<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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) MARCH 13, 1998
--------------
EDUCATIONAL MEDICAL, INC.
-------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
--------
(STATE OR OTHER JURISDICTION OF INCORPORATION)
000-21567 65-0038445
--------- ----------
(COMMISSION FILE NUMBER (IRS EMPLOYER IDENTIFICATION NO.)
EDUCATIONAL MEDICAL, INC.
1327 NORTHMEADOW PARKWAY, SUITE 132
ROSWELL, GEORGIA 30076
----------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 475-9930
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<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The audited combined financial statements of Hesser, Inc. as of
and for the years ended December 31, 1997 and 1996 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, 1997 and the nine months ended December 31, 1997 are filed as
part of this Current Report on Form 8-K/A.
The unaudited pro form condensed consolidated balance sheet of
Educational Medical, Inc. at December 31, 1997 is filed as part of
this Current Report on Form 8-K/A.
2
<PAGE> 3
HESSER, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
3
<PAGE> 4
COOPERS COOPERS & LYBRAND L.L.P.
& LYBRAND a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Hesser, Inc.:
We have audited the accompanying balance sheets of Hesser, Inc. as of December
31, 1997 and 1996, and the related statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of Hesser, Inc. as of December 31,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand LLP
Boston, Massachusetts
March 13, 1998
4
<PAGE> 5
HESSER, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
----------
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,815,846 $ 3,004,681
Restricted cash {Note A) 766,215 105,533
Accounts receivable, net of allowance for
doubtful accounts and accumulated finance
charges for $1,196,224 and $987,167 in
1997 and 1996, respectively 1,407,109 1,243,034
Due from federal government 74,997 62,816
Due from related party (Note G) 23,078 23,798
Inventories 489,076 493,400
Notes receivable - current portion (Note D) 8,304 5,425
Prepaid expenses 89,830 52,943
Refundable state income taxes (Note F) 120,238 --
Deferred state income taxes (Note F) -- 76,987
----------- -----------
Total current assets 5,794,693 5,068,617
Investments (Note A) -- 1,066,228
Property, plant and equipment, net (Notes B and E) 4,511,263 4,802,766
Contributions to Perkins Loan Program, net of
allowance for unrecoverable contributions of
$59,695 at December 31, 1997 and 1996 272,271 272,271
Notes receivable (Note D) 24,470 28,890
Cash surrender value of life insurance 55,447 43,932
Due from related party, net of allowance for
uncollectible amounts of $68,000 and $0 in 1997
and 1996, respectively (Note G) 274,244 38,260
----------- -----------
Total assets $10,932,388 $11,320,964
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt (Note E) $ 166,985 $ 74,773
Accounts payable, including accounts receivable
credit balances of $525,320 and $523,491
at December 31, 1997 and 1996, respectively 1,514,806 1,274,901
Deposits and deferred revenues 953,693 372,046
Accrued expenses 315,268 280,386
Due to related party (Note G) 85,906 180,000
State income tax payable (Note F) -- 38,207
----------- -----------
Total current liabilities 3,036,658 2,220,313
Long-term liabilities:
Long-term debt {Note E) 2,091,660 2,008,644
Deferred state income taxes (Note F) 70,347 51,939
----------- -----------
Total liabilities 5,198,665 4,280,896
----------- -----------
Commitments and contingencies
(Notes C and E)
Stockholder' equity:
Common stock, no par value; authorized 200
shares; 100 shares issued and outstanding
at $1 stated value each 100 100
Net unrealized investment gains -- 289,320
Retained earnings 5,733,623 6,750,648
----------- -----------
Total Stockholders' Equity 5,733,723 7,040,068
----------- -----------
Total liabilities and stockholders' equity $10,932,388 $11,320,964
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
5
<PAGE> 6
HESSER, INC.,
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues $16,234,587 $15,259,617
----------- -----------
Operating expenses:
General and administrative 3,533,416 3,514,601
Facilities 1,717,200 1,510,942
Admissions 2,081,016 1,800,283
Instructional 3,527,319 3,219,879
Student services 654,821 632,671
Scholarships 594,640 439,725
Cost of sales, bookstore and cafeteria 1,589,986 1,494,495
Depredation and amortization 450,828 411,859
