-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G3VjjCG2ZPWA2cjq6jkm1F1J3XihcQimKXl4AvOWPJiK8saNRTbZyGotwT/cS2tx Z7lOQwhCRadSYvpeFrNZxA== 0001042910-99-000002.txt : 19990106 0001042910-99-000002.hdr.sgml : 19990106 ACCESSION NUMBER: 0001042910-99-000002 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19990105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HALDANE BERNARD ASSOCIATES INC CENTRAL INDEX KEY: 0000801557 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 592720407 STATE OF INCORPORATION: FL FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-18097 FILM NUMBER: 99500847 BUSINESS ADDRESS: STREET 1: 192 LEXINGTON AVENUE STREET 2: 15TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126793360 MAIL ADDRESS: STREET 1: 2600 N MILIARY TRAIL STREET 2: SUITE 270 CITY: BOCA RATON STATE: FL ZIP: 33431 FORMER COMPANY: FORMER CONFORMED NAME: QUANTUM VENTURES GROUP INC DATE OF NAME CHANGE: 19920703 10KSB/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------- AMENDED FORM 10K-SB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file May 31, 1998 number 000-18097 BERNARD HALDANE ASSOCIATES, INC. -------------------------------- (Exact name of Registrant as specified in its charter) QUANTUM VENTURES GROUP, INC. ---------------------------- (Former name of Registrant) Florida 59-2720407 ------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 192 Lexington Avenue, 15th Floor, New York, New York 10016 - ---------------------------------------------------------- (Address of Principal Executive Offices) 444 Park Avenue South, Suite 503, New York, New York 10016 - ---------------------------------------------------------- (Former address of principal executive offices) Registrant's telephone number: (212) 679-3360 ========================================== Securities registered pursuant to Section 12(b) of the Act: ----------------------------------------------------------- Name of each exchange Title of each class on which registered - ------------------- ------------------- COMMON NONE Securities registered pursuant to Section 12(g) of the Act. COMMON (Title of Class) 1 Item 6. Selected Financial Data - ---------------------------------- Summary of Operations: For the Years Ended May 31, 1998, 1997, 1996, 1995 and 1994
1998 1997 1996 (1) 1995 (1) (2) 1994 (1) (2) Revenue Royalty Income $2,411,659 $ 2,480,866 $2,244,818 $1,747,988 $1,214,091 Sublicense Income $ 179,556 $ 159,697 $ -0- $ 104,214 $99,625 Consulting Income $ 208,694 $ 640 $ -0- -0- -0- Other Income $ -0- $ -0- $ -0- $35,400 $ -0- Interest Income $ 88,825 $ 106,592 $ 99,621 $49,785 $ 14,062 Total Revenues $2,888,734 $2,747,795 $2,344,439 $1,937,387 $1,327,778 Net Income $ 162,070 $ 441,092 $ 553,440 $ 609,905 $ 161,171 Net Income per Share of Common Stock (Basic) $0.17 $0.48 $0.48 $0.57 $0.16 (Diluted) $0.16 $0.45 $0.46 $0.53 $0.16
(1)Restated for discontinued operations of retail travel agency. (2)Restated for the equity of minority interests in earnings not previously recorded. Net income and net income per share were reduced as follows: 1995 1994 ---- ---- Net income (loss) $ (89,200) $ (44,903) Net income (loss) per share (. 08) (.04) Diluted (. 08) (. 04) 2 SUMMARY OF BALANCE SHEET AS OF MAY 31
1998 1997 1996 (1) 1995 (1) 1994 (1) (2) ---- ---- -------- -------- ------------ CURRENT ASSETS $2,528,263 $2,538,234 $2,147,294 $2,007,844 $1,128,480 Other Assets $1,399,935 $1,445,854 $1,277,536 $1,504,467 $1,529,655 TOTAL ASSETS $3,928,198 $3,984,088 $3,424,830 $3,512,311 $2,658,135 CURRENT LIABILITIES Account Payable and other Current $ 221,762 $ 356,973 $ 149,695 $ 213,660 $ 157,424 Liabilities Current Maturities of Long Term Debt $ 42,437 $ 235,240 $ 245,956 $ 315,951 $ 307,065 Other Liabilities $ 622,572 $ 512,518 $ 555,799 $ 591,437 $ 702,988 Minority Interests - - - - $ 137, 088 Stockholder's Equity $3,041,427 $2,879,357 $2,473,380 $2,391,263 $1,353,570 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,928,198 $3,984,088 $3,424,830 $3,512,311 $2,658,135
(1)Restated for discontinued operations of retail travel agency. (2) Restated for minority interests not previously recorded. These interests were purchased in the fiscal year ended May 31, 1995 and as such there was no net effect on financial statements after that date. Stockholders equity at May 31 1994 and 1993 ere reduced for minority interest as follows: Investment by minority $ 250,000 Share of losses 1989 to May 31, 1994 (112,912) ---------- Book Value of minority interest May 31, 1994 $ 137,088 ========== 3 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations While the Company remains profitable, generating approximately $275,000 in pre-tax earnings, royalty revenues from licensee offices declined from $2,480,866 to $2,411,659, the first decline in royalty revenues since the Company acquired the rights to the Bernard Haldane license. This represents a decline of approximately 3% in gross royalties. Management does not believe this decline to represent the start of a trend. During this past year a licensee operating six offices in Texas and California breached the sublicensee agreement by failing to pay required royalties. Rather than comply with the terms and conditions of the sublicense agreement, the sublicensee unilaterally terminated the agreement. The Company has initiated legal proceedings and seeks compensatory and punitive damages. In addition, the Company intends to reopen offices in these markets vacated by the former licensee. Further limiting royalty income was the voluntary termination of a second license agreement encompassing four offices. With clients to service and no time to interview and investigate prospective purchasers, the Company, through wholly owned subsidiaries, was required to take over the operations of these offices. While operating these offices, the Company generated consulting revenues of approximately $171,000. However, payroll and related costs associated with the operation of these offices resulted in a significant operating deficit. During the coming year, management intends to transfer these offices to existing licensees or other individuals currently within the Haldane network and to date has transferred three of these offices. The Company intends to reestablish its presence in Texas and has opened a licensed office in Dallas. However, further expansion in the United States will be limited. Haldane offices are already open in almost every major metropolitan area in the United States and Canada. While there will likely be additional expansion into smaller metropolitan areas, the licensing fee and the royalty revenues which can be generated will likely be significantly less than the typical Haldane office as the geographical and demographical market for the Haldane services and products approach a saturation level. In an effort to increase its revenue base, the Company has opened two offices in the United Kingdom. Management remains optimistic that the Company will be able to expand in the overseas market. However, logistical constraints, operational concerns and familiarization with local rules and customs will most likely limit a rapid expansion in Europe. 