<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) FEBRUARY 14, 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
--------------
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The audited combined financial statements of CHI Institute
(a division of Computer Hardware Service Company, Inc) as of
and for the year ended September 30, 1997 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 forma 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
Independent Auditors Report
THE BOARD OF DIRECTORS
CHI INSTITUTE
(A DIVISION OF COMPUTER HARDWARE
SERVICE COMPANY, INC.)
We have audited the accompanying balances sheet of CHI INSTITUTE (A
DIVISION OF COMPUTER HARDWARE SERVICE COMPANY, INC.) as of September 30, 1997
and the related statements of operations and retained earnings and cash flows
for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above presents fairly,
in all material respects, the financial position of CHI INSTITUTE (A DIVISION
OF COMPUTER HARDWARE SERVICE COMPANY, INC.) as of September 30, 1997 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
ASHER & COMPANY, LTD.
MARCH 20, 1998
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<PAGE> 4
CHI INSTITUTE
(A DIVISION OF COMPUTER HARDWARE SERVICE COMPANY, INC.)
BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $1,204,851
Accounts receivable 656,187
Other current assets 13,139
Total current assets ---------
1,874,177
INVESTMENT IN PARTNERSHIP
Computer Hardware Investors 253,216
PROPERTY AND EQUIPMENT
Leasehold improvements 473,319
Equipment 896,585
Furniture and fixtures 129,036
----------
1,498,940
Less accumulated depreciation 754,998
----------
743,942
OTHER ASSETS
Deferred income tax benefit 68,777
Deposits 1,500
Goodwill, net of accumulated amortization of $127,859 549,041
Covenant, net of accumulated amortization of $11,333 8,667
----------
Total other assets 627,985
TOTAL ASSETS $3,499,320
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 180,000
Accounts payable 205,096
Accrued expenses 608,253
Deferred tuition revenue 613,344
Income taxes payable 44,045
----------
Total current liabilities 1,650,738
LONG TERM DEBT 305,000
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized 100,000 shares,
issued 55,300 shares, and outstanding 35,250 shares 74,930
Retained earnings 1,568,987
----------
1,643,917
Less treasury stock, at cost, 20,050 shares (100,335)
----------
1,543,582
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,499,320
==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-4-
<PAGE> 5
CHI INSTITUTE
(A DIVISION OF COMPUTER HARDWARE SERVICE COMPANY, INC.)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Revenue
Tuition and related income $7,434,950
Costs and expenses
Operating expenses 3,842,213
General and administrative expenses 2,084,460
Taxes, other than income tax 352,934
Depreciation and amortization 144,603
Interest expense 59,442
----------
6,483,652
----------
Income from operations 951,298
Other
Litigation expense (232,000)
Interest and other income 152,210
----------
(79,790)
----------
Income before income taxes 871,508
Provision for:
Current (445,621)
Deferred tax benefit 89,000
----------
356,621
----------
Net income 514,887
Retained earnings, beginning of year 1,054,100
----------
Retained earnings, end of year $1,568,987
==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-5-
<PAGE> 6
CHI INSTITUTE
(A DIVISION OF COMPUTER HARDWARE SERVICE COMPANY, INC.)
STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income $ 514,887
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 144,603
Income from investment in Partnership (37,953)
Deferred income tax (89,000)
Changes in:
Accounts receivable (283,064)
Other current assets (12,839)
Accounts payable 71,404
Accrued expenses 544,833
Deferred tuition revenue (108,546)
Income taxes payable (212,497)
-----------
Net cash provided by operating activities 531,828
INVESTING ACTIVITIES
Purchase of property and equipment (98,324)
-----------
Net cash utilized by investing activities (98,324)
FINANCING ACTIVITIES
Principal payments on long-term debt (360,000)
Purchase of Treasury stock (17,824)
Interdivisional due to/from (131,162)
Net cash utilized by financing activities (508,986)
-----------
DECREASE IN CASH AND CASH EQUIVALENTS (75,482)
Cash and cash equivalents, beginning of year 1,280,333
-----------
Cash and cash equivalents, end of year $ 1,204,851
-----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 59,442
===========
Income taxes $ 660,818
===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-6-
<PAGE> 7
CHI INSTITUTE
(A DIVISION OF COMPUTER HARDWARE SERVICE COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business activities
CHSC derives its revenue primarily from two sources. The Company operates
CHI Institute, a career technical school. The school operates two separate
campuses in the suburbs of Philadelphia, Pennsylvania. CHSC also derives
revenue from modifying, refurbishing and providing maintenance services to
computers for companies primarily located in Eastern Pennsylvania and New
Jersey.
