<PAGE>
This document contains _____ pages Page _____ of _____ pages
and is the numbered original required
by rule 0-3(b).
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-KA
Amendment to Application or Report
Filed Pursuant to Section 12, 13 or 15 (d) of
The Securities Exchange Act of 1934
Nobel Education Dynamics, Inc.
(Exact Name of Registrant as Specified in Charter)
Amendment No. 2
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its current Report on Form 8-K (date
of earliest event reported June 2, 1995) dated July 27, 1995, as set forth in
the pages attached hereto:
Item 8 Financial Statements and Exhibits
------ ---------------------------------
A. Pro Forma Financial Information
1. Pro Forma Combined Balance Sheet of Registrant, Carefree
Learning Centers, Inc., and Keystone Real Estate Development
Company, Inc. as of December 31, 1994 (Unaudited).
2. Pro Forma Combined Statement of Operations of Registrant,
Carefree Learning Centers, Inc., and Keystone Real Estate
Development Company, Inc. for the year ended December 31,
1994 (Unaudited).
3. Notes to the Pro Forma Combined Financial Statements.
B. Financial Statements
1. Balance Sheet and Income Statement for Keystone Real Estate
Development Company, Inc. for the 12 months ended December
31, 1994, 1993 and 1992.
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements include the
accounts of Nobel Education Dynamics, Inc. and subsidiaries (the Company),
Carefree Learning Centers, Inc., and Keystone Real Estate Company, Inc. The
acquisition of Carefree Learning Centers, Inc. was completed in March 1995. The
acquisition of Keystone Real Estate Development Company, Inc. (the related real
estate company) was completed in June 1995. Such pro forma combined financial
statements assume that the acquisition was accounted for as purchase at the
beginning of the respective period for the combined statements of operations and
combined balance sheet.
The pro forma combined financial statements are unaudited, but in the opinion of
management, all adjustments necessary to present fairly such pro forma combined
financial statements have been made.
These pro forma combined financial statements should be read in connection with
the related notes thereto and in connection with the historical financial
statements of the Company, Carefree Learning Centers, Inc., and Keystone Real
Estate Development Company, Inc., either incorporated herein by reference or
included. The pro forma combined statements of operations are not necessarily
indicative of what the actual results of operations would have been had the
transactions occurred as of the beginning of the respective periods, nor do they
purport to indicate the results of future operations of the Company.
2
<PAGE>
NOBEL EDUCATION DYNAMICS, INC., CAREFREE LEARNING CENTERS, INC., AND KEYSTONE
REAL ESTATE DEVELOPMENT COMPANY, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
CAREFREE KEYSTONE
REGISTRANT CAREFREE KEYSTONE PRO FORMA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS 853,886 0 40,000 C 893,886
ACCOUNTS RECEIVABLE, 614,640 129,497 744,137
NOTES RECEIVABLE 45,114 11,645 (11,645) I 45,114
PREPAID INSURANCE 169,404 57,761 227,165
PREPAID EXPENSES 636,616 0 8,052 636,616
---------- ------- --------- --------- ------- ----------
TOTAL CURRENT ASSETS 2,319,660 198,903 8,052 40,000 (11,645) 2,554,970
---------- ------- --------- --------- ------- ----------
PROPERTY, PLANT AND EQUIPMENT AT COST 13,398,969 210,381 4,680,710 18,290,060
LESS ALLOW. FOR DEPRECIATION (4,216,505) 0 (4,216,505)
---------- ------- --------- --------- ------- ----------
NET PROPERTY, PLANT AND EQUIPMENT 9,182,464 210,381 4,680,710 14,073,555
PROPERTY AND EQUIPMENT HELD FOR SALE 1,266,648 0 1 1,266,648
COST IN EXCESS OF NET ASSETS ACQUIRED 8,887,995 0 2,058,723 B 28,536 J 10,975,254
DEPOSITS AND OTHER ASSETS 1,066,926 37,316 111,622 1,215,864
DEFERRED TAX ASSET 510,300 0 510,300
---------- ------- --------- --------- ------- ----------
TOTAL ASSETS 23,233,993 446,600 4,800,384 2,098,723 16,891 30,596,591
========== ======= ========= ========= ======= ==========
</TABLE>
3
<PAGE>
NOBEL EDUCATION DYNAMICS, INC., CAREFREE LEARNING CENTERS, INC., AND KEYSTONE
REAL ESTATE DEVELOPMENT COMPANY, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS EQUITY
CAREFREE KEYSTONE
REGISTRANT CAREFREE KEYSTONE PRO FORMA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
CASH OVERDRAFT 38,281 20,469 58,850
REVOLVING LINE OF CREDIT
(UNUSED PORTION 400,000) 0 0 0 0
CURENT PORTION OF LONG TERM OBLIGATIONS 1,767,756 0 0 1,767,756
CURRENT PORTION OF CAPITAL LEASES 57,194 0 0 57,194
DUE TO PA BLUE SHIELD 0 63,355 21,707 (11,645) J 73,417
ACCOUNTS PAYABLE AND OTHER CURRENT
LIABILITIES 4,594,768 252,962 40,051 3,115 C (13,201) J 4,877,695
DEFERRED TUITION INCOME 0 180,399 0 180,399
RESERVE FOR RESTRUCTURING 96,900 0 0 96,900