4 In an effort to diversify revenues, management identified a new targeted market and developed a special program for this market, First Career. First Career provides career management for recently graduated college students. To date, First Career has incurred losses in excess of $500,000 and there can be no assurance that management will be able to reverse this trend and market the program effectively and profitably. Last year, the Company's Board of Directors received an offer from Mr. Weinger, Mrs. Weinger, the wife of Mr. Weinger, and Mrs. Nadel, the wife of the Company's former president, to purchase the shares of stock owned by the outside investors at a cost of $2.75 per share. In conjunction therewith, the Board of Directors determined that it would be in the best interests of the company and the outside shareholders to name two independent directors to the Company's Board of Directors to consider and vote upon the fairness of the offer. On April 25, 1997, Jeffrey Schachter and Gregg Weiss were elected to the Board of Directors. In order for the Board to determine the fairness of the offer, Laidlaw & Co. was retained to render a fairness opinion in connection with the proposed "going private" transaction. On August 11, 1997 Laidlaw & Co. opined that from a financial point of view , it is their opinion that the public shareholders would be entitled to receive the sum of $3.00 per share. After reviewing the fairness opinion, Mr. and Mrs. Weinger and Mrs. Nadel increased their offer to purchase the shares of common stock owned by the public investors to $3.00 per share. Subsequent thereto, the Board of Directors met and voted to accept the offer made by Mrs. Nadel and Mr. and Mrs. Weinger. The offer will be submitted to a vote of the shareholders. Mr. and Mrs. Weinger and Mrs. Nadel (the "Weinger-Nadel Group") formed Bernard Haldane Acquisition Corp., a Florida corporation ("NEWCO") for the purpose of merging with and/or combining with the Company. The Weinger-Nadel Group will contribute 731,670 of their shares of Common Stock in the Company to NEWCO in exchange for securities of NEWCO. The Weinger-Nadel Groups's proposal is to be submitted to the vote of the Company's stockholders and will be subject to their approval. However, members of the Weinger- Nadel Group have, and therefore, NEWCO, will have a sufficient number of votes to carry stockholder approval of the proposal. It is anticipated that if such merger or combination is approved, all stockholders (other than member s of the Weinger-Nadel Group), will be entitled to receive $3.00 per share for their shares of the Company's Common Stock or such amount as if found appropriate in court assessing their rights under Florida law. In furtherance of the consummation of this transaction, the Company has filed a Preliminary Schedule 14A and Schedule 13E-3 with the Securities and Exchange Commission (the "Commission"). The 5 Company has responded to comments submitted by the Commission and anticipates disseminating a proxy statement to all stockholders of record detailing the proposal, the reasons for same and described stockholder rights. LIQUIDITY CAPITAL RESOURCES As of May 31, 1998 the Company had $2,528,263 in current assets as compared to $2,538,234 on May 31, 1997. Accounts receivable for 1998 total $315,436 as compared to $419,470 in 1997. Notes receivable declined from $600,389 to $537,970. This decline in both accounts receivable and notes receivable is attributable to increased collection efforts on the part of the Company. The Company has also recorded prepaid expenses and other miscellaneous receivables of $185,957 as compared to $60,158 for the prior year. Total assets declined from $3,984,088 to $3,928,198. This decline can be attributable to the amortized cost of the Haldane license and does not reflect an overall decline in the fair market value of the Company's assets. Accounts payable declined from $207,316 to $127,314, a decline of approximately 39% and total current liabilities declined from $592,213 to $264,199, a decline of more than 55%. Long term debt has increased from $498,839 to $599,135. For 1998, cash flow from operating activities totaled $439,613 as compared to $750,972 in 1997 and $746,509 in 1996. For 1998, the Company increased its allowance for credit losses from $41,000 to $119,500, an increase of $78,500. A significant portion of the increase in the allowance for credit losses is the result of notes receivable from sublicensee offices where owners have experienced financial and cash flow difficulties. The Company has informally extended credit terms until such sublicensees better able to repay their notes according to their respective terms. Management does not have concerns regarding the collect- ability of these accounts since the loans to the sublicensee offices are secured by the license, a default under the note payment would result in the loss of the license. Management does not have concerns regarding the collect ability of its other accounts receivable or notes receivable. 6 The Company believes that its current cash position and working capital are sufficient to meet its operational requirements for the coming year. Royalty revenues from licensee offices and the sale of territorial rights to the Bernard Haldane offices are expected to be sufficient to meet the Company's ongoing operational expenses. Management does not anticipate the need for any significant capital expenditures in the coming year which would require any third party financing. Nor does the Company believe that there is any material risk of any sublicensee seeking rescission pursuant to any technical violations of state franchising statutes. RESULTS OF OPERATION The Company reported income from continuing operations before income taxes of $275,605 on revenues of $2,888,734, and net after tax income of $162,070. This compares to a net after tax income of $461,092 on revenues of $2,747,795 for the fiscal year ended May 31, 1997 and net after tax income of $533,440 on revenues of $2,344,439 for 1996. Royalty income from Haldane offices decreased from $2,480,866 in 1997, to $2,411,659 in 1998. This decline of almost 3% in royalty revenue is primarily attributable to the departure of two licensees from the organization. The Company took over the operation of four of the Haldane offices (three of which has since been sold) and hopes to open new offices in those territories where the licensee breached the sublicensing agreement and abandoned the organization. The Company in 1998 reported $208,694 in consulting income after showing only nominal income in 1997 and no income at all in 1996. Approximately $63,000 of this revenue is attributable to the operations of First Career and the balance is attributable to revenues earned from the operation of Haldane offices in those markets where the license was terminated by Haldane. Payroll and related costs continue to increase; rising from $362,554 to $453,573 to $773,945. This increase can be primarily attributable to increased costs and expenses associated with the operations, management and oversight of the Haldane operations in those cities where the Company assumed operations of the Haldane office as well as costs associated with the operation of First Career. Advertising expenditures increased from $78,544 to $144,699. This increase in advertising expense is due primarily to costs incurred by both the company owned Haldane offices and First Career. Income