Property and equipment and related depreciation
Property and equipment are carried at cost and related depreciation is
provided primarily by the declining balance method over the estimated
useful lives of the assets:
The useful lives of property and equipment for purposes of computing
depreciation are:
<TABLE>
<S> <C>
Leasehold improvements 10-15 years
Equipment 5-7 years
Furniture and fixtures 5-7 years
</TABLE>
It is the general practice to charge repairs and maintenance to expense;
major expenditures for repairs and improvements are capitalized and
depreciated. When assets are sold or otherwise disposed of, the cost and
related reserves are removed from the accounts and any resulting gain or
loss is included in income.
Goodwill and covenant not to compete
The Company is amortizing goodwill on a straight-line basis over 15 years.
The covenant not to compete is amortized on a straight-line basis over
five years.
Tuition revenue recognition
In accordance with industry practice, tuition revenue is recognized as
income on a pro rata basis over the length of the program based on the
percentage of scheduled hours completed. Tuition revenue received in
advance is reflected as deferred tuition revenue on the balance sheet.
-7-
<PAGE> 8
CHI INSTITUTE
(A DIVISION OF COMPUTER HARDWARE SERVICE COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Tuition receivable
The Company analyzes, on a monthly basis, students' payments on their contracts
in comparison to the portion of the education they received. Amounts owed by
students for the education received are classified as tuition receivable and are
included in accounts receivable.
Income taxes
The deferred tax liability was determined based on the differences between the
financial statement and tax bases of assets and liabilities. Current income
taxes are based on the year's taxable income for Federal and state income tax
reporting purposes.
Cash and cash equivalents
For the purpose of the statement of cash flows, the Company considers all
highly liquid investment with maturities of three months or less at the time of
purchase to be cash equivalents.
Advertising cost
The Company's policy is to expense all advertising costs as they are incurred.
Advertising expense charged to operations for the year ended September 30, 1997
was $559,839.
Investment in Partnership
The Company is a Partner in Computer Hardware Investor (a Partnership) which
owns real estate in Southampton, Pennsylvania. The property is used by CHI
Institute as a technical school. Under the Partnership Agreement, profits and
losses resulting from the Partnership are allocated 33% to each of the two
general partners and 34% to Computer Hardware Service Company (CHSC).
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 expenses during the reporting period.
Actual results could differ from those estimates.
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<PAGE> 9
CHI INSTITUTE
(A DIVISION OF COMPUTER HARDWARE SERVICE COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE B - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<S> <C>
Note payable in monthly installments of $15,000
plus interest at the rate of 9%, matures on
December 1, 1999, collateralized by all the assets
of CHSC and the personal guarantees of the two
principal Stockholders and the property owned
by Computer Hardware Investors (a Partnership) $485,000
Less current portion 180,000
--------
$305,000
========
</TABLE>
Prior to September 30, 1997, the Company was required to make a prepayment
within 90 days of their fiscal year end in an amount equal to 50% of excess
cash, as defined in the note. During the year ended September 30, 1997, the
bank agreed to rescind this provision.
Aggregate maturities for long-term debt for the three years subsequent to
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year ended September 30, Amount
------------------------ --------
<S> <C>
1999 $180,000
2000 180,000
2001 125,000
</TABLE>
In addition, the Company had guaranteed a mortgage loan for Computer
Hardware Investors in which it is a Partner. The outstanding balance on the
mortgage at September 30, 1997 is $146,128.
NOTE C - PENSION
The Company has a 401(k) Saving Plan that covers substantially all of its
employees. Participants may make voluntary contributions to the Plan up to
15% of their compensation not to exceed Internal Revenue Service allowable
limits ($9,500 in 1997). The Company will contribute 50% of the amount
contributed by an employee that is not in excess of 3% of their
compensation.
-9-
<PAGE> 10
CHI INSTITUTE
(A DIVISION OF COMPUTER HARDWARE SERVICE COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE D - INCOME TAXES
Summaries of the provisions for income taxes are as follows:
<TABLE>
<S> <C>
Current taxes:
Federal $333,624
State 111,997
--------
Total 445,621
Deferred taxes:
Federal benefit (69,222)
State benefit (19,778)
--------
Total (89,000)
--------
Provision for income taxes $356,621
========
</TABLE>
The provision for income taxes differs from the amount computed by applying
the U.S. Federal income tax rate (34%) because of the effect of the
following items:
<TABLE>
<S> <C>
Tax at Federal income tax rate $375,193
State income taxes, net of U.S. Federal benefit 70,428
Deferred income taxes
Depreciation 8,445
Legal settlement (97,445)
--------
$356,621
========
</TABLE>
Temporary differences giving rise to the deferred tax liability consist of
the excess of depreciation for tax purposes over the amount for financial
reporting purposes and the accrual of a legal settlement which is not
deductible for tax purposes until paid.
