<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 31, 1996
-----------------
EDUCATIONAL MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 000-21567 65-0038445
- ------------------------------- ----------------------- ------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
1327 Northmeadow Parkway, Suite 132 Roswell, Georgia 30076
- ----------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 770-475-9930
------------------
- -----------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
a) Financial Statements of Business Acquired.
The audited combined financial statements of
Hagerstown Business College as of and for the years
ended October 31, 1996 and 1995 are filed as part of
this Current Report on Form 8-K/A.
b) Pro Forma Financial Information
The unaudited pro forma condensed consolidated
statements of operations of Educational Medical, Inc.
for the year ended March 31, 1996 and the nine months
ended December 31, 1996 are filed as a part of this
Current Report form 8-K/A.
A pro forma balance sheet is not filed as the
acquisition was reflected in the condensed
consolidated balance sheet of Educational Medical,
Inc. as of December 31, 1996 filed on Form 10-Q for
the quarter ended December 31, 1996.
c) Exhibits
The following exhibits were filed as part of the
Current Report on Form 8-K filed on January 15, 1997:
2.1 Asset Purchase Agreement by and among Educational
Medical, Inc., HBC Acquisition Corporation, and O/E
Leasing, Inc. dated as of December 12, 1996.
<PAGE> 3
Independent Auditor's Report
To the Board of Directors
Hagerstown Business College
We have audited the accompanying divisional balance sheet of Hagerstown
Business College (a division of O/E Learning, Inc.) as of October 31, 1996 and
1995 and the related statements of divisional income, changes in divisional
equity and divisional cash flows for the years then ended. These
divisional financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these divisional
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 audits 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 divisional financial statements referred to above present
fairly, in all material respects, the divisional financial position of
Hagerstown Business College as of October 31, 1996 and 1995 and the results of
its divisional operations and its divisional cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ Plante & Moran, LLP
December 30, 1996
<PAGE> 4
HAGERSTOWN BUSINESS COLLEGE
(a division of O/E Learning, Inc.)
DIVISIONAL BALANCE SHEET
<TABLE>
<CAPTION> OCTOBER 31
----------
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (including restricted cash of $14,338 in 1996 and $20,450
in 1995) $ 229,600 $ 207,000
Accounts receivable (net allowance for doubtful accounts of
$15,000 in 1996) 342,800 302,500
Inventory (Note 2) 34,500 23,800
---------- ----------
Total current assets $ 606,900 $ 533,300
PROPERTY AND EQUIPMENT
Furniture and equipment 850,000 788,400
Land and building 2,436,300 2,436,300
---------- ----------
Total property and equipment 3,286,300 3,224,700
Less accumulated depreciation (1,070,800) (883,700)
---------- ----------
Net property and equipment 2,215,500 2,341,000
INTANGIBLE ASSETS (net of accumulated amortization of
$66,000 in 1996 and $58,000 in 1995) 134,000 142,000
---------- ----------
Total assets $ 2,956,400 $ 3,016,300
========== ==========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES
Accounts payable - Trade $ 11,800 $ 31,900
Accrued expenses and other liabilities 91,100 86,200
Deferred revenue (Note 2) 402,700 385,000
---------- ----------
Total current liabilities 505,600 503,100
DIVISIONAL EQUITY (NOTE 2) 2,450,800 2,513,200
---------- ----------
Total liabilities and divisional equity $ 2,956,400 $ 3,016,300
========== ==========
See Notes to Divisional Financial Statements. 2
</TABLE>
<PAGE> 5
HAGERSTOWN BUSINESS COLLEGE
(a division of O/E Learning, Inc.)
STATEMENT OF DIVISIONAL INCOME
<TABLE>
<CAPTION> YEAR ENDED OCTOBER 31
---------------------
1996 1995
---- ----
<S> <C> <C>
REVENUE
Training $ 2,294,800 $ 2,329,900
Other 46,100 36,700
---------- ----------
2,340,900 2,366,600
EXPENSES
Training 973,700 1,012,400
Depreciation 188,300 176,100
Amortization of intangible assets 8,000 8,000
Selling, general and administrative 581,500 669,000
---------- ----------
Total expenses 1,751,500 1,865,500
---------- ----------
INCOME - Before income taxes 589,400 501,100
INCOME TAX EXPENSE (Note 3) 205,300 173,100
NET INCOME $ 384,100 $ 328,000
========== ==========
</TABLE>
See Notes to Divisional Financial Statements. 3
<PAGE> 6
HAGERSTOWN BUSINESS COLLEGE
(a division of O/E Learning, Inc.)