Bad debts 798,813 643,719
----------- -----------
Total operating expenses 14,948,039 13,668,174
----------- -----------
Operating income 1,286,548 1,591,443
----------- -----------
Other expense:
Interest expense (997,719) (663,446)
Interest and dividend income 161,915 154,255
Realized gains on investments 489,285 316,809
Other income, net 33,253 57,262
----------- -----------
Total other expense (313,266) (135,120)
----------- -----------
Income before income taxes 973,282 1,456,323
Provision for income taxes 85,275 104,560
----------- -----------
Net income $ 888,007 $ 1,351,763
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
6
<PAGE> 7
HESSER, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON INVESTMENT RETAINED
STOCK GAINS EARNINGS TOTAL
----- ----- -------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ 100 $261,569 $ 5,734,963 $ 5,996,632
Net income 1,351,763 1,351,763
Dividends distributed (336,078) (336,078)
Net unrealized investment gains 27,751 27,751
----- -------- ----------- -----------
Balance, December 31, 1996 100 289,320 6,750,648 7,040,068
Net income 888,007 888,007
Dividends distributed (1,905,032) (1,905,032)
Net unrealized investment gains (289,320) (289,320)
----- -------- ----------- -----------
Balance, December 31, 1997 $ 100 $ -- $ 5,733,623 $ 5,733,723
===== ======== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS.
7
<PAGE> 8
HESSER, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 888,007 $ 1,351,763
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 450,828 411,859
Bad debt expense 798,813 643,719
Realized gain on investments (489,285) (316,809)
Deferred state income taxes 10,120 28,214
Change in assets and liabilities:
Due from federal government (12,181) 48,475
Accounts receivable (970,829) (867,575)
Prepaid expenses (36,887) 35,144
Refundable state income taxes (34,963) --
Inventories 4,324 2,558
Cash surrender value of life insurance (11,515) (12,267)
Accounts payable and accrued expenses 274,787 (338,646)
Deposits and deferred revenues (79,035) (5,025)
State income taxes payable (38,207) 1,971
----------- -----------
Total adjustments (134,030) (368,382)
----------- -----------
Net cash provided by operating activities 753,977 983,381
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (83,384) (569,221)
Contributions to Perkins Loan Program -- 15,261
Decrease in notes receivable 1,541 3,944
Investments, net 1,266,193 1,185,210
Due to/from related party (397,358) 176,002
----------- -----------
Net cash provided by investing activities 786,992 811,196
----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (74,772) (413,127)
Proceeds from long-term debt 250,000 660,363
Dividends paid (1,905,032) (336,078)
----------- -----------
Net cash used in financing activities (1,729,804) (88,842)
----------- -----------
Net (decrease) increase in cash and cash equivalents (188,835) 1,705,735
Cash and cash equivalents at beginning of year 3,004,681 1,298,946
----------- -----------
Cash and cash equivalents at end of year $ 2,815,846 $ 3,004,681
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 975,501 $ 670,930
=========== ===========
Income taxes $ 148,325 $ 74,375
=========== ===========
</TABLE>
See also Notes A and E for additional disclosure of supplemental noncash
investing and financing activities.
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS.
8
<PAGE> 9
HESSER, INC.
NOTES TO FINANCIAL STATEMENTS
----------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Hesser, Inc. ("Hesser" or the "Company"), was formed to do business as
Hesser College (the "College"). The College currently offers two-year
(associate) degrees in 29 different majors and maintains a traditional day
school program as well as an evening program for nontraditional, continuing
education students. In addition, during 1996, the College received approval
to offer baccalaureate degrees in criminal justice and business
administration/accounting. Campuses are located in Manchester, Nashua,
Portsmouth and Salem, New Hampshire.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity when
purchased of three months or less to be cash equivalents. Cash equivalents
recorded on the Company's balance sheet consist principally of money market
funds.
REVENUE AND COST RECOGNITION
The Company recognizes tuition (including room and board) revenue as earned
ratably over the academic year. Other income is derived primarily from
textbook sales and cafeteria services.
