-----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, Q1tzMFRDNJOcW5QQVjlG5HtPK0pokpDyQYYeQJuXttFW1txtXBvqiVs/TAkwJ/Il tI361d/it/z+RZI1Ouue4A== 0000950109-97-002832.txt : 19970407 0000950109-97-002832.hdr.sgml : 19970407 ACCESSION NUMBER: 0000950109-97-002832 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970128 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970404 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYLVAN LEARNING SYSTEMS INC CENTRAL INDEX KEY: 0000912766 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 521492296 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-22844 FILM NUMBER: 97575305 BUSINESS ADDRESS: STREET 1: 1000 LANCASTER ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4108438000 MAIL ADDRESS: STREET 1: 1000 LANCASTER ST CITY: BALTIMORE STATE: MD ZIP: 21202 8-K/A 1 FORM 8 K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 Date of Report (Date of earliest event reported): January 28, 1997 ------------------------------ SYLVAN LEARNING SYSTEMS, INC. ----------------------------- (Exact name of registrant as specified in its charter) 0-22844 ------------------- Commission File Number Maryland 52-1492296 ---------------------------- ------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1000 Lancaster Street Baltimore, Maryland 21202 ------------------------------------- ------- (Address of principal executive offices) (Zip Code) Registrant's telephone number: (410)843-8000 ------------- The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Current Report on Form 8-K dated February 5, 1997 as set forth below. Item 7. Financial Statements and Exhibits. (a) Financial statements of business acquired. Audited financial statements of Wall Street Institute International, B.V. and affiliates for the year ended August 31, 1996. (b) Pro forma financial information. Unaudited pro forma condensed combined balance sheet as of September 30, 1996. Unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 1996. Unaudited pro forma condensed combined statement of operations for the year ended December 31, 1995. Notes to unaudited pro forma condensed combined financial statements. KPMG Peat Marwick WALL STREET INSTITUTE GROUP Combined Financial Statements August 31, 1996 (With Independent Auditors' Report Thereon) [LETTERHEAD OF KPMG PEAT MARWICK y Cie. Auditores, S.R.C. APPEARS HERE] Independent Auditor's Report ---------------------------- Board of Directors M.P. Management y Particpaciones, S.L. We have audited the accompanying combined balance sheet of Wall Street Institute Group (see note 1) (hereinafter the Group) as of August 31, 1996, and the related combined statements of income, changes in shareholders' equity and cash flows for the year then ended translated into U.S. dollars. These combined financial statements are the responsiblity of the Group's management. Our responsiblity is to express an opinion on these combined financial statements based on our audit. We did not audit the financial statements of I.F.S. International Franchise Service, S.L., Wall Street Institute International B.V. and Wall Street Study Centre Establishment, the statements of which reflect, after adjustments in combination, total assets of $3,326,757 as of August 31, 1996 and total revenues of $6,255,156 for the year then ended. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the aforementioned companies, is based solely on the report of the other auditors. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, based on our audit and the reports from the other auditors, the combined financial statements translated into U.S. dollars referred to above present fairly, in all material respects, the financial position of Wall Street Institute Group (see note 1) as of August 31, 1996, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in the United States of America. Peat Marwick y Cie December 2, 1996 Barcelona, Spain WALL STREET INSTITUTE GROUP Combined Balance Sheet August 31, 1996 (Expressed in U.S. Dollars)
Assets ------ Current assets: Cash and cash equivalents 1,627,315 Notes receivable 1,137,644 Accounts receivable, less allowances for doubtful accounts of $104,803 2,964,247 Inventories (note 3) 815,022 Prepaid expenses and other current assets 168,808 ----------- Total current assets 6,713,036 Notes receivable 446,346 Property, plan and equipment, net (note 4) 1,092,643 Other assets 263,740 ----------- Total assets 8,515,765 ============ Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Short-term borrowings (note 5) 735,541 Current portion of long-term debt and capital lease obligation (note 7) 155,751 Account payable 1,366,525 Accrued expenses (note 6) 754,278 Deferred revenue 1,273,737 ----------- Total current liabilities 4,285,832 Long-term debt (note 7) 203,352 Commitments (note 12) - Minority interest in subsidiaries 54,754 Shareholders' equity: Capital stock (note 8) 165,885 Retained earnings 3,821,933 Treasury stock (note 8) (15,991) ----------- Total shareholders' equity 3,971,827 ----------- Total liabilities and shareholders' equity 8,515,765 ===========
See accompanying notes to combined financial statements. WALL STREET INSTITUTE GROUP Combined Statement of Income Year ended August 31, 1996 (Expressed in U.S. Dollars) Revenues: Franchise fees 2,773,430 Royalty fees 2,298,875 Course fees from own learning centers 2,147,958 Sale of teaching materials 4,978,276 Telemarketing services 1,536,376 Other 594,775 ------------ 14,329,690 Costs and expenses: Cost of sales 1,972,695 Selling, general and administrative expenses 8,141,970 ------------ 10,114,665 ------------ Operating profit 4,215,025 Interest expense (200,846) Interest income 177,434 Other income, net 110,957 ------------ Income before tax 4,302,570 Income tax (note 10) 320,461 ------------ Income after tax 3,982,109 Income attributable to minority interest 36,076 ------------ Net income 3,946,033 ============
See accompanying notes to combined financial statements. WALL STREET INSTITUTE GROUP Combined Statement of Changes in Shareholders' Equity Year ended August 31, 1996 (Expressed in U.S. Dollars)
Retained Treasury Capital stock earnings stock Total ------------- ------------- ------------- ------------- Balance at September 1, 1995 165,885 869,950 (15,991) 1,019,844 1996 Net income - 3,946,033 - 3,946,033 Cash dividends paid - (994,050) - (994,050) ------------- ------------- ------------- ------------- Balance at August 31, 1996 165,885 3,821,933 (15,991) 3,971,827 ============= ============= ============= =============
See accompanying notes to combined financial statements. WALL STREET INSTITUTE GROUP Combined Statement of Cash Flows Year ended August 31, 1996 (Expresses in U.S. Dollars)
Cash flows from operating activities: Net income 3,946,033 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 283,186 Deferred income taxes 68,525 Minority interest 36,076 Other non-cash charges and credits, net 225,420 Changes in operating working capital: Accounts and notes receivable (3,448,589) Inventories 486,805 Prepaid expenses and other current assets (112,919) Accounts payable (682,167) Accrued expenses 2,730 Deferred revenue 173,688 ----------- Net change in operating working capital (3,580,452) ----------- Net cash provided by operating activities 978,788 ----------- Cash flows from investing activities: Purchases of property, plant and equipment (411,112) Other, net (57,414) ----------- Net cash used for investing activities (468,526) ----------- Cash flows from financing activities: Proceeds from issuance of long-term debt 43,568 Payments of long-term debt (201,290) Short-term borrowings, net 1,564,959 Cash dividends paid (994,050) ----------- Net cash provided by financing activities 413,187 ----------- Net increase in cash and cash equivalents 923,449 Cash and cash equivalents at beginning of year 703,886 ----------- Cash and cash equivalents at year end 1,627,315 =========== Supplemental cash flow information: Cash flow data Interest paid 200,846 Income tax paid 30,507
