UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) for the transition period from to
Commission file number: 000-28513
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Learner's World, Inc.
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(Name of Small Business Issuer in Its Charter)
New York 11-33313 50
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
369 Avenue U, Brooklyn, New York 11223
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(Address of Principal Executive Offices) (Zip Code)
(718) 449-3194
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each Exchange on Which Registered
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Common Stock ($0.0001 Par Value) None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ X].
The issuer's total consolidated revenues for the year ended December 31, 1999,
were $ 1,303,239.
The aggregate market value of the registrant's Common Stock, $0.0001 par value
(the only class of voting stock), held by non-affiliates was approximately
$1,821,603, based on the average closing bid and asked prices for the Common
Stock on March 27, 2000.
At March 27, 2000, the number of shares outstanding of the registrant's Common
Stock, $0.0001 par value (the only class of voting stock), was 10,270,007.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business..........................................1
Item 2. Description of Property..........................................8
Item 3. Legal Proceedings................................................8
Item 4. Submission of Matters to a Vote of Security-Holders............. 8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.........9
Item 6. Management's Discussion and Analysis or Plan of Operation.......10
Item 7. Financial Statements............................................13
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure..........................14
PART III
Item 9. Directors and Executive Officer ...............................14
Item 10. Executive Compensation..........................................15
Item 11. Security Ownership of Certain Beneficial
Owners and Management........................................16
Item 12. Certain Relationships and Related Transactions..................17
Item 13. Exhibits, List and Reports on Form 8-K..........................18
Signatures .....................................................19
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PART I
This Report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to continue its expansion strategy,
changes in costs of raw materials, labor, and employee benefits, as well as
general market conditions, competition and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Annual Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
ITEM 1. DESCRIPTION OF BUSINESS
As used herein the term "Company" refers to Learner's World, Inc., a New York
Corporation, and its subsidiaries and predecessors, unless the context indicates
otherwise. The Company was formed on June 28, 1996, with the intent to own and
operate facilities for the care, education and recreation of children. In
December 1996, the Company acquired three children's care and learning
facilities from three affiliated corporations for a four year note of $775,000,
bearing interest at the rate of 7% per annum. (See "Certain Relationships and
Related Transactions"). The Company's facilities are at the following locations
in the New York metropolitan area: (i) 369 Avenue U, Brooklyn, New York,
established in May 1993; (ii) 1535 First Avenue, New York, New York, established
in September 1994, the Company has since moved the location of this facility to
432 Lakeville, Lake Success, New York 11402; and (iii) 208-34 Cross Island
Parkway, Bayside, New York, established in June 1994. The Company provides the
following services for children and students: (1) day care and recreational
services for children between the ages of two and one- half and ten, (2)
academic tutorial services for students of all ages through high school, (3)
instruction in computer skills and functions for students and adults, and (4)
psychological diagnostic and remedial services for children, provided through
licensed consulting professionals.
A. Family Entertainment and Child Care Centers
Services
Each center the Company operates offers the following services to families in
the New York City metropolitan area:
o Play Center: The play centers feature a distinct play zone comprised
of a series of state of the art "soft" play equipment providing
physical challenges and mental stimulations.
o Mini-Play Center: The mini-play center is a special toddler area with
mini-play equipment and other games and activities designed for
toddlers.
o Birthday Center: Each center has private rooms available seven days a
week (including certain holidays) for birthdays and other
celebrations.
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o Snack Bar: A comfortable eating area and a convenient quick serve
snack bar are located inside each center.
o Play Center Arcade: This area of the centers provide arcade machines
for children who wish to take a break from the physical exertion of
the Play Center.
o Academic Tutorial Services: Academic tutorial services for students
ranging from Kindergarten to 12th grade.
o Child Care: The Company's facilities provide child care and
recreational activities for two and one-half to ten year old children
from 7:00 A.M. to 7:00 P.M. five days per week.
o Computer Assisted Instruction: Computer assisted instruction for
students and adults at all levels.
o Diagnostic and Prescriptive Services: Diagnostic and prescriptive
services for children having difficulties in the school environment.
The Company's sources of revenue are tuition and fees, generally charged on an
hourly basis for day care, tutoring and computer instruction. Charges for
diagnostic and treatment services are also currently made on an hourly basis.
Although the family entertainment centers which include locations in Manhattan,
Brooklyn and Queens, are financially solvent the addition of child care,
tutorial and computer instruction has enhanced revenue as these programs operate
mostly during the hours when the play activities are at the minimal. All of
these services are easily and logically merged. They are compatible in both
theme and space utilization.
Competitive Conditions
The children's day care and educational business is highly competitive. Numerous
children's day care centers and educational facilities compete with the Company
for customers and qualified personnel, including teachers, instructors and
care-givers. There are many child care and family entertainment facilities
located throughout the city of New York. Many of the Company's competitors are
smaller privately owned facilities that operate only a single location and are
greatly dependent on the surrounding geographic area and do not directly compete
with or effect the revenues of the Company. However, some of the Company's
competitors are larger corporations that operate franchises throughout the city,
many of these child care corporations have significant resources and directly
compete with the Company for child care revenues. New children's day care
centers and educational facilities will be established in the future by
competitors and may compete with the Company for customers, employees and
suppliers. These competitors may have greater financial and managerial resources
than the Company. The Company also competes with other types of facilities for
children and students, including traditional schools, vocational schools,
standard day care and babysitting services, children's recreational centers such
as The Discovery Zone, and other educational and recreational opportunities for
children.
Method of Competition
The Company will attempt to gain a competitive advantage over its competitors in
the child care industry by diversifying the products that it offers and
therefore better utilizing its resources for a greater profit potential. The
addition of child care, and academic programs into currently functioning family
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entertainment centers has resulted in centers that are functionally and
financially productive from the opening hour of 7:00 A.M. to the close of
operations of 7:00 PM.
Suppliers
The Company receives supplies from a variety of distributors. The few single
vendors that the Company uses for items such as teaching materials and
curriculum, paper and school supplies, food, and other items necessary for a
fully operational day care facility are easily replaced if needed and would not
have a material effect upon the revenues of the Company should the Company need
to change principal suppliers.
Dependance On One or Few Customers
The primary customers for the Company are individual family households and no
single customer makes up more than a small percent of the total revenues. The
Company does not expect that this will change in the future.
Government Regulation
The Company and its facilities are subject to extensive government regulation at
the federal, state and local level. The Company must comply with government
regulations regarding employment, wages, safety, child care, teacher
certification, staff credentials, access for handicapped and disabled persons
and other laws, rules, regulations and ordinances. The Company must follow the
State of New York child care regulations and hold current licences for each
facility in order to conduct a child care business. The Company has held
licences since 1996 and is currently in good standing with the State of New York
having renewed its licenses in April of 1999. These licenses are renewed
automatically every two years upon application. The next renewal will occur in
April of 2001. Although the Company does not foresee any change in the state or
federal regulation of child care, if changes should occur the Company believes
that it can adapt to such new regulations and that those changes would not have
any significant effect on revenues or current operations of the Company.
However, no assurance can be made that compliance or failure to comply with
future regulation will not have a materially adverse effect on the business,
operating results or financial condition of the Company.
Test Preparation Internet Website
The Company has several products and plans for others which have been used to
create a dynamic interactive on line test preparation and vocational training
website. The Company's new website became fully operational in January of 2000
and is located on the Internet at www.learnersworld.com. Through this website
the Company plans to offer to the public a location on the Internet where the
customers can prepare for tests such as the SAT and other educational exams
including but not limited to medical, law, and business. The site will be
designed to help customers prepare for vocational tests, such as civil service,
post office, park ranger, police or firefighter. The Company also hopes to be
able in the future to offer courses in other professions such as insurance
agent, stock broker, or real estate agent. The Company intends to bring this
content to the Internet and pair it with existing and emerging software to
create an exciting interactive on line learning environment.