---------- ---------- --------- --------- ---------- -----------
TOTAL CURRENT LIABILITIES 6,516,618 535,097 82,227 3,115 (24,846) 7,112,211
---------- ---------- --------- --------- ---------- -----------
LONG TERM OBLIGATIONS 7,846,151 1,507,111 3,259,894 500,000 A 1,500,000 K 14,613,156
DEFERRED RENT, NET OF CURRENT PORTION 0 145,605 0 (145,605) C 0
CAPITAL LEASE OBLIGATIONS 371,543 0 0 371,543
DEFERRED GAIN ON SALE LEASEBACK 63,303 0 0 63,303
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 138,073 0 0 138,073
---------- ---------- --------- --------- ---------- -----------
TOTAL LIABILITIES 14,935,688 2,187,813 3,342,121 357,510 1,475,154 22,298,286
COMMITMENTS AND CONTINGENCIES (SEE NOTES 3, 7, 9 AND 10 ON FORM 10-K)
SHAREHOLDERS' EQUITY:
PREFERRED STOCK - $.001 PAR VALUE - 10,000,000
SHARES AUTHORIZED - 4,984,000 OUTSTANDING 4,984 100,000 100,000 (100,000) B (100,000) J 4,984
COMMON STOCK - $.001 PAR VALUE - 50,000,000
SHARES AUTHORIZED - 15,445,063 OUTSTANDING 15,445 0 0 15,445
ADDITIONAL PAID IN CAPITAL 19,644,922 650,000 1,300,000 (650,000) B (1,300,000) J 19,644,922
ACCUMULATED DEFICIT (11,367,046) (2,491,213) 58,263 2,491,213 B (58,263) J (11,367,046)
---------- ---------- --------- --------- ---------- -----------
8,298,305 (1,741,213) 1,458,263 1,741,213 (1,458,263) 8,298,305
---------- ---------- --------- --------- ---------- -----------
TOTAL LIABILITIES AND EQUITY 23,233,993 446,600 4,800,384 2,098,723 16,891 30,596,591
========== ========== ========= ========= ========== ===========
</TABLE>
SEE NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
4
<PAGE>
NOBEL EDUCATION DYNAMICS, INC., CAREFREE LEARNING CENTERS, INC., AND KEYSTONE
REAL ESTATE DEVELOPMENT COMPANY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
CAREFREE KEYSTONE
REGISTRANT CAREFREE KEYSTONE PRO FORMA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES 34,371,501 4,446,210 614,809 (614,809) L 38,817,711
OPERATING EXPENSES 28,160,537 3,832,743 333,258 (563,341) D (171,049) M 31,592,148
---------- --------- ------- --------- -------- ----------
CENTER OPERATING PROFIT 6,210,964 613,467 281,551 563,341 (443,760) 7,225,563
---------- --------- ------- --------- -------- ----------
GENERAL & ADMINISTRATIVE EXPENSES 2,896,076 746,377 16,328 (621,377) E (16,328) N 3,021,076
OPERATING INCOME 3,314,888 (132,910) 265,223 1,184,718 (427,432) 4,204,487
---------- --------- ------- --------- -------- ----------
INTEREST EXPENSE 1,222,971 (3,566) 292,019 170,569 F 131,881 O 1,813,874
OTHER INCOME (LOSS) 106,960 (8,500) 0 8,500 G 0 106,960
MINORITY INTEREST IN INCOME OF SUBSIDIARY 83,491 0 0 0 0 83,491
---------- --------- ------- --------- -------- ----------
INCOME (LOSS) BEFORE TAXES 1,901,466 (120,844) (26,796) 1,005,649 (559,313) 2,200,162
INCOME TAX (BENEFIT) EXPENSE (438,300) (21,450) 5,386 21,450 H (5,386) P 438,300
---------- --------- ------- --------- -------- ----------
NET INCOME 2,339,766 (99,394) (32,182) 984,199 (553,927) 2,638,462
PREFERRED STOCK DIVIDENDS 198,555 0 0 0 0 198,555
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS 2,141,211 (99,394) (32,182) 984,199 (553,927) 2,439,907
========== ========= ======= ========= ======== ==========
PRIMARY EARNINGS PER SHARE $0.13 $0.15
===== =====
FULLY DILUTED EARNINGS PER SHARE $0.12 $0.12
===== =====
</TABLE>
SEE NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
5
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
Notes to Pro Forma Combined Financial Statements
1. Basis of Presentation
The pro forma combined financial statements include the accounts and results
of the Company, Carefree Learning Centers, Inc., and Keystone Real Estate
Development Company, Inc. as if the acquisition had been consummated as of
the beginning of the 12 months ended December 31, 1994.
The Company acquired certain assets and liabilities of Carefree Learning
Centers, Inc. from Pennsylvania Blue Shield on March 10, 1995 for $500,000
in cash and a subordinated promissory note of the Company in the principal
amount of approximately $1,585,000 and the assumption of certain other
liabilities of Carefree in the amount of $360,000
The Company subsequently acquired certain assets and liabilities of Keystone
Real Estate Development Company, Inc. for cash of $1.5 million, a
subordinated promissory note of $630,000, and the refinancing of the
existing mortgages totaling $3,567,300 as of June 2, 1995.
The pro forma combined statement of operations for the 12 months ended
December 31, 1994 include 12 months of operations for Nobel Education
Dynamics, Inc., Carefree Learning Centers, Inc., and Keystone Real Estate
Development Company, Inc. The pro forma combined balance sheet includes the
Company's balance sheet as of December 31, 1994 as well as Carefree Learning
Centers, Inc.'s balance sheet as of December 31, 1994.
