SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 30, 1996
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WHITMAN EDUCATION GROUP, INC.
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(Exact Name of Registrant as Specified in Its Charter)
New Jersey
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(State or Other Jurisdiction of Incorporation)
1-13722 22-2246554
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(Commission File No.) (IRS Employer Identification No.)
4400 Biscayne Boulevard, 6th Floor, Miami, Florida 33137
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(Address of Principal Executive Offices) (Zip Code)
(305) 575-6534
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
-1-
<PAGE>
<TABLE>
<CAPTION>
Item 7. FINANCIAL STATEMENT, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
<S> <C>
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Lansdowne University, Ltd. d/b/a Huron University, United
States Branches audited balance sheets as May 31, 1996 and
1995 and the related statements of operations, stockholders'
equity and cash flows for each of the three years ended May 31,
1996.
Independent Auditor's Report.................................. F-1
Balance Sheets................................................ F-2
Statements of Operations...................................... F-4
Statements of Stockholders' Equity............................ F-5
Statements of Cash Flows...................................... F-6
Notes to Financial Statements................................. F-8
Huron University unaudited balance sheet and stockholders' equity
as of December 30, 1996 and the related statements of operations
and cash flows for the seven months ended December 30, 1996 and
1995.
Balance Sheet................................................. F-16
Statement of Operations....................................... F-17
Statement of Stockholders' Equity............................. F-18
Statement of Cash Flows....................................... F-19
Notes to Unaudited Financial Statements....................... F-20
(b) PRO FORMA FINANCIAL INFORMATION.
Whitman Education Group, Inc. and Huron University unaudited pro
forma condensed combined statements of operations for the year
ended March 31, 1996 and the nine months ended December 31,
1996.
Unaudited Pro Forma Condensed Combined Financial
Information................................................. F-21
Condensed Consolidated Statement of Operations for
the year ended March 31, 1996............................... F-22
Condensed Consolidated Statement of Operations for
the nine months ended December 31, 1996.................... F-23
Notes to Unaudited Pro Forma Condensed Combined
Financial Information....................................... F-24
</TABLE>
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<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees
Lansdowne University, Ltd.
d/b/a Huron University
Huron, South Dakota
We have audited the accompanying balance sheets of Lansdowne University, Ltd.,
d/b/a Huron University, United States Branches, as of May 31, 1996 and 1995, and
the accompanying statements of operations, stockholder's equity, and cash flows
for each of the three years ended May 31, 1996. These financial statements are
the responsibility of the University's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
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 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 Lansdowne University, d/b/a
Huron University, United States Branches, as of May 31, 1996 and 1995, and the
results of operations and cash flows for each of the three years in the period
ended May 31, 1996, in conformity with generally accepted accounting principles.
November 22, 1996, except for Notes 5, 7 and 11,
for which the date is February 10, 1997
Aberdeen, South Dakota
F-1
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<TABLE>
<CAPTION>
LANSDOWNE UNIVERSITY, LTD.
D/B/A HURON UNIVERSITY
UNITED STATES BRANCHES
BALANCE SHEETS
MAY 31, 1996 AND 1995
================================================================================
1996 1995
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 731,661 $ 236,532
Accounts receivable:
Tuition, fees and other student receivables 1,284,225 949,638
Less: allowance for doubtful accounts (741,204) (617,502)
Employee and other receivables 106,975 28,645
Huron Regional Medical Center 46,099 --
Due from related parties 176,938 29,273
Inventories 133,754 124,036
Prepaid expenses 36,961 19,555
Deferred income taxes -- 38,757
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Total current assets 1,775,409 808,934
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CERTIFICATE OF DEPOSIT 100,000 --
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PROPERTY AND EQUIPMENT:
Land 50,000 50,000
Buildings and improvements 2,848,276 2,848,276
Equipment 1,188,473 1,115,487
Vehicles 8,256 8,256
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4,095,005 4,022,019
Less accumulated depreciation 855,114 688,626
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Net property and equipment 3,239,891 3,333,393
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Total assets $ 5,115,300 $ 4,142,327
================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-2
<PAGE>
<TABLE>
<CAPTION>
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1996 1995
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 136,261 $ 109,214
Accounts payable 473,765 397,872
Accrued expenses and other liabilities 509,169 246,665
Due to related parties 704 450,207
Deferred revenue 590,315 214,686
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Total current liabilities 1,710,214 1,418,644
LONG-TERM DEBT:
Notes payable 683,357 719,618
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Total liabilities 2,393,571 2,138,262
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STOCKHOLDERS' EQUITY:
Common stock, $100 par value, 10,000 shares
authorized, 170 and 30 shares issued and outstanding 17,000 3,000
Additional paid-in capital 3,190,206 1,750,000
Retained earnings (accumulated deficit) (485,477) 251,065
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Total stockholders' equity 2,721,729 2,004,065
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Total liabilities and stockholders' equity $ 5,115,300 $ 4,142,327
==========================================================================================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
LANSDOWNE UNIVERSITY, LTD.
