<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 31, 2000
College Bound Student Alliance, Inc.
------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 0-30323 84-1416023
---------------------------- ------------ -----------------
(State or other jurisdiction (Commission (IRS Employee
of incorporation) file Number) Identification No.)
333 South Allison Parkway Suite 100, Lakewood, Colorado 80226
------------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 804-0155
This Amendment No. 1 to Current Report on Form 8-K/A is filed for the
purpose of filing the financial statements of College Resource Management, Inc.,
required by Item 7(a) and the pro forma financial information of College Bound
Student Alliance Inc. required by Item 7(b).
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
The Company acquired College Resource Management, Inc. ("CRM") because of
its client base, the complementary nature of its products to the Company's
business and products, and the positive operating cash flow. The purchase price
of CRM was approximately $2.3 million.
As disclosed in the Form 8-K dated August 7, 2000, CRM reported cash basis
revenues of $6.7 million and cash from operations before payments and
distributions to the former owner of approximately $1 million for the year ended
July 31, 2000. That financial information was prepared on a cash
<PAGE>
basis of accounting and was unaudited.
The accompanying audited financial statements of CRM for the year ending
July 31, 2000 are prepared on the accrual basis of accounting using an
accounting policy for revenue recognition which produces results of operations
substantially different from the cash basis method previously used by CRM.
The revenue recognition policy is the most significant difference between
cash and accrual accounting. Deferred revenue is recognized (approximately $1.6
million at July 31, 2000) to the extent amounts have been collected on contracts
for which the Company has remaining commitments to provide services. The
substantial investment the Company makes to market its services, reach its
customers, and deliver the service causes expenses and cash outflow to be
predominantly weighted to the front-end of a contract rather than ratably over
the life of the contract. For example, direct expenses related to these deferred
revenues approximated $850,000 at July 31, 2000, which have been incurred and
expensed in the financial statements. CRM estimates its operating profit margin
at 14% of revenues.
For a description of the CRM owner expenses, see note 5 to the Audited
Financial Statements of College Resource Management, Inc. included herein.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The following documents are filed as part of this Amendment No.1 to Current
Report on Form 8-K/A.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The financial statements of
College Resource Management, Inc. required by this Item are included
beginning on page F-1.
(B) PRO FORMA FINANCIAL INFORMATION. The pro forma financial information
of College Bound Student Alliance, Inc. required by this Item is
included beginning on page F-1.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COLLEGE RESOURCE MANAGEMENT, INC.
<S> <C>
Historical Financial Statements:
Independent Auditors' Report F-2
Balance Sheets as of July 31, 2000 and 1999 F-3
Statements of Operations for the years ended July 31, 2000 and 1999 F-4
Statements of Stockholders' Deficit for the years ended July 31, 2000 and 1999 F-5
Statements of Cash Flows for the years ended July 31, 2000 and 1999 F-6
Notes to Financial Statements F-7
COLLEGE BOUND STUDENT ALLIANCE, INC.
Pro Forma Combined Consolidated Financial Statements (Unaudited):
Pro Forma Combined Consolidated Balance Sheet as of April 30, 2000 F-14
Pro Forma Combined Consolidated Statement of Operations
for the year ended July 31, 2000 F-15
Pro Forma Combined Consolidated Statement of Operations
for the year ended July 31, 1999 F-16
Notes to Pro Forma Combined Consolidated Financial Statements F-17
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
College Resource Management, Inc.:
We have audited the accompanying balance sheets of College Resource Management,
Inc. (Company) as of July 31, 2000 and 1999, and the related statements of
operations, stockholders' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of College Resource Management,
Inc. as of July 31, 2000 and 1999, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Denver, Colorado
October 5, 2000
F-2
<PAGE>
COLLEGE RESOURCE MANAGEMENT, INC.
