<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported):
January 28, 1997
------------------------------
SYLVAN LEARNING SYSTEMS, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
0-22844
-------------------
Commission File Number
Maryland 52-1492296
---------------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Lancaster Street
Baltimore, Maryland 21202
------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (410)843-8000
-------------
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
February 5, 1997 as set forth below.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Audited financial statements of Wall Street Institute International,
B.V. and affiliates for the year ended August 31, 1996.
(b) Pro forma financial information.
Unaudited pro forma condensed combined balance sheet as of September
30, 1996.
Unaudited pro forma condensed combined statement of operations for the
nine months ended September 30, 1996.
Unaudited pro forma condensed combined statement of operations for the
year ended December 31, 1995.
Notes to unaudited pro forma condensed combined financial statements.
<PAGE>
KPMG Peat Marwick
WALL STREET INSTITUTE GROUP
Combined Financial Statements
August 31, 1996
(With Independent Auditors' Report Thereon)
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK y Cie. Auditores, S.R.C. APPEARS HERE]
Independent Auditor's Report
----------------------------
Board of Directors
M.P. Management y Particpaciones, S.L.
We have audited the accompanying combined balance sheet of Wall Street
Institute Group (see note 1) (hereinafter the Group) as of August 31, 1996, and
the related combined statements of income, changes in shareholders' equity and
cash flows for the year then ended translated into U.S. dollars. These combined
financial statements are the responsiblity of the Group's management. Our
responsiblity is to express an opinion on these combined financial statements
based on our audit. We did not audit the financial statements of I.F.S.
International Franchise Service, S.L., Wall Street Institute International B.V.
and Wall Street Study Centre Establishment, the statements of which reflect,
after adjustments in combination, total assets of $3,326,757 as of August 31,
1996 and total revenues of $6,255,156 for the year then ended. Those statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for the aforementioned
companies, is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the reports from the other auditors, the
combined financial statements translated into U.S. dollars referred to above
present fairly, in all material respects, the financial position of Wall Street
Institute Group (see note 1) as of August 31, 1996, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles in the United States of America.
Peat Marwick y Cie
December 2, 1996
Barcelona, Spain
<PAGE>
WALL STREET INSTITUTE GROUP
Combined Balance Sheet
August 31, 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets:
Cash and cash equivalents 1,627,315
Notes receivable 1,137,644
Accounts receivable, less allowances
for doubtful accounts of $104,803 2,964,247
Inventories (note 3) 815,022
Prepaid expenses and other current assets 168,808
-----------
Total current assets 6,713,036
Notes receivable 446,346
Property, plan and equipment, net (note 4) 1,092,643
Other assets 263,740
-----------
Total assets 8,515,765
============
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
<S> <C>
Current liabilities:
Short-term borrowings (note 5) 735,541
Current portion of long-term debt and
capital lease obligation (note 7) 155,751
Account payable 1,366,525
Accrued expenses (note 6) 754,278
Deferred revenue 1,273,737
-----------
Total current liabilities 4,285,832
Long-term debt (note 7) 203,352
Commitments (note 12) -
Minority interest in subsidiaries 54,754
Shareholders' equity:
Capital stock (note 8) 165,885
Retained earnings 3,821,933
Treasury stock (note 8) (15,991)
-----------
Total shareholders' equity 3,971,827
-----------
Total liabilities and shareholders' equity 8,515,765
===========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
WALL STREET INSTITUTE GROUP
Combined Statement of Income
Year ended August 31, 1996
(Expressed in U.S. Dollars)
<TABLE>
<S> <C>
Revenues:
Franchise fees 2,773,430
Royalty fees 2,298,875
Course fees from own learning centers 2,147,958
Sale of teaching materials 4,978,276
Telemarketing services 1,536,376
Other 594,775
------------
14,329,690
Costs and expenses:
Cost of sales 1,972,695
Selling, general and administrative expenses 8,141,970
------------
10,114,665
------------
Operating profit 4,215,025
Interest expense (200,846)
Interest income 177,434
Other income, net 110,957
------------
Income before tax 4,302,570
Income tax (note 10) 320,461
------------
Income after tax 3,982,109
Income attributable to minority interest 36,076
------------
Net income 3,946,033
============
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
WALL STREET INSTITUTE GROUP
Combined Statement of Changes in Shareholders' Equity
Year ended August 31, 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Retained Treasury
Capital stock earnings stock Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at September 1, 1995 165,885 869,950 (15,991) 1,019,844
1996 Net income - 3,946,033 - 3,946,033
Cash dividends paid - (994,050) - (994,050)
------------- ------------- ------------- -------------
Balance at August 31, 1996 165,885 3,821,933 (15,991) 3,971,827
============= ============= ============= =============
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
WALL STREET INSTITUTE GROUP
Combined Statement of Cash Flows
Year ended August 31, 1996
(Expresses in U.S. Dollars)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income 3,946,033
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 283,186
Deferred income taxes 68,525
Minority interest 36,076
Other non-cash charges and credits, net 225,420
Changes in operating working capital:
Accounts and notes receivable (3,448,589)
Inventories 486,805
Prepaid expenses and other current assets (112,919)
Accounts payable (682,167)
Accrued expenses 2,730
Deferred revenue 173,688
-----------
Net change in operating working capital (3,580,452)
-----------
Net cash provided by operating activities 978,788
-----------
Cash flows from investing activities:
Purchases of property, plant and equipment (411,112)
Other, net (57,414)
-----------
Net cash used for investing activities (468,526)
-----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 43,568
Payments of long-term debt (201,290)
Short-term borrowings, net 1,564,959
Cash dividends paid (994,050)
-----------
Net cash provided by financing activities 413,187
-----------
Net increase in cash and cash equivalents 923,449
Cash and cash equivalents at beginning of year 703,886
-----------
Cash and cash equivalents at year end 1,627,315
===========
Supplemental cash flow information:
Cash flow data
Interest paid 200,846
Income tax paid 30,507
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
WALL STREET INSTITUTE GROUP
Notes to Combined Financial Statements
August 31, 1996
(Expressed in U.S. Dollars)
(1) Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
(a) Nature and principal activities
-------------------------------
The combined financial statements of the Wall Street Institute Group
(hereinafter the Group) have been prepared, by the management of the
Group, in conformity with generally accepted accounting principles in
the United States of America in the context of a possible acquisition
of the entire Group by a third party. Even though the companies
comprising the Group were not bound by a parent company relationship,
their financial statements have been combined because they are
entities under common control and because they depict the business
being acquired.
The Group is composed of the following six companies:
M.P. Management y Participaciones, S.L.
---------------------------------------
It was incorporated as a private limited liability company under
Spanish Law on September 30, 1993 for an indefinite term, under the
name Wall Street Catalunya, S.L. changing its name on April 26, 1995
to the present name.
This company is engaged in the commercialization of teaching material
and rendering of telephone sales, consulting, training and personnel
selection services.
At August 31, 1996 it owned 89.91% and 19.99%, respectively, of the
share capital of W.S.I. Barcelona, S.A. and W.S.I. Spain, S.A.
W.S.I. Barcelona, S.A.
----------------------
It was incorporated as a limited liability company under Spanish Law
on April 6, 1990 for an indefinite term. It is engaged in the
operating of the franchise of a teaching method for learning English
called Wall Street, directly from the teaching centre situated in
Paseo de Gracia n/o/ 11 (Barcelona) and a franchise network for the
Catalonia region.
W.S.I. Spain, S.A.
------------------
It was incorporated as a limited liability company under Spanish Law
on December 12, 1994 for an indefinite term.
