<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Quantum Learning Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
QUANTUM LEARNING SYSTEMS, INC.
1111 SW 17th Street
Ocala, Florida 34474
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 5, 1996
TO OUR SHAREHOLDERS:
Notice is hereby given that Special Meeting of Shareholders (the
Meeting") of QUANTUM LEARNING SYSTEMS, INC. (the Company"), a Nevada
corporation, will be held at 2525 Coral Way, Third Floor, Miami, Florida
33129, on August 5, 1996, at 10:00 a.m., local time. A Proxy Card and a Proxy
Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of seven (7) directors to the Board of Directors of
the Company, to serve until their resignation or removal from office, or
until their respective successors are elected and qualified;
2. The ratification and approval of the action of the Company's Board
of Directors to effect the acquisition of a minimum of 65% and a maximum of
100% of the issued and outstanding shares of Corporacion Pipasa, S.A. and the
simultaneous disposition of all present subsidiaries of the Company;
3. Approval to amend the Company's Articles of Incorporation to
increase the number of authorized common shares from 20,000,000 shares at
$.001 par value to 60,000,000 shares at $.001 par value
4. Approval of the change of the Company's name to Costa Rica
International, Inc., or some derivation thereof;
5. The ratification of T. Allan Walls, CPA as the Company's auditors
for the fiscal year ended June 30, 1996; and
6. Consideration of any matters which may properly come before the
Meeting, or any adjournment thereof. At this time, the Board of Directors is
not aware of any other business to come before the Meeting.
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Any action may be taken on any one of the foregoing proposals at the
Meeting on the date specified above or on any date or dates to which the
Meeting may be adjourned. Only shareholders of record as of the close of
business on July 1, 1996 are entitled to notice of and to vote at the
Meeting. The stock transfer books of the Company will remain open. There is
printed on the following pages a Proxy Statement to which your attention is
invited. Please read it carefully.
You are requested to fill in and sign the enclosed form of Proxy which
is solicited by the Board of Directors and to mail it promptly in the
enclosed envelope. The Proxy will not be used if you attend and vote at the
Meeting in person.
By Order of the Board of Directors
James K. Isenhour, Chairman
Ocala, Florida
July 15, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE
NUMBER YOU OWN. EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN
THE ENCLOSED POSTAGE PREPAID, ADDRESSED ENVELOPE. IF YOU ATTEND
THIS MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY
PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY
TIME PRIOR TO THE EXERCISE THEREOF.
2
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QUANTUM LEARNING SYSTEMS, INC.
1111 SW 17th Street
OCALA, FLORIDA 34474
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 5, 1996
INTRODUCTORY STATEMENT
This Proxy Statement and accompanying Proxy are furnished in connection
with a solicitation of Proxies by the Board of CCR, Inc. (the Company") for
use at the Special Meeting of Shareholders of the Company, to be held at 2525
Coral Way, Third Floor, Miami, Florida 33129, on August 5, 1996, at 10:00
a.m., local time, for the purposes set forth in the accompanying Notice of
Special Meeting of Shareholders.
Shareholders of record at the close of business on July 1, 1996 will be
entitled to receive notice of and to vote at the meeting. Each share of
common stock is entitled to one vote for each matter submitted to a vote at
the meeting. Shares represented by executed and unrevoked Proxies will be
voted in accordance with the specifications made thereon. If the enclosed
form of Proxy is executed and returned, it nevertheless may be revoked by
giving another Proxy or by letter or telegram directed to the Company. Any
such revocation must show the shareholder's name and must be received prior
to the commencement of the meeting in order to be effective. Additionally,
any shareholder attending the meeting in person, who wishes to do so, may
vote by ballot at the meeting, thereby canceling any Proxy previously given.
Where no instructions are indicated, Proxies will be voted FOR" the nominees
for directors indicated below and FOR" the proposals to be considered at the
Special Meeting or any adjournment thereof. Proxy materials will be mailed
to shareholders of record on or about July 15, 1996.
VOTING SECURITIES, PRINCIPAL HOLDERS AND SECURITY
OWNERSHIP OF MANAGEMENT
The approval of each of the proposals set forth in this Proxy Statement
requires the affirmative vote of a majority of the shares actually voted on
such proposal, except that the amendment to the Company's Articles of
Incorporation requires the affirmative vote of a majority of shares entitled
to be voted at the Meeting.
All voting rights are vested exclusively in the holders of the Company's
$.0001 par value common stock, with each share entitled to one vote. Only
shareholders of record at the close of business on July 1, 1996 are entitled
to notice of and to vote at the meeting and any adjournment
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thereof. As of March 30, 1996, the Company had 4,271,027 shares of common
stock outstanding.
The following sets forth the number of shares of the Registrant's $.0001
par value common stock beneficially owned by (i) each person who, as of June
30, 1995, was known by the Company to own beneficially more than five percent
(5%) of its common stock, (ii) the individual Directors of the Registrant,
and (iii) the Officers and Directors of the Registrant as a group.
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership(1)(2) Class
- --------------------------------------------------------------------------------
James K. Isenhour (3) (3)
1111 S.W. 17th Street
Ocala, Florida 34474
Walter S. Snead III 500,001(4) 11.5%
1111 S.W. 17th Street
Ocala, Florida 34474
David Miller 458,334(4) 10.5%
1111 S.W. 17th Street
Ocala, Florida 34474
Tanzee Nahas (3) (3)
1111 S.W. 17th Street
Ocala, Florida 34474
Seacoast Electric 625,000(3) 14.4%
1111 S.W. 17th Street
Ocala, Florida 34474
W.T. Young 406,766(5) 9.3%
8347 Up River Road
Corpus Christi, Texas 78409
Ram Financial Consultants 293,334 6.7%
1111 S.W. 17th Street
Ocala, Florida 34474
Alfred E. Smith, IV(6) -0-
20 Broad Street, 16th Floor
New York, New York 10005
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A. Douglas Brown, Jr.(7) -0-
1111 S.W. 17th Street
Ocala, Florida 34474
All Officers and Directors 1,125,001(8) 25.9%
as a Group (four persons) (8)
- --------------------
(1) All ownership is beneficial and of record except as specifically
indicated otherwise.
(2) Beneficial owners listed above have sole voting and investment power
with respect to the shares shown unless otherwise indicated.
(3) Mr. Isenhour and Ms. Nahas, who are husband and wife, own no shares of
record but control Seacoast Electric, which is itself a shareholder of
the Company. Their daughter, Taylar Isenhour, owns 66,667 shares, for
which they disclaim any beneficial ownership.
(4) Includes all shares owned individually by Mr. Snead and his wife
(150,000 shares), in partnership with his son, Walter Snead IV (8,334
shares), and in partnership with David Miller, a former employee of
Sentient (341,667 shares). Mr. Miller owns an additional 116,667
shares in his own name.
(5) The children of E. Glen Young own an aggregate of approximately 4,300
shares for which Mr. Young disclaims any beneficial ownership. A
daughter and two grandchildren of W.T. Young own a negligible amount
of common stock in the Company, for which Mr. Young disclaims any
beneficial ownership.
(6) In May, 1994, Alfred E. Smith, IV received warrants to purchase 50,000
common shares of the Company at $.50 per share for a period of five
years. In August, 1995, Mr. Smith received warrants to purchase an
additional 50,000 common shares of the Company at $.10 per share for a
period of five years. As of the date hereof, none of these warrants
have been exercised.
(7) In August, 1995, A. Douglas Brown, Jr. received warrants to purchase
100,000 common shares of the Company at $.10 per share for a period of
five years. As of the date hereof, none of these warrants have been
exercised.
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(8) Includes the common shares owned by Seacoast Electric, which is
controlled by Mr. Isenhour and Ms. Nahas, but does not include the
common shares owned by the Youngs, who are not officers or directors
of the Company.
INFORMATION REGARDING THE COMPANY AND INCORPORATION BY REFERENCE
This proxy statement is accompanied by a copy of its latest Annual
Report and Form 10-QSB as of March 31, 1996. The Company hereby incorporates
by reference its latest annual report on Form 10-KSB and all other reports
since the end of the Company's fiscal year filed pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended.
ACTION TO BE TAKEN UNDER THE PROXY
Proxies in the accompanying form that are properly executed and returned
will be voted at the Special Meeting in accordance with the instructions
thereon. Any proxy upon which no instructions have been indicated with
respect to a specific matter will be voted as follows with respect to such
matter: (a) "FOR the election of the seven (7) persons named in this Proxy
Statement as Management's nominees for election to the Board of Directors;
(b) "FOR" the approval and ratification of the acquisition of a minimum of
65% and a maximum of 100% of the issued and outstanding shares of Corporacion
Pipasa, S.A. and the simultaneous disposition of all present subsidiaries of
the Company; (c) "FOR amendment to the Company's Articles of Incorporation
to increase the number of authorized common shares from 20,000,000 shares at
$.001 par value to 60,000,000 shares at $.001 par value; (d) "FOR" amendment
to the Company's Articles of Incorporation to change the name of the Company
to "Costa Rica International, Inc." or some derivation thereof; (e) "FOR" the
ratification of T. Allan Walls, CPA as the Company's independent public
accountants for the fiscal year ended June 30, 1996; and (f) "FOR the
transaction of any other business to come before the Meeting, in the
discretion of the holders of such Proxies.
Management knows of no other matters, other than those stated above, to
be presented for consideration at the Meeting. If, however, any other matters
properly come before the Meeting, the persons named in the enclosed proxy
intend to vote such proxy in accordance with their judgement on such matters.
The persons named in the enclosed proxy may also, if they deem it advisable,
vote such proxy to adjourn the Meeting from time to time.
ELECTION OF DIRECTORS
It is proposed that seven (7) of Directors be elected to the Board of
Directors of the Company, each such Director to hold office until the next
annual meeting of shareholders or until their successors are elected and
qualified. Two of the nominees are current directors and three are new
Directors who have been recommended by the management of the Company. The
nominees for the Board of Directors are as follows:
4
<PAGE>
CALIXTO CHAVES ZAMORA. Mr. Chaves is a candidate for the Board of Directors
of the Company. He was the founder and President of Corporacion Pipasa, S.A.
from its inception in 1969 to the present. He is also the founder and
President of Aero Costa Rica, S.A., a private Costa Rican airline. He is
currently on the Boards of Directors of Central American Oils and
Derivatives, S.A., the Administrative Consultancy of CODESA (Costa Rican
Development Corporation), and American Oleaginous Industry. From 1994 to
1996, he was a Board member of Cervacaria Americana, a private brewery. In
1994, he served as an advisor to the Ministry of Economic Business Affairs.
From 1983 to 1985, he was a member of the Board of Directors of the Sugar
Cane Agricultural League. From 1982 to 1986, he served in the Costa Rican
Ministry of Industry, Energy and Mines and became the Minister of Natural
Resources in 1986. From 1982 to 1986, he was a member of the Board of
Directors of MINASA, a Costa Rican mining company. Mr. Chaves was the founder
of the Chamber of Industries in the Costa Rican province of Heredia. From
1973 to 1974, he was President of the Board of Directors of Banco Nacional de
Belen. He will devote a minimum of 40 hours per week to the affairs of the
Company.
DR. OSCAR ARIAS SANCHEZ. Dr. Arias is a candidate for the Board of Directors
of the Company. He was served in a number of political offices in Costa Rica
during his career. From 1986 to 1990, he was the President of Costa Rica. He
has also served in the Legislative Assembly of Costa Rica and as the
Secretary-General of the National Liberation Party of Costa Rica. Since his
term as President of Costa Rica, Dr. Arias has served on a number of
international advisory boards and philanthropic organizations. He is the 1987
recipient of the Nobel Peace Prize. He also received the Martin Luther King
Peace Prize in 1987. In 1989, he received the Albert Schweitzer Humanitarian
Award. He has received a number of other awards and over twenty honorary
doctorates from universities and colleges throughout the world. He has
received medals from the countries of Columbia, Peru, Mexico, Spain,
Argentina, and Honduras, as well as the Order of Malta from the Vatican. Dr.
Arias is the author of numerous articles. He will devote such time as may be
necessary to fulfill his obligations as an outside director of the Company.
DR. FEDERICO VARGAS PERALTA. Dr. Vargas is a candidate for the Board of
Directors of the Company. He has served as a Professor of Economics and
Social Sciences at the University of Costa Rica from 1963 to the present. Dr.
Vargas has been involved in extensive political activities since 1974. From
1990 to 1994, he served as a Deputy in the Costa Rican Assembly. From 1993 to
1994, he was Chairman of the Legislative Section of the National Liberation
Party of Costa Rica. Prior to 1990, Dr. Vargas held a number of political
offices, including Ambassador of Costa Rica to the United States, Ambassador
of Costa Rica to the Organization of American States, Counsellor to the
President of Costa Rica in Finance and External Debt, with the rank of
Minister, and Economics Advisor to the President of Costa Rica. His teaching
activities included serving as the Chairman of Economists, Instituto de
Investigaciones Economices, University of Costa Rica and Director of the
Economics Department, School of Economics and Social Sciences, University of
Costa Rica. Dr. Vargas serves on the Boards and advisory bodies of numerous
charitable and educational organizations and is the author of a number of
publications in economic and educational matters. He obtained his Bachelors
in Business Administration from Nichols College in Massachusetts in 1954 and
his PhD from the University of Costa Rica in 1967. He has also
5
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attended the Wharton School of Finance and Commerce at the University of
Pennsylvania. He will devote such time as may be necessary to fulfill his
obligations as an outside director of the Company.
LIC. JORGE M. QUESADA CHAVES. Mr. Quesada is a candidate for the Board of
Directors of the Company. He has held numerous positions with Corporacion
Pipasa, S.A. since 1985 and has been Executive Vice President since 1990. He
has been a member of the Boards of Directors of Banco Fomento Agricola since
1991 and of Aero Costa Rica, S.A. since 1996. From 1987 to 1991, he was on
the Board of Directors of Finianciere Belen, S.A. Mr. Quesada has conducted
numerous seminars regarding marketing issues. He obtained his Licenciate in
Business Administration, with emphasis on Public Accounting, from the
University of Costa Rica in 1984. He will devote a minimum of 40 hours per
week to the affairs of the Company.
LUIS J. LAUREDO. Mr. Lauredo is a candidate for the Board of Directors of the
Company. From 1995 to the present, he has been the Director of the
International Consulting Group for the law firm of Greenberg Traurig, of
Miami, Washington, and New York. From 1994 to 1995, he was Executive Director
of the Summit of the Americas, a non-profit organization. From 1992 to 1994,
he was a Commissioner on the Florida Public Service Commission, as well as
Chairman of the International Relations Committee of the National Association
of Regulatory Utility Commissioners. From 1989 to the present, he has also
been the owner of Occidental Aviation, of Miami. In his career, Mr Lauredo
has held a number of positions in the banking industry. He has served on
numerous advisory committees, including the Export-Import Bank of the U.S.
He has represented the President of the United States as special U.S.
Ambassador to the inaugurations of the Presidents of Columbia, Venezuela,
Brazil, and Costa Rica. He also served as a founding Director of the Hispanic
Council on Foreign Affairs (Washington, D.C.). Mr. Lauredo received his B.A.
from Columbia University in New York City and has attended the University of
Madrid in Spain and Georgetown University Law Center in Washington, D.C. He
will devote such time as may be necessary to fulfill his obligations as an
outside director of the Company.
ALFRED E. SMITH, IV. Mr. Smith has been a director of the Company since June
1, 1994. He was a partner of the New York Stock Exchange member firm of
Adler, Coleman & Co., Inc. from 1979 to 1994. Since 1994, he has been with
CMJ Partners, a New York Stock Exchange member firm. In September, 1994,
Adler, Coleman & Co. sold the Adler, Coleman Clearing division to an
unaffiliated third party. In February, 1995, the entity which acquired the
Adler, Coleman Clearing division filed for bankruptcy protection under
Chapter 11. Mr. Smith is a member of the Government Relations Committee of
the New York Stock Exchange, Director and Secretary of the Alfred Emanuel
Smith Memorial Foundation, Chairman of the Cardinal's Committee for the
Laity-Wall Street Division, Director of the Center for Hope, a Trustee of St.
Vincent's Hospital, and a Trustee of Iona Prep School. He is a member of the
New York City Advisory Board of the Enterprise Foundation and the American
Association of the Sovereign Military Order of Malta. He has received
numerous awards for his charity and humanitarian work. Mr. Smith was educated
at Villanova University.
