SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
AMENDED 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 NONE
Securities registered pursuant to Section 12(g) of the Act.
COMMON
(Title of Class)
1
<PAGE>
Item 6. Selected Financial Data
- -------------------------------
Summary of Operations:
For the Years Ended May 31, 1997, 1996, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1997 1996 1995 (1) (2) 1994 (1) (2) 1993 (1) (2)
<S> <C> <C> <C> <C> <C>
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 $ 609,905 $ 161,171 $ (89,297)
Net Income
(Loss per
Share of
Common Stock) $ .45 $0.44 $0.53 $0.16 $(.10)
</TABLE>
(1)Restated for discontinued operations of retail travel agency.
(2)Restated for the equity of minority interests in earnings not
previously recorded. Net income (loss) and net income (loss) per share were
reduced as follows:
1995 1994 1993
---- ---- ----
Net income (loss) $ (89,200) $ (44, 903) $ (2,629)
Net income (loss) per share $ (. 08) $ (. 04) $ -
2
<PAGE>
SUMMARY OF BALANCE SHEET AS OF MAY 3l
<TABLE>
<CAPTION>
1997 1,996 1995 (1) 1994 (1) (2) 1993 (1) (2)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS $2,572,364 $2,147,294 $ 2,007,844 $1,128,480 $ 731,440
Other Assets $1,411,724 $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 $ 207,316 $ 245,956 $ 315,951 $ 307,065 $ 298,860
Other Liabilities $ 512,518 $ 555,799 $ 591,437 $ 702,988 $ 810,053
Minority Interests $ - $ - $ - $ 137,088 $ 92,185
Stockholder's
Equity $2,879,357 $2,473,380 $2,391,263 $1,353,570 $1,091,149
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $3,984,088 $3,424,830 $3,512,311 $2,658,135 $2,429,343
</TABLE>
(1) Restated for discontinued operations of retail travel agency.
(2) Restated for minority interests not previously recorded. These
interests were purchased in the fiscal year ended May 31, 1995 and as such there
was no net effect on financial statements after that date. Stockholders equity
at May 31 1994 and 1993 ere reduced for minority interest as follows:
Investment by minority $250,000
Share of losses 1989 to May 31, 1993 (157,815)
--------
Book value of minority interest May 31, 1993 92,185
Share of income year ended May 31, 1994 44,903
--------
Book Value of minority interest May 31, 1994 $137,088
========
3
<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
4
<PAGE>
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 opinion, 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.
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 members 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 $2,572,364 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 $134,893
to $417,179. This increase is due primarily to notes receivables from
sublicensees including sublicensee offices controlled by Mr. Weinger in the
amount of $58,799. 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
5
<PAGE>
anniversary conference in Las Vegas, Nevada. Long term debt was reduced from
$541,080 to $498,839.
For 1996, 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
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
$609,905 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 funding 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
6
<PAGE>
marketing the First Career college program.
Income before taxes was $752,318 as compared to $841,768 in 1996 and
$639,606 in 1995. Net income after taxes continues to decline, falling from
$609,905 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.
7
<PAGE>
BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES
INDEX
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
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.
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
------------- ------------
(Restated) (Restated)
<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
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MAY 31,
---------------------------
1997 1996
------------- ------------
(Restated) (Restated)
<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 2,738,015 2,738,015
Retained earnings 647,768 186,676
------------- -------------
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
Minority interests - - 89,200
------------- ------------- -------------
Total expenses 1,995,477 1,502,671 1,297,781
------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (CREDITS) 752,318 841,768 639,606
INCOME TAXES (CREDITS) (Note 9) 311,168 328,324 (2,000)
------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS 441,150 513,444 641,606
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 $ 609,905
============= ============= -------------
</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)
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------------
1997 1996 1995
------------- ------------- -----------
(Restated)
<S> <C> <C> <C>
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Continuing operations (Note 15) $ .43 $ .43 $ .56
Discontinued operations .02 .01 (.03)
------ ------- ------
$ .45 $ .44 $ .53
====== ======= ======
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES (Note 15) 1,029,373 1,227,894 1,161,347
========= ========= =========
DIVIDENDS NONE NONE NONE
</TABLE>
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>
BALANCE - May 31, 1994 -
as previously reported 979,865 $ 10 $2,560,229 $(1,069,581) - $ - $1,490,658
Prior period adjustment - error in
recording cumulative equity of
minority interests in losses
(Note 18) - - (250,000) 112,912 - - (137,088)
--------- ---- ---------- ----------- --------- ---------- ----------
BALANCE - MAY 31, 1994 -
- as restated 979,865 10 2,310,229 (956,669) - - 1,353,570
Exercise of stock options (Note 7) 94,000 1 201,499 - - - 201,500
Issuance of shares on acquisition of
minority interests of subsidiary
(Note 2) 75,000 1 226,287 - - - 226,288
Net income for the year ended
May 31, 1995 - - - 609,905 - - 609,905
--------- ---- ---------- ----------- ------- ---------- ----------