It is engaged in the operating of a franchise network of Wall Street
Institutes in Spain, except for the Catalonia region, consisting of
the development of franchises of English learning centers and the
rendering of business services in the business centers.
(Continue)
<PAGE>
WALL STREET INSTITUTE GROUP
Notes to Combined Financial Statements
(Expressed in U.S. Dollars)
I.F.S. International Franchise Service, S.L.
--------------------------------------------
It was incorporated with private limited liability company under
Spanish Law on September 16, 1994 for an indefinite term. Its
activities include the design, creation, manufacturing and
distribution of graphic and teaching material, both in printed form
and various kinds of audio supports; the sale and provision of
various kinds of computer material; and advisory and consulting
services in teaching, commercial and administrative areas.
W.S.I. International, B.V.
--------------------------
It was incorporated under Dutch Law on April 3, 1990. It has its
registered seat in Amsterdam, but may establish branches and/or
other offices elsewhere. Its activities are mainly acquiring,
participating in, financing, managing and taking an interest in
other companies and enterprises of any nature; creating for the
purposes of trade, acquiring, aligning and granting the use of
copyrights, patent rights, designs, trademarks and rights of a
similar nature, and acquiring royalties and other rights resulting
from these rights.
Wall Street Study Center Establishment
--------------------------------------
It was incorporated under the Laws of Liechtenstein on November 5,
1969. Its activities include the acquisition and administration of
financial and material fixed assets and rights or trademarks.
(b) Basis of presentation
---------------------
The accompanying combined financial statements of the Group have been
prepared on the basis of the accounting records of each of the Group
companies maintained in Spain and in Spanish pesetas for the majority
of them, which have been adjusted in order to conform with generally
accepted accounting principles in the United States of America and
translated into US Dollars.
(c) Principles of combination
-------------------------
The combined financial statements include the consolidated financial
statements of M.P. Management y Participaciones, S.L. and W.S.I.
Barcelona, S.A. (its 89.91% subsidiary), and the financial statements
of the other entities comprising the Group. All intercompany balances
and transactions have been eliminated in consolidation and
combination.
(d) Cash equivalents
----------------
For purposes of the statement of cash flows, the Group considers all
highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
(Continued)
<PAGE>
WALL STREET INSTITUTE GROUP
Notes to Combined Financial Statements
(Expressed in U.S. Dollars)
(e) Inventories
-----------
Inventories are stated at the lower of cost, determined using primarily the
average method or net realizable value.
(f) Notes receivable
----------------
Notes receivable are recorded at cost. Management, considering current
information and events regarding the borrowers' ability to repay their
obligations, considers a note to be impaired when it is probable that the
Group will be unable to collect all amounts due according to the
contractual terms of the note agreement. When a loan is considered
impaired, the amount of impairment is measured based on the present value
of expected future cash flows discounted at the note's prevailing
interest rate.
(g) Property, plant and equipment
-----------------------------
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
Asset classification Useful life in years
--------------------------------- ------------------------
<S> <C>
Machinery and equipment 4 - 10
Furniture and fixtures 5 - 10
Office computers 4 - 7
Vehicles 3 - 6
Teaching material 4 - 7
</TABLE>
Long-life assets and certain identifiable intangible assets are reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of
long-life assets is measured by a comparison of the carrying amount of
the assets with future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceeds their fair value.
(h) Foreign currency translation
----------------------------
The Group's functional currency is the Spanish peseta. The translation of
the financial statements of the Group's companies into U.S. dollars has
been performed at the prevailing exchange rate at balance sheet date for
assets, liabilities, revenues, expenses, gains and losses. The effect of
not applying the FASB statement no. 52 in translating the functional
currency is not significant.
(Continued)
<PAGE>
WALL STREET INSTITUTE GROUP
Notes to Combined Financial Statements
(Expressed in U.S. Dollars)
(i) Revenue recognition
-------------------
Franchise sales relate to fees from each individual new franchise center
opened. Revenue related to these sales is recognized as such when all
material services or conditions relating to sales have been
substantially performed or carried out by the Group, including the
criteria for substantial performance: receipt of an executed franchise
license agreement, completion of requisite training by the franchisee
or center director, completion of site selection assistance and site
approval. Royalties are based on a percentage of monthly fee income of
the franchise and recognized as revenue when earned.
Course fees from own learning centers are deferred and recognized as
revenue on a straight-line basis over the contract period of each
course.
(j) Advancement and advertising costs
---------------------------------
Advancement and advertising costs are expensed as incurred and amount to
approximately $1,360,000 for the year ended August 31, 1996.
(k) Income taxes
------------
Income taxes are calculated bases on profit reported for accounting
purposes, adjusted for permanent differences with fiscal criteria and
taking into consideration any applicable credits and deductions.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those timing differences are expected to be recovered or
settled.
(l) Use of estimates
----------------
The management of the companies comprising the Group has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimated.
(2) Related Party Transactions
--------------------------
At August 31, 1996 an 11 percent interest-bearing loan of a total amount of
$180,173 (including interest accrued pending collection) from Calls
International was recorded as notes receivable.
(Continued)
<PAGE>
WALL STREET INSTITUTE GROUP
Notes to Combined Financial Statements
(Expressed in U.S. Dollars)
(3) Inventories
-----------
Inventories at August 31, 1996 consist of the following:
<TABLE>
<S> <C>
Advances to suppliers 85,785
Finished goods 834,764
---------------
920,549
Less provision for slow-moving items (105,527)
---------------
815,022
===============
</TABLE>
The finished product mainly includes teaching material to be supplied to
the different Wall Street Institute Group franchisee centers.
(4) Property, Plant and Equipment
-----------------------------
Property, plant and equipment at August 31, 1996 consist of the following:
<TABLE>
<S> <C>
Teaching material to be used in own centres 292,305
Machinery and equipment 796,904
Furniture and fixtures 497,901
Office computers 249,585
Vehicles 78,391
---------------
1,915,086
Accumulated depreciation (822,443)
---------------
1,092,643
===============
</TABLE>
(5) Short-Term Borrowings
---------------------
Short-term borrowings are detailed as follows:
<TABLE>
<CAPTION>
Outstanding
Amount at
Interest Date of August 31,
rate maturity Limit 1996
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Unsecured bank lines of
credit 8.20-14% 9/96-7/97 1,119,382 644,879
Discounted notes pending
maturity 8.75-12.75% 9/96-12/96 312,697 90,662
----------- -------------
1,432,079 735,541
=========== =============
</TABLE>
(Continued)
<PAGE>
WALL STREET INSTITUTE GROUP
Notes to Combined Financial Statements
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
(6) Accrued Expenses
----------------
Accrued expenses at August 31, 1996 consist of the following:
<S> <C>
Payroll and other compensation 146,020
Taxes payable to Spanish Tax Authorities
VAT 121,940
Withholdings on payroll 75,654
Income tax (note 11) 199,402
Social Security 40,993
Deferred taxes (note 1) 68,525
Other 101,744
---------------
754,278
===============
(7) Long-Term Debt
--------------
Long-term debt at August 31, 1996 consists of the following:
Bank loans and credit facilities
Unsecured note payable to a bank, bearing fixed
interest of 13%. The loan is payable in monthly
installments of $1,819, including interest, through
July 1999 52,755
Unsecured note payable to a bank, bearing fixed
interest of 12.25%. The loan is payable in monthly
installments of $2,115, including interest, through
September 1998 46,470
Unsecured note payable to a bank, bearing fixed
interest of 12%. The loan is payable in monthly
installments of $2,177, including interest, through
June 1998 42,800
Unsecured note payable to a bank, bearing fixed
interest of 10.25%. The loan is payable in monthly
installments of $3,884, including interest, through
March 1999 105,381
---------------
247,406
Capital lease obligations 91,409
Other debt 20,288
---------------
359,103
Less current maturities:
Bank loans and credit facilities (96,443)
Capital lease obligations (note 9) (59,308)
---------------
(155,751)
---------------
203,352
===============
</TABLE>
(Continued)
<PAGE>
WALL STREET INSTITUTE GROUP
Notes to Combined Financial Statements
(Expressed in U.S. Dollars)
Future maturities of bank loans and credit facilities as of August 31, 1996
are as follows:
<TABLE>
<CAPTION>
Years ending August 31:
<S> <C>
1997 96,443
1998 103,806
1999 47,157
-----------
247,406
===========
</TABLE>
(8) Capital Stock
-------------
The following table presents the capital stock of the companies comprising
group.
