SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
FORM 10K-SB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file
May 31, 1997 number
000-18097
BERNARD HALDANE ASSOCIATES, INC.
--------------------------------
(Exact name of Registrant as specified in its charter)
QUANTUM VENTURES GROUP, INC.
(Former Name of Registrant)
Florida 59-2720407
------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
192 Lexington Avenue, 15th Floor, New York, New York 10016
- ----------------------------------------------------------
(Address of Principal Executive Offices)
444 Park Avenue South, Suite 503, New York, New York 10016
- ----------------------------------------------------------
(Former address of principal executive offices)
Registrant's telephone number: (212) 679-3360
Securities registered pursuant to Section 12(b) of the Act:
-----------------------------------------------------------
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
COMMON NASDAQ
Securities registered pursuant to Section 12(g) of the Act.
COMMON
(Title of Class)
1
<PAGE>
Indicate by check mark whether the Registrant (i) 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 (ii) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant is approximately $1,132,290* (as of July 31, 1997.)
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO N/A X
---- ---- ----
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of this Registrant's
classes of common stock, as of the latest practical date: 1,148,865 shares of
common stock issued and outstanding as of May 31, 1997. (Includes 199,500
treasury shares.)
DOCUMENTS INCORPORATED BY REFERENCE
Company's Registration Statement filed on Form S-18, File No. 000-18097.
Annual Report on Form 10-K for the year ended May 31, 1993.
Annual Report on Form 10-K for the year ended May 31, 1989.
*Based upon market value of $2.75 per share, representing the average of
the low bid and ask prices of Registrant's common stock on July 31, 1997 as
reported by NASDAQ.
2
<PAGE>
Item 1. Business
- -----------------
(a) General Development of Business
-------------------------------
Bernard Haldane Associates, Inc. (the "Company") f/k/a Quantum Ventures
Group, Inc. owns the worldwide licensing rights to the Bernard Haldane name and
system of career management. The Bernard Haldane organization operates through
sub licensee offices in the United States, Canada and the United Kingdom,
offering career management, out-placement and job search services under the
Bernard Haldane name. Today there are 75 Bernard Haldane offices operating
throughout the world.
During the Company's last fiscal year, nine new licensee offices were
opened. Management intends to open additional licensee offices, and where
applicable, offer franchise offices. There are currently no company owned
Haldane offices and management does not currently anticipate opening any company
owned Haldane offices. During the past year, the Company licensed its first
overseas office in the United Kingdom. The Company will continue to explore
overseas expansion opportunities.
The Company has also developed a specially designed career management
program to be offered to graduating college students through its wholly owned
subsidiary, First Career Corp. (See the narrative description of Business, Item
1(c) for a more detailed description of the operations of the Company.)
(b) Financial Information about Industry Segments
---------------------------------------------
The Company's primary business activity is providing career management and
advisory services under the Bernard Haldane name. Bernard Haldane operations
generated royalty revenues of $2,480,866 and generated income before taxes of
$752,318, for the Company's last fiscal year. The Company also offers career
management services to recent college graduates through its First Career
program. No revenues have been generated to date.
(c) Narrative Description of Business
---------------------------------
The Bernard Haldane system offers its clients a program designed to
prepare and teach its clients a means to achieve individual career advancement
and personal development. The Bernard Haldane system (the "System") instructs
clients on the dynamics of their own human potential and how to cope with
adverse changes in their occupational life through individualized counseling
sessions which normally last from three to twelve weeks.
Dr. Bernard Haldane earned a P.H.D. in Humanities. In 1946 he developed a
program to assist U.S. military officers in acquiring civilian jobs following
World War II. Dr. Haldane also launched this program in universities in the New
York area. The initial Haldane office was opened in New York in 1947 under the
name "Executive Job Counselors", and by 1948, Dr. Haldane was operating career
management offices in Boston and Washington, D.C. In 1958, Dr. Haldane changed
the Company's name from Executive Job Counselors to Bernard Haldane, which it
and its licensees have used since that time.
3
<PAGE>
The current system of licensing Bernard Haldane offices began in the
1960s, with licensee offices in New York, Chicago and Philadelphia. The system
of Haldane licensee office expanded significantly in the 1970s and early 1980s.
In 1986 Dan Bruce, a licensee who operated several Haldane offices, and the
owner and principal shareholder of DRB Ltd., acquired from Career Productivity
Inc., an entity owned by Dr. Bernard Haldane, the principal rights, names, and
methods relating to "Individual Career Counseling Services" on a worldwide
basis, including the name "Haldane" and variations thereof, although excluding
certain activities relating to the personal activities of Dr. Haldane. In
consideration for the transfer of these rights, DRB agreed to pay $14,000 per
month for ten years and $7,000 per month for an additional ten years (the latter
amount to be adjusted beginning the eleventh year by 5% per year to "reflect an
inflation factor". To secure such payments, DRB granted CPI a security interest
in the names, methods, rights, sublicenses, etc. conveyed therewith.
In September 1989, there were approximately thirty seven Haldane offices
operating throughout the United States and Canada. In most cases these licensee
offices paid a royalty fee equal to five percent (5%) of gross cash revenues to
the license holder (DRB). Total royalty revenues received by DRB for the year
ended 1988 totaled approximately $450,000.
In September 1989, the Company formed Career Services Management Corp.
("CSMC"). CSMC was an 80% owned subsidiary of the Company. In February 1995 the
Company acquired all shares of stock owned by the five minority shareholders in
exchange for the issuance of a total of 75,000 shares of the Company's common
stock of which 45,000 shares have been redeemed pursuant to the Company's stock
redemption program.
In September 1989, CSMC acquired all of the issued and outstanding shares
of stock of DRB for $1.25 million payable, $1 million at closing and $250,000
pursuant to a promissory note payable to Dan Bruce which provided for payment of
principal and interest at the rate of eight percent (8%) per annum. The
principal balance on the note was to be amortized over a period of ten years
with the entire unpaid principal balance due in 1992. Mr. Bruce has subsequently
extended this obligation and under its current terms provides for payment of
interest only on the remaining outstanding principal balance of $200,000 payable
monthly at a rate of eight percent (8%) per annum.
In addition to the payment of the $1.25 million for the DRB shares, DRB
remains obligated to make monthly payments of $7,000 per month until July 2006
(previous to July, 1996, these payments were $14,000 per month) to B+E
Partnership. These payments are also subject to an annual cost of living
adjustment. At the time of acquisition of DRB Ltd. these payments were being
made by DRB Ltd. to Career Productivity Inc., whose owner was Dr. Bernard
Haldane. Subsequent thereto, Career Productivity Inc. sold this obligation due
from DRB to B+E Partnership. One of the partners of B+E Partnership is Dan
Bruce, the previous owner of DRB Ltd. The obligation of DRB to pay B+E
Partnership is secured by the Haldane license. Should DRB default on its
obligation, DRB would forfeit all rights to the use of the Haldane name and
system of career management. Mr. Bruce is not involved in DRB's or the Company's
operations.
4
<PAGE>
As of May 31, 1997, there were 75 Bernard Haldane offices operating
throughout the United States, Canada and in the United Kingdom. The Company does
not currently operate any Haldane offices. However, several licensee offices are
owned by entities in which Jerold Weinger, the Company's president and chief
executive officer serves as either an officer, director or shareholder. Any
Haldane office opened in a new territory is subject to payment of a licensing
fee to DRB Ltd. at the prevailing licensing rate.
Licensees may open additional licensed offices within an existing
territory without payment of any new licensing fees. Offices purchased from
existing licensees were not subject to payment of any territorial fee to DRB.
(See "Certain Transactions")
5
<PAGE>
THE BERNARD HALDANE SYSTEM
The Bernard Haldane System (the "System") offers its clients a
sophisticated vocational program which can be utilized for career advancement,
job hunting and self satisfaction. Most clients utilize the program as a means
to facilitate their job search or career development.
Some of the services offered included:
Appraisal of client's qualifications.
Development of client's career goals.
Training clients to establish immediate and long-range objectives in
relation to career goals.
Developing a marketing program for the client.
Developing a program to assist in establishing appropriate
interview contacts.
Preparation for interviews.
Development of effective interview techniques to induce job offers.
Counseling on salary negotiations and fringe benefits. Assistance in
reviewing and assessing job offers.
Future career planning.
Consultation, as needed concerning organizational, political and
interpersonal skills related to career advancement. Continued assistance
for up to three years with client's career development. Internet training
and/or access to assist client in use of the World Wide Web in their job
search.
The System aids the client in developing the skills and tools necessary to
conclude a successful job search. The offices provide professional guidance
through the actual search process and provides assistance until the client has
found a suitable position. The System is taught on an individualized basis with
the client working with a professional career adviser who guides and supports
the client through this process.
The Bernard Haldane offices will assist and support the client in three
ways; tangibly, psychologically and motivationally. "Tangibly" includes several
aspects, such as researching companies via computer data bases, annual reports
and brochures, so the client has an understanding of the potential of the
company's background and who possibly to contact. The client undergoes a
debriefing regarding the interviews he has went on in order to ascertain what
the client has or has not learned. The client is advised as to the next
appropriate action to take. The psychological and motivational support is a
combination of the whole process as it is a part of the procedure to re-motivate
the client from the frustrations and anxieties of the interview process and
unemployment. The Bernard Haldane Office will work and support the client until
he/she has accepted the position of his/her choice within the contractual
limitations.
Each office has the flexibility in the way it may conduct the System.
However, the offices must comply with the overall System guidelines. Once the
client has commenced the new employment and/or position, he/she enters into the
follow-up phase of the program. A client should return to each office
6
<PAGE>
approximately 90 days after completion of the marketing phase so his career
position can be assessed and to determine the client's attitudes and the way the
client has progressed in to this new position. From this point the client can
draw upon the System and support services when and if needed for the duration of
the contract.
Client Fees
- -----------
A typical client pays fees set by the individual office in cash or based
on a payment plan over a period of several months. Fees for the Haldane program
typically cost from $3,500 to $7,500. Fees are payable upon commencement.
Licensee offices may, at their discretion, accept installment payments. The
Company does not provide the sublicensee with financing.
Sub-licensee Fees
- -----------------
Sub-licensees (those owners/operators of the individually licensed Haldane
offices) typically pay a royalty fee of either 5% or 6% of gross revenues to
DRB. Royalty payments are due only on money actually collected. New territorial
licenses are granted for a term of 20 years. Prospective sublicensees typically
pay a sublicensing fee to DRB of approximately $25,000 for the right to operate
a Haldane license in a designated area. This fee may be paid in full at the time
of executing the license or over a period of time.
The Bernard Haldane Operations
- ------------------------------
The Haldane offices are generally located in suburban metropolitan area.
The size of each office varies considerably from one licensee to another.
Average monthly rents vary considerably depending upon the city and location of
each office. A typical Haldane office employs two consultants, two advisors, one
administrative receptionist and one client support staffer. The consultants and
advisors are paid on a commission basis. The administrative receptionist and
client support staffer are paid a salary. However, some offices may employ more
or less according to demand.
