 600,777 387,775
Prepaid Expenses 272,418 149,458
Deferred Tax Asset, current portion 138,000 138,000
Inventory and Other Current Assets 34,579 27,094
- -----------------------------------------------------------------------------------------------
Total Current Assets 2,582,268 3,332,943
Property and Equipment, net 1,654,700 1,386,687
Property and Equipment Held for Lease, net 358,845 367,292
Deferred Tax Asset, net of current portion 557,000 557,000
Note Receivable from Preschool Services, Inc. 256,251 256,251
Intangible Assets, net 1,309,552 733,519
Deposits and Other Assets 272,729 363,340
- -----------------------------------------------------------------------------------------------
Total Assets $ 6,991,345 $ 6,997,032
===============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of Credit $ 150,000 $ 100,000
Accounts Payable 149,092 272,519
Accrued Expenses 455,398 385,036
Dividends Payable on Preferred Stock 44,367 44,367
Notes Payable and Capital Leases, current portion 236,682 133,415
Accrued Rental Reserve, current portion 145,904 292,000
Deferred Rent, current portion 151,640 155,982
Deferred Gain on Sale and Leaseback of Preschool Facilities,
current portion 45,003 45,003
- -----------------------------------------------------------------------------------------------
Total Current Liabilities 1,378,086 1,428,322
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Notes Payable and Capital Leases, net of current portion 757,613 504,654
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Accrued Rental Reserve, net of current portion 126,000 126,000
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Deferred Rent, net of current portion 261,152 304,058
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Deferred Gain on Sale and Leaseback of Preschool Facilities, net
of current portion 65,147 87,648
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Shareholders' Equity
Preferred Stock, $1 par value - 1,000,000 shares authorized,
857,333 shares issued and outstanding 857,333 857,333
Common Stock, $.01 par value - 10,000,000 shares authorized,
3,075,871 and 2,982,968 shares issued and outstanding 30,759 29,830
Paid-in Capital 7,729,220 7,609,553
Accumulated Deficit (4,213,965) (3,950,366)
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Total Shareholders' Equity 4,403,347 4,546,350
- -----------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 6,991,345 $ 6,997,032
===============================================================================================
</TABLE>
The accompanying footnotes are an integral part of these consolidated financial
statements.
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<PAGE>
SUNRISE EDUCATIONAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE THREE MONTHS
ENDED JANUARY 31, ENDED JANUARY 31,
--------------------- --------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenue $ 6,342,854 $ 4,739,761 $ 3,100,226 $ 2,304,215
Operating Expenses
Payroll 3,217,165 2,325,317 1,602,244 1,187,907
Facilities and Maintenance 2,265,666 1,787,453 1,180,054 879,916
General and Administrative 905,670 656,683 482,153 345,232
- ------------------------------------------------------------------------------------------
Total Operating Expenses 6,388,501 4,769,453 3,264,451 2,413,055
- ------------------------------------------------------------------------------------------
Loss from Operations (45,647) (29,692) (164,225) (108,840)
Non-operating Income
Interest Income (Expense), net 8,622 5,665 325 16,213
Other Income 39,626 3,100 30,296 --
- ------------------------------------------------------------------------------------------
Total Non-operating Income 48,248 8,765 30,621 16,213
- ------------------------------------------------------------------------------------------
Net Income (Loss) $ 2,601 $ (20,927) $ (133,604) $ (92,627)
==========================================================================================
Net Income (Loss) Available for
Common Stock $ (263,599) $ (95,927) $ (266,704) $ (155,127)
==========================================================================================
Net Income (Loss) per Common
Share and Common Share
Equivalent (Note 2)
Primary $ (0.09) $ (0.03) $ (0.09) $ (0.05)
==========================================================================================
Weighted Average Number of
Common Shares and Common
Equivalent Shares Outstanding
Primary (Note 2) 3,021,268 2,935,894 3,026,786 2,935,894
==========================================================================================
</TABLE>
The accompanying footnotes are an integral part of these consolidated financial
statements.
