<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
November 30, 1998 0-23021
EDUTREK INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2255472
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Embassy Row, 6600 Peachtree Dunwoody Road, Atlanta, Georgia 30328
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
404-965-8000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ________
--------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<S> <C>
Class A Common Stock, without par value per share 4,362,605 shares
- ---------------------------------------------------- --------------------------------
Class Outstanding at December 31, 1998
Class B Common Stock, without par value per share 6,293,000 shares
- ---------------------------------------------------- --------------------------------
Class Outstanding at December 31, 1998
</TABLE>
<PAGE>
EduTrek International, Inc.
Form 10-Q Index
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
<PAGE>
EduTrek International, Inc.
Consolidated Balance Sheet
(In thousands, except share amounts)
<TABLE>
<CAPTION>
November 30, May 31,
1998 1998
--------------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,471 $ 5,843
Accounts receivable -- net of allowance for doubtful accounts of $104
and $190, respectively 4,099 2,886
Prepaid income taxes 1,118 -
Deferred income taxes 130 130
Other 1,324 759
----------- -----------
Total current assets 8,142 9,618
Property, plant, and equipment -- net of accumulated depreciation 10,392 5,729
Goodwill -- net of accumulated amortization of $2,208 and $1,704, respectively 38,453 38,957
Other 1,809 1,465
----------- -----------
$ 58,796 $ 55,769
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,580 $ 2,508
Accrued expenses 878 721
Value-added tax payable 262 157
Unearned revenues 8,222 4,323
Income taxes payable - 1,616
Notes payable 1,413 -
Current maturities -- long-term debt 1,256 574
----------- -----------
Total current liabilities 13,611 9,899
Long-term debt -- less current maturities 3,529 667
Deferred rent 958 849
Other liabilities - 60
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock, Class A voting, one vote per share, without par value, 40,000,000
shares authorized, 4,355,305 and 4,335,401, issued and outstanding, respectively 36,605 36,564
Common stock, Class B voting, ten votes per share, without par value, 10,000,000
shares authorized, 6,293,000 issued and outstanding 3,973 3,973
Accumulated other comprehensive income 32 88
Retained earnings 88 3,669
----------- -----------
Total shareholders' equity 40,698 44,294
----------- -----------
$ 58,796 $ 55,769
=========== ===========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
EduTrek International, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended November 30,
----------------------------------------
1998 1997
----------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues $ 11,642 $ 9,312
Costs and expenses:
Cost of education and facilities 5,831 3,932
Selling and promotional expenses 2,534 1,297
General and administrative expenses 3,193 2,778
Write-off of license fees and accrual of termination
costs (Note 4) 3,533 -
Amortization of goodwill 252 252
------------ ------------
Total costs and expenses 15,343 8,259
------------ ------------
Income (loss) from campus operations (3,701) 1,053
Income from management agreement - -
------------ ------------
Income (loss) from operations (3,701) 1,053
Interest expense (101) (300)
Other income -- net 9 56
------------ ------------
Income (loss) before income taxes, minority interest,
and extraordinary item (3,793) 809
Provision for income taxes 1,563 (310)
------------ ------------
Income (loss) before minority interest and extraordinary item (2,230) 499
Minority interest in earnings of American University in Dubai (366) (285)
------------ ------------
Income (loss) before extraordinary item (2,596) 214
Extraordinary loss less applicable income taxes (Note 5) - (960)
------------ ------------
Net loss $ (2,596) $ (746)
============ ============
Earnings (Loss) Per Share:
Basic income (loss) per share before extraordinary item N/A $ 0.02
Basic net loss per share $ (0.24) $ (0.08)
Diluted income per share before extraordinary item N/A 0.02
Diluted net loss per share N/A (0.07)
Average shares outstanding 10,645 9,661
Dilutive effect of options N/A 731
------------
Average shares outstanding assuming dilution N/A 10,392
============
<CAPTION>
Six Months Ended November 30,
-----------------------------------
1998 1997
-----------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues $ 19,467 $ 15,540
Costs and expenses:
Cost of education and facilities 10,219 6,906
Selling and promotional expenses 4,353 2,606
General and administrative expenses 6,021 5,020
Write-off of license fees and accrual of termination
costs (Note 4) 3,533 -
Amortization of goodwill 504 504
--------- --------
Total costs and expenses 24,630 15,036
--------- --------
Income (loss) from campus operations (5,163) 504
Income from management agreement - 23
--------- --------
Income (loss) from operations (5,163) 527
Interest expense (136) (1,210)
Other income -- net 70 56
--------- --------
Income (loss) before income taxes, minority interest,
and extraordinary item (5,229) (627)
Provision for income taxes 2,052 164
--------- --------
Income (loss) before minority interest and extraordinary item (3,177) (463)
Minority interest in earnings of American University in Dubai (404) (285)
--------- --------
Income (loss) before extraordinary item (3,581) (748)
Extraordinary loss less applicable income taxes (Note 5) - (960)
--------- --------
Net loss $ (3,581) $ (1,708)
========= ========
Earnings (Loss) Per Share:
Basic income (loss) per share before extraordinary item N/A $ (0.09)
Basic net loss per share $ (0.34) $ (0.20)
Diluted income per share before extraordinary item N/A N/A
Diluted net loss per share N/A N/A
Average shares outstanding 10,637 8,437
Dilutive effect of options N/A N/A
Average shares outstanding assuming dilution N/A N/A
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
EduTrek International, Inc.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended November 30,
---------------------------------
1998 1997
--------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,581) $ (1,708)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Extraordinary loss before applicable income taxes (Note 5) - 1,600
Write-off of license fees (Note 4) 3,333 -
Depreciation and amortization 1,491 1,165
Bad debt expense 137 216
Amortization of loan discount - 22
Decrease (increase) in accounts receivable (1,350) 1,280
Increase (decrease) in accounts payable and accrued liabilities (771) 135
Increase in unearned revenues 3,899 1,151
Increase (decrease) in value-added taxes payable 105 (335)
Decrease in income taxes payable (2,734) (976)
Other (995) (2,048)
------------- -------------
Net cash (used in) provided by operating activities (466) 502
------------- -------------
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (1,509) (1,113)
Additions to pre-operating and curriculum development costs (3,552) -
------------- -------------
Net cash used in investing activities (5,061) (1,113)
------------- -------------
FINANCING ACTIVITIES
Net receipts (payments) -- line-of-credit 1,413 (3,003)
Principal payments under capital lease obligations (372) (62)
Principal receipts (payments) on long-term debt 91 (24,500)
Proceeds from issuance of common stock - 34,580
Other 41 -
------------- -------------
Net cash provided by financing activities 1,173 7,015
------------- -------------
Effect of exchange rate changes on cash (18) (1)
------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (4,372) $ 6,403
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,843 678
CASH AND CASH EQUIVALENTS, END OF PERIOD 1,471 7,081
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 136 $ 1,431
Income taxes 679 199
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
EduTrek International, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. These unaudited financial statements include all
adjustments, consisting of only normal, recurring accruals, which EduTrek
International, Inc. (the "Company") considers necessary for a fair presentation
of the financial position and the results of operations for these periods.