The Company believes its relationship with the independent sublicensees
are good and sponsors an annual conference in which owners, consultants and
advisors are invited to attend. The Company coordinates a national advertising
program for the benefit of all offices in the BHA organization and through
advertisements in such publications as the National Business Employment Weekly
and The Wall Street Journal. The Company also provides initial and ongoing
seminars for career advisors and consultants as well as two company newsletters.
Some of the licensee offices utilize television and radio to supplement the
present advertising.
Jerold Weinger serves as the President, Chairman of the Board and Chief
Executive Officer of the Company and oversees the Haldane operations.
Proposed Activities
- -------------------
The continued success of the Bernard Haldane operations is largely
dependent upon the number and success of local licensees. As a result, Haldane's
7
<PAGE>
strategy is to continue the growth of its current activities through selective
expansion of licensee offices. During the Company's last fiscal year nine new
licensee offices were opened. A total of $159,700 in territorial licensing fees
were generated from opening these offices. As the value of the Bernard Haldane
name increases, Management hopes to open additional offices in new territories,
especially in Europe, which will pay an initial licensing fee to DRB Ltd. in
addition to the monthly royalty. While there can be no assurance that the
Company will be able to identify prospective licensees who can launch the
Haldane program in Europe, management remains optimistic that the Company will
be able to open licensed offices in Europe and expand operations in the United
Kingdom.
In conjunction with the planned expansion of licensee offices, DRB has
registered as a franchisor in those states which require registration and offer
franchise offices. (See "Government Regulations".) The Company's franchise
circular has been filed and approved by the New York Attorney General's office.
Some of the licensee owned offices currently provide out-placement
services to clients. Management has found that many large national and regional
companies require the services of a skilled out-placement company to assist
discharged employees to meet their goals and explore the market place for new
job opportunities. In furtherance of these objectives, Management has developed
an out-placement service, called OUTFLEX, which is coordinated by the executive
offices and operated through the various licensee offices. Due to the unique
nature of out-placement services, the nationwide Haldane Operations have met
with limited success in the out-placement field. However, individual Haldane
offices have met with varying degrees of profitability in the out-placement
field. There are currently no plans for DRB to actively pursue an out-placement
program.
FIRST CAREER
Following a 1995 pilot program held at a major northeastern university,
the Company through its wholly owned subsidiary, First Career Corp., opened
three test markets during the first quarter of 1997. The purpose of testing is
to further refine First Career's job finding and career management program
directed to the market of college seniors and recent college graduates.
Ultimately, the program is designed to be licensed nationwide, with royalty fees
paid for the right to operate a First Career office.
Conceptually, the program appeals to graduates, and their parents, who are
frustrated in their search for meaningful career starts. First Career's program
includes concentrated emphasis through trained counselors to help clients:
Assess career employment qualifications
Develop career goals
Determine immediate objectives and the types of positions for which they
are most qualified
Establish realistic long range objectives that afford job satisfaction and
income potential
Construct a marketing program and a communications program to establish
appropriate level contacts and referrals.
8
<PAGE>
Prepare for interviews
Develop interview techniques
Review and assess job offers
Negotiate salary and fringe benefits following the decision to accept a
job offer
A follow-up review designed to assist in internal advancement and
revalidation of career objectives.
First career has incurred losses to date of nearly $200,000. The Company
attributes this loss to non-recurring start-up costs, developing program
materials and pilot testing.
Competition
- -----------
Management believes that Bernard Haldane provides a unique service to its
clients which is unmatched by so-called job placement agencies which attempt to
match clients with prospective employees as opposed to the Haldane system which
provides individualized career management services.
Nationwide there are several large career out-placement agencies including
Drake Beam Moran, Right Associates and Lee Hecht Harrison and Associates which
compete with Haldane to provide corporate out-placement and counseling services.
The focus of these companies is out-placement services marketed to corporations
and not the individual client which is the primary focus of Haldane.
The career management and employment service market is highly fragmented,
and no single company possesses a major share of the market. Although there are
hundreds of career management, job placement and employment service companies,
most are very small and operate in a single market.
The large number of employment services and career management
organizations is a result of the low barriers to entry in the industry. However,
most companies remain small because expansion requires a continued increase in
working capital.
The competitive structure within each local marketing area is unique. In
most major markets, many of the large job placement publicly traded companies
will be present, and in addition, there will be several large local competitors
which operate only in that market. Competition is also provided by governmental
entities, such as state employment offices.
The Company's marketing strategy is to promote its services in local
markets primarily through print advertising. Some licensee offices have utilized
radio and television advertising with varying degrees of success. DRB has
prepared television commercials for use by the individual licensee offices and
makes these commercials available at no charge. Advertising in The Wall Street
Journal and National Business Employment Weekly provide the Haldane system with
national exposure. Each one of the sub-licensee offices, the owner/operators of
the individual licensee offices, contribute to the cost of advertising in the
National Business Employment Weekly.
Career management agencies in the U.S. are not regulated by any particular
federal laws. However, some states require registration and/or licensing.
9
<PAGE>
Government Restrictions
- -----------------------
Career management and job placement organizations have become an
increasingly regulated field, particularly by the states. Several states
prohibit the payment of an advance fee prior to securing a new job. While the
Bernard Haldane system does not advertise as a job placement agency some states
could construe the Haldane operations as falling within their statutory
guidelines and accordingly, restrict operations in that state or, prohibit the
payment of any advance fees. Such regulation may adversely affect the operations
of the licensee offices.
All Bernard Haldane offices are subject to state and the Federal Trade
Commission's guideline on advertising and unfair and deceptive trade practices.
Prior to the acquisition of DRB, several of these offices were cited for
violations of these provisions. Management believes that the licensee offices
are currently in compliance will all applicable guidelines.
The Federal Trade Commission and some states may view, the payment of a
royalty fee, the basis of which is the granting of a right to operate a business
using the payee's name, program or system as constituting a franchise
relationship. The fee may be a set sum for the right to operate the business or,
the royalty payment may be based upon the payee's revenues or a combination of
both.
The Federal Trade Commission has promulgated its own rules regarding the
sale of franchisee locations which are formally entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures". These rules provide in part that prior to the sale of a franchise,
the franchisor must deliver to the franchisee a disclosure document. Filing of
the franchise documents with the FTC is not required prior to soliciting sales
of the franchise. Certain states may or may not have similar disclosure and/or
registration requirements.
In those states where the granting of a license for the right to operate a
Bernard Haldane office may constitute a franchise, DRB intends to enter into
franchise agreements with current licensees, and if necessary under the state
statutes, DRB will offer current licensees the right of rescission. Management
is of the opinion that the potential liability for violation of any state or
federal statute relating to the sale of a franchise is not material. The System
of DRB licensed Bernard Haldane offices has been in existence since the 1960s. A
majority of the current sublicensees acquired their license from DRB Ltd. prior
to the Company's acquisition of its Haldane license. Even assuming any
sublicensee has a private right of rescission, the applicable statute of
limitations has expired for these private actions.
10
<PAGE>
Employees
- ---------
The Company employs five full time employees. Additional staffing
requirements are handled by temporary staffing agencies.
Item 2. Properties
- -------------------
The Company's executive and corporate offices are currently located at 192
Lexington Avenue, New York, New York 10016. The Company currently leases
approximately 7,000 square feet of space at a cost of approximately $9,900 per
month. The Company subleases approximately 70% of this space, at the same cost
per square foot, to entities in which Mr. Weinger is associated. Net monthly
lease cost to the Company after payment by the subtenants is approximately
$3,000 per month.
Item 3. Legal Proceedings
- --------------------------
There are currently no pending or threatened material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
NONE
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matter.
- ------------------------------------------------------------------------------
(a) Market Information
------------------
The Company's common stock is currently traded on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") under the symbol
"BHAL". There is limited trading actively in the Company's securities and there
can be no assurance a regular trading market for the Company's common stock will
be sustained.
The following table sets forth, for the period indicated, the bid price
range of the Company's common stock:
Common Stock
------------
High Bid Low Bid
-------- -------
1994
- ----
Quarter Ended February 28, 1994 $2.87 $2.00
Quarter Ended May 31, 1994 $3.00 $2.00
Quarter Ended August 31, 1994 $2.75 $2.50
Quarter Ended November 30, 1994 $2.75 $2.625
1995
- ----
Quarter Ended February 28, 1995 $2.50 $2.62
Quarter Ended May 31, 1995 $2.25 $2.25
Quarter Ended August 31, 1995 $2.56 $2.43
Quarter Ended November 30, 1995 $2.53 $2.43
1996
- ----
Quarter Ended February 29, 1996 $2.87 $2.43
Quarter Ended May 31, 1996 $2.56 $2.43
12
<PAGE>
Common Stock
------------
High Bid Low Bid
-------- -------
Quarter Ended August 31, 1996 $2.87 $2.43
Quarter Ended November 30, 1996 $2.44 $2.44
1997
- ----
Quarter Ended February 28, 1997 $2.75 $2.25
Quarter Ended May 31, 1997 $2.50 $2.25
Period Ended July 31, 1997 $2.37 $2.25
(Prices quoted reflect a prior 100:1 reverse stock split and a 4:1 reverse stock
split in May 1992.)
Such market quotations reflect the high bid and low prices as reflected by
NASDAQ or by prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions. The following companies serve as
market makers for the Company's securities: Tasin & Co., Carr Securities and
Howe, Barnes Investments Inc.
(b) Holders
-------
As of July 31, 1997 there were approximately 1,350 holders of record of
the Company's common Stock.
(c) Dividends
---------
The Company has not paid any cash dividends since its inception and the
Board of Directors does not contemplate doing so in the near future. Any
decisions as to future payment of dividends will depend on the earnings and
financial position of the Company and such other factors as the Board of
Directors deems relevant.
13
<PAGE>
Item 6. Selected Financial Data
--------------------------------
Summary of Operations:
For the Years Ended May 31, 1997, 1996, 1995, 1994 and 1993.
1997 1996 1995 1994 1993
(Restated) (Restated) (Restated)
Revenue
Royalty
Income $2,480,866 $2,244,818 $1,747,988 $1,214,091 $ 959,395
Sublicense
Income $ 159,697 $ -0- $ 104,214 $ 99,625 $ 19,229
Other
Income $ -0- $ -0- $ 35,400 $ -0- $ -0-
Interest
Income $ 107,232 $ 99,621 $ 49,785 $ 14,062 $ 12,464
Total
Revenues $2,747,795 $2,344,439 $1,937,387 $1,327,778 $ 991,088
Net Income
(Loss) $ 461,092 $ 533,440 $ 699,105 $ 206,074 $ (86,670)
Net Income
(Loss) per
Share of
Common Stock $ .45 $ 0.44 $ 0.61 $ 0.20 $ (.09)
Restated for discontinued operations of retail travel agency.