INVENTORIES
Inventories consist primarily of textbooks and supplies and are valued at
the lower of cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Major additions and
improvements are capitalized, while ordinary maintenance and repairs are
charged to expense as incurred. The cost and accumulated depreciation on
assets sold or retired are removed from the accounts and any gains or
losses are reflected in income.
Equipment under capital leases is recorded and amortized in accordance with
Statement of Financial Accounting Standards No. 13.
Depreciation is computed using primarily accelerated methods for both book
and tax purposes. Estimated useful lives for computing depreciation for
book purposes are as follows:
<TABLE>
<CAPTION>
Life
----
<S> <C>
Buildings and building improvements 10-35 years
Leasehold improvements 10
Machinery and equipment 5
Furniture and fixtures 7
Library books 7
</TABLE>
CONTINUED
9
<PAGE> 10
HESSER, INC.
NOTES TO FINANCIAL STATEMENTS
----------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
At December 31, 1997, substantially all of the Company's cash was deposited
with three banks.
INCOME TAXES
The Company has elected to be taxed as an S Corporation for federal income
tax purposes. Accordingly, the income of the Company is passed through
directly to the stockholders for federal income tax purposes. The Company
continues to be subject to income tax for state income tax purposes.
The Company uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, state deferred tax
assets or liabilities are computed based on the difference between the
financial statement and income tax basis of assets and liabilities using
enacted marginal tax rates. State deferred income tax expense or credits
are based on the changes in the assets or liabilities from period to
period.
STUDENT FINANCIAL ASSISTANCE PROGRAMS
The records of the Student Financial Assistance Programs (Federal Perkins
Loan Program, Federal Supplemental Educational Opportunity Grant Program
and Federal Work Study Program) are maintained by employees of the Company
and are not part of the financial statements as presented herein.
Additionally, amounts due from the federal government represent federal
financial assistance monies advanced to students by the Company on behalf
of the United States Government, for which the Company was awaiting
reimbursement.
CONTRIBUTIONS TO PERKINS LOAN PROGRAM
Institutional capital contributions to the Perkins Loan Program are
recorded at cost. An allowance is provided for the Company's portion of
estimated uncollectible loans.
CONTINUED
10
<PAGE> 11
HESSER, INC.
NOTES TO FINANCIAL STATEMENTS
----------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INVESTMENTS
Investments have been classified as available for sale and as a result are
stated at fair market value. At December 31,1996, these investments were
comprised of mutual funds managed by a third party portfolio manager.
During November 1997, the Company liquidated all of its investments and
distributed the proceeds to the stockholders. The cost and market value of
investments held at December 31, 1996, were $776,908 and $1,066,228,
respectively. The unrealized holding gains of $0 and $289,320 at December
31, 1997 and 1996, respectively, were included as a component of
stockholders' equity. The cost of investments sold is based on the specific
identification method.
RESTRICTED CASH
Restricted cash represents amounts received from the New Hampshire Higher
Education Assistance Foundation (NHHEAF) for student loans which will be
credited to individual student's account receivable balances once the
student enrolls at the College. Loan disbursements received for students
who do not ultimately enroll at the College will have to be returned to
NHHEAF. The corresponding liability for these undisbursed loan proceeds has
been grouped with deposits and deferred revenues in the accompanying
financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial statements
to conform to the 1997 financial statement presentation.
B. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
---------- ----------
<S> <C> <C>
Land and land improvements $ 124,868 $ 124,868
Buildings and improvements 5,270,740 5,265,656
Furniture and fixtures 1,529,521 1,471,426
Computer equipment 858,356 840,899
Machinery and equipment 318,242 318,242
Equipment under capital leases 37,700 37,700
Library books 29,364 29,364
Leasehold improvements 465,722 450,673
---------- ----------
Total 8,634,513 8,538,828
Less: Accumulated depreciation 4,123,250 3,736,062
---------- ----------
$4,511,263 $4,802,766
========== ==========
</TABLE>
CONTINUED
11
<PAGE> 12
HESSER, INC.