The results of operations for the three and six months ended November 30,
1998 are not necessarily indicative of the results to be expected for a full
year. The Company's fiscal year, which formerly ended on May 31, will now end on
December 31. The 7 month transition period from June 1, 1998 to December 31,
1998 will be reported in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998. For further information, refer to the consolidated
financial statements and notes thereto for the fiscal year ended May 31, 1998
included in the Company's Annual Report on Form 10-K as previously filed with
the Securities and Exchange Commission.
Certain prior period amounts have been reclassified to conform with current
year presentation.
Note 2 - Consolidation
Effective September 1, 1997, American European Middle East Corporation,
L.L.C. ("AEMEC") entered into an agreement with Middle East Colleges, Ltd.
("MEC") to modify certain aspects of their joint venture agreement relating to
the operation of the American University in Dubai ("Dubai"). These
modifications give effective control of the joint venture to AEMEC as defined in
Statement of Financial Accounting Standards No. 94, "Consolidation of All
Majority-Owned Subsidiaries," and require consolidation of the financial
statements of Dubai with those of the Company as of September 1, 1997. Prior to
such date, AEMEC's portion of the net income from Dubai had been reported in the
income statement of the Company as "income from management agreement."
Effective September 1, 1997, the Company records MEC's ownership interest in the
joint venture of 49.9% as minority interest in the consolidated financial
statements.
Note 3 - New Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130") is effective for the Company's fiscal
year ending May 31, 1999. SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general purpose financial statements. The Company
has adopted SFAS No. 130 in the current fiscal year as required. The components
of comprehensive income are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended November 30, Six Months Ended November 30,
-------------------------------------------- -----------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(2,596) $(746) $(3,581) $(1,708)
Change in equity due to foreign
currency translation adjustments (22) 32 (56) (1)
------- ----- ------- -------
Comprehensive loss $(2,618) $(714) $(3,637) $(1,709)
======= ===== ======= =======
</TABLE>
4
<PAGE>
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS No. 131") is also
effective for the Company's fiscal year ending May 31, 1999. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments and related information in annual financial
statements and requires that those enterprises report selected information about
operating segments and related information in interim financial reports in the
second year of application. This statement will not significantly alter the
disclosures the Company provides.
Note 4 - Write-off of License Fees and Accrual of Termination Costs
In July 1997, the Company and ITI Education Corporation ("ITI") entered
into an agreement whereby the Company licensed an information technology ("IT")
curriculum from ITI. The Company's practice was to capitalize and then amortize
over ten years license fees paid to ITI. The Company has decided to phase out
the licensed ITI curriculum in favor of its own internally developed IT
curriculum and to negotiate the termination of the licensing agreement. As a
result, the Company has elected to write-off related license fees of $3,333,000
during the three months ended November 30, 1998. The Company has also accrued
$200,000 to cover certain expenses in connection with the phase out of this
curriculum.
Note 5 - Extraordinary Item
The extraordinary item in 1997 represents a loss of $1,600,000 less the
related income tax effect of $640,000 from the retirement of the Company's term
loan and its subordinate debt. The funds used to retire the debt represent a
portion of the proceeds from the Company's initial public offering.
Note 6 - Change in Fiscal Year
On November 18, 1998, the Board of Directors adopted a change in the fiscal
year end of the Company from May 31 to December 31. The Company historically
experienced seasonality in its results of operations as a result of lower
student enrollments in the summer terms. This seasonality will be mitigated by
new educational programs which are offered throughout the year, thereby
decreasing seasonality and the need for a May 31 year end. The seven month
transition period from June 1, 1998 to December 31, 1998 will be included in the
Company's Annual Report on Form 10-K for the year ending December 31, 1998.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the "Selected
Consolidated Financial Data" and the Company's Consolidated Financial Statements
and Notes thereto for the fiscal year ended May 31, 1998 included in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission, as well as in conjunction with the consolidated financial statements
and notes thereto for the three months and six months ended November 30, 1998
included in Item 1. Unless otherwise specified, any reference to a previous
"fiscal year" is to a fiscal year ended May 31.