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<PAGE>
SUNRISE EDUCATIONAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JANUARY 31,
1997 1996
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income (Loss) $ 2,601 $ (20,927)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used in Operating Activities
Depreciation and Amortization 323,216 160,450
Amortized Gain on Sale of Real Estate (22,501) (22,501)
Deferred Rent (47,248) (35,501)
Provision for Doubtful Accounts 40,538 18,579
Gain on Disposal of Property and Equipment (39,626) (3,100)
Changes in Assets and Liabilties, net of effect of businesses acquired:
Increase in Accounts Receivable (253,540) (53,058)
Increase in Prepaid Expenses (122,960) (115,725)
Increase in Inventory and Other Current Assets (7,485) (14,227)
(Increase) Decrease in Deposits and Other Assets 90,611 (98,559)
Increase (Decrease) in Accounts Payable (123,427) 143,251
Increase in Accrued Expenses 70,362 19,142
Decrease in Accrued Rental Reserve (146,096) --
- --------------------------------------------------------------------------------------------------
Total Adjustments (238,156) (1,249)
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Net Cash Used in Operating Activities (235,555) (22,176)
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Child Care Centers (494,264) (65,000)
Escrow Deposit for Purchase of Child Care Center -- (310,000)
Purchases of Property and Equipment (496,691) (366,209)
Proceeds from Disposal of Property and Equipment 296,766 8,000
- --------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (694,189) (733,209)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Exercise of Warrants -- 40,404
Proceeds from Sale of Preferred Stock -- 4,026,475
Payment of Dividends (145,604) (286,666)
Proceeds from Notes Payable 54,408 88,886
Borrowings on Lines of Credit 50,000 --
Payments on Notes Payable and Capital Leases (123,182) (74,823)
- --------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (164,378) 3,794,276
- --------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,094,122) 3,038,891
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,630,616 581,311
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,536,494 $ 3,620,202
==================================================================================================
SUPPLEMENTAL DISCLOURE OF CASH FLOW INFORMATION
Cash Paid During the Period for Interest $ 41,222 $ 23,290
Payment of Stock Dividends 120,596 --
Note Payable Issued for Acquisition of Child Care Centers 425,000 --
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
SUNRISE EDUCATIONAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
The fiscal year of Sunrise Educational Services, 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 second
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, 1997 and 1996.
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 1996 to conform with the fiscal 1997
presentation. It is suggested that these interim financial statements be read in
conjunction with the Company's 1996 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
Educational Services, 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 (loss)
available for common stock (net income (loss) 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 (loss) per share is not included because the calculation is
antidillutive.
3. INCOME TAXES
- --------------------------------------------------------------------------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
As of July 31, 1996, net operating loss carryforwards totaled approximately
$2,177,000, and expire through the year 2011. Accordingly, income taxes on
income generated during the six month and three month periods ended January 31,
1997 and 1996 have been offset by the available net operating loss
carryforwards.
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<PAGE>
4. ACQUISITIONS
- --------------------------------------------------------------------------------
On August 22, 1996, the Company purchased the operations of four preschool
centers in the Phoenix, Arizona metropolitan area. The consideration paid by the
Company in connection with this acquisition was $775,000, of which $350,000 was
paid at the closing of the purchase on August 22, 1996, and $425,000 was a note
payable. The purchase of these centers was accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16. Pro forma
information for the six month periods ended January 31, 1997 and 1996 follows:
Sunrise Educational Services, Inc. and Subsidiary
Unaudited Pro Forma Condensed Consolidated Income Statement
For the Six Months Ended January 31, 1997 and 1996
(In thousands, except per share data)
1997 1996
---- ----
Operating Revenues $ 6,457 $ 5,422
Operating Expenses 6,480 5,322
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Income from Operations (23) 100
Non-operating Income (Expense) 45 (7)
------- -------
Net Income $ 22 $ 93
======= =======
Net Income Available for Common Stock $ (244) $ 18
======= =======
Net Income per Common Share and Common Share
Equivalent $ (0.08) $ 0.01
======= =======
3,021 2,957
======= =======
-7-
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
On January 24, 1997, the stockholders of the Company approved a proposal to
change the Company's name from Sunrise Preschools, Inc. to Sunrise Educational
Services, Inc. This change was made to reflect the widened area of services
provided by the Company through it's Sunrise Preschools, Suncrest Private
Schools and Sunburst Child Care divisions, and any subsequent direction the
Company takes relative to educational services provided.
