U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1943 (No Fee Required)
For the transition period from_____________to__________________
Commission File number 33-18174-D
SIEMANN EDUCATIONAL SYSTEMS, INC.
--------------------------------------------
(Name of small business issuer in its charter)
Colorado 84-1067172
- ---------------------------------- -----------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
405 S. Platte River Drive, Suite 3A, Denver, Colorado 80223
-----------------------------------------------------------
(Address of principal executive offices)
303/733-9673
----------------------
Issuer's telephone number
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15 (d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
----------- -----------
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
3,765,000 shares of common stock were outstanding as of May 18, 1998.
- --------------------------------------------------------------------
<PAGE>
Part One. FINANCIAL INFORMATION
Item 1. Financial Statements
SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets
March 31, December 31,
1998 1997
------------ ------------
(Unaudited) (Audited)
Current assets:
Cash $ 1,367,486 $ 18,830
Student accounts receivable 2,310,317 657,814
Students notes receivable 751,663 746,693
Note receivable - stockholder 216,303 216,300
Note receivable - related party 200,000 200,000
Inventory 85,249 7,392
Prepaid and other 72,126 31,401
----------- -----------
Total current assets 5,003,144 1,878,430
----------- -----------
Student accounts and notes receivable 807,289 718,275
Property and equipment, net of
accumulated depreciation 574,939 284,774
Investment in acquisition of business -- 223,936
Intangibles, net 8,883,143 --
Perkins matching funds 70,000 70,000
Other 29,330 25,597
----------- -----------
Total assets $15,367,845 $ 3,201,012
=========== ===========
2
<PAGE>
<TABLE>
<CAPTION>
SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
Liabilities and Stockholders' Equity
March 31, December 31,
1998 1997
------------ ------------
(Unaudited) (Audited)
Current liabilities:
<S> <C> <C>
Accounts payable $ 160,435 $ 123,449
Student refunds payable and credit balances 22,064 21,061
Payable to owner of business acquired -- 61,968
Accrued liabilities 512,988 133,321
Deferred tuition income 2,368,749 871,537
Common stock repurchase commitment -- 61,968
Current maturities of long-term debt 2,735,385 462,149
------------ ------------
Total current liabilities 5,799,621 1,735,453
------------ ------------
Rent payable, related party 135,228 132,902
Long-term debt, net of current maturities and discount 7,554,147 605,730
Note payable - stockholder 355,306 355,307
------------ ------------
Total liabilities 13,844,302 2,829,392
------------ ------------
Redeemable warrants 211,863 --
Stockholders' equity:
Common stock, $.10 par value, 100,000,000 shares
authorized, 3,765,000 (1998) and
3,795,984 (1997)shares issued and outstanding 376,500 379,598
Additional paid-in capital 948,278 88,706
Common stock repurchase commitment -- (61,968)
Accumulated (deficit) (13,098) (34,716)
------------ ------------
Total stockholders' equity 1,311,680 371,620
============ ============
Total liabilities and stockholders' equity $ 15,367,845 $ 3,201,012
============ ============
3
</TABLE>
<PAGE>
SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1998 1997
----------- -----------
Revenue:
Tuition revenue $ 1,065,914 $ 707,307
College supply and cafeteria sales 50,887 42,846
Other 25,121 34,521
----------- -----------
Total revenues 1,141,922 784,674
Operating expenses:
Educational services and facilities 441,368 294,778
Cost of college supplies and cafeteria sales 43,248 43,605
Selling and promotion 149,948 132,351
General and administrative 317,531 168,354
Depreciation and amortization 55,186 46,212
Bad debt expense 38,506 29,900
----------- -----------
Total operation expenses 1,045,787 715,200
----------- -----------
Income from operations 96,135 69,474
Interest (expense) (65,869) (10,210)
----------- -----------
Income before provision for income taxes 30,266 59,264
Provision for income taxes (9,648) --
----------- -----------
Net income $ 20,618 $ 59,264
=========== ===========
Net income per common share
Primary $ .01 $ .15
=========== ===========
Fully diluted $ .01 $ .15
=========== ===========
Weighted number of common shares outstanding
Primary 3,807,357 400,000
=========== ===========
Fully diluted 3,940,747 400,000
=========== ===========
4
<PAGE>
<TABLE>
<CAPTION>
SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 20,618 $ 59,264
