Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K/A
(Amendment
No. 1)
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
report (Date of earliest event reported): December 31,
2009
FLORHAM
CONSULTING CORP.
(Exact
name of registrant as specified in charter)
Delaware
|
000-52634
|
20-2329345
|
||
(State
or other jurisdiction of
incorporation
or organization)
|
(Commission
File No.)
|
(IRS
Employer
Identification
No.)
|
845
Third Avenue, 6th
Floor
New
York, New York 10022
(Address
of principal executive offices)
Registrant’s
telephone number, including area code: (646)
290-5290
|
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
EXPLANATORY
NOTE
Florham Consulting Corp. (the
“Company”) is filing this Amendment No. 1 to its Current Report on Form
8-K which was originally filed with the Securities and Exchange Commission
(“SEC”) on January 7, 2010 (the “Original Form 8-K”) to incorporate the
Company’s revisions and responses to a letter of comment from the staff of the
SEC dated as of June 17, 2010, which include, without limitation, inclusion as
Exhibit 99.5 of the audited financial statements of Valley Anesthesia
Educational Programs, Inc. (“Valley”) as of August 20, 2009, which represents
the effective date of the purchase of certain assets and assumption of certain
liabilities and operations of Valley by Valley Anesthesia, Inc.
Except for the amended disclosures set
forth in this explanatory note, the information in this Form 8-K/A has not
been updated to reflect events that occurred after January 7, 2010, the filing
date of our Original Form 8-K. Accordingly, this Form 8-K/A should be read
in conjunction with our filings made with the SEC subsequent to the filing of
the Original Form 8-K, including any amendments to those filings. The following
sections have been amended, without limitation:
Item
2. Management’s Discussion and Analysis or Plan of
Operation.
Item
9.01. Financial Statements and Exhibits.
Exhibit
99.5, Audited Financial Statements of Valley Anesthesia Educational Programs,
Inc. as of August 20, 2009.
Exhibit
99.6, Unaudited Pro Forma Financial Information of Educational Investors, Inc.,
Training Direct, LLC and Florham Consulting Corp. for the periods ended
September 30, 2009 and December 31, 2008.
Except as set forth above, all other
information in the Company’s Original Form 8-K remains unchanged. The Company
has re-filed the entire Form 8-K in order to provide more convenient access to
the amended information in context.
This
Current Report on Form 8-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). This current report includes statements regarding
our plans, goals, strategies, intent, beliefs or current expectations. These
statements are expressed in good faith and based upon a reasonable basis when
made, but there can be no assurance that these expectations will be achieved or
accomplished. These forward looking statements can be identified by the use of
terms and phrases such as “believe,” “plan,” “intend,” “anticipate,” “target,”
“estimate,” “expect,” and the like, and/or future-tense or conditional
constructions (“will,” “may,” “could,” “should,” etc.). Items contemplating or
making assumptions about, actual or potential future sales, market size,
collaborations, and trends or operating results also constitute such
forward-looking statements.
Although
forward-looking statements in this report reflect the good faith judgment of
management, forward-looking statements are inherently subject to known and
unknown risks, business, economic and other risks and uncertainties that may
cause actual results to be materially different from those discussed in these
forward-looking statements. Readers are urged not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
current report. We assume no obligation to update any forward-looking statements
in order to reflect any event or circumstance that may arise after the date of
this report, other than as may be required by applicable law or regulation.
Readers are urged to carefully review and consider the various disclosures made
by us in our reports filed with the SEC which attempt to advise interested
parties of the risks and factors that may affect our business, financial
condition, results of operation and cash flows. If one or more of these risks or
uncertainties materialize, or if the underlying assumptions prove incorrect, our
actual results may vary materially from those expected or
projected.
In
this Form 8-K, unless the context otherwise requires:
(a)
all references to “Florham” refers (i) prior to the consummation of the
transactions contemplated by the Agreement and Plan of Merger and Interest
Purchase Agreement referred to below, to Florham Consulting Corp. (“Florham”), a
development stage Delaware corporation, and (ii) on and after consummation of
the transactions contemplated by the Agreement and Plan of Merger and Interest
Purchase Agreement, to Florham (to be renamed “Educational Investors
Corp.”).