SUMMARY OF BALANCE SHEET AS OF MAY 31
1997 1996 1995 1994 1993
(Restated) (Restated) (Restated)
CURRENT ASSETS $2,538,234 $2,147,294 $2,007,844 $1,128,480 $ 731,440
Other Assets $1,445,854 $1,277,536 $1,504,467 $1,529,655 $1,697,903
TOTAL ASSETS $3,984,088 $3,424,830 $3,512,311 $2,658,135 $2,429,343
CURRENT LIABILITIES
Account Payable
and other Current
Liabilities $ 356,973 $ 149,695 $ 213,660 $ 157,424 $ 137,096
Current Maturities
of Long Term Debt $ 235,240 $ 245,956 $ 315,951 $ 307,065 $ 298,860
Other Liabilities $ 512,518 $ 555,799 $ 591,437 $ 702,988 $ 810,053
Stockholder's
Equity $2,879,357 $2,473,380 $2,391,263 $1,490,658 $1,183,334
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $3,984,088 $3,424,830 $3,512,311 $2,658,135 $2,429,343
Restated for discontinued operations of retail travel agency.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
While management remains pleased with the results of operations for the
past year, management believes that royalty revenues will not increase at nearly
the same rate as in the past. Although royalty revenues increased from
$2,244,818 to $2,480,866, the percentage increase in royalty revenue was only
11% as compared to a 28% increase from 1995 to 1996. Moreover, total royalty
revenues per office declined for the first time. While nine new territorial
offices opened this past year and generated $159,697 in licensing fees (as
compared to no new sublicensee offices in 1996) management does not anticipate
opening a substantial number of new licensed sub licensee offices. Haldane
offices are already open in almost every major metropolitan area in the United
States and Canada. While there will likely be additional expansion into smaller
metropolitan areas, the licensing fee and the royalty revenues which can be
generated will likely be significantly less than the typical Haldane office as
the geographical and demographical market for the Haldane services and products
approach a saturation level.
In an effort to increase its revenue base, the Company opened an office in
the United Kingdom. Due to logistical constraints, the Company experienced only
limited success with this one office. While management intends to pursue other
opportunities overseas, there can be no assurance that expansion into the
overseas market will prove successful.
In an effort to diversify revenues, management identified a new targeted
market and developed a special program for this market, First Career. First
Career provides career management for recently graduated college students. To
date, First Career has incurred losses of $196,694 and there can be no assurance
that management will be able to reverse this trend.
During the Company's last fiscal quarter, the Company's Board of Directors
received an offer from Mr. Weinger, Mrs. Weinger, the wife of Mr. Weinger, and
Mrs. Nadel, the wife of the Company's former president, to purchase the shares
of stock owned by the outside investors at a cost of $2.75 per share. In
conjunction therewith, the Board of Directors determined that it would be in the
best interests of the company and the outside shareholders to name two
independent directors to the Company's Board of Directors to consider and vote
upon the fairness of the offer. On April 25, 1997, Jeffrey Schachter and Gregg
Weiss were elected to the Board of Directors. In order for the Board to
determine the fairness of the offer, Laidlaw & Co. was retained to render a
fairness opinion in connection with the proposed "going private" transaction. On
August 11, 1997 Laidlaw & Co. opined that from a financial point of view , it is
their opinion that the public shareholders would be entitled to receive the sum
of $3.00 per share. After reviewing the fairness opnion, Mr. and Mrs. Weinger
and Mrs. Nadel increased their offer to purchase the shares of common stock
owned by the public investors to $3.00 per share. Subsequent thereto, the Board
of Directors met and voted to accept the offer made by Mrs. Nadel and Mr.
Weinger.
15
<PAGE>
Mr. and Mrs. Weinger and Mrs. Nadel (the "Weinger-Nadel Group") have
advised the Company that (i) they intend to establish an entity ("NEWCO") for
the purpose of merging with and/or combining with the Company, and (ii) they
will contribute their shares of Common Stock in the Company to NEWCO in exchange
for securities of NEWCO. The Weinger-Nadel Groups's proposal is to be submitted
to the vote of the Company's stockholders and will be subject to their approval.
However, members of the Weinger-Nadel Group have, and therefore, NEWCO, will
have a sufficient number of votes to carry stockholder approval of the proposal.
It is anticipated that if such merger or combination is approved, all
stockholders (other than member s of the Weinger-Nadel Group), will be entitled
to receive $3.00 per share for their shares of the Company's Common Stock or
such amount as if found appropriate in court assessing their rights under
Florida law. The Company anticipates making further announcements and a proxy
statement will be disseminated to all stockholders of record detailing the
proposal, the reasons for same and described stockholder rights.
LIQUIDITY CAPITAL RESOURCES
As of May 31, 1997 the Company had $2,538,234 in current assets as
compared to $2,147,294 on May 31, 1996.
Accounts receivable for 1997 total $419,470 as compared to $329,146 in
1996. This increase is directly attributable to the increasing royalty revenues
generated from the Haldane operation. Notes receivable increased from $183,371
to $600,389. This increase is due primarily to notes receivables from
sublicensees. The Company has also recorded $145,000 for deferred taxes as
compared to $83,000 in 1996. Total assets increased from $3,424,830 to
$3,984,088.
Current liabilities increased from $395,651 to $592,213 as of May 31, 1997
due primarily to an increase in accounts payable from $56,968 to $207,316. A
significant portion of this increase is attributable to expenses associated with
the Haldane anniversary conference in Las Vegas, Nevada. Long term debt was
reduced from $541,080 to $498,839.
For 1997, cash flow from operating activities totaled $750,972 as compared
to $746,509 in 1996 and $885,897 in 1995.
The Company believes that its current cash position and working capital
are sufficient to meet its operational requirements for the coming year. Royalty
revenues from licensee offices and the sale of territorial rights to the Bernard
Haldane offices are expected to be sufficient to meet the Company's ongoing
operational expenses. Management does not anticipate the need for any
significant capital expenditures in the coming year which would require any
third party financing. Nor does the Company believe that there is any material
risk of any sublicensee seeking rescission pursuant to any technical violations
of state franchising statutes.
16
<PAGE>
RESULTS OF OPERATION
The Company reported income from continuing operations before income taxes
of $441,150 on revenues of $2,747,795, and net after tax income of $461,092.
This compares to a net after tax income of $533,440 on revenues of $2,344,439
for the fiscal year ended May 31, 1996 and net after tax income of $699,105 on
revenues of $1,937,387 for 1995. Royalty income from Haldane offices increased
from $1,747,988 in 1995, to $2,244,818 in 1996 and $2,480,866 in 1997. This 11%
increase from 1996 to 1997 in royalty revenue is primarily attributable to an
increase in the number of Haldane offices. Income attributable to the
discontinued operations of Quantum Tours was $19,942 in 1997 as compared to
$19,996 in 1996 and a loss of $31,701 in 1995.
Payroll, general and administrative costs increased from $1,147,271 in
1996 to $1,658,353. This increase can be attributable to increased costs and
expenses associated with the operations, management and oversight of the Haldane
operations, increased costs and payroll expenses at the Company's executive
offices as well as costs associated with the development of the First Career
college program. In addition, this past year the company sponsored in Las Vegas,
Nevada its 50th anniversary conference. The affair was attended by licensed
owners and their staff. The Company arranged for speakers and training seminars
in addition to sponsoring an awards banquet during the four day conference. The
decline in the Company's net income from 1996 to 1997 is directly attributable
to approximately $196,000 in funding for First Career and the cost of the
anniversary conference.
Advertising expenditures increased from $73,538 to $78,544. This small
increase in advertising expense is due to costs in marketing the First Career
college program.
Income before taxes was $752,318 as compared to $841,768 in 1996 and
$728,806 in 1995. Net income after taxes continues to decline, falling from
$699,105 in 1995 to $533,440 in 1996 and $461,092 in 1997. The Company remains
liable for federal and state income taxes at the prevailing rates on current
income as all carryforward tax losses have been utilized.
The Company anticipates increases in royalty payments in the coming year
as the existing Haldane offices generate marginal increases in revenues.
However, it is unlikely that the Company will be able to maintain its prior
growth rate as fewer new markets become available and competition in existing
markets becomes increasingly difficult.
Management remains disappointed with the results of launch of First
Career. While the focus and pricing of the program have been modified, there can
be no assurances that the Company will be able to operate First Career
profitably in the future.
Management does not at this time anticipate opening any company owned
offices. However, management does not wish to foreclose this option should the
opportunity arise.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
17
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
INDEX
FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report F-2
Consolidated Balance Sheets
May 31, 1997 and 1996 F-3 - F-4
Consolidated Statements of Income
Years Ended May 31, 1997, 1996 and 1995 F-5 - F-6
Consolidated Statements of Changes in Stockholders' Equity
Years Ended May 31, 1997, 1996 and 1995 F-7
Consolidated Statements of Cash Flows
Years Ended May 31, 1997, 1996 and 1995 F-8 - F-9
Notes to Consolidated Financial Statements F-10 - F-25
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Bernard Haldane Associates, Inc.
We have audited the accompanying consolidated balance sheets of Bernard Haldane
Associates, Inc. and Subsidiaries as of May 31, 1997 and 1996 and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended May 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bernard Haldane
Associates, Inc. and Subsidiaries as of May 31, 1997 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended May 31, 1996, in conformity with generally accepted accounting principles.