NOTES TO FINANCIAL STATEMENTS
----------
C. LEASES:
The Company has various leases for classroom and office space for its
continuing education programs and auto leases which are accounted for as
operating leases. The operating leases expire at various dates from 1997
through 2004.
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
<S> <C>
1998 $ 580,367
1999 438,818
2000 407,633
2001 341,720
2002 190,630
Thereafter 375,968
-----------
$ 2,335,136
===========
</TABLE>
Rent expense amounted to $746,087 and $499,478 for the years ended December
31, 1997 and 1996, respectively.
D. NOTES RECEIVABLE:
Notes receivable consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
-------- --------
<S> <C> <C>
Darilyn Enterprises (a related
party; 9% note requiring monthly
interest and principal payments,
due in April, 2002 $ 28,890 $ 32,931
Other notes receivable 3,884 1,384
-------- --------
32,774 34,315
Less; Current portion 8,304 5,425
-------- --------
$ 24,470 $ 28,890
======== ========
</TABLE>
CONTINUED
12
<PAGE> 13
HESSER, INC.
NOTES TO FINANCIAL STATEMENTS
----------
E. LONG-TERM DEBT:
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
----------- -----------
<S> <C> <C>
Finance obligation payable to Hardwood
Properties Limited Partnership, a
related party (see below) $ 2,258,645 $ 2,083,417
Less: Current portion 166,985 74,773
----------- -----------
$ 2,091,660 $ 2,008,644
=========== ===========
</TABLE>
On October 5, 1993, the Company entered into an agreement with Hardwood
Properties Limited Partnership ("Hardwood"), an entity whose general and
limited partners are either shareholders of the Company or immediate family
members, whereby substantially all of the Company's real property was sold
to Hardwood for approximately $4,182,000. The sales price consisted of the
assumption of the existing mortgage by Hardwood on the properties sold of
$2,992,400 and a demand note for the remainder of the balance. The Company
remains, however, jointly and severally liable on the first mortgage
($1,071,750 balance outstanding at December 31, 1997) with respect to all
of its terms, provisions, and covenants. In connection with this
transaction, the Company and Hardwood also entered into two one-year lease
agreements for the properties sold which call for an annual payment of
$1,050,000 plus all operating expenses related to the facilities. The
Company and Hardwood have extended this lease through September 30, 1998,
under the same terms and conditions. Under the Provisions of SFAS Nos. 66,
"Accounting for Sales of Real Estate," and 98, "Accounting for Leases,"
this transaction has been accounted for as a financing given the Company's
continuing involvement by virtue of its guarantee of the debt related to
the properties which were sold. Accordingly, the net book value of the
properties sold ($3,500,997 at December 31, 1997) remains on the Company's
books and will continue to be depreciated. Accordingly, a finance
obligation (with an effective interest rate of 37.75%) was recorded in an
amount equal to the mortgage balance at the time of the sale.
CONTINUED
13
<PAGE> 14
HESSER, INC.
NOTES TO FINANCIAL STATEMENTS
----------
E. LONG-TERM DEBT, CONTINUED:
On August 6, 1996, the Company amended the agreement with Hardwood
discussed above in connection with an additional bank borrowing by Hardwood
in the amount of $1,500,000 which expires in June 2003, under which the
Company is jointly and severally liable. In addition, the Company borrowed
from Hardwood an additional $410,364 to finance building and leasehold
improvements which was funded out of the proceeds from the new $1,500,000
bank borrowing. Under the terms of the amended agreement, the term of the
existing mortgage on the Company's real property was extended through
December 2002. The terms of the amended agreement call for the annual lease
payment of $1,050,000 to be allocated pro rata between the existing finance
obligation and the additional liability (with an effective interest rate of
46.91%) which was incurred by the Company as a result of the 1996
borrowing. The total amount due to Hardwood under the amended agreement has
been recorded as a finance obligation in the Company's financial statements
and is being reduced as the lease payments are made through the related
terms of the underlying bank borrowings. In December 1997, Hardwood paid to
the Company an additional $250,000 in connection with the transactions
previously discussed. This amount has also been reflected as a component of
the finance obligation as of December 31, 1997.