6
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JAMES K. ISENHOUR. Mr. Isenhour became a Director, Chairman and Chief
Executive Officer of the Company in August of 1991. He was also President
from 1991 to 1993. From 1985 to 1994, he was involved with Ram Financial
Consultants, Inc., a private corporation which has extensive experience in
securities related businesses. Mr. Isenhour is one of the founders of
Cambridge Academy, currently a wholly-owned subsidiary of the Company. Mr.
Isenhour has served on the school's Board of Directors since 1979. He was
appointed as President of Cambridge in 1981 and served in this capacity until
Tanzee Nahas, his wife and business partner and a Director of the Company,
was appointed to fill the position.
Mr. Isenhour is certified as a master electrician. He started an
electrical contracting business at the age of 23. He went on to become a
general contractor and developer of multi-family housing. He has been the
Chief Executive Officer of Sea Coast Electric, Inc., a private family
corporation, since 1981.
It is the intention of the persons named in the accompanying form of
Proxy to vote such Proxy FOR the election of the persons listed below, unless
shareholders specifically indicate in their Proxies that they desire to
abstain from voting for the electing of certain Directors to office. The
Board of Directors does not contemplate that any nominee will be unable to
serve as a Director for any reason, but if that should occur prior to the
meeting, the Board of Directors reserves the right to substitute another
person(s) of their choice as nominee(s). Each nominee must be approved by an
affirmative vote of a majority of the quorum of the shares present and
entitled to vote at the Special Meeting of Shareholders. The Board of
Directors recommends that shareholders vote FOR the election of each nominee.
VOTING
Pursuant to the terms of the Company's Articles of Incorporation every
shareholder voting for the election of directors is entitled to one vote for
each share. A shareholder may vote each share once for one nominee to each
of the director positions being filled. A shareholder may not accumulate
votes.
The Board of Directors intends to vote the Proxies solicited by it
(other than Proxies in which the vote is withheld as to one or more nominees)
for the seven candidates standing for election as directors nominated by the
Board of Directors. If any nominee is unable to serve, the shares
represented by all valid Proxies will be voted for the election of such
substitute as the Board of Directors may recommend. At this time the Board
of Directors knows of no reason why any nominee might be unavailable to serve.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
With the exception of the Compensation Committee established solely to
administer its compensation plan to third parties (which does not include
Company executives) under its Form S-8 registration, the Company has no
committees of the Board of Directors. All members of the
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Board of Directors of the Company acted as the Executive Compensation
Committee, participated in deliberations and made decisions concerning
executive officer compensation during the course regular Board Meetings. This
Compensation Committee, which is composed of three members of the Board of
Directors, James K. Isenhour (Chairman), Tanzee Nahas, and A. Douglas Brown,
Jr., had one meeting during the fiscal year ended June 30, 1995. No
incumbent director of the Company attended fewer then seventy-five percent
(75%) of total meetings of the Board of Directors. The Board of Directors
conducted three meetings during the fiscal year ended June 30, 1995.
The Directors and Executive Officers of the Company, their ages and
present positions held in the Company are as follows:
NAME AGE POSITION HELD
- ------------------------ ------- ---------------------------
James K. Isenhour 47 Chief Executive
Officer, Chairman, President
Treasurer and Director
Tanzee Nahas 43 Secretary and Director
A. Douglas Brown, Jr. 52 Director
Alfred E. Smith, IV 44 Director
The Company's Directors will serve in such capacity until the next
annual meeting of the Company's shareholders and until their successors have
been elected and qualified. The officers serve at the discretion of the
Company's Directors. Other than James K. Isenhour and Tanzee Nahas, the
Company's President and Director and Vice President and Director,
respectively, being husband and wife, there are no familial relationships
among the Company's officers and directors, nor are there any arrangements or
understanding between any of the directors or officers of the Company or any
other person pursuant to which any officer or director was or is to be
selected as an officer or director.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Securities Exchange Act of 1934 (the "34 Act")
requires the Company's officers and directors and persons owning more than
ten percent of the Company's Common Stock, to file initial reports of
ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Additionally, Item 405 of Regulation S-K under the 34 Act
requires the Company to identify in its Form 10-KSB and proxy statement those
individuals for whom one of the above referenced reports was not filed on a
timely basis during the most recent fiscal year or prior fiscal years. Given
these requirements, the Company has the following report
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to make under this section: All of the Company's officers or directors, and
all persons owning more than ten percent of its shares have filed the subject
reports on a timely basis during the past fiscal year.
EXECUTIVE ENUMERATION
SUMMARY COMPENSATION TABLE
The following table sets forth the Summary Compensation Table for the
Chief Executive Officer and four most highly compensated executive officers
other than the Chief Executive Officer who were serving as executive officers
at the end of the last completed fiscal year. No other compensation not
covered in the following table was paid or distributed by the Company to such
persons during the period covered. Employee Directors receive no additional
compensation for service on the Board of Directors. In May, 1994, Mr. Smith,
an outside Director, received warrants to purchase 50,000 common shares of
the Company at $.50 per share, for a period of five years. On August 1, 1995,
the Company approved the sale of 50,000 additional Warrants to Mr. Smith and
a total of 100,000 Warrants to Mr. Brown, the other outside Director. Both
Warrant packages are for five years, at an exercise price of $0.10 per share.
The warrants may be exercised anytime from August 1, 1995 to August 1, 2000.
As of the date hereof, no warrants have been exercised.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
----------------------------- --------------------------------------
Awards Payouts
---------------------- -------------
Other
Name Annual Restricted All
and Salary Compen- Stock LTIP Other
Principal Compensation Bonus sation Award(s) Options/Payouts
Position Year ($) ($ ) ($) SARs(#) ($)
- --------- ------ ------------- ------ ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
James K. 1995 -0- -0- $24,350(2) -0- -0-
Isenhour(1) 1994 -0- -0- -0- -0- -0-
Chairman 1993 -0- -0- -0- -0- -0-
and President
Tanzee Nahas 1995 $26,000 -0- (2) -0- -0-
Secretary(1) 1994 -0- -0- -0- -0- -0-
1993 -0- -0- -0- -0- -0-
Walter S. 1995 -0- -0- -0- -0- -0-
Snead,III 1994 $27,500 -0- -0- -0- -0-
Former 1993 $28,000 -0- -0- -0- -0-
President
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Annual Compensation Long Term Compensation
---------------------------- --------------------------------------
Awards Payouts
---------------------- -------------
Other
Name Annual Restricted All
and Salary Compen- Stock LTIP Other
Principal Compensation Bonus sation Award(s) Options/Payouts
Position Year ($) ($ ) ($) SARs(#) ($)
- --------- ------ ------------- ------ ---------- ------------ ----------------
W.T. Young 1995 -0- -0- -0- -0- -0-
Officer of 1994 $67,600 -0- -0- -0- -0-
Subsidiary 1993 $67,600 -0- -0- -0- -0-
(formerly)
Glen Young 1995 -0- -0- -0- -0- -0-
Officer of 1994 $67,600 -0- -0- -0- -0-
Subsidiary 1993 $67,600 -0- -0- -0- -0-
(formerly)
Lee Berman 1995 -0- -0- -0- -0- -0-
Former 1994 -0- -0- -0- -0- -0-
Officer 1993 $55,080 -0- -0- -0- -0-
</TABLE>
(1) On July 2, 1995 the Company entered into an agreement with SeaCoast
Electric, Inc. (SCE) for management services. SCE is owned by the children
of James K. Isenhour and Tanzee Nahas. The agreement calls for SCE to
provide management, in the form of Chief Executive Officer and Chief
Financial Officer, for all operations of all Company subsidiaries. In
exchange, the Company shall pay SCE the sum of $150,000 for management
services for each fiscal year. In additional, Cambridge Academy, a
subsidiary of the Company, shall pay Tanzee Nahas an annual salary of
$50,000 for her work as Director of Education. Any unpaid salary shall be
eligible for the calculation of warrants to be issued. SCE agrees to its
their fees as the Company and its subsidiaries funds may allow, from time to
time, so as not to jeopardize the operations. In the event that at the end
of the fiscal year SCE has not taken its entire fee, the Company shall issue
a warrant for stock, with registration rights paid for by the Company, at
the strike price of $0.10 per share. The number of shares shall be
determined by the remaining unpaid management fee.
(2) During the fiscal year, the Company paid $19,750 in management fees and
related travel and expenses of $4,600 to SCE. SCE is owned by the children
of James K. Isenhour and Tanzee Nahas.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has no Executive Compensation Committee as such for its
officers and directors. During the last fiscal year, all members of the
Board of Directors of the Company acted as the Executive Compensation
Committee, participated in deliberations and made decisions concerning
executive officer compensation. These decisions were made at regularly-called
Board of Directors meetings and as a part of the agenda of such meetings.
The Board of Directors of the Company is composed of James K. Isenhour,
Tanzee Nahas, Alfred E. Smith, IV, and A. Douglas Brown, Jr.
The Company has no retirement, pension or profit sharing plans covering
its officers and directors, and does not contemplate implementing any such
plan at this time.
10
<PAGE>
RATIFICATION AND APPROVAL OF PROPOSED ACQUISITION
SUMMARY OF THE ACQUISITION
The following is a brief summary of certain information concerning the
Acquisition. The summary is not intended to be complete, and shareholders who
may have further questions are urged to ask the management of the Company.
THE PARTIES.
Quantum Learning Systems, Inc.., a Nevada corporation (the Company),
and Corporacion Pipasa, S.A. (Pipasa)., a Costa Rican corporation, and its
shareholders are the parties to the transaction. Pipasa principal offices are
located at Apdo. 22-4005 Belen, Costa Rica. The phone number is
(506)-293-4801.
THE TERMS.
This transaction was planned as a tax-free exchange of common shares
under Section 351 of the Internal Revenue Code of 1986, as amended (the
"Code") and analogous Costa Rican tax law such that Pipasa would become a
wholly-owned subsidiary of the Company and the former shareholders of Pipasa
would thereby own approximately 82.4% of the Company. This transaction will
be accounted for as a pooling of interests. At the present time,
approximately 65% of the shares of Pipasa would be exchanged for
approximately 16,640,000 common shares of the Company. The Company expects to
acquire up to the remaining approximate thirty-five 35% percent within the
next twelve months. If this occurs, then an aggregate of 25,600,000 common
shares of the Company will be exchanged for an aggregate of 100% of the
capital stock of Pipasa. However, there can be no guarantee that the Company
will exchange any additional shares beyond the approximately 65% to be
exchanged at this time.
In any case, however, the present exchange will give the Company
effective control of Pipasa, and the current control shareholders of Pipasa
would control both companies. The Company's name would be changed to "COSTA
RICA INTERNATIONAL, INC," or some derivation thereof. At the same time as
the initial shares of Pipasa have been exchanged for the shares of the
Company, the Company will dispose of all present subsidiaries and assets of
the Company by transferring these subsidiaries and assets to Seacoast
Electric, a shareholder of the Company and a company controlled by Mr. James
K. Isenhour, the Company's current President, in exchange for 50,000 common
shares of the Company, plus an indemnification from Mr. Isenhour and
Seacoast Electric to indemnify and hold the Company harmless against any and
all actions or liabilities resulting from the Company's past ownership of
these subsidiaries and assets.
11
<PAGE>
The Company has decided to engage in the transaction with Pipasa to
broaden the asset base and increase the value of the Company's shares as a
result of acquiring a profitable business. None of the rights of any
securities holders will be affected by this transaction. The securities of
the Company to be issued in this transaction are common shares, which will
have the same rights and privileges as all other common shares but will be
restricted securities under the Securities Act of 1933, as amended. In regard
to this transaction, the Company must obtain the approval of the shareholders
to increase its authorized common shares and must file Articles of Amendment
with the Secretary of State of Nevada. This filing must await the approval of
the shareholders to the increase in authorized common shares. Representatives
of the Company's accounting firm for the most recent fiscal year are expected
to be present at the shareholders' meeting, will have the opportunity to make
a statement if they so desire, and are expected to be available to respond to
appropriate questions.
As far as the Company's common share are concerned, both the high and
low bid prices as of the date preceding public announcement of the
transaction were $.53.
CORPORACION PIPASA, S.A.
General
The original operations of Corporacion Pipasa, S.A. began in 1969.
However, the operations were in several Costa Rican corporations: Industrias
Derivados de Polio, S.A.(Idepo, S.A.), Retisa, S.A., Servicios Multiples
Pipasa (Semupi, S.A.), Avicola Chacara, S.A., Concentrados Belen, S.A.,
Empolladora Belen, S.A., Granja Avicola Monica, S.A., Planta Porcesadora de
Aves, S.A., Grupo Pipasa, S.A., Productores de Huevo Fertil, S.A.(Probufe,
S.A.), and El Pollucio, S.A. Effective January, 1991, all of these entities
were merged into Akron, S.A., a Costa Rican corporation, which changed its
name to Corporacion Pipasa, S.A. Pipasa has not been subject to any
bankruptcy, receivership or similar proceeding.
Narrative Description of the Business
Pipasa is engaged in the production and marketing of poultry products.
These poultry products are developed in thirty farms and two processing
plants located through out Cost Rica. Pipasa's main market is within Costa
Rica and the countries of El Salvador, Honduras, Nicaragua, and Columbia.
It is the plan of Pipasa's management that the combined Company will
continue to focus in the poultry business and will divest itself of any and
all operations which are not consistent with this core business. Pipasa's
management plans to expand the poultry operations by building additional
hatcheries and processing plants through the use of additional capital which
the combined Company would plan to seek through a public or private offering,
through debt financing, or through internally generated profits., although at
this point, no definitive plans have been made regarding such financing.
12
<PAGE>
In addition, the combined Company would seek, investigate and, if such
investigation warrants, acquire controlling interest in business
opportunities presented to it by persons or firms who are the poultry
business and wish to seek the advantages of being acquired by the combined
Company. The combined Company would restrict any acquisitions to the poultry
business but would not restrict the geographical location of such business.
The Company would be the surviving entity in each case.
The Company may seek a merger candidate in the form of firms which are
developing companies in need of expansion into markets, are seeking to
develop new poultry product lines or services or are established, mature
businesses.
In seeking business opportunities, the management decision of the
Company will be based upon the objective of seeking long-term appreciation in
the value of the Company. Current income will be a significant factor in such
decisions, although long-term appreciation of the operations will be the
prime consideration.
The first priority of the combined Company during the coming fiscal year
will be to expand its existing markets and to penetrate viable, additional
markets it may develop with its poultry products. However, such additional
markets have not been finally determined at this time.
Markets
The combined Company's marketing plan is focused on existing national
and international markets for its poultry products. This plan will be the
primary focus for the Company during the coming fiscal year.
During the past fiscal year, Pipasa's primary marketing has been through
management's personal and corporate contacts. Commission sales
representatives of Pipasa are also utilized in order to perform various
marketing functions as may be required by Pipasa.
Raw Materials
Pipasa uses corn feed for its poultry operations. Therefore, raw
materials are an important factor in Pipasa's operations. The cost of feed is
a significant factor in determining the profitability of the poultry
operations. At the present time, Pipasa believes that there is sufficient
corn feed available at favorable prices to support its present operations.
Customers and Competition
The principal customers of Pipasa are the consumers of Pipasa's poultry
products in the markets in which Pipasa sells its products. There are a
number of companies which sell similar competing poultry products as those of
Pipasa. At the present time, however, Pipasa has only
13
<PAGE>
one major competitor in its current market, As de Oros. Pipasa controls
approximately 52% of the Costa Rican market, As de Oros controls
approximately 23%, and the remainder of the market is divided up among very
small operations, none of whom have a significant share of the market on an
individual basis.
To the extent that Pipasa is unable to interest consumers to accept its
poultry products, Pipasa could have difficulty in either achieving its goals
and objectives, or of remaining profitable. Pipasa believes that it has a
viable segment of its market and does not foresee any negative material
change in any of its current operations based upon competition. Nevertheless,
Pipasa expects competition continue to be intense. The market for all of
Pipasa's poultry products probably has limited barriers to entry for other
competing operations, so that the competitive picture could change at any
time. Consequently, the number of competitors could be substantial, although
such is not the case at this point.
Backlog
At March 31, 1996, Pipasa had no backlogs.
Employees
At as of the date hereof, Pipasa had approximately 1,754 full-time
employees, of whom 46 were in management and 212 were in administration.
Pipasa's employees are not represented by any union or collective bargaining
group, and there is no history of any labor problems, or disputes. Pipasa has
the human resources at present to fulfill its current business plan but
expects to hire additional employees in the future for expansion of its
operations in the ordinary course of business.
Proprietary Information
Pipasa uses no material proprietary information in connection with its
operations.