See accompanying notes to combined financial statements. WALL STREET INSTITUTE GROUP Notes to Combined Financial Statements August 31, 1996 (Expressed in U.S. Dollars) (1) Organization and Summary of Significant Accounting Policies ----------------------------------------------------------- (a) Nature and principal activities ------------------------------- The combined financial statements of the Wall Street Institute Group (hereinafter the Group) have been prepared, by the management of the Group, in conformity with generally accepted accounting principles in the United States of America in the context of a possible acquisition of the entire Group by a third party. Even though the companies comprising the Group were not bound by a parent company relationship, their financial statements have been combined because they are entities under common control and because they depict the business being acquired. The Group is composed of the following six companies: M.P. Management y Participaciones, S.L. --------------------------------------- It was incorporated as a private limited liability company under Spanish Law on September 30, 1993 for an indefinite term, under the name Wall Street Catalunya, S.L. changing its name on April 26, 1995 to the present name. This company is engaged in the commercialization of teaching material and rendering of telephone sales, consulting, training and personnel selection services. At August 31, 1996 it owned 89.91% and 19.99%, respectively, of the share capital of W.S.I. Barcelona, S.A. and W.S.I. Spain, S.A. W.S.I. Barcelona, S.A. ---------------------- It was incorporated as a limited liability company under Spanish Law on April 6, 1990 for an indefinite term. It is engaged in the operating of the franchise of a teaching method for learning English called Wall Street, directly from the teaching centre situated in Paseo de Gracia n/o/ 11 (Barcelona) and a franchise network for the Catalonia region. W.S.I. Spain, S.A. ------------------ It was incorporated as a limited liability company under Spanish Law on December 12, 1994 for an indefinite term. It is engaged in the operating of a franchise network of Wall Street Institutes in Spain, except for the Catalonia region, consisting of the development of franchises of English learning centers and the rendering of business services in the business centers. (Continue) WALL STREET INSTITUTE GROUP Notes to Combined Financial Statements (Expressed in U.S. Dollars) I.F.S. International Franchise Service, S.L. -------------------------------------------- It was incorporated with private limited liability company under Spanish Law on September 16, 1994 for an indefinite term. Its activities include the design, creation, manufacturing and distribution of graphic and teaching material, both in printed form and various kinds of audio supports; the sale and provision of various kinds of computer material; and advisory and consulting services in teaching, commercial and administrative areas. W.S.I. International, B.V. -------------------------- It was incorporated under Dutch Law on April 3, 1990. It has its registered seat in Amsterdam, but may establish branches and/or other offices elsewhere. Its activities are mainly acquiring, participating in, financing, managing and taking an interest in other companies and enterprises of any nature; creating for the purposes of trade, acquiring, aligning and granting the use of copyrights, patent rights, designs, trademarks and rights of a similar nature, and acquiring royalties and other rights resulting from these rights. Wall Street Study Center Establishment -------------------------------------- It was incorporated under the Laws of Liechtenstein on November 5, 1969. Its activities include the acquisition and administration of financial and material fixed assets and rights or trademarks. (b) Basis of presentation --------------------- The accompanying combined financial statements of the Group have been prepared on the basis of the accounting records of each of the Group companies maintained in Spain and in Spanish pesetas for the majority of them, which have been adjusted in order to conform with generally accepted accounting principles in the United States of America and translated into US Dollars. (c) Principles of combination ------------------------- The combined financial statements include the consolidated financial statements of M.P. Management y Participaciones, S.L. and W.S.I. Barcelona, S.A. (its 89.91% subsidiary), and the financial statements of the other entities comprising the Group. All intercompany balances and transactions have been eliminated in consolidation and combination. (d) Cash equivalents ---------------- For purposes of the statement of cash flows, the Group considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. (Continued) WALL STREET INSTITUTE GROUP Notes to Combined Financial Statements (Expressed in U.S. Dollars) (e) Inventories ----------- Inventories are stated at the lower of cost, determined using primarily the average method or net realizable value. (f) Notes receivable ---------------- Notes receivable are recorded at cost. Management, considering current information and events regarding the borrowers' ability to repay their obligations, considers a note to be impaired when it is probable that the Group will be unable to collect all amounts due according to the contractual terms of the note agreement. When a loan is considered impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the note's prevailing interest rate. (g) Property, plant and equipment ----------------------------- Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Asset classification Useful life in years --------------------------------- ------------------------ Machinery and equipment 4 - 10 Furniture and fixtures 5 - 10 Office computers 4 - 7 Vehicles 3 - 6 Teaching material 4 - 7
Long-life assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-life assets is measured by a comparison of the carrying amount of the assets with future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. (h) Foreign currency translation ---------------------------- The Group's functional currency is the Spanish peseta. The translation of the financial statements of the Group's companies into U.S. dollars has been performed at the prevailing exchange rate at balance sheet date for assets, liabilities, revenues, expenses, gains and losses. The effect of not applying the FASB statement no. 52 in translating the functional currency is not significant. (Continued) WALL STREET INSTITUTE GROUP Notes to Combined Financial Statements (Expressed in U.S. Dollars) (i) Revenue recognition ------------------- Franchise sales relate to fees from each individual new franchise center opened. Revenue related to these sales is recognized as such when all material services or conditions relating to sales have been substantially performed or carried out by the Group, including the criteria for substantial performance: receipt of an executed franchise license agreement, completion of requisite training by the franchisee or center director, completion of site selection assistance and site approval. Royalties are based on a percentage of monthly fee income of the franchise and recognized as revenue when earned. Course fees from own learning centers are deferred and recognized as revenue on a straight-line basis over the contract period of each course. (j) Advancement and advertising costs --------------------------------- Advancement and advertising costs are expensed as incurred and amount to approximately $1,360,000 for the year ended August 31, 1996. (k) Income taxes ------------ Income taxes are calculated bases on profit reported for accounting purposes, adjusted for permanent differences with fiscal criteria and taking into consideration any applicable credits and deductions. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those timing differences are expected to be recovered or settled. (l) Use of estimates ---------------- The management of the companies comprising the Group has made a number of estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimated. (2) Related Party Transactions -------------------------- At August 31, 1996 an 11 percent interest-bearing loan of a total amount of $180,173 (including interest accrued pending collection) from Calls International was recorded as notes receivable. (Continued) WALL STREET INSTITUTE GROUP Notes to Combined Financial Statements (Expressed in U.S. Dollars) (3) Inventories ----------- Inventories at August 31, 1996 consist of the following: Advances to suppliers 85,785 Finished goods 834,764 --------------- 920,549 Less provision for slow-moving items (105,527) --------------- 815,022 ===============