2. Pro Forma Adjustments
Combined Balance Sheet - Carefree Learning Centers, Inc.
--------------------------------------------------------
A. Adjusted to reflect the $500,000 increase in the principal amount of
the Revolving Credit Loan II resulting from the $500,000 cash payment
to Pennsylvania Blue Shield.
B. Record estimated allocation of excess of purchase price over the
carrying amount of certain net assets acquired to goodwill.
C. To record adjustments per the closing settlement agreement which
includes (1) $40,000 relating to cash received for accrued vacation;
(2) $200,000 was accrued for transaction costs; and (3) the Company did
not assume certain liabilities including accrued payroll and related
taxes totaling $148,000, accrued pension totaling $15,000, other
accrued expenses totaling $2,400 and deferred rents totaling $176,990.
6
<PAGE>
<TABLE>
<CAPTION>
Accounts Payable and
Accrued Expenses
Adjustment
--------------------
<S> <C>
Accrued transaction costs $ 200,000
Eliminate accrued payroll and
related taxes (148,000)
Eliminate accrued pension (15,000)
Eliminate accrued audit (2,400)
Eliminate current portion of
of deferred rent (31,485)
----------
$ 3,115
==========
</TABLE>
Combined Statements of Operations - Carefree Learning Centers, Inc.
-------------------------------------------------------------------
D. To eliminate rent totaling $614,809 due to the acquisition of Keystone
Real Estate Development Company, Inc., which owned the real estate of
Carefree Learning Centers, Inc., offset by amortization of goodwill
totaling $51,468 or a net savings of $563,341.
E. The following represents adjustments to general and administrative
expenses of the acquired companies that have been or will have been
implemented by management. These adjustment assume that management's
actions were carried out at the beginning of the periods presented and
only give effect to those items that are factually supportable.
<TABLE>
<CAPTION>
12 Months Ended
December 31, 1994
-----------------
<S> <C>
Eliminate corporate expenses per Carefree
in total; the Company closed the office (746,377)
Additional regional manager and related
costs, car, postage, etc. 95,000
Additional accounting clerk and benefits 30,000
--------
(621,377)
========
</TABLE>
7
<PAGE>
In conjunction with the Carefree acquisition, Bluegrass Real Estate
Company, a subsidiary of the Company, subsequently acquired the
Keystone Real Estate Company.
F. To record interest expense related to cash of $500,000 and subordinated
promissory note
(1) $500,000 X 10% = $ 50,000
(2) $1,507,111 X 8% = 120,569
--------
Total interest = $170,569
========
Note: Prime was assumed to be 8.5%
G. To eliminate other income totaling $8,500 for the 12 months ended
December 31, 1994.
H. To eliminate income tax benefit totaling $21,450 for the 12 months
ended December 31, 1994.
Balance Sheet - Keystone Real Estate Development Company, Inc.
--------------------------------------------------------------
I. To eliminate the intercompany receivable from Carefree Learning
Centers, Inc.
J. To record acquisition of assets and liabilities for $1.5 million in
cash, subordinated note totaling approximately $630,000, and the
refinancing of mortgages on the properties totaling $2.6 million at
December 31, 1994.
K. To record an increase in debt related to $1.5 million in cash for the
acquisition price.
Statement of Operations - Keystone Real Estate Development Company, Inc.
------------------------------------------------------------------------
L. To eliminate intercompany revenues of rental income.
M. To eliminate Keystone's expenses of salaries/wages and charges from
Pennsylvania Blue Shield.:
Salaries/Wages $144,594
Professional fees 12,600
Occupancy 7,815
Pennsylvania Blue Shield 6,040
--------
$171,049
========
N. To eliminate general and administrative expenses. Additions for
Keystone are included in Carefree's pro formas.
8
<PAGE>
O. To adjust interest expenses:
$1,500,000 x 10% = $150,000
$612,180 x 8% = 48,974
$2,647,178 at 8.5% (amortized payments) = 224,926
423,000
(already recorded) (292,019)
--------
Interest expense $131,181
========
P. To eliminate income taxes due to losses.
9
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Nobel Education Dynamics, Inc.
(Registrant)
Date: May 9, 1995 By: A.J. Clegg
---------------------------------------
Chairman, President and CEO
Date: May 9, 1995 By: Yvonne DeAngelo
-----------------------------
Controller and Secretary
10
<PAGE>
Exhibit 99
KEYSTONE REAL ESTATE
DEVELOPMENT COMPANY, INC.
(a wholly-owned subsidiary
of Keystone Ventures, Inc.)
REPORT ON AUDITS OF
FINANCIAL STATEMENTS
for the years ended
December 31, 1993 and 1992
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Keystone Real Estate Development
Company, Inc.
Exton, Pennsylvania
We have audited the accompanying balance sheets of Keystone Real
Estate Development Company, Inc. as of December 31, 1993 and 1992, and the
related statements of income, changes in stockholder's equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Com pany'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
misstate ment. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial state ments. An audit
also includes assessing the accounting princi ples 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 Keystone Real Estate
Development Company, Inc. as of December 31, 1993 and 1992, and the results of
its operations and its cash flows for the years then ended in conformity with
gener ally accepted accounting principles.
As discussed in Notes 1 and 5 to the financial state ments, the
Company changed its method of accounting for income taxes in 1993.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 26, 1994
1
<PAGE>
KEYSTONE REAL ESTATE DEVELOPMENT COMPANY, INC.