Products
The Company will supply online computer based training to be used to prepare for
vocational and educational placement testing. All test preparation courses will
be interactive with live chat rooms and instructor availability. Each course
includes simulated test environment for time and content as well as a specific
section on test taking techniques for the particular exam. By offering it's
services online, the Company will attempt to address a perceived need for
alternative modes of training that are both flexible
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and convenient. Unlike the current educational offerings now available on the
Internet, which are mostly university or government based or highly technical in
content, the Company intends to offer training which will assist people to
obtain necessary knowledge or certification to prepare for exams and to train
for new skills. The exams/training which the Company intends to offer will help
the customer to obtain such benefits as gaining employment or advancing in their
current careers and advancing their educational goals.
The Company plans to provide test preparation courses in the following areas:
o Civil Service
o SAT
o CLEP
The Company is also developing additional test preparation areas which may
include:
o Postal Service
o Security Guard Training
o High School Diploma Program
o AMA Qualifying Exams For Foreign Doctors:
o Hospitality (hotel/motel) Management
o Medical And Related, Such As Home Health Attendants, EKG, Nurses
Aid, Etc. ESL (English as a second language)
Distribution
Distribution for the test preparation courses will be through the Company's
website, www.learnersworld.com.
Target Market
The Company's target market is growing as factors including downsizing, welfare
to workfare programs, the need for more skilled and better trained workers and a
competitive workplace puts an emphasis on lifetime learning and successful test
taking. Also, corporations are looking for cost efficient methods to train their
employees around the country and the world.
Many persons are looking for ways to increase their academic credentials and
improve their work environment by seeking to obtain higher education and obtain
more responsible positions. Many of these activities start with the need to take
an exam of some kind. This is an area in which the Company can help them to
become prepared. These potential customers need to fit education into their busy
lifestyles. The Company intends to combine current technology with well designed
test preparation and training materials for academic, vocational, professional
and health care learning as well as custom designed courses for corporate
training.
According to the Company's research, the Company's target customers are showing
a growing interest in the Company's proposed educational format, categorized as
distance learning. The increased level of advertising by degree granting
colleges and universities is making more and more people aware of the benefits
and legitimacy of distance learning via the Internet. Internet World magazine
gives examples of "The Internet Education" which included online degree programs
offered by traditional institutions such as Penn State and Indiana University,
as well as nontraditional entities such as University Online and the Global
Network Academy. Businesses see profits in the estimated $670 billion the United
States spends on education each year (growing about 3% a year) and the 67
million students in the United States alone.
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Family PC Magazine estimates that 1 million students are taking distance
learning classes via the Internet. The International Data Corporation estimates
that the number of college students enrolled in online courses will reach 2.2
million by the year 2002. The Company believes the private/public sector growth
of test preparation and training will be following close behind.
Corporate America is also showing a growing interest in distance education.
Faced with retraining an estimated 50 million American workers, corporations are
using distance learning in all aspects of training, both internally and
externally. Many major corporations like Hewlett-Packard save millions of
dollars each year using distance education to train employees more effectively
and efficiently than traditional methods. Budgeted spending on formal training
by U.S. organizations with 100 or more employers topped $60 billion in 1998 and
is estimated to grow to $62.5 billion in 1999. That is a 29 percent increase
since 1993,without accounting for mild inflation. As always, salaries paid to
internal training staff make up the bulk of the budget. This salary total is up
2.4 percent over the previous year and is now in excess of $43 billion. The
fastest growing segment, however, is outside expenditures and the $15 billion
spent on the commercial training market is a significant increase from 1998
(Training Industry Magazine 1999). If we add to this the estimated amount spent
by companies with under 100 employees and the amount otherwise spent for test
preparation of all kinds, the Company estimates the total market may exceed $85
billion. The Company hopes to capture a small portion of this market.
The Company's research shows, that there may be a need for proposed training and
testing services. Annually, there are 100,000 people applying to take the
sanitation workers exam, 49,000 New Yorkers requesting mail handler's exams, and
60,000 applying for applications for police and fire exams. This demonstrates a
potential need for vocational test preparation. Falling SAT scores and less than
satisfactory math and science scores among school students provide a great
potential for the Company's products.
Pricing Policy
The Company's pricing policy should make it's site an enticing alternative to
traditional methods of learning (i.e. classroom and home study) while still
providing appropriate profit margins. Approximately 60% - 70% of the Company's
offerings will be priced between $49.95 and $69.95 giving us an average of
approximately $60.
The remainder of the Company's tests, mostly in the professional and health care
series, will range in price from $99.95 to $199.95. Corporate projects requiring
custom developed content will be priced from the mid five figures to the low six
figures, with additional ongoing fees for web hosting and maintenance.
B. Educational Internet Website
Business Strategy
The Company's strategy is to offer an extensive array of test preparation and
training courses covering needs in academics, health care, vocations and
professions in a dynamic and enjoyable fashion. A separate segment of the
Company's web site will deal with custom designed training and test preparation
courses for private industry, government agencies and unions. The Company will
attempt to create brand
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recognition by implementing an aggressive advertising campaign emphasizing the
Company's benefits, including quality content, a learner community, support
services, and a high level of interaction.
Competitive Conditions
There are currently several significantly larger companies that will compete
with the Company in the test preparation and training market. The companies
include, but may not be limited to Kaplan, Princeton Review, and Sylvan Learning
Centers. These companies are well established and have significantly greater
resources and currently established websites. Additionally, the web site
developed by the "Educational Testing Services" (ETS) has a fairly sophisticated
model for on line test taking. However, it only does the test taking on line,
not the training for the tests. ETS is the largest administrator and developer
of tests in the country and is the organization responsible for development,
distribution and grading of tests including, SAT, GMAT, GRE and most other
college entrance exams as well as other exams for the government. The Company's
ability to compete with these companies will greatly depend on its ability to
establish a unique and appealing product, its ability to increase the public
awareness of its product and bring individuals to its website.
The Company believes it can compete to some degree with these bigger companies
because, to the knowledge of the Company, the competition has yet to offer the
unique mixture of content and format offered by the Company. Universities and
colleges use the Internet for distance learning courses, but they do not provide
test preparation and career development content. Companies offering test
preparation continue to do so in the traditional format. They are just beginning
to formulate distance learning strategies. None of them offer vocational test
preparation. This gives the Company a unique opportunity to help define
standards and to possibly become a market leader. Lotus Development Corporation,
a major division of IBM Corporation, says that advances in educational
technology will prove useless, unless companies step forward and combine
technology with content and deliver it to the end user. That is what the Company
will attempt to do.
Method of Competition
The Company will attempt to give its customers access to computer based training
over the Internet at a more reasonable cost and create content driven,
interactive educational training sites. The Company will also attempt to gain an
advantage over its competition by utilizing the computer and online technology.
The Company believes that because its content and products will be based solely
online it will be able to more efficiently change and adapt to current market
conditions. Utilizing this approach, the Company hopes to gain an advantage over
the competitors by offering products as quickly as possible in an online
environment. Emphasis will be placed by the Company on increasing its exposure
to the public through advertising both through the Internet and traditional
media outlets, such as print and broadcast media. Through this strategy the
Company believes that it can establish itself in the test preparation market.