d/b/a HURON UNIVERSITY
UNITED STATES BRANCHES
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994
=========================================================================================================
1996 1995 1994
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<S> <C> <C> <C>
REVENUES:
Tuition $ 5,219,911 $ 4,587,671 $ 4,060,265
Other educational materials 979,468 829,512 706,543
Other income 592,690 419,305 373,476
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Total revenues 6,792,069 5,836,488 5,140,284
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COSTS AND EXPENSES:
Cost of educational services 4,126,993 3,985,647 2,672,763
Student services and administrative expense 3,010,210 1,909,999 2,266,777
Bad debt expense 130,411 189,352 186,150
Settlement expense 230,000 -- --
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Total costs and expenses 7,497,614 6,084,998 5,125,690
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(LOSS) INCOME FROM OPERATIONS (705,545) (248,510) 14,594
Interest income 8,016 54,877 38,280
Interest expense (69,841) (89,974) (72,002)
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LOSS BEFORE INCOME TAXES (767,370) (283,607) (19,128)
BENEFIT FROM INCOME TAXES 30,828 78,683 36,696
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NET (LOSS) INCOME $ (736,542) $ (204,924) $ 17,568
=========================================================================================================
(LOSS) INCOME PER SHARE OF
COMMON STOCK $ (24,228) $ (6,831) $ 586
=========================================================================================================
AVERAGE NUMBER OF COMMON
STOCK SHARES OUTSTANDING 30.4 30.0 30.0
=========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
LANSDOWNE UNIVERSITY, LTD.
d/b/a HURON UNIVERSITY
UNITED STATES BRANCHES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1996, 1995, AND 1994
======================================================================================
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
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<S> <C> <C> <C> <C>
BALANCE, JUNE 1, 1993 $ 3,000 $1,750,000 $ 438,421 $ 2,191,421
Net income -- -- 17,568 17,568
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BALANCE, MAY 31, 1994 3,000 1,750,000 455,989 2,208,989
Net loss -- -- (204,924) (204,924)
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BALANCE, MAY 31, 1995 3,000 1,750,000 251,065 2,004,065
Common stock issued 14,000 1,440,206 -- 1,454,206
Net loss -- -- (736,542) (736,542)
- ---------------------------------------------------------------------------------------
BALANCE, MAY 31, 1996 $17,000 $3,190,206 $ (485,477) $ 2,721,729
=======================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
LANSDOWNE UNIVERSITY, LTD.
d/b/a HURON UNIVERSITY
UNITED STATES BRANCHES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994
===============================================================================================================
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (736,542) $ (204,924) $ 17,568
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 188,602 174,893 149,153
Loss on disposal of property and equipment 13,334 4,132 -
Bad debts expense 130,411 189,352 186,150
Change in assets and liabilities:
Accounts receivable:
Tuition, fees and other student receivables (341,296) (317,309) (148,915)
Employee and other receivables (78,330) (22,144) 104,244
Huron Regional Medical Center (46,099) -- --
Inventories (9,718) 67,936 (78,466)
Prepaid expenses (17,406) 5,266 (5,865)
Deferred income taxes 38,757 (50,038) (62,918)
Accounts payable 75,893 74,094 131,623
Accrued expenses and other liabilities 262,504 (17,734) 7,751
Deferred revenue 375,629 138,819 (76,743)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (144,261) 42,343 223,582
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (108,434) (52,209) (1,581,087)
Purchase of certificate of deposit (100,000) -- --
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (208,434) (52,209) (1,581,087)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (payments) on short-term notes payable -- (265,000) 65,000
Proceeds from long-term notes payable 100,050 -- 773,277
Principal payments on long-term notes payable
and lease obligations (109,264) (96,607) (50,003)
Net advances from (payments to) related parties 202,832 631,438 (79,260)
Excess of outstanding checks over cash on deposit -- (38,550) 38,550
Proceeds from issuance of common stock 654,206 -- --
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 847,824 231,281 747,564
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</TABLE>
(CONTINUED ON NEXT PAGE)
F-6
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<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS - PAGE 2
===============================================================================================================
1996 1995 1994
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<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 495,129 221,415 (609,941)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 236,532 15,117 625,058
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CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 731,661 $ 236,532 $ 15,117
===============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 69,030 $ 92,967 $ 65,594
===============================================================================================================
Income taxes $ -- $ -- $ --
===============================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Common stock issued for cancellation of
advances from related party $ 800,000 $ -- $ --
===============================================================================================================
Vehicles sold by assumption of note
payable by purchaser $ -- $ 21,098 $ --
===============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-7
<PAGE>
LANSDOWNE UNIVERSITY, LTD.