before taxes was $275,605 as compared to $752,318 in 1997 and $841,768 in 1996. Net income after taxes continues to decline, falling from $533,440 in 1996 to $461,092 in 1997 and 7 $162,070 in 1998. Management attributes this significant decline in net income to the fact that the Company was not able to recognize royalty revenues from the operation of the Haldane offices in six cities located throughout the Southwest and the fact that the Company was forced to operate four offices when the owner defaulted under the sublicensing agreement and left the organization. Management hopes to open new licensed offices throughout the Southwest and transfer ownership of the Company owned offices to an existing licensee(s). The Company anticipates increases in royalty payments in the coming year as the existing Haldane offices generate marginal increases in revenues. However, it is unlikely that the Company will be able to maintain its prior growth rate as fewer new markets become available and competition in existing markets becomes increasingly difficult. Management remains disappointed with the results of launch of First Career. While the focus and pricing of the program have been modified, there can be no assurances that the Company will continue to fund and operate First Career. YEAR 2000 COMPLIANCE The Company's systems are Year 2000 ("Y2K") compliant. The cost of such compliance by the Company was less than $10,000. The Y2K compliance issue is the result of computer programs being written using two digits rather than four to define the applicable year. Computer programs that have time sensitive software may recognize a date using "00" as the year 1900 rather than 2000. This could result in a systems failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company does not know if all licensees are Y2K compliant but believe that there will be no material adverse impact upon the Company if an individual licensee's office is not Y2K compliant. 8 The Company does not know if it s licensees are Y2K compliant but believe that there will be no material adverse impact upon the Company if an individual licensee's office is not Y2K compliant. Item 8. Financial Statements and Supplementary Data ---------------------------------------------------- AS FOLLOWS 9 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES INDEX FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report F-2 Consolidated Balance Sheets May 31, 1998 and 1997 F-3 - F-4 Consolidated Statements of Income Years Ended May 31, 1998, 1997 and 1996 F-5 - F-6 Consolidated Statements of Changes in Stockholders' Equity Years Ended May 31, 1998, 1997 and 1996 F-7 Consolidated Statements of Cash Flows Years Ended May 31, 1998, 1997 and 1996 F-8 - F-9 Notes to Consolidated Financial Statements F-10 - F-26
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors Bernard Haldane Associates, Inc. We have audited the accompanying consolidated balance sheets of Bernard Haldane Associates, Inc. and Subsidiaries as of May 31, 1998 and 1997 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended May 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bernard Haldane Associates, Inc. and Subsidiaries as of May 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended May 31, 1998, in conformity with generally accepted accounting principles. MILLER, ELLIN & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS August 13, 1998 New York, New York F-2 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
MAY 31, --------------------------- 1998 1997 ------------- ------------ (Restated) (Restated) CURRENT ASSETS: Cash and cash equivalents $ 1,693,220 $ 1,698,099 Short-term investments 108,908 55,426 Accounts receivable - net of allowance for doubtful accounts of $180,000 in 1998 and $290,000 in 1997 (includes receivables from related parties of $100,635 and $86,413 in 1998 and 1997, respectively) 315,436 419,470 Notes receivable - net of allowance for credit losses of $15,000 in 1998 and $24,000 in 1997, current portion) 89,855 149,080 Due from related parties 8,887 11,001 Prepaid expenses and miscellaneous receivables 185,957 60,158 Deferred taxes 126,000 145,000 ------------ ------------ Total current assets 2,528,263 2,538,234 ------------ ------------ OTHER ASSETS: Licenses - net of accumulated amortization of $1,870,372 in 1998 and $1,657,917 in 1997 787,626 864,611 Equipment, fixtures and leasehold improvements - net of accumulated depreciation of $46,165 in 1998 and $28,871 in 1997 48,374 50,831 Security deposits and other 115,820 79,103 Notes receivable - net of allowance for credit losses of $119,500 in 1998 and $41,000 in 1997 (includes receivables from related parties of $44,060 and $29,247 in 1998 and 1997, respectively) 448,115 451,309 ------------ ------------ Total other assets 1,399,935 1,445,854 ------------ ------------ TOTAL ASSETS $ 3,928,198 $ 3,984,088 ============ ============ The accompanying notes are an integral part of these statements F-3 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY MAY 31, ---------------------------- 1998 1997 ------------- ------------- (Restated) (Restated) CURRENT LIABILITIES: Current maturities of long-term debt $ 42,437 $ 235,240 Accounts payable 127,314 207,316 Accrued expenses and other current liabilities 32,135 8,147 Income taxes payable 62,313 141,510 ------------- ------------- Total current liabilities 264,199 592,213 ------------- ------------- OTHER LIABILITIES: Long-term debt 599,135 498,839 Deferred rent payable 23,437 13,679 ------------- ------------- 622,572 512,518 Total liabilities 886,771 1,104,731 ------------- ------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock ($.00001 par value; 950,000,000 shares authorized, 1,148,865 shares issued) 12 12 Additional paid-in capital 2,738,015 2,738,015 Retained earnings 809,838 647,768 ------------- ------------- 3,547,865 3,385,795 Less: Treasury stock (199,500 shares at cost) 506,438 506,438 ------------- ------------- Total stockholders' equity 3,041,427 2,879,357 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,928,198 $ 3,984,088 ============= =============
The accompanying notes are an integral part of these statements F-4 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MAY 31, ------------------------------------------ 1998 1997 1996 ------------- ------------- ------------ REVENUES: Royalty income (includes royalty income from related parties of $265,279, $301,394 and $243,760, respectively) $ 2,411,659 $ 2,480,866 $ 2,244,818 Consulting income 208,694 640 - Interest, dividends and other income 88,825 106,592 99,621 Sub-license income (includes sub-license income from related parties of $37,186, $41,588 and $-0-, respectively) 179,556 159,697 - ------------- ------------- ------------- Total revenues 2,888,734 2,747,795 2,344,439 ------------- ------------- ------------- EXPENSES: Payroll and related costs 773,945 453,573 362,554 Other general and administrative 1,137,061 1,015,607 703,011 Amortization 212,455 197,541 197,541 Bad debt expense 274,677 189,173 97,469 Advertising 144,699 78,544 73,538 Interest 70,292 61,039 68,558 ------------- ------------- ------------- Total expenses 2,613,129 1,995,477 1,502,671 ------------- ------------- ------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 275,605 752,318 841,768 INCOME TAXES 113,535 311,168 328,324 ------------- ------------- ------------- INCOME FROM CONTINUING OPERATIONS 162,070 441,150 513,444 DISCONTINUED OPERATIONS: Income from operations of travel agency disposed of (net of income taxes of $-0-, $10,000 and $8,000, respectively) - 19,942 19,996 ------------- ------------- ------------- NET INCOME $ 162,070 $ 461,092 $ 533,440 ============= ============= =============