The Company's intention is to use the computer to provide individualized test
preparation training and evaluation where a student signs onto the web site at
anytime and needs only an available terminal to begin a session. Once the
student signs on to the computer, the computer will determine if the student's
account is up to date, where they left off in their last session and then
proceed with the student from that point. The computer will address each student
as an individual, or as far as the computer is concerned, a class of one person.
Student interaction with the computer will be tracked and at the end of each
session, depending on the students responses to questions, the computer will do
an evaluation and recommend which parts of the course material should be
reviewed by the student before going forward. If necessary, students will be
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reminded to make a payment before their next session, will be encouraged to
provide referrals and will be notified of special events and/or calendar
changes, etc.
Patent Protection
The Company is filing for patent protection for its products, in order to
protect what it believes is a unique combination of content and delivery system.
Income Streams
Once the Company's plans are fully developed, it is intended that the Company
will have four distinct income streams. The users paying to take test
preparation and training courses. Advertising sales, a business that could
become significant because of the exceptional demographics of our potential user
base which is expected to include high school and college students, blue collar
workers, and professional and health care workers. Most of these people are
expected to fall into the sixteen to forty year old age group.
Corporate/government customers paying for the development of custom test
preparation and training courses and the ongoing fees for hosting and
maintenance of these custom projects. Lastly, the Company expects to realize
referral fees and royalties from Internet based retailers to whom we direct our
user base.
Growth
If the Company decides to raise additional capital, it would be used to fund the
continuation of research and development, some of which is very sophisticated,
requiring audio and video highlights and skilled professionals for content.
These courses will be sold for considerably more than base prices. The Company
will also need to significantly increase our advertising to support our goal of
growing the Company's business on the national and international level. This
will allow the Company to take advantage of being one of the first into the
market and to attempt to secure and hold a significant market share. Initial
advertising will be print, radio, and possibly subways and billboards. The
addition of an Informercial has been decided upon and, when budget allows, TV
spots will be added.
The Company's future plans include acquiring additional web content through the
purchase of existing schools and/or courses, appropriate acquisitions and the
development of international markets as well as executing our marketing plan for
national growth.
As one of the first into this marketplace, with a fully interactive, Internet
based offering, consisting of live chat rooms and audio/video feeds to support
our test preparation/training materials, the Company expects to be able to
create a real user community. The Company will attempt to develop a user base of
people with common interests and the Company will attempt to secure a
significant share of this multi billion- dollar market. In addition, the
expected demographics of our users are expected to be an attraction to potential
advertisers who may be willing to pay us to advertise on our web site.
Employees
As of December 31, 1999, the Company had 27 employees, 7 of whom were classified
as full-time and 20 of whom were classified as part-time. Most of the Company's
part-time employees are teachers in child care programs and Company-owned family
centers. Two of the full-time employees work exclusively on the Company's
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website. None of the Company's employees are represented by a union and the
Company considers its relationship with its employees to be good.
Reports to Security Holders
The Company's annual report will contain audited financial statements. The
Company is not required to deliver an annual report to security holders and will
not voluntarily deliver a copy of the annual report to the security holders.
Prior to this form being filed there were no other disclosure forms filed
regarding the Company's financial and management situation. The Company intends
to, from this date forward, file all of its required information with the
Securities and Exchange Commission ("SEC"). The Company plans to file its 10KSB,
10QSB, and all other forms that may be or become applicable to the Company with
the SEC.
The public may read and copy any materials that are filed by the Company with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The statements
and forms filed by the Company with the SEC have also been filed electronically
and are available for viewing or copy on the SEC maintained Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The Internet address
for this site can be found at http://www.sec.gov. Additional information can be
found concerning the company on the Internet at http://www.learnersworld.com.
ITEM 2. DESCRIPTION OF PROPERTY
In December 1996, the Company acquired three children's care and learning
facilities from three affiliated corporations for a four year note of $775,000,
bearing interest at the rate of 7% per annum, with monthly payments beginning on
January 1, 1998. The Company's facilities are at the following locations in the
New York metropolitan area: (i) 369 Avenue U, Brooklyn, New York, established in
May 1993; (ii) 1535 First Avenue, New York, New York, established in September
1994, the Company has since moved the location of this facility to 432
Lakeville, Lake Success, New York 11402; and (iii) 208-34 Cross Island Parkway,
Bayside, New York, established in June 1994.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not a party to any pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fiscal year covered by this Report to a vote
of security holders, and therefore, this item is inapplicable.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is currently traded on the Pink Sheets, and was previously traded on
the OTC BB under the symbol LWRD.OB. The Company intends to reapply to trade on
the OTC BB upon completion and approval of its Form 10-SB filing with the
Securities and Exchange Commission. The table below sets forth the high and low
sales prices for the Company's Common Stock for each quarter of 1998 and 1999.
The Company's stock did not trade prior to January 1, 1998. The quotations below
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions:
Quarter High Low
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1998 First(1) $1.25 $1.00
Second $6.00 $1.06
Third $5.00 $0.25
Fourth $0.63 $0.25
Quarter High Low
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1999 First $0.28 $0.25
Second(2) $9.80 $4.50
Third $8.19 $1.88
Fourth $2.31 $0.56
2000 First $0.88 $0.11
Record Holders
As of March 27, 2000, there were approximately 29 shareholders of record holding
a total of 10,270,007 shares of Common Stock. The holders of the Common Stock
are entitled to one vote for each share held of record on all matters submitted
to a vote of stockholders. Holders of the Common Stock have no preemptive rights
and no right to convert their Common Stock into any other securities. There are
no redemption or sinking fund provisions applicable to the Common Stock.
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(1) The Company's stock did not trade until January of 1998.
(2) Price reflects a 30 to 1 reverse split effected on March 1st, 1999.
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Dividends
The Company has not declared any cash dividends since inception and does not
anticipate paying any dividends in the foreseeable future. The payment of
dividends is within the discretion of the Board of Directors and will depend on
the Company's earnings, capital requirements, financial condition, and other
relevant factors. There are no restrictions that currently limit the Company's
ability to pay dividends on its Common Stock other than those generally imposed
by applicable state law.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company plans to continue its expansion into the child care and adult
education fields. This will be accomplished through the building of new
locations, the acquisition of suitable locations and its venture onto the
Internet with its Internet based educational, test preparation and vocational
training web site.
A. Results of Operations
Gross Income
Gross income for the year ended December 31, 1999 increased to $1,303,239 from
$1,253,266 for the year ended December 31, 1998, an increase of 4%. The increase
in gross income is primarily attributable to an increase in tuition and fees
collected from an increase in students enrolled.
The average number of students enrolled for the year ended December 31, 1999,
was an estimated 295 compared to 269 students for the year ended December 31,
1998.
The Company charged an average tuition of $274 per student each quarter which
generated a total of $323,063 in tuition for the year ended December 31, 1999
compared to an average tuition of $218 per student each quarter which generated
a total of $233,684 in tuition for the year ended December 31, 1998.
The remaining gross income generated in December 31, 1999 and 1998 were $980,176
and $1,019,582, respectively. The most significant component of gross income for
the years ended December 31, 1999 and 1998 was gross income generated from play
areas. The Company generated a total of $904,250 in gross income relating to
play areas for the year ended December 31, 1999 compared to $936,714 for the
year ended December 31, 1998, a decrease of $32,464 or 3.5%. The decrease in
gross income generated by the play areas was attributable to the Company
focusing on recruiting additional students for the schools.
The remaining miscellaneous gross revenues relating to various fees for the year
ended December 31, 1999 was $75,926 compared to $82,868 for the year ended
December 31, 1998.
Losses
Net losses for the year ended December 31, 1999 increased to $423,750 from
$195,316 for the year ended December 31, 1998, an increase of 117%. The increase
in losses was attributable primarily to an increase in general and
administrative expenses.