Government Regulation
The poultry hatcheries and processing plants are subject to regulation
under Costa Rican law regarding cleanliness and health standards. Further,
exports of Pipasa poultry products are regulated in the countries in which
Pipasa makes sales. Such regulation is not considered to be burdensome on
Pipasa or to have a material effect on Pipasa's ability to make a profit.
Otherwise, Pipasa is not subject to any material governmental regulation or
approvals.
Research and Development
Pipasa has spent $7,000 as of the six months ended March 31, 1996
in research and development.
14
<PAGE>
Environmental Compliance
Pipasa is not subject to any material costs for compliance with any
environmental laws in any jurisdiction in which it operates. However, in the
future, Pipasa could become subject to material costs to comply with
environmental laws in jurisdictions in which it does not now do business. At
the present time, Pipasa cannot assess the potential impact of any such
potential environmental regulation.
FINANCIAL STATEMENTS
Enclosed are the audited financial statements of Pipasa for the fiscal
year ended September 30, 1995 and unaudited financial statements for the six
months ended March 31, 1996.
15
<PAGE>
CORPORACION PIPASA, S.A.
CONSOLIDATED FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION REQUIRED BY
THE SECURITIES AND EXCHANGE COMMISSION
AS OF SEPTEMBER 30, 1995 AND 1994 AND
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
16
<PAGE>
CORPORACION PIPASA, S.A.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
------------
Report of Independent Certified Public Accountants ...... 18
Consolidated Balance Sheets at September 30, 1995
and 1994 ............................................ 19 - 20
Consolidated Statements of Operations for the years
ended September 30, 1995 and 1994 ................... 21
Consolidated Statements of Stockholders' Equity for
the years ended September 30, 1995 and 1994 ......... 22 - 23
Consolidated Statements of Cash Flows for the years
ended September 30, 1995 and 1994 ................... 24
Notes to Consolidated Financial Statements .............. 25 - 34
Schedules:
I - Schedule of Amounts Receivable from Related
Parties at September 30, 1995 and 1994 ........... 35
II - Schedule of Property, Plant and Equipment,
September 30, 1995 ............................... 36
III- Schedule of Property, Plant and Equipment,
September 30, 1994 ............................... 37
IV - Schedule of Accumulated Depreciation of Property,
Plant and Equipment, September 30, 1995 .......... 38
V - Schedule of Accumulated Depreciation of Property,
Plant and Equipment, September 30, 1994 .......... 39
VI - Schedule of Short-Term Borrowings at September 30, 1995
and 1994 ......................................... 40
Other schedules have not been filed because the conditions requiring the filing
do not exist or the required information is given in the consolidated financial
statements, including the notes thereto.
17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of Corporacion PIPASA, S.A.
We have audited the consolidated balance sheet of Corporacion PIPASA, S.A. as of
September 30, 1995 and 1994, and the related consolidated statements of
operations, stockholders' 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 audits 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 consolidated financial position of Corporacion
PIPASA, S.A. at September 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The supplementary information in
Schedules I through VI are presented for purposes of additional analysis of the
consolidated financial statements rather than to present the financial position,
results of operations, and cash flows of the individual companies. Such
information has been subjected to the auditing procedures applied in the audits
of the consolidated financial statements and, in our opinion, is fairly stated
in all material respects in relation to the consolidated financial statements
taken as a whole.
T. Alan Walls, CPA, P.C.
Johnson City, Tennessee
June 6, 1996
18
<PAGE>
CORPORACION PIPASA, S.A.
BALANCE SHEET
SEPTEMBER 30, 1995 AND 1994
ASSETS 1995 1994
-------------- --------------
Current assets:
Cash and cash equivalents $ 2,042,399 $1,368,111
Investments - Available for Sale -- 14,500
Notes receivable (Note 3) 112,879 399,585
Accounts receivable, net (Note 4) 4,222,544 3,613,141
Inventories, net (Note 5) 5,984,909 6,856,902
Due From Related Parties 210,996 455,713
Prepaid expenses (Note 6) 152,289 245,202
-------------- --------------
Total current assets 12,726,016 12,953,154
Investments - Held to Maturity (Note 7) 1,524,023 1,147,334
Property, Plant & equipment, net (Note 8) 28,754,560 26,679,042
Forestry rights 657,961 554,227
Copyrights, trademarks, goodwill, net 151,410 138,515
Guarantee deposits 145,872 133,506
Deferred charges, net -- 86,483
Other assets (Note 16) 89,979 374,339
Due From Related Parties (Note 19) 1,850,433 1,075,314
-------------- --------------
Total assets $ 45,900,254 $ 43,141,914
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts (Note 9) -- 227,615
Notes payable (Note 10) 9,159,313 7,719,767
Accounts payables (Note 11) 3,682,199 3,375,237
Allowance for Christmas bonus 371,800 479,334
Allowance for severance pay (Note 12) 63,858 210,584
Accumulated expenses 653,022 735,661
Estimated income tax (Note 12) 87,005 23,531
-------------- --------------
Total current liabilities 14,017,197 12,771,729
Long term liabilities:
Long term accounts payable 14,480 14,361
Long term notes payable (Note 10) 2,383,500 3,406,361
-------------- --------------
Total long term liabilities 2,397,980 3,420,722
-------------- --------------
Total liabilities 16,415,177 16,192,451
See accompanying notes to consolidated financial statements.
19
<PAGE>
CORPORACION PIPASA, S.A.
BALANCE SHEET
SEPTEMBER 30, 1995 AND 1994
(CONTINUED)
1995 1994
Stockholders' equity: ------------ ------------
Common stock, authorized and issued
2,500,000 shares of $7.11 17,769,881 17,769,881
Titulos de Capital, common and nominal
1,500,000 certificates of a par value
of $6.64 each, which can be issued in
certificates of six shares ($0.34 without
the effect of the capitalization of
assets revaluation) (Note 18, 21) 505,511 --
Preferred nominal shares class "c" 186,431
shares issued (113,736 in 1994) which
bear a fixed dividend of 10% per year of
a par value of $6.18 ($6.81 in 1994) each
(Note 21, 22) 1,151,491 774,769
Preferred nominal shares class "c" 131,400
shares issued, which bear an annual
dividend equal to the interbank rate
published by the Central Bank of Costa
Rica, revisable and adjustable every month,
plus two additional points, of a par value 853,948 853,948
of $6.50 each (Note 21, 22)
Additional paid-in capital -- 435,091
Legal reserve (Note 18) 518,884 371,306
Foreign currency translation adjustment 437,498 42,914
Retained earnings 8,247,864 6,701,554
------------ ------------
Total stockholders' equity 29,485,077 26,949,463
------------ ------------
Total liabilities and stockholders' equity $45,900,254 $43,141,914
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
20
<PAGE>
CORPORACION PIPASA, S.A.
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
------------- ------------
Net Sales $57,396,036 $54,857,693
Less: Cost of sales (40,198,185) (39,596,226)
------------- ------------
Gross profit 17,197,851 15,261,467
Operating expenses:
Selling 6,265,603 5,703,960
Export 143,963 206,925
General and administrative 4,916,216 4,113,704
------------- ------------
Total operating expenses 11,325,782 10,024,589
------------- ------------
Operating Profit 5,872,069 5,236,878
Other income (Note 14) 1,224,590 1,112,372
Other expenses (Note 15) 3,255,691 3,082,396
------------- ------------
Net earnings before income taxes 3,840,968 3,266,854
Estimated income tax 230,618 131,493
------------- ------------
Net earnings $ 3,610,350 $ 3,135,361
------------- ------------
------------- ------------
Earnings per share
See accompanying notes to consolidated financial statements.
21
<PAGE>
CORPORACION PIPASA, S.A.
STATEMENT OF STOCKHOLDERS' EQUITY
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
Capital Stock Preferred Shares Titulos de Capital
------------------------- -------------------------- ------------------------
Number of Number of Number of
Shares Amount Shares Amount Shares Amount
----------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance: September 30, 1993 2,500,000 $17,769,881 53,034 $ 381,952 -- $ --
Transferred from stock-
holders' contributions for
future capital increases -- -- 190,141 1,233,413 -- --
Capitalization of additional
paid-in capital -- -- 1,961 13,352 -- --
Increase during the year -- -- -- -- -- --
Transfer retained earnings -- -- -- -- -- --
Foreign currency translation -- -- -- -- -- --
Add, net earnings -- -- -- -- -- --
Add, prior period adjustment -- -- -- -- -- --
Less, dividends paid -- -- -- -- -- --
----------- ------------ ----------- ------------ ------------ ----------
Balance: September 30, 1994 2,500,000 $17,769,881 245,136 $1,628,717 -- $ --
Transferred from stock-
holders' contributions
for future capital increases -- -- 72,695 376,722 -- --
Capitalization of retained
earnings -- -- -- 1,500,000 505,511
Increase during the year -- -- -- -- -- --
Decreases during the year -- -- -- -- -- --
Transfer retained earnings -- -- -- -- -- --
Foreign currency translation -- -- -- -- -- --
Add, net earnings -- -- -- -- -- --
Add, prior period adjustment -- -- -- -- -- --
Less, dividends paid -- -- -- -- -- --
----------- ------------ ----------- ------------ ------------ ----------
Balance: September 30, 1995 2,500,000 $17,769,881 317,831 $2,005,439 1,500,000 $505,511
----------- ------------ ----------- ------------ ------------ ----------
----------- ------------ ----------- ------------ ------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
CORPORACION PIPASA, S.A.
STATEMENT OF STOCKHOLDERS' EQUITY
SEPTEMBER 30, 1995 AND 1994
(CONTINUED)
<TABLE>
<CAPTION>
Additional Foreign Total
Paid-in Legal Currency Retained Stockholders'
Capital Reserve Translation Earnings Equity
------------ --------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balance: September 30, 1993 $1,193,042 $227,903 $ -- $5,204,876 $24,777,654
Transferred from stock-
holders' contributions for
future capital increases (1,233,413) -- -- -- --
Capitalization of additional
paid-in capital (13,352) -- -- -- --
Increase during the year 488,814 -- -- -- 488,814
Transfer from retained
earnings -- 143,403 -- (143,403) --
Foreign currency translation -- -- 42,914 --
Add, net earnings -- -- -- 3,135,361 3,135,361
Add, prior period adjustment -- -- -- 5,069 5,069
Less, dividends paid -- -- -- (1,500,349) (1,500,349)
------------ --------- ------------- ---------- ---------------
Balance: September 30, 1994 $435,091 $371,306 $42,914 $6,701,554 $26,949,463
Transferred from stock-
holders' contributions for
future capital increases (376,722) -- -- -- --
Capitalization of retained
earnings -- -- -- (505,511) --
Increase during the year 3,154 -- -- -- 3,154
Decreases during the year (61,523) -- -- (3,571) (65,094)
Transfer from retained earnings -- 147,578 -- (147,578) --
Foreign currency translation -- -- 394,584 -- 394,584
Add, net earnings -- -- -- 3,610,350 3,610,350
Add, prior period adjustment -- -- -- 7,216 7,216
Less, dividends paid -- -- -- (1,414,596) (1,414,596)
------------ --------- ------------- ---------- ---------------
Balance: September 30, 1995 $ -- $518,884 $437,498 $8,247,864 $29,485,077
------------ --------- ------------- ---------- ---------------
------------ --------- ------------- ---------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
CORPORACION PIPASA, S.A.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings for the year $3,610,350 $3,135,361
Adjustments to reconcile net earnings to cash
provided by operating activities: 1,275,566 1,242,884
Depreciation and amortization
(Increase) decrease in:
Accounts receivable (609,403) (1,016,552)
Inventories 871,993 117,805
Other assets 370,843 (307,125)
Prepaid expenses 92,913 (23,101)
Increase (decrease) in:
Accounts payable 307,081 (2,089,559)
Accrued expenses (82,639) 197,139
Estimated income taxes 63,474 (132,586)
Allowance for Christmas Bonus (107,534) 50,919
Allowance for severance pay (146,726) 15,025
------------ ------------
Net cash provided by operating activities 5,645,918 1,190,210
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,635,975) (2,541,108)
Proceeds from sale of property and
equipment 319,934 91,265
Purchase of long term investments (154,779) (277,984)
Proceeds from sale of long term
investments 323,310 --
Loans to shareholders (1,550,732) (1,909,938)
Collection of loans to shareholders 763,937 1,275,869
Advances on notes receivable (510,768) (877,949)
Collection of notes receivable 594,328 500,819
Forestry rights (103,734) (138,292)
Copyrights (12,895) (27,871)
Deposits (12,366) (79,642)
Translation adjustment 406,602 --
------------ ------------
Net cash (used) by financing activities (3,573,138) (3,984,831)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 17,801,915 8,483,779
Principle payments on long-term debt and
notes payable (15,777,570) (4,375,469)
Dividends paid (1,414,596) (1,500,349)
Bank overdrafts (227,615) (134,588)
Translation adjustment (1,607,660) (428,196)
------------ ------------
Net cash (used) by investing activities (1,225,526) 2,045,177
------------ ------------
Net increase (decrease) in cash 674,288 (749,444)
Cash balance, at the beginning of the year 1,368,111 2,117,555
------------ ------------
Cash balance, at the end of the year $2,042,399 $1,368,111
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
24
<PAGE>
CORPORACION PIPASA, S.A.
Notes to Consolidated Financial Statements
September 30, 1995 and 1994
NOTE 1 - ORGANIZATION
On January 7, 1991 Akron, S.A. merged with the following Corporations:
Industrias Derivados de Pollo, S.A. (Idepos S.A.), Retisa, S.A., Servicios
Multiple PIPASA (Semupi, S.A.), Avicola Chacara, S.A., Concentrados Belen, S.A.,
Empolladora Belen, S.A., Granja Avicola Monica, S.A., Planta Procesadora de
Aves, S.A., Grupo PIPASA, S.A., Productores de Huevo Fertil, S.A. (Prohufe,
S.A.) and El Polluelo, S.A. prevailing the name of the Company as Akron, S.A.
Sometime afterwards the articles of incorporation were amended and the Company's
name was switched to Corporacion PIPASA, S.A. The Corporation is domiciled in
La Ribera district, Belen county Heredia province, Republic of Costa Rica.
Although Corporacion PIPASA, S.A. was formed on January 7, 1991, the necessary
legal documents were signed on February 15, 1991. Settlement of the accounts
for the merger was taken on January 31, 1991.
The main line of business of the Company is the production and marketing of
poultry products. The principal activities of the Company are conducted within
Costa Rica.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Coporacion PIPASA, S.A. and its wholly-owned subsidiary, Rincon de
los Toros, S.A. Rincon de los Toros, S.A. is an inactive Company. All
significant intercompany transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS - The Company considers all liquid investments with
original maturities of three months or less to be cash equivalents.
DEPRECIATION, MAINTENANCE AND REPAIRS - Depreciation is provided by the
straight-line method. Estimated useful lives for depreciation purposes are as
follows:
Buildings 10 - 30 years
Machinery and equipment 5 - 10 years
Production equipment 5 - 10 years
Furniture and fixtures 3 - 10 years
Maintenance and repairs which do not prolong the useful life of an asset are
expensed as incurred.
AMORTIZATION - Amortization of intangible assets which include copyrights,
royalties and goodwill is provided by the straight-line method. Estimated
useful lives for amortization purposes are as follows:
Goodwill 5 - 10 years
Royalties 5 - 10 years
Copyrights 5 - 10 years
25
<PAGE>
CORPORACION PIPASA, S.A.
Notes to Consolidated Financial Statements
September 30, 1995 and 1994
(continued)
CAPITALIZED ADVERTISING COSTS - Advertising and re-launching of Company products
are capitalized and amortized to expense over one year. Advertising signs are
loaned to customers and remain the property of the Company. The signs are
capitalized and amortized on the straight-line method over their estimated
useful lives. All other forms of advertising are charged to expense as
incurred. Advertising expense amounted to $260,534 and $273,166 for the years
ended September 30, 1995 and 1994, respectively.
ESTIMATES - Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenue
and expenses. Actual results could vary from the estimates that were assumed in
preparing the financial statements.
MARKETABLE SECURITIES - Held-to-maturity securities are recorded as non-current
assets and reclassified to current assets when maturity is within the next year.
Available-for-sale securities are either (1)recorded as current assets because
they represent an excess of available funds and, even though management has no
current plans to dispose of them, it can sell them at any time at its option or
(2) classified as current and non-current based on management's plans to dispose
of them. Trading securities are classified as current assets.
INVENTORY - Inventory is recorded at the lower of cost or market. Cost is
determined using the weighted average method for all inventories.
