EDLEUN SECOND QUARTER 2010 REPORT MARKS COMMENCEMENT OF ITS SUBSTANTIAL
CONSOLIDATION AND GROWTH STRATEGY IN THE CANADIAN CHILDCARE MARKET
CALGARY, Aug. 26 /CNW/ - Edleun Group, Inc. ("Edleun" or the "Company") (TSX-V: EDU), the leading consolidator and developer of childcare facilities across Canada, today announced significant progress in implementing its consolidation and growth strategies in the Canadian childcare market as well as its financial results for the three and six month periods ended June 30, 2010. All amounts are in Canadian dollars unless otherwise specified.
Selected Highlights for the Second Quarter and Period Subsequent to June 30, 2010
- The creation of Edleun Group, Inc., a publicly-traded company focused on the consolidation and development of childcare centres in the Canadian childcare industry, through the completion of the "three cornered" amalgamation under the Canada Business Corporations Act involving San Anton Capital Inc. (a Capital Pool Company), Edleun, Inc., and San Anton Subco, a wholly-owned subsidiary of the Company, constituting the Qualifying Transaction for San Anton Inc. under the TSX Venture Exchange rules; - The raising of equity capital of $40.7 million (gross proceeds) through the sale of subscription receipts at $0.50 each, which were subsequently converted to common shares of the Company (the "Initial Financing"); - Commencement of trading of Edleun Group, Inc. common shares on the TSX Venture Exchange under the ticker symbol "EDU"; - Acquisition of 11 childcare centres (including two real estate properties) ("Initial Childcare Acquisition") in Alberta for total consideration of $8.75 million; - Purchase of six real estate properties used in the operation of the 11 centres ("Real Estate Acquisition") noted above for $5.65 million; - Cash and cash equivalents of $22.8 million at June 30, 2010 to fund further acquisitions, development and operations; and - The appointments of Mr. Barry Reichmann, the President and CEO of Reichmann International Inc., and Mr. Jeffrey Olin, the President and CEO of Vision Capital Corporation to the Company's Board of Directors.
Subsequent to quarter end the Company announced:
- Acquisition of six additional childcare centres in Alberta for cash consideration of $7.2 million.
"Our near term focus includes the upgrade of our acquired centres and driving improvements in occupancy rates following the summer vacation season, while evaluating additional acquisition opportunities to accelerate our growth," said Mr. Leslie Wulf, Chief Executive Officer of Edleun. "With 17 centres in our portfolio and capital in place to capitalize on our substantial pipeline of acquisition and development opportunities, Edleun is well positioned to generate meaningful returns to our shareholders through profitable operations and capital appreciation."
Financial Review
For the 47 days of operations ended June 30, 2010 since the "three cornered amalgamation" that effectively created Edleun, the Company reported revenue of $867,252 (June 30, 2009 - $ nil), net operating income at the centre level ("centre margin") of $240,928 (June 30, 2009 - $nil) and net loss of $1,702,813 (June 30, 2009 - $nil).
Operations for this period were impacted by, among other things, start up costs and the adoption of new accounting guidelines in CICA Handbook Section 1582, pursuant to which property pre-acquisition and transaction costs amounting to $261,240 were expensed as incurred. As the Company executes its consolidation and development strategy in the Canadian childcare industry, it will routinely incur such expenses which will, as compared to previous accounting rules, serve to negatively impact the Company's reported net income/loss.
The Company's business, which includes the ownership of a significant portfolio of real estate, reflects expenses that include non-cash charges such as depreciation, stock based compensation expense and deferred taxes, and property acquisition costs as noted above. Reflecting these factors and consistent with the practice of the Canadian real estate industry, the Company focuses on Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO") as key financial metrics to measure and compare operating performance. FFO and AFFO are non-GAAP supplemental financial measures and a complete reconciliation containing adjustments from GAAP net income to FFO and AFFO is included in this press release. See the section below titled "Non-GAAP Supplemental Financial Measures" for more information.
Management views AFFO as a key measure of operating performance. AFFO for the three months ended June 30, 2010 was calculated by adjusting the net loss for: property acquisition costs expensed as incurred; depreciation and stock-based compensation expense; and expenses incurred in respect of the period prior to the Company's commencement of operations and revenue generation on May 14, 2010.