This Quarterly Report on Form 10-Q contains forward-looking statements.
Additional written or oral forward-looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission or
otherwise. The words "believe," "plan," "expect," "anticipate," "project" and
similar expressions identify forward-looking statements, which speak only as of
the date the statement was made. Such forward-looking statements are within the
meaning of that term in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements may include, but are not limited to, projections of revenues, income
or loss, expenses, capital expenditures, plans for future operations, financing
needs or plans, the impact of inflation and plans relating to products or
services of the Company, as well as assumptions relating to the foregoing. The
Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events, or
otherwise.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by, or underlying the forward-looking statements. Statements in this Quarterly
Report, including Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
describe factors, among others, that could contribute to or cause such
differences. Additional factors that could cause actual results to differ
materially from those expressed in such forward-looking statements include,
without limitation, new or revised interpretations of regulatory requirements,
changes in or new interpretations of other applicable laws, rules and
regulations, failure to maintain or renew required regulatory approvals,
accreditation or state authorizations, failure to obtain the Southern
Association of Colleges and Schools' ("SACS") approval to operate in new
locations, changes in student enrollment, and other factors set forth in this
Quarterly Report on Form 10-Q and other reports or materials filed or to be
filed with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
the Company or its management).
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship of certain statement of operations items to net revenues for the
Company:
<TABLE>
<CAPTION>
Three Months Ended November 30, Six Months Ended November 30,
----------------------------------------------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of education and facilities 50.1% 42.2% 52.5% 44.4%
Selling and promotional expenses 21.8% 13.9% 22.4% 16.8%
General and administrative expenses 27.4% 29.8% 30.9% 32.3%
Write-off of license fees and accrual of termination costs 30.3% 0.0% 18.1% 0.0%
Amortization of goodwill 2.2% 2.8% 2.6% 3.2%
------------ ----------- ----------- -----------
Total costs and expenses 131.8% 88.7% 126.5% 96.7%
------------ ----------- ----------- -----------
Income (loss) from campus operations (31.8%) 11.3% (26.5%) 3.3%
Income from management agreement 0.0% 0.0% 0.0% 0.1%
------------ ----------- ----------- -----------
Income (loss) from operations (31.8%) 11.3% (26.5%) 3.4%
Interest expense (0.9%) (3.2%) (0.7%) (7.8%)
Other income -- net 0.1% 0.6% 0.4% 0.4%
------------ ----------- ----------- -----------
Income (loss) before income taxes, minority interest, and
extraordinary item (32.6%) 8.7% (26.8%) (4.0%)
Provision for income taxes 13.4% (3.3%) 10.5% 1.1%
------------ ----------- ----------- -----------
Income (loss) before minority interest and extraordinary item (19.2%) 5.4% (16.3%) (2.9%)
Minority interest in earnings of American University in Dubai (3.1%) (3.1%) (2.1%) (1.8%)
------------ ----------- ----------- -----------
Income (loss) before extraordinary item (22.3%) 2.3% (18.4%) (4.7%)
============ =========== =========== ===========
</TABLE>
6
<PAGE>
Three Months Ended November 30, 1998 Compared to Three Months Ended November 30,
1997
NET REVENUES. Net revenues increased by approximately $2.3 million or 25.0%
from $9.3 million for the three months ended November 30, 1997 (the "1997
period") to $11.6 million for the three months ended November 30, 1998 (the
"1998 period"). The increase in net revenues was due to an increase in student
enrollments and a tuition increase.
COST OF EDUCATION AND FACILITIES. Cost of education and facilities increased
approximately $1.9 million or 48.3% from $3.9 million in the 1997 period to $5.8
million in the 1998 period. Education costs increased approximately $1.6
million or 69.0% from $2.3 million in the 1997 period to $3.9 million in the
1998 period due to salary and other cost increases. Facility costs increased
approximately $300,000 or 18.7% from $1.6 million to $1.9 million primarily due
to new facilities in California, Georgia, Florida, and the District of Columbia.
Cost of education and facilities increased as a percentage of net revenues from
42.2% in the 1997 period to 50.1% in the 1998 period.
SELLING AND PROMOTIONAL EXPENSES. Selling and promotional expenses increased by
approximately $1.2 million or 95.4% from $1.3 million in the 1997 period to $2.5
million in the 1998 period. The increase was due to increases in salary and
other selling and promotional expenses related to new educational programs such
as the Masters in Information Technology, the Bachelors in Information
Technology, and the Bachelors in Business Administration for adult evening
students. As a percentage of net revenues, selling and promotional expenses
increased from 13.9% in the 1997 period to 21.8% in the 1998 period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $415,000 or 14.9% from $2.8 million in the 1997 period
to $3.2 million in the 1998 period. The increase was primarily due to additions
of personnel at the home office to support the Company's growth. As a
percentage of net revenues, general and administrative expenses decreased from
29.8% in the 1997 period to 27.4% in the 1998 period.
WRITE-OFF OF LICENSE FEES AND ACCRUAL OF TERMINATION COSTS. The Company has
historically capitalized and then amortized over ten years license fees paid to
ITI for IT curriculum. The Company has decided to phase out the licensed ITI
curriculum in favor of its own internally developed IT curriculum and to
negotiate the termination of the licensing agreement. As a result, the Company
has elected to write-off related license fees of $3,333,000 during the three
months ended November 30, 1998. The Company has also accrued $200,000 to cover
certain expenses in connection with the phase out of this curriculum, however
actual expenses in connection with this phase out may exceed $200,000 (see note
4 of notes to consolidated financial statements).