STATEMENT OF CHANGES IN DIVISIONAL EQUITY
BALANCE - November 1, 1994 $ 2,490,700
Net income 328,000
Repayment of contributed capital (Note 5) (305,500)
-----------
BALANCE - October 31, 1995 2,513,200
Net income 384,100
Repayment of contributed capital (Note 5) (446,500)
-----------
BALANCE - October 31, 1996 $ 2,450,800
===========
See Notes to Divisional Financial Statements. 4
<PAGE> 7
HAGERSTOWN BUSINESS COLLEGE
(a division of O/E Learning, Inc.)
STATEMENT OF DIVISIONAL CASH FLOWS
<TABLE>
<CAPTION> Year Ended OCTOBER 31
---------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 384,100 $ 328,000
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 196,300 184,100
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (40,300) 5,700
Increase in inventory (10,700) (1,100)
Decrease in other current assets - -
Decease (increase) in deferred revenue 17,700 (1,300)
and other liabilities (15,200) 2,300
---------- ---------
Net cash provided by operating activities 531,900 518,300
CASH FLOWS FROM INVESTING ACTIVITIES - Purchase of fixed
assets (62,800) (207,800)
CASH FLOWS FROM FINANCING ACTIVITIES - Repayment of
contributed capital (446,500) (305,500)
---------- ----------
INCREASE IN CASH 22,600 5,000
CASH - Beginning of year 207,000 202,000
---------- ----------
CASH - End of year $ 229,600 $ 207,000
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION - Cash paid during the year for
Interest $ - $ -
Income taxes - O/E Learning, Inc. 205,300 173,100
</TABLE>
See Notes to Divisional Financial Statements. 5
<PAGE> 8
HAGERSTOWN BUSINESS COLLEGE
(a division of O/E Learning, Inc.)
NOTES TO DIVISIONAL FINANCIAL STATEMENTS
October 31, 1996 and 1995
NOTE 1 - DIVISIONAL INFORMATION
Hagerstown Business College (a division of O/E Learning, Inc.) is a
majority-owned subsidiary of O/E Automation, Inc. The College's
operations consists of proprietary secondary education in Hagerstown,
Maryland.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable - Accounts receivable are comprised of
tuition and fee payments due from students.
Cash - Cash includes petty cash and bank deposits. Restricted
cash consists of federal funds on hand to be paid to students.
Inventory - Inventory is stated at cost on a first-in, first-out basis
and is comprised of text books and supplies.
Property and Equipment - Furniture, equipment and buildings are
recorded at cost and depreciated on a straight-line basis over their
estimated useful lives.
Intangible Assets - Intangible assets consist of goodwill from
acquisitions of businesses, which is being amortized using the
straight-line method over the estimated lives ranging from 20 to 25
years. Amortization expense amounted to $8,000 and $8,300 for the
years ended October 31, 1996 and 1995, respectively.
Deferred Revenue - Certain students are billed in advance. Deferred
revenue consists of billings pertaining to the subsequent year.
Divisional Equity - Divisional equity represents the cumulative
results of operation of the College since its purchase by O/E
Learning, Inc. plus cash contributed by O/E Learning, Inc., net of any
repayments of contributed capital.
Use of Estimates - 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 revenue and expense during the reporting period.
Actual results could differ from those estimates.
6
<PAGE> 9
HAGERSTOWN BUSINESS COLLEGE
(a division of O/E Learning, Inc.)
NOTES TO DIVISIONAL FINANCIAL STATEMENTS
October 31, 1996 and 1995
NOTE 3 - INCOME TAXES
The College is included in the consolidated income tax returned filed
by O/E Automation, Inc. and, as agreed, the consolidated taxes payable
are allocated to O/E Learning, Inc. based on its contribution to
consolidated taxable income. Income tax expense has been allocated to
Hagerstown Business College based on statutory tax rates applied to
book income, and payment has been made to O/E Learning, Inc. for this
amount in 1996 and 1995. Accordingly, no deferred income tax assets
or liabilities have been allocated to the College.