Balance Sheets
July 31, 2000 and 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
----------------- -----------------
<S> <C> <C>
Current assets:
Cash $ 74,683 95,467
Prepaid and other current assets 6,615 16,763
----------------- -----------------
Total current assets 81,298 112,230
Property and equipment, net 271,586 284,598
----------------- -----------------
$ 352,884 396,828
================= =================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of related party long-term debt and capital
lease obligation $ 193,872 192,138
Accounts payable 126,853 160,925
Accrued expenses 212,740 70,384
Deferred revenue 1,599,937 760,297
----------------- -----------------
Total current liabilities 2,133,402 1,183,744
Related party long-term debt and capital lease obligation,
excluding current portion 125,651 313,047
----------------- -----------------
Total liabilities 2,259,053 1,496,791
----------------- -----------------
Stockholders' deficit:
Common stock, no par value, 1,000 shares authorized, issued
and outstanding 1,000 1,000
Accumulated deficit (1,907,169) (1,100,963)
----------------- -----------------
Total stockholders' deficit (1,906,169) (1,099,963)
----------------- -----------------
Commitments and contingencies
$ 352,884 396,828
================= =================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
COLLEGE RESOURCE MANAGEMENT, INC.
Statements of Operations
Years ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------------- -----------------
<S> <C> <C>
Revenue $ 5,823,305 6,808,346
Cost of revenue 1,886,099 1,968,593
----------------- -----------------
Gross profit 3,937,206 4,839,753
Selling, general and administrative 3,537,140 3,911,796
CRM owner expenses 717,645 988,824
Depreciation and amortization 90,180 79,351
----------------- -----------------
Operating loss (407,759) (140,218)
Interest expense (27,317) (15,625)
----------------- -----------------
Net loss $ (435,076) (155,843)
================= =================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
COLLEGE RESOURCE MANAGEMENT, INC.
Statements of Stockholders' Deficit
Years ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------ ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Balances at July 31, 1998 1,000 $ 1,000 (945,120) (944,120)
Net loss -- -- (155,843) (155,843)
---------------- ----------------- ----------------- -----------------
Balances at July 31, 1999 1,000 1,000 (1,100,963) (1,099,963)
Net loss -- -- (435,076) (435,076)
Stockholder distributions -- -- (371,130) (371,130)
---------------- ----------------- ----------------- -----------------
Balances at July 31, 2000 1,000 $ 1,000 (1,907,169) (1,906,169)
================ ================= ================= =================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
COLLEGE RESOURCE MANAGEMENT, INC.
Statements of Cash Flows
Years ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (435,076) (155,843)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 90,180 79,351
Changes in assets and liabilities:
Prepaid and other current assets 10,148 (9,027)
Accounts payable (34,072) 104,950
Accrued expenses 102,356 (74,496)
Deferred revenue 839,640 (775,664)
----------------- -----------------
Net cash provided by (used in) operating activities 573,176 (830,729)
----------------- -----------------
Cash flows used in investing activities:
Capital expenditures (18,232) (67,595)
Proceeds from the sale of equipment 2,000 --
----------------- -----------------
Net cash used in investing activities (16,232) (67,595)
----------------- -----------------
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations (215,939) (7,708)
Proceeds from borrowings on long-term debt and capital
lease obligations -- 512,893
Stockholder distributions (361,789) --
----------------- -----------------
Net cash provided by (used in) financing activities (577,728) 505,185
----------------- -----------------
Net decrease in cash (20,784) (393,139)
Cash at beginning of year 95,467 488,606
----------------- -----------------
Cash at end of year $ 74,683 95,467
================= =================
Supplemental cash flow information -
cash paid during the year for interest $ 28,558 10,445
================= =================
Supplemental disclosure of noncash financing and investing activities:
Capital lease for new equipment $ 70,277 --
================= =================
Equipment distributed to stockholder $ 9,341 --
================= =================
Reclassification of debt to accrued expenses (see note 7) $ 40,000 --
================= =================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
COLLEGE RESOURCE MANAGEMENT, INC.
Notes to Financial Statements
July 31, 2000 and 1999
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS AND ORGANIZATION
College Resource Management, Inc. (Company) assists students in
all high school grade levels in pursuing their future educational
goals. The Company markets its services through weekend workshops
held around the nation. The focus of the workshops is to provide
insight into early planning for college selection, meeting college
admission criteria and the financial aid process. The Company
considers itself a "co-source" to families along with the
assistance of school guidance counselors.