As a result of the fact that the Company is related to Computer Hardware
Maintenance Company, Inc. (CHMC), they are required to share a surtax
exemption with CHMC. For the year ended September 30, 1997, the surtax
exemption was split evenly between CHSC and CHMC.
NOTE E - RELATED PARTY TRANSACTIONS
CHSC is affiliated with Computer Hardware Maintenance Company, Inc. (CHMC)
as a result of the fact that the same Stockholders who own a majority
common stock interest in CHSC also own a majority interest in CHMC. For the
year ended September 30, 1997, there was no significant activity between
these related parties. During the year ended September 30, 1997, CHSC paid
CHMC $50,000 to purchase six computer hardware maintenance accounts.
-10-
<PAGE> 11
CHI INSTITUTE
(A DIVISION OF COMPUTER HARDWARE SERVICE COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE E-RELATED PARTY TRANSACTION (Continued)
CHSC is also affiliated with Computer Hardware Investors, a Partnership, as
a result of the fact that CHSC is a Partner in the Partnership and the
Partnership owns 4,000 shares of CHSC common stock.
CHSC rents a building from the Partnership that CHI Institute (Bucks
Campus) uses to operate its technical school. The building is
approximately 40,000 square feet. Rent expense for the building for the
year ended September 30, 1997 was $144,000.
NOTE F-TITLE IV PROGRAM REVENUE COMPLIANCE
In accordance with U.S. Department of Education guidelines, proprietary
educational institutions must derive at least 15% of their revenue on a
cash basis from sources other than Title IV, HEA Programs.
For the year ended September 30, 1997, CHI (Bucks Campus) and CHI (Delaware
County Campus) received on a cash basis 55% and 68%, respectively, of their
gross tuition and related revenue from Title IV, HEA Programs calculated as
follows:
<TABLE>
<CAPTION>
CHI CHI
Bucks County Delaware County
Campus Campus
------------ ---------------
<S> <C> <C>
Receipts from Title IV
Programs (cash basis) $2,243,182 $2,073,383
=55% =68%
Net tuition and related
revenue received (cash basis) $4,060,142 $3,042,727
</TABLE>
NOTES G-LEASES
The Company rents the building where CHI Institute (Bucks Campus) is
located from Computer Hardware Investors, a related party, under a one year
lease agreement expiring March 31, 1998. The terms of the lease require a
ninety day written notice upon termination. The current rent is $12,000
per month.
-11-
<PAGE> 12
CHI INSTITUTE
(A DIVISION OF COMPUTER HARDWARE SERVICE COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE G-LEASES (Continued)
Additionally, the Company leases the building from which CHI (Delaware
County Campus) operates. The lease is a non-cancelable operating lease for
land and building and expires on August 31, 1999. The current annual rent
is $127,442 and is subject to an annual change effective January 1, 1998,
based on the change in the consumer price index.
Rent expense for the year ended September 30, 1997 was $325,570.
Minimum future lease payments under the above mentioned leases for each of
the next two years are as follows:
<TABLE>
<CAPTION>
Years ending Septmeber 30, Amount
-------------------------- --------
<S> <C>
1999 $249,130
2000 117,539
--------
$366,669
========
</TABLE>
NOTE H-COMMITMENTS AND CONTINGENCIES
Federal student financial aid
The trade schools operated by the Company participate in various Federal
financial aid programs. These programs are for the benefit of the student
attending the schools. These programs have strict requirements for
participation and the Company is subject to government program reviews.
Litigation
A provision has been made to accrue a liability for a judgement in a
lawsuit. The Company was found guilty of sexual harassment by virtue of the
actions of its' students and a judgement was entered against the Company in
the amount of $232,000 in January, 1998. The Company is appealing this
verdict, however the entire amount has been accrued.
-12-
<PAGE> 13
CHI INSTITUTE
(A DIVISION OF COMPUTER HARDWARE SERVICE COMPANY, INC.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - STOCK PURCHASE
During the year ended September 30, 1997, the Company purchased 1,600 shares of
stock from a Shareholder for $17,824.