On January 31, 1997, the Company operated 36 child care centers versus 27
centers as of January 31, 1996. The increase in the number of centers was the
result of the Company purchasing the operations of six centers in Arizona (five
of which were previously operating and one of which was newly opened) and one
center in Colorado, opening one newly constructed center in Arizona, and
assuming management of one newly opened center in Wisconsin. During the first
six months of fiscal 1996, the Company purchased the operations of two centers
in Colorado.
SIX MONTHS ENDED JANUARY 31, 1997 I(FIRST SIX MONTHS OF FISCAL 1997) COMPARED TO
SIX MONTHS ENDED JANUARY 31, 1996 I(FIRST SIX MONTHS OF FISCAL 1996)
- --------------------------------------------------------------------------------
Operating revenue - Operating revenue for the first six months of fiscal 1997
was $6,342,854, an increase of $1,603,093, or 33.8% from revenue of $4,739,761
for the first six months of fiscal 1996. Of this increase, $1,415,120 was due to
the inclusion of revenues of the acquired and newly opened centers, and $187,973
was due to a 4.0% increase in same-center revenues. The increase in same-center
revenues was due to a moderate tuition increase, but was offset by a large
decrease in child attendance during the Christmas and New Year's holiday
periods. Due to the timing of the holidays this year (both Christmas and New
Year's fell on Wednesdays), many children were absent from the centers for the
entire holiday weeks rather than for just one or two days each week. This
decrease in attendance had a significant negative impact on revenues during the
holiday period. Revenues at three of the acquired centers were negatively
impacted by a change in the regulations for reimbursement for food costs under
the USDA Food Program. This change resulted in Food Program revenues at these
centers being approximately $50,000 lower than they would have been otherwise.
Operating expenses - Operating expenses for the first six months of fiscal 1997
were $6,388,501 (100.7% of operating revenue), an increase of $1,619,048 or
33.9% from operating expenses of $4,769,453 (100.6% of operating revenue) for
the first six months of fiscal 1996. Of this increase, $1,590,075 was due to the
acquired and newly opened centers. The remaining increase was due to increases
in payroll and general and administrative costs, partially offset by a decrease
in facilities and maintenance expenses.
Payroll - Payroll expense for the first six months of fiscal 1997 was
$3,217,165 (50.7% of operating revenue), an increase of $891,848 or 38.4%
from payroll expense of $2,325,317 (49.1% of operating revenue) for the
first six months of fiscal 1996. Of this increase, $755,845 was due to the
acquired and newly opened centers, $13,686 was for additional corporate
staff added in connection with the Company's expansion program, and
$122,317 was for increased same-center salaries due to slightly higher
average salaries.
Facilities and maintenance - Facilities and maintenance costs for the first
six months of fiscal 1997 were $2,265,666 (35.7% of operating revenue), an
increase of $478,213 or 26.8% from facilities and maintenance costs of
$1,787,453 (37.7% of operating revenue) during the first six months of
fiscal 1996. This increase was due to $524,201 in costs at the acquired and
newly opened centers, an increase in equipment lease expense of $37,776,
and an increase in depreciation and amortization of $32,777. These
increases were offset by a $54,831 decrease in rent expense, a decrease in
cleaning and maintenance services costs of $37,817 due to a change in the
contractor used by the Company to provide cleaning and maintenance
services, and a decrease in other facilities and maintenance costs of
$23,893.