/s/ Miller, Ellin & Company
---------------------------
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
August 7, 1997, except for
Note 6 (e), which is dated
September 11, 1997
F-2
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,698,099 $1,559,116
Short-term investments 55,426 53,146
Accounts receivable - net of allowance for doubtful
accounts of $290,000 in 1997 and $170,000 in
1996 (includes receivables from related parties
of $86,413 and $105,325) 419,470 329,146
Notes receivable - net (Note 4) 149,080 48,478
Due from related parties (Note 13) 11,001 28,039
Prepaid expenses and miscellaneous receivables 60,158 9,734
Deferred taxes (Note 9) 145,000 83,000
Net assets of discontinued operations (Note 14) -- 36,635
---------- ----------
Total current assets 2,538,234 2,147,294
---------- ----------
OTHER ASSETS:
Licenses - net of accumulated amortization of
$1,657,917 in 1997 and $1,460,376 in 1996 (Note 5) 864,611 1,062,152
Equipment, fixtures and leasehold improvements -
net of accumulated depreciation of $28,871 in
1997 and $19,549 in 1996 50,831 20,031
Security deposits and other 79,103 60,460
Notes receivable - net (includes receivables from related
parties of $27,647 and $31,152) (Notes 4 and 13) 451,309 134,893
---------- ----------
Total other assets 1,445,854 1,277,536
---------- ----------
TOTAL ASSETS $3,984,088 $3,424,830
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
F-3
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
MAY 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Cash overdraft $ -- $ 18,044
Current maturities of long-term debt (Note 5) 235,240 245,956
Accounts payable 207,316 56,968
Accrued expenses and other current liabilities 8,147 12,778
Income taxes payable 141,510 61,905
---------- ----------
Total current liabilities 592,213 395,651
---------- ----------
OTHER LIABILITIES:
Long-term debt (Note 5) 498,839 541,080
Deferred rent payable 13,679 14,719
---------- ----------
512,518 555,799
---------- ----------
Total liabilities 1,104,731 951,450
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Note 7):
Common stock ($.00001 par value; 950,000,000 shares
authorized, 1,148,865 shares issued and
outstanding) 12 12
Additional paid-in capital 2,761,727 2,761,727
Retained earnings 624,056 162,964
---------- ----------
3,385,795 2,924,703
Less: Treasury stock (199,500 and 179,500 shares at cost) (Note 8) 506,438 451,323
---------- ----------
Total stockholders' equity 2,879,357 2,473,380
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,984,088 $3,424,830
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
(Restated)
<S> <C> <C> <C>
REVENUES:
Royalty income (includes royalty income
from related parties of $301,394, $243,760
and $165,129, respectively) $ 2,480,866 $ 2,244,818 $ 1,747,988
Interest, dividends and other income 107,232 99,621 49,785
Sub-license income (includes sub-license
income from related parties of $41,588,
$-0- and $61,754, respectively) 159,697 -- 104,214
Gain on sale of investment (Note 2) -- -- 35,400
----------- ----------- -----------
Total revenues 2,747,795 2,344,439 1,937,387
----------- ----------- -----------
EXPENSES:
Payroll and related costs 453,573 362,554 337,207
Other general and administrative 1,204,780 784,717 541,426
Amortization 197,541 197,541 197,541
Advertising 78,544 73,538 46,805
Interest 61,039 68,558 75,602
Lawsuit judgment (Note 11) -- 15,763 10,000
----------- ----------- -----------
Total expenses 1,995,477 1,502,671 1,208,581
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (CREDITS) 752,318 841,768 728,806
INCOME TAXES (CREDITS) (Note 9) 311,168 328,324 (2,000)
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS 441,150 513,444 730,806
DISCONTINUED OPERATIONS (Note 14):
Income (loss) from operations of travel agency
disposed of (net of income taxes of $10,000,
$8,000 and $-0-, respectively) 19,942 19,996 (31,701)
----------- ----------- -----------
NET INCOME $ 461,092 $ 533,440 $ 699,105
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
F-5
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
YEARS ENDED MAY 31,
-------------------------------------
1997 1996 1995
--------- -------- -----------
(Restated)
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Continuing operations (Note 15) $ .43 $ .43 $ .64
Discontinued operations .02 .01 (.03)
------ ------- ------
$ .45 $ .44 $ .61
====== ======= ======
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES (Note 15) 1,029,373 1,227,894 1,161,347
========= ========= =========
DIVIDENDS NONE NONE NONE
==== ==== ====
The accompanying notes are an integral part of these statements
F-6
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK,
$.00001 PAR
VALUE, AUTHORIZED
950,000,000 SHARES ADDITIONAL RETAINED TREASURY STOCK
------------------- PAID-IN EARNINGS -------------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT TOTAL
--------- ------ ---------- ----------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - MAY 31, 1994 979,865 $ 10 $2,560,229 $(1,069,581) - $ - $1,490,658
Exercise of stock options (Note 7) 94,000 1 201,499 - - - 201,500
Issuance of shares on acquisition of
minority interest of subsidiary (Note 2) 75,000 1 (1) - - - -
Net income for the year ended
May 31, 1995 - - - 699,105 - - 699,105
--------- ---- ---------- ----------- ------- ---------- ----------
BALANCE - MAY 31, 1995 1,148,865 12 2,761,727 (370,476) - - 2,391,263
Repurchase of common stock (Note 8) - - - - 179,500 (451,323) (451,323)
Net income for the year ended
May 31, 1996 - - - 533,440 - - 533,440
--------- ---- ---------- ----------- ------- ---------- ----------
BALANCE - MAY 31, 1996 1,148,865 12 2,761,727 162,964 179,500 (451,323) 2,473,380
Repurchase of common stock (Note 8) - - - - 20,000 (55,115) (55,115)
Net income for the year ended
May 31, 1997 - - - 461,092 - - 461,092
--------- ---- ---------- ----------- ------- ---------- ----------
BALANCE - MAY 31, 1997 1,148,865 $ 12 $2,761,727 $ 624,056 199,500 $ (506,438) $2,879,357
========= ==== ========== =========== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
F-7
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
(Restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 461,092 $ 533,440 $ 699,105
(Income) loss from discontinued operations (19,942) (19,996) 31,701
Adjustments to reconcile net income to net
cash provided by operating activities:
Expenses (income) not requiring the use of cash:
Provision for losses on accounts
and notes receivable 189,173 97,469 34,866
Depreciation 9,322 1,430 3,623
Amortization of licenses 197,541 197,541 197,541
Gain on sale of investment -- -- (35,400)
Interest expense - imputed 45,043 52,048 60,935
Interest income - imputed (13,167) (6,403) (6,994)
Deferred income taxes (62,000) 89,000 (75,000)
Changes in assets and liabilities:
Accounts receivable (210,324) (141,548) (115,359)
Prepaid expenses (50,424) 18,988 (28,628)
Cash overdraft (18,044) 18,044 --
Accounts payable and other current liabilities 225,322 (82,009) 61,986
Deferred rent payable (1,040) 10,319 (1,350)
Net assets of discontinued operations (1,580) (21,814) 58,871
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 750,972 746,509 885,897
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (55,426) (302,138) (625,876)
Redemption of short-term investments 53,146 699,868 175,000
(Increase) decrease in due from related parties 17,038 231,961 (260,000)
Acquisition of fixed assets (40,122) (21,461) --
Proceeds from sale of investment -- -- 5,000
Additions to notes receivable (690,492) (20,000) (181,213)
Payments of notes receivable 217,468 63,249 64,650
Security deposits (18,643) 1,900 (55,586)
Net assets of discontinued operations 2,200 (500) --
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (514,831) 652,879 (878,025)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements
F-8
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
(Restated)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt $ (98,000) $ (168,000) $ (168,000)
Exercise of employee stock options -- -- 201,500
Repurchase of common stock (55,115) (451,323) --
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (153,115) (619,323) 33,500
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 83,026 780,065 41,372
CASH AND CASH EQUIVALENTS - beginning 1,615,073 835,008 793,636
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - ending
(includes cash of discontinued operations of $-0-,
$55,957 and $78,271, respectively) $ 1,698,099 $ 1,615,073 $ 835,008
=========== =========== ===========
SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Receipt of notes receivable on sale of investment $ -- $ -- $ 30,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 61,039 $ 68,558 $ 75,602
Income taxes 316,313 238,876 15,542
</TABLE>
The accompanying notes are an integral part of these statements
F-9
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
Bernard Haldane Associates, Inc. ("Haldane") through its wholly-owned
subsidiary, DRB Ltd. ("DRB") owns the worldwide licensing rights to the
Bernard Haldane name and system of career consulting. Haldane is the
franchiser of 71 career consulting offices operating in the United States,
Canada and the United Kingdom. A new wholly-owned subsidiary, First Career
Corp. ("FCC") is developing a specifically designed career consulting program
for graduating college students. On May 31, 1996, another subsidiary, Quantum
Tours International, Inc. ("QT") discontinued its full service travel agency.
All other subsidiaries are inactive.
After giving effect to the restatement for discontinued operations, Haldane's
operations consist of only one business segment, career consulting and
advisory services.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Haldane and its
subsidiaries. All intercompany accounts and transactions have been eliminated
in consolidation.
Cash and Cash Equivalents
-------------------------
The Companies consider all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Concentrations of Credit Risk
-----------------------------
The Companies maintain their cash balances with various financial
institutions. Accounts at each institution are insured by the Federal Deposit
Insurance Corporation up to $100,000. Uninsured balances aggregate
approximately $1,615,000 and $1,363,000 at May 31, 1997 and 1996,
respectively.
The Companies' short-term investments include certificates of deposit of
financial institutions with high credit ratings, which mature within one
year. This investment policy limits the Companies' exposure to concentrations
of credit risk.
DRB sells franchises to individuals and corporations for both cash and notes.
In the event of default in payment of the notes or royalties, DRB can
repossess the office. DRB has historically experienced losses and has
provided allowances against its notes and royalty receivables.
F-10
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Equipment, Fixtures and Leasehold Improvements
----------------------------------------------
Equipment and fixtures are being depreciated on an accelerated basis over
lives of five to seven years. Leasehold improvements are being amortized over
the lives of the leases.
Deferred Rent Payable
---------------------
Deferred rent payable represents the excess of recognized rent expense over
scheduled lease payments which will be credited to future operations.
Revenue Recognition
-------------------
DRB through its sale of franchise offices recognizes revenues (sub-license)
at the time the contract is completed and when no further services are
required. DRB also recognizes royalty revenue based on a percentage (5% to
6%) of gross collections of counseling fees by the franchisee or the minimum
royalty fee, whichever is greater. Allowances for doubtful accounts have been
provided for potential losses.
QT recognized revenue when the tour commenced. Revenue received prior to the
commencement of the tour was deferred and recorded as unearned revenue.
Intangible Assets
-----------------
The Bernard Haldane licenses acquired (approximately $1,200,000) are being
amortized over a ten year period using the straight-line method. The cost of
acquisitions in excess of fair value of assets acquired which has been
allocated to licenses (approximately $1,250,000) is being amortized over the
greater of a twenty year period (the general term of the sub-license) or 5%
of royalty income and 50% of sub- licensing income for that particular year.
Advertising Costs
-----------------
All costs associated with advertising and promotion are expensed in the year
incurred.
Foreign Exchange
----------------
DRB converts its foreign currency transactions at budgeted rates which
historically approximate the actual exchange rates for balance sheet and
statement of income items. The amount of foreign currency exchange gains and
losses are insignificant to the consolidated financial statements.
F-11
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Earnings Per Common and Common Equivalent Share
---------------------------------------------------
For the years ended May 31, 1997, 1996 and 1995, net earnings per common and
common equivalent share are based on the weighted average number of common
shares and common equivalent shares arising from dilutive stock options using
the modified treasury stock method. Fully diluted earnings per common and
common equivalent shares were the same as for the primary calculation.
Realizability of a Deferred Tax Asset
-------------------------------------
The Companies have recorded a deferred tax asset of $145,000 as of May 31,
1997. Realization is dependent on generating sufficient taxable income.
Although realization is not assured, management believes it is more likely
than not that all of the deferred tax asset will be realized. The amount of
the deferred tax asset considered realizable, however, could be reduced in
the near term if future taxable income is not sufficient.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
NOTE 2 - ACQUISITIONS/DISPOSITIONS
In 1989, Haldane acquired 80% of the outstanding shares of Career Services
Management Corp. ("CSM") for $800. CSM acquired 100% of DRB for $1,250,000
consisting of $1,000,000 in cash and a note payable of $250,000 which
currently is $200,000 (Note 5). On February 2, 1995, Haldane acquired the
remaining 20% of the outstanding shares of CSM for 75,000 shares of its own
common stock. CSM is currently inactive.
In April 1995, Haldane sold approximately 96% of its 80% investment in
Andover Equitites Corp. ("Andover"). The sale consisted of cash and notes
(see Note 4) and resulted in a $35,400 gain which is included in operations
for the year ended May 31, 1995. Haldane's investment in Andover which
represents approximately a 3% ownership is carried at cost and is
insignificant.
The acquisitions were accounted for using the purchase method of accounting.
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values.