BALANCE SHEETS
as of December 31, 1993 and 1992
________
<TABLE>
<CAPTION>
ASSETS 1993 1992
---- ----
<S> <C> <C>
Buildings (net of accumulated
depreciation and amortization of
$299,550 and $137,083 for 1993
and 1992, respectively) $3,440,854 $3,597,164
Land 857,486 857,486
Prepaid expenses 65,167 85,410
Deferred rent 57,540 37,327
Other receivables - 10,000
Other assets 275 575
Cash and cash equivalents - -
---------- ----------
Total assets $4,421,322 $4,587,962
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
<CAPTION>
Liabilities:
Accounts payable and accrued expenses 24,736 36,758
Cash overdraft 12,235 8,578
Deferred income taxes 12,132 6,458
Due to affiliates:
Carefree Learning Centers, Inc. 11,151 5,504
Pennsylvania Blue Shield 15,170 15,696
Loan payable - Pennsylvania Blue
Shield 177,999 320,604
Long-term debt 2,677,454 2,708,632
---------- ----------
Total liabilities 2,930,877 3,102,230
---------- ----------
Stockholder's equity:
Common stock, $1 par value, 200,000
shares authorized; 100,000 issued
and outstanding 100,000 100,000
Additional paid-in capital 1,300,000 1,300,000
Retained earnings 90,445 85,732
---------- ----------
Total stockholder's equity 1,490,445 1,485,732
---------- ----------
Total liabilities and
stockholder's equity $4,421,322 $4,587,962
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements
2
<PAGE>
KEYSTONE REAL ESTATE DEVELOPMENT COMPANY, INC.
STATEMENTS OF INCOME
for the years ended December 31, 1993 and 1992
________
<TABLE>
<CAPTION>
1993 1992
---- ----
Rental income $ 613,955 $ 444,429
---------- ----------
<S> <C> <C>
Operating expenses:
Salaries, wages and benefits 132,979 66,486
Depreciation and amortization 162,762 118,063
Administrative and general 33,550 21,300
Professional fees 10,080 10,048
Site development costs 2,114 1,036
Occupancy 7,599 6,048
Pennsylvania Blue Shield service
charge 6,180 6,150
Interest 245,984 144,811
---------- ----------
Total operating expenses 601,248 373,942
---------- ----------
Operating income 12,707 70,487
---------- ----------
Other income:
Interest income - 2,430
---------- ----------
Total other income - 2,430
---------- ----------
Income before taxes 12,707 72,917
Provision for taxes 7,994 27,436
---------- ----------
Net income $ 4,713 $ 45,481
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements
3
<PAGE>
KEYSTONE REAL ESTATE DEVELOPMENT COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
for the years ended December 31, 1993 and 1992
________
<TABLE>
<CAPTION>
Common Stock
------------------- Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1991 100,000 $100,000 $1,300,000 $ 40,251 $1,440,251
Net income 45,481 45,481
------- -------- ---------- --------- ----------
Balance at December 31,
1992 100,000 100,000 1,300,000 85,732 1,485,732
Net income 4,713 4,713
------- ------- --------- --------- ----------
Balance at December 31,
1993 100,000 $100,000 $1,300,000 $ 90,445 $1,490,445
======= ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements
4
<PAGE>
KEYSTONE REAL ESTATE DEVELOPMENT COMPANY, INC.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1993 and 1992
_______
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income $ 4,713 $ 45,481
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 162,767 118,063
Changes in:
Prepaid expenses 20,243 (5,616)
Interest receivable - 1,702
Other receivables 10,000 (10,000)
Deferred income taxes 5,674 6,458
Due to affiliates (137,484) 4,579
Accounts payable and accrued
expenses (12,022) (242,784)
Deferred rent (20,213) (23,064)
--------- -----------
Net cash provided by (used for)
operating activities 33,678 (105,181)
--------- -----------
Cash flows from investing activities:
Capital expenditures (6,157) (1,634,563)
--------- -----------
Net cash used for investing
activities (6,157) (1,634,563)
--------- -----------
Cash flows from financing activities:
Proceeds from borrowings - 1,935,998
Payments made on long-term borrowings (31,178) (12,913)
Cash overdraft 3,657 (163,541)
Loan financing fees - (19,800)
--------- -----------
Net cash provided by (used for)
financing activities (27,521) 1,739,744
--------- -----------
Net decrease in cash and cash
equivalents - -
Cash and cash equivalents at
beginning of year - -
--------- -----------
Cash and cash equivalents at
end of year - -
======== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Income taxes $ 1,621 $ 5,443
========= ===========
Interest, net of amounts
capitalized $ 245,984 $ 144,811
========= ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements
5
<PAGE>
KEYSTONE REAL ESTATE DEVELOPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
_______
1. Summary of Significant Accounting Policies:
------------------------------------------
Description of the Business:
---------------------------
Keystone Real Estate Development Company, Inc. (the Company) is a wholly-
owned subsidiary of Keystone Ventures, Inc. (KVI, a wholly-owned subsidiary
of Pennsylvania Blue Shield). The Company was incorporated in 1989 for the
purpose of acquiring real estate and arranging construction of child day
care centers for lease to Carefree Learning Centers, Inc. (CLC), a wholly-
owned subsidiary of KVI. All of the Company's busi ness is conducted in
Pennsylvania. The Company has been leasing four centers as of December 31,
1993 and 1992.