Company
M.P. Management y Participaciones, S.L.,
1,000 Spanish pesetas par value,
approximating $8. Authorized, issued and
fully paid 5,000 shares 39,978
W.S.I. Spain, S.A., 1,000 Spanish pasetas
par value, approximating $8. Authorized,
issued and fully paid 10,004 shares 79,988
I.F.S. International Franchise Service, S.L.
1,000 Spanish pesetas par value, approximating
$8. Authorized, issued and fully paid 650
shares 5,197
Wall Street Study Centre Establishment, the
share capital is fully paid-up and is not
divided into participations 16,636
Wall Street Institute International B.V.,
1,000 Dutch florins par value, approximating
$602.14. Authorized, issued and fully paid
40 shares. 24,086
---------------
Net book value 165,885
===============
The treasury shares represent 2,000 shares, at cost, of W.S.I. Spain, S.A.
held by M.P. Management y Participaciones, S.L.
(Continued)
<PAGE>
WALL STREET INSTITUTE GROUP
Notes to Combined Financial Statements
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
(9) Leases
------
Certain companies of the Group have entered into capital leases for the
acquisition of property, plant and equipment. At August 31, 1996 details
of these assets are as follows:
<S> <C>
Machinery and equipment 62,629
Furniture 9,027
Office computers 16,407
Vehicles 25,515
--------------
113,578
Less, accumulated depreciation (33,423)
--------------
Net book value 80,155
==============
The maturities under the capital lease obligations are as follows:
Year ending August 31,
1997 73,916
1998 32,101
--------------
Total minimum lease payments 106,017
Less amount representing interest
(at rates ranging from 8.95% to 11.5%) 14,608
--------------
Present value of net minimum capital lease payment 91,409
Less current installments
of capital lease obligations (note 7) 59,308
--------------
Capital lease obligations, excluding current
installments 32,101
==============
<CAPTION>
(10) Income Taxes
------------
Income tax expense consists of:
Current Deferred Total
----------- ------------ ---------
<S> <C> <C> <C>
Spanish 199,402 54 199,456
Foreign 52,534 68,471 121,005
----------- ------------ ---------
251,936 68,525 320,461
=========== ============ =========
</TABLE>
(Continued)
<PAGE>
WALL STREET INSTITUTE GROUP
Notes to Combined Financial Statements
(Expressed in U.S. Dollars)
Income tax expense of the Spanish companies differed from the amounts computed
by applying the Spain income tax note of 35 per cent to pretax income as a
result of the following:
<TABLE>
<S> <C>
Aggregated income before tax of the Spanish companies
(Taxable base) 1,674,740
Computed "expected" tax expense/ 586,159
Increase (reduction) in income taxes resulting from:
Rebate of 95% on the income tax rate of I.F.S.
International Franchise Service, S.L. and W.S.I.
Spain, S.A. (280,517)
Adjustment to deferred tax assets and liabilities 54
Deduction for dividends received from affiliates not
subject to taxation (29,717)
Other deduction (76,523)
---------------
199,456
===============
</TABLE>
Income tax expense for the W.S.I. International B.V. corresponds to 7% of total
turnover.
There is no income tax expense for the Wall Street Study Center Establishment.
The Group companies, I.F.S. International Franchise Service, S.L. and W.S.I.
Spain, S.A., adhere to the tax measures of the Law 22 of December 29, 1993
whereby they benefit from a rebate of 95% on the income tax rate, applicable
to the years 1995, 1996 and 1997. The said rebate is subject to the
fulfillment of certain requirements, including the obligation that the
participation of individuals amount to more than 75% of the share capital.
Likewise, the breach of any of the requirements established would mean the
loss of the said rebates, including for those years in which the rebates have
already been applied.
The tax effects of timing differences that give rise to a significant portion of
the deferred tax liabilities are presented below:
<TABLE>
<S> <C>
Deferred tax liabilities:
Royalty fees, principally due to royalties
pending collection for
W.S.I. International, B.V. 68,471
Other 54
---------------
Total deferred tax liability 68,525
===============
</TABLE>
(Continued)
<PAGE>
WALL STREET INSTITUTE GROUP
Notes to Combined Financial Statements
(Expressed in U.S. Dollars)
(11) Concentration of Business and Credit
------------------------------------
The Group is subject to concentration of business and credit risk
through cash and cash equivalents, accounts receivable and notes
receivable. The Group's customer base includes franchisees as well
as individuals through the company-owned learning centers. The
Group's operations are directly affected by the franchisees
financial position. The Group also maintains an allowance for losses
on receivable based on the collectibility of all amounts owned. The
Group generally does not require collateral for trade and notes
receivable, but in the majority of the cases, the Group knows the
financial position of the franchisees through the accounting advice
which it provides them. Cash and cash equivalents are place with
high-credit quality financial institutions in short-term
duration.Management believes that the credit risk associated with
such financial instruments is minimal due to the control procedures
which monitor the credit worthiness of clients.
(12) Contingencies and Commitments
------------------------------
Wall Street Centre Establishment guarantees, until December 13, 1996,
the commitment of Mr. Luigi Tiziano Peccenini (President of the
Group) to pay an amount of $892,867 to Mr. Antonio Duno Esteve
(former Director).
/s/ Robert Zanco
-------------------------------
Robert Zanco
Sole Administrator of I.F.S. International Franchise
Service, S.L., M.P. Managementy Participaciones, S.L.,
W.S.I. Spain, S.A. and W.S.I. Barcelona, S.A.
Board of Directors executive member of Wall Street Institute
International, B.V.
<PAGE>
PROAUDIT, S.L.
Company inscribed in:
- -Official Register of Auditors
Inscription No. 50235
- -Special Register of Auditing Companies
of Spanish Institute of Auditors
Inscription No. 174
Date: October 31, 1996
No. Protocol: 264/96
L.F.S.
INTERNATIONAL
FRANCHISE SERVICE, S.L.
AUDIT REPORT
ON THE FINANCIAL
STATEMENTS
AT AUGUST 31, 1996
<PAGE>
[LETTERHEAD OF PROAUDIT APPEARS HERE]
Independent Auditors' Report
To the Members of the Board of Directors and Equity Holders
I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L.
1. We have audited the financial statements of I.F.S. INTERNATIONAL FRANCHISE
SERVICE, S.L. (hereinafter I.F.S. or the Company) as of August 31, 1996 and
the related statements of income, and changes on shareholders' equity, for
the twelve-month period then ended. These financial statements are the
responsibility of the Directors of the Company. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. 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
audit provides a reasonable basis for our opinion.