F-12
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 3 - NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
which requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not
be recoverable. The adoption of SFAS No. 121 had no effect on the Companies'
consolidated financial statements since the Companies annually review the
carrying value and the amortization of its intangible assets.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." The Companies have adopted the disclosure-only
provisions of SFAS No. 123 but apply Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for granting of stock options.
If the Companies had elected to recognize compensation expense for stock
options granted based on the method presented by SFAS No. 123, net income and
earnings per share would have been changed to the pro forma amounts indicated
below:
Year Ending May 31,
--------------------
1997 1996
-------- --------
Net income - as reported $461,092 $533,440
Net income - pro forma $416,092 $497,440
Earnings per share - as reported $.45 $.44
Earnings per share - pro forma $.41 $.41
The fair value of the stock options used to compute proforma net income and
earnings per share disclosures is the estimated present value at grant date
using the Black-Scholes option-pricing method with the following weighted
average assumptions for 1997 and 1996: expected volatility of 11.9% and 3.8%;
a risk-free interest rate of 6.7% and 6.8% and an expected holding period of
10 and 7 years.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per
Share" which is effective for periods ending after December 15, 1997. The
Companies will implement this new standard for the third quarter ending
February 28, 1998 and for the year ending May 31, 1998. After December 15,
1997, prior period earnings per share, which are presented, will be restated
to conform to this new pronouncement.
F-13
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 3 - NEW ACCOUNTING STANDARDS (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting
Comprehensive Income" and No. 131 (SFAS No. 131), "Disclosures About Segments
of an Enterprise and Related Information" which are both effective for
periods beginning after December 15, 1997. The Companies anticipate
implementing SFAS No. 130 for the year ended May 31, 1998 and reclassifying
financial statements for earlier periods. Management believes that SFAS No.
131 will not be implemented since there is only one reportable business
segment.
NOTE 4 - NOTES RECEIVABLE
<TABLE>
<CAPTION>
Notes receivable at May 31, consist of the following:
1997 1996
---------- ----------
<S> <C> <C>
Various non-interest bearing notes receivable in connection
with the sale of sub-licenses $ 177,300 $ 100,500
LaSalle Consulting - receivable in equal monthly installments
of $2,097 through April 2002, with interest at 24% per annum 72,909 79,640
Note receivable - employee/stockholder in 36 equal monthly
installments of $589 through October 1998, including
interest at 6% per annum 9,444 16,111
Notes receivable in connection with the sale of Andover stock
(Note 2), originally due April 1997, extended to October 1997,
with interest at 10% per annum 30,000 30,000
Note receivable - sub-licensee in equal monthly installments of
$1,000 through December 1997, $2,000 from January 1998
through December 1998 and $3,000 from January 1999 through
December 2002 with a final payment of approximately $1,800
in January 2003 including interest at 7% per annum 176,795 -
Note receivable in equal monthly installments of $5,000 through
2001 with interest at 7% per annum 215,000 -
Note receivable in equal monthly installments of $200 through
March 1998 with the balance due April 1999, with interest at
8% per annum; secured by stock in an affiliated company 34,130 -
---------- ----------
715,578 226,251
Less: Unamortized discounted interest imputed at 7% to 8.5%
on the above non-interest bearing notes 50,189 7,880
---------- ----------
665,389 218,371
Less: Allowance for credit losses on the above non-interest
bearing notes (see below) 65,000 35,000
---------- ----------
600,389 183,371
Less: Current portion 149,080 48,478
---------- ----------
$ 451,309 $ 134,893
========== ==========
</TABLE>
F-14
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 4 - NOTES RECEIVABLE (CONTINUED)
The amounts due over the next five years, net of imputed interest of $50,189
and allowance for credit losses of $65,000, are as follows:
Year Ending May 31,
-------------------
1998 $149,080
1999 140,270
2000 96,534
2001 97,766
2002 89,690
Subsequent 27,049
--------
$600,389
========
The Companies adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," (SFAS No. 114) and
Statement of Financial Accounting Standards No. 118 "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures" (SFAS No. 118)
which requires that impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or at market price or the fair value of the collateral if the loan is
collateral dependent. Notes receivable at May 31, consist of the following:
1997 1996
---------- ----------
Notes receivable - impaired $ 406,492 $ 122,620
Less: Allowance for credit losses 65,000 35,000
---------- ----------
341,492 87,620
Notes receivable - not impaired
and no allowance for credit losses 258,897 95,751
---------- ----------
$ 600,389 $ 183,371
========== ==========
The Companies recognize interest income on impaired loans on actual cash
received with interest imputed at 8 1/2%. The allowance for credit losses
have been increased by $30,000 during the year ended May 31, 1997.
The average recorded investment in impaired loans and the interest income
recognized during the years ended May 31, 1997 and 1996 were approximately
$265,000 and $24,000 and $131,000 and $10,000, respectively.
F-15
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 5 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt at May 31, consists of the following:
1997 1996
---------- -----------
<S> <C> <C>
B&E Partnership - payable in monthly installments of
$7,000 through June 2006. Secured by a license
agreement. This note is non-interest bearing. $ 756,000 $ 854,000
Dan R. Bruce - principal amount of $200,000 due February
1998 with interest due in monthly payments of $1,333.
The note is secured by a license agreement and currently
bears interest at an annual rate of eight percent. 200,000 200,000
---------- -----------
Total debt obligations 956,000 1,054,000
Less: Unamortized discounted interest imputed at eight
percent on the above non-interest bearing loan. 221,921 266,964
---------- -----------
Total present value of debt 734,079 787,036
Less: Current portion 235,240 245,956
---------- -----------
$ 498,839 $ 541,080
========== ===========
</TABLE>
The non-current portion of long-term debt as of May 31, 1997 is payable as
follows:
Year Ending May 31,
-------------------
1999 $ 45,746
2000 49,543
2001 53,655
2002 58,108
2003 62,931
Subsequent 228,856
----------
$ 498,839
==========
F-16
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 6 - COMMITMENTS AND CONTINGENCIES
(a) Leases
------
Haldane leases its executive office in New York City for a term of ten years
expiring in September 2005 and sublets approximately 70% to related
entities. FCC leases office space in Syracuse, New York for a term of one
year expiring in March 1998.
The following is a schedule by years of future minimum rental payments and
sublease income under these leases (rounded to thousands):
Minimum
Rental Sublease
Year Ending May 31, Payments Income
------------------- ------------- ---------
1998 $ 142,000 $83,000
1999 119,000 83,000
2000 119,000 83,000
2001 128,000 90,000
2002 133,000 93,000
Subsequent 443,000 311,000
---------- --------
$1,084,000 $743,000
========== ========
Rent expense, net of rental income of approximately $96,000, $30,000 and
$-0-, charged to operations for the years ended May 31, 1997, 1996 and 1995
amounted to approximately $48,000, $31,000, and $19,000, respectively.
(b) Licensing
---------
In those states where the granting of a license for the right to operate a
Haldane office may constitute a franchise arrangement, DRB intends to
register as a franchisor. DRB may also be subject to regulatory sanctions in
these states for failing to register as a franchisor prior to the granting
of a franchise license. DRB intends to enter into franchise agreements with
current licensees, and if necessary under the state statutes, DRB will offer
current licensees the right of recission. Management is of the opinion that
the potential liability for violation of any state or federal statute
relating to the sale of a franchise and in the aggregate is not material to
the consolidated financial statements. The Companies to date have incurred
approximately $58,000 of legal costs in connection with this matter. The
Companies expect to incur no additional costs of any significance relating
to this matter.
F-17
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
(c) Consulting Agreements
---------------------
On August 1, 1995, Haldane entered into a consulting agreement with a
company whose president was Haldane's former president, for a period of five
years. Compensation under the agreement is as follows: $62,000 the first
year, $69,000 the second year, $74,000 the third year, $83,000 the fourth
year and $90,000 the fifth year. In addition, Haldane agreed to provide to
the consultant a leased automobile and reimburse all approved expenses. For
the years ended May 31, 1997 and 1996, Haldane recorded compensation expense
of $67,832 and $51,667, respectively.
(d) Tax Contingencies
-----------------
The Internal Revenue Service and the City of New York have commenced audits
of Haldane's consolidated federal and New York City tax returns for the
years ended May 31, 1995 and 1996. Management believes that the outcome of
such audits would have no material effect on the Company's consolidated
financial statements.
(e) Going Private
-------------
Haldane has hired a financial advisory company and attorneys to evaluate the
possibility of going private in the future. The Companies have incurred
$30,000 of costs which have been charged to operations for the year ended
May 31, 1997.
Haldane's president and former president have offered to purchase the shares
of common stock owned by the public investors at $3 per share, which is the
valuation made by the financial advisory company in its fairness opinion.
The estimated number of shares to be purchased is less than 300,000 shares
or $900,000.
NOTE 7 - COMMON STOCK OPTIONS AND WARRANTS
Stock Options
-------------
The stock option transactions for the three fiscal years ended May 31, are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Outstanding - beginning of year (exercisable at a price of
$.25 to $3.50 per share) 386,000 326,000 355,000
Granted at $2.50 per share 60,000 60,000 65,000
Terminated (161,000) - -
Exercised at prices ranging from $.25 to $2.25 per share - - (94,000)
------- ------- -------
Outstanding - end of year (exercisable at a price range of
$.25 to $2.50 per share) 285,000 386,000 326,000
======= ======= =======
Exercisable - end of year 285,000 386,000 326,000
======= ======= =======
</TABLE>
F-18
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 7 - COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
Stock Options (Continued)
-------------------------
During the years ended May 31, 1997, 1996 and 1995, options to acquire
60,000, 60,000 and 65,000 shares, respectively, were granted to directors and
employees of the Companies at market value. A director exercised 5,000
options during the year ended May 31, 1995.
NOTE 8 - TREASURY STOCK
In October 1995, March and June 1996, the Board of Directors authorized
Haldane to repurchase outstanding shares of its common stock at fair market
value from various shareholders. As of May 31, 1997 and 1996, Haldane
repurchased 20,000 and 179,500 shares, respectively, at fair market value
with prices ranging from $2.49 to $2.75 per share.
NOTE 9 - INCOME TAXES
Deferred Income Taxes
---------------------
The Companies utilize Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the use of the liability method
of accounting for income taxes. The liability method measures deferred income
taxes by applying enacted statutory rates in effect at the balance sheet date
to the differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements. The resulting deferred tax
asset or liability is adjusted to reflect changes in tax laws as they occur.
Deferred income taxes reflect temporary differences in reporting assets and
liabilities for income tax and financial accounting purposes. The deferred
tax assets of $145,000 and $83,000 as of May 31, 1997 and 1996 (consisting
solely of allowance for doubtful accounts) are shown as current assets in the
consolidated balance sheets. No valuation allowance has been provided.
