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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Transitional Report
For the Fiscal Year Ended: June 30, 1996
Commission File No. 0-18222
QUANTUM LEARNING SYSTEMS, INC
to be known as
COSTA RICA INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as specified in its charter)
Nevada 87-0432572
(State or other jurisdiction (IRS Employer File Number)
of incorporation)
1111 S.W. 17th Street
OCALA, FLORIDA 34474
(Address of principal executive offices) (zip code)
(904) 620-8905
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK $.001 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for, such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is contained in this form and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $583,396.
The aggregate market value of the voting stock of the Registrant held by
non-affiliates as of June 30, 1996 was approximately $6,950,000. A total of
3,527,492 shares were owned by non-affiliates as of June 30, 1996.
The number of shares outstanding of the Registrant's common stock, as of
the latest practicable date, June 30, 1996, was 4,152,492.
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DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference are found in Item 13.
PART I
Item 1. DESCRIPTION OF BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS
COSTA RICA INTERNATIONAL, INC., formerly known as Quantum Learning Systems,
Inc. (the "Company"), is a Nevada corporation. The principal business address
during the reporting period was 1111 S.W. 17th Street, Ocala, Florida, 34474.
Its phone number at this address was (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
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Construction Company, Inc. and Young Trucking, Inc. were sold to these same
minority shareholders of the Company, Messrs. W.T. and Glen Young.
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.
In April, 1996, the Company entered into an acquisition agreement to
acquire 100% of the issued and outstanding shares of Corporacion Pipasa, S.A.
("Pipasa"). This transaction was planned 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 was
approved by the shareholders of the Company on August 5, 1996 and concluded on
September
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30, 1996. As a part of the transaction and at the same time as the initial
shares of Pipasa were exchanged for the shares of the Company, the Company
disposed of all present subsidiaries and assets of the Company by transferring
these subsidiaries and assets to InterCoast Financial, Inc., 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 which
will be cancelled, plus an indemnification from Mr. Isenhour and InterCoast
Financial, Inc. 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.
In August, 1996, the Company changed its name to Costa Rica International,
Inc.
Except as otherwise disclosed herein, the Company has not been subject to
any bankruptcy, receivership or similar proceeding.
(b) OPERATIONS.
GENERAL
At the end of fiscal year 1996, 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.
The most important event for the Company in the past fiscal year was the
Pipasa acquisition, which closed on September 30, 1996. It is the intention of
the Company in the foreseeable future to focus on the Pipasa core business. The
Company has divested itself of its educational and real estate activities. In
its new configuration, the Company will continue to look at new acquisitions,
principally in Costa Rica, but also in other locations and industries which the
Company believes to be compatible with its current operations.
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
Pollo, 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 Procesadora de Aves, S.A., Grupo Pipasa,
S.A., Productores de Huevo Fertil, S.A.(Prohufe, S.A.), and El Pollito, S.A.
Effective in 1991, all of these entities were merged into Akron,
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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 Colombia.
It is the plan of Pipasa's management that the combined Company will
continue to focus in the poultry business and will seek other business
opportunities in locations and industries which the Company believes to be
compatible with its current operations. 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.
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 in the poultry business and wish to
seek the advantages of being acquired by the combined Company. However, the
combined Company would not restrict any acquisitions to the poultry business nor
would restrict the geographical location of such business. The Company would be
the surviving entity in each case.
The combined 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 combined
Company will be based upon the objective of seeking long-term appreciation in
the value of the combined 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.
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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 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 June 30, 1996, Pipasa had no backlogs.
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Employees
As of June 30, 1996, Pipasa had approximately 1,754 full-time employees,
of whom approximately 46 were in management and approximately 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 $ 0 as of the nine months ended June 30, 1996 in
research and development.
Environmental Compliance
It is the policy of Pipasa to be proactive in environmental compliance.
However, 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.
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,
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$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. The Company and the Youngs settled this dispute in fiscal
year 1996. The Youngs paid the sum of $1,400,000 to settle all claims and
disputes. This payment consisted of $800,000 in cash to the Company and the
delivery and assignment of their 460,000 common shares to an unaffiliated third
party specified by the Company for the sum of $600,000, which third party
subsequently assigned the $600,000 to Intercoast Financial, Inc., a Company
affiliated with Mr. James K. Isenhour, the Company's Chairman. In addition, the
parties agreed to a division of proceeds, if any, that may result from a lawsuit
currently pending in the 347th Judicial District Court of Nueses County, Texas.
Since the litigation is ongoing, the amount of any proceeds cannot be determined
at this time.
SUBSEQUENT EVENT
In April, 1996, the Company entered into an acquisition agreement to
acquire 100% of the issued and outstanding shares of Pipasa. This transaction
was planned 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 was approved by the shareholders of the
Company on August 5, 1996 and concluded on September 30, 1996. As a part of
the transaction and at the same time as the initial shares of Pipasa were
exchanged for the shares of the Company, the Company disposed of all present
subsidiaries and assets of the Company by transferring these subsidiaries and
assets to InterCoast Financial, Inc., 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 which will be cancelled, plus
an indemnification from Mr. Isenhour and InterCoast Financial, Inc. 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.
Item 2. DESCRIPTION OF PROPERTY.
From January, 1993 to September 30, 1996, the Company's business office was
located in a building at 1111 S.W. 17th Street, Ocala, Florida 34474, which the
Company leased under a lease-purchase agreement from an unaffiliated third
party. Under this agreement, the Company had the right to purchase the property
for $650,000. For the years ended June 30, 1996 and 1995, the Company was
obligated to pay rent on the premises.
The lease described in the above paragraph has expired. As of the date of
the acquisition of Pipasa, the Company is currently in default of the terms of
the lease due to failure to exercise the option to purchase the building and
failure to maintain insurance on the facility. This building and the underlying
liabilities were transferred to InterCoast Financial, Inc. as a part of the
acquisition agreement with Pipasa.
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The Company had no insurance on the building it occupied or the contents of
the building as of June 30, 1996. This represents a serious contingent loss
potential. All assets and files of the Company and its affiliated companies
are located in the facility. Total destruction of the facility due to fire or
natural disaster would seriously impair the companies' current operations as it
has limited funds to allow for replacement of equipment or reconstruction of
student files. The Company utilized this office space for corporate management,
accounting and administrative needs and for the operation of Cambridge Academy.
The Company also owned equipment which it utilizes in its operations
including a complete on-line, video production facility which includes cameras
and digital editing equipment. The Company utilized office equipment associated
with the operations of Cambridge Academy and with the Company administration of
its subsidiary companies.
The Company also owned, as of June 30, 1996, the proceeds from a settlement
entered into with W.T. Young and Glen Young individually regarding the sale of
the Company's discontinued Construction and Trucking Segments. The Company and
the Youngs settled this dispute in fiscal year 1996. The Youngs paid the sum of
$1,400,000 to settle all claims and disputes. This payment consisted of $800,000
in cash to the Company and the delivery and assignment of their 460,000 common
shares to an unaffiliated third party specified by the Company for the sum of
$600,000, which third party subsequently assigned the $600,000 to InterCoast
Financial, Inc., a Company affiliated with Mr. James K. Isenhour, the Company's
Chairman. In addition, the parties agreed to a division of proceeds, if any,
that may result from a lawsuit currently pending in the 347th Judicial District
Court of Nueses County, Texas. Since the litigation is ongoing, the amount of
any proceeds cannot be determined at this time.
Item 3. LEGAL PROCEEDINGS.
No legal proceedings of a material nature to which the Company is a party
were pending during the reporting period, and the Company knows of no legal
proceedings of a material nature pending or threatened or judgments entered
against any director or officer of the Company in his capacity as such.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the shareholders during the final
quarter of fiscal year 1996.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
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(a) PRINCIPAL MARKET OR MARKETS
The Company's Common Stock has been listed on NASDAQ since May 25, 1990.
Through June 30, 1996, market makers and other dealers provided bid and ask
quotations of the Company's Common Stock under the symbol "QLSI." In August,
1996, the Company changed its name to "Costa Rica International, Inc." and bid
and ask quotations of the Company's Common Stock were then provided under the
symbol "RICA."
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.
High Low
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Fiscal Year 1996
First Quarter
Common Shares $0.6875 $0.344
Second Quarter
Common Shares $0.469 $0.125
Third Quarter
Common Shares $0.781 $0.219
Fourth Quarter
Common Shares $2.188 $0.375
Fiscal Year ended 1995 High Low
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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
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(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
As of June 30, 1996, a total of 4,152,492 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.
(c) 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 on common stock in the foreseeable future. Pipasa
pays dividends to its preferred shareholders and plans to do so for the foresee-
able future.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Revenues of the Company, increased from $448,288 in fiscal 1995 to $583,396
in fiscal year 1996, an increase of approximately 30% over the previous year.
The Company experienced increased revenues in the last fiscal year over the
previous year as a result of increased fees and student enrollment in its
educational programs.
Management expects continued growth of revenues from its educational
business activities. Management is continuing to modify the educational programs
offered and is reviewing current pricing structures to maximize future profit
potential.
The Company generated an operating loss of $901,187 in fiscal year 1996,
when compared to a loss of $756,725 for fiscal year 1995. The Company recorded
a net loss of $856,554 for fiscal year 1996, when compared to a net loss in
fiscal year 1995 of $671,534. The Company sustained a loss of $320,000 in fiscal
year 1996 as a result of a payment settlement of a note due to the Company,
which is reflected in the above operating and net losses for fiscal year
1996. The Company's selling, general and administrative expenses increased
significantly as a percentage of the Company revenue when compared to the
previous year. General and administrative expenses increased to $1,442,540 in
the fiscal year ended June 30, 1996, as compared to $1,153,108 in the fiscal
year ended June 30, 1995.
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Liquidity and Capital Resources
At June 30, 1996, cash and cash equivalents was $607,772, as compared to $0
at June 30, 1995.
At June 30, 1996, the working capital ratio was 6.0:1 as compared to 5.0:1
at June 30, 1995.
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 requirement for
capital in the next fiscal year. The Company does not intend to pay dividends on
its common shares in the foreseeable future.
The Company has initiated an Agreement and Plan of Reorganization for the
acquisition of Corporacion Pipasa, S.A. This Agreement also specifies that the
Company shall divest itself of all current operations. The Agreement was
approved by the shareholders on August 5, 1996, subsequent to the fiscal year
end of June 30, 1996.
Item 7. FINANCIAL STATEMENTS.
The following financial information is filed as part of this report:
(1) FINANCIAL STATEMENTS
(a) Quantum Learning Systems, Inc., to be known as Costa
Rica International, Inc.
(b) Corporacion Pipasa, S.A.
(2) SCHEDULES
The financial statements schedules listed in the accompany-
ing index to financial statements are filed as a part of
this annual report.
(3) EXHIBITS.
The exhibits listed on the accompanying index to financial
statements are filed as part of this annual report.
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Item 8. 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.
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company, their ages and present
positions held in the Company, as of June 30, 1996, are as follows:
NAME AGE POSITION HELD
- ---- --- -------------
James K. Isenhour 48 Chief Executive
Officer, Chairman, President
Treasurer and Director
Tanzee Nahas 44 Secretary and Director
A. Douglas Brown, Jr. 53 Director
Alfred E. Smith, IV 45 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
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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 contrac-
tor 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 of licensed and certified teachers in coordinating the develop-
ment 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 Part-
ners, 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.
14
<PAGE>
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 10K 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 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.
Item 10. EXECUTIVE COMPENSATION.
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. These Warrants were cancelled and on August
1, 1995, the Company approved the sale of 100,000 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 $0.10 per share. The
warrants may be exercised anytime from August 1, 1995 to August 1, 2000. As of
the date hereof, no warrants have been exercised.
SUMMARY COMPENSATION TABLE
<TABLE>
Annual Compensation Long Term Compensation
-------------------------- ------------------------------------------
Awards Payouts
----------------------- ----------------
Other
Annual Restricted All
Name and Salary Compen- Stock LTIP Other
Principal Compensation Bonus sation Award(s) Options/Payouts
Position Year ($) ($) ($) SARs(#) ($)
- ------------- ---- ------------ ----- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James K. 1996 -0- -0- (1) -0- -0-
Isenhour(1) 1995 -0- -0- $24,350(2) -0- -0-
Chairman 1994 -0- -0- -0- -0- -0-
and President
15
<PAGE>
Tanzee Nahas 1996 $50,000 -0- -0- -0- -0-
Secretary(1) 1995 $26,000 -0- -0- -0- -0-
1994 -0- -0- -0- -0- -0-
</TABLE>
(1) On July 2, 1995 the Company entered into an agreement with SeaCoast
Electric, Inc. (SCE) for management services. This was a one year
agreement which was updated on July 2, 1996. SCE is owned by the
children of James K. Isenhour and Tanzee Nahas. The updated 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 was to pay, and actually did pay
SCE the sum of $150,000 for management services for fiscal year 1996.
In addition, Cambridge Academy, a subsidiary of the Company, paid
Tanzee Nahas an annual salary of $50,000 for her work as Director of
Education. Under the original agreement, any unpaid salary would be
eligible for the calculation of warrants to be issued. SCE agreed to
take its 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. Full cash
payment was made in fiscal year 1996 and no warrants were issued. The
provision concerning the issuance of warrants was stricken from the
July, 1996 agreement, which was otherwise the same in all other material
respects.
(2) During the fiscal year ended June 1995, 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 a Compensation Committee consisting of James K. Isenhour,
Chairman, Tanzee Nahas, and A. Douglas Brown, Jr. This Committee makes the
determinations for stock issuance pursuant to the Company's compensation plans.
Otherwise, during the last fiscal year, all members of the Board of Directors of
the Company participated in deliberations and made decisions concerning execu-
tive officer compensation.
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.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following sets forth the number of shares of the Company's $.001
par value common stock beneficially owned by (i) each person who, as of June 30,
1996, was known by the Company to own beneficially more than five percent (5%)
of its common stock, (ii) the individual Directors of the Company, and (iii) the
Officers and Directors of the Company as a group.
16
<PAGE>
- -------------------------------------------------------------------------------
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 341,667(4) 8.2%
1111 S.W. 17th Street
Ocala, Florida 34474
David Miller 341,667(4) 8.2%
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) 15.1%
1111 S.W. 17th Street
Ocala, Florida 34474
Ram Financial Consultants 293,334 7.1%
1111 S.W. 17th Street
Ocala, Florida 34474
Alfred E. Smith, IV(5) -0- -0-
20 Broad Street, 16th Floor
New York, New York 10005
A. Douglas Brown, Jr.(6) -0- -0-
1111 S.W. 17th Street
Ocala, Florida 34474
All Officers and Directors 625,000(8) 15.1%
as a Group (four persons) (7)
- -----------------------
(1) All ownership is beneficial and of record except as specifi-
cally indicated otherwise.