Total interest expense incurred under this arrangement was $975,228 in 1997
and $607,635 in 1996.
The mortgage note agreement with Citizens Bank discussed above contain
various restrictive covenants, including the maintenance of minimum net
worth of $3,500,000, the maintenance of various insurance coverages,
restrictions on additional borrowings, the making of loans to employees and
directors, and limitations on the payment of dividends.
During the year ended December 31, 1997, the Company violated the covenant
limiting the payment of dividends. Prior to year-end, the Company obtained
a waiver from the bank regarding this violation.
Aggregate annual principal maturities of long-term debt are as follows for
the years ended December 31:
<TABLE>
<S> <C>
1998 $ 166,985
1999 246,485
2000 364,304
2001 539,169
2002 799,086
Thereafter 142,616
-----------
$ 2,258,645
===========
</TABLE>
CONTINUED
14
<PAGE> 15
HESSER, INC.
NOTES TO FINANCIAL STATEMENTS
----------
F. INCOME TAXES:
The provision for income taxes consists of the following components for the
years ended:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1997 1996
-------- --------
<S> <C> <C>
State:
Current $ 75,155 $ 112,582
Deferred 10,120 (8,022)
-------- ---------
$ 85,275 $ 104,560
======== =========
</TABLE>
Deferred income taxes arise from differences in the timing of the
recognition of certain expenses for financial statement and income tax
reporting purposes. The principal sources of these differences are
depreciation, accounts receivable reserves, the difference in book and tax
treatment of the building sale to Hardwood, and certain other nondeductible
accruals.
G. RELATED PARTY TRANSACTIONS:
The Company has entered into a five-year lease agreement with Darilyn
Enterprises, a business owned by certain officers of the Company, for the
rental of parking space adjacent to the Manchester campus. The terms of the
lease agreement call for monthly payments of $2,300. Rental expense under
this agreement for the years ended December 31, 1997 and 1996, amounted to
approximately $28,000.
Throughout the year, the Company advanced monies to Harmony Learning
Center, Inc., (Harmony), a corporation owned jointly by the two
stockholders of the Company. At December 31, 1997, amounts owed to the
Company as a result of these advances were $23,078. This amount has been
classified as a current asset based upon the timing of the anticipated
repayment.
During 1996, the Company entered into an agreement with Loan 4 Education,
an entity owned jointly by the two stockholders of the Company. Loan 4
Education was created to loan money to students with the initial funding
for loans being provided by the Company. The total amount due the Company,
net of allowance, as of December 31, 1997 and 1996, is $274,244 and
$38,260, respectively.
The Company owed $85,906 to Hardwood at December 31, 1997. The Company
intends to repay the amount in 1998.
CONTINUED
15
<PAGE> 16
HESSER INC.
NOTES TO FINANCIAL STATEMENTS
----------
H. SUBSEQUENT EVENT:
On March 13, 1998, the stockholders of the Company signed a purchase and
sale agreement whereby 100% of the Company's outstanding stock and the real
property currently being leased by the Company from Hardwood will be sold
to a third party.
16
<PAGE> 17
ITEM 7 (B). PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements of Educational Medical, Inc. ("EMI") and Hesser, Inc.
("Hesser") are derived from, and should be read in conjunction
with the audited financial statements of Hesser included in item 7
(a) herein, and the audited consolidated financial statements of
EMI as previously filed on Form 10-K/A for the year ended March
31, 1997 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,
1997. 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 should
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 the statement presented (i.e., April 1, 1996 for the
twelve-month statement of operations, and April 1, 1997 for the
nine-month statement of operations).
The pro forma balance sheet reflects adjustments as if the
acquisition had been consummated as of December 31, 1997.