The Company analyzes clients in five different areas. These
include academic ability, aptitude, interests, college
preferences, and family income and assets. With this data, the
Company creates an action plan. Each action plan is unique and
specific to each student. The Company's advisors are available
sixteen hours a day, Monday through Friday, fifty-two weeks a year
at a toll-free number to advise students/families through all
aspects of the college admission and financial aid process.
The Company had historically maintained its financial statements
on the cash basis and excess cash was distributed to its
stockholders.
On July 31, 2000, College Bound Student Alliance, Inc. (CBSA)
acquired all of the issued and outstanding stock of the Company
from its founder and sole stockholder (seller) for a purchase
price totaling $2,311,016.
(b) REVENUE RECOGNITION
The Company recognizes College Action Plan-TM- fee revenue from
students on a straight-line basis over the term of the contract.
Customers have the option to pay the full contract price when the
contract is signed, or in four equal installments payable the
first four months of the contract, or in twelve equal monthly
installments. Amounts due under contracts are not recorded until
cash is received. Amounts due from customer contracts, which
reflect the future cash flows of contracts at July 31, 2000, less
amounts which are not expected to be collected is $1,796,784. If a
customer paying in four equal installments terminates their
contract, all deferred revenue at that time is recognized as
revenue. Customers have the right to terminate the contract for a
full refund within three days. Contracts terminated within three
days of July 31 are excluded from revenue. Deferred revenue is
recorded for cash received in advance for services the Company is
obligated to perform. The Company expenses direct workshop
marketing costs, which are included in selling, general and
administrative expenses in the statement of operations, prior to
delivering action plans to customers. Those costs include
obtaining potential customer lists, invitations to customers,
postage, workshop site rental fees, sales commissions, travel and
marketing representative fees. For the contracts included in
deferred revenue, these costs have already been expensed. After
the customer signs the contract the Company's remaining services
to fulfill its contractual obligations include producing the
College Action Plan-TM- and continuing support as discussed below.
F-7
<PAGE>
The College Action Plan-TM- contract is a multiple-element
arrangement with two service elements; 1) a tailored profile
(the College Action Plan-TM-) to assist the client in selecting
a college and 2) continuing support, generally for a one year
period, in assisting clients in understanding the output as
presented in the profile, guidance in the college application
process and assistance in identifying sources of educational
financial assistance. These services are not separately priced
nor can customers select only one service. The action plan is
generally delivered approximately 60 days after initiation of
the client contract.
(c) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment
under capital leases are stated at the present value of minimum
lease payments.
Depreciation on property and equipment is calculated on the
straight-line basis over the estimated useful lives of the assets,
ranging from five to seven years. Property and equipment under
capital leases and leasehold improvements are amortized on the
straight line basis over the shorter of the lease term or
estimated useful life of the asset.
(d) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company accounts for long-lived assets in accordance with
the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to
sell.
(e) INCOME TAXES
The Company was incorporated as a S Corporation in the State of
Delaware in February 1996, under the name College Resource
Management, Inc. The Company operates as an S Corporation for
federal and state income tax purposes. No provision for income
taxes is recorded by the Company as the Company's income is
taxable to its stockholders. The Company did not engage in any
activities during the years ended July 31, 2000 or 1999 which
management believes would invalidate the Company's S Corporation
status. The Company's S Corporation election terminated on July
31, 2000 in conjunction with College Bound Student Alliance,
Inc.'s purchase of the Company.
(f) USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could
differ significantly from those estimates.