Income Taxes
------------
Provision for income taxes for the years ended May 31, consists of the
following:
1997 1996 1995
-------- -------- ---------
Current:
Federal $267,457 $163,448 $ -
State and local 105,711 75,876 73,000
-------- -------- ---------
373,168 239,324 73,000
Deferred:
Federal (51,000) 93,000 231,000
State and local (11,000) (4,000) -
Change in valuation allowance - - (306,000)
-------- -------- ---------
$311,168 $328,324 $ (2,000)
======== ======== =========
F-19
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 9 - INCOME TAXES (CONTINUED)
Income Taxes (Continued)
------------
Reconciliation of statutory rate to effective income tax rate on continuing
operations for the years ended May 31, is as follows:
1997 1996 1995
----- ----- -----
At federal statutory rates 34.0% 34.0% 34.0%
Effect of:
State income taxes, net of federal benefit 8.2 7.9 9.8
Permanent differences 1.2 .7 -
Tax benefit of operating loss carryforwards - (2.6) (33.1)
Overaccrual of prior year taxes (2.0) (1.0) -
Change in valuation allowance - - (10.7)
----- ----- -----
Total 41.4% 39.0% - %
===== ===== =====
The Companies file consolidated tax returns and had available at May 31, 1995
unused operating loss carryforwards of approximately $400,000 for income tax
reporting purposes which were utilized to offset 1996 taxable income. Haldane
had no taxable federal income for the year ended May 31, 1995, therefore, no
federal income tax liability or expense provision has been recorded for that
year. The only significant difference between income tax and financial
reporting is the allowance for doubtful accounts.
NOTE 10 - RETIREMENT PLANS
The Companies have simplified employee pension (SEP) agreements with all
full-time employees who are at least twenty-one years old and have performed
services for at least three of the preceding five years. Such agreements
provide for discretionary contributions by the employer. For the years ended
May 31, 1997, 1996 and 1995, the Companies contributed $21,000, $29,750 and
$41,424, respectively.
F-20
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 11 - LAWSUIT JUDGMENT
A former sub-licensee initiated an arbitration against DRB before the
American Arbitration Association claiming damages for DRB's alleged breach of
sub-license agreement and interference with a consulting agreement. The
former sub-licensee was awarded $104,381, which was accrued as of May 31,
1994. Additional interest of $10,000 was accrued as of May 31, 1995. In
January 1996, DRB paid $130,144.
NOTE 12 - GEOGRAPHIC AREAS
The Companies earned royalty income and sub-licensee income from five
Canadian franchisees and one franchisee located in the United Kingdom for the
years ended May 31, as follows:
Royalty Income Sub-Licensee Income
------------------------------ ------------------------
1997 1996 1995 1997 1996 1995
-------- -------- -------- ------- ------- -------
Canada $201,148 $158,572 $114,221 $18,559 $ - $ -
======== ======== ======== ======= ======= =======
United Kingdom $ 12,123 $ - $ - $ - $ - $ -
======== ======== ======== ======= ======= =======
All other revenues are from United States sources.
Included in accounts receivable and notes receivable at May 31, are amounts
owed by the Canadian and United Kingdom franchisees, as follows:
Accounts Receivable Notes Receivable
------------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
Canada $78,047 $93,088 $15,063 $ -
======= ======= ======= =======
United Kingdom $ 2,189 $ - $ - $ -
======= ======= ======= =======
NOTE 13 - RELATED PARTY TRANSACTIONS
As of May 31, 1997, 1996 and 1995, a principal officer and director of
Haldane owned and operated offices as follows:
1997 1996 1995
------ ------ ------
Canada (Note 12) 5 5 5
United States 2 4 4
United Kingdom (Note 12) 1 - -
--- --- ---
Total offices 8 9 9
=== === ===
During 1997, three United States offices were transferred to an unrelated
existing owner of other Haldane offices and two new offices were acquired;
one in the United States and one in the United Kingdom.
F-21
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 13 - RELATED PARTY TRANSACTIONS (CONTINUED)
From time to time the Companies advance funds to several entities whose
officer and director is also an officer and director of Haldane. The average
monthly balance during fiscal 1997 and 1996 of such advances amounted to
approximately $373,000 and $375,000, respectively. At May 31, 1997 and 1996,
the balance of such advances was $-0- and approximately $14,000,
respectively. In addition, at May 31, 1997 and 1996, the Companies were owed
$11,000 and $14,000, respectively, for miscellaneous reimbursable expenses
from these entities.
Interest earned on advances for the years ended May 31, 1997 and 1996 at 8%
per annum amounted to approximately $30,000 for each year.
NOTE 14 - DISCONTINUED OPERATIONS
On May 31, 1996, Haldane adopted a plan to terminate its travel agency
operations which ceased in February 1997.
The components of net assets of discontinued travel agency operations
included in the consolidated balance sheets at May 31, are as follows:
1997 1996
--------- ---------
Cash and cash equivalents $ - $ 55,957
Prepaid expenses - 4,240
Property and equipment - net - 635
Other assets - 2,200
Accounts payable - (3,225)
Income taxes payable - (8,000)
Deferred income - (15,172)
-------- --------
Net assets $ - $ 36,635
======== ========
The operating results of the travel agency segment for the years ended May
31, 1997 and 1996 are shown separately in the accompanying consolidated
income statement. The 1995 consolidated statement has been restated to
segregate the operating results of the travel agency segment. Net revenues of
the travel agency segment for 1997, 1996 and 1995 amounted to $67,027,
$95,474 and $68,047, respectively.
There was no gain or loss on disposal of this segment.
F-22
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 15 - EARNINGS PER SHARE
Net Earnings Per Common
and Common Equivalent Share
Net earnings per share for the years ended May 31, were calculated using the
modified treasury stock method as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Earnings
--------
Income from continuing operations $ 441,150 $ 513,444 $ 730,806
Modified Treasury Stock Method
------------------------------
Incremental income after the application of assumed
proceeds toward repurchase of 20% of the outstanding
common shares at the average market price and the
reduction of debt, net of applicable income taxes 1,111 11,452 6,845
---------- ---------- ----------
Adjusted earnings $ 442,261 $ 524,896 $ 737,651
========== ========== ==========
Shares
------
Weighted average number of common shares outstanding 950,903 1,105,442 1,070,365
Additional shares assuming conversion of:
Stock options and warrants utilizing the modified
treasury stock method 78,470 122,452 90,982
---------- ---------- ----------
Number of common and common equivalent shares 1,029,373 1,227,894 1,161,347
========== ========== ==========
Earnings per common and common equivalent share
from continuing operations $.43 $.43 $.64
==== ==== ====
</TABLE>
Fully diluted earnings per common and common equivalent share were the same.
F-23
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts at which cash, accounts receivable, short-term notes receivable,
due from related parties, accounts payable and other current liabilities are
presented in the balance sheets approximate their fair value due to their
short maturities. The following table presents the carrying amounts and fair
values at May 31, 1997 and 1996 for long-term notes receivable and debt:
1997 1996
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
Long-term notes receivable $ 451,000 $ 442,000 $ 135,000 $ 129,000
========= ========= ========= =========
Long-term debt $ 499,000 $ 526,000 $ 541,000 $ 570,000
========= ========= ========= =========
The fair value of long-term notes receivable and debt has been determined
based on discounted cash flow using a market rate of interest at the balance
sheet date as applicable to comparable notes and debt.
NOTE 17 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997
- ----
Revenues $ 649,981 $ 687,556 $ 649,042 $ 761,216
Income from continuing operations
before income taxes 264,999 248,111 146,257 92,951
Income taxes 106,000 99,000 43,368 62,800
Income from continuing operations 158,999 149,111 102,889 30,151
Income (loss) from discontinued
operations (10,241) 28,204 (21) 2,000
Net income 148,758 177,315 102,868 32,151
Net earnings per common and common
equivalent share:
Continuing operations $ .16 $ .15 $ .10 $ .03
Discontinued operations (.01) .03 -- --
--------- --------- --------- ---------
Total $ .15 $ .18 $ .10 $ .03
========= ========= ========= =========
Market price per share:
High $ 2.87 $ 2.44 $ 2.75 $ 2.50
Low 2.43 2.44 2.25 2.25
</TABLE>
F-24
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
NOTE 17 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996
- ----
Revenues $ 583,937 $ 597,046 $ 562,246 $ 601,210
Income from continuing operations
before income taxes 222,901 212,146 215,409 191,312
Income taxes 85,000 71,000 81,796 90,528
Income from continuing operations 137,901 141,146 133,613 100,784
Income (loss) from discontinued
operations (10,131) (35,360) 61,771 3,716
Net income 127,770 105,786 195,384 104,500
Net earnings per common and common
equivalent share:
Continuing operations $ .11 $ .12 $ .11 $ .09
Discontinued operations (.01) (.03) .05 --
--------- --------- --------- ---------
Total $ .10 $ .09 $ .16 $ .09
========= ========= ========= =========
Market price per share:
High $ 2.56 $ 2.53 $ 2.87 $ 2.56
Low 2.43 2.43 2.43 2.43
There were no dividends for either year.
</TABLE>
F-25
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
- --------------------
NONE
Item 10. Directors and Executive Officers of the Registrant
- -------------------------------------------------------------
The executive officers and Directors of the Company are as follows:
Name Age Position
- ---- --- --------
Jerold P. Weinger 52 President, Chief Executive
Officer, Treasurer and Director
Jeffrey G. Klein 42 Secretary and Director
Jeffrey Schachter 47 Director
Gregg Weiss 40 Director
Jerold P. Weinger was elected as a director of the Company in May of 1989
and currently serves as the Company's President, Chief Executive Officer,
Treasurer and Chairman of the Board. In September 1991, 266 Washington
Associates, a New York real estate general partnership in which Mr. Weinger
serves as one of the general partners, filed a voluntary petition in bankruptcy
with the United States Bankruptcy Court for the eastern district of New York.
This action was subsequently dismissed. Since March 1992, Mr. Weinger has served
as the vice president and director of several different privately held companies
which operate Bernard Haldane licensed offices. Since November 1991, Mr. Weinger
has also served as the Chairman of the Board of Lauren & Associates, a New York
based entity engaged as a temporary employment agency. Since 1994, Mr. Weinger
served as Chairman of the Board of Prime Time Staffing, Inc., a New York based
company engaged in information technology and consulting. Since June 1987, Mr.
Weinger has served as vice president of STAT Staffing Inc., a New Jersey
corporation which provides temporary nursing care to institutions. From February
1987 until June 1989, Mr. Weinger has served as the Vice President, Secretary
and Director of Euromed, Inc., a New Jersey based company. During this time he
also served as Vice President of Euromed's wholly-owned operating subsidiary,
C.M.S. Europe Limited, which distributed medical products in Europe. From 1984
until December 31, 1987, Mr. Weinger was associated with Brooks Weinger Robbins
& Leeds Inc. ("Brooks"), formerly a registered broker-dealer, and from January
1987 until January 1988, served as Chief Executive Officer of such firm.
On or about January 1987, an action was commenced in United States
District Court for the Southern District of New York [87 Civil 593
(RWS)(U.S.D.C., S.D.N.Y.)] by the Securities and Exchange Commission ("SEC")
against, inter alia, Jerold Weinger.