NOTE 4 - EMPLOYEE BENEFIT PLANS
Eligible employees of the College participated in the O/E Automation,
Inc. defined benefit pension plan. Participation in the plan was
contingent upon attainment of one year of eligible service, provided
the employee has reached the age of 21 and was employed prior to
reaching age 60 and one day. The benefits under the plan were based on
years of service and the employee's highest compensation in a
consecutive five-year period of employment. The participating
companies annually contributed to the plan an amount actuarially
determined to provide the plan with sufficient assets to meet future
benefit payment requirements. The plan was terminated effective
October 31, 1995. As of October 31, 1996, the plan's assets at fair
value are less than the projected benefit obligation by $212,400. O/E
Learning, Inc. has accrued its share of the pension liability. O/E
Learning, Inc.'s pension expense under this plan amounted to $97,300
for 1995. This pension expense was included in part in the allocated
selling, general and administrative costs charged to the College
division. There was no pension expense in 1996.
Pension expense and liability include the estimated curtailment loss
associated with plan termination. Any adjustments to the estimated
curtailment loss will be reflected in net income in future years.
Substantially all of the College's employees are eligible to
participate in the O/E Automation, Inc. 401(k) plan. Under this plan,
eligible employees may elect to contribute up to 15 percent of their
compensation subject to limits established under the Internal Revenue
Code and O/E Learning, Inc. may make a discretionary matching
contribution.
For the plan year ended October 31, 1996, the plan was amended to also
incorporate a discretionary profit-sharing contribution. The total
expense for Hagerstown Business College for matching and profit-sharing
contributions amounted to $13,119 and $11,947 for the years ended
October 31, 1996 and 1995, respectively.
7
<PAGE> 10
HAGERSTOWN BUSINESS COLLEGE
(a division of O/E Learning, Inc.)
NOTES TO DIVISIONAL FINANCIAL STATEMENTS
October 31, 1996 and 1995
NOTE 5 - RELATED PARTY TRANSACTIONS
O/E Learning, Inc. provides selling, general and administrative support
to Hagerstown Business College. The College paid O/E Learning,
Inc. $581,500 and $669,000 in 1995, respectively, for allocated costs
for these services.
O/E Learning, Inc. contributes cash to Hagerstown Business College to
fund operations as needed. These capital contributions are repaid
whenever excess funds are available. Repayment of capital of
$446,500 and $305,500 were made in 1996 and 1995, respectively.
NOTE 6 - SUBSEQUENT EVENT
On December 31, 1996, O/E Learning, Inc. sold certain assets associated
with the Hagerstown Business College division to an unrelated
company. O/E Learning, Inc. will discontinue all activity associated
with operation of Hagerstown Business College effective January 1,
1997.
8
<PAGE> 11
Item 7 (b). Pro Forma Financial Statements
The following unaudited pro forma condensed consolidated financial statements of
Educational Medical, Inc. ("EMI") and Hagerstown Business College ("Hagerstown")
are derived from, and should be read in conjunction with audited financial
statements of Hagerstown included in item 7(a) herein and the audited
consolidated financial statements of EMI as previously filed on Form S-1 No.
333-09777 for the year ended March 31, 1996 with the Securities and Exchange
Commission and the unaudited condensed consolidated financial statements of EMI
as previously filed on Form 10-Q for the quarter ended December 31, 1996. The
pro forma condensed consolidated financial statements do not purport to be
indicative of the results of operations or financial position which would have
actually been reported had the acquisition been consummated on the dates
indicated, or which may be reported in the future.
The pro forma statements of operations reflect adjustments as if the acquisition
had been consummated at the beginning of the period of each statement (i.e.,
April 1, 1995 for the twelve-month statement of operations and April 1, 1996 for
the nine-month statement of operations.)
<PAGE> 12
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended March 31, 1996
<TABLE>
<CAPTION>
Historical
---------------------------------- Pro Forma Educational
Educational Acquisitions Medical, Inc.