The accompanying notes are an integral part of these statements F-5 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
YEARS ENDED MAY 31, -------------------------------------------- 1998 1997 1996 ------------- ------------- -------------- EARNINGS PER SHARE: Basic: Continuing operations $ .17 $ .46 $ .46 Discontinued operations - .02 .02 ------- ------- ------ Net income $ .17 $ .48 $ .48 ======= ======= ====== Diluted: Continuing operations $ .16 $ .43 $ .44 Discontinued operations - .02 .02 ------- ------- ------ Net income $ .16 $ .45 $ .46 ======= ======= ======
The accompanying notes are an integral part of these statements F-6 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK, $.00001 PAR VALUE, AUTHORIZED 950,000,000 SHARES ADDITIONAL RETAINED TREASURY STOCK -------------------------- PAID-IN EARNINGS ---------------- SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT TOTAL ------------- --------- ------------- - ------------- -------- ------- -------- BALANCE - MAY 31, 1995 - as previously reported 1,148,865 $ 12 $2,761,727 $(370,476) - $ - $2,391,263 Prior period adjustment - error in recording cumulative equity of minority interests in losses - - (23,712) 23,712 - - - --------- ---- ---------- --------- ------- ---------- ---------- BALANCE - MAY 31, 1995 - as restated 1,148,865 12 2,738,015 (346,764) - - 2,391,263 Repurchase of common stock - - - - 179,500 (451,323) (451,323) Net income for the year ended May 31, 1996 - - - 533,440 - - 533,440 --------- ---- ---------- --------- ------- ---------- ---------- BALANCE - MAY 31, 1996 1,148,865 12 2,738,015 186,676 179,500 (451,323) 2,473,380 Repurchase of common stock - - - - 20,000 (55,115) (55,115) Net income for the year ended May 31, 1997 - - - 461,092 - - 461,092 --------- ---- ---------- --------- ------- ---------- ---------- BALANCE - MAY 31, 1997 1,148,865 12 2,738,015 647,768 199,500 (506,438) 2,879,357 Net income for the year ended May 31, 1998 - - - 162,070 - - 162,070 --------- ---- ---------- --------- ------- ---------- ---------- BALANCE - MAY 31, 1998 1,148,865 $ 12 $2,738,015 $ 809,838 199,500 $ (506,438) $3,041,427 ========= ==== ========== ========= ======= ========== ==========
The accompanying notes are an integral part of these statements F-7 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, ------------------------------------------ 1998 1997 1996 ------------- ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 162,070 $ 461,092 $ 533,440 Income from discontinued operations - (19,942) (19,996) Adjustments to reconcile net income to net cash provided by operating activities: Expenses (income) not requiring the use of cash: Provision for losses on accounts and notes receivable 274,677 189,173 97,469 Depreciation 17,294 9,322 1,430 Amortization of licenses 212,455 197,541 197,541 Gain on sale of office (2,100) - - Interest expense - imputed 52,873 45,043 52,048 Interest income - imputed (14,886) (13,167) (6,403) Deferred income taxes 19,000 (62,000) 89,000 Changes in assets and liabilities: Accounts receivable (30,518) (210,324) (141,548) Prepaid expenses and miscellaneous receivables (125,799) (50,424) 18,988 Cash overdraft - (18,044) 18,044 Accounts payable and other current liabilities (135,211) 225,322 (82,009) Deferred rent payable 9,758 (1,040) 10,319 Net assets of discontinued operations - (1,580) (21,814) ------------ ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 439,613 750,972 746,509 ------------ ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments (108,908) (55,426) (302,138) Redemption of short-term investments 55,426 53,146 699,868 Decrease in due from related parties 2,114 17,038 231,961 Acquisition of fixed assets (14,837) (40,122) (21,461) Acquisition of offices (48,955) - - Additions to notes receivable (192,556) (690,492) (20,000) Payments of notes receivable 144,074 217,468 63,249 Security deposits - (18,643) 1,900 Net assets of discontinued operations - 2,200 (500) ------------ ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (163,642) (514,831) 652,879 ------------ ----------- -----------
The accompanying notes are an integral part of these statements F-8 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED MAY 31, --------------------------------------------- 1998 1997 1996 ------------- ------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on debt $ (280,850) $ (98,000) $ (168,000) Repurchase of common stock - (55,115) (451,323) ------------ ------------ ------------- NET CASH USED IN FINANCING ACTIVITIES (280,850) (153,115) (619,323) ------------ ------------ ------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (4,879) 83,026 780,065 CASH AND CASH EQUIVALENTS - beginning 1,698,099 1,615,073 835,008 ------------ ------------ ------------- CASH AND CASH EQUIVALENTS - ending (includes cash of discontinued operations of $-0-, $55,957 and $78,271, respectively) $ 1,693,220 $ 1,698,099 $ 1,615,073 ============ ============ ============= SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Receipt of notes receivable on sale of office $ 14,438 $ - $ - ============ ============ ============= Additional license costs through issuance of long-term debt $ 135,470 $ - $ - ============ ============ ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 66,292 $ 61,039 $ 68,558 Income taxes 207,302 316,313 238,876
The accompanying notes are an integral part of these statements F-9 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations -------------------- Bernard Haldane Associates, Inc. ("Haldane") through its wholly-owned subsidiary, DRB Ltd. ("DRB") owns the worldwide licensing rights to the Bernard Haldane name and system of career consulting. Haldane is the franchiser of 76 career consulting offices operating in the United States, Canada and the United Kingdom. First Career Corp. ("FCC"), a wholly-owned subsidiary, has developed a specifically designed career consulting program for graduating college students. During the year ended May 31, 1998, two new wholly-owned subsidiaries, DRB Management and Consulting Services, Inc. ("DRB Mgmt.") and Career Advisory and Management Services, Inc. ("Career Advisory"), began operating four offices in the United States, one of which was sold in May 1998.The operation of these offices was a temporary situation brought on by the financial difficulties of the franchisees. The offices will be disposed of as soon as practicable. Revenue from the operation of these offices was included in consulting income in the financial statements. On May 31, 1996, another subsidiary, Quantum Tours International, Inc. ("QT") discontinued its full service travel agency. All other subsidiaries are inactive. After giving effect to the restatement for discontinued operations, Haldane's operations consist of only one business segment, career consulting and advisory services. Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of Haldane and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents ------------------------- The Companies consider all highly liquid investments with original maturities of three months or less to be cash equivalents. Concentrations of Credit Risk ----------------------------- The Companies maintain their cash balances with various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured balances aggregate approximately $1,619,000 and $1,615,000 at May 31, 1998 and 1997, respectively. The Companies' short-term investments include certificates of deposit of financial institutions with high credit ratings, which mature within one year. This investment policy limits the Companies' exposure to concentrations of credit risk. DRB sells franchises to individuals and corporations for both cash and notes. In the event of default in payment of the notes or royalties, DRB can repossess the office. DRB has historically experienced losses and has provided allowances against its notes and royalty receivables. F-10 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Equipment, Fixtures and Leasehold Improvements ---------------------------------------------- Equipment and fixtures are being depreciated on an accelerated basis over lives of five to seven years. Leasehold improvements are being amortized over the lives of the leases. Deferred Rent Payable Deferred rent payable represents the excess of recognized rent expense over scheduled lease payments which will be credited to future operations. Revenue Recognition ------------------- DRB through its sale of franchise offices recognizes revenues (sub-license) at the time the contract is completed and when no further services are required. DRB also recognizes royalty revenue based on a percentage (5% to 6%) of gross collections of counseling fees by the franchisee or the minimum royalty fee, whichever is greater. Allowances for doubtful accounts have been provided for potential losses. FCC, DRB Mgmt. and Career Advisory recognize consulting revenue based on collections, rather than when the contract is entered into, due to the uncertain nature of collectibility of the contract fees. QT recognized revenue when the tour commenced. Revenue received prior to the commencement of the tour was deferred and recorded as unearned revenue. Intangible Assets ----------------- The Bernard Haldane licenses acquired (approximately $1,200,000) are being amortized over a ten year period using the straight-line method. The cost of acquisitions in excess of fair value of assets acquired which has been allocated to licenses (approximately $1,385,000, which has been adjusted in 1998 for an inflation factor in the acquisition notes) is being amortized over the greater of a twenty year period (the general term of the sub-license) or 5% of royalty income and 50% of sub-licensing income for that particular year. Advertising Costs ----------------- All costs associated with advertising and promotion are expensed in the year incurred. F-11 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Foreign Exchange ---------------- DRB converts its foreign currency transactions at budgeted rates which historically approximate the actual exchange rates for balance sheet and statement of income items. The amount of foreign currency exchange gains and losses are insignificant to the consolidated financial statements. Impairment of Long-Lived Assets ------------------------------- Effective June 1, 1996, the Companies adopted Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Companies believe that no material impairment existed as of May 31, 1998. Earnings Per Share ------------------ In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share" which is effective for periods ending after December 15, 1997. The Companies have adopted this new standard for the year ended May 31, 1998. Prior period earnings per share were restated to conform to this new pronouncement. Stock Options ------------- In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation." The Companies have adopted the disclosure-only provisions of SFAS No. 123 but apply Accounting Principles Board Opinion No. 25 (APB Opinion No. 25), "Accounting for Stock Issued to Employees" and related interpretations in accounting for granting of stock options. Realizability of a Deferred Tax Asset ------------------------------------- The Companies have recorded a deferred tax asset of $126,000 as of May 31, 1998. Realization is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if future taxable income is not sufficient. F-12 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Use of Estimates in the Preparation of Financial Statements ----------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Reclassifications ----------------- Certain reclassifications have been made to the consolidated financial statements for the years ended May 31, 1997 and 1996 in order to conform with the current year's presentation. NOTE 2 - ACQUISITIONS/DISPOSITIONS In 1989, Haldane acquired 80% of the outstanding shares of Career Services Management Corp. ("CSM") for $800. CSM acquired 100% of DRB for $1,250,000 consisting of $1,000,000 in cash and a note payable of $250,000. The balance of the note was fully paid in March 1998. On February 2, 1995, Haldane acquired the remaining 20% of the outstanding shares of CSM for 75,000 shares of its own common stock. CSM is currently inactive. In April 1995, Haldane sold approximately 96% of its 80% investment in Andover Equities Corp. ("Andover"). The sale consisted of cash and notes (see Note 3). During the year ended May 31, 1998, the notes receivable were deemed uncollectible and written off as bad debts. Haldane's investment in Andover which represents approximately a 3% ownership is carried at cost and is insignificant. The acquisitions were accounted for using the purchase method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values. F-13 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 3 - NOTES RECEIVABLE Notes receivable at May 31, consist of the following:
1998 1997 ------------- ------------ Various non-interest bearing notes receivable in connection with the sale of sub-licenses $ 221,400 $ 177,300 LaSalle Consulting - receivable in equal monthly installments of $2,097 through April 2002, with interest at 24% per annum 64,336 72,909 Note receivable - employee/stockholder in equal monthly installments of $608 through April 2001, including interest at 6% per annum 19,444 9,444 Notes receivable in connection with the sale of Andover stock, originally due April 1997, written off in May 1998 - 30,000 Note receivable - sub-licensee in equal monthly installments of $1,000 through December 1997, $2,000 from January 1998 through December 1998 and $3,000 from January 1999 through December 2002 with a final payment of approximately $1,800 in January 2003 including interest at 7% per annum 168,795 176,795 Note receivable in equal monthly installments of $5,000 through 2001 with interest at 7% per annum 195,000 215,000 Note receivable - sub-licensee, in connection with the sale of the Oklahoma City office, in equal monthly installments of $1,000 commencing January 2000 through April 2001, with a final payment of $1,500 in May 2001 17,500 - Note receivable in equal monthly installments of $200 through March 1998 with the balance due April 1999, with interest at 8% per annum; secured by stock in an affiliated company 33,030 34,130 ---------- ---------- 719,505 715,578 Less: Unamortized discounted interest imputed at 7% to 8.5% on the above non-interest bearing notes 47,035 50,189 ---------- ---------- 672,470 665,389 Less: Allowance for credit losses on the above notes (see below) 134,500 65,000 ---------- ---------- 537,970 600,389 Less: Current portion 89,855 149,080 ---------- ---------- $ 448,115 $ 451,309 ========== ==========