NOTE J - CONCENTRATION OF CREDIT RISK
The Company maintains cash accounts, which at times, may exceed federally
insured limits. The Company has not experienced any losses from maintaining
cash accounts in excess of federally insured limits. Management believes that
it is not exposed to any significant credit risks on its cash accounts.
NOTE K - SUBSEQUENT EVENT
On February 14, 1998, a stock purchase agreement was entered into between the
Stockholders of the Company and Educational Medical, Inc. (EMI) for the
purchase of all the Company's stock. The computer hardware service division of
Computer Hardware Service Company and the investment in Computer Hardware
Investors were sold prior to the sale to EMI.
-13-
<PAGE> 14
ITEM 7(B). PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated
financial statements of Educational Medical, Inc. ("EMI") and
CHI Institute (a division of Computer Hardware Service
Company, Inc.) ("CHI") are derived from, and should be read in
conjunction with the audited financial statements of CHI
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 proforma balance sheet reflects adjustments as if the
acquisition had been consummated as of December 31, 1997.
-14-
<PAGE> 15
EDUCATIONAL MEDICAL, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
ACQUISITION EMI
EMI CHI ADJUSTMENTS PRO FORMA
12/31/97 9/30/97 12/31/97
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,303,194 $1,204,851 $ (1,500,000) (9) $ 9,008,045
Trade A/R, net of allowances 7,816,598 656,187 8,472,785
Income taxes receivable 0 0 0
Prepaid expenses and other current assets 1,521,270 14,639 1,535,909
Deferred income taxes, current 1,208,669 0 1,208,669
----------- ---------- -----------
TOTAL CURRENT ASSETS 19,849,731 1,875,677 20,225,408
Property and equipment, net 8,364,457 743,942 9,108,399
Deferred debt issuance costs, net 252,324 0 252,324
Covenants, net 900,063 8,667 (8,667) (11) 900,063
Goodwill and other intangibles, net 9,529,737 549,041 10,790,487 20,869,265
Deferred income taxes, non-current 944,629 68,777 1,013,406
Other non-current assets 176,855 253,216 (253,216) (7) 176,855
----------- ---------- -----------
TOTAL ASSETS $40,017,796 $3,499,320 $52,545,720
=========== ========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 271,235 $ 205,096 $ 476,331
Accrued compensation 1,115,497 0 1,115,497
Accrued income taxes 214,038 44,045 258,083
Accrued expenses 458,880 608,253 322,186 (8) 1,389,319
Deferred tuition income 4,454,616 613,344 5,067,960
Current portion of long-term debt 599,990 180,000 4,100,000 (9) 4,879,990
----------- ---------- -----------
TOTAL CURRENT LIABILITIES 7,114,256 1,650,738 13,187,180
Long-term debt, less current portion 1,951,089 305,000 4,650,000 (9) 6,906,089
Other liabilities 549,264 0 549,264
----------- ---------- -----------
TOTAL LIABILITIES 9,614,609 1,955,738 20,642,533
STOCKHOLDERS' EQUITY:
Preferred stock 0 0 0
Common stock 73,691 74,930 (73,411)(9,10) 75,210
Additional paid-in-capital on common stock 30,221,127 0 1,498,481 (9) 31,719,608
Accumulated earnings (deficit) 108,369 1,568,987 (1,568,987) (6) 108,369
Less: treasury stock, at cost 0 (100,335) 100,335 (10) 0
----------- ---------- -----------
TOTAL STOCKHOLDERS' EQUITY 30,403,187 1,543,582 31,903,187
----------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,017,796 $3,499,320 $52,545,720
=========== ========== ===========
</TABLE>
(1) Amortization of goodwill recorded in connection with the purchase
(2) Interest expense on acquisition note
(3) Interest income forfeiture on cash paid at date of purchase and other
payments due seller
(4) Remove prior owners' salaries
(5) Elimination of CHI amortization
(6) Elimination of CHI retained earnings
(7) Elimination of CHI Investment in Partnership (asset not included in CHI
when acquired by EMI)
(8) Payment due seller
(9) Purchase of CHI stock by EMI for $1,500,000 cash, $8,750,000 in notes
payable, and 151,900 of EMI common stock
(10) Elimination of CHI common stock and treasury stock
(11) Elimination of CHI covenants
(12) Record tax provision on effect of pro forma adjustments
-15-
<PAGE> 16