AMORTIZATION OF GOODWILL. Goodwill amortization of $252,000 for both periods
was the result of the October 1996 acquisition of American European Corporation
and Subsidiaries with goodwill costs being amortized over a 40-year period.
INTEREST EXPENSE. Interest expense decreased approximately $199,000 or 66.3% in
the 1998 period compared to the 1997 period primarily due to lower borrowing
costs in the 1998 period resulting from lower debt levels subsequent to the
Company's initial public offering in September 1997.
OTHER INCOME - NET. Other income - net decreased approximately $47,000 or 83.9%
in the 1998 period compared to the 1997 period primarily due to more investment
income in October and November of 1997 as a result of temporary investments of
cash from the Company's initial public offering in September 1997.
MINORITY INTEREST IN EARNINGS OF AMERICAN UNIVERSITY IN DUBAI. Minority
interest in earnings increased approximately $81,000 or 28.4% due to the
increase in Dubai's operating income.
Six Months Ended November 30, 1998 Compared to Six Months Ended November 30,
1997
NET REVENUES. Net revenues increased by approximately $3.9 million or 25.3%
from $15.5 million for the six months ended November 30, 1997 (the "six month
1997 period") to $19.5 million for the six months ended November 30, 1998 (the
"six month 1998 period"). The increase in net revenues was due to an increase
in student enrollments and a tuition increase.
7
<PAGE>
COST OF EDUCATION AND FACILITIES. Cost of education and facilities increased
approximately $3.3 million or 48.0% from $6.9 million in the six month 1997
period to $10.2 million in the six month 1998 period. Education costs increased
approximately $2.8 million or 70.2% from $4.0 million in the six month 1997
period to $6.8 million in the six month 1998 period due to salary and other cost
increases. Facility costs increased approximately $500,000 or 16.8% from $2.9
million to $3.4 million primarily due to new facilities in California, Georgia,
Florida, and the District of Columbia. Cost of education and facilities
increased as a percentage of net revenues from 44.4% in the six month 1997
period to 52.5% in the six month 1998 period.
SELLING AND PROMOTIONAL EXPENSES. Selling and promotional expenses increased by
approximately $1.7 million or 67.0% from $2.6 million in the six month 1997
period to $4.4 million in the six month 1998 period. The increase was due to
increases in salary and other selling and promotional expenses related to new
educational programs such as the Masters in Information Technology, the
Bachelors in Information Technology, and the Bachelors in Business
Administration for adult evening students. As a percentage of net revenues,
selling and promotional expenses increased from 16.8% in the six month 1997
period to 22.4% in the six month 1998 period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $1.0 million or 19.9% from $5.0 million in the six month
1997 period to $6.0 million in the six month 1998 period. The increase was
primarily due to additions of personnel at the home office to support the
Company's growth. As a percentage of net revenues, general and administrative
expenses decreased from 32.3% in the six month 1997 period to 30.9% in the six
month 1998 period.
WRITE-OFF OF LICENSE FEES AND ACCRUAL OF TERMINATION COSTS. The Company has
historically capitalized and then amortized over ten years license fees paid to
ITI for IT curriculum. The Company has decided to phase out the licensed ITI
curriculum in favor of its own internally developed IT curriculum and to
negotiate the termination of the licensing agreement. As a result, the Company
has elected to write-off related license fees of $3,333,000 during the three
months ended November 30, 1998. The Company has also accrued $200,000 to cover
certain expenses in connection with the phase out of this curriculum, however
actual expenses in connection with this phase out may exceed $200,000 (see note
4 of notes to consolidated financial statements).
AMORTIZATION OF GOODWILL. Goodwill amortization of $504,000 for each period was
the result of the October 1996 acquisition of American European Corporation and
Subsidiaries with goodwill costs being amortized over a 40-year period.
INCOME FROM MANAGEMENT AGREEMENT. Income from the Dubai management agreement
decreased from approximately $23,000 in the six month 1997 period to zero in the
six month 1998 period due to the consolidation of Dubai effective September 1,
1997 (see note 2 of notes to consolidated financial statements).
INTEREST EXPENSE. Interest expense decreased approximately $1.1 million or
88.8% in the six month 1998 period compared to the six month 1997 period
primarily due to lower borrowing costs in the six month 1998 period resulting
from lower debt levels subsequent to the Company's initial public offering in
September 1997.
OTHER INCOME - NET. Other income - net remained relatively constant during the
six month 1998 and 1997 periods.
MINORITY INTEREST IN EARNINGS OF AMERICAN UNIVERSITY IN DUBAI. Minority
interest in earnings increased approximately $119,000 or 41.8% due to the
increase in Dubai's operating income and due to the Company's modification
(effective September 1, 1997) of its joint venture agreement relating to Dubai,
which resulted in the change in presentation of income from management agreement
to minority interest in earnings (see note 2 of notes to consolidated financial
statements).