2. The Company adheres to the tax measures of the Law 22 of December 29, 1993 in
which it benefits from a discount of 95% on the total income tax liability,
applicable to the years 1994/95, 1995/96 and 1996/97. The said discount is
subject to the fulfillment of determined requirements, including the
obligation that the participation of individuals amounts to more than 75% of
the share capital. The breach of any of the requirements established would
mean the loss of the said discounts, including for those years in which the
discounts have already been applied, which to the date amount to $159,496.
3. In our opinion, the financial statements referred to above present fairly in
all material aspects, the financial position of I.F.S. INTERNATIONAL
FRANCHISE SERVICE, S.L. as of August 31, 1996, and the results of its
operations and its cash-flows for the twelve-month then ended in conformity
with U.S. GAAP generally accepted accounting principles in the United States
of America.
October 31, 1996
[SEAL OF PROAUDIT, S.L. APPEARS HERE]
PROAUDIT, S.L.
/s/ Ramon Rubinat Rene
Signed: Ramon Rubinat Rene
<PAGE>
I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L.
Balance Sheet
August 31, 1996
($)
<TABLE>
<S> <C>
Assets
------
Current assets
Cash and cash equivalents 139,042
Short-term investments, at cost which approximates market 0
-----------
139,042
Accounts and notes receivable, less allowance 1,668,882
Inventories (Note 2) 671,332
Prepaid expenses, taxes and other current assets 2,354
-----------
Total current assets 2,481,610
Investments in affiliates and other assets 23,746
Property, plant and equipment, net (Note 3) 301,037
Intangible assets, net 9,251
-----------
Total assets 2,815,644
===========
Liabilities and shareholders' equity
------------------------------------
Current liabilities
Short-term borrowings (Note 6) 355,582
Accounts payable 409,418
Income taxes payable (Note 8) 5,140
Accrued expenses 0
Other current liabilities (Note 5) 1,646,485
Total current liabilities 2,416,625
Long-term debt (Note 6) 27,235
Notes payable to affiliated company
Other liabilities
Deferred income taxes
Shareholders' equity
Capital stock 5,197
Retained earnings 366,587
Currency translation adjustment and other 0
-----------
Total shareholders' equity 371,784
-----------
Total liabilities and shareholders' equity 2,815,644
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L.
Statement of Income
Year ended August 31, 1996
($)
<TABLE>
<S> <C>
Net sales 5,416,000
Cost and expenses, net
Cost of sales (1,831,733)
Selling, general and administrative expenses (3,204,749)
Amortization of intangible assets (1,476)
------------
Operating profit 378,042
Interest expense (109,190)
Interest income 37,052
Other income (expense) (12,189)
------------
Income before taxes 293,715
Provision for income taxes (5,140)
------------
Net income 288,575
============
</TABLE>
[SEAL APPEARS HERE]
<PAGE>
I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L.
Statement of Cash Flows
Year ended August 31, 1996
($)
<TABLE>
<CAPTION>
<S> <C>
Cash flows-operating activities:
Net income 288,575
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 49,695
Provision for inventories 28,380
Deferred income taxes 54
Other noncash charges and credits, net 111,340
Changes in operating working capital:
Accounts and notes receivables (665,647)
Inventories 590,332
Accounts payable (370,323)
Accrued expenses (15,630)
Other current liabilities 18,360
----------
Net charge in operating working capital (442,908)
----------
Net cash provided by (used for) operating activities 35,136
----------
Cash flows-investing activities:
Purchases of property, plant and equipment (247,210)
Other, net (335)
----------
Net cash provided by (user for) investing activities (247,545)
----------
Cash flows-financing activities:
Payments of long-term debts 8,322
Short-term borrowings, net 50,965
Other, net
----------
Net cash provided by (used for) financing activities 59,287
----------
Net increase (decrease) in cash and cash equivalents (153,122)
Cash and cash equivalents-beginning of year 292,164
----------
Cash and cash equivalents-end of year 139,042
==========
Supplemental cash flow information:
Cash flow data
Interest paid 109,190
Income taxes paid 1,379
Schedule of non-cash investing and financial activities
Losses for disposal of assets 9,056
Prepayments 4,971
</TABLE>
See accompanying notes to financial statements.
<PAGE>
I.F.S. INTERNATIONAL FRANCHISE SERVICE, S.L.
Statement of Stockholders' Equity
Year ended August 31, 1996
($)
<TABLE>
<CAPTION>
Capital stock
---------------------------- Retained
Shares Amount earnings Total
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Shareholders' equity, August 31, 1995 650 5,197 78,012 83,209
1996 Net income 288,575 288,575
---------- ---------- ---------- ---------
Shareholders' equity, August 31, 1996 650 5,197 366,587 371,784
========== ========== ========== =========
</TABLE>
[SEAL APPEARS HERE]
<PAGE>
I.F.S. INTERNATIONAL FRANCHISE
SERVICE, S.L.
Notes to the financial statements of
(1) Summary of significant accounting policies
------------------------------------------
(a) Organization and Business
-------------------------
The statutory activity of I.F.S. INTERNATIONAL FRANCHISE SERVICE,
S.L. is the design, creation, manufacturing and the distribution of
graphic and didactric material both for printing mediums and all
kinds of magnetic mediums, the sale and purchase and the
distribution of all kinds of computer material, the advising and
consulting in didactic, commercial and administrative areas.
(b) Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful
lives of the assets, as follows:
<TABLE>
<CAPTION>
------------------------------------------ ---------------------- % Annual
Asset Useful life in years Depreciation
------------------------------------------ ---------------------- on
------------
<S> <C> <C>
Machinery 8 12
Furniture 10 10
Tools and other installations 5 20
Data processing equipment 4 25
Transport 3 32
</TABLE>
(2) Inventories
-----------
<TABLE>
<CAPTION>
Dollars
---------------
<S> <C>
Finished goods 776,859
Lees provision for slow-moving items (105,527)
---------------
671,332
===============
</TABLE>
(3) Property, Plant and Equipment
-----------------------------
<TABLE>
<CAPTION>
Dollars
---------------
<S> <C>
Machinery and equipment 36,676
Furniture and fixtures 237,548
Office computers 46,650
Vehicles 29,713
---------------
Accumulated depreciation 350,587
(49,550)
---------------
301,037
Depreciation expense in 1996 was $ 48,219
</TABLE>
[SEAL APPEARS HERE]
<PAGE>
2
I.F.S. INTERNATIONAL FRANCHISE
SERVICE, S.L.
Notes to the financial statements of
<TABLE>
<CAPTION>
(4) Intangible Assets
-----------------
Dollars
-------------
<S> <C>
Rights of software 12,780
Accumulated depreciation (3,529)
-------------
9,251
Depreciation expense in 1996 was $ 1,476
<CAPTION>
(5) Other Current Liabilities
-------------------------
Dollars
-------------
<S> <C>
CALLS INTERNATIONAL (5,379)
WSI INTERNATIONAL B.V. 1,547,278
WSI SPAIN 60,119
WSI BARCELONA 42,073
M.P. MANAGEMENT Y PARTICIPACIONES 2,394
-------------
1,646,485
=============
<CAPTION>
(6) Short-Term Borrowings and Long-Term Debt
----------------------------------------
Short-term borrowings and long-term debt at August 31, 1996 consist of the
following:
Dollars
-------------
<S> <C>
Short-term borrowings
Loans with credit institutions 355,582
=============
Long-term debt
Capital lease obligations 6,947
Other debt 20,288
-------------
27,235
=============
</TABLE>
(7) Leases
------
The Company has recorded the fixed assets acquired through financial leasing
within the fixed tangible assets caption, with the amount of the payable quotas
stated in the liabilities of the balance sheet.