EDUCATIONAL MEDICAL, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Nine Months ended December 31, 1997
<TABLE>
<CAPTION>
ACQUISITION EMI
EMI CHI ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
NET REVENUE $41,468,515 $5,849,007 $47,317,592
SCHOOL OPERATING COSTS:
Education and facilities 19,348,384 2,176,787 21,525,171
Selling and promotional 6,272,299 887,835 7,160,134
General and administrative 11,656,708 2,136,430 $(997,177)(4) 12,795,961
Amortization 938,233 36,843 175,773 (1,5) 1,150,849
Other expenses 0 232,000 232,000
---------- ---------- --------- -----------
INCOME (LOSS) FROM OPERATIONS 3,252,891 379,182 821,404 4,453,477
Interest expense (income) (256,082) 70,134 525,832 (2,3) 339,884
---------- ---------- --------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 3,508,973 309,048 295,572 4,113,593
Income taxes 1,403,715 344,943 (18,049)(12) 1,730,609
---------- ---------- --------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 2,105,258 (35,895) 313,621 2,382,984
Extraordinary item 0 0 0
---------- ---------- --------- -----------
PRO FORMA NET INCOME $2,105,258 $ (35,895) $ 313,621 $ 2,382,984
========== ========== ========= ===========
PRO FORMA NET INCOME PER SHARE
BASIC
Net income $0.29 $0.32
Weighted average number of shares outstanding 7,349,612 7,464,057 (a)
DILUTED
Net income $0.28 $0.31
Weighted average number of shares outstanding 7,582,962 7,697,407 (a)
(a) Giving effect to 151,900 acquisition shares issued
</TABLE>
-16-
<PAGE> 17
EDUCATIONAL MEDICAL, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year ended March 31, 1997
<TABLE>
<CAPTION>
ACQUISITION EMI
EMI CHI ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
NET REVENUE $49,449,680 $7,067,708 $56,517,388
SCHOOL OPERATING COSTS:
Education and facilities 23,150,599 3,046,360 26,196,959
Selling and promotional 7,530,741 1,079,060 8,609,801
General and administrative 14,041,592 1,348,334 $(340,785)(4) 15,049,141
Amortization 886,268 49,127 204,429 (1,5) 1,139,824
Other expenses 535,038 535,038
---------- ---------- --------- -----------
INCOME (LOSS) FROM OPERATIONS 3,305,442 1,544,827 136,356 4,986,625
Interest expense (income) 284,162 0 701,109 (2,3) 985,271
---------- ---------- --------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 3,021,280 1,544,827 (564,753) 4,001,354
Income taxes 408,951 422,627 70,825 (12) 902,403
---------- ---------- --------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 2,612,329 1,122,200 (635,578) 3,098,951
Extraordinary item 308,683 0 308,683
---------- ---------- --------- -----------
PRO FORMA NET INCOME $2,303,646 $1,122,200 $(635,578) $ 2,790,268
========== ========== ========= ===========
PRO FORMA NET INCOME PER SHARE
BASIC
Income before extraordinary item $0.58 $0.67
Extraordinary item (0.07) (0.07)
Net income 0.51 0.60
Weighted average number of shares outstanding 4,484,492 4,636,392 (a)
DILUTED
Income before extraordinary item $0.41 $0.47
Extraordinary item (0.05) (0.05)
Net income 0.36 0.42
Weighted average number of shares outstanding 6,447,265 6,599,165 (a)
(a) Giving effect to 151,900 acquisition shares issued
</TABLE>
-17-
<PAGE> 18
(C) EXHIBITS
The following exhibits were filed as part of the Current
Report on Form 8-K filed with the Commission on February 25,
1998.
10.1 Stock Purchase Agreement dated February 14, 1998.
10.2 Second Payment Note (Exhibit 1 to Stock Purchase
Agreement).
10.3 Purchase Money Promissory Note (Exhibit 2 to Stock
Purchase Agreement).
10.4 Pledge Agreement (Exhibit 3 to Stock Purchase
Agreement).
10.5 Security Agreement (Exhibit 4 to Stock Purchase
Agreement).
10.6 Registration Rights Agreement (Exhibit 5 to Stock
Purchase Agreement).
10.7 Stock Power (Exhibit 6 to Stock Purchase Agreement).
10.8 Sellers' Subordination Agreement (Exhibit 7 to Stock
Purchase Agreement).
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<PAGE> 19
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: April 29, 1998 By:/s/ Vince Pisano
-----------------------------------
Vince Pisano, Vice President and
Chief Financial Officer
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