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Due to continued expansion of the online testing website the Company expects to
continue to incur losses at least through 2000 and there can be no assurance
that the Company will achieve or maintain profitability or that its revenue
growth can be sustained in the future.
Expenses
General and administrative expenses for the year ended December 31, 1999,
increased to $704,978 from $552,977 for the year ended December 31, 1998, an
increase of 27%. The increase in general and administrative expenses was the
result of an increase in expenses related to the development of the Company's
online testing website. The Company estimates that general and administrative
expenses attributable to the start up of its test preparation website consumed
approximately 20-30% of all general and administrative expenses for periods
presented. Development and maintenance of the website will be an ongoing
expense. However, with the website having become operational in January of 2000,
it is expected that there may be a lesser amount devoted to site development,
but an increase in costs associated with site maintenance. At this time, the
Company is unable to determine whether ongoing website maintenance costs will be
greater or less than any corresponding savings in development costs. Because the
website has just become operational in January of 2000, the Company is unable,
with any degree of accuracy, to determine when, if ever, the Company will begin
to recognize revenue from its test preparation products. Depreciation,
amortization and interest expenses for the years ended December 31, 1999 and
1998 were $153,496 and $150,228, respectively.
Cost of Sales
The cost of sales for the year ended December 31, 1999 was $868,515 compared to
$744,277 for the year ended December 31, 1998. The increase in the cost of sales
was primarily attributable to an increase in labor costs. Cost of sales as a
percentage of sales for December 31, 1999 and 1998 respectively, were 67% and
59%.
B. Liquidity and Capital Resources
At December 31, 1999, the Company had current assets of $103,570 and total
assets of $1,281,777 as compared to $38,903 and $1,135,560 for December 31,
1998. The Company had a net working capital deficit of $357,517 at December 31,
1998 compared to net working capital of $36,991 at December 31, 1999.
Cash flow used in operations was $222,119 for the year ended December 31, 1999,
and $173,572 for the year ended December 31, 1998. Cash flow generated from
financing activities was $430,750 for the year ended December 31, 1999 and
$230,007 for the year ended December 31, 1998.
The Company's cash flows fluctuate during the year due to the seasonal nature of
the Company's business. Traditionally, enrollments are higher during the period
of the year when schools ore in regular session (September-May) with lower
enrollments during the summer months (June-August). The decline in enrollments
during the summer is offset to some degree by the revenues from the Company's
summer camps.
11
<PAGE>
C. Income Tax Expense
The Company has an income tax benefit resulting from net operating losses of
$423,750. Depending on the future results of the operations of the company, this
potential tax benefit may or may not be usable. This benefit is not recognized
in the financials because the amount of the benefit that may ultimately be
recognized is uncertain.
D. Impact of Inflation
The Company believes that inflation has had a negligible effect on operations
over the past three years. The Company believes that it can offset inflationary
increases in the cost of materials and labor through increased sales and
improved operating efficiency.
E. Capital Expenditures
The Company made no significant capital expenditures on property or equipment
for the years ended December 31, 1999 or 1998.
F. Trends, Events, Uncertainties that may have a Material Effect on Liquidity
Risk of Lawsuits
Inherent in the business of education and caring for children in a commercial
business is the risk of lawsuits for alleged injuries to the children. The
Company has an insurance policy with liability limits of $3,000,000 aggregate
limit which includes $1,000,000 in personal injury liability coverage to protect
the Company from legal claims to the amount of the policy coverage for risks as
specified in the policy of insurance. Although currently there are no pending
lawsuits against the Company, there is no assurance that there will not be such
lawsuits in the future and that the Company will not incur losses as the result
of such lawsuits in excess of its insurance coverage. Lawsuits against the
Company will tend to increase operating expenses and lower the potential for
profitability, as well as cause possible harm to the Company's reputation.
G. Trends, Events, Uncertainties that may have a Material Effect on Net Revenue
or Income Year 2000 The Year 2000 Issue and the Nature and Effects of the Year
2000 on Information Technology (IT) and Non- IT Systems was a concern prior to
January 1, 2000. As of March 31, 2000, the Company had experienced no problems
as a result of the Year 2000 Issue.
Labor Related Risks
The Company depends extensively on the availability, quality and reliability of
teachers, instructors, tutors and care-givers which it utilizes to provide
children's educational and day care services. There is no assurance that the
Company will have an adequate supply of qualified personnel at acceptable cost
to operate a profitable business. The Company is subject to all of the risks
inherent in a business that utilized skilled labor, including but not limited to
strikes, disadvantageous collective bargaining agreements, labor showdowns,
unavailability of qualified employees, worker's compensation claims, increases
in worker's
12
<PAGE>
compensation and other insurance premiums (or unavailability of such insurance),
wage disputes, discrimination claims, wrongful termination claims, the loss of
qualified employees and inability to replace them, and related risks. At the
current time, none of the Company's employees are unionized. The risks may also
inhibit the Company's ability to expand or establish new facilities. If such
labor issues should arise the Company will attempt to remedy the situation by
using temporary employees and its current staff to temporarily cover shortages
until additional qualified permanent employees can be found.
Uncertainties Regarding Market Acceptance of New Services
Although the Company's management will attempt to complete the market research
necessary to determine whether there will be sufficient demand for its new
Internet based services, it is possible that the Company will decide to offer a
service that will be rejected by its target customers. The inability to amortize
development marketing and sales support costs could adversely affect the
financial condition and operating results of the Company. There remains
uncertainty regarding the Internet as a viable distribution method of the
Company's products. There is a risk that the customers of the Company will not
use the Internet for their test training and would rather continue to use more
traditional training methods.
Going Concern
The Company's auditors have expressed an opinion as to the Company's ability to
continue as a going concern as a result of an accumulated deficit of $882,267 as
of December 31, 1999 compared to a deficit of $458,517 at December 31, 1998. The
Company's ability to continue as a going concern is subject to the ability of
the Company to obtain a profit and /or obtaining the necessary funding from
outside sources. Management is committed to taking the necessary steps to ensure
the Company remains a going concern. Management's plan to address the Company's
ability to continue as a going concern, includes: (1) obtaining additional
funding from the sale of the Company's securities; (2) increasing sales; (3)
obtaining loans and grants from various financial institutions where possible.
Although management believes that it will be able to obtain the necessary
funding to allow the Company to remain a going concern through the methods
discussed above, there can be no assurances that such methods will prove
successful.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements for the fiscal years ended December 31, 1999
and 1998 are attached hereto as pages F-1 through F-16
[THIS SPACE INTENTIONALLY LEFT BLANK]
13
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 1999 & 1998
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
YEARS ENDED
DECEMBER 31, 1999 & 1998
CONTENTS
Page
Independent Auditors' Report F - 1
Consolidated Balance Sheets F - 2
Consolidated Statements of Operations F - 3
Consolidated Statements of Stockholders' Equity (Deficit) F - 4
Consolidated Statements of Cash Flows F - 5
Notes to Consolidated Financial Statements F - 6 - F - 16
<PAGE>
[LETTERHEAD OF SELLERS & ASSOCIATES P.C.]
INDEPENDENT AUDITORS' REPORT
Learner's World, Inc.
and Subsidiaries
To The Stockholders
We have audited the accompanying consolidated balance sheets of Learner's World,
Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations and stockholders' equity (deficit), and
consolidated statements of cash flows for each of the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Learner's World,
Inc.and Subsidiaries as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the years then ended in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As disclosed in the financial
statements and notes to the financial statements, the Company has suffered
significant losses. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding these
matters are described in the notes to the financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/S/ Sellers & Associaates, P.C.