-8-
<PAGE>
SIX MONTHS ENDED JANUARY 31, 1997 I(FIRST SIX MONTHS OF FISCAL 1997) COMPARED TO
SIX MONTHS ENDED JANUARY 31, 1996 I(FIRST SIX MONTHS OF FISCAL 1996) (CONTINUED)
- --------------------------------------------------------------------------------
In the first six months of fiscal 1996, rent expense included $97,581 of
deferred sublease payments payable by Preschool Services, Inc. ("PSI"). In the
fourth quarter of fiscal 1996, the Company established a reserve for rental
commitments related to the remaining lease payments due by PSI. Future unpaid
sublease payments are offset against this reserve rather than being charged to
rent expense. This resulted in a decrease in rent expense in the first six
months of fiscal 1997 of $97,581, partially offset by an increase of $42,750 in
same-center rents due to moderate rent increases at several of the centers.
General and adminstrative - General and administrative expenses for the
first six months of fiscal 1997 were $905,670 (14.3% of operating
revenue), an increase of $248,987, or 37.9%, from general and
administrative expenses of $656,683 (13.9% of operating revenue) during
the first six months of fiscal 1996. Of this increase, $189,646 was
attributable to the acquired and newly opened centers. In addition,
advertising costs increased $66,859 due to continuance of a multi-media
advertising program into the Fall, and higher yellow pages costs as a
result of the new centers. This was partially offset by a decrease of
$30,770 in insurance costs. The remaining increase was due to moderate
increases in other general and administrative costs such as office
supplies and bank charges.
Net Income - Net income for the first six months of fiscal 1997 was $2,601
compared to net loss of $20,927 for the first six months of fiscal 1996,
primarily due to improved same-center operations and the reduction in rent
expense, partially offset by lower child attendance during the Christmas and New
Year's holiday periods.
THREE MONTHS ENDED JANUARY 31, 1997 I(SECOND QUARTER OF FISCAL 1997) COMPARED TO
THREE MONTHS ENDED JANUARY 31, 1996 (SECOND QUARTER OF FISCAL 1996)
- --------------------------------------------------------------------------------
Operating revenue - Operating revenue for the second quarter of fiscal 1997 was
$3,100,226, an increase of $796,011, or 34.5% from revenue of $2,304,215 for the
second quarter of fiscal 1996. Of this increase, $737,474 was due to the
inclusion of revenues of the acquired and newly opened centers, and $58,537 was
due to a 2.6% increase in same-center revenues. The increase in same-center
revenues was due to a moderate tuition increase, but was offset by a large
decrease in child attendance during the Christmas and New Year's holiday
periods. Due to the timing of the holidays this year (both Christmas and New
Year's fell on Wednesdays), many children were absent from the centers for the
entire holiday weeks rather than for just one or two days each week. This
decrease in attendance had a significant negative impact on revenues during the
holiday period. Revenues at three of the acquired centers were negatively
impacted by a change in the regulations for reimbursement for food costs under
the USDA Food Program. This change resulted in Food Program revenues at these
centers being approximately $25,000 lower than they would have been otherwise.
Operating expenses - Operating expenses for the second quarter of fiscal 1997
were $3,264,451 (105.3% of operating revenue), an increase of $851,396 or 35.3%
from operating expenses of $2,413,055 (104.7% of operating revenue) for the
second quarter of fiscal 1996. Of this increase, $772,452 was due to the
acquired and newly opened centers. The remaining increase was due to moderate
increases in payroll, facilities and maintenance, and general and administrative
expenses.
Payroll - Payroll expense for the second quarter of fiscal 1997 was
$1,602,244 (51.7% of operating revenue), an increase of $414,337 from
payroll expense of $1,187,907 (51.6% of operating revenue) for the second
quarter of fiscal 1996. Of this increase, $390,927 was due to the acquired
and newly opened centers. The remaining $23,410 increase was due to
slightly higher average salaries, partially offset by a decrease in hours
worked during the Christmas and New Year's holiday periods due to lower
child attendance.