AFFO for the 47 days of operations ended June 30, 2010 was negative $205,642. This result was anticipated, given the Company began its operations with 11 childcare centres and had not reached the scale required for positive AFFO. AFFO is expected to improve in subsequent quarters as the Company deploys its cash on hand towards the acquisition and development of new centres. In this regard, management estimates that the 11 childcare centres initially acquired should generate approximately $2.3 million of annual centre margin. The Company currently estimates its future annual corporate, public company and administrative expenses to be approximately $3.6 million. Using the Company's $22.8 million of cash on hand to complete accretive acquisitions, six of which were completed subsequent to June 30, 2010, Edleun expects to generate incremental centre margin to cover and exceed General and Administrative Expenses ("G&A").
FFO/AFFO
------------------------------------------------------------------------- Three Months Ended ------------------------------ June 30, 2010 June 30, 2009 ------------------------------------------------------------------------- Net loss for the period $ (1,702,813) $ - Add: Depreciation of property and equipment 17,510 - Property acquisition costs expensed as incurred 261,240 - ------------------------------------------------------------------------- FFO $ (1,424,063) $ - Add: Stock based compensation - Finders Fees 300,000 - Stock based compensation - Option Grants 355,316 - Non recurring relocation costs and pre-Qualifying Transaction amounts expensed 323,524 - Accrued 2010 public company costs for the period prior to Qualifying Transaction 239,581 - ------------------------------------------------------------------------- AFFO $ (205,642) $ - ------------------------------------------------------------------------- -------------------------------------------------------------------------
For the six months ended June 30, 2010, the Company reported centre margin of $240,928 (June 30, 2009 - $nil), and a net loss of $1,753,313 (June 30, 2009 - $nil).
G&A represents costs incurred for corporate level activities and includes executive salaries, centre development and operations management and costs ancillary to the public listing for the Company's shares. G&A was impacted by relocation costs, set up costs for the corporate office and costs incurred in connection with, and prior to, the closing of the Qualifying Transaction.
The Company has adopted CICA Handbook Section 1582 "Business Combinations" and, as such, is required to expense all transaction and pre-acquisition costs related to its childcare centre acquisitions. Property acquisition costs incurred in the second quarter of fiscal 2010 were $261,240.
Stock-based compensation expense reported in the three month period included $300,000 for finders fees to parties associated with San Anton Capital Inc. in connection with the Qualifying Transaction and recognition of fair value of $355,316 for stock options granted to management and board members following the closing of the Qualifying Transaction. As such, a portion of the stock-based compensation expense for this quarter will be non-recurring.
Under CICA Handbook Section 1582, the basic and diluted weighted average number of shares outstanding for the three and six months ended June 30, 2010 were 50,965,266 and 28,109,609, respectively. Basic and diluted loss per share for the three and six months ended June 30, 2010 were $0.033 and $0.062, respectively. Currently, there are 92,220,301 common shares outstanding.
The Company's Initial Childcare Acquisition, the Real Estate Acquisition, and operations were funded from the $40,742,500 of gross proceeds from the Initial Financing. As at June 30, 2010, the Company had working capital of $22,554,507 and cash and cash equivalents of $22,769,218. As at August 16, 2010 the Company has no debt but plans to arrange conventional first mortgage financing on its real estate which should augment the Company's current financial resources.
Cash used in operating activities of $862,876 resulted primarily from 47 days operation of the Initial Childcare Acquisition centres, G&A and costs associated with property acquisition, organization and start-up.
The primary investing activity undertaken by the Company during the period involved the acquisition of the initial 11 childcare centres including eight real estate properties resulting in cash outflow of $13,400,000. Additional investing activities include major retrofit expenditures for the centres amounting to $550,348.
Cash provided by financing activities resulted from the Company's Initial Financing. Total gross proceeds from the Initial Financing were $40,742,500. Total share issuance costs incurred were $3,866,655 for net proceeds of $36,875,845.