The finished product mainly includes teaching material to be supplied to the different Wall Street Institute Group franchisee centers. (4) Property, Plant and Equipment ----------------------------- Property, plant and equipment at August 31, 1996 consist of the following: Teaching material to be used in own centres 292,305 Machinery and equipment 796,904 Furniture and fixtures 497,901 Office computers 249,585 Vehicles 78,391 --------------- 1,915,086 Accumulated depreciation (822,443) --------------- 1,092,643 ===============
(5) Short-Term Borrowings --------------------- Short-term borrowings are detailed as follows:
Outstanding Amount at Interest Date of August 31, rate maturity Limit 1996 ------------ ------------ ----------- ------------- Unsecured bank lines of credit 8.20-14% 9/96-7/97 1,119,382 644,879 Discounted notes pending maturity 8.75-12.75% 9/96-12/96 312,697 90,662 ----------- ------------- 1,432,079 735,541 =========== =============
(Continued) WALL STREET INSTITUTE GROUP Notes to Combined Financial Statements (Expressed in U.S. Dollars)
(6) Accrued Expenses ---------------- Accrued expenses at August 31, 1996 consist of the following: Payroll and other compensation 146,020 Taxes payable to Spanish Tax Authorities VAT 121,940 Withholdings on payroll 75,654 Income tax (note 11) 199,402 Social Security 40,993 Deferred taxes (note 1) 68,525 Other 101,744 --------------- 754,278 =============== (7) Long-Term Debt -------------- Long-term debt at August 31, 1996 consists of the following: Bank loans and credit facilities Unsecured note payable to a bank, bearing fixed interest of 13%. The loan is payable in monthly installments of $1,819, including interest, through July 1999 52,755 Unsecured note payable to a bank, bearing fixed interest of 12.25%. The loan is payable in monthly installments of $2,115, including interest, through September 1998 46,470 Unsecured note payable to a bank, bearing fixed interest of 12%. The loan is payable in monthly installments of $2,177, including interest, through June 1998 42,800 Unsecured note payable to a bank, bearing fixed interest of 10.25%. The loan is payable in monthly installments of $3,884, including interest, through March 1999 105,381 --------------- 247,406 Capital lease obligations 91,409 Other debt 20,288 --------------- 359,103 Less current maturities: Bank loans and credit facilities (96,443) Capital lease obligations (note 9) (59,308) --------------- (155,751) --------------- 203,352 ===============
(Continued) WALL STREET INSTITUTE GROUP Notes to Combined Financial Statements (Expressed in U.S. Dollars) Future maturities of bank loans and credit facilities as of August 31, 1996 are as follows:
Years ending August 31: 1997 96,443 1998 103,806 1999 47,157 ----------- 247,406 ===========
(8) Capital Stock ------------- The following table presents the capital stock of the companies comprising group. Company M.P. Management y Participaciones, S.L., 1,000 Spanish pesetas par value, approximating $8. Authorized, issued and fully paid 5,000 shares 39,978 W.S.I. Spain, S.A., 1,000 Spanish pasetas par value, approximating $8. Authorized, issued and fully paid 10,004 shares 79,988 I.F.S. International Franchise Service, S.L. 1,000 Spanish pesetas par value, approximating $8. Authorized, issued and fully paid 650 shares 5,197 Wall Street Study Centre Establishment, the share capital is fully paid-up and is not divided into participations 16,636 Wall Street Institute International B.V., 1,000 Dutch florins par value, approximating $602.14. Authorized, issued and fully paid 40 shares. 24,086 --------------- Net book value 165,885 =============== The treasury shares represent 2,000 shares, at cost, of W.S.I. Spain, S.A. held by M.P. Management y Participaciones, S.L. (Continued) WALL STREET INSTITUTE GROUP Notes to Combined Financial Statements (Expressed in U.S. Dollars)
(9) Leases ------ Certain companies of the Group have entered into capital leases for the acquisition of property, plant and equipment. At August 31, 1996 details of these assets are as follows: Machinery and equipment 62,629 Furniture 9,027 Office computers 16,407 Vehicles 25,515 -------------- 113,578 Less, accumulated depreciation (33,423) -------------- Net book value 80,155 ============== The maturities under the capital lease obligations are as follows: Year ending August 31, 1997 73,916 1998 32,101 -------------- Total minimum lease payments 106,017 Less amount representing interest (at rates ranging from 8.95% to 11.5%) 14,608 -------------- Present value of net minimum capital lease payment 91,409 Less current installments of capital lease obligations (note 7) 59,308 -------------- Capital lease obligations, excluding current installments 32,101 ============== (10) Income Taxes ------------ Income tax expense consists of: Current Deferred Total ----------- ------------ --------- Spanish 199,402 54 199,456 Foreign 52,534 68,471 121,005 ----------- ------------ --------- 251,936 68,525 320,461 =========== ============ =========
(Continued) WALL STREET INSTITUTE GROUP Notes to Combined Financial Statements (Expressed in U.S. Dollars) Income tax expense of the Spanish companies differed from the amounts computed by applying the Spain income tax note of 35 per cent to pretax income as a result of the following: Aggregated income before tax of the Spanish companies (Taxable base) 1,674,740 Computed "expected" tax expense/ 586,159 Increase (reduction) in income taxes resulting from: Rebate of 95% on the income tax rate of I.F.S. International Franchise Service, S.L. and W.S.I. Spain, S.A. (280,517) Adjustment to deferred tax assets and liabilities 54 Deduction for dividends received from affiliates not subject to taxation (29,717) Other deduction (76,523) --------------- 199,456 ===============
Income tax expense for the W.S.I. International B.V. corresponds to 7% of total turnover. There is no income tax expense for the Wall Street Study Center Establishment. The Group companies, I.F.S. International Franchise Service, S.L. and W.S.I. Spain, S.A., adhere to the tax measures of the Law 22 of December 29, 1993 whereby they benefit from a rebate of 95% on the income tax rate, applicable to the years 1995, 1996 and 1997. The said rebate is subject to the fulfillment of certain requirements, including the obligation that the participation of individuals amount to more than 75% of the share capital. Likewise, the breach of any of the requirements established would mean the loss of the said rebates, including for those years in which the rebates have already been applied. The tax effects of timing differences that give rise to a significant portion of the deferred tax liabilities are presented below: Deferred tax liabilities: Royalty fees, principally due to royalties pending collection for W.S.I. International, B.V. 68,471 Other 54 --------------- Total deferred tax liability 68,525 ===============