Sellers & Associates, P.C.
March 23, 2000
Ogden, Utah
F-1
<PAGE>
<TABLE>
<CAPTION>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
AUDITED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31,
1999 1998
================== =================
ASSETS
<S> <C> <C>
Current assets
Cash $ 23,715 $ 2,195
Receivables 9,855 36,708
Receivable from shareholders 70,000 -
------------------ -----------------
Total current assets 103,570 38,903
------------------ -----------------
Property and equipment, net of
accumulated depreciation 992,499 1,041,526
------------------ -----------------
Other assets
School licensing 1,750 2,917
Security deposits 52,214 52,214
Internet website 131,744
------------------ -----------------
Total other assets $ 185,708 $ 55,131
------------------ -----------------
Total assets $ 1,281,777 $ 1,135,560
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts and notes payable $ 71,464 $ 114,458
Taxes payable 63,352 64,399
Current portion of long term debt - non stockholders 16,296 25,973
------------------ -----------------
Total current liabilities 151,112 204,830
------------------ -----------------
Long-term liabilities
Term debt - long term portion - non stockholders 16,753 36,599
Due to stockholders 1,076,921 1,251,648
------------------ -----------------
Total other liabilities 1,093,674 1,288,247
------------------ -----------------
Total liabilities 1,244,786 1,493,077
------------------ -----------------
Stockholders' equity (deficit)
Common stock, $.0001 par value
20,000,000 shares authorized with 9,776,250 and
140,000 shares issued and outstanding at
December 31, 1999 and 1998 respectively 978 420
Paid in capital 1,197,343 100,580
Stock issued not paid (279,063) -
Accumulated (deficit) (882,267) (458,517)
------------------ -----------------
Total stockholders' equity (deficit) 36,991 (357,517)
------------------ -----------------
Total liabilities and stockholders' equity (deficit) $ 1,281,777 $ 1,135,560
================== =================
</TABLE>
F-2
<PAGE>
<TABLE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
AUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDING DECEMBER 31,
<CAPTION>
1999 1998
============== ==============
<S> <C> <C>
Revenue $ 1,303,239 $ 1,253,266
Expenses
Cost of sales 868,515 744,277
General and administrative 704,978 552,977
Depreciation, amortization and interest 153,496 150,228
-------------- --------------
Income (loss) from continuing operations before
income taxes (423,750) (194,216)
Provision for income taxes - 1,100
-------------- --------------
Net (loss) $ (423,750) $ (195,316)
============== ==============
Income (loss) per weighted-average share of common
stock outstanding
Basic net (loss) per share $ (0.05) $ (1.39)
============== ==============
Weighted-average number of common stock outstanding 7,950,449 140,000
============== ==============
</TABLE>
F-3
<PAGE>
<TABLE>
LEARNER'S WORLD, INC.
AUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1999 and 1998
<CAPTION>
Common Stock
=============================== Stock Net
Paid in Issued Accumulated Equity
Shares Amount Capital Not Paid (Deficit) (Deficit)
=========== ============ ============== ============== ================= ===============
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1997 140,000 $ 14 $ 100,986 $ - $ (263,201) $ (162,201)
Net (loss) for the year ended
December 31, 1998 (195,316) (195,316)
========= ========= ============ ============ =========== ==========
Balance as of December 31, 1998 140,000 $ 14 $ 100,986 $ - $ (458,517) $ (357,517)
Shares issued for debt conversion 6,000,000 600 119,400 120,000
Shares issued for services 180,000 18 13,782 13,800
Shares issued with commitment to pay 3,456,250 346 863,717 (864,063) -
Cash received in 1999 on stock issued 515,000 515,000
Cash received in 2000 on stock issued 70,000 70,000
Accrued interest eliminated in
modifying the promissory note due
to shareholders 99,458 99,458
Net (loss) for the year ended
December 31, 1999 (423,750) (423,750)
========== ========= ============= ============ ============= ==========
Balance as of December 31, 1999 9,776,250 $ 978 $ 1,197,343 $ (279,063) $ (882,267) $ 36,991
========== ========= ============= ============ ============= ==========
</TABLE>
See Accompanying Independent Auditor's Report to the Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
AUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDING DECEMBER 31,
1999 1998
================ =================
<S> <C> <C>
Cash Flows From Operating Activities
Net (loss) $ (423,750) $ (195,316)
------------- -------------
Adjustments To Reconcile Net (Loss) To Net Cash
Used In Operating Activities
Depreciation 104,394 84,550
Amortization 1,167 583
Stock issued for services 13,800 -
Interest eliminated and reclassified to paid in capital 99,458 -
Decrease (Increase) in receivables 26,853 (29,998)
Decrease in security deposit - 4,155
(Decrease) in accounts and notes payable (42,994) (73,462)
Increase (decrease) in taxes payable (1,047) 35,916
------------- -------------
Net Adjustment 201,631 21,744
------------- -------------
Net Cash (Used) In Operating Activities (222,119) (173,572)
------------- -------------
Cash Flows From Investing Activities
Purchase of equipment (55,367) (64,027)
Purchase of school licensing - (3,500)
Internet website (131,744) -
------------- -------------
Net Cash (Used) By Investing Activities (187,111) (67,527)
------------- -------------
Cash Flows From Financing Activities
(Decrease) Increase in notes and loans payable
non stockholders (29,523) 17,093
(Decrease) Increase in notes and loans payable
stockholders (54,727) 212,914
Proceeds from issuance of capital stock 515,000 -
------------- -------------
Net Cash Provided By Financing Activities 430,750 230,007
------------- -------------
Net Increase (Decrease) In Cash 21,520 (11,092)
Cash - Beginning 2,195 13,287
------------- -------------
Cash - Ending $ 23,715 $ 2,195
============= =============
Other Information
Interest paid in cash $ 2,727 $ 10,845
============= =============
Non Cash Items
Stock issued for services $ 13,800 $ -
Stock issued for debt conversion 120,000 -
Debt to shareholders contributed to paid in capital $ 99,458 $ -
</TABLE>
F-5
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial Statements include the accounts of
Learner's World, Inc. and its wholly owned subsidiaries: Avenue U
Playrobics, Inc., Baybridge Playrobics, Inc., and Eastside Playrobics,
Inc. Eastside Playrobics, Inc. discontinued operations in 1997 and
continues to exist as a legal entity with no activity. Intercompany
activity has been eliminated in consolidation.
Nature of Operations
The Company provides learning, daycare and entertainment facilities for
children in New York City.
Receivable From Stockholders
Stock issued and not paid is reported as a reduction to stockholders'
equity; that is, except for payments actually received in the following
year before the date of the auditors' report. Such amounts actually
received are then reported as a current asset as a receivable from
stockholders.
Property and Equipment
Property, equipment, and leasehold improvements are valued at cost.
Depreciation is provided by use of the straight-line method over the
shorter of estimated useful lives or lease terms of the assets. Fully
depreciated assets are written off the year after they are fully
depreciated or amortized.
Upon the sale or retirement of property and equipment the related cost
and accumulated depreciation are eliminated from the accounts and the
resulting gain or loss is recorded. Repairs and maintenance
expenditures that do not extend the useful lives are included in
expense during the period they are incurred.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less to be
cash equivalents.
F-6
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 1 - Summary of Significant Accounting Policies - Continued
Net Income (Loss) Per Share
Basic net income or loss per share is computed by dividing net income
or loss by the weighted average number of common shares outstanding.
Revenue Recognition
Revenue is recognized from sales and services when they are performed.