d/b/a HURON UNIVERSITY
UNITED STATES BRANCHES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The Corporation is a South Dakota Corporation organized to own and
operate a private university. The Corporation was acquired by EIEA America, Inc.
in February, 1992 and became a wholly-owned subsidiary. The accompanying
financial statements include the United States Branches of Lansdowne University,
Ltd., namely the Huron and Sioux Falls, South Dakota campuses, and the Phoenix,
Arizona campus for which operations have not commenced.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the
Corporation considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. The Corporation places its
temporary cash investments with high quality financial institutions. At times,
such investments may be in excess of the FDIC insurance limit.
PREPAID EXPENSES - Prepaid expenses include unused catalogs that relate to a
future academic year.
INVENTORY - The inventories of books and supplies are valued at the lower of
cost or market using the first-in, first-out method.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Expenditures
for renewals and improvements that significantly add to the productive capacity
or extend the useful life of an asset are capitalized. Expenditures for
maintenance and repairs are charged to expense currently. When depreciable
assets are retired or sold, the cost and related accumulated depreciation are
eliminated from the accounts and the resultant gain or loss is reflected in
income.
Depreciation is provided for over the estimated useful lives principally on the
straight-line method. Depreciation for income tax reporting purposes is computed
using lives and methods established by statutory guidelines. Estimated useful
lives used in the computation of depreciation are as follows:
Buildings and improvements 7-40 years
Transportation equipment 5-7 years
Furniture, fixtures and equipment 5-15 years
REVENUE RECOGNITION - Tuition revenue and other revenues are recognized over the
related period of enrollment. Revenues billed or received in advance are
recorded as deferred revenue.
ADVERTISING - Advertising costs are expensed as incurred. Advertising expense
which is included in "student services and administrative expense" amounted to
approximately $71,000, $28,000 and $23,600 for the years ended May 31, 1996,
1995 and 1994, respectively.
PROFIT-SHARING PLAN - The Corporation has a defined contribution profit-sharing
plan that covers substantially all employees. Pension costs are accrued and
funded monthly. Service costs are paid by the Corporation.
(CONTINUED ON NEXT PAGE)
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS - page 2
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(LOSS) INCOME PER COMMON SHARE - (Loss) income per common share is computed by
dividing net (loss) income by the weighted average number of common shares
outstanding during the period.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS - In fiscal 1997, the
University will adopt the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121-"Accounting for the Impairment of Long- Lived
Assets." SFAS No. 121 requires impairment losses to be recorded on long-lived
assets when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Based on current circumstances, the University expects the effect upon
adoption to be a loss ranging from approximately $1,000,000 to $2,100,000 (see
Note 15).
NOTE 2 - CERTIFICATE OF DEPOSIT
The University purchased a certificate of deposit with a term of six months. The
certificate of deposit is held as collateral for a note payable with a maturity
date of June 30, 1997. Since the certificate of deposit is restricted by the
collateral agreement, the certificate has been recorded as a long-term
investment to match the maturity date of the note payable.
NOTE 3 - ACCOUNTS RECEIVABLE
A summary of activity for the allowance for doubtful accounts is as follows for
the years ended May 31:
1996 1995 1994
------- --------- --------
Balance at beginning of year $ 617,502 $ 428,150 $242,000
Charged to expense 130,411 189,352 186,150
Accounts (charged-off) recovered
during the year (6,709) - -
---------- ---------- ---------
Balance at end of year $ 741,204 $ 617,502 $428,150
========= ========= =========
(CONTINUED ON NEXT PAGE)
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS - page 3
- -------------------------------------------------------------------------------
NOTE 4 - CREDIT RISK
The University grants credit to students in the Huron and Sioux Falls, South
Dakota and surrounding areas, as well as to foreign students attending the
University sponsored by related parties.
The Company maintains balances in financial institutions and other agencies. At
times, the amount on deposit exceeds the insurance coverage for those deposits.
The Company is at risk for these excess deposits in the event the financial
institution or agency is unable to meet its obligations.