(Continued) WALL STREET INSTITUTE GROUP Notes to Combined Financial Statements (Expressed in U.S. Dollars) (11) Concentration of Business and Credit ------------------------------------ The Group is subject to concentration of business and credit risk through cash and cash equivalents, accounts receivable and notes receivable. The Group's customer base includes franchisees as well as individuals through the company-owned learning centers. The Group's operations are directly affected by the franchisees financial position. The Group also maintains an allowance for losses on receivable based on the collectibility of all amounts owned. The Group generally does not require collateral for trade and notes receivable, but in the majority of the cases, the Group knows the financial position of the franchisees through the accounting advice which it provides them. Cash and cash equivalents are place with high-credit quality financial institutions in short-term duration.Management believes that the credit risk associated with such financial instruments is minimal due to the control procedures which monitor the credit worthiness of clients. (12) Contingencies and Commitments ------------------------------ Wall Street Centre Establishment guarantees, until December 13, 1996, the commitment of Mr. Luigi Tiziano Peccenini (President of the Group) to pay an amount of $892,867 to Mr. Antonio Duno Esteve (former Director). /s/ Robert Zanco ------------------------------- Robert Zanco Sole Administrator of I.F.S. International Franchise Service, S.L., M.P. Managementy Participaciones, S.L., W.S.I. Spain, S.A. and W.S.I. Barcelona, S.A. Board of Directors executive member of Wall Street Institute International, B.V. PROAUDIT, S.L. Company inscribed in: - -Official Register of Auditors Inscription No. 50235 - -Special Register of Auditing Companies of Spanish Institute of Auditors Inscription No. 174 Date: October 31, 1996 No. Protocol: 264/96 L.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. AUDIT REPORT ON THE FINANCIAL STATEMENTS AT AUGUST 31, 1996 [LETTERHEAD OF PROAUDIT APPEARS HERE] Independent Auditors' Report To the Members of the Board of Directors and Equity Holders I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. 1. We have audited the financial statements of I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. (hereinafter I.F.S. or the Company) as of August 31, 1996 and the related statements of income, and changes on shareholders' equity, for the twelve-month period then ended. These financial statements are the responsibility of the Directors of the Company. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. 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 audit provides a reasonable basis for our opinion. 2. The Company adheres to the tax measures of the Law 22 of December 29, 1993 in which it benefits from a discount of 95% on the total income tax liability, applicable to the years 1994/95, 1995/96 and 1996/97. The said discount is subject to the fulfillment of determined requirements, including the obligation that the participation of individuals amounts to more than 75% of the share capital. The breach of any of the requirements established would mean the loss of the said discounts, including for those years in which the discounts have already been applied, which to the date amount to $159,496. 3. In our opinion, the financial statements referred to above present fairly in all material aspects, the financial position of I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. as of August 31, 1996, and the results of its operations and its cash-flows for the twelve-month then ended in conformity with U.S. GAAP generally accepted accounting principles in the United States of America. October 31, 1996 [SEAL OF PROAUDIT, S.L. APPEARS HERE] PROAUDIT, S.L. /s/ Ramon Rubinat Rene Signed: Ramon Rubinat Rene I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. Balance Sheet August 31, 1996 ($) Assets ------ Current assets Cash and cash equivalents 139,042 Short-term investments, at cost which approximates market 0 ----------- 139,042 Accounts and notes receivable, less allowance 1,668,882 Inventories (Note 2) 671,332 Prepaid expenses, taxes and other current assets 2,354 ----------- Total current assets 2,481,610 Investments in affiliates and other assets 23,746 Property, plant and equipment, net (Note 3) 301,037 Intangible assets, net 9,251 ----------- Total assets 2,815,644 =========== Liabilities and shareholders' equity ------------------------------------ Current liabilities Short-term borrowings (Note 6) 355,582 Accounts payable 409,418 Income taxes payable (Note 8) 5,140 Accrued expenses 0 Other current liabilities (Note 5) 1,646,485 Total current liabilities 2,416,625 Long-term debt (Note 6) 27,235 Notes payable to affiliated company Other liabilities Deferred income taxes Shareholders' equity Capital stock 5,197 Retained earnings 366,587 Currency translation adjustment and other 0 ----------- Total shareholders' equity 371,784 ----------- Total liabilities and shareholders' equity 2,815,644 ===========
See accompanying notes to financial statements. I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. Statement of Income Year ended August 31, 1996 ($) Net sales 5,416,000 Cost and expenses, net Cost of sales (1,831,733) Selling, general and administrative expenses (3,204,749) Amortization of intangible assets (1,476) ------------ Operating profit 378,042 Interest expense (109,190) Interest income 37,052 Other income (expense) (12,189) ------------ Income before taxes 293,715 Provision for income taxes (5,140) ------------ Net income 288,575 ============
[SEAL APPEARS HERE] I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. Statement of Cash Flows Year ended August 31, 1996 ($)
Cash flows-operating activities: Net income 288,575 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 49,695 Provision for inventories 28,380 Deferred income taxes 54 Other noncash charges and credits, net 111,340 Changes in operating working capital: Accounts and notes receivables (665,647) Inventories 590,332 Accounts payable (370,323) Accrued expenses (15,630) Other current liabilities 18,360 ---------- Net charge in operating working capital (442,908) ---------- Net cash provided by (used for) operating activities 35,136 ---------- Cash flows-investing activities: Purchases of property, plant and equipment (247,210) Other, net (335) ---------- Net cash provided by (user for) investing activities (247,545) ---------- Cash flows-financing activities: Payments of long-term debts 8,322 Short-term borrowings, net 50,965 Other, net ---------- Net cash provided by (used for) financing activities 59,287 ---------- Net increase (decrease) in cash and cash equivalents (153,122) Cash and cash equivalents-beginning of year 292,164 ---------- Cash and cash equivalents-end of year 139,042 ========== Supplemental cash flow information: Cash flow data Interest paid 109,190 Income taxes paid 1,379 Schedule of non-cash investing and financial activities Losses for disposal of assets 9,056 Prepayments 4,971
See accompanying notes to financial statements. I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. Statement of Stockholders' Equity Year ended August 31, 1996 ($)
Capital stock ---------------------------- Retained Shares Amount earnings Total ---------- ---------- ---------- --------- Shareholders' equity, August 31, 1995 650 5,197 78,012 83,209 1996 Net income 288,575 288,575 ---------- ---------- ---------- --------- Shareholders' equity, August 31, 1996 650 5,197 366,587 371,784 ========== ========== ========== =========
[SEAL APPEARS HERE] I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. Notes to the financial statements of (1) Summary of significant accounting policies ------------------------------------------ (a) Organization and Business ------------------------- The statutory activity of I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. is the design, creation, manufacturing and the distribution of graphic and didactric material both for printing mediums and all kinds of magnetic mediums, the sale and purchase and the distribution of all kinds of computer material, the advising and consulting in didactic, commercial and administrative areas. (b) Property, Plant and Equipment ----------------------------- Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, as follows:
------------------------------------------ ---------------------- % Annual Asset Useful life in years Depreciation ------------------------------------------ ---------------------- on ------------ Machinery 8 12 Furniture 10 10 Tools and other installations 5 20 Data processing equipment 4 25 Transport 3 32