F-8
<PAGE>
(2) PROPERTY AND EQUIPMENT
A summary of property and equipment as of July 31, 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
ESTIMATED
2000 1999 USEFUL LIVES
----------------- ---------------- ----------------
<S> <C> <C> <C>
Computers and software $ 64,470 64,470 5 years
Equipment and furniture 402,915 341,588 5-7 years
Leasehold improvements 16,666 16,666 Lease term
----------------- ----------------
484,051 422,724
Less accumulated depreciation and amortization (212,465) (138,126)
----------------- ----------------
Property and equipment, net $ 271,586 284,598
================= ================
</TABLE>
(3) RELATED PARTY LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
Related party long-term debt and capital lease obligation as of
July 31, 2000 and 1999 is summarized as follows:
<TABLE>
<CAPTION>
2000 1999
--------------- ---------------
<S> <C> <C>
Unsecured notes payable to stockholder, with interest at 5.75% and 6%; due
in bi-weekly and monthly installments through December 2001
and March 2002, respectively $ 171,757 250,000
Unsecured note payable to related party, with interest at 5.75%; due
in weekly installments through December 2000; balance paid in full
on July 31, 2000 -- 142,292
Unsecured note payable to related party, with interest at 5.75%; due
in monthly installments through January 2002 88,936 100,000
Capital lease obligation, at an implicit interest rate of 11%, due in
monthly installments through December 2002 58,357 --
Other 473 12,893
--------------- ---------------
319,523 505,185
Less current portion (193,872) (192,138)
--------------- ---------------
$ 125,651 313,047
=============== ===============
</TABLE>
The aggregate maturities of long-term debt and capital lease obligations
for each year subsequent to July 31, 2000 are as follows:
<TABLE>
<S> <C>
2001 $ 193,872
2002 114,457
2003 11,194
----------------
$ 319,523
================
</TABLE>
F-9
<PAGE>
(4) LEASES
The Company is obligated under a capital lease for certain equipment that
expires December 2002. At July 31, 2000, the gross amount of equipment
and the related accumulated amortization recorded under capital leases
totaled $70,277 and $8,199, respectively.
Amortization of assets held under capital leases is charged to expense on
a straight-line basis and is included with depreciation expense.
The Company also has noncancelable operating leases for its offices and
certain equipment that expire over the next five years.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future
minimum capital lease payments as of July 31, 2000 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------------- ---------------
<S> <C> <C>
Year ending July 31:
2001 $ 27,358 407,814
2002 27,358 746,471
2003 11,399 740,238
2004 -- 733,907
2005 -- 212,290
---------------- ---------------
Total minimum lease payments 66,115 $ 2,840,720
===============
Less amounts representing interest at an implicit
interest rate of 11% (7,758)
----------------
Present value of net minimum capital lease payments
58,357
Less current portion of capital lease
obligation (22,292)
----------------
Obligations under capital leases, excluding
current portion $ 36,065
================
</TABLE>
Total rent expense associated with operating leases for the years ended
July 31, 2000 and 1999 was $182,000 and $177,000, respectively.
F-10
<PAGE>
(5) CRM OWNER EXPENSES
CRM owner expenses consist of expenses incurred on behalf of the
Company's major stockholder and entities he controls as follows:
<TABLE>
<CAPTION>
2000 1999
----------------- ----------------
<S> <C> <C>
Salary and related payroll taxes $ 698,374 572,893
Benefits 19,271 15,931
Consulting fees -- 400,000
----------------- ----------------
$ 717,645 988,824
================= ================
</TABLE>
Effective with the sale of the Company to CBSA on July 31, 2000, the
major stockholder is no longer employed by the Company and,
accordingly there are no commitments for salary and related payroll
taxes, benefits, and consulting fees.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at July 31, 2000. The fair
value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
--------------- ---------------
<S> <C> <C>
Financial assets - cash $ 74,683 74,683
Financial liabilities:
Long-term debt obligations 261,166 232,603
Capital lease obligations 58,357 58,357
Accounts payable 126,853 126,853
Accrued expenses 212,740 212,740
</TABLE>
The carrying amounts shown in the table are included in the July 31, 2000
balance sheet under the indicated captions.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
- Cash, accounts payable and accrued expenses: The carrying amounts
approximate fair value because of the short maturity of these
instruments.
- Capital lease obligations: The carrying amount approximates fair
value because of the proximity of the stated rate to the assumed
fair value interest rate for similar debt instruments.
- Long-term debt: The fair value of the Company's long-term debt is
estimated by discounting the future cash flows of each instrument
at rates management believes are available to the Company for debt
obligations with similar terms and features.