<PAGE>
3
I.F.S. INTERNATIONAL FRANCHISE
SERVICE, S.L.
Notes to the financial statements of
At August 31, 1996 the fixed assets recorded for this concept are as
follows:
<TABLE>
<CAPTION>
Dollars
---------------
<S> <C>
Vehicles 25,515
Accumulated depreciation 4,423
---------------
Net 21,092
===============
</TABLE>
The following is a schedule by years of future minimum payments under
capital leases as at August 31, 1996:
Year ended August 31:
<TABLE>
<CAPTION>
Dollars
---------------
<S> <C>
1997 11,967
1998 6,947
</TABLE>
(8) Income Taxes
------------
Taxes on income consist of:
<TABLE>
<CAPTION>
Dollars
---------------
<S> <C>
Currently payable 5,086
Deferred 54
---------------
Total 5,140
===============
</TABLE>
The Company benefits from a 95% discount on income tax subject to
fulfillment of certain requirements referring basically to: personnel of
3 to 20 persons, investments in fixed assets, participation by
equityholders (persons) of more than 75%.
(9) Royalties
---------
The Company has entered into a contract with WSI INTERNATIONAL, B.V., by
which the latter grants the license for the editing, reproduction,
distribution and commercialization of WALL STREET INSTITUTE products,
symbols and trademarks. In exchange, the payment of a royalty of 20% of
the sale price of the said products is obligatory.
The term of the said contract is from November 1, 1994 to August 31, 1997.
The payment of the royalties shall be effective at August 31, 1997,
there being a minimum of CHF 1,000,000 guaranteed each year. The amount
accrued for this concept in the year ended August 31, 1996 is $930,625
and the debt payable at the said date is $1,547,277.
[SEAL APPEARS HERE]
<PAGE>
[LOGO OF PROAUDIT APPEARS HERE]
PROAUDIT, S.L.
Company inscribed in:
- - Official Register of Auditors
Inscription N/o/ S0235
-
- - Special Register of Auditing Companies
of Spanish Institute of Auditors
Inscription N/o/ 174
-
Date: October 31, 1996
N/o/ Protocol: 266/96
-
WALL STREET STUDY CENTRE
ESTABLISHMENT
AUDIT REPORT
ON THE FINANCIAL STATEMENTS
AT AUGUST 31, 1996.
[SEAL APPEARS HERE]
<PAGE>
[LETTERHEAD OF PROAUDIT APPEARS HERE]
Independent Auditors' Report
The Board of Directors and Stockholders
WALL STREET STUDY CENTRE ESTABLISHMENT
1. We have audited the financial statements of WALL STREET STUDY CENTRE
ESTABLISHMENT (hereinafter the Company) as of August 31, 1996 and the
related statements of income, and changes in shareholders' equity, for the
twelve-month period then ended. These financial statements are the
responsibility of the Directors of the Company. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. 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
audit provides a reasonable basis for our opinion.
2. By virtue of the trademark contract, entered into at August 25, 1994 with
WALL STREET INSTITUTE INTERNATIONAL B.V. (WSI. INT), the Company receives
between 93% and 98% of the royalties collected by the aforementioned company
by way of use trademark. However, on the accompanying financial statement
the royalties accrued and pending collection by WSI. INT, amounting to
$2,274,215.62 are stated as income.
3. In our opinion, except for the effects of the qualification mentioned in the
above paragraph, the financial statements referred to above present fairly
in all material aspects the financial position of WALL STREET STUDY CENTRE
ESTABLISHMENT as of August 31, 1996, and the results of its operations and
its cash-flows for the twelve-month then ended in conformity with U.S. GAAP
generally accepted accounting principles in the United States of America.
October 31, 1996
[SEAL OF PROAUDIT APPEARS HERE]
PROAUDIT, S.L.
Signed: Ramon Rubinat Rene
<PAGE>
[SEAL APPEARS HERE]
WALL STREET STUDY CENTRE ESTABLISHMENT
Balance Sheet
August 31, 1996
($)
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets
Cash and cash equivalents (note 4)
Short-term investments, at cost which approximates market 33.833,13
--------------
33.833,13
Accounts and notes receivable, less allowance (note 3) 2.274.215,62
Inventories
Prepaid expenses, taxes and other current assets
--------------
Total current assets 2.308.048,75
Investments in affiliates and other assets 48.177,23
Property, plant and equipment, net
Intangible assets, net (note 2)
--------------
Total assets 2.356.225,98
==============
<CAPTION>
Liabilities and shareholders' equity
------------------------------------
<S> <C>
Current liabilities
Short-term borrowings
Accounts payable
Income taxes payable
Accrued expenses
Other current liabilities
--------------
Total current liabilities 0.00
Long-term debt
Notes payable to affiliated company
Other liabilities
Deferred income taxes
Shareholders' equity (note 5)
Capital stock 16.635,62
Retained earnings 2.339.590,36
Currency translation adjustment and other
--------------
Total shareholder's equity 2.356.225,98
--------------
Total liabilities and shareholders' equity 2.356.225,98
==============
</TABLE>
See accompanying notes to financial statements
<PAGE>
WALL STREET STUDY CENTRE ESTABLISHMENT
Statement of Income
Year ended August 31, 1996
($)
<TABLE>
<S> <C>
Net sales 2,802,495.02
Cost and expenses, net
Cost of sales
Selling, general and administrative expenses 13,755.13
Amortization of intangible assets
---------------
Operating profit 2,788,739.89
Interest expense
Interest income
Other income(expense) ---------------
Income before taxes 2,788,739.89
Provision for income taxes ---------------
Net income 2,788,739.89
==============
</TABLE>
[SEAL OF PROAUDIT, S.L. APPEARS HERE]
<PAGE>
WALL STREET STUDY CENTRE ESTABLISHMENT
Statement of Cash Flows
Year ended August 31, 1996
($)
<TABLE>
<S> <C>
Cash flows-operating activities:
Net income 2,788,739.89
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Deferred income taxes
Other noncash charges and credits, net
Changes in operating working capital:
Accounts and notes receivables (1,091,129.53)
Inventories
Prepaid expenses, taxes and other current assets
Accounts payable
Accrued expenses
Other current liabilities ------------------
Net charge in operating working capital (1,091,129.53)
------------------
Net cash provided by (used for) operating 1,697,610.36
------------------
activities
Cash flows-investing activities:
Acquisition and investments in affiliates (41,901.19)
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Short-term borrowings, net
Cash dividends paid (994,049.73)
Other, net ------------------
Net cash provided by (user for) investing (1,035,950.92)
------------------
activities
Cash flows-financing activities:
Proceeds from issuances for long-term debt
Payments of long-term debts
Short-term borrowings, net (717,417.65)
Other, net ------------------
Net cash provided by (used for) financing (717,417.65)
------------------
activities
Net increase (decrease) in cash and cash equivalents (55,758.21)
Cash and cash equivalents-beginning of year 89,591.34
------------------
Cash and cash equivalents-end of year 33,833.13
==================
</TABLE>
<PAGE>
WALL STREET STUDY CENTRE ESTABLISHMENT
Statement of Stockholder's Equity
Year Ended August 31, 1996
($)
<TABLE>
<CAPTION>
Capital Stock Retained
accounts earnings Total
---------------- ---------------- ---------------
<S> <C> <C> <C>
Shareholder's equity August 31, 1996 16,635.62 1,009,457.92 1,026,093.54
1996 Net income (loss) 2,788,739.89 2,778,739.89
Interest dividend (1,458,607.45) (1,458,607.45)
---------------- ---------------- ---------------
16,635.62 2,339,590.36 2,356,225.98
================ ================ ==============
</TABLE>
[SEAL APPEARS HERE]
<PAGE>
Wall Street Study Centre Establishment
Notes to the Financial Statements
(1) Organization and Business
-------------------------
Wall Street Study Center Establishment was incorporated under Lienchtensteinsh
Law at November 5, 1969. Its statutory activity is the acquisition and
administration of financial and material fixed assets and rights or trade marks,
and its dearly excluded the commercialization of other kind of items.