17
<PAGE>
(2) Beneficial owners listed herein have sole voting and invest-
ment 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 in
partnership with David Miller, a former employee of Sentient
(341,667 shares). Mr. Miller owned an additional 116,667
shares in his own name. These shares were cancelled subse-
quent to the fiscal year end.
(5) 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, the
original warrants were cancelled and Mr. Smith received
warrants to purchase a total of 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.
(6) 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.
(7) Includes the common shares owned by Seacoast Electric, which
is controlled by Mr. Isenhour and Ms. Nahas.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On January 21, 1994, the Company entered into an investment banking
agreement with M.H. Meyerson & Co. In connection with this agreement, the
Company has issued warrants to M.H. Meyerson & Co. to purchase 300,000 shares
of common stock with an exercise price of $1.85 per share and with demand and
piggyback registration rights. Demand registration rights are available
starting in months 19 through 48 from the date of the agreement.
On August 1, 1995, the Company approved the sale of Warrants to two of
its Board of Directors and one independent consultant for the purchase price
of $100 to each individual. The
18
<PAGE>
warrants are for a total of 250,000 shares of the Company's $0.001 par value
Common Stock at an exercise price of $0.10 per share. The Warrants may be
exercised at any time from August 1, 1995 to August 1, 2000.
On June 1, 1994 the Management of the Company approved the issuance of
warrants to purchase 200,000 shares of common stock at $.75 per share to an
outside consultant for services to be rendered to the Company.
Ram Financial Consultants, Inc.(RFC) is a company controlled by an officer
of the Company all of the year ended June 30, 1994, but was transferred out of
the officers control during the year ended June 30, 1995. During the year ended
June 30, 1995, the Company made payments to RFC in the amount of $25,474.
Interest has been accrued at 10% APR in the amount of $1,925. The total balance
of $27,399 was treated as an unsecured loan to RFC and was to be paid back to
the Company over the next twelve months. During the year ended June 30, 1996,
credit was given for services provided and the amount was deemed paid in full
as of the end of the fiscal year.
During the year ended June 30, 1995, the responsibility for completion of
advertising on behalf of the Company was transferred to InterCoast Financial
Corporation due to the death of the individual previously contracted to complete
the contract. The Company currently has recorded prepaid advertising of $174,348
and $290,046 as of June 30, 1996 and June 30, 1995, respectively. InterCoast
Financial, Inc. is a company owned by the children of officers and directors of
the Company, but controlled by an officer of the Company. During the fiscal year
ended June 30, 1996, the Company was extensively revising its courses and
curriculum to meet further accreditation requirements. Because of this revision
process, limited action was taken for advertising. Therefore, $111,317 was
prepaid for use with operations during the year ended June 30, 1996. Advertising
is anticipated by Management to be used in the near future for promotion of
courses and laboratory experiment videos currently in development.
American Aerospace & Technologies (AAT) is a company established to operate
as an FAA Repair Station that is controlled by an officer and director of the
Company. During the fiscal year ended June 30, 1994, the company operated as
MTW Aerospace and was not a related party. AAT leases space from the Company on
a sub-lease arrangement. The current lease is from March 1, 1995 to February
28, 1997 with annual rent payable at $19,800 per year. AAT currently owes the
Company for accrued rent and allocated charges for utilities in the amounts of
$42,749 and $22,311 as of June 30, 1996 and 1995, respectively. Accrued
interest on the amounts due is $4,794 and $1,255 as of June 30, 1996 and 1995,
respectively.
On July 2, 1995 the Company entered into an agreement with SeaCoast
Electric, Inc. (SCE) for management services. This was a one year agreement
which was updated on July 2, 1996. SCE is owned by the children of James K.
Isenhour and Tanzee Nahas. The updated 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 was to
pay, and actually did pay SCE the sum of $150,000 for management services for
fiscal year 1996. In addition,
19
<PAGE>
Cambridge Academy, a subsidiary of the Company, paid Tanzee Nahas an annual
salary of $50,000 for her work as Director of Education. Under the original
agreement, any unpaid salary would be eligible for the calculation of warrants
to be issued. SCE agreed to take its 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 provision
concerning the issuance of warrants was stricken from the July, 1996 agreement,
which was otherwise the same in all other material respects.
In June, 1995, a dispute developed between the Company and Messrs. W.T.
Young and Glen Young, shareholders and former officers and directors. The
Company and the Youngs settled this dispute in fiscal year 1996. The Youngs paid
the sum of $1,400,000 to settle all claims and disputes. This payment consisted
of $800,000 in cash to the Company and the delivery and assignment of their
460,000 common shares to an unaffiliated third party specified by the Company
for the sum of $600,000, which third party subsequently assigned the $600,000 to
InterCoast Financial, Inc., a Company affiliated with Mr. James K. Isenhour, the
Company's Chairman. In addition, the parties agreed to a division of proceeds,
if any, that may result from a lawsuit currently pending in the 347th Judicial
District Court of Nueses County, Texas. Since the litigation is ongoing, the
amount of any proceeds cannot be determined at this time.
On June 30, 1996, the Company loaned $50,000 to Aero Costa Rica pursuant
to the terms of a convertible debenture. The term of the debenture is for a
period of 12 months, with a stated interest rate of 12% per annum. The
Company has also entered into an Agreement and Plan of Reorganization in
April, 1996 to acquire 100% of the issued and outstanding shares of Pipasa.
This transaction was planned 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 was approved by the
shareholders of the Company on August 5, 1996 and concluded on September 30,
1996. As a part of the transaction and at the same time as the initial shares
of Pipasa were exchanged for the shares of the Company, the Company disposed
of all present subsidiaries and assets of the Company by transferring these
subsidiaries and assets to InterCoast Financial, Inc., 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 InterCoast Financial, Inc. 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.
Aero Costa Rica and Pipasa have some common ownership.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
REPORTS ON FORM 8-K. The Company filed two reports on Form 8-K during
the last quarter of fiscal year ended June 30, 1996.
20
<PAGE>
EXHIBITS
3-A* Articles of Incorporation
3-B* Articles of Merger
3-C* Bylaws
10-1* Purchase Agreement for Construction and Trucking
10-2 Acquisition Agreement with Corporacion Pipasa, S.A.
10-3 Settlement Agreement for Messrs. Young
------------------
* Previously Filed
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COSTA RICA INTERNATIONAL, INC.
Dated: 10-2-96 By: /s/ James K. Isenhour
---------------------------------
James K. Isenhour
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Regis-
trant and in the capacities and on the dates indicated.
CHIEF FINANCIAL OFFICER
Dated: 10-2-96 By: /s/ James K. Isenhour
---------------------------------
James K. Isenhour
Treasurer
SECRETARY
Dated: 10-2-96 By: /s/ Tanzee Nahas
---------------------------------
Tanzee Nahas
Secretary
22
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
EXHIBITS
TO
COSTA RICA INTERNATIONAL, INC.
<PAGE>
INDEX TO EXHIBITS
Exhibit Page or
Number Description Cross Reference
------- ----------- ---------------
3-A* Articles of
Incorporation
3-B* Articles of Merger
3-C* Bylaws
10-1* Purchase Agreement for
Construction and Trucking
10-2 Acquisition Agreement
with Corporacion Pipasa, S.A.
10-3 Settlement Agreement for
Messrs. Young
- -------------------
* Previously Filed
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION REQUIRED BY
THE SECURITIES AND EXCHANGE COMMISSION
AS OF JUNE 30, 1996 AND 1995 AND
YEARS ENDED JUNE 30, 1996 AND 1995
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
---------
Report of Independent Certified Public Accountants ..... F-1
Consolidated Balance Sheets at June 30, 1996 and 1995... F-2 - F-3
Consolidated Statements of Operations for the years
ended June 30, 1996 and 1995 ......................... F-4
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1996 and 1995 ............... F-5
Consolidated Statements of Cash Flows for the years
ended June 30, 1996 and 1995 ......................... F-6
Notes to Consolidated Financial Statements ............. F-7 - F-18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of Costa Rica International, Inc.
We have audited the consolidated balance sheet of Quantum Learning Systems, Inc.
and Subsidiaries to be known as Costa Rica International, Inc. as of June 30,
1996 and 1995, 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 Quantum Learning
Systems, Inc. and Subsidiaries to be known as Costa Rica International, Inc. at
June 30, 1996 and 1995, and the consolidated results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
T. Alan Walls, CPA, P.C.
Johnson City, Tennessee
August 28, 1996
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
------------ -----------
<S> <C> <C>
Current:
Cash and cash equivalents $ 607,772 $ -0-
Accounts and contracts receivable (Note 4) 212,913 178,437
Notes receivable, current portion (Notes 6) 20,987 83,442
Due from related parties (Note 12) 697,542 23,566
Other current assets (Note 5) 184,498 515,670
------------ -----------
Total Current Assets 1,723,712 801,115
Property and Equipment, at cost:
Machinery and Equipment 607,163 496,010
Furniture and Fixtures 41,548 42,470
------------ -----------
Property and Equipment 648,711 538,480
Less: Accumulated Depreciation 280,729 163,322
------------ -----------
Net Property and Equipment 367,982 375,158
Other:
Note receivable, less current portion (Note 6) 160,353 1,838,885
Deferred Tax Asset, net of allowance (Note 9) 30,205 52,763
Other Assets (Note 7) 91,389 162,674
------------ -----------
Total Other Assets 281,947 2,054,322
------------ -----------
TOTAL ASSETS $ 2,373,641 $ 3,230,595
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
------------- -------------
<S> <C> <C>
Current Liabilities:
Accounts payable and other liabilities $ 131,752 $ 63,581
Accrued expenses 115,104 86,102
Current Maturities of long-term debt (Note 6) 24,306 13,649
------------- -------------
Total Current Liabilities 271,162 163,332
Deferred Income Taxes (Note 7) 30,205 52,763
Long-Term Debt, less current maturities (Note 6) 10,201 19,852
------------- -------------
Total Liabilities 311,568 235,947
Stockholders' Equity (Notes 8 and 9):
Preferred stock - $1.00 par; 1,000,000 shares
authorized; -0- outstanding. -0- -0-
Common stock - $.001 par; 20,000,000 shares
authorized; 4,152,694 and 4,353,161
outstanding in 1996 and 1995, respectively. 4,153 4,353
Additional paid-in capital 4,351,611 4,547,961
Retained earnings (Accumulated deficit) (2,293,691) (1,437,137)
Treasury stock, 107,134 shares at cost -0- (120,529)
------------- -------------
Total Stockholders' Equity 2,062,073 2,994,648
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,373,641 $ 3,230,595
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
---------- ---------
Revenues $ 583,396 $ 448,288
Cost of Sales 42,043 51,905
---------- ---------
Gross profit 541,353 396,383
Selling, General, and Administrative Expenses 1,442,540 1,153,108
---------- ---------
Operating income (loss) (901,187) (756,725)
Other Income (Expenses):
Interest income 47,389 85,155
Interest expense (2,756) (13,063)
Other -0- 13,099
---------- ---------
Total Other Income (Expense) 44,633 85,191
---------- ---------
Income (Loss) from Continuing Operations
Before Income Taxes (856,554) (671,534)
Income Tax Benefit (Expense) -0- -0-
---------- ---------
NET INCOME (LOSS) $(856,554) $(671,534)
---------- ---------
---------- ---------
INCOME (LOSS) PER COMMON SHARE (Note 8):
Net income (loss) per common share $ (.21) $ (.15)
---------- ---------
---------- ---------
Weighted Average Shares 4,165,827 4,353,161
---------- ---------
---------- ---------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------- ----------------- Additional Total
Number of Number of Paid-In Treasury Accumulated Shareholders'
Shares Amount Shares Amount Capital Stock (Deficit) Equity
---------- -------- --------- ------- ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance: June 30, 1994
(As Restated) -- -- 4,353,161 4,353 4,547,961 (120,529) (765,603) 3,666,182
Net Loss -- -- -- -- -- -- (671,534) (671,534)
---------- --------- --------- ------ ---------- ---------- ----------- ----------
Balance: June 30, 1995 -- -- 4,353,161 $4,353 4,547,961 $(120,529) $(1,437,137) $2,994,648
Common stock returned and
cancelled from CCS settlement -- -- (118,333) (118) (82,653) -- -- (82,771)
Treasury stock cancelled -- -- (107,134) (107) (120,422) 120,529 -- --
Common stock issued for
professional services -- -- 25,000 25 6,725 -- -- 6,750
Net Loss -- -- -- -- -- (856,554) (856,554)
---------- --------- --------- ------ ---------- -------- ----------- ----------
-- $ -- 4,152,694 $4,153 $4,351,611 $ -- $(2,293,691) $2,062,073
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $( 856,554) $( 671,534)
Adjustments to reconcile net loss to cash
provided (used) by operating activities:
Amortization of intangible assets 71,276 107,726
Depreciation of property and equipment 102,702 85,404
Loss (gain) on sale of equipment -0- ( 8,668)
Loss on note payable settlement 382,455 -0-
Accounts receivable ( 34,476) 114,406
Accounts payable and accrued interest 68,171 ( 58,567)
Accrued expenses 29,002 68,644
Other assets and liabilities 187,386 102,050
------------ ------------
Net cash provided by (used in) operating activities ( 50,038) ( 260,539)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 66,122) ( 7,170)
Advances on notes receivable ( 56,689) -0-
Collection of note receivable 808,627 80,000
------------ ------------
Net cash provided by (used in)investing activities 658,816 72,830
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ( 1,006) ( 14,578)
------------ ------------
Net cash provided by (used in) financing activities ( 1,006) ( 14,578)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 607,772 ( 202,287)
------------ ------------
CASH AND CASH EQUIVALENTS, beginning of year -0- 202,287
------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 607,772 $ -0-
------------ ------------
------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) for:
Interest $ 2,755 $ 7,070
Income taxes -0- -0-
Noncash investing and financing activities:
Common stock issued for services $ 6,750 -0-
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CORPORATE ACTIVITY - 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. On August 5, 1996, the Company authorized the
change of its name from Quantum Learning Systems, Inc. to Costa Rica
International, Inc.
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 Costa Rica International, 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. Depreciation expense amounted to $102,702 and
$85,404 for the years ended June 30, 1996 and 1995, respectively.
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 years
Royalties 5 - 10 years
Copyrights 10 - 20 years
Amortization expense amounted to $71,276 and $107,726 for the years ended June
30, 1996 and 1995, 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.
F-7
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CONTINUED)
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.