NOTE 5 - LONG-TERM DEBT
The following is a summary of long-term debt at May 31, 1996 and 1995:
<TABLE>
1996 1995
---------- ----------
<S> <C> <C>
Note payable to Huron University Foundation, secured by land and buildings,
interest at a variable rate, currently 9.75%, with quarterly principal payments
of $10,000, plus interest,
beginning October, 1996, maturity date July 8, 2001. $ 200,000 $ 200,000
Note payable to Huron University Foundation, secured by the gymnasium. Interest
is at a variable rate, currently 9.75%, paid monthly, with a final maturity
date January 1, 2004. Beginning January 1, 1999, monthly principal of
approximately
$4,200, plus interest, is due. 250,000 250,000
Note payable to Community First State Bank, secured by the gymnasium, monthly
installments of $8,500 including
principal and interest at 8.00%, maturity date December 1, 1998. 221,243 308,350
Note payable to Community First State Bank, secured by Certificate of Deposit,
interest paid monthly at 7.00%,
maturity date June 30, 1997. 100,050 -
Note payable to Greater Huron Development Corporation, secured by the gymnasium,
monthly installments of $2,000 including principal and interest at 3.00%,
maturity date
December 1, 1998. 48,325 70,482
-------- --------
819,618 828,832
Less current portion 136,261 109,214
------- -------
$ 683,357 $ 719,618
======= =======
</TABLE>
(CONTINUED ON NEXT PAGE)
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS - page 4
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NOTE 5 - LONG-TERM DEBT - CONTINUED
Approximate minimum principal payments required during the next five years are
estimated as follows:
1997 $ 136,300
1998 259,800
1999 104,400
2000 90,000
2001 90,000
NOTE 6 - LEASES
The University leases facilities for its Sioux Falls and Phoenix locations and
office and other equipment under operating leases which expire through 2001.
Approximate future minimum rental payments through the expiration of the leases
are as follows:
YEARS ENDING MAY 31,
--------------------
1997 $ 249,400
1998 242,100
1999 240,400
2000 64,600
2001 6,900
---------
Total $ 803,400
=========
Rental expense for the above operating leases and other equipment rentals
totaled $260,077, $172,891 and $148,268 for the years ended May 31, 1996, 1995
and 1994, respectively.
NOTE 7 - RELATED PARTIES AND OTHER ORGANIZATIONS
The University is affiliated with campuses in Tokyo, Japan, and London, United
Kingdom. As such, the University provides technical and management assistance to
these campuses. The University earns a management fee and receives reimbursement
of direct charges from these campuses. Management fee revenue totaled $149,736,
$69,300, and $69,300 for the years ended May 31, 1996, 1995 and 1994,
respectively.
In addition, for students from Japan that attend another campus, the attending
campus pays the Tokyo campus a commission which is a percentage of the tuition
related to those students.
(CONTINUED ON NEXT PAGE)
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS - page 5
- --------------------------------------------------------------------------------
NOTE 7 - RELATED PARTY TRANSACTIONS - CONTINUED
The University is economically dependent on support from the parent or
affiliated campuses. Amounts received from related parties as support which have
been included as a contribution to capital during the year ended May 31, 1996
totaled $1,454,206, including $800,000 that had previously been classified as
non-interest bearing due to related parties. There were no contributions to
capital during the years ended May 31, 1995 and 1994.
Transactions with related parties are as follows:
<TABLE>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Expenses charged to related parties $ 52,881 $ 2,366 $ 24,457
Tuition and fees revenue from related parties 836,254 841,041 839,753
Commission paid to related parties 211,362 184,470 189,801
Amount advanced from related parties 1,038,270 1,253,997 660,800
</TABLE>
HURON UNIVERSITY FOUNDATION - The foundation is a separate and independent South
Dakota nonprofit corporation whose function is to provide financial and other
assistance to the University. The foundation conducts fundraising activities and
receives moneys and pledges for institutionally sponsored programs.
NOTE 8 - CONTRACTS PAYABLE
The University contracts with faculty members for the academic year beginning
during August of each year; however, some faculty members elect to be paid over
a 12-month period. The unfunded portion of this contract at May 31, 1996 and
1995 was $126,725 and $126,923, respectively, which is accrued in the
accompanying financial statements.
NOTE 9 - RETIREMENT PLAN
The University sponsors a profit-sharing plan in which all employees are
eligible to participate beginning in the year in which they complete one (1)
month of employment and attain the age of twenty and a half (20 1/2). The amount
of the Corporation's contribution is discretionary and is determined annually by
the Board of Directors but cannot exceed the amount deductible for federal
income tax purposes. The participating employees may make elective deferral
contributions to the plan. The Corporation's contributions to the plan for the
years ended May 31, 1996, 1995 and 1994 were $26,333, $27,562 and $21,303,
respectively.