Income Taxes
The Company has adopted the provisions of statements of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which
incorporates the use of the asset and liability approach of accounting
for income taxes. The asset and liability approach requires the
recognition of deferred tax assets and liability for the expected
future consequences of temporary differences between the financial
reporting basis and tax basis of assets and liabilities.
No income tax returns have been filed since June 30, 1995. The income
tax year end was changed from June 30 to December 31, making a short
tax year end from July 1, 1996 to December 31, 1996.
Use of Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Impairment of Long-Lived Assets
It is the Company's policy to periodically evaluate the economic
recover ability of all of its long-lived assets. In accordance with
that policy, when the Company determines that an asset has been
impaired, it recognizes the loss on the basis of the discounted future
cash flows expected from the assets.
F-7
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 1 - Summary of Significant Accounting Policies - Continued
Fair Value of Financial Instruments
The methods and assumptions used to estimate the fair value of each
class of financial instrument are as follows:
Cash and cash equivalents, receivables, accounts and notes payable,
taxes payable and current portion term debt - non stockholders and
stockholders:
The carrying amounts approximate fair value because of the
short maturity of these instruments.
Other assets:
The carrying amounts of school licensing and security deposits
approximate fair value because the Company uses the school
licensing to run a school at one location and it is amortized
over the life of the school lease and the security deposits
are refundable.
The carrying amounts of the internet website is at cost and
may or may not approximate fair value because the website is
in late developmental stage and is unproven. It will be
amortized over its estimated useful life or 15 years, which
ever is shorter.
Long-term liabilities:
The carrying amounts of the Company's borrowings (See notes 3
& 4), which is debt due to non stockholders and to
stockholders, approximate fair value because the interest
rates are either fixed or vary based on floating rates
identified by reference to market rates. The carrying amounts
and fair values of long-term debt are approximated to be one
and the same at December 31, 1999 and 1998.
F-8
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 2 - Property and Equipment
<TABLE>
Property and equipment, at cost, are summarized December 31, as
follows:
<CAPTION>
Estimated
1999 1998 Useful Lives
-------------- -------------- ------------
<S> <C> <C> <C>
Machinery and equipment $ 732,949 $ 716,640 3 - 7 years
Furniture and fixtures 96,417 96,417 7 years
Leasehold improvements 455,161 416,103 3 - 18 years
------------ ------------
1,284,527 1,229,160
(Less) accumulated depreciation (292,028) (187,634)
------------ ------------
$ 992,499 $1,041,526
============ ===========
</TABLE>
Note 3 - Due to Stockholders
Three major stockholders have financed a significant portion of the
Company's activities and operations. The promissory note for $775,000
referred to below, bore interest at 7% per annum, beginning January 1,
1998. All other amounts due to stockholders are not interest bearing
obligations. All obligations are presented in the financial statements
as long-term debt.
On October 26, 1999, the $775,000 promissory note was modified as to
the payment. As modified, there is no back interest accruable or due at
any time before December 31, 1999. Interest at 7% simple interest
begins January 1, 2000 with monthly payments of interest only beginning
March 1, 2000. Beginning with March 1, 2001 monthly payments of
interest and principle in the amount of $11,918 per month thereafter
until December 31, 2007 at which time the entire unpaid principle and
interest, if any, shall be paid in full.
As of October 26, 1999, there was $99,458 accrued and unpaid interest.
The entire $99,458 accrued interest eliminated by modifying the
promissory note was credited to equity into Paid in Capital.
F-9
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 3 - Due to Stockholders - Continued
<TABLE>
At December 31, 1999 and 1998, the following amounts were owed to the
three major stockholders:
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Note payable due to Salvatore Casaccio,
Antonio Casaccio, and Agrippino Casaccio from
the sale of their stock to the Company of Avenue U
Playrobics, Inc., Baybridge Playrobics, Inc. and Eastside
Playrobics, Inc. on December 17, 1996 for $775,000.
The acquisition of the stock of the subsidiaries by the
Company is accounted for by the purchase method of
accounting. Secured by stock of the Corporations sold
to the Company. $ 775,000 $ 775,000
Accrued interest on the note payable of $775,000 - 54,250
The remaining balance due to stockholders are loans and
advances as needed and are unsecured and bear no
interest and has no scheduled repayment. 301,921 422,398
------------ -----------
Total 1,076,921 1,251,648
(Less) Current portion due to Stockholders ( - ) ( - )
----------- -----------
Total Long-term debt due to Stockholders $1,076,921 $1,251,648
=========== ===========
</TABLE>
Maturities of long-term debt due to stockholders for the five years
after 1999 are:
December 31, 2000 $ -
2001 75,946
2002 97,162
2003 104,186
2004 111,718
2005 & After 385,988
------------
Total $ 775,000
===========
F-10
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 4 - Term Debt - Non Stockholders
Term Debt consists of the following at December 31, 1999
Payable to a supplier, secured by selected equipment.
Monthly payment of $1,275 for 60 months with 24
months remaining at 15.4% interest rate $ 26,192
Payable to a private party, guaranteed by a major
stockholder. Monthly payment of $1,410 for 24
months with 9 months remaining at 1.5% over
prime interest rate. 6,857
-------------
Total Term Debt 33,049
(Less) Current Portion - Non Stockholders (16,296)
-------------
Total Long-Term Debt - Non Stockholders $ 16,753
===========
Maturities of long-term debt - non stockholders for the five years
after 1999 are:
2000 $ 16,296
2001 16,753
2002 -
2003 -
2004 -
2005 & After -
------------
Total $ 33,049
=============
Note 5 - Related Party Transactions
As indicated in Note 3 - Notes Payable due to Stockholders, the
Company's major stockholders sold the Company their interests in the
subsidiaries of the Company. They also have financed a significant
portion of the Company's activity and operations. Should these major
stockholders withdraw their support to the Company, the Company would
most likely not survive. Management indicates the major stockholders
intend to continue their support of the Company.
F-11
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 6 - Capital Stock
On February 25, 1999, the Company amended its articles of
incorporation. In conjunction with this change, the articles of
incorporation, as amended, made a 30 for 1 reverse stock split,
effective March 1, 1999.
As a result, the 4,200,000 shares issued and outstanding at December
31, 1998 is effectively changed to 140,000 shares issued and
outstanding at March 1, 1999. This reverse stock split has been
recognized in the financial statements retroactive to December 31,
1997.
On March 2, 1999, the Company issued its officers and directors a total
of 6,000,000 shares of common stock at $.02 par share in exchange for
$120,000 in debt.
On March 18, 1999, the Company issued new stock under a Rule 504
Regulation D offering. The issuance of 3,456,250 shares were issued for
$864,063, of which $515,000 has been received as of December 31, 1999.
Another $70,000 has been received since December 31, 1999 and is
reflected as current accounts receivable in the financial statements.
On March 18, 1999, the Company issued 50,000 shares of stock for
services valued at $12,500.
On June 10, 1999, the Company issued 130,000 shares of stock for
services valued at $1,300.
Note 7 - Commitments and Contingencies
As of December 31, 1999, the Company had entered into leases for its
premises in Brooklyn, Queens, and Long Island, New York. The lease
commitment on Brooklyn is for 10 years to March 25, 2003 with an option
to lease 5 additional years at the Company's option. The lease
commitment on Queens is for 20 years to May 31, 2014. The Long Island
lease commitment is for 3 years to June 30, 2001 with an option to
lease one additional year at the Company's option.