The SEC action alleged that Mr. Weinger violated Section 17(a) of the
Securities Act of 1933, as amended (the "1933 Act"), and Sections 10(b) and
15(c) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
Rules 10(b)-5, 10(b)-6 and 15(c)-2 thereunder, in connection with certain
initial public offerings in which Mr. Weinger had participated as an employee of
18
<PAGE>
Brooks, Hamburger, Satnick, Inc., formerly a registered-dealer. (Brooks,
Hamburger, Satnick Inc. is not a predecessor to Brooks, Weinger, Robbins & Leeds
Inc.) On or about January 1987, without admitting or denying any of the SEC
allegations, Mr. Weinger consented to the entry of a Final Judgement of
Injunction enjoining Mr. Weinger from further violations of said Sections 17(a),
10(b) and 15(c) and Rules 10b-5, 10b-6 and 15cl-2.
On February 9, 1987, the SEC issued an Order Instituting Public
Proceedings, Making Findings and Imposing Remedial Sanctions Pursuant to
Sections 15(d) and 19(h) of the Securities Exchange Act of 1934 (File No.
3-6790) against Jerold Weinger et al. The allegations against Mr. Weinger
included willfully violating Section 17(a) of the 1933 Act, Section 10(b) of the
1934 Act and Rules 10b-5 and 10b-6 thereunder, as well as willfully aiding and
abetting violations of Section 15(c) of the 1934 Act and Rule 15cl-2 thereunder.
Without admitting or denying the SEC allegations, Mr. Weinger consented to the
entry of an Order suspending him from association with any broker, dealer,
investment company, investment advisor or municipal securities dealer in any
capacity for a consecutive 90 day period (which period has expired).
On January 4, 1989, the District Business Conduct Committee for District
No. 12 of the National Association of Securities Dealers, Inc. ("NASD") filed a
complaint (No. NY-7010) before the NASD against Jerold P. Weinger et al. The
Complaint alleges that Mr. Weinger, while associated with Brooks Weinger
violated Article III, Section 1 of the NASD's Rules of Fair Practice by his
failure to become registered as a general securities principal (notwithstanding
that he was registered as a financial and operations principal at such time),
despite his alleged active engagement in the management of the firm's investment
banking and securities business. Without admitting or denying any of the
allegations contained in the Complaint, Mr. Weinger has agreed to the entry of
an order requiring Weinger take and pass the Series 24 General Securities
Principal examination prior to applying for association with any NASD member
and, that Mr. Weinger is suspended in all capacities from association with any
NASD member for a period of ninety (90) days which period has since expired.
Mr. Weinger received a B.B.A. from Pace University and a M.S. from
Brooklyn College.
Jeffrey G. Klein, has served as Secretary and a Director of the Company
since its inception. Mr. Klein is a practicing attorney in Boca Raton, Florida.
From 1986-1989, Mr. Klein served as president and a Director of Unity Publishers
Corp., a publisher of financial newsletters. During this time, Unity was giving
away shares of stock in publicly held companies as a gift for subscribing to its
newsletter. Some states and the Securities and Exchange Commission have deemed
this to be a prohibited transaction and in those states, the newsletter and Mr.
Klein are subject to Cease and Desist Orders in reference to the distribution of
the stock as a gift for subscribing to the newsletter. Unity was named as a
Defendant in an action brought by the Securities and Exchange Commission and is
a signator to a Final Judgment of Permanent Injunction. From 1986 through 1988,
Mr. Klein also served as Secretary and Director of Capital Investment
Development Corp., a company which went public pursuant to a "Blind Pool"
offering. From January 1985 through 1986, Mr. Klein served as in-house counsel
to First Commonwealth Financial Corp., InfoData, Inc. and Newsletter Management
Corp., all of which were located in Boca Raton, Florida. From 1983 through 1985,
Mr. Klein was affiliated with the law offices of Gerald Beyer, Esq., Fort
Lauderdale, Florida, and during 1983, Mr. Klein was employed by Arthur Andersen
& Co., Fort Lauderdale, Florida. Prior thereto, Mr. Klein was a practicing
attorney in Pittsburgh, Pennsylvania. Mr. Klein received his J.D. and M.B.A.
degrees from the University of Pittsburgh and a B.A. from Boston University.
19
<PAGE>
Jeffrey Schachter, was elected a director of the Company in April, 1997.
Since 1976 he has served as the president of Silver Enterprises Refining, Inc.,
a Cliffwood, New Jersey based company involved in the commercial extraction of
silver from photographic film. Mr. Schachter holds a Bachelor's degree from
Lehman College in the Bronx, new York.
Gregg Weiss, was elected a director of the Company in April 1997, Mr.
Weiss is an attorney practicing in New York City concentrating in the areas of
taxation, trusts and estate planning. In 1991 Mr. Weiss founded the firm of
Gardner & Weiss. Prior thereto, Mr. Weiss was associated with several different
law firms and from 1981 -1984 Mr. Weiss worked for the Internal Revenue Service
at the Office of Chief Counsel. Mr. Weiss received an L.L.M. in Taxation from
New York University, a J.D. degree from Hofstra University and a B.S. in
Accounting from State University of New York at Albany.
Directors of the Company hold their offices until the next annual meeting
of the Company's stockholders and until their successors have been duly elected
and qualified or until their earlier resignation, removal from office or death.
There are no committees of the Board of Directors.
Officers of the Company serve at the pleasure of the Board of Directors.
ITEM 11. Executive Compensation
- --------------------------------
Mr. Weinger, the Company's President, oversees the Bernard Haldane
operations and in consideration thereof, receives annual compensation of
$200,000 and devotes his full time to the operations of the Company. The Company
has established a Simplified Employee Benefit Plan, (the "Plan"). During the
past year Mr. Weinger received $15,000 pursuant to this Plan. The terms and
conditions of Mr. Weinger's employment are reviewed annually by the Board of
Directors.
Mr. Klein has received compensation from the Company of approximately
$44,000 for legal services rendered. Mr. Weiss and Mr. Schachter will receive
$2,000 per month in consideration for their services on the Board of Directors
and acting as consultants to the Company. Payment will be made for a period of
five months.
The following table sets forth the compensation of the company's two (2)
officers for the last three (3) fiscal years:
20
<PAGE>
ANNUAL COMPENSATION
NAME
AND PRINCIPAL ANNUAL LONG TERM
POSITION YEAR COMPENSATION COMPENSATION
- --------------------------------------------------------------------------------
JEROLD WEINGER,
PRESIDENT 1997 $215,000 (1) (2)
1996 $222,500 (1) (2)
1995 $202,105 (1) (2)
JEFFREY KLEIN
SECRETARY 1997 $ 44,000 (2)
1996 $ 40,000 (2)
1995 $ 37,500 (2)
(1) Includes $35,250, $22,500 and $15,000 pursuant to the Company's Simplified
Employee Benefit Plan in 1995, 1996 and 1997
(2) During the year ended May 31, 1997, Mr. Weinger and Mr. Klein were granted
options to purchase 25,000 and 5,000 shares of the Company's common stock at an
exercise price of $2.50 per share. During the year ended May 31, 1996, Mr.
Weinger and Mr. Klein were granted options to purchase 25,000 and 5,000 shares
of the Company's common stock at an exercise price of $2.50 per share. During
the year ended May 31, 1995, Mr. Weinger and Mr. Klein were granted options to
purchase 25,000 and 7,500 shares of the Company's common stock at an exercise
price of $2.50 per share.
21
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth certain information regarding the Company's
Common Stock beneficially owned on July 31, 1997 (i) by each person who is known
by the Company to own beneficially more than 5% of the Company's Common Stock,
(ii) by each of the Company's Directors, and (iii) by all executive officers and
Directors as a group.*
Renee Nadel 270,000 28.44%(4)
7885 Ayr Court
Boca Raton, Florida
33496
Jeffrey G. Klein (3) 5,000 Less than 1%
23123 State Road 7, Suite 350B
Suite 350B
Boca Raton, Florida 33428
Lilli Weinger 287,750 30.31%(4)
4 Woodgreen Place
Rockville Center, NY 11570
Jerold P. Weinger (1)(2)(3) 132,520 13.96%(4)
192 Lexington
15th Floor
New York, New York 10016
All executive officers
and Directors as a
Group (2 persons) (2)(3) 137,520 14.46%(4)
____________________________
*As of June 30, 1997
(1) Does not give effect to shares of stock owned by the children of Mr.
Weinger whose ownership he disclaims.
(2) Does not give effect to those shares owned by Lilli Weinger, the spouse of
Jerold Weinger.
(3) Does not give effect to shares of stock issuable to Mr. Weinger and Mr.
Klein upon exercise of stock options. (See Certain Transactions). Mr. Weinger
has been granted options to purchase a total of 120,000 shares of stock. Mr.
Klein has been granted the options to purchase a total of 22,500 shares of the
Company's common stock. Assuming exercise of the foregoing options, the
respective share of ownership would be 26.60% for Mr. Weinger and would be 2.90%
for Mr. Klein.
(4) Does not take into account 199,500 shares of treasury stock.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The Company was incorporated under the laws of the state of Florida on
July 22, 1986, and shortly thereafter Joel S. Nadel, Bruce E. Mates and Jeffrey
22
<PAGE>
G. Klein subscribed for 275,000, 275,000 and 7,500 shares of the Company's
Common Stock, respectively, for an aggregate consideration of $22,500 or $.0001
per share. (After giving affect to a 100:1 reverse stock split and a subsequent
4:1 reverse stock split). On or about September 1989, Bruce Mates sold his
276,250 shares to Lilli Weinger pursuant to a private sale of the Company's
stock. Subsequent thereto, Mrs. Weinger gifted 5,000 shares of the Company's
stock to an unaffiliated third party. Lilli Weinger is the wife of Jerold
Weinger. On or about September 1990, Mr. Nadel gifted his 270,000 shares of
stock in the Company to Renee Nadel, his wife.
During the years ended May 31, 1996 and May 31, 1997 pursuant to a
resolution of the Board of Directors, the Company redeemed from the
shareholders, a total of 179,500 and 20,000 shares respectively of the Company's
common stock at an average cost of between $2.49 and $2.75 per share, including
5,000 shares of common stock owned by Jeffrey Klein.
During the Company's last fiscal year, a majority of the Company's
shareholders pursuant to a recommendation of the Board of Director granted Mr.
Weinger and Mr. Klein options to purchase 25,000 and 5,000 shares of common
stock of the Company at an exercise price of $2.50 per share. Options to
purchase 25,000 shares of common stock at an exercise price of $2.50 per share
was granted to Windsor Consulting Inc., a key consultant, and options to
purchase 5,000 shares of common stock at a price of $2.50 per share was granted
to Donna Quartiero, a key employee.
On May 31, 1996, a majority of the Company's shareholders pursuant to a
recommendation of the Company's Board of Directors, granted the Company's two
officers, Mr. Weinger and Mr. Klein, options to purchase 25,000 shares, and
5,000 shares respectively, of the Company's common stock at an exercise price of
$2.50 per share. The Company also granted options for 25,000 shares of the
Company's common stock to Windsor Consulting Inc., and 5,000 shares of common
stock to Donna Quartiero. The options were granted to the foregoing at an
exercise price of $2.50 per share. The exercise price represented the average
between the low and high bid for the Company's common stock on May 31, 1996.