NOTE 10 - GOVERNMENT PROGRAM FUNDS
The Corporation receives monies from the federal government to make loans and
grants to students. The Corporation acts as custodian of these funds and
accounts for them in separate accounts which are not included in the
accompanying financial statements.
Federal loans and grants received by students for payment of educational
expenses is a major source of funding for the University.
(CONTINUED ON NEXT PAGE)
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS - page 6
- -------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES
Income tax expense consists of the following:
<TABLE>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Currently (payable) refundable $ 69,585 $ 28,645 $(28,542)
Deferred taxes (38,757) 50,038 65,238
--------- -------- --------
Total income tax benefit $ 30,828 $ 78,683 $ 36,696
========= ========= =========
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Corporation's assets and
liabilities. Depreciation and allowance for doubtful accounts are the sources of
these temporary differences, as well as net operating loss carryforwards.
Deferred income taxes consist of the following:
1996 1995 1994
--------- --------- ----------
Deferred tax assets $ 379,523 $ 209,951 $ 145,571
Deferred tax liabilities (167,618) (171,194) (156,852)
Less valuation allowance (211,905) - -
---------- ---------- -----------
Net deferred tax asset (liability) $ - $ 38,757 $ (11,281)
========== ========== ===========
The income tax benefit (expense), based on expected tax refunds at statutory
rates, is computed as follows:
1996 1995 1994
----------- ---------- ----------
Expected income tax benefit $ 260,906 $ 96,426 $ 6,504
Permanent differences (6,897) (6,813) (807)
Rate changes on estimated deferred taxes (11,276) (10,930) 30,999
Valuation allowance for net operating
loss and nonrecoverable deferred
tax assets (211,905) - -
---------- ---------- ----------
Benefit from income taxes $ 30,828 $ 78,683 $ 36,696
========== ========== -----------
</TABLE>
Net operating loss carryforwards are approximately $375,000 and expire in 2011.
NOTE 12 - FINANCIAL INSTRUMENTS
Financial instruments for which the fair value is considered to approximate the
carrying amount of the asset or liability include accounts receivable (net),
certificates of deposit and current liabilities. The fair value of long-term
debt based on the net present value of future scheduled payments at a rate of
9.75% is $864,094 as of May 31, 1996. The carrying value of long-term debt is
$876,567 as of May 31, 1996.
(CONTINUED ON NEXT PAGE)
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS - page 7
- -------------------------------------------------------------------------------
NOTE 13 - SCHOLARSHIPS
The University provides athletic, academic and other scholarships to selected
students which are not funded by outside organizations.
Scholarship expense which is included in "cost of educational services" relating
to these scholarships, which was also included in tuition revenue amounted to
approximately $960,000, $1,200,000 and $470,000 for the years ended May 31,
1996, 1995 and 1994, respectively.
NOTE 14 - HURON REGIONAL MEDICAL CENTER
The University has an agreement with Huron Regional Medical Center, Inc. to
jointly operate the Huron Nursing School, which provides a two-year Associate of
Science Degree in Nursing. The University and Huron Regional Medical Center have
agreed to equally share any income and to equally divide and be responsible for
any loss incurred by the School.
The initial term of the agreement was for two years commencing on September 1,
1995 through August 31, 1997. The agreement will be automatically renewed for
successive one year terms unless either party terminates the agreement by
December 31 of such renewal year.
NOTE 15 - SUBSEQUENT EVENTS
Subsequent to May 31, 1996, the University received notice that its
accreditation was not renewed effective December 31, 1996.
In addition, subsequent to May 31, 1996, the University entered into a
preliminary sale agreement to sell the United States Branches of Lansdowne
University, Ltd. The sale is contingent upon certain conditions being completed,
and final approval for accreditation purposes. Final negotiations related to
this sale agreement have not been completed. However, the potential loss related
to this transaction is approximately $1,000,000 to $2,100,000.
Subsequent to May 31, 1996, the University paid out two lump sum settlements to
former employees to settle disputes related to the employees' dismissals. The
total amount of these settlements was $230,000, excluding the cost of legal
representation of the University.
(CONTINUED ON NEXT PAGE)
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS - page 8
- -------------------------------------------------------------------------------
NOTE 16 - GOING CONCERN
The University has received notice that its accreditation is not being renewed.