NOTE 3 - NOTES RECEIVABLE
Notes receivable at September 30, are summarized as follows:
1995 1994
---------- -----------
Commercial $ 112,879 $ 399,585
---------- -----------
Notes Receivable $ 112,879 $ 399,585
---------- -----------
---------- -----------
NOTE 4 - ACCOUNTS RECEIVABLE
Short term accounts receivable at September 30, are detailed as follows:
1995 1994
------------- ------------
Commercial $ 4,040,809 $ 3,512,193
Officers and employees 51,125 24,338
Others 308,783 205,021
------------- ------------
4,400,717 3,741,552
Allowance for doubtful accounts ( 178,173) ( 128,411)
------------- ------------
Accounts Receivable $ 4,222,544 $ 3,613,141
------------- ------------
------------- ------------
26
<PAGE>
NOTE 5 - INVENTORIES
Inventories at September 30, are detailed as follows:
1995 1994
------------- -------------
Finished products $ 1,079,915 $ 1,245,394
Production poultry 3,077,024 3,040,699
Materials and supplies 1,085,012 1,078,147
Raw materials 1,125,653 1,363,786
In-transit 47,455 602,481
Others 1,262 --
------------- -------------
6,416,321 7,330,507
Allowance for renewal
of production poultry ( 431,412) ( 473,605)
------------- -------------
Inventories $ 5,984,909 $ 6,856,902
------------- -------------
------------- -------------
NOTE 6 - PREPAID EXPENSES
Prepaid expenses at September 30, are summarized as follows:
1995 1994
----------- -----------
Prepaid insurance $ 57,736 $ 49,071
Prepaid interest 42,150 48,804
Vehicles rights and taxes 5,528 6,630
Prepaid rent 32,318 41,199
Others 14,557 99,498
----------- -----------
Prepaid Expenses $ 152,289 $ 245,202
----------- -----------
----------- -----------
NOTE 7 - INVESTMENTS - HELD TO MATURITY
Long term investments at cost at September 30, are detailed as follows:
1995 1994
------------ ------------
Cerveceria Americana, S.A. (9%
ownership) $ 1,162,064 $ 1,088,462
Lineas Aereas Costarricense, S.A. 1,263 1,263
Club Campestre Espanol 2,173 2,173
Hotel Fiesta de Playa Shares 33,557 33,557
Certificates of Deposit 13,487 15,787
Others 311,479 6,092
------------ ------------
Long Term Investments $ 1,524,023 $ 1,147,334
------------ ------------
------------ ------------
27
<PAGE>
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, is summarized as follows:
1995 1994
------------- -------------
Land $ 6,383,893 $ 6,383,893
Construction in progress 1,421,099 412,712
Buildings and installations 13,607,768 13,568,100
Plant, machinery and equipment 7,679,965 6,856,386
Office equipment 740,249 735,964
Vehicles 3,178,354 2,826,232
Computer equipment 416,102 366,683
Other equipment 1,226,844 1,090,118
Hand tools 51,782 48,713
Water wells 87,496 84,423
Advertising signs and display 576,626 513,110
Poultry feeding equipment 70,236 --
Poultry feeding and transporting
equipment 72,633 --
Miscellaneous farm equipment 41,287 --
Machinery in-transit 53,020 991
------------- -------------
35,607,354 32,887,325
Less, accumulated depreciation ( 6,852,794) ( 6,208,283)
------------- -------------
Property, Plant & Equipment - Net $ 28,754,560 $ 26,679,042
------------- -------------
------------- -------------
NOTE 9 - BANK OVERDRAFT
Bank overdraft for $227,615 in 1994 was duly authorized by the banks.
NOTE 10 - NOTES PAYABLE
Long-term notes payable at September 30, are detailed as follows:
1995 1994
------------ -----------
Certificates of Deposit $ 201,338 $ 62,302
Banks 2,139,213 3,293,327
Other 42,949 50,732
------------ -----------
Notes Payable $ 2,383,500 $ 3,406,361
------------ -----------
------------ -----------
28
<PAGE>
Land and buildings, machinery and equipment, and vehicles are pledged as
guarantee of notes to banks.
Long-term notes due to banks and others will mature in the following years
ending September 30:
1995 1994
------------ ------------
1997 $ 1,159,115 $ 1,116,129
1998 433,253 1,190,966
1999 490,365 503,577
2000 192,932 416,541
2001 and over 107,835 179,148
------------ ------------
$ 2,383,500 $ 3,406,361
------------ ------------
------------ ------------
Short-term notes payable at September 30, are detailed as follows:
1995 1994
-------------- -------------
Certificates of Deposit $ 3,274,901 $ 5,135,703
Banks 5,790,122 2,482,312
Other 94,290 101,752
-------------- -------------
Notes Payable $ 9,159,313 $ 7,719,767
-------------- -------------
-------------- -------------
As of September 30, 1995 long term notes bear an annual interest of 23.93%,
30.50%, 31.25%, 35.10%, 35.50%, 35.49%, 36.00%, 37.50%, 38.00%, 39.00%, and
40.00%.
As of September 30, 1994 long term notes bear an annual interest of 18%, 22%,
22.18%, 24%, 25.92, 26%, 26.21%, 26.25%, 26.78%, 27%, 27.6%, 28%, 30%,
30.25%, 32%, 32.5%, 33%, 36% and Prime rate plus 0.75%.
NOTE 11 - ACCOUNTS PAYABLE
Accounts payable at September 30, are detailed as follows:
1995 1994
------------- -------------
Suppliers $ 3,167,484 $ 2,970,439
Payroll withholdings and taxes 477,669 254,868
Dividends payable -- 143,197
Other 37,046 6,733
------------- -------------
Accounts Payable $ 3,682,199 3,375,237
------------- -------------
------------- -------------
29
<PAGE>
NOTE 12 - CONTINGENT LIABILITIES
Under Costa Rican law, employees not dismissed for misconduct or leaving of
their own accord are entitled to severance pay equal to one month's salary of
each year of continuous service, up to a maximum of eight months salary.
Also, employees that retire under the Costa Rican Social Security System are
entitled to the same benefit. It is the Company's policy to accumulate a
provision to cover this contingent liability.
The Company does not have damage insurance or a specific self insurance trust
for vehicles that are not under lease agreements. Statistical analysis of the
cost vs. benefit for vehicle insurance coverage in Costa Rica has shown the
cost exceeds the benefits of maintaining coverage. The Company has liability
insurance to cover third parties through an umbrella policy starting at
$58,153 to a maximum of $1,453,826. Reference also Note 16.
NOTE 13 - PENDING LAWSUITS
As of September 30, 1994 there was a civil responsibility lawsuit arising
from a court decision on a criminal charge involving a corporation vehicle
with bodily injuries. The plaintiff had estimated such responsibility in
U.S.$99,682 but the Court had not accepted such estimate. This lawsuit was
ruled in favor of the corporation on the grounds of refusal of incapacity
alleged by the plaintiff, for which the case was closed.
The plaintiff has introduced a new lawsuit based on identical terms, as a new
process which was notified on November 1, 1995. No adjustments have been
made to these financial statements for this case.
NOTE 14 - OTHER INCOME
Other income at September 30, is detailed as follows:
1995 1994
----------- -----------
Interest $ 392,519 $ 253,179
Exchange differences 134,147 153,277
Investment Income 68,773 53,066
Gain on disposal of operational assets 112,738 25,009
Sales of scrap 49,850 14,038
Others 435,063 517,394
----------- -----------
Other Income $ 1,193,090 $ 1,015,963
----------- -----------
----------- -----------
30
<PAGE>
NOTE 15 - OTHER EXPENSES
Other expenses at September 30, are detailed as follows:
1995 1994
------------- -------------
Interest $ 2,656,509 $ 2,547,098
Exchange differences 326,992 128,519
Others 91,970 141,841
------------- -------------
Other Expenses $ 3,075,471 $ 2,817,458
------------- -------------
------------- -------------
NOTE 16 - OTHER ASSETS
Other assets at September 30, are detailed as follows:
1995 1994
---------- ----------
Deposit - Insurance Trust for leased
vehicles $ 81,173 $ 374,339
Other Assets 8,806 --
---------- ----------
Other Assets $ 89,979 $ 374,339
---------- ----------
---------- ----------
Pursuant to the terms negotiated in the Company's operating lease agreements,
the Company has established a self-insurance program to cover damage to
vehicles under lease. For each lease entered into, the Company establishes a
trust account at the inception of the lease. After the first six months of
the lease term, the Company makes monthly payments to the trust for the
remainder of the lease term. In the event of accidents or major repairs to
vehicles under the lease, the Company submits requests for reimbursement,
less a deductible, from the trust account. The life of each trust is for the
life of the respective lease. At the end of the lease term, the Company is
entitled to all remaining funds in the trust. The Company has three trusts
established at September 30, 1995, and no claims to date have been filed. The
balance of the self-insurance trust accounts were $81,173 and $374,339 at
September 30, 1995 and 1994, respectively.
NOTE 17 - OPERATING LEASES
The Company periodically enters into operating leases for vehicles and
cooling equipment. At the end of lease terms, the Company has the option to
return the equipment or negotiate for the purchase of the equipment. Under
the terms of the leases, the Company is required to maintain a self-insurance
trust with the lessor bank. An initial deposit must be made with the bank at
the inception of the lease to set up the self-insurance trust. After the
first six months of the lease, the Company must begin making monthly payments
to the trust for the remainder of the lease term.
31
<PAGE>
(Reference also Note 16)
Future minimum lease payments required for the years ended September 30:
1996 $ 307,734
1997 307,734
1998 161,829
1999 -0-
2000 -0-
Rental expense amounted to $281,691 and $413,712 for the years ended
September 30, 1995 and 1994, respectively.
NOTE 18 - APPROPRIATION OF RETAINED EARNINGS
The management of the Company has appropriated retained earnings as follows:
1995 1994
-------------- -------------
Titulos de Capital $ 505,511 $ --
Legal Reserve 147,578 143,403
Reference also Note 19
NOTE 19 - PRIOR PERIOD ADJUSTMENT
The retained earnings account has been adjusted to reflect the difference
between accrued income taxes and actual income tax expense in the amount of
$5,069 at September 30, 1994. The retained earnings account has been
adjusted to reflect the difference between the investment and net book value
of its wholly owned subsidiary in the amount of $7,216 at September 30, 1995.
NOTE 20 - RELATED PARTY
During the periods ending September 30, 1995 and 1994, the Company was a
closely held entity. The Company periodically executes transactions with the
shareholders and other individuals and entities who are affiliated due to
common control issues. These transactions include loans, sale of poultry
products and purchase of other supplies. As of September 30, 1995 and 1994,
the following amounts were due to the Company.
1995 1994
------------- -------------
Notes Receivable $ 1,850,433 $ 1,075,314
Accounts Receivable $ 210,996 $ 455,713
32
<PAGE>
CORPORACION PIPASA, S.A.
Notes to Consolidated Financial Statements
September 30, 1995 and 1994
(continued)
NOTE 21 - COMMON AND PREFERRED STOCK
On December 31, 1994, the capital stock of the corporation was modified as
follows:
a. Founder's nominal common shares, class "A", does not change, remaining
at 2,000,000 shares issued and paid with a par valued of U.S. $7.11 each.
b. Class "B" nominal common shares, 500,000 shares authorized and issued.
c. Class "C" preferred shares, 317,831 shares authorized and issued.
d. A new class of preferred shares is authorized for up to U.S. $1,301,914,
which refer to 200,000 nominal preferred shares of class "D" of a par
value of $6.51 each of which 200,000 authorized and none issued.
On September 21, 1995, as indicated on minute 16 of the Extraordinaly General
Assembly, it was accorded to increase the capital of the Corporation in the
sum of $505,511 through the issue of 1,500,000 "titulos de capital", common
and nominal of a par value of $0.34 each one, which can be issued in
certificates of six shares each one. Reference Note 18.
NOTE 22- PREFERRED SHARES DIVIDEND POLICIES
a. Classes "C-A" and "C-B" which are the first, second and fourth issue of
the class "C" preferred shares will receive fixed annual dividend of 10%
(12% in 1994), payable monthly. The dividend rate could be adjusted by the
agreement of the Board of Directors.
b. Class "C-C" which is the third issued of the class "C" preferred shares
will receive an annual dividend equal to the Central Bank of Costa Rica
interbank rate, adjusted to the rate published at the end of the month,
plus two additional points, payable monthly.
c. Class "D" preferred shares will receive a dividend based on the Central
Bank of Costa Rica interbank rate plus three additional points and 1% of
the net income after taxes and allowances.
NOTE 23- MONETARY UNIT
The monetary unit of the Republic of Costa Rica is the colon (Cent).
The Central Bank of Costa Rica has the legal right to establish and regulate
other foreign exchange markets. At the present time the interbank exchange
rate published by the Central Bank is used for liquidating exports, imports,
and other financial transactions.
33
<PAGE>
CORPORACION PIPASA, S.A.
Notes to Consolidated Financial Statements
September 30, 1995 and 1994
(continued)
After March 2, 1992 the Central Bank of Costa Rica freed the exchange rate
and any transaction for the purchase or sale of foreign currency can be
conducted at any bank of the National Banking System. The banks participate
in the foreign exchange rate, which is published daily.
U.S. dollar denominated assets and liabilities are recorded at the interbank
exchange rate.
At September 30, 1995, the interbank exchange rate was (Cent)186.61 and
(Cent)187.62 ((Cent)159.43 and (Cent)160.51 in 1994) for selling and buying
U.S. $1.00 respectively.
NOTE 24- TRANSLATION OF THE FINANCIAL STATEMENTS
The financial statements of Corporacion PIPASA, S.A. as of September 30, 1995
and 1994, were translated from Costa Rican colones to U.S. dollars. The
generally accepted accounting principles require the translation of the
monetary assets and liabilities at the exchange rate in effect at the date of
such financial statements, whereas the non-monetary assets and liabilities
are translated at the historical rate. Income and expenses are translated at
the average exchange rate of the year. Translation gains or losses are
included in Stockholders' Equity. As of September 30, 1994 the dividends
paid were translated using the rate of exchange in force at the time in which
they were paid. For the year ended September 30, 1995 the Corporation
changed the procedure to translate the dividends distributed, and these were
calculated based on the historical exchange rate of the Stockholders' Equity
using the FIFO Method. The change in the dividend translating procedure,
originated a difference between the two methods in the amount of $505,817.
34
<PAGE>
CORPORACION PIPASA, S.A.
SCHEDULE OF AMOUNTS RECEIVABLE FROM RELATED PARTIES
SEPTEMBER 30, 1995 AND 1994
SCHEDULE I
<TABLE>
<CAPTION>
Balance at Balance at
September 30, September 30,
Related Party 1994 Additions Deductions 1995
------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Inversiones La Ribera $ 704,773 $ 1,235,969 $ 544,937 $ 1,395,805
Aero Costa Rica 120,126 18,316 584 137,858
Leytor 359,158 10,148 85,759 283,547
Other 346,970 68,023 170,774 244,219
------------ ------------ ----------- -------------
$ 1,531,027 $ 1,332,456 $ 802,054 $ 2,061,429
------------ ------------ ----------- -------------
------------ ------------ ----------- -------------
</TABLE>
35
<PAGE>
CORPORACION PIPASA, S.A.
PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30, 1995
SCHEDULE II
<TABLE>
<CAPTION>
Balance Balance
September 30, Additions (A) Other September 30,
Classification 1994 at Cost Retirements Changes 1995
--------------------- ------------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Land $ 5,967,415 $ -- $ -- $ -- $ 5,967,415
Construction in progress 412,712 1,008,387 -- -- 1,421,099
Buildings and installations 13,568,100 39,668 -- -- 13,607,768
Plant, machinery and equipment 7,592,350 944,191 ( 116,327) -- 8,420,214
Vehicles 2,826,232 884,333 ( 532,211) -- 3,178,354
Advertising signs and display 513,110 103,009 ( 39,493) -- 576,626
Other equipment 1,590,928 656,387 ( 210,925) ( 16,990) 2,019,400
------------- ---------- ----------- ------------ --------------
$ 32,470,847 $ 3,635,975 $( 898,956) $( 16,990) $ 35,190,876
------------- ---------- ----------- ------------ --------------
------------- ---------- ----------- ------------ --------------
</TABLE>
(A) Corresponds to depreciation of plastic baskets that is directly lowered
from the cost of the asset.
36
<PAGE>
CORPORACION PIPASA, S.A.
PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30, 1994
SCHEDULE III
<TABLE>
<CAPTION>
Balance Balance
September 30, Additions (A) Other September 30,
Classification 1993 at Cost Retirements Changes 1994
--------------------- ------------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Land $ 5,699,406 $ 268,009 $ -- $ -- $ 5,967,415
Construction in progress 48,811 363,901 -- -- 412,712
Buildings and installations 13,377,512 190,588 -- -- 13,568,100
Plant, machinery and equipment 7,353,511 368,833 ( 129,994) -- 7,592,350
Vehicles 2,430,750 753,731 ( 358,249) -- 2,826,232
Advertising signs and display 420,792 120,275 ( 27,957) -- 513,110
Other equipment 1,376,595 266,099 ( 51,766) -- 1,590,928
------------- ---------- ----------- ----------- --------------
$ 30,707,377 $2,331,436 $( 567,966) $ -- $32,470,847
------------- ---------- ----------- ----------- --------------
------------- ---------- ----------- ----------- --------------
</TABLE>
37
<PAGE>
CORPORACION PIPASA, S.A.
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30, 1995
SCHEDULE IV
<TABLE>
<CAPTION>
Additions Other Charges
Balance at Charged to ---------------- Balance at
September 30 Costs and (A) (B) September 30,
Classification 1994 Expenses Retirements Add Deduct 1995
- -------------------- ------------ ---------- ----------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Buildings & installations $ 1,676,028 $ 166,303 $ -- $ 55,939 $( 56,162) $ 1,842,108
Plant, machinery and
equipment 2,656,132 490,811 ( 105,920) 31,077 ( 35,733) 3,036,367
Vehicles 1,178,237 345,070 ( 443,070) 4,082 -- 1,084,319
Advertising signs and
display 193,522 85,964 ( 30,665) -- -- 248,821
Other Equipment 504,364 187,417 ( 50,497) 1,670 ( 1,776) 641,178
------------ ---------- ----------- --------- --------- ----------------
$ 6,208,283 $ 1,275,565 $( 630,152) $ 92,768 $( 93,671) $ 6,852,793
------------ ---------- ----------- --------- --------- ----------------
------------ ---------- ----------- --------- --------- ----------------
</TABLE>
(A) Adjustments to the accounts relative to repairs of assets.
(B) Reclassification of accounts to inventory.
38
<PAGE>
CORPORACION PIPASA, S.A.
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30, 1994
SCHEDULE V
<TABLE>
<CAPTION>
Additions Other Charges
Balance at Charged to ---------------- Balance at
September 30, Costs and (A) (B) September 30,
Classification 1993 Expenses Retirements Add Deduct 1994
- -------------------- ------------ ---------- ----------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Buildings & installations $ 1,421,298 $ 200,342 $ -- $ 54,388 $ -- $ 1,676,028
Plant, machinery and
equipment 2,218,247 504,801 ( 97,131) 30.215 -- 2,656,132
Vehicles 1,178,475 316,909 ( 321,116) 3,969 -- 1,178,237
Advertising signs and
display 130,115 81,251 ( 17,844) -- -- 193,522
Other Equipment 403,770 139,580 ( 40,609) 1,623 -- 504,364
------------ ---------- ------------ -------- -------- --------------
$ 5,351,905 $ 1,242,883 $( 476,700) $ 90,195 $ -- $ 6,208,283
------------ ---------- ------------ -------- -------- --------------
------------ ---------- ------------ -------- -------- --------------
</TABLE>
(A) Adjustments to the accounts relative to repairs of assets.
39
<PAGE>
CORPORACION PIPASA, S.A.
SHORT-TERM BORROWINGS
SEPTEMBER 30, 1995 AND 1994
SCHEDULE VI
<TABLE>
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest
September 30, Interest During the During the Rate During
1995 Rate Period Period the Period
------------ -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Certificates of Deposits $ 3,274,901 32.83% $ 3,618,927 3,145,238 32.83%
Banks 5,790,122 32.18 6,857,890 5,190,682 32.18%
Other 94,290 21.48 104,195 57,148 21.48%
------------
$ 9,159,313
------------
------------
</TABLE>
<TABLE>
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest
September 30, Interest During the During the Rate During
1994 Rate Period Period the Period
------------ ------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Certificates of Deposits $ 5,135,703 27.74% $ 3,778,904 $ 2,898,628 27.74%
Banks 2,482,312 28.00% 4,259,231 1,401,034 28.00%
Other 101,752 15.91% 95,961 57,429 15.91%
------------
$ 7,719,767
------------
------------
</TABLE>
40
<PAGE>
QUANTUM LEARNING SYSTEMS, INC.
PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED
JUNE 30, 1995
41
<PAGE>
QUANTUM LEARNING SYSTEMS, INC.
INDEX TO PRO FORMA FINANCIAL STATEMENTS
Page
----------
Independent Auditor's Report ......................... 43
Pro Forma Balance Sheet:
June 30, 1995 ...................................... 44 - 46
Pro Forma Statement of Operation:
Year Ended June 30, 1995 ........................... 47
Notes to the Pro Forma Financial Statements:
Year Ended June 30, 1995 .......................... 48 - 51
42
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Quantum Learning Systems, Inc.
Ocala, Florida
We have audited the consolidated balance sheet of Corporacion PIPASA, S.A. as
of September 30, 1995 and the related consolidated statements of operations
for the years September 30, 1995 and 1994. Our report thereon was dated June
6, 1996. We have audited the consolidated balance sheet of Quantum Learning
Systems, Inc. as of June 30, 1995 and the related consolidated statements of
operations for the years ended June 30, 1995 and 1994. Our report thereon
was dated August 28, 1995. The audit dates of these two sets of financial
statements are dated within 90 days of each other and are therefore used in
the preparation of the following pro-forma financial statements reflecting a
pending transaction between the two Companies. These pro forma financial
statements are the responsibility of the Company's management. The pro forma
financial information is provided as of June 30, 1995, which corresponds to
the last annual reports filed by the registrant, Quantum Learning Systems,
Inc. These pro forma financial statements should be reviewed in conjunction
with the complete audited financial statements of the individual companies.
The pro forma financial statements reflect the terms of the Agreement and Plan
of Reorganization dated April 30, 1996 for Quantum Learning System, Inc.
acquisition of Corporacion PIPASA, S.A.
The pro forma financial statements reflect the acquisition of Corporacion
PIPASA, S.A. accounted for using the pooling of interests method. The pro
forma financial statements also reflect the divestiture of all acquiror
operations, including the subsidiary corporations and the real estate
division as specified in item 5.j. of the Agreement and Plan of
Reorganization.
T. Alan Walls, CPA, P.C.
Johnson City, Tennessee
June 6, 1996
43
<PAGE>
<TABLE>
<CAPTION>
QUANTUM LEARNING SYSTEMS, INC.
PRO FORMA BALANCE SHEET
JUNE 30, 1995
Quantum
Learning Corporacion
Systems, Inc. PIPASA Pro Forma
June 30, 1995 September 30, 1995 Adjustments Results
--------------- ------------------ ----------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ -- $ 2,042,399 $ -- $ 2,042,399
Notes receivable 83,442 112,879 (83,442) 112,879
Accounts receivable 178,437 4,222,544 (178,437) 4,222,544
Inventories, net -- 5,984,909 -- 5,984,909
Due From Related Parties -- 210,996 -- 210,996
Prepaid expenses 539,236 152,289 (539,236) 152,289
--------------- ------------------ ----------- ---------------
Total Current Assets 801,115 12,726,016 (801,115) 12,726,016
Investments - Held to Maturity -- 1,524,023 -- 1,524,023
Property, Plant & Equipment, net 375,158 28,754,560 (375,158) 28,754,560
Forestry rights -- 657,961 -- 657,961
Copyrights, trademarks,
goodwill, net -- 151,410 -- 151,410
Guarantee deposits -- 145,872 -- 145,872
Other assets 215,437 89,979 (215,437) 89,979
Note receivable 1,838,885 -- (1,838,885) --
Due From Related Parties -- 1,850,433 -- 1,850,433
--------------- ------------------ ----------- ---------------
Total Assets $ 3,230,595 $ 45,900,254 $(3,230,595) $ 45,900,254
--------------- ------------------ ----------- ---------------
--------------- ------------------ ----------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable 13,649 9,159,313 (13,649) $ 9,159,313
Accounts payables 63,581 3,682,199 (63,581) 3,682,199
Accrual for Christmas bonus -- 371,800 -- 371,800
Accrual for severance pay -- 63,858 -- 63,858
Accumulated expenses 86,102 653,022 (86,102) 653,022
Estimated income tax 52,763 87,005 (52,763) 87,005
--------------- ------------------ ----------- ---------------
Total current liabilities 216,095 14,017,197 (216,095) 14,017,197
Long term accounts payable -- 14,480 -- 14,480
Long term notes payable 19,852 2,383,500 (19,852) 2,383,500
--------------- ------------------ ----------- ---------------
Total long term
liabilities 19,852 2,397,980 (19,852) 2,397,980
--------------- ------------------ ----------- ---------------
Total Liabilities 235,947 16,415,177 (235,947) 16,415,177
</TABLE>
See Notes to Pro Forma Financial Statements
44
<PAGE>
<TABLE>
<CAPTION>
QUANTUM LEARNING SYSTEMS, INC.
PRO FORMA BALANCE SHEET
JUNE 30, 1995
Quantum
Learning Corporacion
Systems, Inc. PIPASA Pro forma
STOCKHOLDERS' EQUITY: June 30, 1995 September 30, 1995 Adjustments Results
------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C>
Preferred stock - $1.00 par;
1,000,000 shares authorized; -0-
outstanding -- -- -- --
Common stock - $.001 par; 20,000,000
shares authorized; 4,353,161 and
4,353,161 outstanding in 1995 and
1994, respectively 4,271 -- 25,600 29,871
Common stock, authorized and issued
2,500,000 shares of $8.40 par
value each ($7.11 without the
effect of the capitalization of
fixed assets revaluation) -- 17,769,881 (17,769,881) --
Titulos de Capital, common and
nominal 1,500,000 certificates of
a par value of $6.64 each, which
can be issued in certificates of
six shares ($0.34 without the
effect of the capitalization of
assets revaluation) -- 505,511 -- --
Preferred nominal shares class "c"
186,431 shares issued (113,736 in
1994) which bear a fixed dividend
of 10% per year of a par value of
$6.81 ($6.81 in 1994) -- 1,151,491 (1,151,491) --
</TABLE>
See Notes to Pro Forma Financial Statements
45
<PAGE>
<TABLE>
<CAPTION>
QUANTUM LEARNING SYSTEMS, INC.
PRO FORMA BALANCE SHEET
JUNE 30, 1995
Quantum
Learning Corporacion
Systems, Inc. PIPASA Pro
June 30, 1995 September 30, 1995 Adjustments Forma Results
------------- ------------------ ----------- -------------
<S> <C> <C> <C> <C>
Preferred nominal shares class "c"
131,400 shares issued, which bear
an annual dividend equal to the
interbank rate published by the
Central Bank of Costa Rica,
revisable and adjustable every
month, plus two additional points,
of a par value of $6.50 each -- 853,948 (853,948) --
Additional paid-in capital 4,548,043 -- 26,464,829 31,012,872
Appropriation of retained - Legal
reserve -- 518,884 (518,884) --
Foreign currency translation
adjustment -- 437,498 (437,498) --
Retained earnings (1,437,137) 8,247,864 (8,247,864) (1,437,137)
Treasury Stock, 107,134 shares
at cost (120,529) -- -- (120,529)
------------- ------------------ ----------- -------------
Total stockholders' equity 2,994,648 29,485,077 (2,994,648) 29,485,077
------------- ------------------ ----------- -------------
Total liabilities &
stockholders' equity $ 3,230,595 $ 45,900,254 $ (3,230,595) $ 45,900,254
------------- ------------------ ----------- -------------
------------- ------------------ ----------- -------------
</TABLE>
See Notes to Pro Forma Financial Statements
46
<PAGE>
<TABLE>
<CAPTION>
QUANTUM LEARNING SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
Quantum Corporacion
Learning PIPASA
Systems, Inc. September 30, Pro Forma
June 30, 1995 1995 Adjustments Results
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 448,288 $ 57,427,536 $ (448,288) 57,427,536
Less: Cost of sales (51,905) (40,314,961) 51,905 $(40,314,961)
------------- ------------- ----------- ------------
Gross profit 396,383 17,112,575 (396,383) 17,112,575
Selling, General and
Administrative (1,153,108) (11,389,226) 1,153,108 (11,389,226)
------------- ------------- ----------- ------------
Operating Profit (Loss): (756,725) 5,723,349 756,725 5,723,349
Other Income 98,254 1,193,090 (98,254) 1,193,090
Other Expenses (13,063) (3,075,471) 13,063 (3,075,471)
------------- ------------- ----------- ------------
Net earnings before income
taxes (671,534) 3,840,968 671,534 3,840,968
Provision for income tax -- (230,618) -- (230,618)
------------- ------------- ----------- ------------
Net earnings (671,534) $ 3,610,350 $ 671,534 $ 3,610,350
------------- ------------- ----------- ------------
------------- ------------- ----------- ------------
</TABLE>
See Notes to Pro Forma Financial Statements
47
<PAGE>
QUANTUM LEARNING SYSTEMS, INC.
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1995
NOTE 1 - DESCRIPTION OF THE TRANSACTION
Quantum Learning System, Inc. entered into an agreement with Corporacion
PIPASA, S.A. effective April 30, 1996. The Agreement and Plan of
Reorganization is for Quantum Learning Systems, Inc. Acquisition of
Corporacion PIPASA, S.A.
The agreement specifies that Corporacion PIPASA, S.A. and its stockholders
agree that all of the issued and outstanding shares of Class A and Class B
common stock of acquiree shall be exchanged with Quantum Learning System,
Inc. for a total of approximately 25,600,000 shares, in the aggregate, of
restricted common stock of acquiror, which in any case shall be at least
82.4%, in the aggregate, of the issued and outstanding common shares of the
Company, on a fully diluted basis at the time of the delivery of such shares
to the Stockholders, which includes currently outstanding warrants or options
to issue approximately 750,000 shares. If, and to the extent that the
acquiror receives less than 100% of the common stock of the acquiree, the
amount of shares to be issued hereunder to the Stockholders of the acquiree
shall be reduced pro-rata.
Quantum Learning Systems, Inc. has three subsidiary corporations which
include Cambridge Academy, Sentient, Inc. and Current Concept Seminars, Inc.,
along with a division which engages in real estate development. As a
condition of the Agreement and the underlying acquisition, the acquiror will
divest itself of all operations, including the subsidiary corporations and
the real estate division, by the delivery date of the common shares.
NOTE 2 - DESCRIPTIONS OF ENTITIES INVOLVED
CORPORACION PIPASA, S.A.:
ORGANIZATION
On January 7, 1991 Akron, S.A. merged with the following Corporations:
Industrias Derivados de Pollo, S.A. (Indep S.A.), Retisa, S.A., Servicios
Multiple PIPASA (Semupi, S.A.), Avicola Chacara, S.A., Concentrados Belen,
S.A., Empolladora Belen, S.A., Granja Avicola Monica, S.A., Planta
Procesadora de Aves, S.A., Grupo PIPASA, S.A., Productores de Huevo Fertil,
S.A. (Prohufe, S.A.) and El Polluelo, S.A. prevailing the name of the Company
as Akron, S.A. Sometime afterwards, the articles of incorporation were
amended and the Company's name was switched to Corporacion PIPASA, S.A. The
Corporation is domiciled in La Ribera district, Belen country Heredia
province, Republic of Costa Rica.
Although Corporacion PIPASA, S.A. was formed on January 7, 1991, the
necessary legal documents were signed on February 15, 1991. Settlement of
the accounts for the merger was taken on January 31, 1991.
The main line of business of the Company is the production and marketing of
poultry products.
48
<PAGE>
QUANTUM LEARNING SYSTEMS, INC.
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1995
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Coporacion PIPASA, S.A. and its wholly-owned subsidiary,
Ricon de los Toros, S.A. Rincon de los Toros, S.A. is an inactive Company.
All significant intercompany transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS - The Company considers all liquid investments with
original maturities of three months or less to be cash equivalents.
DEPRECIATION, MAINTENANCE AND REPAIRS - Depreciation is provided by the
straight-line method. Estimated useful lives for depreciation purposes are
as follows:
Buildings 10-30 years
Machinery and equipment 5-10 years
Production equipment 5-10 years
Furniture and fixtures 5-10 years
Maintenance and repairs which do not prolong the useful life of an asset are
expensed as incurred.