F-14 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 3 - NOTES RECEIVABLE (CONTINUED) The amounts due over the next five years, net of imputed interest of $47,035 and allowance for credit losses of $134,500, are as follows:
Year Ending May 31, ------------------- 1999 $ 89,855 2000 83,324 2001 122,423 2002 76,665 2003 45,018 Subsequent 120,685 ---------- $ 537,970 ==========
The Companies utilize Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," (SFAS No. 114) and Statement of Financial Accounting Standards No. 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" (SFAS No. 118) which requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or at market price or the fair value of the collateral if the loan is collateral dependent. Notes receivable at May 31, consist of the following:
1998 1997 ---- ---- Notes receivable - impaired $ 527,255 $ 406,492 Less: Allowance for credit losses 134,500 65,000 ---------- ---------- 392,755 341,492 Notes receivable - not impaired and no allowance for credit losses 145,215 258,897 ---------- ---------- $ 537,970 $ 600,389 ========== ==========
Changes in the allowance for credit losses for the years ended May 31, are as follows:
1998 1997 1996 ------------- ------------- ------------ Balance - beginning of year $ 65,000 $ 35,000 $ 19,000 Additions 73,310 30,000 16,000 Direct write-offs (3,810) - - ---------- -------- --------- Balance - end of year $ 134,500 $ 65,000 $ 35,000 ========== ======== =========
The Companies recognize interest income on impaired loans on actual cash received with interest imputed at 8 1/2%. The average recorded investment in impaired loans and the interest income recognized during the years ended May 31, 1998 and 1997 were approximately $467,000 and $29,000 and $265,000 and $24,000, respectively. F-15 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 4 - LONG-TERM DEBT Long-term debt at May 31, consists of the following:
1998 1997 ------------ ------------ B&E Partnership - payable in monthly installments of $7,000 through June 2006. Commencing July 1997, monthly payments are adjusted annually by a rate of 5% to reflect an inflation factor. Secured by a license agreement. This note is non-interest bearing. $ 891,694 $ 756,000 Dan R. Bruce - principal amount of $200,000 due February 1998 with interest due in monthly payments of $1,333. The note is secured by a license agreement and bears interest at an annual rate of eight percent. - 200,000 ------------ ------------ Total debt obligations 891,694 956,000 Less: Unamortized discounted interest imputed at eight percent on the above non-interest bearing loan. 250,122 221,921 ------------ ------------ Total present value of debt 641,572 734,079 Less: Current portion 42,437 235,240 ------------ ------------ $ 599,135 $ 498,839 ============ ============
Long-term debt as of May 31, 1998 is payable as follows: Year Ending May 31, ------------------- 1999 $ 42,437 2000 50,743 2001 59,979 2002 70,232 2003 81,599 Subsequent 336,582 ---------- $ 641,572 ========== F-16 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 5 - COMMITMENTS AND CONTINGENCIES Leases ------ Haldane leases its executive offices in New York City under two separate leases. Both leases have terms of ten years, one expiring in September 2005, and the other expiring in October 2006. Approximately 61% of the space is sublet to related entities. FCC leases office space in Syracuse, New York for a term of one year expiring in April 1999. The following is a schedule by years of future minimum rental payments and sublease income under these leases (rounded to thousands):
Minimum Rental Sublease Year Ending May 31, Payments Income ------------------- -------- ------ 1999 $ 174,000 $ 101,000 2000 163,000 101,000 2001 181,000 112,000 2002 186,000 115,000 2003 186,000 115,000 Subsequent 493,000 303,000 ------------ ---------- $ 1,383,000 $ 847,000 ============ ==========
Rent expense, net of rental income of approximately $103,000, $96,000 and $30,000, charged to operations for the years ended May 31, 1998, 1997 and 1996 amounted to approximately $117,000, $48,000, and $31,000, respectively. Licensing --------- In those states where the granting of a license for the right to operate a Haldane office may constitute a franchise arrangement, DRB intends to register as a franchisor. DRB may also be subject to regulatory sanctions in these states for failing to register as a franchisor prior to the granting of a franchise license. DRB intends to enter into franchise agreements with current licensees, and if necessary under the state statutes, DRB will offer current licensees the right of rescission. Management is of the opinion that the potential liability for violation of any state or federal statute relating to the sale of a franchise and in the aggregate is not material to the consolidated financial statements. The Companies to date have incurred approximately $58,000 of legal costs in connection with this matter. The Companies expect to incur no additional costs of any significance relating to this matter. F-17 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED) Consulting Agreements --------------------- On August 1, 1995, Haldane entered into a consulting agreement with a company whose president was Haldane's former president, for a period of five years. Compensation under the agreement is as follows: $62,000 the first year, $69,000 the second year, $74,000 the third year, $83,000 the fourth year and $90,000 the fifth year. In addition, Haldane agreed to provide to the consultant a leased automobile and reimburse all approved expenses. For the years ended May 31, 1998, 1997 and 1996, Haldane recorded compensation expense of $73,167, $67,832 and $51,667, respectively. Tax Contingencies ----------------- During fiscal 1997, the Internal Revenue Service commenced audits of the Companies' consolidated federal tax returns for the years ended May 31, 1995 and 1996 and is questioning the deductibility of amortization taken on intangible assets. The outcome of the audits cannot be readily determined, however, it is not expected to have a material impact on the Companies' consolidated financial statements. In addition, in June 1998, the Companies were notified by the State of New York that the consolidated New York State tax returns for the years ended May 31, 1995, 1996 and 1997 have been selected for audit. Management believes that the outcome of such audits would have no material effect on the Companies' consolidated financial statements. Going Private ------------- In February 1998, the Companies filed an application to withdraw its common shares from the public market. Such application is under review by the Securities and Exchange Commission. Certain of the Companies' stockholders offered to purchase the shares of common stock owned by the public investors at $3 per share, which represents the valuation made by a financial advisory company in its fairness opinion. The number of shares to be purchased is 217,695 shares or $653,085. F-18 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 6 - COMMON STOCK OPTIONS The stock option transactions for the three fiscal years ended May 31, 1998 are summarized as follows:
Weighted- Average Number Exercise Total of Shares Price Price --------- ----- ----- Outstanding - May 31, 1995 (exercisable at a price of $.25 to $3.50 per share) 326,000 $ 2.26 $ 737,250 Granted at $2.50 per share 60,000 2.50 150,000 ---------- ---------- Outstanding - May 31, 1996 (exercisable at a price of $.25 to $3.50 per share) 386,000 2.30 887,250 Granted at $2.50 per share 60,000 2.50 150,000 Terminated (161,000) 2.95 (474,750) ---------- ---------- Outstanding - May 31, 1997 and 1998 (exercisable at a price range of $.25 to $2.50 per share) 285,000 1.97 $ 562,500 ========== ========== Exercisable Options - May 31, 1996 386,000 $ 2.30 $ 887,250 May 31, 1997 285,000 1.97 562,500 May 31, 1998 285,000 1.97 562,500
During the years ended May 31, 1998, 1997 and 1996, options to acquire -0-, 60,000 and 60,000 shares, respectively, were granted to directors and employees of the Companies at market value. The Companies apply APB Opinion No. 25 in accounting for its stock options and, accordingly, no compensation cost has been recognized for stock options in the consolidated financial statements. Had the Companies determined compensation expense for stock options granted based on the method presented by SFAS No. 123, net income and earnings per share would have been changed to the pro forma amounts indicated below:
Year Ending May 31, ------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Net income - as reported $ 162,070 $ 461,092 $ 533,440 Net income - pro forma $ 162,070 $ 416,092 $ 497,440 Earnings per share - basic - as reported $.17 $.48 $.48 Earnings per share - basic - pro forma $.17 $.44 $.45 Earnings per share - diluted - as reported $.16 $.45 $.46 Earnings per share - diluted - pro forma $.16 $.41 $.43
F-19 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 6 - COMMON STOCK OPTIONS (CONTINUED) The fair value of the stock options used to compute proforma net income and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing method with the following weighted average assumptions for 1997 and 1996: expected volatility of 11.9% and 3.8%; a risk-free interest rate of 6.7% and 6.8% and an expected holding period of 10 and 7 years, respectively. NOTE 7 - TREASURY STOCK In October 1995, March and June 1996, the Board of Directors authorized Haldane to repurchase outstanding shares of its common stock at fair market value from various shareholders. As of May 31, 1998 and 1997, Haldane repurchased 199,500 shares, (20,000 and 179,500 shares during the years ended May 31, 1997 and 1996, respectively), at fair market value with prices ranging from $2.49 to $2.75 per share. NOTE 8 - INCOME TAXES Deferred Income Taxes --------------------- The Companies utilize Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires the use of the liability method of accounting for income taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. The resulting deferred tax asset or liability is adjusted to reflect changes in tax laws as they occur. Deferred income taxes reflect temporary differences in reporting assets and liabilities for income tax and financial accounting purposes. The deferred tax assets of $126,000 and $145,000 as of May 31, 1998 and 1997 (consisting solely of allowances for doubtful accounts and credit losses) are shown as current assets in the consolidated balance sheets. No valuation allowance has been provided. F-20 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 8 - INCOME TAXES (CONTINUED) Income Taxes ------------ Provision for income taxes for the years ended May 31, consists of the following:
1998 1997 1996 ---------- ---------- ---------- Current: Federal $ 66,803 $ 267,457 $ 163,448 State and local 27,732 105,711 75,876 ---------- ---------- ---------- 94,535 373,168 239,324 Deferred: Federal 14,000 (51,000) 93,000 State and local 5,000 (11,000) (4,000) ---------- ---------- ---------- $ 113,535 $ 311,168 $ 328,324 ========== ========== ==========
Reconciliation of statutory rate to effective income tax rate on continuing operations for the years ended May 31, is as follows:
1998 1997 1996 --------- ---------- ----------- At federal statutory rates 34.0% 34.0% 34.0% Effect of: State income taxes, net of federal benefit 8.1 8.2 7.9 Permanent differences 1.3 1.2 .7 Tax benefit of operating loss carryforwards - - (2.6) Overaccrual of prior year taxes (2.2) (2.0) (1.0) ------- -------- ------- Total 41.2% 41.4% 39.0% ======= ======== =======
The Companies file consolidated tax returns and had available at May 31, 1995 unused operating loss carryforwards of approximately $400,000 for income tax reporting purposes which were utilized to offset 1996 taxable income. The only significant differences between income tax and financial reporting are the allowances for doubtful accounts and credit losses. F-21 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 9 - RETIREMENT PLANS The Companies have simplified employee pension (SEP) agreements with all full-time employees who are at least twenty-one years old and have performed services for at least three of the preceding five years. Such agreements provide for discretionary contributions by the employer. For the years ended May 31, 1998, 1997 and 1996, the Companies contributed $36,000, $21,000 and $29,750, respectively. NOTE 10 - GEOGRAPHIC AREAS The Companies earned royalty income and sub-licensee income from five Canadian franchisees and one franchisee located in the United Kingdom for the years ended May 31, as follows:
Royalty Income Sub-Licensee Income -------------------------------------------------------------------- 1998 1997 1996 1998 1997 1996 ----------- ----------- ----------- -------- -------- ------ Canada $ 167,594 $ 201,148 $ 158,572 $ $ 18,559 $ - =========== =========== =========== ======== ======== ====== United Kingdom $ 36,292 $ 12,123 $ - $ 37,186 $ - $ - =========== =========== =========== ======== ======== ======
All other revenues are from United States sources. Included in accounts receivable and notes receivable at May 31, are amounts owed by the Canadian and United Kingdom franchisees, as follows:
Accounts Receivable Notes Receivable ------------------- ---------------- 1998 1997 1998 1997 ---- ---- ---- ---- Canada $ 57,191 $ 78,047 $ 4,895 $ 15,963 ========= ======== ========= ======== United Kingdom $ 38,481 $ 2,189 $ 37,186 $ - ========= ======== ========= ========
NOTE 11 - RELATED PARTY TRANSACTIONS As of May 31, 1998, 1997 and 1996, a principal officer and director of Haldane owned and operated offices as follows:
1998 1997 1996 --------- --------- -------- Canada 5 5 5 United States 2 2 4 United Kingdom 2 1 - ---- --- --- Total offices 9 8 9 ==== === ===