Cash provided (used) by operating activities:
Depreciation and amortization 56,364 46,212
Change in operating assets and liabilities:
Students accounts and notes receivable (271,147) (556,340)
Prepaid expenses and other assets (27,470) (15,999)
Accounts payable (111,112) 6,927
Student refunds payable and credit balances 1,003 (128,431)
Accrued liabilities 130,685 13,175
Rent payable, related party 2,326 39,725
Deferred tuition income 66,501 328,172
----------- -----------
Net cash (used) by operating activities (132,232) (207,295)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (18,402) (10,044)
Payments on capital leases (632) --
Acquisition of subsidiary, net of cash acquired (3,511,696) --
Acquisition of intangible assets (8,751) --
----------- -----------
Net cash (used) by investing activities (3,539,481) (10,044)
----------- -----------
Cash flows from financing activities:
Proceeds from debt 5,136,105 49,854
Proceeds from debt - related party -- 18,595
Payments of debt (53,442) --
Stock repurchase (61,968) --
Security deposits paid (324) --
----------- -----------
Net cash provided by financing activities 5,020,371 68,449
----------- -----------
Net (decrease) increase in cash 1,348,658 (148,890)
Cash, beginning of period 18,828 311,986
=========== ===========
Cash, end of period $ 1,367,486 $ 163,096
=========== ===========
Supplemental disclosure of cash flow information:
Cash payments for interest $ 35,448 $ 10,210
=========== ===========
(continued)
5
</TABLE>
<PAGE>
SIEMANN EDUCATIONAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
Three months ended March 31,
1998 1997
----------- -----------
Non-cash transactions
Investment in subsidiary $ 9,043,128 $ --
Value of future stock to be issued (750,000) --
Note to prior owner of subsidiary (4,340,000) --
Cash acquired with acquisition (341,432) --
Earnest money from prior periods applied (100,000) --
----------- -----------
Net cash paid for subsidiary $ 3,511,696 $ --
=========== ===========
Loan fees and costs $ 174,916 $ --
Loan discounts (146,165) --
Deposit from prior period applied (20,000) --
----------- -----------
Cash paid for loan fees/costs $ 8,751 $ --
=========== ===========
Warrrants issued with financing $ 380,306 $ --
=========== ===========
6
<PAGE>
SIEMANN EDUCATIONAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
1. BASIS OF PRESENTATION AND ORGANIZATION
---------------------------------------
The balance sheet as of March 31, 1998, the statements of operations and the
statements of cash flows for the three months ended March 31, 1998 and 1997,
have been prepared by the Company. In the opinion of management, all adjustments
(which include normal recurring adjustments) necessary to present fairly the
financial position, results of operations and changes in cash flows at March 31,
1998, and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is recommended that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's December 31, 1997 10-KSB report. The results
of operations for the three months ending March 31, 1998 and 1997 are not
necessarily indicative of the operating results for the full year.
2. ACQUISITION OF SUBSIDIARY AND RELATED DEBT
------------------------------------------
The Company acquired Data Processing Trainers, Inc. ("DPT") on March 24, 1998
for a purchase price of $9,043,128. DPT, now a wholly-owned subsidiary of the
Company, is an accredited school offering a variety of vocational and
avocational training programs with two locations in Philadelphia, Pennsylvania.
The majority of students are drawn from the surrounding metropolitan area.
The purchase price is comprised of: $3,611,698 in cash (including $119,564 in
repurchased common stock), which was paid, less a deposit of $150,000, at the
time of closing; a $4,340,000 promissory note; and $750,000 in stock. The
promissory note, dated March 24, 1998, requires quarterly payments beginning in
June, 1998 of $542,500 in principal plus accrued interest at 7% per annum. The
note is due March 24, 2000 and is secured by a Security Agreement-Stock Pledge
and a Guaranty and Security Agreement. Under the terms of the agreement, 59,782
shares of the Company's common stock valued at $119,564 were repurchased at the
time of the closing by the Company for cash, leaving the balance of $750,000 to
be satisfied by the Company issuing on March 24, 1999 an undetermined number of
shares of non-registered common stock equivalent to a value of $750,000 based on
the ten day trailing average market price at the time of the transfer.
