SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2000.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to . ------------ --------------
Commission file number:000-28513
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LEARNER'S WORLD, INC.
(Exact name of small business issuer as specified in its charter)
NEW YORK 11-3331350
---------- ------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
369 Avenue U, Brooklyn, New York 11223
---------------------------------------------
(Address of principal executive office) (Zip Code)
(718) 449-3194
(Issuer's telephone number)
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 XX No
-- ----
The number of outstanding shares of the issuer's common stock, $0.001
par value (the only class of voting stock), as of September 30, 2000 was
10,297,250
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TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS..................................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS..................................2
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................5
SIGNATURES.....................................................................6
INDEX TO EXHIBITS..............................................................7
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<PAGE>
ITEM 1. FINANCIAL STATEMENTS
As used herein, the term "Company" refers to Learner's World, Inc., a
New York corporation, and its subsidiaries and predecessors unless otherwise
indicated. Consolidated, unaudited, condensed interim financial statements
including a balance sheet for the Company as of the quarter ended September 30,
2000 and statements of operations, and statements of cash flows for the interim
period up to the date of such balance sheet and the comparable period of the
preceding year are attached hereto as Pages F-1 through F-5 and are incorporated
herein by this reference.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.]
1
<PAGE>
<TABLE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2000
<CAPTION>
ASSETS
Current assets
<S> <C>
Cash $ -
Receivables 8,416
Receivable from shareholders -
-------------
Total current assets 8,416
-------------
Property and equipment, net of accumulated depreciation 949,205
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Other assets
School licensing 841
Security deposits 52,214
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Total other assets $ 53,055
-------------
Total assets $ 1,010,676
=============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts and notes payable $ 82,059
Taxes payable 65,029
Current portion of long term debt - non stockholders 57,803
-------------
Total current liabilities 204,891
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Long-term liabilities
Term debt - long term portion - non stockholders 378
Due to stockholders 1,152,526
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Total other liabilities 1,152,904
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Total liabilities 1,357,795
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Stockholders' equity (deficit)
Common stock, $.0001 par value
20,000,000 shares authorized with 10,297,250 and
140,000 shares issued and outstanding 1,030
Paid in capital 1,282,521
Stock issued (not paid) (262,500)
Retained Earnings (deficit) (1,368,170)
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Total stockholders' equity (deficit) (347,119)
-------------
Total liabilities and stockholders' equity (deficit) $ 1,010,676
=============
</TABLE>
F-1
<PAGE>
<TABLE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDING SEPTEMBER 30,
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
=============== =============== =============== ===============
<S> <C> <C> <C> <C>
Revenue $ 309,016 $ 298,007 $ 1,064,782 $ 960,435
-------------- --------------- --------------- ---------------
Expenses
Cost of sales 184,601 132,286 605,591 599,758
General and administrative 238,705 197,995 674,800 577,515
Depreciation, amortization and interest 30,329 18,463 88,550 117,099
-------------- --------------- --------------- ---------------
Total expenses 453,635 348,744 1,368,941 1,294,372
-------------- --------------- --------------- ---------------
Income (loss) from continuing operations
before income taxes (194,619) (50,737) (354,159) (333,937)
Provision for income taxes - 200 - 800
--------------- -------------- --------------- ---------------
Net (loss) $ (194,619) $ (50,937) $ (354,159) $ (334,737)
=============== ============== =============== ===============
Income (loss) per weighted-average share
of common stock outstanding
Basic net (loss) per share $ (0.02) $ (0.01) $ (0.04) $ (0.05)
=============== ============== =============== ===============
Weighted-average number of common
stock outstanding 10,040,250 9,646,250 9,864,250 6,430,833
=============== =============== =============== ===============
</TABLE>
F-2
<PAGE>
<TABLE>
LEARNER'S WORLD, INC.
AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDING SEPTEMBER 30,
<CAPTION>
2000 1999
=============== ================
<S> <C> <C>
Cash Flows From Operating Activities
Net (loss) $ (354,159) $ (334,737)
--------------- ----------------
Adjustments To Reconcile Net (Loss) To Net Cash
Used In Operating Activities
Depreciation, net of adjustment 78,294 63,413
Amortization 909 -
Stock issued for services 35,230 -
Interest eliminated and reclassified to paid in capital - -
Decrease (Increase) in receivables 1,439 -
Decrease (Increase) in receivables from stockholders 70,000 -
Increase (Decrease) in accounts and notes payable 10,595 (11,358)
Increase (Decrease) in taxes payable 1,677 281
--------------- ----------------
Net Adjustment 198,144 52,336
--------------- ----------------
Net Cash (Used) In Operating Activities (156,015) (282,401)
--------------- ----------------
Cash Flows From Investing Activities
Purchase of equipment (35,000) (6,202)
Purchase of school licensing - -
--------------- ----------------
Net Cash (Used) By Investing Activities (35,000) (6,202)
--------------- ----------------
Cash Flows From Financing Activities
(Decrease) Increase in notes and loans payable
non stockholders - Net 25,132 (23,610)
(Decrease) Increase in notes and loans payable
stockholders 75,605 (77,514)
Proceeds from unpaid capital stock issued 16,563 390,000
Proceeds from additional stock issued 50,000 -
--------------- ----------------
Net Cash Provided By Financing Activities 167,300 288,876
--------------- ----------------
Net Increase (Decrease) In Cash (23,715) 273
Cash - Beginning 23,715 2,195
--------------- ----------------
Cash - Ending $ - $ 2,468
=============== ================
Other Information
Interest paid in cash $ 9,347 $ -
=============== ================
Non Cash Items
Stock issued for services $ 35,230 $ 13,800
Stock issued for debt conversion - 120,000
Debt to shareholders contributed to paid in capital $ - $ 99,458
Interest accrued but not paid to stockholders - 40,688
</TABLE>
F-3
<PAGE>
EARNER'S WORLD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 - BASIS OF PRESENTATION
The unaudited interim consolidated financial statements at September
30, 2000 and for the nine month periods ended September 30, 2000 and
1999 are unaudited, but include all adjustments which management
considers necessary for a fair presentation.
The accompanying unaudited consolidated financial statements are for
the interim periods and do not include all disclosures normally
provided in annual financial statements, and should be read in
conjunction with the Company's Form 10-KSB for the year ended December
31, 1999. The accompanying unaudited interim consolidated financial
statements for the nine month periods ended September 30, 2000 and 1999
are not necessarily indicative of the results which can be expected for
the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities 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.
NOTE 2 - INCOME TAXES
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"), which requires an asset and liability
approach to accounting for income taxes. Under SFAS 109, deferred tax
assets or liabilities are computed on the difference between the
financial statement and income tax bases of assets and liabilities
("temporary differences") using the enacted marginal tax rate. Deferred
income tax expenses or benefits are based on the changes in the
deferred tax asset or liability from period to period.
NOTE 3 - COMMON STOCK
On February 25, 1999, the Company amended its articles of
incorporation. The articles of incorporation, as amended, made a 30 for
1 reverse stock split, effective March 1, 1999. This 30 for 1 reverse
stock split has been recognized in these financial statements
retroactive to December 31, 1998 for comparative purposes.
In March 1999, the Company issued new stock under Rule 504 Regulation D
offering. The issuance of 3,506,250 shares were issued for $876,562 of
which $614,062 has been received as of September 30, 2000. The amount
receivables of $262,500 are secured by marketable securities.
F-4
<PAGE>
LEARNER'S WORLD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 3 - COMMON STOCK (continued)
In August, 2000 the Company entered into an agreement whereby it issued
271,000 shares of new stock for services rendered, for $35,230, the
market value of the stock that day. And, it also gave an option to buy
an additional 250,000 shares of stock for $0.20 per share. In
September, 2000 the option as exercised and the Company received
$50,000 cash and issued the 250,000 shares of new stock.
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F-5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
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.
The Company generates revenue from 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 Company's 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 minimal. All of
these services are easily and logically merged. They are compatible in both
theme and space utilization.
The Company also has several products and plans for others which have been used
to create a dynamic interactive online 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 firefighters 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 online learning environment.
The Company intends to 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 a simulated test environment for time and content as well
as a specific section on test taking techniques for the particular exam. By
offering its services online, the Company will attempt to address a perceived
need for alternative modes of training that are both flexible 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'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 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.
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.
2
<PAGE>
Results of Operations
During the third quarter of 2000, the Company continued to improve its financial
condition. The Company increased its revenues over the comparable quarter and
nine month period in 1999. Due to seasonal fluctuations in enrollments, which
historically decrease the Company's revenues during the summer months, revenues
for the third quarter were less than those received in the second quarter.
However, as compared to revenues for the third quarter of 1999, and the year
ended December 31, 1999, the Company's overall financial health has improved.
Three Months ended September 30, 2000. Nine Months ended September30, 2000
Gross revenues for the three months ended September30, 2000, were $309,016
compared to $298,007 for the same period in 1999, an increase of $11,009. The
gross revenues for the three months ended September30, 2000, were higher than
the comparable three months in 1999 due to an increase in tuition and fees
collected from an increased number of students.
Gross revenues for the nine months ended September30, 2000 were $1,064,782
compared to $960,435 for the same period in 1999, an increase of $104,347. The
gross revenues for the nine months ended September30, 2000, were higher than the
comparable nine months in 1999 due to an increase in tuition and fees collected
from an increased number of students.
Costs of revenues were $184,601 for the three months ended on September30, 2000,
compared to $132,286 for the comparable period in 1999, an increase of
approximately 40%.
Costs of revenues were $605,591 for the nine months ended on September30, 2000,
compared to $599,758 for the comparable period in 1999, an increase of
approximately 1%.