F-11
<PAGE>
(7) NONCASH FINANCING AND INVESTING ACTIVITY
The Company reclassified $40,000 from long-term debt to accrued expenses
to reflect a provision for a loss contingency. The terms of an agreement
with the Company's stockholder and College Bound Student Alliance, Inc.
provides for reductions in the stockholder's debt for the settlement of
certain regulatory matters which arose prior to the acquisition of the
Company by College Bound Student Alliance, Inc.
(8) LEGAL PROCEEDINGS
The Company is involved in claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
(9) RELATED PARTY TRANSACTIONS
During 1999, prepaids and other current assets included two notes
receivable due from stockholders of the Company which were repaid in full
during 2000.
During 1999, the Company entered into an agreement with Superior Market
Research, Inc., a company owned by the Company's stockholder to provide
consulting services in the areas of international marketing, research and
development. The amount paid and expensed during 1999 for these services
totaled $400,000.
F-12
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined consolidated balance sheet and
statements of operations have been prepared to give effect to the acquisition of
College Resource Management, Inc. which is described below.
On July 31, 2000, College Bound Student Alliance, Inc. (Company) acquired all of
the issued and outstanding common stock of College Resource Management, Inc.
(CRM). CRM assists students in all high school grade levels to pursue their
future educational goals. CRM markets its services through weekend workshops
held around the nation. The focus of the workshops is to provide insight into
early planning for college selection, meeting college admission criteria and the
financial aid process. CRM considers itself a "co-source" to families along with
the assistance of school guidance counselors. The transaction will be accounted
for as a purchase and the results of operations of CRM will be included in the
consolidated financial statements of the Company beginning August 1, 2000. The
pro forma combined consolidated balance sheet as of April 30, 2000 assumes the
acquisition was consummated on April 30, 2000 and the statements of operations
for the years ended July 31, 2000 and 1999, assume the acquisition was
consummated on July 31, 1998 and includes the Company's historical unaudited
results for 2000 and the historical audited results for 1999. Balance sheet and
statement of operations data is not available for CRM as of and for the nine
months ended April 30, 2000 and 1999 as CRM operated as a private company
reporting its financial information on a cash basis. The historical audited CRM
financial results for the years ended July 31, 2000 and 1999, are used for the
pro forma combined consolidated statements of operations.
In management's opinion, all adjustments necessary to reflect the acquisition
are presented in the pro forma adjustments as of April 30, 2000 and for the
years ended July 31, 2000 and 1999, which are based upon the Company's best
estimates at this time. Amounts reflect the acquisition using a preliminary
allocation of fair value to the net assets acquired and may be subject to
adjustment. The pro forma statements do not purport to present the Company's
results of operations that would have resulted had the acquisition been
consummated as of the date or for the periods indicated and do not purport to
project the Company's results of operations at any future date or for any future
period.
F-13
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
Pro Forma Combined Consolidated Balance Sheet
April 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
COLLEGE BOUND
STUDENT COLLEGE RESOURCE
ALLIANCE, INC. MANAGEMENT, INC. PRO FORMA
AT APRIL 30, AT JULY 31, PRO FORMA COMBINED
ASSETS 2000 2000 ADJUSTMENTS CONSOLIDATED
------------------ ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 546,495 74,683 621,178
Accounts receivable, net 63,840 -- 63,840
Amounts due from customer
contracts acquired -- -- 1,796,784 (b) 1,796,784
Prepaid and other current assets 4,721 6,615 11,336
------------------ ---------------- ----------------- ---------------
Total current assets 615,056 81,298 1,796,784 2,493,138
Property and equipment, net 72,291 271,586 343,877
Recruiting systems technology, net 1,116,870 -- 1,116,870
Intangible assets -- -- 1,547,588 (b) 1,547,588
Trademarks and licensing, net 192,723 -- 192,723
Other assets 5,100 -- 5,100
------------------ ---------------- ----------------- ---------------
$ 2,002,040 352,884 3,344,372 5,699,296