EARNINGS PER SHARE - Earnings per share have been computed based upon the
weighted average number of shares outstanding during the year of 4,165,827 and
4,353,161 for the years ended June 30, 1996 and 1995, respectively. Common
Stock Equivalents in the aggregate do not dilute earnings per share by more than
3%. Therefore, no change in fully diluted shares is presented.
ISSUANCE OF STOCK FOR SERVICES - Common stock issued as compensation for
services rendered as authorized by the Board of Directors, is recognized in the
accompanying financial statements at the estimated fair market value as
determined by good faith estimates of the Board of Directors of the Company.
INCOME TAXES - During the fourth quarter of fiscal 1992, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes", which requires an assets and liability approach for financial
accounting and reporting for income taxes. Under SFAS No. 109, deferred income
taxes are provided for the temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities. Deferred
income taxes represent the future tax return consequences of the temporary
differences, which will be taxable or deductible when assets and liabilities are
recovered or settled.
The deferred method, used in years prior to fiscal 1992, required the Company to
provide for deferred tax expense based on certain items of income and expense
which were reported in different years in the financial statements and the tax
returns as measured by the rate in effect for the year the difference occurred.
As permitted by SFAS No. 109, the Company has not elected to restate previously
issued financial statements for the change in accounting for income taxes. The
effect of this change was to decrease the 1992 net loss by $405,932, consisting
of $1,190,370 income from the cumulative effect of the change on years prior to
July 1, 1991 and a $784,438 decrease in the 1992 tax benefit.
Pro forma effects of retroactive application of SFAS No. 109 to prior years are
not determinable, and thus the effects on net income and earnings per share are
not shown.
REVISION OF FINANCIAL STATEMENTS - Our report issued on September 6, 1994, for
the year ended June 30, 1994 has been revised. The revisions consisted of the
restatement of intangible assets and related amortization consistent with the
settlement reached for the adjusted purchase price of Current Concepts Seminars
("CCS"). The original agreement caused the issuance of 700,000 shares of QLS
common stock, but the settlement adjusts the number to 115,000 shares. The
settlement was executed in March, 1995. (Reference Note 2)
F-8
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CONTINUED)
NOTE 2 - BUSINESS COMBINATION
On August 28, 1992, the Company entered into an agreement to acquire one hundred
percent of the issued and outstanding common stock of Current Concepts Seminars,
Inc. ("CCS") in exchange for 700,000 shares of the Company's restricted common
stock. This transaction was originally valued at $162,937. In March, 1995
Management entered into a settlement agreement whereby the number of shares
issued was adjusted to 115,000 shares. Accordingly, the valuation has been
adjusted pro-rata to an amount of $80,165 with an amount due from the
individuals of $82,772 until such time as they return the common stock to the
Company. The financial statements as of and for the year ended June 30, 1994
have been restated to reflect this settlement agreement. CCS develops and
produces educational programs. The acquisition was accounted for as a purchase
in accordance with APB Opinion No. 16. The cost of the acquisition is the
estimated fair values of the assets acquired and the liabilities assumed because
such values more clearly indicate acquisition cost. The estimated fair values
of assets and liabilities acquired are summarized as follows:
Cash $ 35,180
Accounts receivable, net 14,847
Property and equipment 13,543
Accumulated depreciation ( 8,613)
Accounts payable ( 4,020)
Copyrights 20,752
Royalties 8,476
-----------
$ 80,165
-----------
-----------
NOTE 3 - DISCONTINUED OPERATIONS
On June 30, 1994 the Company entered into an agreement with two individuals who
are shareholders of the Company for the sale of W.T. Young Construction Company
and Young Trucking, Inc. In past years, these two individuals were responsible
for the operations of these two segments of the Company. The agreement called
for the sale of the common stock of both subsidiaries for the purchase price of
$2,000,000. Upon execution of the agreement $200,000 was paid to the Company
and the individuals have executed a five year note in the amount of $1,800,000
with a stated interest rate of 3.6% per annum (Reference Note 6). The note is
payable at the rate of $150,000 each year plus interest on July 10, 1995 and
1996, and $200,000 each year plus interest on July 10, 1997 and 1998. The
balance of the note plus accrued interest is due and payable on July 10, 1999.
The note is guaranteed by W.T. Young Construction Company, and collateralized by
a pledge of the common stock of W.T. Young Construction Company and
approximately 471,343 shares of Costa Rica International, Inc. common stock
owned by the individuals. Said note shall be subordinated only where required
for bonding. The Company entered into a settlement agreement as payment for the
note. Reference Note 11, Related Party Transactions for discussion of this
settlement agreement.
F-9
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CONTINUED)
NOTE 4 - ACCOUNTS AND CONTRACTS RECEIVABLE
Accounts and contracts receivable at June 30, 1996 and 1995 consist of the
following:
1996 1995
------------ ------------
Trade accounts receivable $ 343,557 $ 385,952
------------ ------------
Total Accounts Receivable 343,557 385,952
Less: Allowance for Bad Debts ( 130,644) ( 207,515)
------------ ------------
Accounts Receivable - Net $ 212,913 $ 178,437
------------ ------------
------------ ------------
NOTE 5 - OTHER CURRENT ASSETS
Other current assets at June 30, 1996 and 1995 consist of the following:
1996 1995
------------ ------------
Prepaid Expenses 178,729 307,955
Due From Individuals - CCS settlement -0- 82,772
Interest Receivable -0- 64,252
Other Receivables 5,772 31,284
Other -0- 29,407
------------ ------------
Accounts Receivable - Net $ 184,501 $ 515,670
------------ ------------
------------ ------------
NOTE 6 - NOTE RECEIVABLE
Notes receivable at June 30, 1996 and 1995 consist of:
1996 1995
----------- -----------
Gulf Ventures - Interest rate
of 8%; Payments of $20,987 plus
interest due December 31, each
year thru 2004 $ 181,340 $ 202,327
W.T. Young Construction Company
Interest rate of 3.6%; Payments
of 150,000 plus interest on July
10, 1995 and 1996; Payments of
$200,000 plus interest on July
10, 1997 and 1998 with the
balance plus interest due on
July 10, 1999; collateralized
by pledge of W.T. Young
Construction Company and the
common stock of QLS owned by
W.T. Young -0- 1,720,000
Less current portion ( 20,987) ( 83,442)
----------- -----------
Total noncurrent note receivable $ 160,353 $ 1,838,885
----------- -----------
----------- -----------
F-10
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CONTINUED)
NOTE 7 - OTHER ASSETS
Other assets at June 30, 1996 and 1995 consist of the following:
1996 1995
----------- -----------
Capitalized production costs $ 137,100 $ 137,100
Intangibles 33,437 33,437
Less: Accumulated amortization ( 79,148) ( 7,863)
----------- -----------
Total Other Assets $ 91,389 $ 162,674
----------- -----------
----------- -----------
During the year ended June 30, 1995, the subsidiary which was responsible for
video production discontinued work for its major client and removed all its
employees from the payroll. Due to this, all remaining goodwill related to this
subsidiary, which was purchased July 1, 1992, has been written off. This
amounted to an expense of $105,840. Management has hired an individual to begin
plans for preparation of videos to use with educational programs.
NOTE 8 - DEBT
Long-term debt at June 30, 1996 and 1995 consist of:
1996 1995
----------- -----------
Note payable on various financing
leases for operating equipment 34,507 33,501
----------- -----------
Totals 34,507 33,501
Less current maturities ( 24,306) ( 13,649)
----------- -----------
Total Long-term debt $ 10,201 $ 19,852
----------- -----------
----------- -----------
The aggregate long-term debt matures during the next five years as follows:
Year ended June 30 Amount
------------------ ------------
1997 $ 24,306
1998 10,201
1999 -0-
2000 -0-
2001 -0-
------------
Total $ 34,507
------------
------------
F-11
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CONTINUED)
NOTE 9 - INCOME TAXES
During the fourth quarter of fiscal 1992, the Company changed its method of
accounting for income taxes from the deferred method to the asset and liability
method (See Note 1).
Income tax (expense) benefits attributed to continuing operations in the
accompanying consolidated statements of operations are made up of the following
components:
1996 1995
----------- -----------
Current $ -0- $ -0-
Deferred ( 112,711) ( 165,499)
Discontinued operations -0- -0-
Adjustment of valuation
allowance 112,711 165,499
----------- -----------
Total income tax benefit (expense) $ -0- $ -0-
----------- -----------
----------- -----------
The components of the net deferred tax liability and asset recognized in the
accompanying consolidated financial statements at June 30, 1996 are as follows:
Deferred Deferred
Tax Tax
Asset Liability Total
----------- ----------- -----------
Net operating loss
carryforward $ 1,363,538 $ -0- $ 1,363,538
Depreciation 10,485 ( 27,145) ( 16,660)
Other 41,503 ( 3,060) 38,443
Valuation allowance (1,385,321) -0- (1,385,321)
----------- ----------- -----------
$ 30,205 $( 30,205) $ -0-
----------- ----------- -----------
----------- ----------- -----------
The components of the net deferred tax liability and asset recognized in the
accompanying consolidated financial statements at June 30, 1995 are:
Deferred Deferred
Tax Tax
Asset Liability Total
----------- ----------- -----------
Net operating loss
carryforward $ 1,250,954 $ -0- $ 1,250,954
Depreciation -0- ( 49,704) ( 49,704)
Other 74,419 ( 3,059) 71,360
Valuation allowance (1,272,610) -0- (1,272,610)
----------- ----------- -----------
$ 52,763 $( 52,763) $ -0-
----------- ----------- -----------
----------- ----------- -----------
F-12
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CONTINUED)
The valuation allowance represents the portion of a deferred tax asset for which
it is more likely than not that a tax benefit will not be realized.
The difference between the income tax benefit and the amount computed by
applying the statutory income tax rate to pre-tax losses from continuing
operations is as follows:
1996 1995
----------- -----------
Benefit normally expected $ 1,385,321 $ 1,272,610
Acquisitions, changes in tax rates
and other -0- -0-
Adjustments of valuation allowance (1,385,321) (1,272,610)
----------- -----------
Income tax benefit $ -0- $ -0-
----------- -----------
----------- -----------
At June 30, 1996 and 1995, the Company had net operating loss carryforwards of
approximately $1,363,538 and $1,250,954 for income tax purposes available to
offset future taxable income through 2011 and 2010, respectively.
NOTE 10 - STOCK WARRANTS
On January 21, 1994 the Company entered into an investment banking agreement
with M. H. Meyerson & Co. In part, the agreement required the Company to issue
warrants to purchase 300,000 shares of common stock with an exercise price of
$1.85 per Warrant with demand and piggyback registration rights. The
registration rights may not be asked for a period of 18 months from the date of
the agreement. Such rights will be available starting in month 19 through month
48 from the date of the agreement.
On August 1, 1995, the Company approved the sale of Warrants to two of its Board
of Directors and two independent consultants for the purchase price of $100 to
each individual. The warrants are for a total of 250,000 shares of the
Company's $0.001 Common Stock at an exercise price of $0.10 per share. The
warrants may be exercised anytime from August 1, 1995 to August 1, 2000.
On June 1, 1994 the Management of the Company approved the issuance of warrants
to purchase 200,000 shares of common stock at $.75 per share to an outside
consultant for services to be rendered to the Company.
F-13
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CONTINUED)
NOTE 11 - RELATED PARTY TRANSACTIONS
Ram Financial Consultants, Inc. is a company controlled by an officer of the
Company all of the year ended June 30, 1994, but was transferred out of the
officer's control during the year ended June 30, 1995. During the year ended
June 30, 1995, the Company made payments to RFC in the amount of $25,474.
Interest has been accrued at 10%APR in the amount of $1,925. The total balance
of $27,399 is treated as an unsecured loan to RFC and is to be paid back over
the next twelve months to the Company. During the year ended June 30, 1996,
credit was given for services provided and the amount is deemed paid in full as
of the fiscal year end.
During the year ended June 30, 1995, the responsibility for completion of
advertising on behalf of the Company was transferred to InterCoast Financial
Corporation due to the death of the individual previously contracted to complete
the contract. The Company currently has recorded prepaid advertising of
$174,348 and $290,046 as of June 30, 1996 and 1995, respectively. InterCoast
Financial, Inc. is a company owned by the children of officers and directors of
the Company, but controlled by an officer of the Company. During the year ended
June 30, 1996, the Company was extensively revising its courses and curriculum
to meet further accreditation requirements. Due to this revision process,
limited action was taken for advertising. Therefore, $111,317 was repaid to the
Company for use with operations during the year ended June 30, 1996.
Advertising is anticipated by Management to be used in the near future for
promotion of courses and laboratory experiment videos currently in development.
American Aerospace & Technologies (AAT) is a company established to operate as
an FAA Repair Station that is controlled by an officer and director of the
Company. During the fiscal year ended June 30, 1994, AAT operated as MTW
Aerospace and was not a related party. AAT leases space from the Company on a
sub-lease arrangement. The current lease is from March 1, 1995 to February 28,
1997 with annual rent payable at $19,800 per year. AAT currently owes the
Company for accrued rent and allocated charges for utilities the amounts of
$42,749 and $22,311 as of June 30, 1996 and 1995, respectively. Accrued
interest on the amounts due is $4,794 and $1,255 as of June 30, 1996 and 1995,
respectively.
Effective March 25, 1996, the Company entered into a General Release and
Compromise Settlement Agreement with shareholders who purchased the construction
and trucking subsidiaries. The Agreement specified the settlement of the
$1,720,000 note receivable from the shareholders relating to the purchase. The
settlement resulted in the shareholders transferring cash and common stock of
the Company with a combined valuation of $1,400,000 to the Company and
accordingly, a loss was recorded in the amount of $320,000. The terms of the
settlement are as follows:
a) The shareholders agree to pay to the Company or its designees the sum of
$800,000. This payment was received prior to June 30, 1996.
b) Concurrent with the payment described in item (a), the shareholders agree to
endorse and deliver 460,000 shares of common stock of the Company to a third
person as the Company may require. This stock was
F-14
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CONTINUED)
transferred to the such third person on July 18, 1996 as specified by the
Company. Reference Note 16, Subsequent Events for details of the transaction.
c) The parties also agreed to the following division of proceeds, if any, that
may result from a lawsuit currently pending in the 347th Judicial District Court
of Nueses County, Texas. The following is the priority order of payment:
(1) The shareholders are to reimbursed for expenses incurred by the
parties' attorneys which currently amounts to approximately $154,015.
(2) The shareholders are to be reimbursed for attorney fees advanced by the
shareholders which currently amounts to approximately $91,111.
(3) Up to the next $600,000 in proceeds will be divided equally between the
Company and the shareholders.
(4) Up to the next $1.26 million in proceeds will be advanced to the
shareholders as payment on the assignment.