Cash Equivalents:
----------------
The Company considers highly liquid securities purchased with a maturity
date of three months or less to be cash equiva lents.
Construction-in-Progress and Site Development Costs:
---------------------------------------------------
The Company capitalizes expenditures for legal and profes sional fees,
development costs and construction expenditures related to the acquisition
of land and construction of build ings. Accumulated expenditures for sites
which are rejected are expensed in the month management determines the site
will not be developed. Accumulated expenditures for sites accept ed are
transferred to the land and building accounts upon occupancy. Interest
costs for the construction of certain long-term assets are capitalized and
amortized over the related asset's estimated useful life. In 1993 and 1992,
the Company capitalized interest costs of $0 and $45,109, re spectively.
Income Taxes:
------------
The Company files a consolidated federal income tax return with Pennsylvania
Blue Shield (PBS) and its other subsidiar ies. Under the tax sharing
agreement with PBS, federal income taxes are calculated and allocated to the
Company as if it were a stand alone entity. The Company is also subject to
state income taxes.
Continued
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
_______
1. Summary of Significant Accounting Policies, continued:
-------------------------------------------
Income Taxes, continued:
------------
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to be
settled or realized. The 1992 financial statements have been restated to
give retroactive effect to the adoption of SFAS No. 109. (See Note 5).
Land and Buildings:
------------------
Land and buildings are carried at cost. Depreciation of buildings is
computed under the straight-line method over the estimated useful lives.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in operations.
2. Cash Management:
---------------
The Company has a cash management agreement with PBS. Under the terms of
the agreement, PBS funds the Company checking account daily as required and
any excess cash in the Company checking account is invested by PBS.
Invested balances earn interest at a rate equal to the prime rate minus 2%
computed monthly based on the average daily balance, as defined. There were
no invested balances during 1993 and 1992.
3. Related Party Transactions:
--------------------------
The Company shares corporate office space with CLC. CLC bills the Company a
pro rata share of the building operating expenses on a monthly basis. CLC
charged the Company $9,823 and $8,089 for operating expenses during the
years ended December 31, 1993 and 1992, respectively.
Continued
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
_______
3. Related Party Transactions, continued:
--------------------------
The Company has no full-time employees. Certain CLC corpo rate employees
spend a portion of their time on the opera tions of the Company. The
employees' salaries and related payroll taxes and benefits are paid by CLC.
CLC allocates and bills a portion of these expenses to the Company based on
employee time allocation. Intercompany charges for salaries, payroll taxes
and benefits were $132,979 and $66,486 for the years ended December 31, 1993
and 1992, respectively.
The Company incurs a monthly charge from PBS for services performed. The
services include investment administration and insurance monitoring. For
the years ended December 31, 1993 and 1992, the total service charges were
$6,180 and $6,150, respectively.
The Company has a line of credit from PBS of $720,000, of which $177,999 and
$320,604 was outstanding at December 31, 1993 and 1992, respectively. The
Company is required to use excess cash from its checking accounts to repay
the credit line. The outstanding balance bears interest at the prime rate
plus 1%. The credit line expires in September 1997 and renews annually
thereafter at the discretion of PBS. Inter est charged on this credit line
was $15,494 and $15,185 in 1993 and 1992, respectively. The prime rate of
interest was 6% at December 31, 1993 and 1992.
The Company incurs charges from KVI for services performed in conjunction
with the opening of new centers. For the years ended December 31, 1993 and
1992, the total service charges were $0 and $60,000, respectively. These
charges are capi talized with building costs and are amortized to expense on
a straight-line basis over a period of 72 months. The amorti zation was
$13,344 and $9,739 for the years ended Decem ber 31, 1993 and 1992,
respectively.
See Note 6 for a description of leasing arrangements with CLC.
Continued
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
_______
4. Reclassifications:
-----------------
The 1992 financial statements have been reclassified to show cash overdraft
apart from accounts payable and accrued expenses.
5. Income Taxes:
------------
The 1992 financial statements have been restated to give retroactive effect
to the adoption of SFAS 109. The impact of the adoption on the previously
issued financial statements is set forth below (there was no impact on
retained earnings at December 31, 1991, as originally reported).
Decrease in net income at December 31, 1992
as originally reported $19,237
The components of the provision for income taxes are summa rized below:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Federal:
Current $1,202 $12,779
Deferred 3,191 3,633
------ -------
4,393 16,412
------ -------
State:
Current 1,118 8,199
Deferred 2,483 2,825
------ -------
3,601 11,024
------ -------
Total $7,994 $27,436
====== =======
</TABLE>
The gross deferred tax assets of $16,981 ($9,311 in 1992) consist primarily
of future deductible amounts for deprecia tion. Management has concluded,
as a result of the Company's history of taxable earnings, that a full
valuation allowance be applied to the deferred tax assets.
The deferred tax liabilities of $12,132 ($6,458 in 1992) consist primarily
of future taxable deferred rent.
The Company's effective tax rate of 63% and 38% in 1993 and 1992,
respectively, differs from the statutory rate of 34% primarily due to the
valuation allowance being provided for future deductible amounts.