================== ================ ================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt and 95,637 (a)
capital lease obligations $ 548,917 193,872 (17,331) (b) 821,095
Accounts payable 274,298 126,853 401,151
Accrued expenses 115,128 212,740 118,458 (a) 446,326
Notes payable to related parties 145,000 -- 145,000
Due to related parties 78,828 -- 78,828
Current deferred tax liability -- -- 367,000 (b) 367,000
Deferred revenue 36,208 1,599,937 (1,246,250) (b) 389,895
------------------ ---------------- ----------------- ---------------
Total current liabilities 1,198,379 2,133,402 (682,486) 2,649,295
Long-term debt and capital lease obligations, (11,232) (b)
excluding current portion 249,995 125,651 1,592,921 (a) 1,957,335
Long-term deferred tax liability -- -- 35,000 (b) 35,000
------------------ ---------------- ----------------- ---------------
Total liabilities 1,448,374 2,259,053 934,203 4,641,630
------------------ ---------------- ----------------- ---------------
Stockholders' equity (deficit):
Common stock 20,773 1,000 (1,000) (b) 20,773
Additional paid in capital 2,530,919 -- 504,000 (a) 3,034,919
Accumulated deficit (1,998,026) (1,907,169) 1,907,169 (b) (1,998,026)
------------------ ---------------- ----------------- ---------------
Total stockholders' equity (deficit) 553,666 (1,906,169) 2,410,169 1,057,666
------------------ ---------------- ----------------- ---------------
Commitments and contingencies
$ 2,002,040 352,884 3,344,372 5,699,296
================== ================ ================= ===============
</TABLE>
See accompanying notes to pro forma combined consolidated financial statements.
F-14
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
Pro Forma Combined Consolidated Statement of Operations
Year ended July 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
COLLEGE BOUND COLLEGE RESOURCE PRO FORMA
STUDENT MANAGEMENT, PRO FORMA COMBINED
ALLIANCE, INC. INC. ADJUSTMENTS CONSOLIDATED
----------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenue $ 1,856,026 5,823,305 7,679,331
Cost of revenue 1,081,468 1,886,099 2,967,567
----------------- ------------------- ----------------- -----------------
Gross profit 774,558 3,937,206 4,711,764
Selling, general and administrative expenses 1,844,883 3,537,140 5,382,023
CRM owner expenses -- 717,645 717,645
Depreciation and amortization 103,299 90,180 154,759 (c) 348,238
----------------- ------------------- ----------------- -----------------
Operating loss (1,173,624) (407,759) (154,759) (1,736,142)
Interest expense (116,262) (27,317) (198,225) (d) (341,804)
----------------- ------------------- ----------------- -----------------
Net loss $ (1,289,886) (435,076) (352,984) (2,077,946)
================= =================== ================= =================
Net loss per basic and diluted share $ (.07) (435.08) (.10)
================= =================== =================
Weighted average shares outstanding -
basic and diluted 19,562,120 1,000 21,562,120
================= =================== =================
</TABLE>
See accompanying notes to pro forma combined consolidated financial statements.
F-15
<PAGE>
COLLEGE BOUND STUDENT ALLIANCE, INC.
Pro Forma Combined Consolidated Statement of Operations
Year ended July 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
COLLEGE BOUND COLLEGE RESOURCE PRO FORMA
STUDENT MANAGEMENT, PRO FORMA COMBINED
ALLIANCE, INC. INC. ADJUSTMENTS CONSOLIDATED
-------------------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenue $ 706,886 6,808,346 7,515,232
Cost of revenue 413,015 1,968,593 2,381,608
-------------------- ------------------- ----------------- ----------------
Gross profit 293,871 4,839,753 5,133,624
Selling, general and administrative expenses 1,050,130 3,911,796 4,961,926
CRM owner expenses -- 988,824 988,824
Depreciation and amortization 110,104 79,351 154,759 (c) 344,214
-------------------- ------------------- ----------------- ----------------
Operating loss (866,363) (140,218) (154,759) (1,161,340)
Interest expense (32,680) (15,625) (207,857) (d) (256,162)
-------------------- ------------------- ----------------- ----------------
Net loss $ (899,043) (155,843) (362,616) (1,417,502)
==================== =================== ================= ================
Net loss per basic and diluted share $ (.05) (155.84) (.08)
==================== =================== ================
Weighted average shares outstanding -
basic and diluted $ 16,863,226 1,000 18,863,226
==================== =================== ================
</TABLE>
See accompanying notes to pro forma combined consolidated financial statements.