(5) Any remaining proceeds shall be divided equally between the Company and
the shareholders.
On July 2, 1995 the Company entered into an agreement with SeaCoast Electric,
Inc.(SCE) for management services. SCE is owned, in part, by children of
officers and directors of the Company. 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 (July
thru June). In addition, Cambridge Academy, a subsidiary of the Company, shall
pay one individual 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 take their fees as the Company's and its
subsidiaries' funds allow 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. No warrants were due or
issued for the year ended June 30, 1996. A similar contract will be used
effective July 1, 1996, however, it will not include any warrant options for
amounts not paid.
On June 30, 1996, the Company loaned $50,000 to Aero Costa Rica pursuant to the
terms of a convertible debenture. The term of the Debenture is for a period of
twelve (12) months with a stated interest rate of 12%. The Company has also
entered into an Agreement and Plan of Reorganization with Corporation Pipasa
S.A. for the acquisition of Corporation Pipasa, S.A. Aero Costa Rica and
Corporation Pipasa have some common ownership.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
(a) For the year ended June 30, 1996 and 1995, rental expense amounted to
$58,828 and $95,238, respectively. This included office space and office
equipment.
F-15
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CONTINUED)
Prior to the commencement of its office lease, the Company issued 25,000 shares
of its common stock to the landlord of its corporate offices for debt owed. The
landlord is to sell the shares at a rate of no more than 2,000 shares per day to
satisfy the debt. This stock was issued April 5, 1994. If the sale of the
25,000 shares of common stock yields net proceeds of less than the aforesaid
debt of $45,598, then the deficiency immediately becomes due and payable within
five days of notice. Management did not receive confirmation of the monies
collected from the sale of the common stock as of the issuance of the June 30,
1994 report. The lessor sold 14,000 shares for $25,182 and applied it to the
amount due. The lessor still holds 11,000 shares which are to be sold at some
future date. In addition, the Company is currently paying a discounted rent
amount. If the Company does not exercise its option to purchase the building
prior to 30 days before the expiration of the lease, April 30, 1995, then the
rent shortfall between the discounted rent and the actual rent of $24,695 will
become due and payable.
The lease described in the above paragraph has expired and the Company is in
default of the terms of the lease due to failure to exercise the option to
purchase the building and failure to maintain insurance on the facility. The
Company is in negotiation with the lessor for settlement of the lease.
(b) As of June 30, 1996 and June 30, 1995, the Company has no insurance on the
building it occupies or the contents of the building. This represents a serious
contingent loss potential. All assets and files of the Company and its
affiliated companies are located in the facility. Total destruction of the
facility due to fire or natural disaster would seriously impair the Companies'
current operations as it has limited funds to allow for replacement of equipment
or reconstruction of files.
(c) Prior to the merger of Cambridge Academy with the Company, an individual
invested $100,000 in Cambridge Academy. The Company set aside a block of stock
for the individual. She subsequently passed away. The estate filed a several
count complaint, all of which in essence allege that the estate would like to
recapture the full value of the investment and does not want the block of stock
reserved for the individual issued to her satisfaction of the investment. The
maximum possible action against the Company would be to return the $100,000.
Management has responded to the claim and counsel for both parties are exploring
possible settlement as well as preparing for trial. A settlement was entered
into on May 23, 1996 by the Company's payment of $50,000 to the estate of the
individual.
NOTE 13 - CHANGES IN SECURITIES
On January 21, 1993, the Registrant filed a registration statement under cover
of Form S-8 to register a total of 400,000 common shares pursuant to a
consultant and services Compensation Plan.
During the year ended June 30, 1996, the Company cancelled 118,333 shares of
common stock that were receivable from the CCS settlement. Reference Note 2.
F-16
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CONTINUED)
During the year ended June 30, 1996, the Company issued 25,000 shares of the
Company's common stock pursuant to the Form S-8 for services provided for the
benefit of the Company. The transactions were valued by management as the
estimated fair market value calculated as the approximate average of the bid and
ask prices. The total transactions amounted to $6,750.
During the year ended June 30, 1996, the Company cancelled 107,134 shares of
common stock that were held in treasury.
NOTE 14 - BUSINESS ENVIRONMENT
The Company and its subsidiaries operate in various industries, each of which
are subject to certain economic changes. The active companies are based in
Florida and provide educational services to broad market areas. These companies
operate as an accredited home study school at the high school level, a medical
seminars and publication company, and a video production company serving the
training and product introduction niche.
NOTE 15 - AGREEMENT AND PLAN OF REORGANIZATION
On April 30, 1996, the Company entered into an Agreement and Plan of
Reorganization with Corporation Pipasa, S.A. for the acquisition of Corporation
Pipasa, S.A.
The agreement specifies that Corporacion Pipasa, S.A. and its stockholders will
exchange all of the issued and outstanding shares of Class A and Class B common
stock of Pipasa for approximately 25,600,000 shares, in the aggregate, of
restricted common stock of the Company, 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 and 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.
The Company 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.
The transaction was approved by the shareholders of the Company on August 5,
1996. The transaction has been consummated as of September 30, 1996.
F-17
<PAGE>
QUANTUM LEARNING SYSTEMS, INC. & SUBSIDIARIES
TO BE KNOWN AS COSTA RICA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(CONTINUED)
Pursuant to the terms of the Agreeement and Plan of Reorganization to divest the
current operations of the Company, the Company entered into an agreement with
InterCoast Financial Corporation on April 30, 1996 for the acquisition of the
subsidiaries and rights of QLS which is to be effective from and as of August 5,
1996, the closing date. The agreement provides for InterCoast Financial
Corporation to acquire the subsidiaries and rights of QLS in exchange for 50,000
shares of common stock of QLS plus indemnification to QLS in respect of any
liability, damage or deficiency, all actions, suits, proceedings, demands,
assessments, judgements, costs and expenses including attorney's fees, incident
to the subsidiaries and rights as part of this agreement.
NOTE 16 - SUBSEQUENT EVENTS
The Compromise Settlement Agreement entered into on March 25, 1996, for the
settlement of the note due to the Company from the sale of the Texas
subsidiaries required 460,000 common shares of the Company be delivered to the
Company or a third party as specified by the Company. On July 18, 1996, the
460,000 shares specified in the agreement were delivered directly to a third
party purchasing those shares for an amount of $600,000. The funds resulting
from the sale were deposited for the benefit of InterCoast Financial, Inc.
(Reference Note 11 - Related Party). As of July 18, 1996, the $600,000 would be
recorded on the books and records of the Company as an amount due from a related
party.
Subsequent to June 30, 1996, the Company made payments on behalf of Aero Costa
Rica which totalled $324,835. This amount was treated as a loan to Aero Costa
Rica pursuant to the terms of its Debenture Program. The debenture is for a
term of twelve (12) months and bears interest at the rate of 12% annually. It
is the intent of Aero Costa Rica to reorganize itself as a United States
publicly traded company. In the event the reorganization is concluded, the
bearer of the debenture, is entitled, at the bearers option, to convert the
debenture to stock in the post-effective public company. This right of
conversion shall be offered on or after 45 days from the conclusion of the
reorganization and shall be calculated at 60% of the then current market value
of the stock. The current market rate shall be determined as the average of the
market price of the stock during the 5 days prior to conversion. The right to
convert the debenture to common stock shall end, 15 days prior to the maturity
of the debenture. Aero Costa Rica may, at its sole discretion, require the
conversion of the debenture to common stock provided that the market price is
above seven dollars ($7.00) and the bearer is issued 120% of the stock issued
under the terms of conversion. The debenture is secured by all assets for the
face value of the debenture. This pledge of assets is deemed first before all
unsecured creditors. As of September 30, 1996, no uniform commercial code (UCC)
filing has been made to document the position of the Company under this
agreement.
F-18
<PAGE>
CORPORACION PIPASA, S.A.
FINANCIAL STATEMENTS AND
ADDITIONAL INFORMATION REQUIRED BY
THE SECURITIES AND EXCHANGE COMMISSION
AS OF JUNE 30, 1996 AND SEPTEMBER 30, 1995
AND FOR THE NINE MONTHS ENDED JUNE 30, 1996
AND THE YEAR ENDED SEPTEMBER 30, 1995
<PAGE>
CORPORACION PIPASA, S.A.
INDEX TO THE FINANCIAL STATEMENTS
Page
-----------
Report of Independent Certified Public Accountants .................. F-1
Balance Sheets at June 30, 1996 and September 30, 1995 .............. F-2 - F-3
Statements of Operations for the nine months ended
June 30, 1996 and the year ended September 30, 1995 ............. F-4
Statements of Stockholders' Equity for the nine months
ended June 30, 1996 and for the year ended
September 30, 1995 .............................................. F-5 - F-6
Statements of Cash Flows for the nine months ended
June 30, 1996 and the year ended September 30, 1995 .............. F-7
Notes to the Financial Statements ................................... F-8 - F-18
Schedules:
I - Schedule of Amounts Receivable from Related
Parties at June 30, 1996 and September 30, 1995 .............. F-19
II - Schedule of Property, Plant and Equipment at
June 30, 1996 ................................................ F-20
III- Schedule of Property, Plant and Equipment at
September 30, 1995 ........................................... F-21
IV - Schedule of Accumulated Depreciation of Property,
Plant and Equipment at June 30, 1996 ......................... F-22
V - Schedule of Accumulated Depreciation of Property,
Plant and Equipment at September 30, 1995 .................... F-23
VI - Schedule of Short-Term Borrowings at June 30, 1996
and September 30, 1995 ....................................... F-24
Other schedules have not been filed because the conditions requiring the filing
do not exist or the required information is given in the financial statements,
including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of Corporacion PIPASA, S.A.
We have audited the balance sheet of Corporacion PIPASA, S.A. as of June 30,
1996 and September 30, 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the nine months ended June
30, 1996 and the year ended September 30, 1995. 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 financial position of Corporacion PIPASA, S.A. at
June 30, 1996 and September 30, 1995, and the results of its operations and its
cash flows for the nine months ended June 30, 1996 and the year ended September
30, 1995 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The supplementary information in Schedules I
through VI are presented for purposes of additional analysis of the financial
statements rather than to present the financial position, results of operations,
and cash flows of the Company. Such information has been subjected to the
auditing procedures applied in the audits of the financial statements and, in
our opinion, is fairly stated in all material respects in relation to the
financial statements taken as a whole.
T. Alan Walls, CPA, P.C.
Johnson City, Tennessee
September 20, 1996
<PAGE>
CORPORACION PIPASA, S.A.
BALANCE SHEET
JUNE 30, 1996 AND SEPTEMBER 30, 1995
ASSETS 1996 1995
------------- -------------
Current assets: $ 2,600,751 $ 2,042,399
Cash and cash equivalents 48,251 -0-
Investments - Available for Sale 142,289 112,879
Notes receivable (Note 3) 5,265,362 4,222,544
Accounts receivable, net (Note 4) 7,039,473 5,984,909
Inventories, net (Note 5) 153,072 210,996
Due From Related Parties (Note 20) 156,472 152,289
Prepaid expenses (Note 6) ------------- -------------
Total current assets 15,405,670 12,726,016
Investments - Held to Maturity (Note 7) 1,340,056 1,524,023
Property, Plant & equipment, net (Note 8) 28,860,833 28,754,560
Forestry rights 727,120 657,961
Copyrights, trademarks, goodwill, net 104,340 151,410
Guarantee deposits 115,890 145,872
Other assets (Note 16) 259,218 89,979
Due From Related Parties (Note 20) 2,466,657 1,850,433
------------- -------------
Total assets $ 49,279,784 $ 45,900,254
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts (Note 9) 64,591 -0-
Notes payable (Note 10) 9,632,780 9,159,313
Accounts payables (Note 11) 3,456,169 3,682,199
Allowance for Christmas bonus 328,643 371,800
Allowance for severance pay (Note 12) 90,166 63,858
Accumulated expenses 705,590 653,022
Estimated income tax -0- 87,005
------------- -------------
Total current liabilities 14,277,939 14,017,197
Long term liabilities:
Long term accounts payable -0- 14,480
Long term notes payable (Note 10) 3,902,505 2,383,500
------------- -------------
Total long term liabilities 3,902,505 2,397,980
------------- -------------
Total liabilities 18,180,444 16,415,177
See accompanying notes to the financial statements.
F-2
<PAGE>
CORPORACION PIPASA, S.A.
BALANCE SHEET
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(CONTINUED)
Stockholders' equity: 1996 1995
------------- -------------
Common stock, authorized and issued
4,550,000 shares of $4.01 at June 30,
1996 and 2,500,000 shares of $7.11
at September 30, 1995 25,174,801 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) -0- 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 (Note 21, 22) 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 (Note 21, 22) 853,948 853,948
Additional paid-in capital 2,428 -0-
Legal reserve (Note 18) 518,884 518,884
Foreign currency translation adjustment 214,719 437,498
Retained earnings (Note 18) 3,183,069 8,247,864
------------- -------------
Total stockholders' equity 31,099,340 29,485,077
------------- -------------
Total liabilities and stockholders' equity
$ 49,279,784 $ 45,900,254
------------- -------------
------------- -------------
See accompanying notes to the financial statements.
F-3
<PAGE>
CORPORACION PIPASA, S.A.
STATEMENTS OF EARNINGS
FOR NINE MONTHS ENDED JUNE 30, 1996 AND
FOR THE YEAR ENDED SEPTEMBER 30, 1995
1996 1995
------------- -------------
Net Sales $ 46,071,833 $ 57,396,036
Less: Cost of sales ( 33,734,089) ( 40,198,185)
------------- -------------
Gross profit 12,337,744 17,197,851
Operating expenses:
Selling 4,812,507 6,265,603
Export 125,612 143,963
General and administrative 3,200,087 4,916,216
------------- -------------
Total operating expenses 8,138,206 11,325,782
------------- -------------
Operating Profit 4,199,538 5,872,069
Other income (Note 14) 901,779 1,224,590
Other expenses (Note 15) ( 2,623,310) ( 3,255,691)
------------- -------------
Net earnings before income taxes 2,478,007 3,840,968
Estimated income tax ( 45,704) ( 230,618)
------------- -------------
Net earnings $ 2,432,303 $ 3,610,350
------------- -------------
------------- -------------
Earnings per share $ 0.50 $ 1.40
------- -------
------- -------
See accompanying notes to the financial statements.
F-4
<PAGE>
CORPORACION PIPASA, S.A.