(2) Inventories -----------
Dollars --------------- Finished goods 776,859 Lees provision for slow-moving items (105,527) --------------- 671,332 ===============
(3) Property, Plant and Equipment -----------------------------
Dollars --------------- Machinery and equipment 36,676 Furniture and fixtures 237,548 Office computers 46,650 Vehicles 29,713 --------------- Accumulated depreciation 350,587 (49,550) --------------- 301,037 Depreciation expense in 1996 was $ 48,219
[SEAL APPEARS HERE] 2 I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. Notes to the financial statements of
(4) Intangible Assets ----------------- Dollars ------------- Rights of software 12,780 Accumulated depreciation (3,529) ------------- 9,251 Depreciation expense in 1996 was $ 1,476 (5) Other Current Liabilities ------------------------- Dollars ------------- CALLS INTERNATIONAL (5,379) WSI INTERNATIONAL B.V. 1,547,278 WSI SPAIN 60,119 WSI BARCELONA 42,073 M.P. MANAGEMENT Y PARTICIPACIONES 2,394 ------------- 1,646,485 ============= (6) Short-Term Borrowings and Long-Term Debt ---------------------------------------- Short-term borrowings and long-term debt at August 31, 1996 consist of the following: Dollars ------------- Short-term borrowings Loans with credit institutions 355,582 ============= Long-term debt Capital lease obligations 6,947 Other debt 20,288 ------------- 27,235 =============
(7) Leases ------ The Company has recorded the fixed assets acquired through financial leasing within the fixed tangible assets caption, with the amount of the payable quotas stated in the liabilities of the balance sheet. 3 I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L. Notes to the financial statements of At August 31, 1996 the fixed assets recorded for this concept are as follows:
Dollars --------------- Vehicles 25,515 Accumulated depreciation 4,423 --------------- Net 21,092 ===============
The following is a schedule by years of future minimum payments under capital leases as at August 31, 1996: Year ended August 31:
Dollars --------------- 1997 11,967 1998 6,947
(8) Income Taxes ------------ Taxes on income consist of:
Dollars --------------- Currently payable 5,086 Deferred 54 --------------- Total 5,140 ===============
The Company benefits from a 95% discount on income tax subject to fulfillment of certain requirements referring basically to: personnel of 3 to 20 persons, investments in fixed assets, participation by equityholders (persons) of more than 75%. (9) Royalties --------- The Company has entered into a contract with WSI INTERNATIONAL, B.V., by which the latter grants the license for the editing, reproduction, distribution and commercialization of WALL STREET INSTITUTE products, symbols and trademarks. In exchange, the payment of a royalty of 20% of the sale price of the said products is obligatory. The term of the said contract is from November 1, 1994 to August 31, 1997. The payment of the royalties shall be effective at August 31, 1997, there being a minimum of CHF 1,000,000 guaranteed each year. The amount accrued for this concept in the year ended August 31, 1996 is $930,625 and the debt payable at the said date is $1,547,277. [SEAL APPEARS HERE] [LOGO OF PROAUDIT APPEARS HERE] PROAUDIT, S.L. Company inscribed in: - - Official Register of Auditors Inscription N/o/ S0235 - - - Special Register of Auditing Companies of Spanish Institute of Auditors Inscription N/o/ 174 - Date: October 31, 1996 N/o/ Protocol: 266/96 - WALL STREET STUDY CENTRE ESTABLISHMENT AUDIT REPORT ON THE FINANCIAL STATEMENTS AT AUGUST 31, 1996. [SEAL APPEARS HERE] [LETTERHEAD OF PROAUDIT APPEARS HERE] Independent Auditors' Report The Board of Directors and Stockholders WALL STREET STUDY CENTRE ESTABLISHMENT 1. We have audited the financial statements of WALL STREET STUDY CENTRE ESTABLISHMENT (hereinafter the Company) as of August 31, 1996 and the related statements of income, and changes in shareholders' equity, for the twelve-month period then ended. These financial statements are the responsibility of the Directors of the Company. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. 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 audit provides a reasonable basis for our opinion. 2. By virtue of the trademark contract, entered into at August 25, 1994 with WALL STREET INSTITUTE INTERNATIONAL B.V. (WSI. INT), the Company receives between 93% and 98% of the royalties collected by the aforementioned company by way of use trademark. However, on the accompanying financial statement the royalties accrued and pending collection by WSI. INT, amounting to $2,274,215.62 are stated as income. 3. In our opinion, except for the effects of the qualification mentioned in the above paragraph, the financial statements referred to above present fairly in all material aspects the financial position of WALL STREET STUDY CENTRE ESTABLISHMENT as of August 31, 1996, and the results of its operations and its cash-flows for the twelve-month then ended in conformity with U.S. GAAP generally accepted accounting principles in the United States of America. October 31, 1996 [SEAL OF PROAUDIT APPEARS HERE] PROAUDIT, S.L. Signed: Ramon Rubinat Rene [SEAL APPEARS HERE] WALL STREET STUDY CENTRE ESTABLISHMENT Balance Sheet August 31, 1996 ($)
Assets ------ Current assets Cash and cash equivalents (note 4) Short-term investments, at cost which approximates market 33.833,13 -------------- 33.833,13 Accounts and notes receivable, less allowance (note 3) 2.274.215,62 Inventories Prepaid expenses, taxes and other current assets -------------- Total current assets 2.308.048,75 Investments in affiliates and other assets 48.177,23 Property, plant and equipment, net Intangible assets, net (note 2) -------------- Total assets 2.356.225,98 ============== Liabilities and shareholders' equity ------------------------------------ Current liabilities Short-term borrowings Accounts payable Income taxes payable Accrued expenses Other current liabilities -------------- Total current liabilities 0.00 Long-term debt Notes payable to affiliated company Other liabilities Deferred income taxes Shareholders' equity (note 5) Capital stock 16.635,62 Retained earnings 2.339.590,36 Currency translation adjustment and other -------------- Total shareholder's equity 2.356.225,98 -------------- Total liabilities and shareholders' equity 2.356.225,98 ==============
See accompanying notes to financial statements WALL STREET STUDY CENTRE ESTABLISHMENT Statement of Income Year ended August 31, 1996 ($) Net sales 2,802,495.02 Cost and expenses, net Cost of sales Selling, general and administrative expenses 13,755.13 Amortization of intangible assets --------------- Operating profit 2,788,739.89 Interest expense Interest income Other income(expense) --------------- Income before taxes 2,788,739.89 Provision for income taxes --------------- Net income 2,788,739.89 ==============
[SEAL OF PROAUDIT, S.L. APPEARS HERE] WALL STREET STUDY CENTRE ESTABLISHMENT Statement of Cash Flows Year ended August 31, 1996 ($) Cash flows-operating activities: Net income 2,788,739.89 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Deferred income taxes Other noncash charges and credits, net Changes in operating working capital: Accounts and notes receivables (1,091,129.53) Inventories Prepaid expenses, taxes and other current assets Accounts payable Accrued expenses Other current liabilities ------------------ Net charge in operating working capital (1,091,129.53) ------------------ Net cash provided by (used for) operating 1,697,610.36 ------------------ activities Cash flows-investing activities: Acquisition and investments in affiliates (41,901.19) Purchases of property, plant and equipment Proceeds from sales of property, plant and equipment Short-term borrowings, net Cash dividends paid (994,049.73) Other, net ------------------ Net cash provided by (user for) investing (1,035,950.92) ------------------ activities Cash flows-financing activities: Proceeds from issuances for long-term debt Payments of long-term debts Short-term borrowings, net (717,417.65) Other, net ------------------ Net cash provided by (used for) financing (717,417.65) ------------------ activities Net increase (decrease) in cash and cash equivalents (55,758.21) Cash and cash equivalents-beginning of year 89,591.34 ------------------ Cash and cash equivalents-end of year 33,833.13 ==================