Related to the University's accreditation is its qualification for Federal loans
and grants for its students. As such, the University's ability to continue as a
going concern is in question. Management's plans with regard to the University's
ability to continue as a going concern include completing a transaction for sale
of the University to another institution whereby the University would become
re-accredited under the umbrella of the purchasing institution. In the event the
sale of the University is not completed, operations of the University would be
discontinued. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 17 - ENVIRONMENTAL CONTAMINATION
The University has an underground storage tank for fuel. This tank developed a
leak that contaminated certain soils around the tank. During 1994 and 1995 the
tank was repaired and the soil surrounding the tank was removed and replaced.
The South Dakota Superfund reimbursed certain expenses related to this endeavor.
Expenses and related reimbursements totaled $10,978 and $88,293, for the years
ended May 31, 1996 and 1995, respectively.
The tank and the subsoil surrounding the tank are subject to monitoring, at the
expense of the University, for changes in the status of the level of soil
contamination. Any future costs related to future contamination are subject to
approval for reimbursement from South Dakota Superfund. At present, South Dakota
Superfund has not committed future funding for this project.
# # # # #
F-15
<PAGE>
<TABLE>
<CAPTION>
HURON UNIVERSITY
BALANCE SHEET (Unaudited)
DECEMBER 30, 1996
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 28,322
Accounts receivable 906,037
Receivable from related party 215,776
Inventories 92,461
Other assets 73,799
---------------
Total current assets 1,316,395
PROPERTY AND EQUIPMENT -- Net 3,189,791
---------------
TOTAL $ 4,506,186
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 676,971
Accrued expenses 52,509
Notes payable 756,932
Deferred tuition 981,131
---------------
Total current liabilities 2,467,543
LONG-TERM LIABILITIES 320,000
---------------
Total liabilities 2,787,543
---------------
STOCKHOLDERS' EQUITY
Common stock 37,000
Additional paid-in capital 2,766,000
Accumulated deficit (1,084,357)
--------------
Total stockholders' equity 1,718,643
--------------
TOTAL $ 4,506,186
===============
</TABLE>
See notes to financial statements.
- -------------------------------------------------------------------------------
F-16
<PAGE>
<TABLE>
<CAPTION>
HURON UNIVERSITY
STATEMENT OF OPERATIONS (Unaudited)
FOR THE SEVEN MONTHS ENDED DECEMBER 30, 1996 AND 1995
1996 1995
------------- -------------
<S> <C> <C>
NET REVENUES $ 2,144,542 $ 4,256,785
------------- -------------
COSTS AND EXPENSES
Cost of educational services 1,815,130 3,699,253
Student services and administrative expenses 562,294 556,556
Bad debt expense 43,501 110,455
------------- -------------
Total costs and expenses 2,420,925 4,366,264
------------- -------------
LOSS FROM OPERATIONS (276,383) (109,479)
Write down of fixed assets (280,000)
Interest income 1,010 16,601
Interest expense (43,507) (80,154)
-------------- --------------
NET LOSS $ (598,880) $ (173,032)
============== ==============
</TABLE>
See notes to financial statements.
- -------------------------------------------------------------------------------
F-17
<PAGE>
<TABLE>
<CAPTION>
HURON UNIVERSITY
STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
FOR THE SEVEN MONTHS ENDED DECEMBER 30, 1996
COMMON ADDITIONAL
SHARES COMMON PAID-IN ACCUMULATED
OUTSTANDING STOCK CAPITAL DEFICIT TOTAL
------------ ------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 1, 1996 170 $17,000 $3,190,206 $ (485,477) $2,721,729
Common stock issued 200 20,000 180,000 200,000
Return of capital (604,206) (604,206)
Net loss (598,880) (598,880)
--- ------- ----------- ------------ -----------
BALANCE
DECEMBER 30, 1996 370 $37,000 $2,766,000 $(1,084,357) $1,718,643
=== ======= ========== ============ ===========
</TABLE>
See notes to financial statements.