STATEMENT OF STOCKHOLDERS' EQUITY
JUNE 30, 1996 AND SEPTEMBER 30, 1995
<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, 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
Capital increase with Rincon
de los Toros, S.A. 500 2,428 -- -- -- --
Capitalization of
de capital 49,500 505,511 -- -- (1,500,000) (505,511)
Foreign currency translation -- -- -- -- -- --
Add, net earnings -- -- -- -- -- --
Less, dividends paid -- -- -- -- -- --
Stock dividend 2,000,000 6,896,981 -- -- -- --
Prior period adjustment -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Balance: June 30, 1996 4,550,000 $ 25,174,801 317,831 $ 2,005,439 -- $ --
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
CORPORACION PIPASA, S.A.
STATEMENT OF STOCKHOLDERS' EQUITY
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(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, 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
Capital increase with
de los Toros, S.A. 2,428 -- -- -- 4,856
Capitalization of titulos
de capital -- -- -- -- --
Foreign currency translation -- -- (222,779) -- (222,779)
Add, net earnings -- -- -- 2,432,303 2,432,303
Less, dividends paid -- -- -- (590,142) (590,142)
Stock dividend -- -- -- (6,896,981) --
Prior period adjustment -- -- -- (9,975) (9,975)
------------ ------------ ------------ ------------ ------------
Balance: June 30, 1996 $ 2,428 $ 518,884 $ 214,719 $ 3,183,069 $ 31,099,340
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
CORPORACION PIPASA, S.A.
STATEMENT OF CASH FLOWS
FOR NINE MONTHS ENDED JUNE 30, 1996 AND
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES: ----------------- --------------
<S> <C> <C>
Net earnings for the period $ 2,432,303 $ 3,610,350
Adjustments to reconcile net earnings to cash
provided by operating activit$ies:
Depreciation and amortization 923,491 1,275,566
(Increase) decrease in:
Accounts receivable (1,042,818) (609,403)
Inventories (1,054,564) 871,993
Other assets (169,239) 370,843
Prepaid expenses (4,183) 92,913
Increase (decrease) in:
Accounts payable (240,510) 307,081
Accrued expenses 52,568 (82,639)
Estimated income taxes (87,005) 63,474
Allowance for Christmas Bonus (43,157) (107,534)
Allowance for severance pay 26,308 (146,726)
----------------- --------------
Net cash provided by operating activities 793,194 5,645,918
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,480,259) (3,635,975)
Proceeds from sale of property and equipment 34,017 319,934
Purchase of long term investments (152,976) (154,779)
Proceeds from sale of long term investments 288,692 323,310
Loans to shareholders (2,207,559) (1,550,732)
Collection of loans to shareholders 1,252,277 763,937
Advances on notes receivable (63,133) (510,768)
Collection of notes receivable 25,985 594,328
Forestry rights (69,159) (103,734)
Copyrights 47,070 (12,895)
Deposits 29,982 (12,366)
Translation adjustment 404,720 233,636
----------------- --------------
Net cash (used) by financing activities (1,890,343) (3,746,104)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 23,651,121 17,801,915
Principle payments on long-term debt and
notes payable (20,407,219) (15,777,570)
Dividends paid (590,142) (1,414,596)
Bank overdrafts 64,591 (227,615)
Translation adjustment (1,062,850) (1,607,660)
----------------- --------------
Net cash (used) by investing activities 1,655,501 (1,225,526)
----------------- --------------
Net increase (decrease) in cash 558,352 674,288
Cash balance, at the beginning of the year 2,042,399 1,368,111
----------------- --------------
Cash balance, at the end of the year $ 2,600,751 $ 2,042,399
----------------- --------------
----------------- --------------
</TABLE>
See accompanying notes to the financial statements.
F-7
<PAGE>
CORPORACION PIPASA, S.A.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
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 as of
September 30, 1995, include the accounts of Corporacion 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. Rincon de los Toros, S.A. was merged into Corporation
PIPASA, S.A. during the period ended June 30, 1996, using the pooling of
interests method of accounting.
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 - 50 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
F-8
<PAGE>
CORPORACION PIPASA, S.A.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(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 $338,386 and $260,534 for the nine
months ended June 30, 1996 and the year ended September 30, 1995, 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.
INCOME TAXES - During the fourth quarter of fiscal 1992, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes", which requires an assets and liability approach for financial
accounting and reporting for income taxes. Under SFAS No. 109, deferred income
taxes are provided for the temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities. Deferred
income taxes represent the future tax return consequences of the temporary
differences, which will be taxable or deductible when assets and liabilities are
recovered or settled.
NOTE 3 - NOTES RECEIVABLE
Notes receivable at June 30, 1996 and September 30, 1995 are summarized as
follows:
1996 1995
-------------- -------------
Commercial $ 142,289 $ 112,879
-------------- -------------
Notes Receivable $ 142,289 $ 112,879
-------------- -------------
-------------- -------------
F-9
<PAGE>
CORPORACION PIPASA, S.A.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(CONTINUED)
NOTE 4 - ACCOUNTS RECEIVABLE
Short term accounts receivable at June 30, 1996 and September 30, 1995 are
detailed as follows:
1996 1995
------------- -------------
Commercial $ 5,246,280 $ 4,040,809
Officers and employees 40,484 51,125
Others 178,593 308,783
------------- -------------
5,465,357 4,400,717
Allowance for doubtful accounts ( 199,995) ( 178,173)
------------- -------------
Accounts Receivable $ 5,265,362 $ 4,222,544
------------- -------------
------------- -------------
NOTE 5 - INVENTORIES
Inventories at June 30, 1996 and September 30, 1995 are detailed as follows:
1996 1995
------------- -------------
Finished products $ 1,861,778 $ 1,079,915
Production poultry 3,099,558 3,077,024
Materials and supplies 1,164,981 1,085,012
Raw materials 1,199,474 1,125,653
In-transit 141,124 47,455
Others 859 1,262
------------- -------------
7,467,774 6,416,321
Allowance for renewal
of production poultry ( 428,301) ( 431,412)
------------- -------------
Inventories $ 7,039,473 $ 5,984,909
------------- -------------
------------- -------------
NOTE 6 - PREPAID EXPENSES
Prepaid expenses at June 30, 1996 and September 30, 1995 are summarized as
follows:
1996 1995
------------- -------------
Prepaid insurance $ 58,554 $ 57,736
Prepaid interest 14,228 42,150
Vehicles rights and taxes 30,288 5,528
Prepaid rent 42,157 32,318
Others 11,245 14,557
------------- -------------
Prepaid Expenses $ 156,472 $ 152,289
------------- -------------
------------- -------------
F-10
<PAGE>
CORPORACION PIPASA, S.A.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(CONTINUED)
NOTE 7 - INVESTMENTS - HELD TO MATURITY
Long term investments at cost at June 30, 1996 and September 30, 1995 are
detailed as follows:
1996 1995
------------- -------------
Cerveceria Americana, S.A. (9%
ownership) $ 1,162,064 $ 1,162,064
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 118,212 13,487
Others 22,787 311,479
------------- -------------
Long Term Investments $ 1,340,056 $ 1,524,023
------------- -------------
------------- -------------
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1996 and September 30, 1995 is
summarized as follows:
1996 1995
------------- -------------
Land $ 6,109,674 $ 6,383,893
Construction in progress 709,237 1,421,099
Buildings and installations 14,644,917 13,607,768
Plant, machinery and equipment 7,778,176 7,679,965
Office equipment 710,369 740,249
Vehicles 3,029,515 3,178,354
Computer equipment 591,063 416,102
Other equipment 1,275,844 1,226,844
Hand tools 55,575 51,782
Water wells 87,756 87,496
Advertising signs and display 578,568 576,626
Poultry feeding equipment 457,522 70,236
Poultry feeding and transporting
equipment 109,346 72,633
Miscellaneous farm equipment 63,301 41,287
Machinery in-transit 21,944 53,020
------------- -------------
36,222,807 35,607,354
Less, accumulated depreciation ( 7,361,974) ( 6,852,794)
------------- -------------
Property, Plant & Equipment - Net $ 28,860,833 $ 28,754,560
------------- -------------
------------- -------------
NOTE 9 - BANK OVERDRAFT
Bank overdraft for $64,591 as of June 30, 1996 was duly authorized by the banks.
F-11
<PAGE>
CORPORACION PIPASA, S.A.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(CONTINUED)
NOTE 10 - NOTES PAYABLE
Long-term notes payable at June 30, 1996 and September 30, 1995 are detailed as
follows:
1996 1995
------------- -------------
Certificates of Deposit $ 3,852 $ 201,338
Banks 3,870,613 2,139,213
Other 28,040 42,949
------------- -------------
Notes Payable $ 3,902,505 $ 2,383,500
------------- -------------
------------- -------------
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 periods
ending June 30 and September 30:
June 30, Sept 30,
------------- -------------
1998 $ 954,519 $ 1,159,115
1999 2,143,366 433,253
2000 451,638 490,365
2001 287,212 192,932
2002 and over 65,770 107,835
------------- -------------
$ 3,902,505 $ 2,383,500
------------- -------------
------------- -------------
Short-term notes payable at June 30, 1996 and September 30, 1995 are detailed as
follows:
1996 1995
------------- -------------
Certificates of Deposit $ 3,841,504 $ 3,274,901
Banks 5,639,675 5,790,122
Other 151,601 94,290
------------- -------------
Notes Payable $ 9,632,780 $ 9,159,313
------------- -------------
------------- -------------
As of June 30, 1996 long term notes bear an annual interest of 23%, 25.60%, 27%,
27.30%, 27.90%, 28.00%, 28.40%, 29.50%, 30.25%, 33.50%, 34%, 35% and 35.10%.
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%.
F-12
<PAGE>
CORPORACION PIPASA, S.A.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(CONTINUED)
NOTE 11 - ACCOUNTS PAYABLE
Accounts payable at June 30, 1996 and September 30, 1995 are detailed as
follows:
1996 1995
------------- -------------
Suppliers $ 2,925,950 $ 3,167,484
Payroll withholdings and taxes 525,364 477,669
Other 4,855 37,046
------------- -------------
Accounts Payable $ 3,456,169 3,682,199
------------- -------------
------------- -------------
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.
In 1996, this lawsuit process was ended when the parties involved arrived at an
extrajudicial arrangement. The entire settlement was paid by the Company's
insurance.
F-13
<PAGE>
CORPORACION PIPASA, S.A.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(CONTINUED)
NOTE 14 - OTHER INCOME
Other income at June 30, 1996 and September 30, 1995 is detailed as follows:
1996 1995
------------- -------------
Interest $ 394,265 $ 392,519
Exchange differences 198,967 134,147
Investment Income 31,833 68,773
Gain on disposal of operational assets 74,690 112,738
Sales of scrap 583 49,850
Others 201,441 466,563
------------- -------------
Other Income $ 901,779 $ 1,224,590
NOTE 15 - OTHER EXPENSES
Other expenses at June 30, 1996 and September 30, 1995 are detailed as follows:
1996 1995
------------- -------------
Interest $ 2,115,474 $ 2,656,509
Exchange differences 293,008 326,992
Others 214,828 272,190
------------- -------------
Other Expenses $ 2,623,310 $ 3,255,691
------------- -------------
------------- -------------
NOTE 16 - OTHER ASSETS
Other assets at June 30, 1996 and September 30, 1995 are detailed as follows:
1996 1995
------------- -------------
Deposit - Insurance Trust for leased vehicles $ 236,460 $ 81,173
Other Assets 22,758 8,806
------------- -------------
Other Assets $ 259,218 $ 89,979
------------- -------------
------------- -------------
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 $236,460 and $81,173 at June 30, 1996 and September 30,
1995, respectively.
F-14
<PAGE>
CORPORACION PIPASA, S.A.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(CONTINUED)
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. (Reference also Note 16)
Future minimum lease payments required for the period ended June 30:
1996 $ 76,933
1997 307,734
1998 161,829
1999 -0-
2000 -0-
Rental expense amounted to $333,822 and $281,691 for the nine months ended June
30, 1996 and the year ended September 30, 1995, respectively.
NOTE 18 - APPROPRIATION OF RETAINED EARNINGS
The management of the Company has made current period appropriations of retained
earnings as follows:
1996 1995
------------- -------------
Titulos de Capital $ -0- $ 505,511
Legal Reserve -0- 147,578
Stock Dividend 6,896,981 -0-
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
$2,759 at June 30, 1996. 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 June 30, 1996 and September 30,
1995.
NOTE 20 - RELATED PARTY
During the periods ending June 30, 1996 and September 30, 1995, 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
F-15
<PAGE>
CORPORACION PIPASA, S.A.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(CONTINUED)
loans, sale of poultry products and purchase of other supplies. At June 30,
1996 and September 30, 1995, the following amounts were due to the Company:
1996 1995
------------- -------------
Notes Receivable $ 2,466,657 $ 1,850,433
Accounts Receivable $ 153,072 $ 210,996
NOTE 21 - COMMON AND PREFERRED STOCK
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. $8.32 each
(U.S.$17,769,881).
b. Class "B" issued and paid nominal common shares, 2,000,000 shares
authorized and issued as a stock dividend with a valuation of
U.S.$7,404,920.
c. Class "C" preferred shares, 317,831 shares authorized and issued at a
valuation of U.S.$2,005,439.
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. During the period ended June 30, 1996, the "titulos de
capital" account in the amount of $505,511 was capitalized as common stock.
Reference Note 18.
Under Costa Rican law, liquidation priorities are in the following order:
employees, secured creditors, preferred stock shareholders and then common stock
shareholders.
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%
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.
F-16
<PAGE>
CORPORACION PIPASA, S.A.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(CONTINUED)
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 (CENTS).
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.
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 June 30, 1996, the interbank exchange rate was CENTS207.70 and CENTS207.25
(CENTS187.62 and CENTS186.61 at September 30, 1995) 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 June 30, 1996 and
September 30, 1995, 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. For the periods ended June 30, 1996 and September 30,
1995, the procedure to translate the dividends distributed were calculated based
on the historical exchange rate of the Stockholders' Equity using the FIFO
Method.
NOTE 25 - AGREEMENT AND PLAN OF REORGANIZATION
On April 30, 1996, Corporation Pipasa, S.A. (Pipasa) entered into an Agreement
and Plan of Reorganization with Quantum Learning Systems, Inc. to be known as
Costa Rica Inernational, Inc. for the acquisition of Corporation Pipasa, S.A. by
Quantum Learning Systems, Inc. to be known as Costa Rica International, Inc
(CRI).
The agreement specifies that Corporacion Pipasa, S.A. and its stockholders will
exchange all of the issued and outstanding shares of Class A and Class B common
stock of Pipasa for approximately 25,600,000 shares, in the aggregate, of
restricted common stock of the CRI, which
F-17
<PAGE>
CORPORACION PIPASA, S.A.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(CONTINUED)
in any case shall be at least 82.4%, in the aggregate, of the issued and
outstanding common shares of the CRI on a fully diluted basis at the time of the
delivery of such shares to the Stockholders of Pipasa, which includes currently
outstanding warrants and 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.