-9-
<PAGE>
THREE MONTHS ENDED JANUARY 31, 1997 I(SECOND QUARTER OF FISCAL 1997) COMPARED TO
THREE MONTHS ENDED JANUARY 31, 1996 I(SECOND QUARTER OF FISCAL 1996) (CONTINUED)
- --------------------------------------------------------------------------------
Facilities and maintenance - Facilities and maintenance costs for the
second quarter of fiscal 1997 were $1,180,054 (38.1% of operating
revenue), an increase of $300,138 or 34.1% from facilities and maintenance
costs of $879,916 (38.2% of operating revenue) during the second quarter
of fiscal 1996. This increase was due to $286,715 in costs at the acquired
and newly opened centers, an increase in equipment lease expense of
$25,052, and an increase in depreciation and amortization of $19,099.
These increases were offset by a $17,822 decrease in rent expense and a
decrease in other facilities and maintenance costs, (primarily building
maintenance and cleaning expenses) of $12,906.
In the second quarter of fiscal 1996, rent expense included $48,385 of
deferred sublease payments payable by PSI. In the fourth quarter of fiscal
1996, the Company established a reserve for rental commitments related to
the remaining lease payments due by PSI. Future unpaid sublease payments
are offset against this reserve rather than being charged to rent expense.
This resulted in a decrease in rent expense in the second quarter of fiscal
1997 of $48,385, partially offset by an increase of $30,563 in same-center
rents due to moderate rent increases at several of the centers.
General and adminstrative - General and administrative expenses for the
second quarter of fiscal 1997 were $482,153 (15.6% of operating revenue),
an increase of $136,921, or 39.7%, from general and administrative
expenses of $345,232 (15.0% of operating revenue) during the first three
months of fiscal 1996. Of this increase, $94,810 was attributable to the
acquired and newly opened centers. In addition, advertising costs
increased $26,240 due to continuance of a multi-media advertising program
into the Fall, and higher yellow pages costs as a result of the new
centers. The remaining increase was due to moderate increases in other
general and administrative costs such as office supplies and bank charges.
Net Income - Net loss for the second quarter of fiscal 1997 was $133,604
compared to a loss of $92,627 for the second quarter of fiscal 1996, primarily
due to lower than normal child attendance over the Christmas and New Year's
holiday periods.
TRENDS
- --------------------------------------------------------------------------------
Due to a moderate October tuition increase and continued tight management of
costs, same-center operating results continued to improve over last year.
Operations at the two newly opened centers continue to improve as these centers
move through their initial "ramp-up" phase. In addition, profitability should
improve as the acquired centers are fully integrated into the Company. The
decrease in child attendance over the holiday period, while having a negative
impact on the second quarter's operating results, should not have an impact on
future periods.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
Net cash used in operating activities for the first quarter of fiscal 1997 was
$235,555. Cash was sufficient to meet the normal operating requirements of the
Company. Due to the Company's purchase of four child care centers in August,
1996, and amounts spent to upgrade the existing equipment at the acquired
centers as well as to equip the newly opened centers, working capital decreased
by $700,439, from $1,904,621 at July 31, 1996 to $1,204,182 at January 31, 1997.
Net cash used in investing activities was $694,189, consisting of purchases of
property and equipment totaling $496,691, and $494,264 in costs related to the
centers acquired by the Company in August. These uses were partially offset by
$296,766 in proceeds from the sale and leaseback of a portion of the equipment
purchased over the past six months.
-10-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- --------------------------------------------------------------------------------
Net cash used in financing activities was $164,378, consisting of additional
notes payable of $54,408 for the purchase of vehicles and $50,000 in borrowings
under the Company's working capital credit line, offset by repayments of notes
payable and capital leases of $123,182 and payment of dividends on Series B and
C Preferred Stock of $145,604. Dividends payable on Series B and C Preferred
Stock as of January 31, 1997 were $44,367.