(2) Intangible fixed assets
-----------------------
The intangible fixed assets are valued at their cost of acquisition;
corresponding to the amount for the registered trademarks of the Company.
(3) Debtors
-------
The debit balances correspond entirely to the balances pending collection from
the sole client, Wall Street Institute International, B.V.
(4) Cash and banks
--------------
The accounting balances for the current accounts in foreign currencies are
accounted for applying the exchange rate at the year end.
(5) Shareholders equity
-------------------
Details are as follows:
<TABLE>
Dollars
-------------
<S> <C>
Capital 16,635.62
Reserves 544,900.19
Losses and Profits 95/96 2,788,739.89
Dividend (994,049.73)
-------------
2,356,225.98
</TABLE>
(6) Contingencies
-------------
The Company guarantees up to December 31, 1996 the payment commitment of Mr.
Luigi Tiziano Peccenini to Mr. Antonio Maria Du*o Esteve for $892,867.
[SEAL OF PROAUDIT APPEARS HERE]
<PAGE>
PROAUDIT, S.L.
Company inscribed in:
Official Register of Auditors
Inscription N/O/ S0235
* Special Register of Auditing Companies
of Spanish Institute of Auditors
Inscription N/O/ 174
Date: October 31, 1996
N/O/Protocol: 265/96
WALL STREET
INSTITUTE
INTERNATIONAL B.V.
AUDIT REPORT
ON THE FINANCIAL STATEMENTS
AT AUGUST 31, 1996
[SEAL OF PROAUDIT APPEARS HERE]
<PAGE>
[LETTERHEAD OF PROAUDIT APPEARS HERE]
Independent Auditors' Report
The Board of Directors and Stockholders
WALL STREET INSTITUTE INTERNATIONAL B.V.
1. We have audited the financial statements of WALL STREET INSTITUTE
INTERNATIONAL B.V. (hereinafter the Company) as of August 31, 1996 and the
related statements of income, and changes in shareholders' equity, for the
twelve-month period then ended. These financial statements are the
responsibility of the Directors of the Company. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. 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 audit provides a reasonable basis for our opinion.
2. The Company has not invoiced any amounts to the Head Office in France by
way of royalties. According to the Management of the Company, this is due
to an agreement between both parties based on a minimum invoicing amount of
FF 800 thousand. We have not obtained sufficient evidence that the said
agreement is valid, nor do we feel that the non-invoicing of royalties
amounting to USA $31,850, is sufficiently justified in the period September
1, 1995 to August 31, 1996.
3. A contract dated 17 December 1992 exists under which premises the Trademark
and method WALL STREET INSTITUTE is granted to Mr. Jose M/a/ Esteve for the
Territory of Portugal. In the mentioned contract, Mr. Esteve committed
himself to incorporate a new company in the above mentioned territory and
to cede 20% of the shares to WALL STREET INSTITUTE INTERNATIONAL B.V.
According to the management of WALL STREET INSTITUTE INTERNATIONAL.V. even
though the business is being developed in Portugal, Mr. Esteve has not met his
part of the agreement mentioned before.
<PAGE>
4. In our opinion, except for the effects of the possible contingencies
arising from the uncertainty expressed in paragraph 2 above, the financial
statements referred to above present fairly in all material aspects the
financial position of WALL STREET INSTITUTE INTERNATIONAL B.V. as of August
31, 1996, and the results of its operations and its cash-flows for the
twelve-month then ended in conformity with the U.S. GAAP generally accepted
accounting principles in the United States of America.
October 31, 1996
PROAUDIT, S.L.
[SEAL OF PROAUDIT APPEARS HERE]
/s/ Ramon Rubinat Rene
Signed: Ramon Rubinat Rene
<PAGE>
W.S. INSTITUTE INTERNATIONAL, B.V. [LOGO OF PROAUDIT
Balance Sheet APPEARS HERE]
August 31, 1996
($)
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets
Cash and cash equivalents
Short-term investments, at cost which approximates market 105.607,40
(note 4)
--------------
105.607,40
Accounts and notes receivable, less allowance (note 3) 2.445.393,14
Inventories
Prepaid expenses, taxes and other current assets
--------------
Total current assets 2.445.393,14
Investments in affiliates and other assets (note 2) 48.000,00
Property, plant and equipment, net
Intangible assets, net
--------------
Total assets 2.599.000,54
[SEAL OF PROAUDIT, S.L.APPEARS HERE] ==============
<CAPTION>
Liabilities and shareholders' equity
------------------------------------
<S> <C>
Current liabilities (note 5)
Short-term borrowings 2.274.215,62
Accounts payable
Income taxes payable 157.454,59
Accrued expenses
Other current liabilities 325.643,36
--------------
Total current liabilities 2.757.313,57
Long-term debt
Notes payable to affiliated company
Other liabilities
Deferred income taxes
Shareholders' equity (note 6)
Capital stock 24.085,58
Retained earnings -182.398,61
Currency translation adjustment and other
--------------
Total shareholder's equity -158.313,03
--------------
Total liabilities and shareholder's equity 2.599.000,54
==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
W.S. INSTITUTE INTERNATIONAL, B.V.
Statement of Income
Year ended August 31, 1996
($)
<TABLE>
<S> <C>
Net sales 2,993,612.72
Cost and expenses, net
Cost of sales 2,802,495.02
Selling, general and administrative expenses 351,198.31
Amortization of intangible assets ---------------
Operating loss (160,080.61)
Interest expense (15,497.87)
Interest income 731.60
Other income (expense) ---------------
Expense before taxes (174,846.88)
Provision for income taxes (121,003.17)
---------------
Net loss (295,850.05)
===============
</TABLE>
<PAGE>
W.S. INSTITUTE INTERNATIONAL, B.V.
Statement of Cash Flows
Year ended August 31, 1996
($)
<TABLE>
<S> <C>
Cash flows-operating activities:
Net income (295,850.05)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 20,248.80
Deferred income taxes
Other noncash charges and credits, net
Changes in operating working capital:
Accounts and notes receivables (1,502,549.35)
Inventories
Prepaid expenses, taxes and other current assets
Accounts payable
Accrued expenses
Other current liabilities
--------------
Net charge in operating working capital (1,502,549.35)
-------------
Net cash provided by (used for) operating
activities (1,778,150.60)
-------------
Cash flows-investing activities:
Acquisition and investments in affiliates (48,000.00)
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Short-term borrowings, net
Cash dividends paid
Other, net
--------------
Net cash provided by (user for) investing (48,000.00)
--------------
activities
Cash flows-financing activities:
Proceeds from issuances of long-term debt
Payments of long-term debts
Short-term borrowings, net 1,906,279.73
Other, net
--------------
Net cash provided by (used for) financing 1,906,279.73
--------------
activities
Net increase (decrease) in cash and cash equivalents 80,129.13
Cash and cash equivalents-beginning of year 25,478.27
-------------
Cash and cash equivalents-end of year 105,607.40
=============
</TABLE>
[SEAL APPEARS HERE]
<PAGE>
W.S. INSTITUTE INTERNATIONAL, B.V.