Outlook
Edleun believes that it will create long term value for its stakeholders through management's focus on:
- Brand and Quality - Position Edleun as the number one provider of high quality childcare in Canada - Create a standard of excellence through which all Edleun stakeholders will benefit - Deliver new standards of childcare in Canada, including: - Curriculum - Nutritious meal programs - High quality physical premises - Continuous learning and professional development for staff - Organic Growth - Optimize occupancy rates and margins at each Edleun centre - Create value through sustainable and growing cash flow and capital appreciation - Strategic Growth - Acquire centres and develop greenfield sites in under-served markets - Maintain rapport with existing investors and investment banks while creating and expanding the Company's exposure to capital markets and investors - Optimize the company's overall cost of, and access to, capital through a prudent mix of debt and equity instruments
Over the course of the second quarter, the Company has made significant advances to upgrade its 11 childcare centres to meet Edleun's standards. On July 31, 2010 the Company acquired an additional six childcare facilities with the intention of upgrading them to Edleun standards. The Company will continue to selectively acquire and/or develop properties that are well-located and add strategic value, provided they are accretive to FFO.
Conference Call
Edleun Group Inc. will hold a conference call on Monday August 30th, 2010 at 9:00 a.m. EDT, to discuss the results of the second quarter of fiscal 2010. The Company's full Financial Statements and Management's Discussion and Analysis will be available on SEDAR at www.sedar.com.
To access the conference call by telephone, dial (647) 427-7450 or 1-888-231-8191. Please connect approximately 15 minutes prior to the beginning of the call. The conference call will be archived for replay until Monday September 6, 2010, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-800-642-1687 and enter the reservation number: 96849994 followed by the number sign.
A live audio webcast of the conference call will be available at: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3200120. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above website for 90 days.
About Edleun Group Inc.
Edleun is a leading provider of high-quality, educational childcare in Canada. The Company is committed to providing children, families and employers with access to, and choice of, quality early childhood education programs, helping Canadians balance their work and family lives.
Edleun's goal is to become the leading educational and childcare provider in Canada. The Company's objectives include the acquisition and improvement of existing childcare centres and development of new childcare centres across Canada.
NON-GAAP SUPPLEMENTAL FINANCIAL MEASURES
The Company uses "centre margin" as a performance indicator of childcare centre operating results. Centre margin does not have a standardized meaning prescribed by GAAP and therefore may not be comparable with the calculation of similar measures by other companies. Centre margin is determined by deducting centre expenses from revenue.
The Company also uses FFO and AFFO as indicators of financial performance. FFO and AFFO do not have standardized meanings prescribed by GAAP. FFO and AFFO are presented to assist in the analysis of the Company's performance. The Company's method of calculating FFO and AFFO may be different from other corporations and, accordingly, may not be comparable to such other corporations. FFO and AFFO: (i) do not represent cash flow from operating activities as defined by GAAP; (ii) are not indicative of cash available to fund all liquidity requirements, including capital for growth; and (iii) are not to be considered as alternatives to GAAP net income for the purpose of evaluating operating performance.
FORWARD-LOOKING STATEMENTS:
Certain statements in this Release which are not historical facts may constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Any statements related to Edleun's projected revenues, earnings, growth rates, revenue mix, staffing and resources, and product plans are forward-looking statements as are any statements relating to future events, conditions or circumstances. The use of terms such as "believes", "anticipated", "expected", "projected", "targeting", "estimate", "intend" and similar terms are intended to assist in identification of these forward-looking statements. Readers are cautioned not to place undue reliance upon any such forward-looking statements. Such forward-looking statements are not promises or guarantees of future performance and involve both known and unknown risks and uncertainties that may cause the actual results, performance, achievements or developments of Edleun to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions. Except as required by law, Edleun does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.