SEASONALITY
The Company experiences seasonality in its results of operations primarily
as a result of changes in the level of student enrollments. While the Company
enrolls students throughout the year, with a fiscal year ending May 31, the
Company's first and second fiscal quarter enrollments and related revenues
generally are lower than the third and fourth fiscal quarters due to
traditionally lower student enrollment levels in the summer terms. In addition,
first and second fiscal quarter costs and expenses historically are higher as a
percentage of net revenues as a result of certain fixed costs which are not
significantly affected by the seasonal first and second fiscal quarter declines
in
8
<PAGE>
net revenues. Under the new fiscal year ending December 31, the second and
third fiscal quarter revenues will be lower than the first and fourth fiscal
quarters, and the second and third fiscal quarter costs and expenses will be
higher as a percentage of net revenues than the first and fourth fiscal
quarters. This seasonality will be mitigated by new educational programs which
are offered throughout the year in new campuses in California, Georgia, Florida,
and the District of Columbia.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operating activities and capital requirements,
including debt repayments, principally from cash provided by operating
activities, borrowings under the NationsBank Credit Agreement (the "Credit
Agreement"), and cash proceeds from the initial public offering. The Credit
Agreement was modified on December 7, 1998 to provide maximum permitted
borrowings of $4.0 million until January 22, 1999 at which time the maximum
permitted borrowings are reduced to $3.0 million. Amounts outstanding bear
interest at 9.5%. This Credit Agreement will terminate March 7, 1999. However,
before this date the Company intends to negotiate a new $10.0 million credit
facility. The Company experienced negative operating cash flow of approximately
$466,000 for the six month 1998 period. The Company's principal sources of
funds as of November 30, 1998 were cash and cash equivalents of $1.5 million and
available borrowings of $4.0 million under the Credit Agreement. At November
30, 1998, the Company had outstanding borrowings under the Credit Agreement of
$1.4 million.
The increase in investing activities compared to the 1997 period was
principally due to the increase in the number of locations and to curriculum
licensing and development costs associated with the Company's expansion.
Purchases of property, plant, and equipment for the six month 1998 period were
approximately $1.5 million. Total purchases of property, plant, and equipment
for the year ended May 31, 1999 are expected to range from $4.5 to $5.5 million.
The increase from fiscal year 1998 is due to: (1) the opening of several new
campuses; (2) hardware and software costs related to the installation of a new
management information system; (3) improvements to the Company's computer
facilities and telecommunications equipment at the corporate level; (4)
investments in computer technology to support information technology curriculum;
and (5) increases in normal recurring capital expenditures due to the overall
increases in student and employment levels resulting from the Company's growth.
For the six months ended November 30, 1998, curriculum licensing and development
costs totaled approximately $3.4 million. Based on the planned termination of
the ITI agreement, curriculum development costs are not expected to exceed $4.0
million for the year ended May 31, 1999. For the six months ended November 30,
1998, start-up costs totaled approximately $146,000. Start-up costs are
expected to be no greater than $1.0 million for the year ended May 31, 1999.
The Company expects to fund these capital expenditures for new campuses through
cash from operations and a new credit facility, currently under negotiation,
which will increase the Company's borrowing capacity.
The Company's ability to fund its working capital and capital expenditure
requirements, implement new programs, make interest payments, fund future
acquisitions, and meet its other cash requirements, depends on, among other
things, current cash and cash equivalents, internally generated funds, and the
Company's Credit Agreement. Management believes that such sources (together
with the new credit facility currently being negotiated) will be sufficient to
meet the Company's capital requirements and operating needs for the remainder of
the fiscal year. However, if there is a significant reduction of internally
generated funds, or if the Company is not able to negotiate a new credit
facility on acceptable terms, the Company may require additional funds from
outside sources. In such event, there can be no assurance that the Company will
be able to obtain such funding as and when required or on acceptable terms.
The Department of Education requires that Title IV program funds collected
by an institution for unbilled tuition be kept in a separate cash or cash
equivalent account until the students are billed for the portion of their
program related to these funds. In addition, all funds transferred to the
Company through electronic funds transfer programs are held in a separate cash
account until certain conditions are satisfied. As of November 30, 1998, the
Company had approximately $189,000 in these separate accounts to comply with
these requirements. These funds generally remain in these separate accounts for
an average of 60 to 75 days from the date of collection. These restrictions on
cash have not affected the Company's ability to fund daily operations.
9
<PAGE>
YEAR 2000 COMPLIANCE
Some of the Company's computer information systems are not currently
configured to recognize the year 2000 in the two digit date field used by such
system. The Company is currently implementing a new centralized information
system to integrate its operations and financial data including admissions,
financial aid, student services, placement services, and default management.
The new system is designed to properly recognize the year 2000 in the two digit
date field. The Company anticipates that the information system will be fully
operational by the end of fiscal year 1999 and that it will require a total of
approximately $2 million in fiscal year 1998 and fiscal year 1999 to develop and
implement this integrated information system, although there can be no assurance
that the new system will be implemented on a timely basis or the total
expenditures will not exceed $2 million. Management does not anticipate that
the expenditure of such funds to implement the new computer system will have a
material impact on the Company's results of operations, liquidity, or capital
resources. In the event this information system is not implemented in a timely
fashion, management will evaluate other available options to revise its computer
programs, as necessary, for the effect of the year 2000 problem including,
without limitation, relying on manual record keeping until full compliance is
achieved.
The Company has reviewed its material relationships with third parties such
as vendors and evaluated the consequences of third party year 2000 problems on
the Company. The Company does not believe year 2000 problems of these third
parties pose a material risk to the Company. However, because the Company is in
a regulated industry and indirectly relies on only a few sources for a
substantial portion of its revenues, the Company is dependent upon those
entities' efforts to address their own year 2000 issues. Should any such third
parties experience year 2000 related disruptions, it could have a material
adverse impact on the Company's business, results of operations, liquidity, or
financial condition. For example, as with all postsecondary education-oriented
businesses whose students receive governmental financial aid, the Company's
operations and liquidity depend upon the student funding provided by Title IV
Programs for its students. Processing of applications for this funding is
handled by the U.S. Department of Education's computer systems. The U.S.
Department of Education has stated that its systems will be year 2000 compliant
in early calendar year 1999 and that various schools will be able to run tests
of the remediated systems during the first half of calendar year 1999.