Statement of Stockholder's Equity
Year ended August 31, 1996
($)
<TABLE>
<CAPTION>
Capital Stock
---------------------- Retained
Shares Amount Earnings Total
------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Shareholder's equity August 31, 1995 40.00 24,085.58 113,451.44 137,537.02
1996 Net income (loss) (295,850.05) (295,850.05)
------ ---------- ----------- ------------
Shareholder's equity, Aug. 31, 1996 40.00 24,085.58 (182,398.61) (158,313.03)
====== ========== =========== ============
</TABLE>
<PAGE>
Wall Street Institute International, B.V.
Notes to financial statements
(1) Organization and Business
-------------------------
W.S.I. International, B.V. was incorporated under Dutch Law on April 3,
1990. It has it registered seat at Amsterdam, but may establish branches
and/or other offices elsewhere. The objects of the Company established in
its statutes are the following:
- to create for the purposes of trade, to acquire, to alienate and to
grant the use of copyrights, patent rights, designs, trademarks and
rights of a similar nature, and to acquire royalties and other rights
resulting from these rights;
- to acquire, to participate in, to finance, to manage and to take an
interest in other companies and enterprises of any nature;
- to invest in securities, deposits and other kinds of assets;
- to obtain, alienate and encumber register-bound goods;
- to render services to companies and other enterprises with which the
company forms a group;
- to provide security for debts of companies and enterprises with which
the company forms a group;
- to render services in the field of commerce and finance;
and to do all that is connected therewith or may be conducive thereto, all
this in the widest sense.
(2) Investments
-----------
Investments are valued at their cost of acquisition; corresponding to 48
shares each a nominal value of $1,000 of the Company Wall Street
Institute WSI, CA (Venezuala).
(3) Debtors
-------
The debit balances correspond entirely to balances pending payment by
clients; the largest debt being that with IFS for $1,766,437.40.
There is a doubtful debt of $7,490.16 totally provided for this year,
corresponding the invoicing of the previous year to W.S.I. Cordoba. There
is currently a litigation proceeding with this client for breach of
contract.
(4) Cash and Banks
--------------
The accounting balances of the current accounts in foreign currency are
accounted for applying the exchange rate at the year end.
[SEAL APPEARS HERE]
<PAGE>
Wall Street Institute International, B.V.
Notes to Financial statements
<TABLE>
<CAPTION>
(5) Creditors
---------
The breakdown of this caption is as follows:
Dollars
--------------------
<S> <C>
Trade creditors 2,274,215.62 (1)
Other creditors 312,884.73 (2)
Deferred tax 68,471.01 (3)
Public treasury 88,983.58 (4)
Other 12,758.64
--------------------
2,757,313.56
====================
</TABLE>
(1) Corresponds to the total amount of royalties payable to Wall Street
Study Centre.
(2) Corresponds to a credit with IFS for $222,884.73 and a credit with
Silvetown for $90,000.00
(3) The quota corresponding to royalties pending collection is calculated as
deferred tax.
(4) The debt with the Tax Authorities corresponds to taxes accrued and
unpaid from previous years.
(6) Shareholders Equity
-------------------
Details are as follows:
<TABLE>
<CAPTION>
Dollars
-------------
<S> <C>
Capital 24,085.58
Reserves 13,451.44
Losses and Profits 95/96 (295,850.05)
-------------
(158,313.03)
=============
</TABLE>
The share capital consists of 40 shares each of a nominal value of 1,000
Dutch florins.
(Exchange rate with dollar, nominal value $602,1395 times 40 shares equal
$24,085,58)
[SEAL APPEARS HERE]
<PAGE>
Pro Forma Financial Information
Effective December 1, 1996, the Company acquired substantially
all of the operating assets and assumed certain liabilities of Wall
Street Institute International, B.V. and its commonly controlled
affiliates (collectively, "WSI"). The Company and the sellers signed
a definitive purchase agreement in December 1996 that provided for an
effective date of the sale of December 1, 1996. The Company's control
of the operations of WSI commenced at the effective date, and the
Company recorded the acquisition using the purchase method of
accounting on December 1, 1996. WSI is a European-based franchisor
and operator of learning centers that teach the English language
through a combination of computer-based and live instruction. WSI has
a network of more than 170 franchised centers in operation throughout
Europe and Latin America.
The purchase price of WSI consisted of cash of $4,921,000,
505,364 shares of restricted common stock valued at $9,250,000, and
209,520 shares of unrestricted common stock valued at $5,900,000. Of
the 505,364 shares of restricted common stock issued to the sellers,
124,292 shares are held in escrow to indemnify the Company against any
subsequent losses resulting from any misrepresentation or breach of
certain covenants. The unrestricted common stock held in escrow will
be released in varying amounts to the sellers through 2001.
The total purchase price of $21,071,000, including $1,000,000 of
direct acquisition costs, was allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Working capital $ 2,795,000
Fixed assets 1,125,000
Other assets 329,000
Goodwill 19,852,000
-----------
24,101,000
Less liabilities assumed
Debt 1,417,000
Deferred revenue 1,613,000
-----------
3,030,000
-----------
$21,071,000
===========
</TABLE>
Goodwill is being amortized over its estimated useful life of 25
years.
The following unaudited pro forma financial information consists
of the unaudited pro forma condensed combined balance sheet as of
September 30, 1996 and the pro forma condensed combined statements of
operations for the nine months ended September 30, 1996, and the
twelve months ended December 31, 1995 as if WSI was acquired on
January 1, 1995. This pro forma financial information should be read
in conjunction with the notes thereto. The following
<PAGE>
unaudited pro forma financial information does not purport to represent what
Sylvan's results of operations actually would have been had such transactions
and events occurred on the dates specified, or to project Sylvan's results of
operations for any future period or date. The pro forma adjustments are based
upon available information and certain adjustments that management of Sylvan
believes are reasonable. In the opinion of management of Sylvan, all
adjustments have been made that are necessary to present fairly the following
unaudited pro forma financial data.
<PAGE>
Pro Forma Condensed Combined Balance Sheet (Unaudited)
As of September 30, 1996
<TABLE>
<CAPTION>
Wall Street Institute
International, B.V. Sylvan/WSI
Sylvan Learning and affiliates Pro Forma Pro Forma
Systems, Inc. as of August 31, 1996 Adjustments Combined
================== ======================= ============ ==============
(in thousands except per share data)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $8,935 $1,627 ($4,921)(1) $5,641
Available-for-sale securities 16,268 16,268
Accounts and notes receivable, net 29,752 2,896 32,648
Inventory and prepaid expenses 7,775 984 8,759
------------------ ------------------------ ------------ --------------
Total current assets 62,730 5,507 (4,921) 63,316
Notes receivable, less current portion 991 446 1,437
Net property and equipment 17,018 1,093 18,111
Net contract rights and other intangibles 4,591 4,591
Goodwill, net 78,109 17,305 (1)
1,000 (2) 96,414
Net deferred contract costs and
other long-term assets 12,980 264 13,244
------------------ ------------------------ ------------ --------------
Total assets $176,419 $7,310 $13,384 $197,113
================== ======================== ============ ==============
Liabilities & stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $16,450 $2,120 $1,000 (2) $19,570
Current portion of long-term debt and 1,182 892 2,074
capital lease obligations
Other current liabilities 7,790 1,274 9,064
------------------ ------------------------ ------------ --------------
Total current liabilities 25,422 4,286 1,000 30,708
Long-term debt, less current portion 1,600 203 1,803
Other long-term liabilities 1,233 55 1,288
Stockholders' equity:
Common stock 142 150 (143)(1) 149
Additional paid-in capital 142,573 2,616 12,527 (1) 157,716
Translation adjustments (95) (95)
Retained earnings 5,544 5,544
------------------ ------------------------ ------------ --------------
Total stockholders' equity 148,164 2,766 12,384 163,314
------------------ ------------------------ ------------ --------------
Total liabilities and stockholders' equity $176,419 $7,310 $13,384 $197,113
================== ======================== ============ ==============
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
<PAGE>
Pro Forma Condensed Combined Statement of Operations (Unaudited)
For the Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Wall Street Institute
International, B.V.