WALL STREET STUDY CENTRE ESTABLISHMENT Statement of Stockholder's Equity Year Ended August 31, 1996 ($)
Capital Stock Retained accounts earnings Total ---------------- ---------------- --------------- Shareholder's equity August 31, 1996 16,635.62 1,009,457.92 1,026,093.54 1996 Net income (loss) 2,788,739.89 2,778,739.89 Interest dividend (1,458,607.45) (1,458,607.45) ---------------- ---------------- --------------- 16,635.62 2,339,590.36 2,356,225.98 ================ ================ ==============
[SEAL APPEARS HERE] Wall Street Study Centre Establishment Notes to the Financial Statements (1) Organization and Business ------------------------- Wall Street Study Center Establishment was incorporated under Lienchtensteinsh Law at November 5, 1969. Its statutory activity is the acquisition and administration of financial and material fixed assets and rights or trade marks, and its dearly excluded the commercialization of other kind of items. (2) Intangible fixed assets ----------------------- The intangible fixed assets are valued at their cost of acquisition; corresponding to the amount for the registered trademarks of the Company. (3) Debtors ------- The debit balances correspond entirely to the balances pending collection from the sole client, Wall Street Institute International, B.V. (4) Cash and banks -------------- The accounting balances for the current accounts in foreign currencies are accounted for applying the exchange rate at the year end. (5) Shareholders equity ------------------- Details are as follows: Dollars ------------- Capital 16,635.62 Reserves 544,900.19 Losses and Profits 95/96 2,788,739.89 Dividend (994,049.73) ------------- 2,356,225.98
(6) Contingencies ------------- The Company guarantees up to December 31, 1996 the payment commitment of Mr. Luigi Tiziano Peccenini to Mr. Antonio Maria Du*o Esteve for $892,867. [SEAL OF PROAUDIT APPEARS HERE] PROAUDIT, S.L. Company inscribed in: Official Register of Auditors Inscription N/O/ S0235 * Special Register of Auditing Companies of Spanish Institute of Auditors Inscription N/O/ 174 Date: October 31, 1996 N/O/Protocol: 265/96 WALL STREET INSTITUTE INTERNATIONAL B.V. AUDIT REPORT ON THE FINANCIAL STATEMENTS AT AUGUST 31, 1996 [SEAL OF PROAUDIT APPEARS HERE] [LETTERHEAD OF PROAUDIT APPEARS HERE] Independent Auditors' Report The Board of Directors and Stockholders WALL STREET INSTITUTE INTERNATIONAL B.V. 1. We have audited the financial statements of WALL STREET INSTITUTE INTERNATIONAL B.V. (hereinafter the Company) as of August 31, 1996 and the related statements of income, and changes in shareholders' equity, for the twelve-month period then ended. These financial statements are the responsibility of the Directors of the Company. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. 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 audit provides a reasonable basis for our opinion. 2. The Company has not invoiced any amounts to the Head Office in France by way of royalties. According to the Management of the Company, this is due to an agreement between both parties based on a minimum invoicing amount of FF 800 thousand. We have not obtained sufficient evidence that the said agreement is valid, nor do we feel that the non-invoicing of royalties amounting to USA $31,850, is sufficiently justified in the period September 1, 1995 to August 31, 1996. 3. A contract dated 17 December 1992 exists under which premises the Trademark and method WALL STREET INSTITUTE is granted to Mr. Jose M/a/ Esteve for the Territory of Portugal. In the mentioned contract, Mr. Esteve committed himself to incorporate a new company in the above mentioned territory and to cede 20% of the shares to WALL STREET INSTITUTE INTERNATIONAL B.V. According to the management of WALL STREET INSTITUTE INTERNATIONAL.V. even though the business is being developed in Portugal, Mr. Esteve has not met his part of the agreement mentioned before. 4. In our opinion, except for the effects of the possible contingencies arising from the uncertainty expressed in paragraph 2 above, the financial statements referred to above present fairly in all material aspects the financial position of WALL STREET INSTITUTE INTERNATIONAL B.V. as of August 31, 1996, and the results of its operations and its cash-flows for the twelve-month then ended in conformity with the U.S. GAAP generally accepted accounting principles in the United States of America. October 31, 1996 PROAUDIT, S.L. [SEAL OF PROAUDIT APPEARS HERE] /s/ Ramon Rubinat Rene Signed: Ramon Rubinat Rene W.S. INSTITUTE INTERNATIONAL, B.V. [LOGO OF PROAUDIT Balance Sheet APPEARS HERE] August 31, 1996 ($)
Assets ------ Current assets Cash and cash equivalents Short-term investments, at cost which approximates market 105.607,40 (note 4) -------------- 105.607,40 Accounts and notes receivable, less allowance (note 3) 2.445.393,14 Inventories Prepaid expenses, taxes and other current assets -------------- Total current assets 2.445.393,14 Investments in affiliates and other assets (note 2) 48.000,00 Property, plant and equipment, net Intangible assets, net -------------- Total assets 2.599.000,54 [SEAL OF PROAUDIT, S.L.APPEARS HERE] ============== Liabilities and shareholders' equity ------------------------------------ Current liabilities (note 5) Short-term borrowings 2.274.215,62 Accounts payable Income taxes payable 157.454,59 Accrued expenses Other current liabilities 325.643,36 -------------- Total current liabilities 2.757.313,57 Long-term debt Notes payable to affiliated company Other liabilities Deferred income taxes Shareholders' equity (note 6) Capital stock 24.085,58 Retained earnings -182.398,61 Currency translation adjustment and other -------------- Total shareholder's equity -158.313,03 -------------- Total liabilities and shareholder's equity 2.599.000,54 ==============
See accompanying notes to financial statements. W.S. INSTITUTE INTERNATIONAL, B.V. Statement of Income Year ended August 31, 1996 ($) Net sales 2,993,612.72 Cost and expenses, net Cost of sales 2,802,495.02 Selling, general and administrative expenses 351,198.31 Amortization of intangible assets --------------- Operating loss (160,080.61) Interest expense (15,497.87) Interest income 731.60 Other income (expense) --------------- Expense before taxes (174,846.88) Provision for income taxes (121,003.17) --------------- Net loss (295,850.05) ===============
W.S. INSTITUTE INTERNATIONAL, B.V. Statement of Cash Flows Year ended August 31, 1996 ($) Cash flows-operating activities: Net income (295,850.05) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,248.80 Deferred income taxes Other noncash charges and credits, net Changes in operating working capital: Accounts and notes receivables (1,502,549.35) Inventories Prepaid expenses, taxes and other current assets Accounts payable Accrued expenses Other current liabilities -------------- Net charge in operating working capital (1,502,549.35) ------------- Net cash provided by (used for) operating activities (1,778,150.60) ------------- Cash flows-investing activities: Acquisition and investments in affiliates (48,000.00) Purchases of property, plant and equipment Proceeds from sales of property, plant and equipment Short-term borrowings, net Cash dividends paid Other, net -------------- Net cash provided by (user for) investing (48,000.00) -------------- activities Cash flows-financing activities: Proceeds from issuances of long-term debt Payments of long-term debts Short-term borrowings, net 1,906,279.73 Other, net -------------- Net cash provided by (used for) financing 1,906,279.73 -------------- activities Net increase (decrease) in cash and cash equivalents 80,129.13 Cash and cash equivalents-beginning of year 25,478.27 ------------- Cash and cash equivalents-end of year 105,607.40 =============