F-12
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 7 - Commitment and Contingencies - Continued
<TABLE>
Future minimum rental payments required under these leases for each of
the next five years and in the aggregate, after 1999 are as follows:
<CAPTION>
Long
Total Brooklyn Queens Island
----- -------- ------ ------
<S> <C> <C> <C> <C>
2000 $ 288,012 $ 125,127 $ 129,885 $ 33,000
2001 282,959 131,379 135,080 16,500
2002 278,384 137,946 140,438 -
2003 181,051 34,902 146,149 -
2004 151,948 - 151,948 -
2005-2015 1,801,399 - 1,801,399 -
----------- ----------- ----------- ------------
Total $ 2,983,753 $ 429,354 $ 2,504,899 $ 49,500
=========== =========== ============= ===========
</TABLE>
The total rent was $259,326 and $277,452 for 1999 and 1998
respectively.
Note 8 - Income Taxes
<TABLE>
<CAPTION>
(Loss) before income taxes at December 31, 1999
and 1998 consisted of: 1999 1998
-------------- --------------
<S> <C> <C>
Total $ (423,000) $ (194,000)
============ ===========
The provision for income taxes at December 31, 1999
and 1998 consisted of:
Current income taxes $ - $ 1,100
------------- -------------
Total $ - $ 1,100
============== =============
</TABLE>
F-13
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 8 - Income Taxes - Continued
The provision for income taxes is different from that which would be
obtained by applying the statutory Federal and state income tax rates
to income (loss) before income taxes. The items causing this difference
at December 31, 1999 and 1998 are:
1999 1998
--------------- --------------
Income taxes $ 71,900 $ 26,700
Change in valuation allowance (71,900) (26,700)
-------------- ------------
Total $ - $ -
============== ============
The tax effects of temporary differences
that give rise to significant portions of
the deferred tax assets and deferred tax
liabilities at December 31, 1999 and 1998 are:
1999 1998
------------- ------------
Deferred tax assets:
Net operating loss carryforward $ 148,700 $ 76,700
----------- ----------
Total gross deferred tax assets 148,700 76,700
(Less) valuation allowance (148,700) (76,700)
----------- ---------
Net deferred tax assets - -
Deferred tax liabilities: - -
------------ -----------
Total gross deferred tax liabilities - -
------------ -----------
Net deferred tax $ - $ -
============ ===========
The valuation allowance for deferred tax assets as of December 31, 1999
and 1998 are $148,700 and $76,700 respectively. The net change in the
total valuation allowance for the years ended December 31, 1999 and
1998 was $71,900 and $26,700 respectively.
During 1999, the Company made no cash payments on income taxes.
F-14
<PAGE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 8 - Income Taxes - Continued
As of December 31, 1999, the Company has available for income tax
purposes approximately $782,800 in net operating loss carry forwards
which may be used to offset future taxable income. These loss carry
forwards begin to expire in fiscal year 2012. Should the Company
undergo an ownership change as defined in Section 382 of the Internal
Revenue Code, the Company's tax net operating loss carry forwards
generated prior to the ownership change will be subject to an annual
limitation which could eliminate, reduce or defer the utilization of
these losses. Management is of the opinion the ownership changes during
1999 did not cause the Company to lose the utilization of its net
operating loss carry forwards.
Note 9 - Receivable From Stockholders
Stock issued and not paid at December 31, 1999 and 1998 are $349,063
and $-0- respectively. Of the $349,063 unpaid at December 31, 1999,
$70,000 has been actually paid in 2000 before the financial statements
are completed and released. Accordingly, $70,000 of the stock issued
and not paid has been classified as a current asset as a receivable
instead of as a reduction in the equity section of the balance sheet
like the remaining $279,063 out of $349,063.
Note 10 - Financial Condition and Going Concern
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company has
sustained substantial operating losses.
However, stockholders' equity (deficit) has improved from $(357,517) at
December 31, 1998 to $(36,991) at December 31, 1999. Management is
seeking additional fundings through revenues, borrowings and stock
issues. During 1999, the Company raised $528,800 in capital ($515,000
in cash and $13,800 in exchange for services). At December 31, 1999, an
additional $349,063 is scheduled to be received during 2000, of which
$70,000 has been received by March 23, 2000.
Major stockholders have forborne demand of cash payments due them from
the Company. One of the major shareholders continues to advance the
Company cash needed and has indicated he will continue doing so, if
needed, for the immediate future.
F-15
<PAGE>
Note 10 - Financial Condition and Going Concern - Continued
Management continues raising money by other avenues, including
revenues. Management is taking necessary steps to ensure the Company
remains a going concern. However, it is doubtful the Company could
absorb another loss year like 1999 without significant fund raising
efforts. Since this outcome is uncertain, the Company to remain a going
concern is also uncertain.
F-16
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements between the Company and
its accountants.
PART III
ITEM 9. DIRECTORS, OFFICERS, PROMOTERS, AND CONTROL PERSONS
The directors, executive officers, and significant employees of the Company,
their respective ages, and positions with the Company are as follows:
Name Age Position
Salvatore Casaccio 46 President, CEO, Secretary, Director
Agrippino Casaccio 30 Director
Carmine Notaro 49 Director
Kevin Gersh 32 Director
Dominick J. Morreale 60 Director
Salvatore Casaccio, 46, is President, Chief Executive Officer, Secretary and
Director of the Company and has held these positions since 1996. He has
managerial experience, including experience as the co-founder and current
President of Mineo Foods in Brooklyn, New. From 1988 to present Mr. Casaccio has
owned and operated a J.C. Penney Catalog Stores in Brooklyn, New York. From 1993
to 1996 Mr. Casaccio Served as Chairman of the Board and Chief Executive Officer
for Childrobics, a New York based family entertainment company. Mr. Casaccio is
a member of the Downtown Brooklyn Development Association and a past member of
its Executive Committee. Agrippino Casaccio, a director of the Company, is
Salvatore Casaccio's brother Agrippino Casaccio, 30, Director, has been a
restauranteur in Brooklyn, New York since 1991. He is co- founder, co-owner and
manager of Mineo Foods and has been a Director of the Company since 1996.
Carmine Notaro, 49, Director, holds Biology and Mathematics degrees from Dowling
College and is a Licensed Real Estate Broker. In 1972, Mr. Notaro moved in to
the commercial real estate field analyzing and acquiring income producing
properties for A-1 Realty, working in this capacity until 1978 when he became
the Assistant to the President of COR-ACE Realty. From 1984 to 1990, Mr. Notaro
served in a variety of executive positions. He was President of D'Amro Realty
Corporation, Secretary of Eagle Executive Development Corporation, and a Sponsor
of Wading River Road Associations, acquisitions of Development of Sub-Divisions.
Since 1991, he has served as President of both R.O.I. realty Group and R.G.C.
Construction Group. Mr. Notaro has been a Director of the Company since 1996.
Kevin Gersh, 32, Director, from 1980 to present he is serving as Corporate
Treasurer of West Hills Day Camp, having worked his way in to management from
the entry level. Since 1996, Mr. Gersh has been a
14
<PAGE>
partner in the Long Island Brewing Company, a 120 seat American cuisine
restaurant. In 1989, he co-founded KG Corporation, a corporate catering and
event planning company and continues to act as President today. In 1995, Mr.
Gersh founded a construction and real estate management company, EKG
Corporation, and is currently serving as its President. From 1993 to present he
has acted as the President and Owner of West Hills Child Care, Inc. and West
Hills Montessori School, Inc. Mr. Gersh attended Florida State University and
Western State College. He has been a Director of the Company since 1996.