CRI 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.
The transaction was approved by the shareholders of the CRI on August 5, 1996.
The transaction was consummated Septmeber 30, 1996.
F-18
<PAGE>
CORPORACION PIPASA, S.A.
SUPPLEMENTARY INFORMATION
SCHEDULE I THROUGH SCHEDULE VI
<PAGE>
CORPORACION PIPASA, S.A.
SCHEDULE OF AMOUNTS RECEIVABLE FROM RELATED PARTIES
JUNE 30, 1996 AND SEPTEMBER 30, 1995
SCHEDULE I
<TABLE>
<CAPTION>
Balance at Balance at
September 30, June 30,
Related Party 1995 Additions Deductions 1996
- ------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Inversiones La Ribera $ 1,395,805 $ 1,543,147 $( 932,236) $ 2,006,716
Aero Costa Rica 137,858 122,774 ( 153,618) 107,014
Leytor 283,547 25,375 ( 73,318) 235,604
Chavez Zamora 192,272 165,518 ( 240,820) 116,970
Other 51,947 350,745 ( 249,267) 153,425
------------ ------------- ------------ ------------
$ 2,061,429 $ 2,207,559 $( 1,649,259) $ 2,619,729
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
F-19
<PAGE>
CORPORACION PIPASA, S.A.
PROPERTY, PLANT AND EQUIPMENT
JUNE 30, 1996
SCHEDULE II
<TABLE>
<CAPTION>
Balance Balance
September 30, Additions (A) Other June 30,
Classification 1995 at Cost Retirements Changes 1996
- -------------------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Land $ 5,967,415 $ 229,744 $( 87,485) $ -- $ 6,109,674
Construction in progress 1,421,099 1,128,972 ( 1,840,834) -- 709,237
Buildings and installations 13,607,768 1,072,204 ( 35,055) -- 14,644,917
Plant, machinery and equipment 8,420,214 255,212 ( 186,881) -- 8,488,545
Vehicles 3,178,354 72,597 ( 221,436) -- 3,029,515
Advertising signs and display 576,626 36,372 ( 34,430) -- 578,568
Other equipment 2,019,400 753,989 ( 97,656) ( 13,382) 2,662,351
------------ ------------ ------------ ----------- ------------
$ 35,190,876 $ 3,549,090 $( 2,503,777) $( 13,382) $ 36,222,807
------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ----------- ------------
</TABLE>
(A) Corresponds to depreciation of plastic baskets that is directly lowered
from the cost of the asset.
F-20
<PAGE>
CORPORACION PIPASA, S.A.
PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30, 1995
SCHEDULE III
<TABLE>
<CAPTION>
Balance Balance
September 30, Additions 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>
F-21
<PAGE>
CORPORACION PIPASA, S.A.
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
JUNE 30, 1996
SCHEDULE IV
<TABLE>
<CAPTION>
Additions Other Charges
Balance at Charged to ---------------------- Balance at
September 30 Costs and (A) (B) June 30,
Classification 1995 Expenses Retirements Add Deduct 1996
- ------------------------------- ------------ ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Buildings & installations $ 1,842,108 $ 139,762 $ (7,212) $ 15,203 $ -- $ 1,989,861
Plant, machinery and equipment 3,036,367 344,873 (183,694) 24,705 -- 3,222,251
Vehicles 1,084,319 222,424 (212,435) 6,176 -- 1,100,484
Advertising signs and display 248,821 59,750 (33,912) -- -- 274,659
Other Equipment 641,179 156,682 (24,567) 1,425 -- 774,719
------------ ----------- ------------ ----------- ---------- -----------
$ 6,852,794 $ 923,491 $ (461,820) $ 47,509 $ -- $ 7,361,974
------------ ----------- ------------ ----------- ---------- -----------
------------ ----------- ------------ ----------- ---------- -----------
</TABLE>
(A) Reclassification of accounts to inventory.
(B) Depreciation costs that are capitalized into the inventory used in the
production process.
F-22
<PAGE>
CORPORACION PIPASA, S.A.
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30, 1995
SCHEDULE V
<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 ( 1,775) 641,179
---------- ------- ---------- ------- --------- ---------
$6,208,283 $1,275,565 $(630,152) $92,768 $(93,670) $6,852,794
---------- ------- ---------- ------- --------- ---------
---------- ------- ---------- ------- --------- ---------
</TABLE>
(A) Reclassification of accounts to inventory.
(B) Adjustments to the accounts relative to repairs of assets.
F-23
<PAGE>
CORPORACION PIPASA, S.A.
SHORT-TERM BORROWINGS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
SCHEDULE VI
<TABLE>
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest
June 30, Interest During the During the Rate During
1996 Rate Period Period the Period
------------ -------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Certificates of Deposits $ 3,841,504 32.66% $ 4,095,983 3,784,983 32.66%
Banks 5,639,675 34.94% 7,227,072 5,747,575 34.94%
Other 151,601 25.82% 151,601 67,500 25.82%
------------
$ 9,632,780
------------
------------
<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 28.18%
Other 94,290 21.48% 104,195 57,148 21.48%
------------
$ 9,159,313
------------
------------
</TABLE>
F-24
<PAGE>
Exhibit 3-A*
Articles of Incorporation
(*Previously Filed)
<PAGE>
Exhibit 3-B*
Articles of Merger
(Previously Filed)
<PAGE>
Exhibit 3-C*
Bylaws
(Previously Filed)
<PAGE>
Exhibit 10-1*
Purchase Agreement for Construction and Trucking
(Previously Filed)
<PAGE>
Exhibit 10-2
Acquisition Agreement with Corporacion Pipasa, S.A.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
April 30, 1996
QUANTUM LEARNING SYSTEMS, INC.
ACQUISITION OF
CORPORACION PIPASA, S.A.
<PAGE>
TABLE OF CONTENTS
Page
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Plan of Reorganization . . . . . . . . . . . . . . . . . . . . . . 1
2. Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Delivery of Shares and Assets . . . . . . . . . . . . . . . . . . . 2
4. Representations of Stockholders and Acquirees . . . . . . . . . . . 2
5. Representations of Acquiring Corporation . . . . . . . . . . . . . 4
6. Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7. Conditions Precedent to the Obligations of Acquirees . . . . . . . 7
8. Conditions Precedent to the Obligations of Acquiror . . . . . . . . 7
9. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10. Nature and Survival of Representations . . . . . . . . . . . . . . 9
11. Documents at Closing . . . . . . . . . . . . . . . . . . . . . . . 9
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . .11
-ii-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS Agreement and Plan of Reorganization is entered into this 30th day of
April, 1996, by and between QUANTUM LEARNING SYSTEMS, INC., a Nevada corpora-
tion, (hereinafter "Acquiror"); and CORPORACION PIPASA, S.A., a Costa Rican
corporation; (hereinafter referred to as "Acquiree"); and the undersigned
Stockholders of Acquiree, (hereinafter referred to as "Stockholders").
RECITALS
Stockholders of Acquiree own or control all of the issued and outstanding
common stock of Acquiree. Acquiror desires to acquire all of the issued and
outstanding stock of Acquiree, making Acquiree a wholly-owned subsidiary of
Acquiror, and Stockholders desire to make a tax-free exchange solely of their
shares in Acquiree for shares of Acquiror's common stock to be exchanged as set
out herein with said Stockholders.
NOW, THEREFORE, for the mutual consideration set out herein, the parties
agree as follows:
AGREEMENT
1. PLAN OF REORGANIZATION. Stockholders of Acquiree are the owners
of all the issued and outstanding common stock of said Acquiree. It is
the intention of the parties hereto that all of the issued and out-
standing common stock of Acquiree shall be acquired by Acquiror in
exchange solely for newly issued Acquiror voting stock. It is the
intention, but not a requirement, of the parties hereto that this
transaction qualify as a tax-free reorganization under Section 351 of
the Internal Revenue Code of 1986, as amended, and the applicable
provisions of Costa Rican tax law. If this transaction does not so
comply, the parties hereto nevertheless will effect this transaction
as long as at least 51% of the Acquiree may be transferred hereto.
2. EXCHANGE OF SHARES. Acquiror and Stockholders agree that all of
the issued and outstanding shares of Class A and Class B common stock
of Acquiree shall be exchanged with Acquiror for a total of approxi-
mately 25,600,000 shares, in the aggregate, of restricted common stock
of Acquiror, which in any case shall be 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. Notwithstanding any other provi-
sion of this Agreement, and assuming that the Acquiror has received at
least 51% of the common stock from Acquiree as of the date of delivery
1
<PAGE>
(which is hereafter defined), the Stockholders may deliver common
shares hereunder to the Acquiror for up to twelve months from the date
hereof. The Acquiror shares will, on the date of delivery to the
Stockholders, (which is hereafter defined as the Delivery Date), be
delivered to the Stockholders in exchange for their shares in
Acquiree. Stockholders represent and warrant that they will hold such
shares of common stock of Acquiror for investment purposes and not for
further public distribution and agree that the shares shall be appro-
priately restricted.
3. DELIVERY OF SHARES AND ASSETS. On the Delivery Date (which is
defined as the date in Paragraph 6 herein), Stockholders will deliver
certificates for the shares of Acquiree duly endorsed so as to make
Acquiror the sole holder thereof free and clear of all claims and
encumbrances. On the Delivery Date, delivery of the Acquiror shares,
which will be appropriately restricted as to transfer, will be made to
the Stockholders as set forth herein. A list of the shares of
Acquiree, the owners thereof, and shares of Acquiror to be received by
said Stockholders is attached hereto as Exhibit "A" and by this
reference is incorporated herein.
4. REPRESENTATIONS OF STOCKHOLDERS AND ACQUIREE. The Stockholders
and Acquiree, hereby represent and warrant that, with respect to their
own shares and as to the Acquiree, effective this date, the Closing
Date (which is defined as the date in Paragraph 6 herein), and the
Delivery Date, the representations listed below are true and correct
to the best of their knowledge, information, and belief. Said repre-
sentations are meant and intended by all parties to apply to the
Acquiree:
(a) The listed Stockholders on Exhibit "A" are the sole owners of all
of the issued and outstanding shares of common stock of Acquiree;
such shares are free from claims, liens, or other encumbrances;
and Stockholders have the unqualified right to transfer and
dispose of such shares and assets.
(b) The issued shares of Acquiree constitute validly issued shares of
Acquiree, fully-paid and nonassessable.
(c) The audited year-end financial statements of Acquiree covering
the last fiscal year (which includes the balance sheet as of the
1995 fiscal year end and the operational statements as of the
1994 and 1995 fiscal year ends) and the unaudited financial
statements as of March 31, 1996, which have been delivered to
Acquiror, are complete, accurate and fairly present the financial
condition of Acquiree as of the dates thereof and the results of
its operations for the periods covered. There are no liabilities,
either fixed or contingent, not reflected in such financial
statements other than contracts or obligations in the ordinary
and usual course of business; and no such contracts or obliga-
tions in the usual course of business constitute liens or other
liabilities which, if disclosed, would alter substantially the
financial condition of such Acquiree as reflected in such finan-
cial statements. These
2
<PAGE>
financial statements have been prepared in accordance with US
Generally Accepted Accounting Principles consistently applied.
(d) Prior to and as of the Closing Date and the Delivery Date, there
will not be any negative material changes in the financial
position of Acquiree, except changes arising in the ordinary
course of business, which changes will in no event adversely
affect the financial position of said Acquiree.
(e) Except as previously disclosed in audited and unaudited financial
statements, to the best of Acquiree's knowledge, information and
belief, it is not involved in, and has not received judicial
notice of any pending litigation or governmental investigation or
proceeding not reflected in such financial statement, or other-
wise disclosed in writing to Acquiror and, to the best knowledge
of Acquiree and Stockholders, no material litigation, claims, or
assessments, or governmental investigation or proceeding is
threatened against Acquiree, its principal stockholders or
properties.
(f) As of the Closing Date and the Delivery Date, Acquiree will be in
good standing in its jurisdiction of incorporation, and will be
in good standing and in the process of becoming duly qualified to
do business in each jurisdiction where required to be so quali-
fied.
(g) Acquiree has complied with all applicable laws in connection with
its formation, issuance of securities, organization, capitaliza-
tion and operations, and to the best of Acquiree's knowledge,
information and belief, no contingent liabilities have been
threatened or claims made, and no basis for the same exists with
respect to said operations, formation or capitalization, includ-
ing claims for violation of any US state or federal securities
laws.
(h) Acquiree has filed all governmental, tax or related returns and
reports due or required to be filed and has paid all taxes or
assessments which have or which shall become due as of the
Closing Date and the Delivery Date.
(i) Except as disclosed in this Agreement or on any Exhibit, Acquiree
has not breached any material agreement to which it individually
or collectively may be a party.
(j) Acquiree has no subsidiary corporations.
(k) The corporate financial records, minute books, and other docu-
ments and records of Acquiree are to be available to present
management of Acquiror prior to the Closing Date and turned over
to new management of Acquiror in their entirety on the Delivery
Date.
3
<PAGE>
(l) The execution of this Agreement will not violate or breach any
agreement, contract, or commitment to which Acquiree or Stock-
holders are a party and has been duly authorized by all appropri-
ate and necessary action.
(m) The authorized capitalization of Acquiree are as set forth in the
most recent audited balance sheet of Acquiree. Acquiree has two
classes of common stock (called Class A and Class B) and two
classes of preferred stock (called Class C and Class D). All
outstanding shares have been duly authorized, validly issued and
are fully paid and nonassessable with no personal liability
attaching to the ownership thereof. There are no outstanding
convertible securities, warrants, options or commitments of any
nature which may cause authorized but unissued shares to be
issued to any person.
(n) To the best knowledge of Stockholders and Acquiree, Acquiree is
not subject to any material labor disputes or disagreements,
either actual or contingent.
(o) To the best knowledge of Stockholders and Acquiree, Acquiree's
products, materials and brochures do not infringe the patent or
copyright rights of any other person or entity.
(p) At the date of this Agreement, Stockholders have, and at the
Closing Date and the Delivery Date, they will have to the best of
their knowledge, disclosed all events, conditions and facts
materially affecting the business and prospects of Acquiree and
its assets. Stockholders have not now and will not have, at the
Closing Date or the Delivery Date, withheld knowledge of any such
events, conditions, and facts which they know, or have reasonable
grounds to know, may materially affect the business and prospects
of Acquiree or its assets.