[SEAL APPEARS HERE] W.S. INSTITUTE INTERNATIONAL, B.V. Statement of Stockholder's Equity Year ended August 31, 1996 ($)
Capital Stock ---------------------- Retained Shares Amount Earnings Total ------ ---------- ----------- ------------ Shareholder's equity August 31, 1995 40.00 24,085.58 113,451.44 137,537.02 1996 Net income (loss) (295,850.05) (295,850.05) ------ ---------- ----------- ------------ Shareholder's equity, Aug. 31, 1996 40.00 24,085.58 (182,398.61) (158,313.03) ====== ========== =========== ============
Wall Street Institute International, B.V. Notes to financial statements (1) Organization and Business ------------------------- W.S.I. International, B.V. was incorporated under Dutch Law on April 3, 1990. It has it registered seat at Amsterdam, but may establish branches and/or other offices elsewhere. The objects of the Company established in its statutes are the following: - to create for the purposes of trade, to acquire, to alienate and to grant the use of copyrights, patent rights, designs, trademarks and rights of a similar nature, and to acquire royalties and other rights resulting from these rights; - to acquire, to participate in, to finance, to manage and to take an interest in other companies and enterprises of any nature; - to invest in securities, deposits and other kinds of assets; - to obtain, alienate and encumber register-bound goods; - to render services to companies and other enterprises with which the company forms a group; - to provide security for debts of companies and enterprises with which the company forms a group; - to render services in the field of commerce and finance; and to do all that is connected therewith or may be conducive thereto, all this in the widest sense. (2) Investments ----------- Investments are valued at their cost of acquisition; corresponding to 48 shares each a nominal value of $1,000 of the Company Wall Street Institute WSI, CA (Venezuala). (3) Debtors ------- The debit balances correspond entirely to balances pending payment by clients; the largest debt being that with IFS for $1,766,437.40. There is a doubtful debt of $7,490.16 totally provided for this year, corresponding the invoicing of the previous year to W.S.I. Cordoba. There is currently a litigation proceeding with this client for breach of contract. (4) Cash and Banks -------------- The accounting balances of the current accounts in foreign currency are accounted for applying the exchange rate at the year end. [SEAL APPEARS HERE] Wall Street Institute International, B.V. Notes to Financial statements
(5) Creditors --------- The breakdown of this caption is as follows: Dollars -------------------- Trade creditors 2,274,215.62 (1) Other creditors 312,884.73 (2) Deferred tax 68,471.01 (3) Public treasury 88,983.58 (4) Other 12,758.64 -------------------- 2,757,313.56 ====================
(1) Corresponds to the total amount of royalties payable to Wall Street Study Centre. (2) Corresponds to a credit with IFS for $222,884.73 and a credit with Silvetown for $90,000.00 (3) The quota corresponding to royalties pending collection is calculated as deferred tax. (4) The debt with the Tax Authorities corresponds to taxes accrued and unpaid from previous years. (6) Shareholders Equity ------------------- Details are as follows:
Dollars ------------- Capital 24,085.58 Reserves 13,451.44 Losses and Profits 95/96 (295,850.05) ------------- (158,313.03) =============
The share capital consists of 40 shares each of a nominal value of 1,000 Dutch florins. (Exchange rate with dollar, nominal value $602,1395 times 40 shares equal $24,085,58) [SEAL APPEARS HERE] Pro Forma Financial Information Effective December 1, 1996, the Company acquired substantially all of the operating assets and assumed certain liabilities of Wall Street Institute International, B.V. and its commonly controlled affiliates (collectively, "WSI"). The Company and the sellers signed a definitive purchase agreement in December 1996 that provided for an effective date of the sale of December 1, 1996. The Company's control of the operations of WSI commenced at the effective date, and the Company recorded the acquisition using the purchase method of accounting on December 1, 1996. WSI is a European-based franchisor and operator of learning centers that teach the English language through a combination of computer-based and live instruction. WSI has a network of more than 170 franchised centers in operation throughout Europe and Latin America. The purchase price of WSI consisted of cash of $4,921,000, 505,364 shares of restricted common stock valued at $9,250,000, and 209,520 shares of unrestricted common stock valued at $5,900,000. Of the 505,364 shares of restricted common stock issued to the sellers, 124,292 shares are held in escrow to indemnify the Company against any subsequent losses resulting from any misrepresentation or breach of certain covenants. The unrestricted common stock held in escrow will be released in varying amounts to the sellers through 2001. The total purchase price of $21,071,000, including $1,000,000 of direct acquisition costs, was allocated as follows:
Working capital $ 2,795,000 Fixed assets 1,125,000 Other assets 329,000 Goodwill 19,852,000 ----------- 24,101,000 Less liabilities assumed Debt 1,417,000 Deferred revenue 1,613,000 ----------- 3,030,000 ----------- $21,071,000 ===========
Goodwill is being amortized over its estimated useful life of 25 years. The following unaudited pro forma financial information consists of the unaudited pro forma condensed combined balance sheet as of September 30, 1996 and the pro forma condensed combined statements of operations for the nine months ended September 30, 1996, and the twelve months ended December 31, 1995 as if WSI was acquired on January 1, 1995. This pro forma financial information should be read in conjunction with the notes thereto. The following unaudited pro forma financial information does not purport to represent what Sylvan's results of operations actually would have been had such transactions and events occurred on the dates specified, or to project Sylvan's results of operations for any future period or date. The pro forma adjustments are based upon available information and certain adjustments that management of Sylvan believes are reasonable. In the opinion of management of Sylvan, all adjustments have been made that are necessary to present fairly the following unaudited pro forma financial data. Pro Forma Condensed Combined Balance Sheet (Unaudited) As of September 30, 1996
Wall Street Institute International, B.V. Sylvan/WSI Sylvan Learning and affiliates Pro Forma Pro Forma Systems, Inc. as of August 31, 1996 Adjustments Combined ================== ======================= ============ ============== (in thousands except per share data) Assets Current assets: Cash and cash equivalents $8,935 $1,627 ($4,921)(1) $5,641 Available-for-sale securities 16,268 16,268 Accounts and notes receivable, net 29,752 2,896 32,648 Inventory and prepaid expenses 7,775 984 8,759 ------------------ ------------------------ ------------ -------------- Total current assets 62,730 5,507 (4,921) 63,316 Notes receivable, less current portion 991 446 1,437 Net property and equipment 17,018 1,093 18,111 Net contract rights and other intangibles 4,591 4,591 Goodwill, net 78,109 17,305 (1) 1,000 (2) 96,414 Net deferred contract costs and other long-term assets 12,980 264 13,244 ------------------ ------------------------ ------------ -------------- Total assets $176,419 $7,310 $13,384 $197,113 ================== ======================== ============ ============== Liabilities & stockholders' equity Current liabilities: Accounts payable and accrued expenses $16,450 $2,120 $1,000 (2) $19,570 Current portion of long-term debt and 1,182 892 2,074 capital lease obligations Other current liabilities 7,790 1,274 9,064 ------------------ ------------------------ ------------ -------------- Total current liabilities 25,422 4,286 1,000 30,708 Long-term debt, less current portion 1,600 203 1,803 Other long-term liabilities 1,233 55 1,288 Stockholders' equity: Common stock 142 150 (143)(1) 149 Additional paid-in capital 142,573 2,616 12,527 (1) 157,716 Translation adjustments (95) (95) Retained earnings 5,544 5,544 ------------------ ------------------------ ------------ -------------- Total stockholders' equity 148,164 2,766 12,384 163,314 ------------------ ------------------------ ------------ -------------- Total liabilities and stockholders' equity $176,419 $7,310 $13,384 $197,113 ================== ======================== ============ ==============