BALANCE - MAY 31, 1995 1,148,865 12 2,738,015 (346,764) - - 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 2,738,015 186,676 179,500 (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 $2,738,015 $ 647,768 199,500 $ (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 $ 609,905
(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)
Minority interests - - 89,200
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)
------------ ----------- -----------
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)
YEARS ENDED MAY 31,
------------------------------------------
1997 1996 1995
------------- ------------- ------------
(Restated)
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 (see Note 18). 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:
<TABLE>
<CAPTION>
Year Ending May 31,
--------------------------
1997 1996
---------- -----------
<S> <C> <C>
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
</TABLE>
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
Notes receivable at May 31, consist of the following:
<TABLE>
<CAPTION>
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:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
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
========== ==========
</TABLE>
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
Long-term debt at May 31, consists of the following:
<TABLE>
<CAPTION>
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):
<TABLE>
<CAPTION>
Minimum
Rental Sublease
Year Ending May 31, Payments Income
------------------- -------- ------
<S> <C> <C> <C>
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
============ ==========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
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)
========== ========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
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% - %
======= ======== =======
</TABLE>
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:
<TABLE>
<CAPTION>
Royalty Income Sub-Licensee Income
--------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------- ----------- ----------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Canada $ 201,148 $ 158,572 $ 114,221 $ 18,559 $ - $ -
=========== =========== =========== ======== ======== =====
United Kingdom $ 12,123 $ - $ - $ - $ - $ -
=========== =========== =========== ======== ======== =====
</TABLE>
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:
<TABLE>
<CAPTION>
Accounts Receivable Notes Receivable
------------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Canada $ 78,047 $ 93,088 $ 15,063 $ -
========= ======== ========= =====
United Kingdom $ 2,189 $ - $ - $ -
========= ======== ========= =====
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -------
<S> <C> <C> <C>
Canada (Note 12) 5 5 5
United States 2 4 4
United Kingdom (Note 12) 1 - -
--- --- --
Total offices 8 9 9
=== === ==
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
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
========= =========
</TABLE>
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 $ 639,606
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 $ 646,451
============ ============ =============
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 $.56
==== ==== ====
</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:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Long-term notes receivable $ 451,000 $ 442,000 $ 135,000 $ 129,000
============ ============ ============ =============
Long-term debt $ 499,000 $ 526,000 $ 541,000 $ 570,000
============ ============ ============ =============
</TABLE>
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>
NOTE 18 - PRIOR PERIOD ADJUSTMENT
In 1995 consolidated financial statements have been restated to record the
cumulative equity of minority interests in losses, not previously recorded.
The effect of the restatement was to decrease net income for the year ended
May 31, 1995 by $89,200 ($.08 per share). Retained earnings at May 31, 1994
has been adjusted for the effects of the restatement on prior years.
On February 2, 1995 the minority interests were purchased through the
issuance of 75,000 shares of common stock and was recorded at the book
value of the minority interests at that time of $226,288. The difference in
the amount recorded and the current market price of the shares issued on
that date of $187,500, is not material to the consolidated financial
statements.
F-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 WEINGER
___________________________
JEROLD WEINGER,
PRESIDENT/TREASURER
DATED: December 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on those dates by the following persons on
behalf of this Registrant in the capacities indicate.
By: /s/ JEROLD WEINGER
_______________________________
JEROLD WEINGER,
PRESIDENT/TREASURER/DIRECTOR
DATED: December 31, 1998
/s/ JEFFREY G. KLEIN
___________________________
JEFFREY G. KLEIN,
SECRETARY/DIRECTOR
DATED: December 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED BALANCE SHEETS AS OF MAY 31, 1997 AND 1996 AND AUDITED
STATEMENTS OF OPERATIONS FOR THE YEARS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAY-31-1997 MAY-31-1996
<PERIOD-START> JUN-01-1996 JUN-01-1995
<PERIOD-END> MAY-31-1997 MAY-31-1996
<CASH> 1,698,099 1,559,116
<SECURITIES> 0 0
<RECEIVABLES> 709,470 499,146
<ALLOWANCES> 290,000 170,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,538,234 2,147,294
<PP&E> 79,702 39,580
<DEPRECIATION> 28,871 19,549
<TOTAL-ASSETS> 3,984,088 3,424,830
<CURRENT-LIABILITIES> 592,213 395,631
<BONDS> 0 0
12 12
0 0
<COMMON> 0 0
<OTHER-SE> 2,879,345 2,473,368
<TOTAL-LIABILITY-AND-EQUITY> 3,984,088 3,424,830
<SALES> 0 0
<TOTAL-REVENUES> 2,747,795 2,344,439
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,934,438 1,434,113
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 61,039 68,558
<INCOME-PRETAX> 752,318 841,768
<INCOME-TAX> 311,168 328,324
<INCOME-CONTINUING> 441,150 513,444
<DISCONTINUED> 19,942 19,996
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 461,092 533,440
<EPS-PRIMARY> .45 .44
<EPS-DILUTED> .45 .44
</TABLE>