AMORTIZATION - Amortization of intangible assets which include copyrights,
royalties and goodwill is provided by the straight-line method. Estimated
useful lives for amortization purposes are as follows:
Goodwill 5-10 years
Royalties 5-10 years
Copyrights 5-10 years
CAPITALIZED ADVERTISING COSTS - Advertising and re-launching of Company
products are capitalized and amortized to expense over one year. Advertising
signs are loaned to customers and remain the property of the Company. The
signs are capitalized and amortized on the straight-line method over their
estimated useful lives. All other forms of advertising are charged to
expense as incurred. Advertising expense amounted to $260,534 and $273,166
for the years ended September 30, 1995 and 1994, respectively.
ESTIMATES - Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenue and expenses. Actual results could vary from the estimates
that were assumed in preparing the financial statements.
49
<PAGE>
QUANTUM LEARNING SYSTEMS, INC.
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1995
(CONTINUED)
MARKETABLE SECURITIES - Held-to-maturity securities are recorded as
non-current assets and reclassified to current assets when maturity is within
the next year. Available-for-sale securities are either (1)recorded as
current assets because they represent an excess of available funds and, even
though management has no current plans to dispose of them, it can sell them
at any time at its option or (2) classified as current and non-current based
on management's plans to dispose of them. Trading securities are classified
as current assets.
INVENTORY - Inventory is recorded at the lower of cost or market. Cost is
determined using the weighted average method for all inventories.
QUANTUM LEARNING SYSTEMS, INC.:
ORGANIZATION:
On April 15, 1994 the Company authorized the change of its name from CCR,
Inc. to Quantum Learning Systems, Inc. (QLS). In addition, the Company
authorized the change of its domicile from Utah to Nevada by amendment of its
Articles of Incorporation. The Company's primary activity since 1994 has
been educational services offered to the public through its three subsidiary
corporations, Cambridge Academy, Sentient, Inc. and Current Concept Seminars,
Inc.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Preferred Stock - On April 15, 1994 the Company authorized 1,000,000 shares
of preferred stock at $1.00 par value to have such classes and preferences as
the Board may determine from time to time.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Quantum Learning Systems, Inc. and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have
been eliminated.
CASH AND CASH EQUIVALENTS - The company considers all liquid investments with
original maturities of three months or less to be cash equivalents.
DEPRECIATION, MAINTENANCE, AND REPAIRS - Depreciation is provided by the
straight-line method. Estimated useful lives for depreciation purposes are
as follows:
Buildings 3 - 20 years
Machinery and equipment 3 - 20 years
Furniture and fixtures 4 - 15 years
Maintenance and repairs and renewals which do not prolong the useful life of an
asset are expensed as incurred.
50
<PAGE>
QUANTUM LEARNING SYSTEMS, INC.
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1995
(CONTINUED)
AMORTIZATION - Amortization of intangible assets which include copyrights,
royalties and goodwill is provided by the straight-line method. Estimated
useful lives for amortization purposes are as follows:
Goodwill 5 - 10 years
Royalties 5 - 10 years
Copyrights 10 - 20 years
CAPITALIZED PRODUCTION COSTS - The Company capitalizes all direct production
costs and allocates indirect production costs based on man hours for all
internally produced video products.
REVERSE STOCK SPLIT - All common stock share and per share numbers included
in the consolidated financial statements and the notes thereto have been
adjusted to give retroactive effect to the 10 for 1 and the two 3 for 1
reverse stock splits discussed in Note 8.
EARNINGS PER SHARE - Earnings per share have been computed based upon the
weighted average number of shares outstanding during the year of 4,353,161
and 4,198,100 for the years ended June 30, 1995 and 1994, respectively.
Common Stock Equivalents in the aggregate do not dilute earnings per share by
more than 3%. Therefore, no change is presented. The presentation of fully
diluted Earnings Per Share of common stock outstanding in the accompanying
statement of operations, includes stock warrants outstanding.
NOTE 3 - PERIODS PRESENTED
The pro forma balance sheet is presented as of June 30, 1995, the end of the
most recent period for which a consolidated balance sheet of the registrant
has been filed. The pro forma income statements are presented for the years
ended June 30, 1995 and 1994, in accordance with the Securities and Exchange
requirements for a combination accounted for as a pooling of interests. The
fiscal year end of Quantum Learning Systems, Inc. is June 30, and the fiscal
year end of Corporacion PIPASA, S.A. is September 30. The fiscal year ends
of each Company are used for purposes of these pro forma financial statements
since the fiscal year ends are within a 93 day period.
NOTE 4 - ADJUSTMENTS
A pro forma adjustment has been made to reflect the issuance of 25,600,000
shares of common stock by the registrant pursuant to the Agreement and Plan
of Reorganization dated April 30, 1996 between Quantum Learning Systems, Inc.
and Corporacion PIPASA, S.A. The pro forma adjustements also reflect the
divestiture of all acquiror operations, including the subsidiary corporations
and the real estate division as specified in item 5.j. of the Agreement and
Plan of Reorganization.
51
<PAGE>
CORPORACION PIPASA, S.A.
INTERIM FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
INDEX
Page No.
PART I.
Item 1. Financial Information
Consolidated Balance Sheets March 31, 1996
and September 30, 1995 ............................ 53 - 54
Consolidated Statement of Earnings
Three Months Ended March 31, 1996 and 1995
and Six Months Ended March 31, 1996 and 1995 ...... 55
Consolidated Statement of Cash Flow Six Months
Ended March 31, 1996 and 1995 ..................... 56
Notes to Interim Financial Statements ................ 57 - 58
52
<PAGE>
CORPORACION PIPASA, S.A.
BALANCE SHEETS
MARCH 31, 1996 AND SEPTEMBER 30, 1995
(Unaudited) Audited
ASSETS March 31, September 30,
1996 1995
---------------- ---------------
Current Assets:
Cash and Cash equivalents $ 1,900,049 $ 2,042,399
Investments 1,220,600 --
Notes receivable 2,031,684 112,879
Accounts receivable, net 5,355,282 4,222,544
Inventories, net 7,764,125 5,984,909
Due from related parties -- 210,996
Prepaid expenses 183,799 152,289
---------------- ---------------
Total current assets 18,455,539 12,726,016
Long term investments 1,936,153 1,524,023
Property, Plant and equipment, net 28,118,838 28,754,560
Forestry rights 704,046 657,961
Copyrights, trademarks, goodwill, 114,618 151,410
net
Guarantee deposits 22,971 145,872
Due from related parties -- 1,850,433
Other assets 137,590 89,979
---------------- ---------------
Total assets $ 49,489,755 $ 45,900,254
---------------- ---------------
---------------- ---------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Bank overdrafts $ 610,602 $ --
Notes payable 10,844,399 9,159,313
Accounts payables 2,406,192 3,682,199
Accrual for Christmas bonus 212,239 371,800
Accrual for severance pay 38,412 63,858
Estimated income tax -- 87,005
Accumulated expenses 1,235,444 653,022
---------------- ---------------
Total current liabilities 15,347,288 14,017,197
Long term liabilities:
Long term accounts payable -- 14,480
Long term notes payable 3,200,079 2,383,500
---------------- ---------------
Total liabilities 18,547,367 16,415,177
53
<PAGE>
CORPORACION PIPASA, S.A.
BALANCE SHEET
MARCH 31, 1996 AND SEPTEMBER 30, 1995
(CONTINUED)
STOCKHOLDERS' EQUITY: 1996 1995
--------------- ---------------
Common stock, authorized and issued
2,500,000 shares of $8.40 par value
each ($7.11 without the effect of
the capitalization of fixed assets
revaluation) $ 17,769,881 $ 17,769,881
Titulos de Capital, common and
nominal 1,500,000 certificates of par
value of $6.64 each, which can be issued
in certificates of six shares 505,511 505,511
Preferred nominal shares class "c"
186,431 shares issued which bear a
fixed dividend of 10% per year of a
par value of $6.18 each 1,151,491 1,151,491
Preferred nominal shares class "c"
131,400 shares issued, which bear
an annual dividend equal to the
interbank rate published by the
Central Bank of Costa Rica,
revisable and adjustable every
month, plus two additional points,
of a par value of $6.50 each 853,948 853,948
Appropriation of retained earnings
-- Legal reserve 518,884 518,884
Foreign currency translation -- 437,498
Retained earnings 10,142,673 8,247,864
--------------- ---------------
Total stockholders' equity 30,942,388 29,485,077
--------------- ---------------
Total liabilities and stockholders'
equity $ 49,489,755 $ 45,900,254
--------------- ---------------
--------------- ---------------
54
<PAGE>
CORPORACION PIPASA, S.A.
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
March 31, March 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 31,258,945 $ 29,478,045 $ 15,034,877 $ 14,084,517
Cost of Sales (22,569,168) (20,721,640) (10,962,400) (9,985,493)
------------ ------------ ------------ ------------
Gross Profit 8,689,777 8,756,405 4,072,477 4,099,024
Operating Expenses:
Selling (3,237,235) (3,150,751) (1,612,203) (1,653,767)
Export (72,395) (73,519) (39,179) (43,137)
General Administrative (2,122,779) (2,140,532) (1,036,984) (1,087,257)
------------ ------------ ------------ ------------
Total Operating Expenses (5,432,409) (5,364,802) (2,688,366) (2,784,161)
------------ ------------ ------------ ------------
Operating Profit 3,257,368 3,391,603 1,384,111 1,314,863
Other Income 546,692 466,977 222,727 229,646
Foreign Currency
Translation Gain 77,645 102,633 77,645 102,633
Other Expenses (1,884,581) (1,549,285) (862,988) (806,560)
------------ ------------ ------------ ------------
Net Earnings Before
Income Taxes 1,997,124 2,411,928 821,495 840,582
Provision for Income Tax -- -- -- --
------------ ------------ ------------ ------------
Net Earnings $ 1,997,124 $ 2,411,928 $ 821,495 $ 840,582
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
55
<PAGE>
CORPORACION PIPASA, S.A.
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings for the year $ 1,997,124 $ 2,411,928
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization 635,722 644,511
(Increase) decrease in:
Accounts receivable (1,132,738) (539,945)
Inventories (1,779,216) 937,122
Other assets (47,611) 79,897
Prepaid expenses (31,510) 114,261
Increase (decrease) in:
Accounts payable (1,290,487) (811,542)
Accrued expenses 582,422 383,859
Estimated income taxes 87,005 (23,531)
Accrual for Christmas Bonus (159,561) (258,160)
Accrual for severance pay (25,446) (86,256)
------------- -----------
Net cash provided by operating activities (1,164,296) 2,852,144
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (1,797,818)
Investments -- Net change (1,632,730) 301,876
Loans to shareholders (895,671) (595,807)
Collection of loans to shareholders 791,260 990,142
Advances on notes receivable (328,682) (97,678)
Collection of notes receivable 32,935 458,960
Forestry rights (46,085) (52,692)
Copyrights 36,792 (8,172)
Deposits 22,971 (20,273)
Translation adjustment 409,431 325,270
------------- -----------
Net cash (used) by investing activities (1,609,779) (496,192)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 15,112,663 6,860,091
Principal payments on long-term debt and
notes payable (11,761,673) (7,875,412)
Dividends paid (590,142) (268,395)
Bank overdrafts 610,602 488,971
Translation adjustment (739,725) (782,300)
------------- -----------
Net cash (used) by financing activities 2,631,725 (1,577,445)
Net increase (decrease) in cash (142,350) 778,507
Cash balance, at the beginning of the period 2,042,399 1,387,508
------------- -----------
Cash balance, at the end of the period 1,900,049 2,166,015
SUPPLEMENTARY INFORMATION:
Interest Paid $ 1,399,314 $ 1,277,713
Taxes Paid $ 145,139 $ 98,533
------------- -----------
</TABLE>
56
<PAGE>
CORPORACION PIPASA, S.A.
MARCH 31, 1996 AND 1995
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- MANAGEMENT REPRESENTATION
- -----------------------------------
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with the instructions to form 10-QSB and
does not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The results of operations for any interim period are not necessarily
indicative of the results for the year. These statements should be read in
conjunction with the financial statements and related notes included in the
Company's annual report as of September 30, 1995 and 1994.
57
<PAGE>
CORPORACION PIPASA, S.A.
MARCH 31, 1996 AND 1995
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 -- SUMMARY FINANCIAL INFORMATION
---------------------------------------
March 31,
NOTES RECEIVABLE 1996
-------------
Notes receivable to consist of:
Commercial $ 69,285
Shareholders 1,576,057
Others 386,342
-------------
$ 2,031,684
-------------
-------------
ACCOUNT RECEIVABLE
Accounts receivable consist of:
Commercial $ 4,885,409
Officer and employees 355,899
Other 275,315
Allowance for doubtful accounts ( 161,341)
-------------
$ 5,355,282
-------------
-------------
INVENTORIES
Inventories consist of:
Finished products $ 1,234,304
Production poultry 3,075,242
Materials and supplies 1,047,857
Raw Materials 1,213,186
In-Transit 1,644,517
Others 885
Allowances for renewal of production poultry ( 451,866)
-------------
$ 7,764,125
-------------
-------------
LONG-TERM INVESTMENTS
Long-term investments at cost are detailed as
follows:
Rincon de los Toros, S.A. (100% ownership) $ 407,424
Cerveceria Americana, S.A. (9% ownership) 1,162,064
Lineas Aereas Costarricense, S.A. 1,263
Club Campestre Espanol 2,173
Certificates of deposit, Corporacion Privada of
Inversiones de Centroamerica, S.A. 75,316
Hotel Fiesta de Playa Shares 33,557
Certificates of deposit 12,515
Others 1,195
-------------
$ 1,695,507
-------------
-------------
58
<PAGE>
CLOSING OF THE TRANSACTION.
The transaction was closed on April 30, 1996, with the approval of the
Boards of Directors of both the Company and Pipasa. The Board of the Company
has submitted this transaction to the shareholders of the Company for
ratification and approval, which includes the authorization of a total of
60,000,000 common shares and the change of the name of the Company. The
management of Pipasa will take over the Company immediately after the
approval by the shareholders and all shares will be exchanged under the terms
of the transaction.
VOTES REQUIRED.
The Board of Directors of the Company is proposing that the shareholders
of the Company ratify and approve the transaction which closed on April 30,
1996. This vote must be approved by the affirmative vote of the record
holders of a majority of the outstanding shares of the Company's Common
Stock. All shareholders of record as of July 1, 1996, which does not include
the new shareholders from the acquisition, will be authorized to vote. The
Acquisition has been approved by the holders of approximately 65% of the
outstanding capital shares of Pipasa.
BOARD OF DIRECTOR RECOMMENDATIONS.
The Board of Directors of the Company has unanimously approved the
Agreement, and believes that the Acquisition is in the best interests of the
Company's shareholders and unanimously recommends that the shareholders vote
to ratify and approve the Acquisition.
59
<PAGE>
INCREASE IN AUTHORIZED COMMON SHARES
The Company proposes to amend its Articles of Incorporation to authorize
the issuance of up to 60,000,000 Common Shares, all with $0.001 par value.
This amendment is required to have enough shares available to exchange shares
with the shareholders of Pipasa under the definitive agreement of April 30,
1996.
The present Articles of Incorporation of the Company only provide for the
issuance of up to 20,000,000 Common Shares. No specific classes or
preferences of the Common Shares are authorized nor are any contemplated by
this proposed amendment. All newly authorized Common Shares will be of the
same class as the present Common Shares. This Amendment will have no effect
on the number of authorized Preferred Shares, which will remain the same
under the Company's Articles of Incorporation. The issuance of these Common
Shares could be used as an anti-takeover measure and could have the effect of
preventing those who will not control the Company after the acquisition of
Pipasa from mounting an effort to do so. Although the issuance of Common
Shares could be used for this purpose, this is not the intention of the
Company in proposing the authorization of Common Shares.
At the present time, the Company's primary purpose to authorize the
increase in the number of Common Shares is to fulfill the contractual
requirement to issue up to 25,600,000 Common Shares for up to 100% of the
capital stock of Pipasa. However, as the Company expands, there will be need
for additional capital, and the management of the Company believes that it is
in the best interests of the Company and its shareholders to have the option
to issue additional Common Shares as an added avenue to raise capital. The
Company has an ongoing need for additional capital and wants to have as much
flexibility as possible in creating programs for raising such capital. The
Company's management believes that the additional Common Shares will be an
important step in developing that flexibility. This is an added but only
secondary reason for the proposal to authorize an increase in the number of
Common Shares to 60,000,000 shares. This resolution requires the affirmative
vote of a majority of the issued and outstanding shares of the Company. The
Board of Directors recommends that shareholders vote FOR the resolution.