On May 31, 1995, a majority of the Company's shareholders pursuant to a
recommendation of the Board of Directors, granted to the Company's officers,
including Joel Nadel, the Company's former president, and Donna Quartiero,
options to purchase shares of the Company's common stock at an exercise price of
$2.50 per share. The exercise represented the average between the low and high
bid for the Company's common stock on May 31, 1995. A total of 25,000 options
were granted to both Mr. Nadel and Mr. Weinger, and 7,500 options were granted
to Mr. Klein and Ms. Quartiero. The options are issuable for a period of ten
years from the date of issuance.
On September 3, 1993, the Company's Shareholders pursuant to a
recommendation of the Board of Directors, granted to the company's officers and
Donna Quartiero, a key employee, options to purchase shares of the Company's
common stock at any exercise price of $1.75. The exercise price represented the
average between the low and high bid for the Company's common stock on September
3, 1993 the date of issuance. A total of 20,000 options were granted to Mr.
Nadel and Mr. Weinger and 5,000 options were issued to Mr. Klein and Ms.
Quartierro. The options are exercisable for a period of ten years from the date
of issuance. Previous thereto on December 18, 1990, Messieurs Nadel, Weinger and
Klein were issued options the purchase 25,000, 25,000 and 5,000 shares
respectively at an exercise price of $.25 per share. Also on December 18, 1990,
23
<PAGE>
options to purchase 5,000 shares of the Company's common stock at an exercise
price of $.25 per share were issued to Donna Quartiero and Phillip Nadel.
All stock options and exercise price thereof reflect at 4:1 reverse split.
In April 1995, The Company sold 14,000,000 of its shares of Andover
Equities Corp. to a group of four individual investors for cash and notes
totalling $35,000. - Payment on the notes remains due and outstanding.
In February 1995, the Company acquired the remaining 20% of the
outstanding shares of common stock of Career Services Management Corp. in
exchange for the issuance of a total of 75,000 shares of the Company's common
stock. Of these 75,000 shares, 45,000 shares have been redeemed pursuant to the
Company's stock redemption program at an average cost of $2.50 per share..
PART IV
Item 14. Exhibits, Financial Statements Schedule and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) Documents filed as part of this report
(1) Financial Statements.
Reports of Independent Certified Public Accountants.
Comparative Consolidated Balance Sheets - as of May 31, 1997
and May 31, 1996.
Comparative Consolidated Statements of Operations for the
years ended May 31, 1997, 1996 and 1995.
Comparative Consolidated Statements of Changes in
Stockholders' Equity for the years ended May 31, 1997, 1996
and 1995.
Comparative Consolidated Statements of Cash Flows for the
Years ended May 31, 1997, 1996 and 1995.
Notes to Financial Statements.
All schedules for which provision is made in applicable
regulations and regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
24
<PAGE>
INCORPORATED
EXHIBIT # DESCRIPTION BY REFERENCE TO
- --------- ----------- ---------------
3(a) -Certificate of Incorporation* Exhibit 3(a) filed as part of the
Company's Registration Statement
on Form S -18 ,File No. 000-18097
(b) -By-Laws* Exhibit 3(b) filed as part of the
Company's Registration Statement
on Form S-18, File No. 000-18097.
4(a) -Form of certificate Exhibit 4(a) filed as part of the
evidencing shares of Common Company's Registration Statement
Stock. on Form S-18, File No. 000-18097.
(b) -Form of Class A Redeemable Exhibit 4(b) filed as part of the
Common Stock Purchase Warrant* Company's Registration Statement
on Form S-18, File No. 000-18097.
(c) -Form of Class B Redeemable Exhibit 4(c) filed as part of the
Common Stock Purchase Warrant* Company's Registration Statement
on Form S-18, File No. 000-18097,
(d) -Form of Class C Redeemable Exhibit 4(d) filed as part of the
Common Stock Purchase Warrant.* Company's Registration Statement
on Form S-18, File No. 000-18097.
(e) -Form of Warrant Agency Exhibit 4(e) filed as part of the
Agreement between Registrant Company's Registration Statement
and American Stock Transfer Co.* on Form S-18, File No. 000-18097.
(f) -Form of Warrant issued by Exhibit 4(f) filed as part of the
Registrant to Brooks, Weinger, Company's Registration Statement
Robbins and Leeds Inc.* on Form S-18, File No. 000-18097.
10(a) -Letter of Intent between Exhibit 10(e) Annual Report on
Registrant and DRB, Ltd.*** Form 10-K for the year ended May
31, 1989.
(b) -Stock Purchase Agreement Exhibit 10(F) Annual Report on
between Career Service Form 10-K for the year ended May
Management Corp. and D.R.B. 31, 1989.
Ltd.****
(C) -Opinion Letter Issued by Filed as an Exhibit herewith
Laidlaw & CO.
22 -Subsidiaries of Registrant Filed as an Exhibit herewith
27 -Financial Data Schedule Filed as an Exhibit herewith
(Electronic filing only)
(c) Reports on Form 8-K
-------------------
No report on Form 8-K was filed during the three month period ended
May 31, 1997.
25
<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.
BERNARD HALDANE ASSOCIATES, INC.
By:/s/ Jerold Wienger
--------------------------------
JEROLD WEINGER
PRESIDENT/TREASURER
DATED: 9/17/97
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has ben signed below on those dates by the following persons on behalf of
this Registrant in the capacities indicate.
By:/s/ Jerold Wienger
--------------------------------
JEROLD WEINGER
PRESIDENT/TREASURER/DIRECTOR
DATED: 9/17/97
---------
/s/ Jeffrey G. Klein
- -----------------------------------
JEFFREY G. KLEIN
SECRETARY/DIRECTOR
DATED: 9/17/97
---------
26
EXHIBIT 22 - SUBSIDIARIES OF REGISTRANT
- DRB LTD. -
- FIRST CAREER CORP. -
27
LAIDLAW & CO
August 11, 1997
Special Committee of the Board of Directors
Bernard Haldane Associates, Inc.
192 Lexington Avenue
New York, NY 10016
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the holders ("Public Shareholders") of Common Stock
$0.001 par value ("Company Common Stock") of Bernard Haldane Associates, Inc.
(the "Company" or "Haldane"), other than Jerold P. Weinger, Renee Nadel or
certain of their affiliates (the "Managing Shareholders"), of the terms of the
proposed merger (the "Merger") with a newly organized corporation, Haldane
Acquisition Corp. ("Newco"), which is wholly owned by the Managing Shareholders.
The Merger will be effected pursuant to an agreement and a plan of merger
between Newco and Haldane (the "Merger Agreement"). For the purpose of its
opinion, Laidlaw defined the price of the Company's Common Stock as the closing
bid price ($2.25) on July 9, 1997. We understand that under the terms of the
Merger Agreement, the Public Shareholders would be entitled to receive the sum
of $3.00 ("Merger Price") for each share of Company Common Stock.
In connection with rendering our opinion, we have considered such financial and
other factors as we deemed appropriate under the circumstances including, among
others, the following:
(1) The financial terms and conditions of the Merger Agreement;
(2) Certain historical business information relating to Bernard Haldane
Associates, Inc., including the Annual Reports on Form 10-K of the Company
for the period ended May 31, 1992, 1993, 1994, 1995 and 1996 and the
Quarterly Reports on Form 10-Q of the Company for the period ended August
31, 1996, November 30, 1996, and February 28, 1997;
(3) Various financial forecasts and other data provided by the Company;
(4) Public information with respect to certain other companies in lines of
business we believe to be comparable in certain respects to the Company,
and the trading markets for such other companies' securities;
(5) The financial terms of certain other merger agreements involving the
acquisition of a minority interest of other public companies.
Laidlaw Equities, Inc. 100 Park Avenue, New York, NY 10017
800.848.5125 o 212.376.8800 o Fax 212.697.3368
Member o NASD o SIPC o SIA
<PAGE>
(6) The stock price and trading volume history of the Company.
We have also met with certain officers and employees of the Company to discuss
the foregoing, including the past and current business operations, financial
condition and prospects of the Company, as well as other matters we believe
relevant to our inquiry. We have also considered such other information,
financial studies, analyses, investigations and financial, economic and market
criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and have neither attempted
independently to verify nor assumed responsibility for verifying any of such
information. With respect to the financial projections of the Company, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the Company's management as to
the future financial performance of the Company, and we express no opinion with
respect to such forecasts or the assumptions on which they are based. We further
relied upon the assurance of management of Haldane that they were unaware of any
facts that would make such information incomplete or misleading. We have not
made or obtained or assumed any responsibility for making or obtaining any
independent evaluations or appraisals of any of the assets (including properties
and facilities) or liabilities of the Company.
We have also taken into account our assessment of general economic, market and
financial conditions and our general knowledge of securities valuation. Our
opinion necessarily is based upon conditions as they exist and can be evaluated
on the date hereof, and we assume no responsibility to update or revise our
opinion based upon circumstance or events occurring after the date hereof. Our
opinion as expressed below does not imply any conclusion as to the likely value
of the Company following the consummation of the Merger, which may vary
depending upon, among other factors, changes in interest rates, dividend rates,
market conditions, general economic conditions and other factors that generally
influence the value of a company. Our opinion does not address the Company's
underlying business decision to effect the Merger. Our opinion is directed only
to the fairness, from a financial point of view, of the Merger Agreement and
does not constitute a recommendation to the Public Shareholders of Company's
Common Stock with respect to the Merger Agreement. Our opinion also does not
address the decision of the directors and executive officers of the Company to
enter into an indemnification agreement or give effect to any liabilities they
may have incurred thereby.
In rendering our opinion we have assumed that the Merger will be consummated on
the terms described in the agreement without any waiver of any material terms
and conditions by the Company and that no restrictions will be imposed that
would have a material adverse effect on the contemplated benefits of the Merger
to the Public Shareholders. It is understood that this letter may not be
disclosed or otherwise referred to without our prior written consent, except as
may otherwise be required by law or by a court of competent jurisdiction.
As you are aware, we will receive a fee from the Company for delivery of this
fairness opinion, the full payment of which is contingent upon consummation of
the Merger.
<PAGE>
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration to be paid to the Public Shareholders in the Merger
Agreement is fair from a financial point of view.
Very truly yours,
Laidlaw Global Securities, Inc.
/s/ Faith Griffin
-----------------
By: Faith Griffin
Managing Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BERNARD HALDANE ASSOCIATES, INC. FOR THE FISCAL YEAR
ENDED MAY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 1,698,099
<SECURITIES> 55,426
<RECEIVABLES> 709,470
<ALLOWANCES> 290,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,538,234
<PP&E> 79,702
<DEPRECIATION> 28,871
<TOTAL-ASSETS> 3,984,088
<CURRENT-LIABILITIES> 592,213
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 2,879,345
<TOTAL-LIABILITY-AND-EQUITY> 3,984,044
<SALES> 0
<TOTAL-REVENUES> 2,747,795
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,039
<INCOME-PRETAX> 752,318
<INCOME-TAX> 311,168
<INCOME-CONTINUING> 441,150
<DISCONTINUED> 19,942
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 461,092
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