Continued
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
_______
6. Long-Term Debt:
--------------
The Company has entered into various bank debt agreements to finance the
construction of certain child care centers. A summary of long-term debt at
December 31, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Dated October 4, 1990, due in
monthly installments of
$725 plus interest at a vari-
able rate (7.25% and 9.25%
at December 31, 1993 and
1992,respectively); final
maturity in May 1996 with
a balloon payment of
approximately $705,000 (a) $ 724,075 $ 732,775
Dated October 1, 1992, interest
at prime plus 3%; principal
and interest payments due
monthly; final maturity in
October, 1997 with a balloon
payment of approximately
$622,000 (b) 650,691 658,221
Dated November 1, 1992, interest at
prime plus 3%; principal and
interest payments due monthly;
final maturity in November,
1997 with a balloon payment of
approximately $622,000 (b) 651,344 658,818
Dated November 1, 1992, interest at
prime plus 3%; principal and
interest payments due monthly;
final maturity in November,
1997 with a balloon payment of
approximately $622,000 (b) 651,344 658,818
---------- ----------
Totals $2,677,454 $2,708,632
========== ==========
</TABLE>
(a) Pursuant to the debt agreement, the Company's assets and revenues
relating to the child day care center construct ed with this loan are
pledged as collateral and the loan is guaranteed by CLC and KVI.
Continued
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
________
6. Long-Term Debt, continued:
--------------
(b) These loans are collateralized by the underlying real estate and are
guaranteed by CLC and KVI. The prime rate of interest was 6% at
December 31, 1993 and 1992.
Maturities of long-term debt for each of the years in the period ending
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1994 $ 30,695
1995 31,498
1996 730,191
1997 1,885,070
1998 -
----------
$2,677,454
==========
</TABLE>
7. Leases:
------
The Company leases all of its various building facilities to CLC under
noncancellable operating leases which expire on various dates through 1998.
The leases contain escalation clauses which provide for periodic rent
increases of 8%. Rental income for the years ended December 31, 1993 and
1992 was $613,955 and $444,429, respectively.
Future minimum rental payments for these operating leases are as follows:
<TABLE>
<S> <C>
1994 $ 602,109
1995 628,187
1996 641,242
1997 527,297
1998 204,120
Thereafter -
----------
$2,602,955
==========
</TABLE>
11
<PAGE>
Exhibit 99.1
KEYSTONE REAL ESTATE
DEVELOPMENT COMPANY, INC.
(a wholly-owned subsidiary
of Keystone Ventures, Inc.)
_______
REPORT ON AUDITS OF
FINANCIAL STATEMENTS
for the years ended
December 31, 1994 and 1993
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Keystone Real Estate Development
Company, Inc.
Exton, Pennsylvania
We have audited the accompanying balance sheets of Keystone Real Estate
Development Company, Inc. as of December 31, 1994 and 1993, and the related
statements of income, changes in stockholder's equity 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 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 Keystone Real Estate
Development Company, Inc. as of December 31, 1994 and 1993, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 27, 1995
1
<PAGE>
KEYSTONE REAL ESTATE DEVELOPMENT COMPANY, INC.
BALANCE SHEETS
as of December 31, 1994 and 1993
_______
<TABLE>
<CAPTION>
ASSETS 1994 1993*
---------- ----------
<S> <C> <C>
Buildings (net of accumulated
depreciation and amortization of
$462,984 and $299,550 for 1994
and 1993, respectively) $3,275,806 $3,440,854
Land 1,211,691 857,486
Construction-in-progress 193,213 -
Prepaid expenses 8,052 8,063
Deferred rent 69,386 57,540
Other assets 42,236 57,379
---------- ----------
Total assets $4,800,384 $4,421,322
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses 26,850 24,736
Cash overdraft 20,469 12,235
Deferred income taxes 13,201 12,132
Due to affiliates:
Carefree Learning Centers, Inc. 11,645 11,151
Pennsylvania Blue Shield 10,062 15,170
Loan payable - Pennsylvania Blue
Shield 612,180 177,999
Long-term debt 2,647,714 2,677,454
---------- ----------
Total liabilities 3,342,121 2,930,877
---------- ----------
Stockholder's equity:
Common stock, $1 par value, 200,000
shares authorized; 100,000 issued
and outstanding 100,000 100,000
Additional paid-in capital 1,300,000 1,300,000
Retained earnings 58,263 90,445
---------- ----------
Total stockholder's equity 1,458,263 1,490,445
---------- ----------
Total liabilities and
stockholder's equity $4,800,384 $4,421,322
========== ==========
</TABLE>
*Reclassified for comparative purposes.
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
KEYSTONE REAL ESTATE DEVELOPMENT COMPANY, INC.
STATEMENTS OF INCOME
for the years ended December 31, 1994 and 1993
_______
<TABLE>
<CAPTION>
1994 1993*
-------- --------
<S> <C> <C>
Rental income $614,809 $613,955
-------- --------
Operating expenses:
Salaries, wages and benefits 144,594 132,979
Depreciation and amortization 162,209 162,762
Administrative and general 16,328 18,682
Professional fees 12,600 10,080
Site development costs - 2,114
Occupancy 7,815 7,599
Pennsylvania Blue Shield service
charge 6,040 6,180
Interest 292,019 260,852
-------- --------
Total operating expenses 641,605 601,248
-------- --------
(Loss) income before taxes (26,796) 12,707
Provision for taxes 5,386 7,994
-------- --------
Net (loss) income $(32,182) $ 4,713
======== ========
</TABLE>
* Reclassified for comparative purposes.