F-16
<PAGE>
COLLEGE BOUND STUDENT ALLLIANCE, INC.
Notes to Pro Forma Combined Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
On July 31, 2000, College Bound Student Alliance, Inc. (Company) acquired
all of the issued and outstanding common stock of College Resource
Management, Inc. (CRM), a private company based in Grand Prairie, Texas
and incorporated in Delaware, from its sole stockholder (seller). The
purchase price totaled $2,311,016 which is comprised of a $2 million
promissory note payable to the seller over 10 years, 2,000,000 restricted
shares of the Company's common stock with a fair value of $504,000 plus
acquisition costs of $118,458. The promissory note payable to seller has
a stated interest rate of 7.5% which has been discounted at 11.5% for
purposes of calculating the purchase price. This rate reflects effective
interest rates management believes are available to the Company for debt
obligations with similar terms and features. The present value of amounts
to be paid under the note totaled $1,688,558. The common stock of the
Company valued at $504,000 at the date of acquisition reflects the fair
value of the stock based on the closing price of the Company's stock on
July 31, 2000 in the over-the-counter market less a 10% discount given
the restricted nature of the shares issued. The acquisition was accounted
for as a purchase and the excess of cost over the fair value of acquired
net tangible assets of $1,547,588 was recognized as intangible assets and
is being amortized on a straight-line basis over 10 years.
(2) PRO FORMA ADJUSTMENTS
The following pro forma adjustments give effect to the Acquisition of
College Resource Management, Inc.
(a) Reflects the purchase price of $2,311,016 including the present
value of amounts to be paid under the promissory note payable to
seller in the amount of $1,688,558, the issuance of the Company's
restricted stock valued at $504,000 and acquisition costs of
$118,458.
(b) Reflects the allocation of the purchase price of $2,311,016 to the
identifiable assets and liabilities of College Resource
Management, Inc. based on their fair values. Adjusts common stock
and accumulated deficit of CRM to eliminate historical equity
accounts. The amounts due from customer contracts acquired reflect
the future cash flows of contracts acquired less amounts which are
not expected to be collected. Deferred revenue represents unearned
revenue relating to customer prepayments received by CRM for
future delivery of services. Deferred revenue was adjusted to its
estimated fair value which was estimated to be the present value
of costs that are expected to be incurred to deliver the future
services plus an allowance for normal profit on those costs.
Long-term debt was adjusted to fair value by discounting the
future cash flows of each instrument at rates management believes
are available to the Company for debt obligations with similar
terms and features. The adjustment to goodwill reflects the
accumulation of each of these fair value adjustments.
(c) Reflects the amortization of intangible assets recorded as a
result of the Acquisition. The excess of cost over the fair value
of acquired net tangible assets of $1,547,588 is being amortized
on a straight-line basis over 10 years.
F-17
<PAGE>
(d) Reflects the increase in interest expense due to the $2,000,000
promissory note payable to seller issued to finance the College
Resource Management, Inc. acquisition at an assumed interest rate
of 11.5% plus an increase in interest expense due to fair value
adjustments recorded on debt assumed in the purchase. Stated
interest rates on the unsecured debt assumed ranged from
5.75%-6.00% versus an assumed interest rate of 12.5%.
(3) CRM OWNER EXPENSES
The unaudited pro forma combined consolidated statements of operations do
not reflect expected cost reductions of College Resource Management, Inc.
under the Company's management. Management has identified costs of
approximately $1,089,000 in 2000 ($718,000 in CRM owner expenses plus
stockholder distributions of $371,000) and $989,000 in 1999 incurred by
the previous owner and management that would not have been incurred under
College Bound Student Alliance, Inc.'s management if the acquisition had
occurred as of July 31, 1998. The Company expects to realize these cost
savings related to salary and related payroll taxes, benefits, consulting
fees and stockholder distributions. However, there can be no assurance
that these cost savings will be realized.
F-18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
College Bound Student Alliance, Inc.
Dated: October 13, 2000 By: /s/ Jerome M. Lapin
------------------------------------
Jerome M. Lapin
Chief Executive Officer