IMPACT OF INFLATION
The Company does not believe its operations have been materially affected
by inflation.
10
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On October 29, 1998, the Company held its first Annual Meeting of
Shareholders. At the meeting, the following persons were elected to serve on
the Company's Board of Directors for a term of one year and until their
successors are elected and have qualified: Steve Bostic, Stephen G. Franklin,
Paul D. Beckham, Fred C. Davison, J. Robert Fitzgerald, Ronald P. Hogan, Gaylen
D. Kemp, and Gerald Tellefsen. The number of votes cast for and against the
election of each nominee for director was as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Director For Withhold Authority
--------------------------------------------------------------------------------------
<S> <C> <C>
Steve Bostic 65,788,428 925
Stephen G. Franklin 65,788,428 925
Paul D. Beckham 65,788,428 925
Fred C. Davison 65,787,928 1,425
J. Robert Fitzgerald 65,788,428 925
Ronald P. Hogan 65,788,428 925
Gaylen D. Kemp 65,788,428 925
Gerald Tellefson 65,788,428 925
</TABLE>
In addition, the Company's shareholders approved an amendment to the
Company's 1997 Incentive Plan (the "Plan") to increase the number of shares
available for grant thereunder from 829,388 to 1,200,000. The number of votes
cast in favor of adoption of the amendment to the Plan was 64,883,975 and the
number of votes cast against adoption of the amendment was 329,255. There were
2,000 abstentions and broker non-votes.
Finally, the Company's shareholders approved an amendment to the Plan to
modify the circumstances under which the Board of Directors may amend the Plan
without shareholder approval. The number of votes cast in favor of adoption of
the amendment to the Plan was 64,826,650 and the number of votes cast against
adoption of the amendment was 956,435. There were 2,900 abstentions and broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.5.1 - First Amendment to Credit Agreement and Waiver
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. One report on Form 8-K was filed on December 1,
1998 relating to the change of the Company's fiscal year.
11
<PAGE>
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 thereunto duly authorized.
EDUTREK INTERNATIONAL, INC.
Date: January 13, 1999 By: /s/ Steve Bostic
-----------------
Steve Bostic, President and
Chief Executive Officer
(principal executive officer)
Date: January 13, 1999 By: /s/ Daniel D. Moore
--------------------
Daniel D. Moore, Chief Financial
Officer (principal financial and
accounting officer)
12
<PAGE>
EXHIBIT 10.5.1
Execution Copy
FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER dated as of December 7,
1998 by and between EDUTREK INTERNATIONAL, INC. (f/k/a E_Holdings, Inc.)
(together with its successors and assigns, the "Borrower"), each of the Lenders
a signatory hereto (the "Lenders") and NATIONSBANK, N.A. (f/k/a NationsBank,
N.A. (South)), as Agent (the "Agent").
WHEREAS, the Borrower and the Lenders and the Agent entered into that
certain Credit Agreement dated as of October_8, 1996 (the "Credit Agreement"),
pursuant to which the Lenders agreed to make available to the Borrower certain
financial accommodations; and
WHEREAS, the Borrower, the Lenders hereby agree, on the terms and
conditions set forth herein, to amend the Credit Agreement in certain respects;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties hereto
agree as follows:
SECTION 1. SPECIFIC AMENDMENTS TO CREDIT AGREEMENT.
---------------------------------------
(a) The Credit Agreement is amended by deleting from Section_1.1 thereof
the definition of the term "Revolving Termination Date" in its entirety and
substituting in its place the following:
"Revolving Termination Date" means March 7, 1999.
--------------------------
(b) The Credit Agreement is amended by deleting Section_2.1(B)(1) thereof
in its entirety and substituting in its place the following:
"(B) Revolving Loans. (1)_Subject to the terms and
---------------
conditions of this Agreement and in reliance upon the
representations and warranties of the Borrower
contained herein, each Lender agrees, severally and not
jointly, to lend to the Borrower from time to time
during the period from the Closing Date to but
excluding the Revolving Termination Date, its Pro Rata
Share of the Revolving Loan. The aggregate amount of
all Revolving Loan Commitments shall not exceed the
amounts set forth for the respective periods in the
table below, as reduced from time to time pursuant to
Section_2.6(C) and/or 2.6(D):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
PERIOD REVOLVING LOAN
COMMITMENTS
<S> <C>
- ---------------------------------------------------------------
December 7, 1998 through January 22, 1999 $4,000,000
- ---------------------------------------------------------------
January 22, 1999 through March 7, 1999 $3,000,000
- ---------------------------------------------------------------
</TABLE>
If at any time the aggregate amount of Revolving Loans
outstanding exceeds the Revolving Loan Commitments as
set forth in the above table, the Borrower shall
immediately repay a principal amount of
<PAGE>
Revolving Loans equal to such excess. On the terms and
conditions set forth herein, amounts borrowed under
this Section 2.1(B) may be repaid and reborrowed at any
time prior to the Revolving Termination Date."
SECTION_2. ACKNOWLEDGMENT OF LENDERS' COMMITMENTS. The parties hereto
--------------------------------------
hereby agree that after giving effect to the transactions contemplated by this
Amendment and Waiver, the amount of each Lender's respective Revolving Loan
Commitment is as set forth on the signature page hereto.