F-22 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 11 - RELATED PARTY TRANSACTIONS (CONTINUED) During 1997, three United States offices were transferred to an unrelated existing owner of other Haldane offices and two new offices were acquired; one in the United States and one in the United Kingdom. During 1998, one new office in the United Kingdom was acquired. From time to time the Companies advance funds to several entities whose officer and director is also an officer and director of Haldane. The average monthly balance during fiscal 1998 and 1997 of such advances amounted to approximately $377,000 and $373,000, respectively. At both May 31, 1998 and 1997, the balance of such advances was $-0-. In addition, at May 31, 1998 and 1997, the Companies were owed approximately $8,900 and $11,000, respectively, for miscellaneous reimbursable expenses from these entities. Interest earned on advances for the years ended May 31, 1998 and 1997 at 8% per annum amounted to approximately $30,000 for each year. NOTE 12 - DISCONTINUED OPERATIONS On May 31, 1996, Haldane adopted a plan to terminate its travel agency operations which ceased in February 1997. The operating results of the travel agency segment for the years ended May 31, 1998, 1997 and 1996 are shown separately in the accompanying consolidated income statement. Net revenues of the travel agency segment for 1998, 1997 and 1996 amounted to $-0-, $67,027 and $95,474, respectively. At May 31, 1998 and 1997, there were no net assets remaining from the travel agency operations. There was no gain or loss on disposal of this segment. F-23 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 13 - EARNINGS PER SHARE Net Earnings Per Common and Common Equivalent Share ----------------------------- Earnings per share for the years ended May 31, were calculated using the modified treasury stock method as follows:
1998 1997 1996 ------------- ------------- ------------- Numerator --------- Income from continuing operations $ 162,070 $ 441,150 $ 513,444 Impact of potential common shares - - - ------------ ------------ ------------ Income available to common stockholders after assumed conversion of dilutive securities $ 162,070 $ 441,150 $ 513,444 ============ ============ ============ Income from discontinued operations $ - $ 19,942 $ 19,996 ============ ============ ============ Denominator ----------- Weighted average number of common shares outstanding used in basic EPS 949,365 950,903 1,105,442 Impact of potential common shares: Stock options 64,662 69,532 62,503 ------------ ------------ ------------ Weighted number of common share and dilutive potential common shares used in dilutive EPS 1,014,027 1,020,435 1,167,945 ============ ============ ============ Basic EPS --------- Continuing operations $ .17 $ .46 $ .46 Discontinued operations - .02 .02 ------- ------- ------ Net income $ .17 $ .48 $ .48 ======= ======= ====== Diluted EPS ----------- Continuing operations $ .16 $ .43 $ .44 Discontinued operations - .02 .02 ------- ------- ------ Net income $ .16 $ .45 $ .46 ======= ======= ======
Options to purchase 225,000 shares of common stock, at prices ranging from $2.50 to $3.50 per share, were outstanding during the year ended May 31, 1996, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price for the common shares. F-24 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS The amounts at which cash, accounts receivable, notes receivable, due from related parties, accounts payable, current liabilities and long-term debt are presented in the balance sheets approximate their fair value. NOTE 15 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
1st 2nd 3rd 4th --- --- --- --- 1998 ---- Revenues $ 798,628 $ 718,300 $ 605,895 $ 765,911 ========== ========== ========== ========== Income (loss) from operations before income taxes $ 266,025 $ 189,129 $ (94,785) $ (84,764) Income taxes 110,000 76,800 43,276 29,989 ---------- ---------- ---------- ---------- Net income (loss) $ 156,025 $ 112,329 $ (51,509) $ (54,775) ========== ========== ========== ========== Net earnings (loss) per common share: Basic: Continuing operations $ .16 $ .12 $ (.05) $ (.06) Discontinued operations - - - - ------ ------- ------- ---- Net income (loss) $ .16 $ .12 $ (.05) $ (.06) ====== ======= ======= ====== Diluted: Continuing operations $ .15 $ .11 $ (.05) $ (.05) Discontinued operations - - - - ------ ------- ------- ---- Net income (loss) $ .15 $ .11 $ (.05) $ (.05) ====== ======= ======= ====== Market price per share: High $ 3.25 $ 3.00 $ 3.00 $ 3.00 Low 2.25 2.31 2.19 2.38
F-25 BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 NOTE 15 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
1st 2nd 3rd 4th --- --- --- --- 1997 ---- Revenues $ 649,981 $ 687,556 $ 649,042 $ 761,216 Income from continuing operations before income taxes 264,999 248,111 146,257 92,951 Income taxes 106,000 99,000 43,368 62,800 Income from continuing operations 158,999 149,111 102,889 30,151 Income (loss) from discontinued operations (10,241) 28,204 (21) 2,000 Net income 148,758 177,315 102,868 32,151 Net earnings (loss) per share: Basic: Continuing operations $ .17 $ .16 $ .11 $ .03 Discontinued operations (.01) .03 - - ------ ------- ------- ---- Net income $ .16 $ .19 $ .11 $ .03 ====== ======= ======= ====== Diluted: Continuing operations $ .16 $ .15 $ .10 $ .03 Discontinued operations (.01) .03 - - ------ ------- ------- ---- Net income $ .15 $ .18 $ .10 $ .03 ====== ======= ======= ====== Market price per share: High $ 2.87 $ 2.44 $ 2.75 $ 2.50 Low 2.43 2.44 2.25 2.25
There were no dividends for either year. NOTE 16 - PRIOR PERIOD ADJUSTMENT Additional paid-in capital and retained earnings at May 31, 1995 have been adjusted to record the cumulative equity of minority interests in losses for the period 1989 through February 1995, not previously recorded. On February 2, 1995 such interests were purchased through the issuance of 75,000 shares of comon stock and was recorded at the book value of the minority interest at that time of $226,288. The difference in the amount recorded and the current market price of the shares issued on that date of $187,500, is not material to the consolidated financial statements. The error had no effect on net income for the years subsequent to May 31, 1995. F-26 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BERNARD HALDANE ASSOCIATES, INC. By: /s/ JEROLD WEINGER ___________________________ JEROLD WEINGER, PRESIDENT/TREASURER DATED: December 31, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on those dates by the following persons on behalf of this Registrant in the capacities indicate. By: /s/ JEROLD WEINGER _______________________________ JEROLD WEINGER, PRESIDENT/TREASURER/DIRECTOR DATED: December 31, 1998 /s/ JEFFREY G. KLEIN ___________________________ JEFFREY G. KLEIN, SECRETARY/DIRECTOR DATED: December 31, 1998 EX-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S AUDITED BALANCE SHEETS AS OF MAY 31, 1998 AND 1997 AUDITED STATEMENTS OF OPERATIONS FOR THE YEARS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS 12-MOS MAY-31-1998 MAY-31-1997 JUN-01-1997 JUN-01-1996 MAY-31-1998 MAY-31-1997 1,693,220 1,698,099 0 0 495,436 709,470 180,000 290,000 0 0 2,528,263 2,538,234 94,539 79,702 46,165 28,871 3,928,935 3,984,088 264,199 592,213 0 0 12 12 0 0 0 0 3,041,415 2,879,345 3,928,198 3,984,088 0 0 2,888,734 2,747,795 0 0 0 0 2,542,837 1,934,438 0 0 70,292 61,039 275,605 752,318 113,535 311,168 162,070 441,150 0 19,942 0 0 0 0 162,070 461,092 .17 .48 .16 .45
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