The Company is current on all principal and interest payments on its notes
payable and capital leases. The Company has two lines of credit with a financial
institution totaling $500,000: 1) a $250,000 revolving working capital line,
bearing interest at prime (8.25% at January 31, 1997) plus 1.00%, and; 2) a
$250,000 nonrevolving line of credit for the purchase of vehicles and equipment,
bearing interest at prime plus 1.25%. 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 in January of 1998. 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 additional centers in the Summer and Fall
1997. Under current plans, one of these centers will be an on-site center at the
corporate headquarters of Swift Transportation Company, Inc. The other new
centers to be 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 to be
sufficient to satisfy the needs at its existing schools for the next 12 months
and to open the new centers as planned.
The Company is also considering various additional 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.
-11-
<PAGE>
PART II OTHER INFORMATION
Items 1-3 Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
The 1996 Annual Meeting of Stockholders was held on January 24, 1997.
At the meeting, James R. Evans was elected to serve on the Board of
Directors for a three-year term. The stockholders also ratified a
proposal to change the name of the company from Sunrise Preschools,
Inc. to Sunrise Educational Services, Inc. The number of shares
represented in person or by proxy at the meeting was 4,511,925. Based
on the shares represented at the meeting, voting results were as
follows:
For James R. Evans 4,409,045 - 97.72%
Withheld 102,880 - 2.28%
For the Name Change 4,416,271 - 97.88%
Withheld 95,654 - 2.12%
The terms of office for Barbara L. Owens, Dr. Richard H. Hinze and
Robert A. Rice continued after the meeting.
Items 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
A report on Form 8-K was filed on February 25, 1997 to report the
name change from Sunrise Preschools, Inc. to Sunrise Educational
Services, Inc
-12-
<PAGE>
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 EDUCATIONAL SERVICES, INC.
Date: March 7, 1997 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 Controller (Principal Financial March 7, 1997
- ---------------------- Officer,Principal Accounting Officer) -------------
Ronald J. O'Connor
-13-
EXHIBIT 11
SUNRISE EDUCATIONAL SERVICES, INC. AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JANUARY 31, JANUARY 31,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------
PRIMARY:
<S> <C> <C> <C> <C>
Common Shares Outstanding,
Beginning of Year 2,982,968 2,935,894 2,982,968 2,935,894
Effect of weighting shares:
Issuance of Common Stock 9,188 -- 18,376 --
- -----------------------------------------------------------------------------------------------
Weighted Average Number of Common
Shares and Common Share
Equivalents Outstanding 2,992,156 2,935,894 3,001,344 2,935,894
===============================================================================================
Net Loss Available for
Common Stock $ (263,599) $ (95,927) $ (266,704) $ (155,127)
===============================================================================================
Net Loss per Common Share
and Common Share Equivalent $ (0.09) $ (0.03) $ (0.09) $ (0.05)
===============================================================================================
</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 SIX MONTHS
ENDED JANUARY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-QSB FOR THE QUARTER ENDED JANUARY 31, 1997.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,536,494
<SECURITIES> 0
<RECEIVABLES> 608,777
<ALLOWANCES> 8,000
<INVENTORY> 34,579
<CURRENT-ASSETS> 2,582,268
<PP&E> 4,995,595
<DEPRECIATION> 2,982,050
<TOTAL-ASSETS> 6,991,345
<CURRENT-LIABILITIES> 1,378,086
<BONDS> 0
857,333
0
<COMMON> 30,759
<OTHER-SE> 3,515,255
<TOTAL-LIABILITY-AND-EQUITY> 6,991,345
<SALES> 0
<TOTAL-REVENUES> 6,342,854
<CGS> 0
<TOTAL-COSTS> 6,388,501
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40,538
<INTEREST-EXPENSE> (8,622)
<INCOME-PRETAX> 2,601
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,601
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> 0
</TABLE>