- -------------------------------------------------------------------------------
F-18
<PAGE>
<TABLE>
<CAPTION>
HURON UNIVERSITY
STATEMENT OF CASH FLOWS (Unaudited)
FOR THE SEVEN MONTHS ENDED DECEMBER 30, 1996 AND 1995
1996 1995
------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (598,880) $ (173,032)
Adjustments to reconcile net loss to cash (used in)
provided by operating activities:
Depreciation and amortization 109,900 110,018
Loss on write down of equipment 280,000
Loss on disposal of property and equipment 11,304
Changes in operating assets and liabilities:
Accounts receivable (363,016) (118,909)
Other receivables 153,074 1,918
Inventories 41,293 (964)
Prepaid expenses (36,838) (15,445)
Deferred income taxes 38,757
Accounts payable 157,535 160,022
Accrued expenses (456,660) (11,167)
Deferred and prepaid tuition and fees 390,816 463,153
Prepaid tuition 32,420
------------- --------------
Net cash (used in) provided by operating activities (290,356) 465,655
------------- --------------
INVESTING ACTIVITIES
Purchases of property and equipment (2,512) (92,286)
Proceeds from maturity of certificate of deposit 100,000
------------- --------------
Net cash (used in) provided by investing activities 97,488 (92,286)
------------- --------------
FINANCING ACTIVITIES
Principal payments on notes payable (62,686) (122,545)
Principal payments on capital lease obligations (4,037)
Net advances from (payments to) related parties (39,542) (80,051)
Proceeds from purchase of common stock 200,000
Distribution of capital (604,206)
------------- --------------
Net cash used in financing activities (510,471) (202,596)
------------- --------------
(DECREASE) INCREASE IN CASH (703,339) 170,773
CASH AT BEGINNING OF PERIOD 731,661 236,532
------------ --------------
CASH AT END OF PERIOD $ 28,322 $ 407,305
============ =============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 52,066 $ 85,039
============ =============
</TABLE>
See notes to financial statements.
- -------------------------------------------------------------------------------
F-19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 1996
(Unaudited)
Reference is made to the financial statements for the year ended May
31, 1996 and 1995 included in this Form 8-KA.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X
and, in the opinion of the management of the Company, include all adjustments,
which are of a normal recurring nature, necessary for a fair presentation of
financial position and the results of operations and cash flows for the periods
presented. However, the financial statements do not include all information and
footnotes required for a presentation in accordance with generally accepted
accounting principles. These financial statements should be read in conjunction
with the financial statements and the notes thereto for the year ended May 31,
1996. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
1. DISPOSITION OF THE COMPANY'S ASSETS AND LIABILITIES
On December 30, 1996, the Company's South Dakota operations and
its net assets were sold to Colorado Technical University, Inc., a
subsidiary of Whitman Education Group, Inc. and Huron Education, Inc.,
an unrelated entity. The Company's assets have been written down to
their fair value at the sale date which required a valuation allowance
of $280,000 be recorded against property and equipment.
F-20
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information gives
effect to the acquisition of Huron University using the purchase method of
accounting. The following unaudited pro forma condensed combined financial
information has been prepared based upon the historical consolidated financial
statements of Whitman and Huron University giving effect to the acquisition. No
pro forma balance sheet as of December 31, 1996 is presented here because the
transaction is reflected in Whitman's consolidated balance sheet included with
its third quarter 10-Q filed February 14, 1997. The unaudited pro forma
condensed combined statements of operations assume that the acquisition occurred
as of the beginning of the periods presented and combine Whitman's consolidated
results of operations for the year ended March 31, 1996 with Huron University's
consolidated results of operations for the year ended May 31, 1996, and
Whitman's and Huron University's consolidated results of operations for the nine
months ended December 31, 1996.
The unaudited pro forma condensed combined financial information is intended for
informational purposes only and is not necessarily indicative of the future
results of operations of the combined company or results of operations of the
combined company that would have actually occurred had the acquisition been in
effect for the periods presented.
These unaudited pro forma condensed combined financial statements and the
accompanying notes should be read in conjunction with and are qualified in their
entirety by the Whitman and Huron Consolidated Financial Statements, including
the related notes thereto, included elsewhere, or incorporated by reference in
this Form 8-KA.