See notes to unaudited pro forma condensed combined financial statements. Pro Forma Condensed Combined Statement of Operations (Unaudited) For the Nine Months Ended September 30, 1996
Wall Street Institute International, B.V. Sylvan Learning and affiliates Sylvan/WSI Pro Forma Systems, Inc. for the for the nine months Combined for the nine months ended ended Pro Forma nine months ended September 30, 1996 August 31, 1996 Adjustments September 30, 1996 --------------------- --------------------- ----------- -------------------- (in thousands except per share data) Revenues: Franchise royalties $8,698 $8,698 Franchise sales fees 887 887 Company-owned learning center services 11,725 11,725 Product sales 2,795 2,795 Contract learning center services 23,580 23,580 Testing services 64,128 9,357 73,485 --------------------- --------------------- ----------- -------------------- Total revenues 111,813 9,357 121,170 Cost and expenses: Franchise services 4,550 4,550 Company-owned learning center operating expenses 9,770 9,770 Cost of product sales 2,306 2,306 Contract learning center operating expenses 20,997 20,997 Testing services expenses 52,672 7,253 $596 (3) 60,521 General and administrative expenses 7,308 7,308 --------------------- --------------------- ----------- -------------------- Total expenses 97,603 7,253 596 105,452 --------------------- --------------------- ----------- -------------------- Operating income 14,210 2,104 (596) 15,718 Other income (expense) 1,183 723 1,906 --------------------- --------------------- ----------- -------------------- Income from continuing operations before income taxes 15,393 2,827 (596) 17,624 Income taxes (6,240) (234) (6,474) --------------------- --------------------- ----------- -------------------- Net income $9,153 $2,593 ($596) $11,150 ===================== ===================== =========== ==================== Per common and common equivalent share (4) Net income $0.37 $0.44 ===================== ==================== Per common share, assuming full dilution (4) Net income $0.37 $0.44 ===================== ==================== Common and common equivalent shares used in calculation of earnings per share (5): Primary 23,625 24,340 ===================== ==================== Fully diluted 23,761 24,476 ===================== ====================
See notes to unaudited pro forma condensed combined financial statements. Pro Forma Condensed Combined Statement of Operations (Unaudited) For the Year Ended December 31, 1995
Wall Street Institute Sylvan Learning International, B.V. Sylvan/WSI Pro Systems, Inc. and affiliates Forma Combined for the year ended for the year ended Pro Forma for the year ended December 31, 1995 December 31, 1995 Adjustments December 31, 1995 -------------------- ------------------- ----------- ------------------- (in thousands except per share data) Revenues: Franchise royalties $9,223 $ 9,223 Franchise sales fees 2,132 2,132 Company-owned learning center services 11,520 11,520 Product sales 3,188 3,188 Contract learning center services 27,362 27,362 Testing services 34,566 13,140 47,706 -------------------- ------------------- ----------- ------------------ Total revenues 87,991 13,140 101,131 Cost and expenses: Franchise services 5,875 5,875 Company-owned learning center operating expenses 10,369 10,369 Cost of product sales 2,431 2,431 Contract learning center operating expenses 25,120 25,120 Testing services expenses 30,348 9,541 $794(3) 40,683 General and administrative expenses 6,206 6,206 Loss on impairment of assets 3,316 3,316 -------------------- ------------------- ----------- ------------------ Total expenses 83,665 9,541 794 94,000 -------------------- ------------------- ----------- ------------------ Operating income 4,326 3,599 (794) 7,131 Other income (expense) (569) (515) (1,084) -------------------- ------------------- ----------- ------------------ Income from continuing operations before income taxes 3,757 3,084 (794) 6,047 Income taxes (209) (253) (462) -------------------- ------------------- ----------- ------------------ Net income $3,548 $2,831 ($794) $5,585 ==================== =================== =========== ================== Per common and common equivalent share(4) Net income $0.22 $0.33 ==================== ================== Per common share, assuming full dilution(4) Net income $0.21 $0.32 ==================== ================== Common and common equivalent shares used in calculation of earnings per share(5): Primary 15,665 16,380 ==================== ================== Fully diluted 15,972 16,687 ==================== =================
See notes to unaudited pro forma condensed combined financial statements. Notes to Pro Forma Condensed Combined Financial Statements (1) Adjustments to reflect the elimination of WSI's net equity upon the acquisition date and to reflect the issuance of 714,884 shares of the Company's common stock valued at $15.2 million and the cash payment of $4.9 million to acquire WSI. (2) Adjustment to record the estimated transaction costs of $1.0 million. (3) Adjustment to record goodwill amortization based on the estimated useful life of 25 years. (4) Effective February 1995, the Company purchased The Pace Group ("PACE"). Additional contingent consideration is payable in the amount of 6.5 times PACE's earnings before interest and income taxes ("EBIT") in 1997. The earnings per share calculations for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively, assume additional goodwill amortization of $171,000 and $472,500 based on the contingent consideration which would have been paid relating to PACE's operating results for those respective periods. (5) In October 1996, the Company declared a 3-for-2 stock split of its common stock for stockholders of record on November 7, 1996. Accordingly, all share and per share data included in these pro forma financial statements have been restated to retroactively reflect the stock split. (c) Exhibits 23.01 Consent of KPMG Peat Marwick y Cia, Auditores, S.R.C. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized. Sylvan Learning Systems, Inc. (Registrant) Date: April 4, 1997 /s/B. Lee McGee --------------- B. Lee McGee, Senior Vice President and Chief Financial Officer EX-23.1 2 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 Consent of Independent Auditors ------------------------------- The Board of Directors M.P. Management y Participaciones, S.L.: We consent to the incorporation by reference in the following registration statements of Sylvan Learning Systems, Inc. of our report dated December 2, 1996, with respect to the combined financial statements of Wall Street Institute Group as of and for the year ended August 31, 1996, which report appears in the Form 8-K/A of Sylvan Learning Systems, Inc. dated April 4, 1997.
Name Form Registration Number Date Filed ---- ---- ------------------- ---------- - S-3 33-92014 May 8, 1995 - S-3 33-92852 May 30, 1995 - S-3 333-1674 February 26, 1996 - S-3 333-16111 November 14, 1996 - S-3 333-21261 February 6, 1997 1987-1991 Employee Stock Option Plan S-8 33-77384 April 6, 1994 1993 Directors Stock Option Plan S-8 33-77386 April 6, 1994 1993 Employee Stock Option Plan S-8 33-77390 April 6, 1994 1993 Management Stock Option Plan S-8 33-77388 April 6, 1994 1997 Employee Stock Option Purchase Plan S-8 33-21963 February 18, 1997
/s/ KPMG Peat Marwick y Cia, Auditores, S.R.C. Barcelona, Spain April 4, 1997 -----END PRIVACY-ENHANCED MESSAGE-----