CHANGE OF THE NAME OF THE COMPANY
The Company seeks to change its name to Costa Rica International, Inc.,
or some similar derivation thereof. The Company seeks the name change to
better emphasize its future business focus. As presently structured, the
Company is involved in several activities, none of which will be continued
within the present Company if the acquisition of Pipasa is approved by the
shareholders. The Company believes that its principal revenue and profit
growth for the foreseeable future will be in the Pipasa subsidiary and,
consequently, in Costa Rican operations. It is, therefore, the Company's
intention to emphasize this location of its business focus by utilizing the
name Costa Rica International, Inc. This resolution requires the affirmative
vote
60
<PAGE>
of a majority of the issued and outstanding shares of the Company. The Board
of Directors recommends that shareholders vote FOR the resolution.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed the Company's present independent public
accountants, T. Allan Walls, CPA, for the fiscal year ended June 30, 1996.
This appointment will be submitted to the shareholders for ratification at
the Meeting.
The submission of the appointment of T. Allan Walls, CPA is not required
by law or the bylaws of the Company. The Board of Directors is nevertheless
submitting it to the shareholders to ascertain their views. If the
shareholders do not ratify the appointment, the selection of other
independent public accountants will be considered by the Board of Directors.
To be adopted, the resolution requires the affirmative vote of a majority of
the shares voting at the meeting. The Board of Directors recommends a vote
FOR the resolution.
OTHER MATTERS
As of the date of this Proxy Statement, the Company's management has no
knowledge of any business, other than previously described herein, which
should be presented for consideration at the meeting. In the event that any
other business is presented at the meeting, it is intended that the persons
named in the enclosed Proxy will have authority to vote such Proxy in
accordance with their best judgment on such business.
SHAREHOLDER PROPOSALS
According to Rule 14a-8 under the Securities Exchange Act of 1934, a
shareholder may require that certain proposals suggested by shareholders be
voted on at a shareholders meeting. Information concerning such proposals
must be submitted to the Company for inclusion in its proxy statement. Such
proposals for inclusion in the Company's proxy materials relating to the next
Annual Meeting of the Company must be received by the Company not later than
January 1, 1997.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report to Shareholders, including financial
statements, has been mailed with these materials to all shareholders of
record. Any shareholder who has not received a copy of such Annual Report
may obtain a copy by writing to the Company. Such Annual Report is not to be
treated as part of the proxy solicitation material, nor as having been
incorporated by reference.
61
<PAGE>
SOLICITATION OF PROXIES
The cost of solicitation will be borne by the Company. The Company will
reimburse brokerage firms and other custodians, nominees, and fiduciaries for
reasonable expenses incurred by them in sending proxy material to the
beneficial owners of common stock. In addition to solicitation by mail,
directors, officers, and regular employees of the Company may solicit Proxies
personally or by telegraph or telephone, without additional compensation.
NOTICE TO BANKS, BROKERS/DEALERS, VOTING TRUSTEES, AND THEIR NOMINEES
Please advise the Company, in care of its corporate address, whether any
other persons are the beneficial owners of the shares of common stock for
which Proxies are being solicited from you, and, if so, the number of copies
of the Proxy Statement, and other soliciting materials, you wish to receive
in order to supply copies to the beneficial owners of shares.
QUANTUM LEARNING SYSTEMS, INC.
By: James K. Isenhour
Chairman
Dated: July 15, 1996
62
<PAGE>
1995 ANNUAL REPORT
FOR
QUANTUM LEARNING SYSTEMS, INC.
<PAGE>
Quantum Learning Systems, Inc.
1111 SW 17th Street
Ocala, Florida 34474
-----------------
ANNUAL REPORT FOR
THE FISCAL YEAR ENDED JUNE 30, 1995
-----------------
Dear Shareholders:
Fiscal 1995 was not an exceptional year for our Company. Revenues and
earnings were basically flat. The Company embarked upon a program to complete
a major acquisition, As a result, 1996 promises to be a milestone in our
Company's history. The acquisition of control of Corporacion Pipasa, S.A., a
Costa Rican company (Pipasa), promises to increase the scope, assets, revenues
and earnings of our Company beyond our greatest expectations.
Pipasa was formed in 1969. It has been profitable for a number of years.
Pipasa has developed a solid niche in the poultry business in Latin America.
By becoming a public company, Pipasa will have a greater access to capital and
to the possibility of acquiring similar companies.
Pipasa has a history of twenty-six years of operations and controls
approximately 52% of the poultry market in Costa Rica. It has approximately
2,000 employees. Pipasa has developed such a solid niche in the poultry
business that the common phrase is "don't ask for chicken, as for Pipasa."
This financially sound, forward looking company is the result of years of
hard work and dedication by its founder, Mr. Calixto Chaves. As our potential
new chairman and Chief Executive Officer, I am convinced that his dedication
to excellence and commitment to the future of our Company will have a positive
effect on the overall value of our Company, directly benefiting all of the
Company's shareholders.
I believe in the future of our Company. So much so that I plan to remain
as a Director once the new management is in place. I feel that we as
shareholders can look forward to a very exciting coming fiscal year for our
Company.
Very truly yours,
James K. Isenhour
Chairman
<PAGE>
QUANTUM LEARNING SYSTEMS, INC.
GENERAL DEVELOPMENT OF BUSINESS
QUANTUM LEARNING SYSTEMS, INC. (the "Company"), is a Nevada corporation.
The principal business address is 1111 S.W. 17th Street, Ocala, Florida,
34474. Its phone number at this address is (904) 620-8905.
The Company was incorporated under the laws of the State of Utah on
February 6, 1986 under the name CCR, Inc. for the purpose of investing in any
and all types of assets, properties, and businesses. The Company completed a
public offering in 1987. The offering registered 200,000 Units, with each Unit
consisting of one share of Common Stock with a par value of $.001 per share,
one "A" Warrant to purchase one share of Common Stock at $3.00 per share
initially exercisable any time within six months of the effective date of the
Company's Registration Statement, and one "B" Warrant to purchase one share of
Common Stock at $4.50 per share exercisable at any time within one year of the
effective date of the Company's Registration Statement. The "A" and "B"
Warrants expired in February and August, 1993, respectively.
On June 28, 1990, the Company effected a reverse stock split of the
Company's common stock on the basis that each ten shares outstanding were
converted into one share. On August 31, 1991, the Board of Directors approved
a second reverse stock split where each three shares outstanding were
converted into one share. The Board of Directors approved a third reverse
stock split, effective December 27, 1993, where each three shares outstanding
were converted into one share. With the exception of discussions of historical
transactions, which are stated at the actual number of shares involve at that
time, all references herein to a given number of common shares will take into
account the effect of all reverse splits.
On November 22, 1988, the Company entered into a Plan and Agreement of
Reorganization with W.T. Young Construction Company, Inc., Young Trucking,
Inc., C.C. Crane Corp., and all of the shareholders of these three companies.
This reorganization closed on November 22, 1988, effective as of October 31,
1988. This reorganization resulted in the Company acquiring all of the issued
and outstanding shares of common stock of these three companies in exchange
for a total of 2,697,333 shares of common stock of the Company. Under this
reorganization acquisition, these three companies became wholly-owned
subsidiaries of the Company, which became a holding company. A majority of the
assets of C.C. Crane Corp. were sold in 1991 to certain minority owners of the
Company. In June, 1994, W.T. Young Construction Company, Inc. and Young
Trucking, Inc. were sold to these same minority shareholders of the Company,
Messrs. W.T. and Glen Young.
<PAGE>
Effective March 3, 1989, the Company acquired Direct Communications, Inc.
("DCI"), an Oklahoma corporation. DCI obtained a license to market and
distribute voice communications technology to colleges and universities
throughout the United States. DCI's operations were discontinued and its
assets sold by the Company in December, 1992.
In 1989, the Company's subsidiary, Colortex Industries, Inc., which had
completed the acquisition of certain assets and business of O'Ryan Carpets,
Inc., declared bankruptcy under Chapter 11 of the Federal Bankruptcy Code.
This subsidiary was eventually liquidated under Chapter 7 of the Federal
Bankruptcy Code in 1991.
On October 31, 1991, the Company acquired all of the issued and
outstanding common stock of Cambridge Academy, Inc. ("Cambridge") in exchange
for 3,625,000 shares of the Company's restricted common stock. Cambridge
operates a nationally accredited home study high school.
On July 1, 1992, the Company entered into an agreement to acquire one
hundred percent of the issued and outstanding common stock of Quantum Learning
Systems, Inc., a Florida corporation, now known as Sentient, Inc. ("Sentient")
in exchange for 3,200,000 shares of the Company's restricted common stock.
Sentient develops educational video programs and related systems.
On August 28, 1992, the Company entered into an agreement to acquire one
hundred percent of the issued and outstanding common stock of Current Concept
Seminars, Inc. ("CCS") in exchange for 700,000 shares of the Company's
restricted common stock. CCS develops and produces educational programs. In
March, 1995, the Company reached a settlement to adjust the purchase price to
total 115,000 shares.
On August 31, 1993, the Company entered into an agreement for the
acquisition of all of the issued and outstanding shares of Cascade Carpet
Mills, Inc., a private Georgia corporation, in exchange for 300,000 restricted
common shares of the Company's stock. The acquisition was rescinded, ab
initio, by mutual agreement of the parties on June 22, 1994.
In April, 1994, the Company changed its name to Quantum Learning Systems,
Inc. and its state of incorporation from Utah to Nevada.
Except as otherwise disclosed herein, the Company has not been subject to
any bankruptcy, receivership or similar proceeding.
2
<PAGE>
OPERATIONS
GENERAL
At the end of fiscal year 1995, the Company had two business segments:
Educational Activities and Real Estate. The Company had discontinued its Voice
Communications business segment in December, 1992 and had sold its
Construction and Trucking segments in 1994.
In addition, in June, 1994, the Company entered into a Recision Agreement
to rescind, AB INITIO, its 1993 acquisition of Cascade Carpet Mills, Inc., a
Georgia corporation. As a part of the Recision Agreement, Ms. Sharon Long, the
prior sole stockholder of Cascade Carpet Mills, Inc., returned all common
shares of the Company from the acquisition.
It is the intention of the Company in the foreseeable future to focus on
a core business based upon its educational activities. To a secondary and
lesser extent, the Company will also be involved in real estate. The Company
will continue to look at new acquisitions, but, for the foreseeable future,
only in the educational activities and real estate business segments.
EDUCATIONAL ACTIVITIES SEGMENT
As of the end of fiscal year 1995, this segment forms the core of the
Company's operations. Cambridge Academy, a home-study, private high school,
formed the initial basis of the Company's Educational Activities Segment.
During fiscal year 1993, the Company acquired two subsidiary companies in the
business of developing and marketing educational programs. The first,
Sentient, Inc., formerly known as Quantum Learning Systems, Inc., Florida
corporation ("Sentient"), is a video production company. The second, Current
Concept Systems, Inc. ("CCS"), markets continuing educational programs and
regulatory compliance programs to the health care industry.
Cambridge Academy
Founded in 1978, Cambridge Academy ("Cambridge") is a tuition based,
fully accredited, private high school that utilizes home-study programs to
deliver its educational curriculum. Since 1978, Cambridge has enrolled over
15,000 students and currently has an enrollment of approximately 1829
students.
Cambridge currently offers over forty home study courses in business,
mathematics, language arts, science, and social studies. Students enrolled at
Cambridge are offered an individually designed education program which is
based upon each student's ability and goals. This is a program to provide an
educational alternative for persons who, for whatever reason, have not
otherwise completed high school. Upon successful completion of the student's
program, Cambridge awards a nationally recognized high school diploma to each
graduate.
3
<PAGE>
Cambridge is an accredited member of the Distance Education and Training
Council, formerly known as the National Home Study Council; is a member of the
College Board; and is included in the American Council on Education's
Directory of Accredited Post Secondary Schools. The State of Florida has
listed Cambridge as a private high school.
Sentient, Inc.
Sentient was formed in 1992 as a Florida corporation. Sentient specializes
in multimedia and interactive video technology and video production. It has
designed a broad range of knowledge-based products for both consumer and
entertainment markets.
Sentient's primary activity to date is as an in-house video production
company which services the Company's proprietary products.
Current Concept Systems, Inc.
CCS was formed in 1981 as a Florida corporation. CCS is in the business
of developing and presenting continuing education programs. Its primary focus
has been the medical and legal profession and regulatory compliance programs
for the health care industry on the state and federal level.
CCS has produced and continues to produce continuing education seminars
accredited for medical and legal professionals with the cooperation of faculty
members of a number of colleges and universities. CCS is a nationally approved
sponsor of Continuing Dental Education Programs by the Academy of General
Dentistry and the American Dental Association. CCS's programs have been
accredited by the American Academy of Family Physicians, the American
Osteopathic Association, the American College of Obstetrics and Gynecology,
and the Florida Bar Association, among others.
CCS has developed a series of educational programs directed at teaching
compliance with new Federal Regulations involving the health care industry.
CCS's principal programs are the Florida Bio-Medical Waste Management
Compliance Program and the OSHA Infection Control Compliance Program. This
latter program has been published and nationally distributed by McGraw-Hill
Publishing Company.
CCS is currently working with Sentient to develop several programs for
health care providers, including, but not limited to, the development of a
series of retraining videos under the Bio-Medical Waste and OSHA compliance
programs.
CCS has also developed relationships with seventeen hotels in the U.S.,
Mexico, and the Caribbean which offer and administer a two to ten hour
independent study program entitled PROFESSIONAL MALPRACTICE AND RISK
MANAGEMENT INCLUDING AIDS: THE LEGAL AND ETHICAL ISSUES. The program is
presented in a combination video and workbook format. This program is
4
<PAGE>
priced according to the hours taken by the doctor or attorney during his or
her stay, with the hotels receiving a twenty to twenty-five percent commission
for administering the program.
REAL ESTATE SEGMENT
In 1994, the Company established a division devoted entirely to real
estate development. Its primary business is planned to be the building and
management of commercial centers. In the present market, many supermarket and
drug store chains are opting for locating in free-standing stores or limited
local tenant centers (LLT's) instead of being the key tenant of a shopping
mall or larger strip shopping center. It is the plan of the Company to work
with these chains to develop such centers. As of June 30, 1995, the Company
had no on-going activities. This segment will be secondary to the Company's
other activities for the foreseeable future.
DISCONTINUED OPERATIONS
The Company entered into an Agreement as of June 30, 1994 to sell two of
its subsidiaries, W.T. Young Construction Company and Young Trucking, Inc., to
W.T. Young and Glen Young individually. Messrs. W.T. and Glen Young are
shareholders of the Company and operating officers of these subsidiaries. The
purchase price was $2 Million Dollars for the two companies. The terms of the
sale were $200,000 down and a collateralized five year promissory note with
annual payments of $150,000, plus interest, in years one and two, $200,000,
plus interest, in years three and four, and the balance, plus interest, in
year five. With this sale, the Company's Construction and Trucking Segments
were discontinued.
In June, 1995, a dispute developed between the Company and Messrs. W.T.
Young and Glen Young as to whether the Youngs had made a timely payment of
interest and principal on the $2 Million Dollar obligation owed to the
Company. The Youngs had previously provided a promissory note whose terms the
Company believes were inconsistent with the terms of the Agreement.
Nevertheless, all parties agree that the debt is owed. While the Youngs had
made a payment to the Company of $242,710.36 from March, 1995 to July, 1995
there is a dispute as to the application of these funds. In August, 1995, the
Youngs brought an action in the State District Court of the 28th Judicial
District in Texas seeking a declaratory judgement regarding their liability
for this payment. The Company has recently sought to move the action to
Federal Court.