F-21
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996
WHITMAN HURON
HISTORICAL HISTORICAL
YEAR ENDED YEAR ENDED
MARCH 31, MAY 31, PRO FORMA PRO FORMA
1996 1996 ADJUSTMENTS COMBINED
-------------- ------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Tuition and other revenues, net $ 40,231,129 $ 6,792,069 $ (960,000) (4) $ 46,063,198
Cost of educational services 22,478,961 4,126,993 (960,000) (4) 25,645,954
Student services and administrative expenses 16,803,826 3,370,621 227,502 (2)(3) 20,401,949
--------------- ------------- ----------- --------------
Income (loss) from operations 948,342 (705,545) (227,502) 15,295
Interest income (expense), net (1,185,386) (61,825) 115,286 (1) (1,131,925)
---------------- -------------- ----------- --------------
Loss from continuing operations
before income taxes (237,044) (767,370) (112,216) (1,116,630)
Income tax (benefit) provision (136,473) (30,828) (6) (167,301)
---------------- -------------- ------------ ---------------
Net loss $ (100,571) $ (736,542) $ (112,216) $ (949,329)
================ ============== =========== =============
Net loss per share of common stock $ (0.01) $ (0.09)
================ =============
Average number of common stock and
common stock equivalent shares
outstanding, excluding common
stock shares held in escrow 10,235,956 10,235,956
=============== =============
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
F-22
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
WHITMAN HURON PRO FORMA ADJUSTED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- ------------- ----------
<S> <C> <C> <C> <C>
Tuition and other revenues, net $33,878,676 $2,733,915 $36,612,591
Cost of educational services 22,008,832 2,601,305 24,610,137
Student services and administrative expenses 13,218,458 656,682 $ 172,178(2)(3) 14,047,318
------------ ---------- ---------- -----------
Income (loss) from operations (1,348,614) (524,072) (172,178) (2,044,864)
Write-down of fixed assets (280,000) 280,000(5)
Interest income (expense), net (656,394) (56,043) 86,464(1) (625,973)
------------ ---------- ---------- ------------
Loss from continuing operations
before income taxes (2,005,008) (860,115) 194,286 (2,670,837)
Income tax (benefit) provision (204,738) (6) (204,738)
------------- ---------- -------- ------------
Net loss $ (1,800,270) $(860,115) $194,286 $(2,466,099)
============= ========== ======== ============
Net loss per share of common stock $ (0.16) $ (0.22)
============= ============
Average number of common stock
and common stock equivalent shares
outstanding, excluding common
stock shares held in escrow 11,082,369 11,082,369
============= ============
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
F-23
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
On December 30, 1996, Whitman acquired the South Dakota operations and certain
assets at two campuses of Huron University. The purchase price consisted of
$2.25 million, of which approximately $1.95 million was paid in cash, $150,000
in common stock, acquisition costs of $150,000 and the assumption of $1.4
million of net liabilities. In addition, the Company assigned the right to
purchase the Huron real property to a third party, Huron Education, Inc. (HEI),
a South Dakota not-for-profit organization, in exchange for $3.9 million and
simultaneously leased the real property from HEI upon the satisfaction of
$757,000 in existing mortgages and after placing $500,000 in escrow to be used
for the satisfaction of assumed cash obligations of Huron University. In
connection with this transaction, the community of Huron, South Dakota, through
HEI paid to the Company $527,000 (which is included in the $3.9 million received
from HEI) as an inducement for the Company to acquire the operations of Huron
University. This inducement has ben accounted for as a deferred credit and will
be amortized over the lease period of nine years. These transactions resulted in
a net purchase price of $1,500,000 (comprised of the receipt of cash totalling
$1,200,000 and the assumption of current liabilities totalling $2,700,000) which
was allocated to current assets totalling $1,500,000.
(1) Reflects reduction of interest expense resulting from the payment of
Huron notes payable at the closing of the transaction and reduction of
Whitman note payable using the cash proceeds Whitman received at the
closing of the transaction.
(2) Reflects additional rent expense incurred by Whitman to lease the Huron
facilities (which Huron previously owned.)
(3) Reflects reduction in depreciation expense resulting from certain
assets not being acquired by Whitman, and assets carried at a lower
value.
(4) Huron scholarship expenses for the year ended May 31, 1996 are
reclassified to conform with Whitman reporting format.
(5) Reflects elimination of asset writedown included in Huron statement of
operations for the nine months ended December 31, 1996.
(6) No pro forma adjustment has been made for income taxes based on the
assumption that a valuation allowance would be established to offset
the deferred tax assets resulting from the incremental net operating
losses generated by Huron.
F-24
<PAGE>
EXHIBIT INDEX
NUMBER EXHIBIT METHOD OF FILING
- ------ ---------------------------- -----------------------
2.1 Asset Purchase Agreement Previously filed.
23.1 Consent of Eide Helmeke PLLP Filed herewith.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WHITMAN EDUCATION GROUP, INC.
By: /S/ RANDY S. PROTO
-----------------------------------------
RANDY S. PROTO, PRESIDENT
Date: February 28, 1997
-3-
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference into the Whitman Education Group,
Inc. Registration Statement 33-64151 on Form S-3 and the Registration Statement
No. 333-16007 on Form S-8 and the related prospectuses, of our report relating
to the consolidated financial statements of Lansdowne University, Ltd., d/b/a
Huron University, United States Branches, dated November 22, 1996, except for
Notes 5, 7 and 11, for which the date is February 10, 1997 appearing in this
Report on Form 8- K/A of Whitman Education Group, Inc.
/S/ EIDE HELMEKE PLLP
- -----------------------------------------
EIDE HELMEKE PLLP
February 27, 1997
Aberdeen, South Dakota