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
KEYSTONE REAL ESTATE DEVELOPMENT COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
for the years ended December 31, 1994 and 1993
_______
<TABLE>
<CAPTION>
Common Stock
----------------- Paid-in Retained
Shares Amount Capital Earnings Total
------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1992 100,000 $100,000 $1,300,000 $ 85,732 $1,485,732
Net income 4,713 4,713
------- -------- ---------- -------- ----------
Balance at December 31,
1993 100,000 100,000 1,300,000 90,445 1,490,445
Net loss (32,182) (32,182)
------- -------- ---------- -------- ----------
Balance at December 31,
1994 100,000 $100,000 $1,300,000 $ 58,263 $1,458,263
======= ======== ========== ======== ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
4
<PAGE>
KEYSTONE REAL ESTATE DEVELOPMENT COMPANY, INC.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1994 and 1993
_______
<TABLE>
<CAPTION>
1994 1993*
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (32,182) $ 4,713
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 177,077 184,863
Changes in:
Prepaid expenses and other assets (587) (1,853)
Other receivables - 10,000
Deferred income taxes 1,667 5,674
Due to affiliates (4,614) 5,121
Accounts payable and accrued
expenses 2,114 (12,022)
Deferred rent (11,846) (20,213)
--------- ---------
Net cash provided by
operating activities 131,629 176,283
--------- ---------
Cash flows from investing activities:
Capital expenditures (544,304) (6,157)
--------- ---------
Net cash used for investing
activities (544,304) (6,157)
--------- ---------
Cash flows from financing activities:
Increase (decrease) on line of credit
- PBS 434,181 (142,605)
Payments made on long-term borrowings (29,740) (31,178)
Cash overdraft 8,234 3,657
--------- ---------
Net cash provided by (used for)
financing activities 412,675 (170,126)
--------- ---------
Net change in cash and cash
equivalents - -
Cash and cash equivalents at
beginning of year - -
--------- ---------
Cash and cash equivalents at
end of year - -
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Income taxes $ 2,703 $ 1,621
========= =========
Interest, net of amounts
capitalized $ 277,150 $ 245,984
========= =========
</TABLE>
* Reclassified for comparative purposes.
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
KEYSTONE REAL ESTATE DEVELOPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
_______
1. Summary of Significant Accounting Policies:
------------------------------------------
Description of the Business:
---------------------------
Keystone Real Estate Development Company, Inc. (the Company) is a wholly-
owned subsidiary of Keystone Ventures, Inc. (KVI, a wholly-owned subsidiary
of Pennsylvania Blue Shield). The Company was incorporated in 1989 for the
purpose of acquiring real estate and arranging construction of child day
care centers for lease to Carefree Learning Centers, Inc. (CLC), a wholly-
owned subsidiary of KVI. All of the Company's business is conducted in
Pennsylvania.
Construction-in-Progress and Site Development Costs:
---------------------------------------------------
The Company capitalizes expenditures for legal and professional fees,
development costs and construction expenditures related to the acquisition
of land and construction of buildings. Accumulated expenditures for sites
which are rejected are expensed in the month management determines the site
will not be developed. Accumulated expenditures for sites accepted are
transferred to the land and building accounts upon occupancy. Interest
costs for the construction of certain long-term assets are capitalized and
amortized over the related asset's estimated useful life.
Income Taxes:
------------
The Company files a consolidated federal income tax return with Pennsylvania
Blue Shield (PBS) and its other subsidiaries. Under the tax sharing
agreement with PBS, federal income taxes are calculated and allocated to the
Company as if it were a stand alone entity. The Company is also subject to
state income taxes.
Continued
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
_______
1. Summary of Significant Accounting Policies, continued:
-------------------------------------------
Income Taxes, continued:
------------
The Company accounts for income taxes based on the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to be
settled or realized.
Land and Buildings:
------------------
Land and buildings are carried at cost. Depreciation of buildings is
computed under the straight-line method over the estimated useful lives.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in operations.
2. Cash Management:
---------------
The Company has a cash management agreement with PBS. Under the terms of
the agreement, PBS funds the Company checking account daily as required and
any excess cash in the Company checking account is invested by PBS.
Invested balances earn interest at a rate equal to the prime rate minus 2%
computed monthly based on the average daily balance, as defined. There were
no invested balances during 1994 and 1993.
Continued
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
_______
3. Related Party Transactions:
--------------------------
The Company shares corporate office space with CLC. CLC bills the Company a
pro rata share of the building operating expenses on a monthly basis. CLC
charged the Company $9,953 and $9,823 for operating expenses during the
years ended December 31, 1994 and 1993, respectively.
The Company has no full-time employees. Certain CLC corporate employees
spend a portion of their time on the operations of the Company. The
employees' salaries and related payroll taxes and benefits are paid by CLC.
CLC allocates and bills a portion of these expenses to the Company based on
employee time allocation. Intercompany charges for salaries, payroll taxes
and benefits were $144,594 and $132,494 for the years ended December 31,
1994 and 1993, respectively.
The Company incurs a monthly charge from PBS for services performed. The
services include investment administration and insurance monitoring. For
the years ended December 31, 1994 and 1993, the total service charges were
$6,040 and $6,180, respectively.
The Company has a line of credit from PBS of $720,000, of which $612,180 and
$177,999 was outstanding at December 31, 1994 and 1993, respectively. The
Company is required to use excess cash from its checking accounts to repay
the credit line. The outstanding balance bears interest at the prime rate
plus 1%. The credit line expires in September 1997 and renews annually
thereafter at the discretion of PBS. Interest charged on this credit line
was $20,742 and $15,494 in 1994 and 1993, respectively. The prime rate of
interest was 8.5% and 6% at December 31, 1994 and 1993, respectively.