The Company undertakes no obligation, except as required by law, to update publicly or otherwise any forward-looking information, whether as a result of new information, future events or otherwise, or the above list of factors affecting this information. Many factors could cause the actual results of Edleun to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Interim Consolidated Balance Sheets (Unaudited) ------------------------------------------------------------------------- June 30, December 31, 2010 2009 ------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 22,769,218 $ - Accounts receivable 485,693 110 Prepaid expenses 117,178 - Investment 115,976 - ------------------------------------------------------------------------- 23,488,065 110 Property and equipment 8,345,610 - Goodwill 6,587,127 - ------------------------------------------------------------------------- $ 38,420,802 $ 110 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities Accounts payable and accrued liabilities $ 933,558 $ 75,000 Shareholders' equity Share capital 38,511,928 110 Contributed surplus 803,628 - Deficit (1,828,312) (75,000) ----------------------------------------------------------------------- 37,487,244 (74,890) Commitments Subsequent event ------------------------------------------------------------------------- $ 38,420,802 $ 110 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Interim Consolidated Statements of Operations and Comprehensive Loss (Unaudited) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, June 30, June 30, 2010 2009 2010 2009 ------------------------------------------------------------------------- Revenue $ 867,252 $ - $ 867,252 $ - Centre expenses Salaries, wages and benefits 491,023 - 491,023 - Other operating expenses 103,177 - 103,177 - Operating leases 32,124 - 32,124 - ------------------------------------------------------------------------- 240,928 - 240,928 - General and administrative 1,009,924 - 1,060,424 - Property acquisition costs 261,240 - 261,240 - Stock-based compensation 655,316 - 655,316 - Depreciation 17,510 - 17,510 - ------------------------------------------------------------------------- 1,943,990 - 1,994,490 - ------------------------------------------------------------------------- Loss before the undernoted items (1,703,062) - (1,753,562) - Other income 249 - 249 - ------------------------------------------------------------------------- Loss before income taxes (1,702,813) - (1,753,313) - Income taxes - - - - ------------------------------------------------------------------------- Net loss and comprehensive loss $(1,702,813) $ - $(1,753,313) $ - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Loss per share: Basic and diluted $ (0.033) $ - $ (0.062) $ - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of shares outstanding: Basic and diluted 50,965,266 - 28,109,609 - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Interim Consolidated Statements of Deficit (Unaudited) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, June 30, June 30, 2010 2009 2010 2009 ------------------------------------------------------------------------- Deficit, beginning of period $ (459,744) $ - $ (409,244) $ - Reverse takeover adjustment Legal parent deficit, beginning 264,942 - 264,942 - Legal parent net loss, January 1, 2010 to May 14, 2010 69,303 - 69,303 - Net loss and comprehensive loss (1,702,813) - (1,753,313) - ------------------------------------------------------------------------- Deficit, end of period $(1,828,312) $ - $(1,828,312) $ - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Interim Consolidated Statements of Cash Flows (Unaudited) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, June 30, June 30, 2010 2009 2010 2009 ------------------------------------------------------------------------- Operating activities: Net loss $(1,702,813) $ - $(1,753,313) $ - Items not affecting cash: Depreciation 17,510 - 17,510 - Stock-based compensation 655,316 - 655,316 - Change in non-cash operating working capital 167,111 - 109,941 - ----------------------------------------------------------------------- Cash used in operating activities (862,876) - (970,546) - Investing activities Business acquisitions (13,400,000) - (13,400,000) - Reverse takeover cash acquisition 706,597 - 814,267 - Purchase of property and equipment (550,348) - (550,348) - ----------------------------------------------------------------------- Cash used in investing activities (13,243,751) - (13,136,081) - Financing activities Proceeds of share issue 40,742,500 - 40,742,500 - Share issuance costs (3,866,655) - (3,866,655) - ----------------------------------------------------------------------- Cash provided by financing activities 36,875,845 - 36,875,845 - ------------------------------------------------------------------------- Change in cash and cash equivalents 22,769,218 - 22,769,218 - Cash and cash equivalents, beginning - - - - ------------------------------------------------------------------------- Cash and cash equivalents, ending $22,769,218 $ - $22,769,218 $ - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents consists of: Cash $ 768,374 $ - $ 768,374 $ - Term deposits 22,000,844 - 22,000,844 - ------------------------------------------------------------------------- $22,769,218 $ - $22,769,218 $ - ------------------------------------------------------------------------- -------------------------------------------------------------------------
%SEDAR: 00025544E
For further information: Leslie Wulf, Chief Executive Officer of Edleun Group, Inc. at (403) 800-0890; or Nick Hurst of the Equicom Group, Inc. at (403) 218-2835
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