5. REPRESENTATIONS OF ACQUIRING CORPORATION. Acquiror hereby
represents and warrants as follows, effective this date, the Closing
Date, and the Delivery Date, the representations listed below are true
and correct to the best of its knowledge, information, and belief:
(a) As of the Delivery Date, the Acquiror shares to be delivered to
the Stockholders will constitute valid and legally issued shares
of Acquiror, fully-paid and nonassessable, and will be legally
equivalent in all respects to the common stock of Acquiror issued
and outstanding as of the date thereof.
(b) The officers of Acquiror are duly authorized to execute this
Agreement and have taken all actions required by law and agree-
ments, charters, and bylaws, to properly and legally execute this
Agreement.
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<PAGE>
(c) Acquiror has made available to Acquiree combined audited finan-
cial statements for the past three fiscal years, which shall be
true, complete and accurate; there are and shall be no substan-
tial liabilities, either fixed or contingent, not reflected in
such financial statements and records or to which the Acquiree
has not been made aware. Said financial statements fairly and
accurately reflect the financial condition of the Acquiror as of
the date thereof and the results of operations for the period
reflected therein. Such statements shall have been prepared in
accordance with US Generally Accepted Accounting Principles,
consistently applied.
(d) Prior to and as of the Closing Date and the Delivery Date, there
will not be any material changes in the financial position of
Acquiror, except changes arising in the ordinary course of
business, which changes will in no event adversely affect the
financial condition of the Acquiror; provided, however, that
Acquiror will have sold or transferred all of its operations as
of the Delivery Date.
(e) Except as previously disclosed, Acquiror is not involved in any
pending litigation, claims, or governmental investigation or
proceeding not reflected in such financial statements or other-
wise disclosed in writing to the Stockholders, and there are
otherwise no lawsuits, claims, assessments, investigations, or
similar matters, to the best knowledge of management, threatened
or contemplated against Acquiror, its management or properties.
(f) As of the Closing Date and the Delivery Date, Acquiror is duly
organized, validly existing and in good standing under the laws
of the State of Nevada; it has the corporate power to own its
property and to carry on its business as now being conducted and
is duly qualified to do business in any jurisdiction where so
required.
(g) Acquiror will have filed, by the Delivery Date, all federal,
state, county and local income, excise, property and other tax
returns, forms, or reports, which are due or required to be filed
by it prior to the date hereof and has paid or made adequate
provision for the payment of all taxes, fees, or assessments
which have or may become due pursuant to such returns or pursuant
to any assessments received.
(h) Except as previously disclosed, Acquiror has not breached, nor is
there any pending or threatened claims or any legal basis for a
claim that Acquiror has breached, any of the terms or conditions
of any agreements, contracts or commitments to which it is a
party or is bound and the execution and performance hereof will
not violate any provisions of applicable law of any agreement to
which Acquiror is subject.
5
<PAGE>
(i) The present capitalization of Acquiror comprises authorized
common stock of 20,000,000 shares, $0.001 par value, of which no
more than 4,400,000 shares are issued and outstanding as of the
date hereof and prior to giving effect to a contemplated in-
creased authorization of common shares by the shareholders of
Acquiror to 60,000,0000 shares; and authorized preferred stock of
5,000,000 shares, with a $1.00 par value, to have such classes
and preferences as the Acquiror may determine from time to time.
No preferred shares are issued and outstanding as of the date
hereof. All outstanding shares have been duly authorized, validly
issued, and fully paid. There are 750,000 shares reserved for
issuance under options or warrants. Otherwise, there are not
outstanding or presently authorized securities, warrants, options
or related commitments of any nature.
(j) Acquiror has three subsidiary corporations Cambridge Academy,
Sentient, Inc., Current Concept Seminars, Inc., along with a
division which engages in real estate development. As a condition
of this 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.
(k) The shares of restricted common stock of Acquiror to be issued to
Stockholders as of the Delivery Date, will be validly issued,
nonassessable and fully-paid under Nevada corporation law and
will be issued in a non-public offering and exempted transaction
under federal and state securities laws.
(l) At the date of this Agreement, Acquiror has, and at the Closing
Date, and as of the Delivery Date it will have, disclosed all
events, conditions and facts materially affecting the business
and prospects of Acquiror. Acquiror has not now and will not
have, at the Closing Date, or at the Delivery Date, withheld
disclosure of any such events, conditions, and facts which it,
through management has knowledge of, or has reasonable grounds to
know, may materially affect the business and prospects of Acquir-
or.
(m) Acquiror is a public company and represents that, except as
previously disclosed, it has no existing or threatened liabili-
ties, claims, lawsuits, or basis for the same with respect to its
shareholders, the public, brokers, the U.S. Securities and
Exchange Commission, state agencies or other persons. This
includes matters relating to state or federal securities laws as
well as general common law or state corporation law principles.
6. CLOSING AND DELIVERY DATE. The Closing Date herein referred to
shall be upon such date as the parties hereto may mutually agree for
the execution of this Agreement but is expected to be on or about
April 30, 1996. This Agreement is
6
<PAGE>
executed by the parties and effective as of the date hereof, subject
only to the ratification and approval of the transaction, the
divestiture of Acquiror operations, and the approval of additional
authorized common shares by the shareholders of the Acquiror. The date
of ratification and approval of the transaction, the divestiture of
Acquiror operations, and the authorization of additional common shares
by the shareholders of the Acquiror shall be known as the Delivery
Date. Certain exhibits, etc. may be delivered subsequent to the
Delivery Date upon the mutual agreement of the parties hereto. The
Stockholders will be deemed to have accepted, as of the Delivery Date,
delivery of the certificates of stock to be issued in their respective
names, and in connection therewith will make delivery of their stock
in Acquiree to Acquiror.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACQUIREE. All obliga-
tions of Acquiree and Stockholders under this Agreement are subject to
the fulfillment, prior to, as of the Closing Date, or at the Delivery
Date, of each of the following conditions:
(a) The representations and warranties by or on behalf of Acquiror
contained in this Agreement or in any certificate or document
delivered to Acquiree pursuant to the provisions hereof shall be
true in all material respects at and as of the Closing Date and
the Delivery Date as though such representations and warranties
were made at and as of such time.
(b) Acquiror shall have performed and complied with all covenants,
agreements, and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing Date,
subject only to the conditions required on the Delivery Date.
(c) On the Delivery Date, the present Directors of Acquiror shall
resign from the Board of Directors of Acquiror. The Acquiree
shall have the right to name the new Board of Directors, which
shall consist of seven (7) members, as of the Delivery Date.
(d) The shareholders of the Acquiror shall have approved an increase
in the authorized common shares of the Acquiror to 60,000,000,
all with a par value of $0.001 per share and an increase in the
authorized preferred shares of the Acquiror to 5,000,000, all
with a par value of $1.00 per share.
(e) The shareholders of the Acquiror shall approve a change of name
of the Acquiror as of the Delivery Date to Costa Rica Interna-
tional Holdings, Inc., or such derivation as may be approved by
regulatory authorities.
(f) The Acquiror shall have disposed of all prior Acquiror operations
as of the Delivery Date.
7
<PAGE>
(g) The Directors and shareholders of Acquiror shall have approved
this transaction and such other reasonable matters as requested
by Acquiree as pertaining to this transaction.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACQUIROR. All obliga-
tions of the Acquiror under this Agreement are subject to the fulfill-
ment, prior to, as of the Closing Date, or at the Delivery Date, of
each of the following conditions:
(a) The representations and warranties by Acquiree and Stockholders
contained in this Agreement or in any certificate or document
delivered to Acquiror pursuant to the provisions hereof shall be
true at and as of the Closing Date and the Delivery Date as
though such representations and warranties were made at and as of
such time.
(b) Acquiree and Stockholders shall have performed and complied with
all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by it prior to or at
the Closing Date, subject only to the conditions on the Delivery
Date.
(c) Stockholders shall deliver to Acquiror a letter commonly known as
an "investment letter" agreeing that the shares of stock in
Acquiror are being acquired for investment purposes, and not with
a view to resale.
(d) Stockholders shall state, and reaffirm as of the Delivery Date,
that the materials, including, current financial statements,
prepared and delivered by Acquiror to Stockholders, have been
read and understood by Stockholders, that they are familiar with
the business of Acquiror, that they are acquiring the Acquiror
shares under Section 4(2), commonly known as the private offering
exemption of the Securities Act of 1933, under Regulation S of
said Act, and that the shares are restricted and may not be
resold, except in reliance on an exemption under the Act.
(e) Shareholders of the Acquiror shall have approved and ratified
this Plan of Reorganization, including, but not limited to, an
increase in the number of authorized common shares to 60,000,000
and authorized preferred shares to 5,000,000 and the disposition
by the Acquiror of all operations, including the subsidiary
corporations and the real estate division, as of the Delivery
Date. at a duly called shareholders meeting by an affirmative
vote of not less than a majority of the issued and outstanding
common shares of the Acquiror.
9. INDEMNIFICATION. Within the period provided in paragraph 10
herein and in accordance with the terms of that paragraph, each party
to this Agreement, shall indemnify and hold harmless each other party
at all times after the date of this Agreement against and in respect
8
<PAGE>
of any liability, damage or deficiency, all actions, suits, proceed-
ings, demands, assessments, judgments, costs and expenses including
attorney's fees incident to any of the foregoing, resulting from any
misrepresentations, breach of covenant or warranty or non-fulfillment
of any agreement on the part of such party under this Agreement or
from any misrepresentation in or omission from any certificate fur-
nished or to be furnished to a party hereunder. Subject to the terms
of this Agreement, the defaulting party shall reimburse the other
party or parties on demand, for any reasonable payment made by said
parties at any time after the Closing, in respect of any liability or
claim to which the foregoing indemnity relates, if such payment is
made after reasonable notice to the other party to defend or satisfy
the same and such party failed to defend or satisfy the same.
10. NATURE AND SURVIVAL OF REPRESENTATIONS. All representations,
warranties and covenants made by any party in this Agreement shall
survive the Closing hereunder and the consummation of the transactions
contemplated hereby for three years from the date hereof. All of the
parties hereto are executing and carrying out the provisions of this
Agreement in reliance solely on the representations, warranties and
covenants and agreements contained in this Agreement and not upon any
investigation upon which it might have made or any representations,
warranty, agreement, promise or information, written or oral, made by
the other party or any other person other than as specifically set
forth herein.
11. DOCUMENTS AT CLOSING. Between the date hereof and the Delivery
Date, the following transactions shall occur, all of such transactions
being deemed to occur simultaneously:
(a) Stockholders will deliver, or cause to be delivered, to Acquiror
the following:
(1) stock certificates for the stock of Acquiree being tendered
hereunder, duly endorsed in blank,
(2) all corporate records of Acquiree, including without limita-
tion corporate minute books (which shall contain copies of the
Articles of Incorporation and Bylaws, as amended to the Delivery
Date), stock books, stock transfer books, corporate seals, and
such other corporate books and records as may reasonably request-
ed for review by Acquiror and its counsel;
(3) a certificate of the President of Acquiree to the effect
that all representations and warranties of Acquiree made under
this Agreement are reaffirmed on the Closing Date and the
Delivery Date, the same as though originally given on said date;
9
<PAGE>
(4) such other instruments, documents and certificates, if any,
as are required to be delivered pursuant to the provisions of
this Agreement or which may be reasonably requested in
furtherance of the provisions of this Agreement;
(b) Acquiror will deliver or cause to be delivered to Stockholders
and Acquiree:
(1) stock certificates for Common Stock to be issued as a part
of the exchange as listed on Exhibit "A" after the date of
approval of this transaction by the Acquiror shareholders;
(2) a certificate of the President of Acquiror to the effect
that all representations and warranties of Acquiror made under
this Agreement are reaffirmed on the Closing Date and the Deliv-
ery Date, the same as though originally given on said date;
(3) certified copies of resolutions by Acquiror's Board of
Directors and shareholders authorizing this transaction;
(4) such other instruments and documents as are required to be
delivered pursuant to the provisions of this Agreement.
12. MISCELLANEOUS.
(a) FURTHER ASSURANCES. At any time, and from time to time, after the
effective date, each party will execute such additional instru-
ments and take such action as may be reasonably requested by the
other party to confirm or perfect title to any property trans-
ferred hereunder or otherwise to carry out the intent and purpos-
es of this Agreement.
(b) WAIVER. Any failure on the part of any party hereto to comply
with any of its obligations, agreements or conditions hereunder
may be waived in writing by the party to whom such compliance is
owed.
(c) BROKERS. Neither party has employed any brokers or finders with
regard to this Agreement unless otherwise described in writing to
all parties hereto.
(d) NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered in
person or sent by prepaid first class registered or certified
mail, return receipt requested.
(e) HEADINGS. The section and subsection headings in this Agreement
are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
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<PAGE>
(f) COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
(g) GOVERNING LAW. This Agreement was negotiated and is being con-
tracted for in the State of Nevada, and shall be governed by the
laws of the State of Nevada, and the securities being issued
herein are being issued and delivered outside the jurisdiction of
the United States in accordance with the isolated transaction and
non-public offering exemption and with Regulation S of the Act.
(h) BINDING EFFECT. This Agreement shall be binding upon the parties
hereto and inure to the benefit of the parties, their respective
heirs, administrators, executors, successors and assigns.
(i) ENTIRE AGREEMENT. This Agreement is the entire agreement of the
parties covering everything agreed upon or understood in the
transaction. There are no oral promises, conditions, representa-
tions, understandings, interpretations or terms of any kind of
condition or inducements to the execution hereof.
(j) TIME. Time is of the essence.
(k) SEVERABILITY. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in full
force and effect.
(l) DEFAULT COSTS. In the event any party hereto has to resort to
legal action to enforce any of the terms hereof, such party shall
be entitled to collect attorneys fees and other costs from the
party in default.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
QUANTUM LEARNING SYSTEMS, INC.
a Nevada Corporation
By: ///Signed///
---------------------------------
President
CORPORACION PIPASA, S.A.
a Costa Rican Corporation
By: ///Signed///
---------------------------------
President
11
<PAGE>
SHAREHOLDERS OF ACQUIREE:
Signed Signed
- ----------------------------------- ---------------------------------------
Signed Signed
- ----------------------------------- ---------------------------------------
Signed Signed
- ----------------------------------- ---------------------------------------
Signed Signed
- ----------------------------------- ---------------------------------------
<PAGE>
QUANTUM LEARNING SYSTEMS, INC.
OFFICER'S CERTIFICATE
The undersigned, President of QUANTUM LEARNING SYSTEMS, INC. ("Acquiror"),
does hereby certify that he is a duly elected, qualified and acting officer of
Acquiror, a Nevada corporation, and as such is familiar with the business
affairs of said corporation, and is familiar with and has read that certain
Agreement and Plan of Reorganization between Acquiror and Acquiree, dated April
30, 1996.