<PAGE>
The acquisition is being accounted for as a purchase with a substantial portion
of the purchase price being allocated to goodwill. The goodwill is being
amortized over forty years. The following pro forma information is presented as
if the acqusition occurred at the begininning of each of the periods:
Three months ended March 31,
1998 1997
---------- ----------
Pro forma revenues $3,198,787 $2,518,611
Pro forma net income $115,370 $329,210
Pro forma primary earnings per share $.03 $.82
Pro forma fully diluted earnings per share $.02 $.24
In order to fund the purchase price, the Company borrowed $2,000,000 from its
president and majority stockholder and $2,900,000 from an outside financing
source. The debt of $2,000,000 to the president bears 12% interest, interest
only payable monthly, and is due on March 24, 2003. The president also received
a warrant to purchase 732,360 shares of the Company's common stock for an
aggregate price of $100 for the period ending March 24, 2003. The debt of
$2,900,000 to the outside source is payable interest only quarterly, bears 12%
interest, and is due on March 25, 2003. This lender received a warrant to
purchase 1,268,486 shares of the Company's common stock for a total price of
$100 through March 25, 2003.
The warrants were valued at approximately $380,000, which is presented on the
balance sheet aa a discount from the debt and is being amortized over the life
of the term of the related notes payable. The costs of obtaining the financing
have been deferred and are also being amortized over the term of the notes
payable.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
March 31, 1998 as Compared to December 31, 1997
- -----------------------------------------------
The Company completed its planned acquisition of Data Processing Training Co.,
an accredited school with two locations in Philadelphia offering a variety of
vocational training programs, on March 24, 1998. The purchase of this school was
a first step in management's long-term plan to grow its business by acquisition
of profitable schools which fit within the Company's overall expansion strategy.
The acquisition was accounted for as a purchase. As a result of the acquisition,
the Company now owns and operates two vocational schools: Denver Automotive and
Diesel College ("DADC") and Data Processing Training Co. ("DPT").
The Company's cash balance increased $1,348,656 over the period ended December
31, 1997; the increase resulted primarily from borrowings associated with the
acquisition of DPT, additional borrowings on three commercial lines of credit,
and restoration of DADC's eligibility to participate in Title IV funding and
grants. Student accounts and notes receivable increased $1,746,487 over December
31, 1997; $1,589,318 of the increase resulted from the purchase of DPT's student
receivables. DADC's accounts and notes receivable increased $266,225, or 12.5%,
over December 31, 1997, primarily due to continuation of institutional student
financing during the Title IV ineligibility period. Because of the changes in
ownership, the Company was temporarily ineligible to receive Title IV funds
until the Department of Education approved its applications to participate in
these programs. As of May 18, 1998, the Department of Education has determined
that DPT is eligible to again participate in Title IV programs; it is
anticipated that Title IV fund flows will be restored as of May 29, 1998. DADC's
Title IV funds were restored on February 2, 1998.
DPT was acquired for $9,043,128, comprised of $3,611,696 cash (net of $341,432
acquired in the purchase), a $4,340,000 note payable to DPT's former owner, and
$750,000 stock. The purchase resulted in an increase to property and equipment
of $316,534; intangible assets in the amount of $8,890,886 were recorded in the
transaction, including $174,916 of loan acquisition costs related to new
borrowings in conjunction with the purchase. Goodwill resulted from the excess
of the price paid over the fair market value of the net assets purchased; as is
the nature of the vocational school industry, tangible assets represent a
relatively low fraction of the overall value associated with reputation, trained
staff, accredited programs, and job placement success. Loans to the Company's
president remained constant over the period; $60,000 was repaid in April 1998.
The balance of these notes receivable is due within one year. Overall, assets of
the Company increased by $12,166,833 over December 31, 1997.
<PAGE>
Accounts payable and accrued expenses increased by $417,656 over December 31,
1997. The payables and accrued expenses acquired by purchase of DPT were
$451,712, while DADC's accruals decreased $34,056 over December 31. Deferred
tuition liabilities rose $1,497,212 over the period, of which $1,286,188 was
attributable to the purchase of DPT. DADC's deferred tuition increase of
$211,024 over December 31, 1997 resulted from normal student enrollment and
timing fluctuations. In connection with the purchase of DPT, the Company
incurred debt to the following parties: $4,340,000 to the seller, $2,900,000 to
a financing subsidiary of a brokerage firm, and $2,000,000 to the Company's
president. Interest-only payments are due on the latter two loans, which have
five-year terms; the loan to DPT's seller requires quarterly principal and
interest payments, with the remaining principal due two years from the date of
purchase. The Company has sufficient resources to continue normal operations
prior to the full restoration of Federal Title IV funds at the end of May, 1998.