Medical, Inc. Hagerstown Adjustments Pro Forma
-----------------------------------------------------------------------
(Dollars and shares in thousands)
<S> <C> <C> <C> <C>
Net revenues $ 38,652 $ 2,348 $ - $ 41,000
Cost of education and facilities 17,639 927 (68)(c) 18,766
268 (e)
Selling and promotional expenses 5,569 211 - 5,780
Administrative expenses 11,110 742 (440)(d) 11,412
Amortization of goodwill and 883 - 180 (b) 1,063
-------- ------- ------ -----------
intangibles
Income (loss) from operations
before other expenses 3,451 468 60 3,979
Other expenses 1,929 - - 1,929
-------- ------- ------ -----------
Income (loss) from operations 1,522 468 60 2,050
Interest expense (income), net 811 - - 811
-------- ------- ------ -----------
Income (loss) before income taxes
and extraordinary loss 711 468 60 1,239
Provision for income taxes 632 163 21 (f) 816
-------- ------- ------ -----------
Income before extraordinary loss $ 79 $ 305 $ 39 $ 423
======== ======= ====== ===========
Income before extraordinary loss
per share $ .02 $ .10
======== ===========
Weighted average number of shares used
in computing income before
extraordinary loss per share 4,426 4,426
======== ===========
</TABLE>
See accompanying pro forma adjustments
<PAGE> 13
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended December 31, 1996
<TABLE>
<CAPTION>
Historical
------------------------------------------------- Pro Forma Educational
Educational Acquisitions Medical, Inc. Pro
Medical, Inc. Hagerstown (a) Adjustments Forma
--------------------------------------------------------------------------------------
(Dollars and shares in thousands)
<S> <C> <C> <C> <C>
Net revenues $ 31,302 $ 1,556 $ - $ 32,858
Cost of education and facilities 15,266 633 (45) (c) 16,033
179 (e)
Selling and promotional expenses 4,623 151 - 4,774
Administrative expenses 8,886 554 (358) (d) 9,082
Amortization of goodwill and 632 - 120 (b) 752
-------- ------- ------ ----------
intangibles
Income (loss) from operations
before other expenses 1,895 218 104 2,217
Other expenses - - - -
------- ------- ------ ----------
Income (loss) from operations 1,895 218 104 2,217
Interest expense (income), net 315 - - 315
-------- ------- ------ ----------
Income (loss) before income taxes
and extraordinary loss 1,580 218 104 1,902
Provision for income taxes 569 76 37 (f) 682
-------- ------- ------ ----------
Income before extraordinary loss $ 1,011 $ 142 $ 67 $ 1,220
======== ======= ====== ==========
Income before extraordinary loss
per share $ .19 $ .23
======== ==========
Weighted average number of shares used
in computing income before
extraordinary loss per share 5,291 5,291
======== ==========
</TABLE>
See accompanying pro forma adjustments.
<PAGE> 14
Certain reclassifications have been made to Hagerstown financial statements to
conform to EMI's classifications.
Statements of Operations:
(a) Reflects Hagerstown results of operations for the period April 1, 1996
to December 12, 1996. Results of operations subsequent to December 12,
1996 are included in EMI's historical results of operations.
(b) To amortize goodwill recorded as a result of the Hagerstown
acquisition, using a 15-year life and the straight-line method.
(c) To remove depreciation on assets not acquired by EMI.
(d) To remove corporate overhead allocation of Hagerstown which will not
continue.
(e) To expense rent for facilities to be rented from sellers.
(f) To record tax effect of pro forma adjustments.
Earnings Per Share:
Historical net income per share was computed by dividing net income by the
weighted average number of shares of common stock outstanding after giving
effect as of the beginning of the period to (i) the automatic conversion of all
of the outstanding shares of convertible preferred stock into 1,705,082 shares
of common stock, (ii) the issuance of 141,667 shares of common stock upon
exercise of certain outstanding warrants and (iii) the issuance of 933,333
shares of common stock upon the cashless exercise of outstanding warrants to
purchase 1,333,333 shares of common stock, plus (iv) cheap stock as defined
below.
Historical net income per share was computed using the requirements of
Accounting Principles Board Opinion No. 15 and SEC Staff Accounting Bulletin No.
83.
Pursuant to SEC Staff Account Bulletin No. 83, common stock and common stock
equivalents issued at prices equal to or below the IPO price per share ("cheap
stock") during the twelve-month period immediately preceding the initial filing
date of the Company's registration statement for the IPO (August 8, 1996) have
been included in historical earnings per share as if outstanding for all periods
presented (using the treasury stock method at the offering price).
Retroactive restatement has been made to all share, weighted average share, and
all net income per share calculations for the stock split effected on June 20,
1996.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: March 14, 1997 EDUCATIONAL MEDICAL, INC.
By: /s/ Vince Pisano
------------------------------------
Vince Pisano
Chief Financial Officer,
Principal Financial
Officer and Principal
Accounting Officer
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE NO.
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<S> <C>
2.1 Asset Purchase Agreement by and among Educational Medical, Inc., HBC
Acquisition Corporation, and O/E Leasing, Inc. dated as of December 12,
1996, filed as a part of the Current Report on Form 8-K, filed on
January 15, 1997.
</TABLE>