17
<PAGE> 18
EDUCATIONAL MEDICAL, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
ACQUISITION EMI
EMI HESSER ADJUSTMENTS PRO FORMA
12/31/97 12/31/97 12/31/97
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,303,194 $2,815,846 $ 7,000,000(11)(13) $19,119,040
Restricted cash 766,215 766,215
Trade A/R, net of allowances 7,816,598 453,416 8,270,014
Income taxes receivable 120,238 120,238
Prepaid expenses and other current assets 1,521,270 685,285 2,206,555
Deferred income taxes, current 1,208,669 665,000(14) 1,873,669
----------- ---------- -----------
TOTAL CURRENT ASSETS 19,849,731 4,841,000 32,355,731
Property and equipment, net 8,364,457 4,511,263 (95,098)(15) 12,780,622
Deferred debt issuance costs, net 252,324 252,324
Covenants, net 900,063 900,063
Goodwill and other intangibles, net 9,529,737 10,291,918 19,821,655
Deferred income taxes, non-current 944,629 944,629
Other non-current assets 176,855 626,432 (55,447)(10) 747,840
----------- ---------- -----------
TOTAL ASSETS $40,017,796 $9,978,695 $67,802,864
=========== ========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 271,235 $ 989,486 $ 1,260,721
Accrued compensation 1,115,497 1,115,497
Accrued income taxes 214,038 214,038
Accrued expenses 458,880 401,174 3,237,741 (18)(19)(20) 4,097,795
Deferred tuition income 4,454,616 525,320 4,979,936
Current portion of long-term debt 599,990 166,985 10,833,015(11)(16) 11,599,990
----------- ---------- -----------
TOTAL CURRENT LIABILITIES 7,114,256 2,082,965 23,267,977
Long-term debt, less current portion 1,951,089 2,091,660 7,158,340(13)(16)(20) 11,201,089
Other liabilities 549,264 70,347 311,000(18) 930,611
----------- ---------- -----------
TOTAL LIABILITIES $ 9,614,609 $4,244,972 $ 35,399,677
STOCKHOLDERS' EQUITY:
Preferred stock 0 0 0
Common stock 73,691 100 1,925(11)(12) 75,716
Additional paid-in-capital on common stock 30,221,127 1,997,975(11) 32,219,102
Accumulated earnings (deficit) 108,369 5,733,623 (5,733,623)(17) 108,369
Less: treasury stock, at cost 0 0
----------- --------- -----------
TOTAL STOCKHOLDERS' EQUITY 30,403,187 5,733,723 32,403,187
----------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,017,796 $9,978,695 $67,802,864
=========== ========== ===========
</TABLE>
(1) Amortization of goodwill recorded in connection with the purchase
(2) Interest expense on acquisition letter of credit
(3) Interest income forfeiture on investments and payments due sellers
(4) Interest expense on acquisition debt
(5) Remove prior owners' salaries and benefits
(6) Elimination of Hesser's amortization
(7) Elimination of Hesser's interest on mortgage financing not assumed
(8) Realized gains forfeiture on investments due to use of investments for
purchase
(9) Interest income on bank borrowings
(10)Elimination of asset distributed prior to EMI acquisition
(11)Purchase of Hesser stock for $2,000,000 cash, $11,000,000 in notes, and
202,532 of EMI common stock
(12)Elimination of Hesser's common stock
(13)Record long-term borrowings to finance purchase
(14)Record deferred taxes on book to tax differences
(15)Remove fixed assets distributed prior to EMI acquisition
(16)Remove mortgage financing not assumed
(17)Elimination of Hesser's equity
(18)Accrue severance and pension payments
(19)Record student tuition commitment
(20)Record payment due seller
(21)Record tax provision on effect of pro forma adjustments
18
<PAGE> 19
EDUCATIONAL MEDICAL, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Nine Months Ended December 31, 1997
<TABLE>
<CAPTION>
ACQUISITION EMI
EMI HESSER ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
NET REVENUE $ 41,468,515 $ 10,918,597 $52,387,112
SCHOOL OPERATING COSTS:
Education and facilities 19,348,384 3,833,656 23,182,040
Selling and promotional 6,272,299 2,737,163 9,009,462