Dominick J. Morreale, 60, Director, holds an Ed.D. in Administration from Nova
University, a Masters in Education and a Bachelors in Psychology from Adelphi
University. Dr. Morreale has spent his career as an educator which includes
experience as an instructor at the elementary and college levels, as well as
Principal and Supervisor of Special Education for pre-school through school-aged
handicapped children. From 1985 until 1996, Dr. Morreale served as Assistant
Superintendent for the South Huntington, New York School District. Beginning in
1995, he also served as the Deputy Superintendent of the district until his
retirement in 1996. After his retirement, Dr. Morreale became Director of the
South Huntington Diagnostic and Treatment Center and serves in this capacity
concurrently along with his directorship of the Company which also began in
1996. Dr. Morreale has received numerous teaching awards and sits on several
educational boards and committees.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, the
Company is not aware of any person who at any time during the fiscal year ended
December 31, 1999 was a director, officer, or beneficial owner of more than ten
percent of the Common Stock of the Company, and who failed to file, on a timely
basis, reports required by Section 16(a) of the Securities Exchange Act of 1934
during such fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
A. Compensation of Executives
The following table provides summary information for the years 1999, 1998 and
1997 concerning cash and noncash compensation paid or accrued by the Company to
or on behalf of president. There were no other employees to receive compensation
in excess of $100,000 in those years.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payout
Restricted Securities
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name and Other Annual Stock Underlying LTIP All Other
Principal Year Salary Bonus Compensation Award(s) Options payout Compensation
Position ($) ($) ($) ($) SARs(#) ($) ($)
Salvatore 1999 100,000 - - - - - -
Casaccio, 1998 100,000 - - - - - -
CEO and 1997 100,000 - - - - - -
Director
- --------------- -------- ------------ ---------- ------------------ ------------- --------------- ----------- ------------------
</TABLE>
- --------
(3)Salaries have not been paid, but are accruing as debt.
15
<PAGE>
B. Compensation of Directors
Currently there is no plan to compensate Directors of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the stock of the Company as of March 27, 2000, by each shareholder
who is known by the Company to beneficially own more than 5% of the outstanding
Common Stock, by each director, and by all executive officers and directors as a
group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Amount and Nature of Percent
Title of Class Ownership Beneficial Ownership of Class
<S> <C> <C> <C>
Common Salvatore Casaccio(4) 2,944,200 29.0%
Stock, $.0001 President, Secretary, CEO,
par value Director
64 Burton Ave.
Staten Island, New York 10309
Common Agrippino Casaccio, Director 2,944,200 29.0%
Stock, $.0001 2040 East 26th Street
par value Brooklyn, New York 11229
Common Carmine Notaro, Director 110,790 1.1%
Stock, $.0001 34 Garner Lane
par value Bayshore, New York 11772
Common Kevin Gersh, Director 72,718 0.7%
Stock, $.0001 178 West 19th Street
par value Huntington Station, NY 11746
</TABLE>
- --------
(4) Salvatore Casaccio and Agrippino Casaccio are brothers.
16
<PAGE>
<TABLE>
<S> <C> <C> <C>
Common Dominick J. Morreale, Director 58,093 0.6%
Stock, $.0001 RFD 59A Smith Lane
par value St. James, New York 11780
Common All Executive Officers and 6,130,001 60.5%
Stock, $.0001 Directors as a Group
par value (Five persons)
</TABLE>
Changes in Control
There are currently no arrangements in place that will result in a change in
control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1996, the Company acquired all of the outstanding shares of three
children's care and learning corporations, Eastside Playarobics, Inc., Avenue U
Playarobics, Inc. and Baybridge Playarobics, Inc. The shares of these
corporations were acquired from two directors and majority shareholders of the
Company, Salvatore Casaccio and Agrippino Casaccio, and a relative of the
directors, Antonio Casaccio. The shares were acquired for a four year note of
$775,000 bearing interest at a rate of 7% per annum, with monthly payments
beginning on January 1, 1998. On October 26, 1999 a promissory note was signed
to modify the terms of the note to state that the Company shall have no interest
on the $775,000 through December 1999. On January 1, 2000 the note shall bear an
interest of 7% per annum, with monthly interest only payments beginning on
February 1, 2000 and continuing through February 1, 2001. Beginning March 1,
2001 monthly payments of principal and interest in the amount of $11,918.18
shall be payable on the first of each month through December 31, 2007, at which
time the entire unpaid balance shall be due. On March 2, 1999, the Company
issued the following 5 directors and officers of the Company common shares of
stock at $0.02 per share in exchange for debt:
Name Number of Shares Issued Amount of Debt Paid
- -------------------------- ----------------------------- ----------------------
Dr. Dominick J. Morreale 50,000 $ 1,000
Salvatore Casaccio 2,900,000 $ 58,000
Carmine Notaro 100,000 $ 2,000
Kevin Gersh 50,000 $ 1,000
Agrippino Casaccio 2,900,000 $ 58,000
17
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibits required to be attached by Item 601 of Regulation
S-B are listed in the Index to Exhibits beginning on page 13 of this
Form 10-KSB, which is incorporated herein by reference.
(b) Reports on Form 8-K. No report on Form 8K have been filed during the
periods covered by this Form 10-KSB.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, this 14th day of April, 2000
Learner's World, Inc.
/s/ Salvatore Casaccio
------------------------------------------
Salvatore Casaccio, President and Director
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Salvatore Casaccio President and Director April 14, 2000
- --------------------------
Salvatore Casaccio
/s/ Agrippino Casaccio Director April 14, 2000
- --------------------------
Agrippino Casaccio
Director April 14, 2000
- --------------------------
Carmine Notaro
- -------------------------- Director April 14, 2000
Kevin Gersh
- -------------------------- Director April 14, 2000
Dominick J. Morreale
19
<PAGE>
INDEX TO EXHIBITS
No. Page No. Description
3(i) * Certificate of Incorporation of Learner's World, Inc.,
a New York corporation, dated June 27, 1996.
3(ii) * Certificate of Amendment of the Articles of
Incorporation of the Company filed on April 11, 1997
effecting the change of the authorized number of
shares to 20,000,000, par value to $.0001 and
effecting a 39,000-for-1 forward split of the issued
shares.
3(iii) * Certificate of Amendment of the Articles of
Incorporation of the Company filed on January 31,
1999 effecting a 1-for-30 reverse split of the issued
shares.
3(iv) * By-laws of the Company.
10(i) * Agreement of Sale dated December 17, 1996, between the
Company and Baybridge Playrobics, Inc.
10(ii) * Promissory Note dated October 26, 1999, between the
Company and Antonio Casaccio, Agrippino Casaccio and
Salvatore Casaccio, showing the terms of payment for
the Agreement of Sale dated December 17, 1996.
10(iii) * Benefit Plan for the Company dated November 19, 1999.
10(iv) * Leases for building located at 369 Avenue U, Brooklyn,
New York 11223.
10(v) * Leases for building located at 208-32 to 208-46 Bell
Boulevard, Bayside, New York 11360.
27 21 Financial Data Schedule "CE"
* Incorporated by reference from form 10-SB/A filed March 22, 2000.
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED AUDITED FINANCIAL STATEMENTS FILED WITH THE COMPANY'S
DECEMBER 31, 1999 ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001047733
<NAME> Learner's World, Inc.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 23,715
<SECURITIES> 0
<RECEIVABLES> 79,855
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 103,570
<PP&E> 992,449
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,281,777
<CURRENT-LIABILITIES> 151,112
<BONDS> 0
0
0
<COMMON> 978
<OTHER-SE> 36,013
<TOTAL-LIABILITY-AND-EQUITY> 1,281,777
<SALES> 0
<TOTAL-REVENUES> 1,303,239
<CGS> 868,515
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 704,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,496
<INCOME-PRETAX> (423,750)
<INCOME-TAX> 0
<INCOME-CONTINUING> (423,750)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (423,750)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