During the past two fiscal years, the contribution to the Company's
revenues of each line of business, which has consisted of educational
activities and construction activities and trucking rental
activities(discontinued after June 30, 1994), was as follows:
5
<PAGE>
NET SALES TO UNAFFILIATED CUSTOMERS
<TABLE>
<CAPTION>
Fiscal years ended
1995 1994
---------- ----------
<S> <C> <C>
Net Sales to unaffiliated
customers:
Construction $ -- $2,466,959
Trucking -- 1,312,777
Educational 431,117 288,683
Seminar and publication 17,171 165,168
Video production -- 225,492
---------- ----------
Consolidated $ 448,288 $4,459,079
---------- ----------
Operating income (loss):
Construction $ -- $ 407,453
Trucking -- 92,356
Educational (75,869) (11,793)
Seminar and publication (45,038) 12,116
Video production (193,766) 76,748
Corporate Income 7,752 18,468
---------- ----------
Consolidated (306,921) 595,348
Corporate expenses (338,585) (114,814)
Interest expenses (111,183) (7,241)
Income (loss) 85,155 24,138
---------- ----------
Income (loss) from operations
operations federal income taxes (671,534) 497,431
Adjustment for discontinued
operations for 1993:
Construction -- (407,453)
Trucking -- (92,356)
Income (loss) from continuing
operations before federal
income taxes $ (671,534) $ (2,378)
---------- ----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Fiscal years ended
1995 1994
---------- ----------
<S> <C> <C>
Identifiable assets:
Construction $ -- $ --
Trucking -- --
Educational 186,186 182,422
Seminar and publication 10,518 18,518
Video Production 311,285 326,930
Corporate Assets 22,489 48,075
---------- ----------
Consolidated $ 538,478 $ 575,945
---------- ----------
Depreciation expense:
Corporate $ 6,989 $ 4,027
Construction -- --
Trucking -- --
Educational 17,218 15,208
Seminar and publication 2,024 1,953
Video production 44,469 46,704
---------- ----------
Consolidated $ 70,700 $ 67,892
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Capital expenditures:
Corporate $ 3,406 $ --
Educational 3,764 75,031
Seminar and publication -- --
Video production -- --
---------- ----------
Consolidated $ 7,170 $ 75,031
---------- ----------
</TABLE>
The Company has contracted with a number of entities, including
governmental, on various projects. As a result of the sale of certain of its
subsidiaries, the Company now principally contracts with individuals. As of
the end of the fiscal year, no single contract, accounted for more than ten
percent of the Company's total gross revenues.
MARKETS
The marketing of Cambridge is on a national and international basis. The
primary means of marketing during the reporting period has been through
magazines. In July, 1992, Cambridge began utilizing television commercials and
continues to do so on a limited basis.
7
<PAGE>
Sentient is an in-house operation of the Company and services the
Company's proprietary products.
CCS markets its programs on a national basis through direct mail to the
legal and health care profession and through strategic alliances with medical
and legal professional associations and various domestic and international
hotels. In addition, CCS does limited printed advertising in trade magazines.
Marketing of properties to be developed by the real estate segment will
rely upon professional alliances developed or to be developed by the Company.
Such alliances with established real estate professionals will be utilized to
find, construct, finance and manage the properties. Individual properties will
be sold on a pre-development or constructed basis through investor groups,
REIT's, or publicly traded partnerships. No substantial marketing in the real
estate segment is expected to take place in the coming fiscal year.
RAW MATERIALS
The Company does not use material amounts of raw materials in its business
activities.
CUSTOMERS AND COMPETITION
The principal customers of Cambridge are individuals who, for whatever
reason, have not completed high school and would benefit from a home study and
self-paced educational opportunity. Cambridge competes with other high school
level operations, both public and private. The market is large and
competitive. However, no one entity or groups of entities have gained
dominance.
Competition in CCS's continuing education business is intense. In the
health care regulation compliance programs and training business, on the other
hand, the market contains numerous small companies looking for a niche and
none dominating the market. While the barriers to entry in both businesses are
not large, much of the potential success of any company in these business is
also based upon its reputation. Therefore, it is imperative for CCR to
continue to maintain its reputation of providing high quality educational
programs if it is to compete successfully. CCS believes that it currently has
a niche in its market in which it can operate profitably in both businesses.
However, to successfully compete in the future, CCS must keep current with the
changing technologies for the delivery of educational and health care
regulation compliance programs and must safeguard its reputation.
BACKLOG
Neither Cambridge Academy, CCS nor Sentient normally have a material
backlog due to the nature of their activities.
8
<PAGE>
EMPLOYEES
At June 30, 1995, Cambridge Academy had 11 full-time employees and 5
part-time employees; CCS had 1 employee; and Sentient had 1 employee.
SUBSEQUENT EVENTS
The Company entered into a definitive agreement to acquire 100% of
Corporacion Pipasa, S.A. ("Pipasa"), a Costa Rican private company, in a
tax-free exchange. The Company will issue an aggregate of 25,600,000 of its
common shares to the shareholders of Pipasa. Initially, the Company will only
acquire approximately 65% of Pipasa in exchange for approximately 16,640,000
of its common shares. The remaining approximately 35% of Pipasa is expected to
be acquired within the next twelve months. This entire transaction is subject
to the approval of the shareholders of the Company, which includes the
authorization of sufficient additional common shares to complete the
transaction, approval of the resignation of the current officers and directors
of the Company and their replacement by new management, the approval of the
disposal of all current operations of the Company contemporaneously with the
acquisition of Pipasa and in such manner as to estoppel any contingent
liability, and the change of the name of the Company to "Costa Rica
International Holdings, Inc." or a derivation thereof acceptable to regulatory
authorities.
PRINCIPAL MARKET OR MARKETS
The Company's Common Stock has been listed on NASDAQ since May 25, 1990.
Market makers and other dealers provide bid and ask quotations of the
Company's Common Stock under the symbol "QLSI" for the Common Stock.
The table below represents the range of high and low bid quotations of the
common shares of the Company as reported by NASDAQ during the reporting period
herein. The following bid price market quotations represent prices between
dealers and do not include retail markup, markdown, or commissions; hence,
they may not represent actual transactions.
Fiscal Year ended 1995 High Low
---- ---
First Quarter
Common Shares $0.625 $0.375
Second Quarter
Common Shares $0.4375 $0.25
Third Quarter
Common Shares $0.3125 $0.25
Fourth Quarter
Common Shares $0.6875 $0.1875
9
<PAGE>
High Low
---- ---
Fiscal Year 1994
First Quarter
Common Shares $1.69 $1.13
Second Quarter
Common Shares $3.63 $1.00
Third Quarter
Common Shares $2.44 $1.50
Fourth Quarter
Common Shares $1.94 $0.56
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
As of June 30, 1995, a total of 4,353,161 shares of the Company's Common
Stock were outstanding and the number of holders of record of the Company's
common stock at that date was approximately 500. However, the Company
estimates that it has a significantly greater number of shareholders because a
substantial number of the Company's shares are held in nominee names by the
Company's market makers.
DIVIDENDS
Holders of common stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends on the common
stock were paid by the Company during the periods reported herein nor does the
Company anticipate paying dividends in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RESULTS OF OPERATIONS
Revenues of the Company, as adjusted to eliminate discontinued operations,
decreased from $679,343 in fiscal 1994 to $448,288 in fiscal year 1995, an
decrease of approximately 34% over the previous year. The Company experienced
its decreased revenues in the last fiscal year over the previous year as a
result of the realignment of its business operations and its focus on such
realignment. The Company sold its two major revenue generating business
segments on June 30, 1994.
10
<PAGE>
Management expects profitability in its educational segment and believes
that significant increases in the revenues of the education segment during the
next fiscal year could translate into substantially increased earnings for the
Company.
The Company generated an operating loss of $756,725 in fiscal year 1995,
when compared to a loss of $105,333 for fiscal year 1994. The Company
recorded a loss from continuing operations of $671,534 for fiscal year 1995,
when compared to a loss from continuing operations in fiscal year 1994 of
$438,665. The Company's selling, general and administrative expenses
increased significantly as a percentage of the Company revenue when compared
to the previous year. The increase of general and administrative expenses to
$1,153,108 in the fiscal year ended June 30, 1995, as compared to $755,797 in
the fiscal year ended June 30, 1994, is primarily due to one time write downs
which should not occur on the financial statements in the future. The Company
also had significant increases in professional services and travel expenses
due to accelerated activity in the legal and travel requirements of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, cash and cash equivalents was $ 0, compared to $202,287
at June 30, 1994.
At June 30, 1995, the working capital ratio was 4.0:1 as compared to 7.0:1
at June 30, 1994.
Historically, the Company has generally relied upon internally generated
funds to satisfy working capital requirements and to fund capital
expenditures. Management believes that it can continue to fund its obligations
and implement the development of its business segments with available cash and
internally generated cash flow. The Company does not foresee a major
require-ment for capital in the next fiscal year. However, the Company
believes that the evolution of its business segments could be realized more
rapidly through the use of outside capital and may reconsider its position
after it examines the results of the first fiscal quarter of next year. In the
event that the Company should require additional capital, it would expect to
fund expansion of its business through a combination of public offerings, bank
operating lines of credit, and operating profits, if any. The Company does not
intend to pay dividends in the foreseeable future.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
There were no disagreements between the Company and its accountants during
the relevant period.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and Executive Officers of the Company, their ages and
present positions held in the Company are as follows:
11
<PAGE>
NAME AGE POSITION HELD
- --------------------- --- -------------
James K. Isenhour 47 Chief Executive Officer,
Chairman, President
Treasurer and Director
Tanzee Nahas 43 Secretary and Director
A. Douglas Brown, Jr. 52 Director
Alfred E. Smith, IV 44 Director
The Company's Directors will serve in such capacity until the next annual
meeting of the Company's shareholders and until their successors have been
elected and qualified. The officers serve at the discretion of the Company's
Directors. James K. Isenhour and Tanzee Nahas are husband and wife. Otherwise,
there are no family relationships among the Company's officers and directors,
nor are there any arrangements or understanding between any of the directors
or officers of the Company or any other person pursuant to which any officer
or director was or is to be selected as an officer or director.
JAMES K. ISENHOUR. Mr. Isenhour became a Director, Chairman and Chief
Executive Officer of the Company in August of 1991. He was also President from
1991 to 1993. From 1985 to 1994, he was involved with Ram Financial
Consultants, Inc., a private corporation which has extensive experience in
securities related businesses.
Mr. Isenhour is one of the founders of Cambridge Academy, currently a
wholly-owned subsidiary of the Company. Mr. Isenhour has served on the
school's Board of Directors since 1979. He was appointed as President of
Cambridge in 1981 and served in this capacity until Tanzee Nahas, his wife and
business partner and a Director of the Company, was appointed to fill the
position.
Mr. Isenhour is certified as a master electrician. He started an
electrical contracting business at the age of 23. He went on to become a
general contractor and developer of multi-family housing. He has been the
Chief Executive Officer of Sea Coast Electric, Inc., a private family
corporation, since 1981.
TANZEE NAHAS. Ms. Nahas has been a Director of the Company since 1991. In
1993, she was appointed the Secretary of the Company. She is the wife and
business partner of the Company's President, James K. Isenhour, and is one of
the founders of Cambridge Academy, whose corporation is a wholly-owned
subsidiary of the Company. She was appointed Chief Executive Officer of
Cambridge Academy in 1985 and served as Director of Student Services from 1984
until 1990, when she assumed the office of Director of Education. As Director
of Education, Ms. Nahas oversees the day to day operation of the school and
directs the Education Department Staff
12
<PAGE>
of licensed and certified teachers in coordinating the development and
revision of educational courses and programs.
Ms. Nahas is a Certified Evaluator of Home Study Schools and serves on the
National Home Study Council's Research and Educational Standards Committee.
Ms. Nahas was a recipient of the John F. Kennedy Scholastic Achievement Award.
A. DOUGLAS BROWN, JR. Mr. Brown has been a Director of the Company since
August, 1991. He is a engineer with Florida Power and Light Corporation, where
he has been employed for the past 29 years. Mr. Brown is one the Board of
Directors of the Fort Lauderdale, Broward Country Chamber of Commerce, a
member of the Westin Chamber of Commerce, one of the Board of Directors of the
Westin Rotary Club, the current President of the Opa Locka, Carol City Jaycees
and President of the Halftrack Conservation Club of Dade County.
ALFRED E. SMITH, IV. Mr. Smith has been a director of the Company since June
1, 1994. He was a partner of the New York Stock Exchange member firm of Adler,
Coleman & Co., Inc. from 1979 to 1994. Since 1994, he has been with CMJ
Partners, a New York Stock Exchange member firm. In September, 1994, Adler,
Coleman & Co. sold the Adler, Coleman Clearing division to an unaffiliated
third party. In February, 1995, the entity which acquired the Adler, Coleman
Clearing division filed for bankruptcy protection under Chapter 11.
Mr. Smith is a member of the Government Relations Committee of the New
York Stock Exchange, Director and Secretary of the Alfred Emanuel Smith
Memorial Foundation, Chairman of the Cardinal's Committee for the Laity-Wall
Street Division, Director of the Center for Hope, a Trustee of St. Vincent's
Hospital, and a Trustee of Iona Prep School. He is a member of the New York
City Advisory Board of the Enterprise Foundation and the American Association
of the Sovereign Military Order of Malta. He has received numerous awards for
his charity and humanitarian work. Mr. Smith was educated at Villanova
University.
FORM 10-KSB
A copy of the Form 10-KSB filed with the U.S. Securities and Exchange
Commission is available to any shareholder upon written request to:
Corporate Secretary
Quantum Learning Systems, Inc.
1111 SW 17th Street
Ocala, Florida 34474
SHAREHOLDER INFORMATION
Corporate Offices:
1111 SW 17th Street
Ocala, Florida 34474
13
<PAGE>
Independent Auditor:
T. Allan Walls, CPA
Certified Public Accountants
Taylor Building
P.O. Box 1502
Johnson City, Tennessee 37605
Transfer Agent:
OTC Stock Transfer Co.
P.O. Box 501
Hicksville, New York 11802
SPECIAL MEETING
Stockholders of the Company are invited to attend the Special Meeting of
the Company in lieu of the Annual Meeting, which will be held at 2525 Coral
Way, Third Floor, Miami, Florida 33129, on August 5, 1996, at 10:00 a.m.,
local time,
A Proxy Statement will be sent to shareholders of record as of July 1,
1996.
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PROXY
QUANTUM LEARNING SYSTEMS, INC.
1111 SW 17th Street
Ocala, Florida 34474
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
OF QUANTUM LEARNING SYSTEMS, INC.
THE UNDERSIGNED hereby appoints and constitutes James K. Isenhour or
Tanzee Nahas, and each of them, as his true and lawful agents and proxies,
with full power of substitution and revocation in each, to attend, represent
and to vote the shares of common stock of the undersigned at the Special
Meeting of Shareholders of Quantum Learning Systems, Inc. (the Company) to be
held at 2525 Coral Way, Third Floor, Miami, Florida 33129, on August 5, 1996,
at 10:00 a.m., local time, and at any adjournment thereof, on all matters
coming before said meeting.
Management recommends a vote FOR items 1, 2, 3, 4, 5, and 6, and SHARES
WILL BE SO VOTED UNLESS YOU INDICATE OTHERWISE:
1. Approval of the following individuals to serve on the Board of
Directors:
Calixto Chaves Zamora FOR___ AGAINST___ ABSTAIN___
Oscar Arias Sanchez FOR___ AGAINST___ ABSTAIN___
Federico Vargas Peralta FOR___ AGAINST___ ABSTAIN___
Jorge M. Quesada Chaves FOR___ AGAINST___ ABSTAIN___
Luis J. Lauredo. FOR___ AGAINST___ ABSTAIN___
Alfred E. Smith, IV FOR___ AGAINST___ ABSTAIN___
James K. Isenhour FOR___ AGAINST___ ABSTAIN___
2. The ratification and approval of the action of the Company's Board
of Directors to effect the acquisition of a minimum of 65% and a maximum of
100% of the issued and outstanding shares of Corporacion Pipasa, S.A. and the
simultaneous disposition of all present subsidiaries of the Company;
FOR___ AGAINST___ ABSTAIN___
3. Approval to amend the Company's Articles of Incorporation to
increase the number of authorized common shares from 20,000,000 shares at
$.001 par value to 60,000,000 shares at $.001 par value
FOR___ AGAINST___ ABSTAIN___
4. Approval of the change of the Company's name to Costa Rica
International, Inc., or some derivation thereof;
FOR___ AGAINST___ ABSTAIN___
<PAGE>
5. The ratification of T. Allan Walls, CPA as the Company's auditors
for the fiscal year ended June 30, 1996; and
FOR___ AGAINST___ ABSTAIN___
6. Consideration of any matters which may properly come before the
Meeting, or any adjournment thereof. At this time, the Board of Directors is
not aware of any other business to come before the Meeting.
FOR___ AGAINST___ ABSTAIN___
Dated:_____________________ , 1996
(Printed Name of Shareholder)__________________________________________________
(Signature of Shareholder)_____________________________________________________
This Proxy Must Be Signed Exactly As Your Name Appears On Your Stock
Certificate. Executors, Administrators, Trustees, Etc., Should Give Full
Title As Such. If The Signer Is A Corporation, Please Sign Full Corporate
Name By Duly Authorized Officer.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY. THE FAILURE TO
CHECK A BLOCK WILL BE TAKEN AS A VOTE FOR THE PROPOSITION.