General and administrative 11,656,708 3,722,818 $(1,169,238)(5) 14,210,288
Amortization 938,233 39,384 153,589(1)(6) 1,131,206
Other expenses (income) 0 655,917 491,196(8) 1,147,113
------------ ------------ ----------- -----------
INCOME (LOSS) FROM OPERATIONS 3,252,891 (70,341) 524,453 3,707,003
Net Interest and Dividends (256,082) 219,128 355,816(2)(3)(4)(7)(9) 318,862
------------ ------------ ----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 3,508,973 (289,469) 168,637 3,388,141
Income taxes 1,403,715 85,275 (56,419)(21) 1,432,571
------------ ------------ ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 2,105,258 (374,744) 225,056 1,955,570
Extraordinary item 0 0 0
------------ ------------ ----------- -----------
PRO FORMA NET INCOME $ 2,105,258 $ (374,744) $ 225,056 $ 1,955,570
============ ============ =========== ===========
PRO FORMA NET INCOME PER SHARE
BASIC
Net income $ 0.29 $ 0.26
Weighted average number if shares outstanding 7,349,612 7,501,511(a)
DILUTED
Net income $ 0.28 $ 0.25
Weighted average number if shares outstanding 7,582,962 7,734,861(a)
</TABLE>
(a) Giving effect to 202,532 acquisition shares issued
19
<PAGE> 20
EDUCATIONAL MEDICAL, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended March 31, 1997
<TABLE>
<CAPTION>
ACQUISITION EMI
EMI HESSER ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
NET REVENUE $ 49,449,680 $ 15,648,534 $65,098,214
SCHOOL OPERATING COSTS:
Education and facilities 23,150,599 5,140,741 28,291,340
Selling and promotional 7,530,741 3,716,421 11,247,162
General and administrative 14,041,592 4,632,852 $(1,915,192)(5) 16,759,252
Amortization 886,268 23,938 181,574(1)(6) 1,091,780
Other expenses (income) 535,038 803,069 316,809(8) 1,654,916
------------ ------------ ----------- -----------
INCOME (LOSS) FROM OPERATIONS 3,305,442 1,331,513 1,416,809 6,053,764
Net Interest and Dividends 284,162 308,086 467,802(2)(3)(4)(7)(9) 1,060,050
------------ ------------ ----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 3,021,280 1,023,427 949,007 4,993,714
Income taxes 408,951 104,560 766,618(21) 1,280,129
------------ ------------ ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 2,612,329 918,867 182,389 3,713,585
Extraordinary item 308,683 0 308,683
------------ ------------ ----------- -----------
PRO FORMA NET INCOME $ 2,303,646 $ 918,867 $ 182,389 $ 3,404,902
============ ============ =========== ===========
PRO FORMA NET INCOME PER SHARE
BASIC
Income before extraordinary item $ 0.58 $ 0.79
Extraordinary item (0.07) (0.06)
Net income 0.51 0.73
Weighted average number if shares outstanding 4,484,492 4,687,024(a)
DILUTED
Income before extraordinary item $ 0.41 $ 0.56
Extraordinary item (0.05) (0.05)
Net income 0.36 0.51
Weighted average number if shares outstanding 6,447,265 6,649,797(a)
</TABLE>
(a) Giving effect to 202,532 acquisition shares issued
20
<PAGE> 21
(C) EXHIBITS
The following exhibits were filed as part of the Current Report on
Form 8-K filed with the Commission on March 30, 1998.
10.1 Stock Purchase Agreement dated March 13, 1998.
10.2 Legal Description of the Property (Exhibit 1 to Stock
Purchase Agreement).
10.3 Second Payment Note (Exhibit 2 to Stock Purchase
Agreement).
10.4 List of Shareholders (Exhibit 3 to Stock Purchase
Agreement).
10.5 Form of Registration Rights Agreement (Exhibit 4 to Stock
Purchase Agreement).
10.6 Form of Employment Agreement (Exhibit 5 to Stock Purchase
Agreement).
10.7 Form of Non-Competition Agreement (Exhibit 6 to Stock
Purchase Agreement).
10.8 Stock Power (Exhibit 7 to Stock Purchase Agreement).
10.9 Amendment to Bank Agreement.
21
<PAGE> 22
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.
EDUCATIONAL MEDICAL, INC.
Date: May 27, 1998 By: /s/ Vince Pisano
--------------------------------
Vince Pisano, Vice President and
Chief Financial Officer
22