The Company incurs charges from KVI for services performed in conjunction
with the opening of new centers. These charges are capitalized with
building costs and are amortized to expense on a straight-line basis over a
period of 72 months. The amortization was $13,344 for the years ended
December 31, 1994 and 1993.
See Note 6 for a description of leasing arrangements with
CLC.
Continued
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
_______
<TABLE>
<CAPTION>
4. Income Taxes:
-------------
The components of the provision for income taxes are summarized below:
1994 1993
------ ------
<S> <C> <C>
Federal:
Current $ 943 $1,202
Deferred 1,069 3,191
------ ------
2,012 4,393
------ ------
State:
Current 2,776 1,118
Deferred 598 2,483
------ ------
3,374 3,601
------ ------
Total $5,386 $7,994
====== ======
</TABLE>
The gross deferred tax assets of $22,734 ($16,981 in 1993) consist primarily
of future deductible amounts for depreciation. Management has concluded, as
a result of the Company's history of taxable earnings, that a full valuation
allowance be applied to the deferred tax assets.
The deferred tax liabilities of $13,201 ($12,132 in 1993) consist primarily
of future taxable deferred rent.
The Company's effective tax rates of 20% and 63% in 1994 and 1993,
respectively, differ from the statutory rate of 34% primarily due to the
valuation allowance being provided for future deductible amounts and state
income taxes.
Continued
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
______
5. Long-Term Debt:
--------------
The Company has entered into various bank debt agreements to finance the
construction of certain child care centers. A summary of long-term debt at
December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Dated October 4, 1990, due in
monthly installments of
$725 plus interest at a vari-
able rate (9.75% and 7.25%
at December 31, 1994 and
1993,respectively); final
maturity in May 1996 with
a balloon payment of
approximately $705,000 (a) $715,377 $724,075
Dated October 1, 1992, interest
at prime plus 3%; principal
and interest payments due
monthly; final maturity in
October, 1997 with a balloon
payment of approximately
$622,000 (b) 643,639 650,691
Dated November 1, 1992, interest at
prime plus 3%; principal and
interest payments due monthly;
final maturity in November,
1997 with a balloon payment of
approximately $622,000 (b) 644,349 651,344
Dated November 1, 1992, interest at
prime plus 3%; principal and
interest payments due monthly;
final maturity in November,
1997 with a balloon payment of
approximately $622,000 (b) 644,349 651,344
---------- ----------
Totals $2,647,714 $2,677,454
========== ==========
</TABLE>
(a) Pursuant to the debt agreement, the Company's assets and revenues
relating to the child day care center constructed with this loan are
pledged as collateral and the loan is guaranteed by CLC and KVI.
Continued
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
______
5. Long-Term Debt, continued:
--------------
(b) These loans are collateralized by the underlying real estate and are
guaranteed by CLC and KVI. The prime rate of interest was 8.5% and 6%
at December 31, 1994 and 1993, respectively. These loans contain
prepayment penalty clauses.
Maturities of long-term debt for each of the years in the period ending
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 31,498
1996 730,191
1997 1,886,025
1998 -
1999 -
----------
$2,647,714
==========
</TABLE>
6. Leases:
------
The Company leases all of its various building facilities to CLC under
noncancellable operating leases which expire on various dates through 1998.
The leases contain escalation clauses which provide for periodic rent
increases of 8%. Rental income for the years ended December 31, 1994 and
1993 was $614,809 and $613,955, respectively.
Future minimum rental payments for these operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $628,187
1996 641,242
1997 527,297
1998 204,120
Thereafter -
----------
$2,000,846
==========
</TABLE>
Continued
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
_____
7. Commitments:
-----------
On November 10, 1994, the Company entered into a 20 year ground lease with
an unrelated party, for the construction of a child care center, subject to
approval by the township. The lease will commence on the earlier of the day
the child care center opens for business or 150 days after commencement of
construction (expected commencement of construction is March 15, 1995). The
minimum annual rental payments are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year 1 $30,000
Years 2-4 33,000
Years 5-7 35,000
Years 8-10 38,000
Years 11-20 41,800
</TABLE>
Aggregate minimum lease payments under this agreement are approximately
$766,100.
On October 14, 1994, the Company entered into an agreement with an unrelated
party to borrow $876,400 for development and construction financing and
permanent mortgage financing of a day care center. As of December 31, 1994,
no amounts had been outstanding.
The Company has commitments under agreement for the construction of this
child care center. A portion of the construction under these agreements was
not completed at year-end and is not reflected in the financial statements.
This unrecorded commitment amounted to approximately $800,000 at year-end
1994.
8. Possible Sale of Assets:
-----------------------
The Company has entered into a letter of intent to sell all the assets of
the Company. Consummation of the transaction is, among other things,
subject to due diligence by the buyer and execution of a definitive
agreement.
12
<PAGE>
February 24, 1995
Ms. B. Robin Eglin
Vice President
Keystone Real Estate Development
Company, Inc.
Stoneridge Office Park
180 Sheree Boulevard, Suite 3700
Exton, PA 19341
Dear Ms. Eglin:
Enclosed are fifteen copies each of our reports on audits of financial
statements of Keystone Real Estate Development Company, Inc. and Carefree
Learning Centers, Inc. for the years ended December 31, 1994 and 1993.
Very truly yours,
Enclosures 30