SECTION 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT AND
-----------------------------------------------------------
WAIVER. The effectiveness of this Amendment and Waiver is subject to receipt by
- ------
the Agent of each of the following, each in form and substance satisfactory to
the Agent:
(a) A counterpart of this Amendment and Waiver duly executed by the
Borrower and each Guarantor;
(b) Payment of a modification fee in the amount of $10,000;
(c) A Revolving Note executed by the Borrower, payable to the order of
NationsBank, N.A. ("NationsBank") and in the original principal amount of
$4,000,000 (the "New Note") in replacement of the outstanding Revolving Note in
favor of NationsBank in the principal amount of $2,500,000;
(d) A copy of the resolutions of the board of directors of the Borrower
authorizing the execution and delivery of this Amendment and Waiver and the New
Note, certified by the Secretary or an Assistant Secretary of the Borrower; and
(e) Such other documents, instruments and agreements as the Agent may
reasonably request.
SECTION 4. WAIVER. The Lenders hereby waive application of the
------
requirements of Section 5.14 of the Credit Agreement to the real property leases
entered into by the Borrower after October 8, 1996 at the locations set forth on
Schedule A hereto until March 7, 1999.
- ----------
SECTION 5. REAFFIRMATION BY BORROWER. The Borrower hereby reaffirms all
-------------------------
representations and warranties made by the Borrower to the Agent and Lenders in
the Credit Agreement on and as of the date hereof with the same force and effect
as if such representations and warranties were set forth in this Amendment and
Waiver in full, except for any representation or warranty limited by its terms
to a specific date and except as set forth on Schedule B hereto and taking into
----------
account any amendments to the Schedules or Exhibits as a result of any
disclosures made in writing by the Borrower to the Agent after the Closing Date
and approved by the Agent.
SECTION_6. REAFFIRMATION BY GUARANTORS. Each of the Guarantor reaffirms
---------------------------
its continuing obligations to the Agent and Lenders under its Guaranty, and
agrees that this Amendment and Waiver shall not in any way affect the validity
and enforceability of such Guaranty, or reduce, impair or discharge the
obligations of such Guarantor thereunder.
SECTION 7. REPRESENTATIONS. The Borrower further represents to the Agent
---------------
and Lenders that:
(a) Authorization. The Borrower has the right and power, and has taken all
-------------
necessary action to authorize it, to execute and deliver this Amendment and
Waiver and the New Note and to perform under this Amendment and Waiver, the New
Note and the Credit Agreement, as amended by this Amendment and Waiver, in
accordance with their respective terms. Each of this Amendment and Waiver, the
New Note and the Credit Agreement, as amended by this Amendment and Waiver, is a
legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
generally the enforcement of creditors' rights.
<PAGE>
(b) Compliance of Loan Documents with Laws, etc. The execution and
-------------------------------------------
delivery of this Amendment and Wavier and the New Note, and the performance of
this Amendment and Waiver, the New Note and the Credit Agreement, as amended by
this Amendment and Waiver, in accordance with their respective terms and the
borrowings thereunder do not and will not, by the passage of time, the giving of
notice or otherwise: (i)_require any Government Approval or violate any
Applicable Law relating to the Borrower; (ii)_conflict with, result in a breach
of or constitute a default under the partnership agreement or by-laws of the
Borrower, or any indenture, agreement or other instrument to which the Borrower
is a party or by which it or any of its properties may be bound; or (iii)_result
in or require the creation or imposition of any Lien upon or with respect to any
property now owned or hereafter acquired by the Borrower other than in favor of
the Agent for the benefit of the Lenders.
(c) No Default. No Default or Event of Defaults exists as of the date
----------
hereof and, after giving effect to this Amendment and Waiver, no Default or
Event of Default will occur or exist.
SECTION 8. COVENANT OF THE BORROWER. The Borrower shall, on or before
------------------------
January 7, 1999, supplement in writing and deliver to the Agent revisions of all
Schedules annexed to the Credit Agreement to the extent necessary to disclose
new or changed facts or circumstances after the Closing Date which have not
already been provided to the Agent pursuant to Section 5.1(P) of the Credit
Agreement. The failure of the Borrower to comply with this covenant shall
constitute an Event of Default.
SECTION 9. REFERENCES TO THE CREDIT AGREEMENT AND THE OTHER LOAN
-----------------------------------------------------
DOCUMENTS. Each reference to the Credit Agreement and any of the Loan Documents
shall be deemed to be a reference to the Credit Agreement as amended by this
Amendment and Waiver, and as each may from time to time be further amended,
supplemented, restated or otherwise modified in the future by one or more other
written amendments or supplemental or modification agreements entered into
pursuant to the applicable provisions of the Credit Agreement.
SECTION 10. EXPENSES. Pursuant to Section_10.2 of the Credit Agreement,
--------
the Borrower shall reimburse the Agent upon demand for all reasonable costs and
expenses (including reasonable attorneys' fees) incurred by the Agent in the
preparation, negotiation and execution of this Amendment and Wavier and the
other agreements and documents executed and delivered in connection herewith.
SECTION 11. BENEFITS. This Amendment and Wavier shall be binding upon and
--------
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
SECTION 12. GOVERNING LAW. THIS AMENDMENT AND WAIVER SHALL BE GOVERNED
-------------
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
GEORGIA.
SECTION 13. EFFECT. Except as expressly herein amended, the terms and
------
conditions of the Credit Agreement and the other Loan Documents shall remain in
full force and effect. The amendment contained in Section 1 herein shall be
deemed to have prospective application only. The waiver contained in Section 4
herein shall not be construed to be a waiver of any Event of Default that may be
in existence as of the date hereof except as specifically stated in said
Section. Further, this Amendment and Waiver shall not be construed as a waiver
of any future violation of any of the terms and conditions of the Credit
Agreement nor shall the Borrower, by receipt of this waiver, expect that such a
waiver will be given in the future.