The undersigned does hereby state that the representations and warranties
made by Acquiror contained in said Agreement, to the best of his knowledge, are
true and correct at and as of the time of closing and the date of delivery of
Acquiror's shares. In addition, the undersigned hereby states that to the best
of his knowledge, Acquiror has performed and complied with all covenants,
agreements and conditions required by the Agreement to be performed or complied
with by Acquiror prior to or at the Closing Date or the Delivery Date.
IN WITNESS WHEREOF, the undersigned, has hereunto duly executed this
Certificate this 30th day of April, 1996.
QUANTUM LEARNING SYSTEMS, INC.
By: ///Signed///
----------------------------
President
<PAGE>
CORPORACION PIPASA, S.A.
OFFICER'S CERTIFICATE
The undersigned, President of CORPORACION PIPASA, S.A. ("Acquiree"), does
hereby certify that he is a duly elected, qualified and acting officer of
Acquiree, a Costa Rican corporation, and as such is familiar with the business
affairs of said corporation, and is familiar with and has read that certain
Agreement and Plan of Reorganization between Acquiror and Acquiree, dated April
30, 1996.
The undersigned does hereby state that the representations and warranties
made by Acquiree contained in said Agreement, to the best of his knowledge, are
true and correct at and as of the time of closing and the date of delivery of
the Acquiror's shares. In addition, the undersigned hereby states that to the
best of his knowledge, Acquiree has performed and complied with all covenants,
agreements and conditions required by the Agreement to be performed or complied
with by Acquiree prior to or at the Closing Date or the Delivery Date.
IN WITNESS WHEREOF, the undersigned, has hereunto duly executed this
Certificate this 30th day of April, 1996.
CORPORACION PIPASA, S.A.
By: ///Signed///
-------------------------------------
President
<PAGE>
Exhibit 10-3
Settlement Agreement for Messrs. Young
<PAGE>
THE UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
W.T. YOUNG AND )( CIVIL ACTION NO.
GLEN YOUNG )( C-95-506
)(
VS. )(
)(
QUANTUM LEARNING SYSTEMS, INC. )( JURY
- ----------------------------------------------------------------------------
GENERAL RELEASE AND COMPROMISE SETTLEMENT AGREEMENT
- ----------------------------------------------------------------------------
STATE OF TEXAS )
)
COUNTY OF NUECES )
This General Release and Compromise Settlement Agreement (the "Agreement")
is entered into effective March 25, 1996 (the "Effective Date") by and between
W.T. Young and Glen Young ("the Youngs"), W.T. Young Construction Company
("Construction"), and Quantum Learning Systems, Inc., and its agents or assigns
("QLS").
W I T N E S S E T H :
WHEREAS, the Youngs instituted the above-styled and numbered cause
("the Lawsuit") against QLS; and
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<PAGE>
WHEREAS, bona fide disputes and controversies exist between the
parties, both as to liability and the amount of liability, if any, and by reason
of such disputes and controversies, the parties to this Agreement desire to
compromise and settle all claims and causes of action of any kind whatsoever,
whether now known or unknown, asserted or unasserted, which either now has or
may have against the other or others, their agents, employees, employers,
including without limitation, directors, officers, representatives, successors,
assigns and legal representatives, relating to or arising from (i) the matters
and claims that form the basis of the Lawsuit, and (ii) the execution, negotia-
tion or performance of the Purchase Agreement dated effective June 30, 1994
("Purchase Agreement"), the execution of any promissory note(s) pursuant to the
Purchase Agreement, and the subsequent sale or disposition of assets by the
Youngs pursuant to or in connection with the Purchase Agreement. The parties
intend that the full terms and conditions of the release and settlement be set
forth in this Agreement;
NOW, THEREFORE, for the consideration expressed, the receipt and
sufficiency of which is expressly acknowledged, the parties agree as follows:
1. Subject to the consummation of financing described in paragraph
3(a) below and the exchange of other consideration contemplated by this Agree-
ment (except for future consideration arising from disposition of proceeds from
the Chamberlain Lawsuit payable as described in paragraph 5 below), the Youngs
agree to dismiss the Lawsuit with prejudice; and all costs of court incurred in
the Lawsuit shall be borne by the party incurring the costs;
2. The Youngs, Construction and QLS, each of their agents, assigns,
employees, partners, and representatives, acknowledge and agree that the terms
and conditions of this settlement shall remain confidential, except as may be
required to comply with securities
2
<PAGE>
disclosure laws. The Youngs, Construction and QLS agree that no term or
condition relating to this settlement or Agreement shall be disclosed to
anyone except to the parties' accountants, bookkeepers, and/or Board of
Directors, but then, only to the extent necessary to conduct any business
related to tax treatment of the settlement amounts. The Youngs, Construction
and QLS shall inform their accountants, bookkeepers, and/or Board of
Directors that the settlement information divulged is subject to a
confidentiality agreement for which the Youngs, Construction and QLS shall
be responsible. The parties to this Agreement agree that all communications
that led, directly or indirectly, to this settlement and that occurred at or
after the beginning of the mediation of this matter are and will remain
confidential. Moreover, the parties agree to treat this document as
confidential and non-discoverable.
3. The Youngs agree to:
(a) pay to QLS, or to its agents or designees, the sum of Eight
Hundred Thousand and No/100 Dollars ($800,000.00) in cash
after the Youngs obtain financing in that amount, but in no
event later than ninety (90) days after the Effective Date
of this Agreement;
The Youngs agree to use their best efforts to obtain the
required financing within the time period specified and
obtaining financing to make payment to QLS shall be a
condition subsequent to the effectiveness of this Agreement;
provided, however, that should the Youngs, despite their
best efforts, fail to obtain financing, this Agreement shall
be null and void and the Youngs and QLS shall be restored to
their current status and position with respect to the
Lawsuit; and
(b) concurrent with the $800,000.00 payment described in
paragraph 3(a) above, endorse and deliver to QLS, or to the
extent QLS requires for its accounting purposes, a qualified
third person designated by QLS, stock certificates
representing ownership of 460,000 shares of Common Stock of
Quantum Learning Systems, Inc. (which stock certificates are
deemed to be valued at $1.00 per share for purposes of this
Agreement).
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<PAGE>
4. Concurrent with the $800,000.00 payment described in paragraph
3(a) above, QLS agrees to:
(a) assign to the Youngs any and all of its rights to remaining
payments on the original $1.8 million obligation referenced
in paragraph 2 of the Purchase Agreement; and
(b) assign and release to the Youngs all collateral securing the
original $1.8 million obligation referenced in paragraph 2
of the Purchase Agreement (except for the 460,000 shares of
Common Stock of Quantum Learning Systems, Inc. being
transferred to QLS as described in paragraph 3(b) above).
5. The Youngs, Construction and QLS agree to the following division
of proceeds, if any, that may be received by them from the lawsuit currently
pending in the 347th Judicial District Court of Nueces County, Texas, entitled
CCR, INC., W.T. YOUNG CONSTRUCTION COMPANY, W.T. YOUNG AND GLEN YOUNG VS. C.
KEITH HUDSON, CHAMBERLAIN HRDLICKA WHITE JOHNSON & WILLIAMS, ET AL., Cause No.
93-3809-H (the "Chamberlain Lawsuit"), in the following order of priority:
(a) proceeds from the Chamberlain Lawsuit shall be first applied
to satisfy any costs and expenses incurred by the parties'
attorneys in the Chamberlain Lawsuit and to reimburse the
Youngs, in full, for all costs or expenses previously
advanced by them as of the date of resolution of the
Chamberlain Lawsuit (for reference, the amount of such costs
and expenses advanced by the Youngs as of the date hereof is
approximately $154,015.00);
(b) second, proceeds from the Chamberlain Lawsuit shall be
applied to satisfy the attorneys' fees for which the parties
have contracted in the Chamberlain Lawsuit and to reimburse
the Youngs, in full, for all attorneys' fees previously
advanced by them as of the date of resolution of the
Chamberlain Lawsuit (for reference, the amount of such
attorneys' fees advanced by the Youngs as of the date hereof
is approximately $91,111.00);
(c) third, up to the next $600,000.00 in proceeds from the
Chamberlain Lawsuit shall be divided equally between the
Youngs and QLS on a dollar-for-dollar basis, up to a maximum
amount of $300,000.00 to QLS as an additional contingent
payment on the assignment
4
<PAGE>
from QLS to the Youngs described in paragraph 4(a) above,
and $300,000.00 to the Youngs;
(d) fourth, up to the next $1.26 million in proceeds from the
Chamberlain Lawsuit shall be paid to the Youngs as payment
on the assignment from QLS to the Youngs described in
paragraph 4(a) above;
(e) thereafter, the remaining proceeds from the Chamberlain
Lawsuit, if any, shall be divided equally between the Youngs
and QLS.
6. The payments and settlement terms set out in Paragraphs 3, 4, and
5 above are made without admission of any liability by the Youngs, Construction
or QLS, their employees, officers, directors, agents, representatives,
successors, assigns, or legal representatives;
7. Subject to the consummation of financing described in paragraph
3(a) above and the exchange of other consideration contemplated by this Agree-
ment (except for future consideration arising from disposition of proceeds from
the Chamberlain Lawsuit payable as described in paragraph 5 above), the Youngs
and Construction hereby, for themselves, their successors and assigns, fully and
forever RELEASE, ACQUIT, AND FOREVER DISCHARGE QLS and its employees, officers,
directors, agents, representatives, successors, assigns and legal representa-
tives, from all claims and causes of action of any kind whatsoever, whether now
known or unknown, asserted or unasserted, that the Youngs or Construction now
have or may have against QLS, its agents, employees, employers, directors,
officers, representatives, successors, assigns and legal representatives,
relating to or arising from (i) the matters and claims that form the basis of
the Lawsuit, and (ii) the execution, negotiation or performance of the Purchase
Agreement, the execution of any promissory note(s) pursuant to
5
<PAGE>
the Purchase Agreement, and the subsequent sale or disposition of assets by
the Youngs or Construction pursuant to or in connection with the Purchase
Agreement. The Youngs and Construction further agree not to take any action
inconsistent with this Agreement, including providing aid, assistance or
encouragement to any person to bring an action against QLS, except to the
extent, if any, that they may be compelled to provide testimony or documents
pursuant to subpoena or other legal process in any matter initiated by other
persons without their aid, assistance or encouragement.
8. Subject to the consummation of financing described in paragraph
3(a) above and the exchange of other consideration contemplated by this Agree-
ment (except for future consideration arising from disposition of proceeds from
the Chamberlain Lawsuit payable as described in paragraph 5 above), QLS
RELEASES, ACQUITS, AND FOREVER DISCHARGES the Youngs and Construction, their
employees, agents, representatives, successors, assigns and legal
representatives, from all claims and causes of action of any kind whatsoever,
whether now known or unknown, asserted or unasserted, that QLS now has or may
have against the Youngs or Construction, their agents, employees, employers,
directors, officers, representatives, successors, assigns and legal
representatives, relating to or arising from (i) the matters and claims that
form the basis of the Lawsuit, and (ii) the execution, negotiation or
performance of the Purchase Agreement, the execution of any promissory note(s)
pursuant to the Purchase Agreement, and the subsequent sale or disposition of
assets by the Youngs or Construction pursuant to or in connection with the
Purchase Agreement. QLS further agrees not to take any action inconsistent
with this Agreement, including providing aid, assistance or
6
<PAGE>
encouragement to any person to bring an action against the Youngs or
Construction, except to the extent, if any, that it may be compelled to
provide testimony or documents pursuant to subpoena or other legal process in
any matter initiated by other persons without its aid, assistance or
encouragement.
9. By approval of this Agreement, the undersigned attorneys do
hereby represent that they fully explained the meaning and effect of this
Agreement to their representative clients;
10. This Agreement shall be binding upon and inure to the benefit
of the parties hereto, and to the benefit of all attorneys, agents, employees,
officers, directors, shareholders, partners, heirs, assigns, and legal
representatives of the parties hereto;
11. Each signatory to this Agreement warrants and represents that he
or she has authority to bind the parties for whom such person acts and that the
claims, suits, rights, and/or interests that are the subject matter of this
Agreement are owned by the party asserting them, have not been assigned,
transferred or sold, and are free of encumbrance;
12. This Agreement shall be construed in accordance with the laws of
the State of Texas, without regard to any conflict of laws principles, and shall
be performable in Corpus Christi, Nueces County, Texas;
13. This Agreement constitutes the entire understanding and agreement
between the parties with respect to the subject matter of this Agreement and
supersedes any and all prior understandings, agreements or discussions among the
parties with respect to the subject matter of this Agreement. There are no
representations, agreements, or arrangements or understand-
7
<PAGE>
ings, oral or written, between or among the parties related to the subject
matter of this Agreement which are not fully expressed in this Agreement;
14. This Agreement may not be modified or amended except by written
executed by all the parties to this Agreement at the time of such amendment;
15. W.T. Young Construction Company, by its execution hereof, agrees
to the division of any proceeds of the Chamberlain lawsuit in the manner
contemplated by paragraph 5 hereof.
16. This Agreement may be executed in a number of identical counter-
parts, each of which shall be deemed an original for all purposes.
' IN WITNESS WHEREOF the parties have executed this Agreement as of the
dates set forth oppose their respective signatures.
APPROVED AS TO FORM AND SUBSTANCE:
Date:
- ------------------------------- ----------------------
W.T. YOUNG
Date:
- ------------------------------- ----------------------
GLEN YOUNG
W.T. YOUNG CONSTRUCTION COMPANY
By: Date:
------------------------------ ----------------------
------------------------------
------------------------------
8
<PAGE>
QUANTUM LEARNING SYSTEMS, INC.
(formerly, CCR, INC.)
By: Date:
------------------------------ ----------------------
James K. Isenhour, President
Chief Executive Officer and Chairman
APPROVED AS TO FORM ONLY:
AKIN, GUMP, STRAUSS, HAUER MARTIN, DROUGHT & TORRES, INC.
& FELD, L.L.P. 2500 NationsBank Plaza
1500 NationsBank Plaza 300 Convent
300 Convent San Antonio, Texas 78205
San Antonio, Texas 78205 Telephone: (210) 227-7591
Telephone: (210) 270-0800 Telecopier: (210) 227-7924
Telecopier: (210) 224-2035
- ------------------------------- -------------------------------
BARRY A. CHASNOFF G. WADE CALDWELL
State Bar No. 04153500 State Bar No. 03621020
Federal Bar No. 14398 Federal Bar No. 16633
RICKY H. ROSENBLUM VINCENT A. NOTZON
State Bar No. 17276100 State Bar No. 00788130
Federal Bar No. 13015 Federal Bar No. _____
ATTORNEYS FOR THE YOUNGS ATTORNEYS FOR QLS
9