Overall, liabilities increased by $11,012,910 over December 31, 1997.
Warrants to purchase 2,008,846 shares of the Company were issued in connection
with the debts to the shareholder and the third-party lender. Based on
provisions of the warrant agreement, a substantial number of shares are expected
to be earned back by the Company; the remaining warrants were valued and
recorded at $380,306. Of this total, $211,863 appears on the balance sheet as
redeemable warrants, and $168,443 is included in additional paid-in capital.
Additional paid-in capital also increased by a further net amount of $691,130 as
a result of the DPT acquisition: a $750,000 increase was recorded for future
stock to be issued to the school's seller, while a net decrease of $58,870 was
recorded when stock issued to him in connection with the Letter of Intent was
repurchased at closing of the sale, as was contemplated by that agreement.
Common stock decreased by a net $3,098, also as a result of the closing
repurchase transaction.
Results of Operations
- ---------------------
March 31, 1998 as Compared to March 31, 1997
- --------------------------------------------
The Company's total revenues increased by $357,248 to $1,141,922, for the
quarter ended March 31, 1998, compared to the same period of 1997. Revenues
include $246,468 attributable to DPT's operations for the six days of the
quarter following its acquisition by the Company. DADC's revenues increased
$110,780 over the previous year's first quarter due to an increase in student
units.
The educational services and facilities cost increase of $146,590 over the
previous year's first quarter includes $89,074 for six days of DPT's operations.
General and administrative costs increased by $149,177, due both to indirect
expenses in conjunction with the purchase of DPT, and continuing costs
associated with the Company's transition to publicly-held status. The interest
expense increase of $55,659 is attributable to acquisition and operations
borrowings; loan proceeds to finance operations were required due to continuing
temporary ineligibility for Title IV funds. Overall, net income was $20,618 for
the first quarter of 1998, compared to $59,264 for 1997; the decrease results
<PAGE>
largely from the increased general and administrative costs and interest
expense, as described above. Net income per share and weighted number of shares
outstanding reflect the issuances to insiders as a result of the reverse merger
of August 31, 1997 and other issuances in conjunction with acquisition
financing.
PART II
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGE IN SECURITIES
Per the Letter of Intent to purchase DPT, on March 24, 1998, the Company
repurchased $119,564 of stock issued to DPT's seller. The issuance and
repurchase were both at $2.00 per share.
Item 3. DEFAULTS ON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibit No. Description
------------ -----------
27 Financial Data Schedule
(b). Reports on Form 8-K:
On April 8, 1998, the Company filed a Report on Form 8-K under
Item 2., "Acquisition or Disposition of Assets".
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
SIEMANN EDUCATIONAL SYSTEMS, INC.
(Registrant)
By: /s/ PAUL T. SIEMANN
-------------------------------------
Paul T. Siemann, President and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 1,367,486 18,830
<SECURITIES> 0 0
<RECEIVABLES> 3,478,283 1,820,807
<ALLOWANCES> 0 0
<INVENTORY> 85,249 7,392
<CURRENT-ASSETS> 5,003,144 1,878,430
<PP&E> 574,939<F1> 284,774
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 15,367,845 3,201,012
<CURRENT-LIABILITIES> 5,799,621 1,735,453
<BONDS> 8,045,181<F2> 1,093,939
211,863<F3> 0
0 0
<COMMON> 376,500 376,500
<OTHER-SE> 935,180 (7,978)
<TOTAL-LIABILITY-AND-EQUITY> 15,367,845 3,201,012
<SALES> 1,141,922 784,674
<TOTAL-REVENUES> 0 0
<CGS> 484,616 338,383
<TOTAL-COSTS> 1,045,787 715,200
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 65,869 10,210
<INCOME-PRETAX> 30,266 59,264
<INCOME-TAX> 9,648 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 20,618 59,264
<EPS-PRIMARY> .01 .15
<EPS-DILUTED> .01 .15
<FN>
<F1>Net of Depreciation
<F2>Long-Term Debt
<F3>Redeemable Warrants
</FN>
</TABLE>