SECTION 14. COUNTERPARTS. This Amendment and Waiver may be executed in
------------
any number of counterparts, each of which shall be deemed to be an original and
shall be binding upon all parties, their successors and assigns.
SECTION 15. DEFINITIONS. All terms defined in the Credit Agreement which
-----------
are used herein shall have the meanings defined in the Credit Agreement, unless
specifically defined otherwise herein. The Credit Agreement shall be further
amended by incorporating all terms defined in this Amendment and Waiver.
<PAGE>
SECTION 16. NO NOVATION. The parties do not intend that the amendment to
-----------
the Credit Agreement effected hereby constitutes a novation of the indebtedness
incurred under, and evidenced by, the Credit Agreement and the other Loan
Documents.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
Credit Agreement and Waiver to be executed by their duly authorized officers as
of the date first above written.
AGENT AND SOLE LENDER:
NATIONSBANK, N.A. (f/k/a
NationsBank, N.A. (South))
By: Julie I. Davis
----------------------------------------
Title: Senior Vice President
---------------------------------
BORROWER:
EDUTREK INTERNATIONAL, INC.
(f/k/a E Holdings, Inc.)
By: Steve Bostic
----------------------------------------
Title: Chairman
---------------------------------
GUARANTORS:
AMERICAN INTERCONTINENTAL
UNIVERSITY, INC.
By: Steve Bostic
----------------------------------------
Title: Chairman
---------------------------------
THE AMERICAN COLLEGE IN
LONDON, LTD. U.S.
By: Steve Bostic
----------------------------------------
Title: Chairman
---------------------------------
[Signatures Continued on Next Page]
-5-
<PAGE>
[SIGNATURE PAGE TO FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER DATED AS OF
DECEMBER 7, 1998
FOR EDUTREK INTERNATIONAL, INC.]
EDUTREK SYSTEMS, INC.
By: Steve Bostic
-----------------------------------
Title: Chairman
----------------------------
AMERICAN EUROPEAN MIDDLE
EAST CORPORATION, L.L.C.
By: American Intercontinental University,
Inc., its Manager
By: Steve Bostic
--------------------------------------
Title: Chairman
-------------------------------
THE AMERICAN COLLEGE IN LONDON, LTD.
By: Steve Bostic
--------------------------------------
Title: Chairman
-------------------------------
<PAGE>
SCHEDULE A
NEW LEASE LOCATIONS
1.0.2.Lease dated October 2, 1998 with Highwoods/Florida Holdings, L.P., as
Landlord for 13,352 square feet at 1601 N. Harrison Parkway, Building B,
Sunrise, Florida 33323, expiring September 30, 1999.
3. 0.4. Lease dated February 16, 1998 with CarrAmerica Realty Corporation, as
Landlord for the building known as Embassy Row 500, 6600 Peachtree
Dunwoody Road, Atlanta, Georgia 30378.
5. 0.6. Lease dated June 19, 1998 with W9/WLA Real Estate Limited Partnership,
as Landlord for the building known as 12655 West Jefferson Boulevard,
Los Angeles, California 90066.
7. 0.8. Lease dated June 30, 1998 with The 1770 G Street Limited Partnership,
as Landlord for space in the building located at 1776 G Street,
Washington, D.C.
-7-
<PAGE>
SCHEDULE B
EXCEPTIONS TO REPRESENTATIONS
1.0.2.Section 4.1(B). Edutrek International, Ltd. is no longer a
--------------
Subsidiary of the Borrower.
3. 0.4. The last sentence of Section 4.1(C). Schedule 4.1(C) does not set
-----------------------------------
forth the jurisdictions in which the Loan Parties have qualified
to do business since the Closing Date.
5. 0.6. Section 4.1(E). Edutrek International, Ltd., a Subsidiary set
--------------
forth in Schedule 4.1(E), was merged into E-Holdings, Inc., its
parent (which changed its name to Edutrek International, Inc.) on
April 4,1997.
7. 0.8. The last sentence of Section 4.6. The annual payment amounts under
--------------------------------
Operating Leases and Real Property Leases exceed the amounts set
forth in such Section by $1,645,146 and $3,414,811, respectively, as
of November 30, 1998.
9. 0.10. The first sentence of Section 4.12(A). Schedule 4.12 does not set
-------------------------------------
forth all of the Employee Benefits Plans of the Loan Parties as the
Borrower has created additional Employee Benefits Plans in the
ordinary course of its business since the Closing Date.
11. 0.12. Section 4.13. The Borrower has registered additional trademarks
------------
since the Closing Date which are not set forth on Schedule 4.13.
13. 0.14. The last sentence of Section 4.16. The Borrower has entered into
---------------------------------
certain employment contracts in the ordinary course of business since
the Closing Date which are not set forth on Schedule 4.16.
15. 0.16. Section 4.21. Schedule 4.21 does not set forth the current bank
------------
accounts of the Borrower, all of which are maintained with
NationsBank and its Affiliates.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 1,471
<SECURITIES> 0
<RECEIVABLES> 4,203
<ALLOWANCES> 104
<INVENTORY> 0
<CURRENT-ASSETS> 8,142
<PP&E> 10,392
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,796
<CURRENT-LIABILITIES> 13,611
<BONDS> 0
0
0
<COMMON> 40,578
<OTHER-SE> 120
<TOTAL-LIABILITY-AND-EQUITY> 58,796
<SALES> 11,642
<TOTAL-REVENUES> 11,642
<CGS> 15,343
<TOTAL-COSTS> 15,343
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> (3,793)
<INCOME-TAX> (1,563)
<INCOME-CONTINUING> (2,596)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,596)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> 0
</TABLE>