Net losses were $194,619 for the three months ended on September 30, 2000 and
$50,937 for the comparable three months in 1999. Net loss as a percentage of
revenues for the three month periods were-63% and -17%, respectively. The
increase in net losses for the three month period ended September 30, 2000,
resulted from an increase in cost of revenues of $52,315 due to an increase in
upgrading curriculum and computer related expenses coupled with a decrease in
revenues due to increased competition from similar services.
Net losses were $354,159 for the nine months ended on September30, 2000 and
$334,737 for the comparable nine months in 1999. Net loss as a percentage of
revenues for the nine month periods were -33% and -35%, respectively. The
increase in net losses resulted from increased costs relating to system
maintenance and curriculum upgrades as well as a decrease in revenues due to
increased competition.
General, and administrative expenses were $238,705 for the three months ended on
September 30, 2000, and $197,995 for the comparable period in 1999, an increase
of $40,710, or 20.6%. The increase in expenses is due to an increased marketing
campaign designed to stem the effects of increased competition.
General, and administrative expenses were $674,800 for the nine months ended on
September30, 2000 and $577,515 for the comparable period in 1999, an increase of
$97,285, or 16.8%. The primary reason for the increase was an increase in
administrative costs during the first three quarters from marketing and general
staffing related cost increases.
Operating loss was $194,619 during the three months ended on September 30, 2000,
compared to an operating loss of $50,737 for the comparable three months in
1999. The Company's operating loss increased $143,882 or 283% for the three
months ended September 30, 2000 because of an increase in continuing operations
expenses coupled with an decrease in revenues due to increased competition
Operating loss was $354,159 during the nine months ended on September30, 2000,
compared to an operating loss of $333,337 for the comparable nine months in
1999. The Company's operating loss increased $20,822 or 5.88% for the nine
months ended September 30, 2000 because of an increase in expenses and a
decrease in revenues.
3
<PAGE>
Capital Resources and Liquidity
The Company had a net working capital deficit of $147,288 for the nine months
ended September30, 2000, as compared to a $47,524 net working capital deficit as
of December 31, 1999.
Net stockholders' deficit in the Company was $347,119 as of September 30, 2000,
compared to stockholder's equity of $36,991 as of December 31, 1999. The
decrease in net stockholder's equity is primarily due to losses in operations.
Cash flows used in operations were $156,015 for the nine months ended September
30, 2000, as compared to cash flows used in operations of $282,401 for the
comparable period in 1999. Negative cash flows were primarily attributable to
marketing costs.
Cash flows used by investing activities were $35,000 for the nine months ended
September 30, 2000, and $6,202 for the nine months ended September30, 1999. The
Company's investing activities have been primarily in the purchase of equipment
used in generating revenues.
Cash flows generated from financing activities were $167,300 for the nine months
ending September 30, 2000, as compared to $288,876 for the comparable period in
1999. The Company's financing activities have primarily consisted of private
placements of its common stock and from the exercise of outstanding options.
The Company's cash flows fluctuated 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 are 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.
Due to the Company's cash flow fluctuations, the Company experiences occasional
cash flow shortages. To satisfy its cash requirements, including debt service,
the Company must periodically raise funds from external sources. This often
involves the Company conducting exempt offerings of its equity securities.
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.
Capital Expenditures
The Company made no significant capital expenditures on property or equipment
for the quarter ended September30, 2000.
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.
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.
4
<PAGE>
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 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 ability to continue as a going concern is an issue raised as a
result of an accumulated deficit of $1,368,170 as of September30, 2000 compared
to a deficit of $1,014,011 at December 31, 1999. 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.
PART II
ITEM 6. 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 on page 10 of this Form 10-QSB, and are
incorporated herein by this reference.
(b) Reports on Form 8-K. No reports were filed on Form 8-K during the quarter.
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5
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 17th day of November, 2000.
Learner's World, Inc.
/s/ Sal Casaccio
------------------------------
November 17, 2000
President, Chief Executive Officer and Director
/s/ Sal Casaccio
------------------------------
November 17, 2000
Controller
6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE DESCRIPTION
NO. NO.
3(i) * Articles of Incorporation of the Company (note that these
were amended by the Articles of Merger constituting Exhibit
2 to this Form 10-KSB) (incorporated herein by reference
from Exhibit No. 3(i) to the Company's Form 10-KSB for the
year ended December 31, 1993).
3(ii) * Bylaws of the Company, as amended (incorporated herein by
reference from Exhibit 3(ii) of the Company's Form 10 KSB
for the year ended December 31, 1995).
MATERIAL CONTRACTS
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 Caustic, Agrippino Caustic and Salvatore
Caustic, 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 3 69 Avenue U, Brooklyn, New
York II 223.
10(v) * Leases for building located at 208-32 to 208-46 Bell
Boulevard, Bayside, New York
27 Financial Data Schedule "CE"
* Previously filed as indicated and incorporated herein by reference from
the referenced filings previously made by the Company.