Sylvan Learning and affiliates Sylvan/WSI Pro Forma
Systems, Inc. for the for the nine months Combined for the
nine months ended ended Pro Forma nine months ended
September 30, 1996 August 31, 1996 Adjustments September 30, 1996
--------------------- --------------------- ----------- --------------------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues:
Franchise royalties $8,698 $8,698
Franchise sales fees 887 887
Company-owned learning center services 11,725 11,725
Product sales 2,795 2,795
Contract learning center services 23,580 23,580
Testing services 64,128 9,357 73,485
--------------------- --------------------- ----------- --------------------
Total revenues 111,813 9,357 121,170
Cost and expenses:
Franchise services 4,550 4,550
Company-owned learning center operating expenses 9,770 9,770
Cost of product sales 2,306 2,306
Contract learning center operating expenses 20,997 20,997
Testing services expenses 52,672 7,253 $596 (3) 60,521
General and administrative expenses 7,308 7,308
--------------------- --------------------- ----------- --------------------
Total expenses 97,603 7,253 596 105,452
--------------------- --------------------- ----------- --------------------
Operating income 14,210 2,104 (596) 15,718
Other income (expense) 1,183 723 1,906
--------------------- --------------------- ----------- --------------------
Income from continuing operations before
income taxes 15,393 2,827 (596) 17,624
Income taxes (6,240) (234) (6,474)
--------------------- --------------------- ----------- --------------------
Net income $9,153 $2,593 ($596) $11,150
===================== ===================== =========== ====================
Per common and common equivalent share (4)
Net income $0.37 $0.44
===================== ====================
Per common share, assuming full dilution (4)
Net income $0.37 $0.44
===================== ====================
Common and common equivalent shares used in
calculation of earnings per share (5):
Primary 23,625 24,340
===================== ====================
Fully diluted 23,761 24,476
===================== ====================
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
<PAGE>
Pro Forma Condensed Combined Statement of Operations (Unaudited)
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Wall Street Institute
Sylvan Learning International, B.V. Sylvan/WSI Pro
Systems, Inc. and affiliates Forma Combined
for the year ended for the year ended Pro Forma for the year ended
December 31, 1995 December 31, 1995 Adjustments December 31, 1995
-------------------- ------------------- ----------- -------------------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues:
Franchise royalties $9,223 $ 9,223
Franchise sales fees 2,132 2,132
Company-owned learning center services 11,520 11,520
Product sales 3,188 3,188
Contract learning center services 27,362 27,362
Testing services 34,566 13,140 47,706
-------------------- ------------------- ----------- ------------------
Total revenues 87,991 13,140 101,131
Cost and expenses:
Franchise services 5,875 5,875
Company-owned learning center operating expenses 10,369 10,369
Cost of product sales 2,431 2,431
Contract learning center operating expenses 25,120 25,120
Testing services expenses 30,348 9,541 $794(3) 40,683
General and administrative expenses 6,206 6,206
Loss on impairment of assets 3,316 3,316
-------------------- ------------------- ----------- ------------------
Total expenses 83,665 9,541 794 94,000
-------------------- ------------------- ----------- ------------------
Operating income 4,326 3,599 (794) 7,131
Other income (expense) (569) (515) (1,084)
-------------------- ------------------- ----------- ------------------
Income from continuing operations before
income taxes 3,757 3,084 (794) 6,047
Income taxes (209) (253) (462)
-------------------- ------------------- ----------- ------------------
Net income $3,548 $2,831 ($794) $5,585
==================== =================== =========== ==================
Per common and common equivalent share(4)
Net income $0.22 $0.33
==================== ==================
Per common share, assuming full dilution(4)
Net income $0.21 $0.32
==================== ==================
Common and common equivalent shares used in
calculation of earnings per share(5):
Primary 15,665 16,380
==================== ==================
Fully diluted 15,972 16,687
==================== =================
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
<PAGE>
Notes to Pro Forma Condensed Combined Financial Statements
(1) Adjustments to reflect the elimination of WSI's net equity upon the
acquisition date and to reflect the issuance of 714,884 shares of the
Company's common stock valued at $15.2 million and the cash payment of $4.9
million to acquire WSI.
(2) Adjustment to record the estimated transaction costs of $1.0 million.
(3) Adjustment to record goodwill amortization based on the estimated useful
life of 25 years.
(4) Effective February 1995, the Company purchased The Pace Group ("PACE").
Additional contingent consideration is payable in the amount of 6.5 times
PACE's earnings before interest and income taxes ("EBIT") in 1997. The
earnings per share calculations for the year ended December 31, 1995 and the
nine months ended September 30, 1996, respectively, assume additional
goodwill amortization of $171,000 and $472,500 based on the contingent
consideration which would have been paid relating to PACE's operating
results for those respective periods.
(5) In October 1996, the Company declared a 3-for-2 stock split of its common
stock for stockholders of record on November 7, 1996. Accordingly, all
share and per share data included in these pro forma financial statements
have been restated to retroactively reflect the stock split.
<PAGE>
(c) Exhibits
23.01 Consent of KPMG Peat Marwick y Cia, Auditores, S.R.C.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
Sylvan Learning Systems, Inc.
(Registrant)
Date: April 4, 1997 /s/B. Lee McGee
---------------
B. Lee McGee, Senior Vice President
and Chief Financial Officer
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
-------------------------------
The Board of Directors
M.P. Management y Participaciones, S.L.:
We consent to the incorporation by reference in the following registration
statements of Sylvan Learning Systems, Inc. of our report dated December 2,
1996, with respect to the combined financial statements of Wall Street Institute
Group as of and for the year ended August 31, 1996, which report appears in the
Form 8-K/A of Sylvan Learning Systems, Inc. dated April 4, 1997.
<TABLE>
<CAPTION>
Name Form Registration Number Date Filed
---- ---- ------------------- ----------
<S> <C> <C> <C>
- S-3 33-92014 May 8, 1995
- S-3 33-92852 May 30, 1995
- S-3 333-1674 February 26, 1996
- S-3 333-16111 November 14, 1996
- S-3 333-21261 February 6, 1997
1987-1991 Employee Stock Option Plan S-8 33-77384 April 6, 1994
1993 Directors Stock Option Plan S-8 33-77386 April 6, 1994
1993 Employee Stock Option Plan S-8 33-77390 April 6, 1994
1993 Management Stock Option Plan S-8 33-77388 April 6, 1994
1997 Employee Stock Option Purchase Plan S-8 33-21963 February 18, 1997
</TABLE>
/s/ KPMG Peat Marwick y Cia, Auditores, S.R.C.
Barcelona, Spain
April 4, 1997