(b)
all references to the “EII Group” refers collectively to Educational Investors,
Inc., a Delaware corporation (“EII”), Valley Anesthesia, Inc., a Delaware
corporation and Valley Anesthesia Educational Programs, Inc., an Iowa
corporation (collectively, “Valley”), and Training Direct, LLC, a
Connecticut limited liability company (“Training Direct”).
(c)
all references to “we,’’ ‘‘us,’’ ‘‘our’’ and “the Company” refers collectively
to Florham, EII, Valley and Training Direct as at the date of this Current
Report on Form 8-K, and following the closing of the transactions contemplated
by the Agreement and Plan of Merger and Interest Purchase
Agreement.
Item
1.01
|
Entry
into a Material Definitive
Agreement.
|
Item
2.01
|
Completion of Acquisition or
Disposition of Assets.
|
Item
3.02
|
Unregistered
Sales of Equity Securities.
|
Item
5.01
|
Changes
in Control of Registrant.
|
Item
5.02
|
Departure
of Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers.
|
Item 5.03.
|
Amendments to the Articles of Incorporation or
Bylaws; Change in Fiscal
Year.
|
Item 5.06
|
Change
in Shell Company Status.
|
Item 9.01
|
Financial Statements and
Exhibits.
|
-1-
The
Agreement and Plan of Merger
On December 16, 2009, Florham executed
an agreement and plan of merger (the “Merger Agreement”) among Florham, EII
Acquisition Corp. (a newly formed acquisition subsidiary of Florham)
(“Mergerco”), EII and its security holders, Sanjo Squared, LLC, Kinder
Investments, LP, Joseph Bianco and Anil Narang (collectively, the “EII
Securityholders”) pursuant to which Mergerco was merged with and into EII, with
EII as the surviving corporation of the merger (the “Reverse Merger”), as a
result of which EII became a wholly-owned subsidiary of Florham. Under the terms
of the Merger Agreement, the EII Securityholders received (i) an aggregate of
6,000,000 shares of Florham's common stock, par value $.0001 per share (the
“Common Stock”), (ii) options to acquire 2,558,968 additional shares of
Florham’s Common Stock, fifty percent (50%) of which have an initial exercise
price of $0.50 per share and fifty percent (50%) of which have an initial
exercise price of $0.228 per share, subject to certain performance targets set
forth in the Merger Agreement, and (iii) 250,000 shares of Florham’s Series A
Preferred Stock, with each share of Florham's Series A Preferred Stock
automatically convertible into 49.11333 shares of Florham's Common Stock upon
the filing by Florham of an amendment to its certificate of incorporation which
increases the authorized shares of Florham's Common Stock to at least
50,000,000. For a more complete description of the terms of the Series A
Preferred Stock, see “Description of Securities”
elsewhere in this Form 8-K.
EII was incorporated in the State of
Delaware on July 20, 2009 for the purpose of acquiring vocational, training and
technical schools, with an initial emphasis on the health care and medical
industries. EII’s wholly-owned subsidiary, Valley Anesthesia, Inc., was
incorporated on July 15, 2009 in the State of Delaware and has its corporate
offices located in New York, New York. Effective August 20, 2009, Valley
Anesthesia, Inc. purchased certain assets and assumed certain liabilities and
operations of Valley Anesthesia Educational Programs, Inc. for an aggregate
purchase price of $3,838,215, plus certain contingent payments which are subject
to the achievement of predetermined operating milestones. EII, through Valley,
provides comprehensive review and update courses and study materials to Student
Registered Nurse Anesthetists in preparation for the National Certifying Exam
throughout the continental United States.
Until consummation of the Reverse
Merger, Florham was a publicly reporting Delaware corporation offering Internet
professional services, including providing its clients with an integrated set of
strategic creative and technology services that enable such clients to effect
and maximize their Internet business. As a result of the Reverse
Merger, Florham will carry out the business and operations of the EII
Group.
The closing of the transactions
contemplated by the Merger Agreement were subject to a number of conditions
including, without limitation, completion of due diligence, approval of the
Merger Agreement by the Boards of Directors of EII and Florham and the prior or
simultaneous closing of the Purchase Agreement (as defined below). On December
31, 2009, the parties to the Merger Agreement deemed all closing conditions to
be satisfied and accordingly, the Reverse Merger was consummated.
At the closing of the Reverse Merger,
all present officers of Florham have resigned and Joseph Bianco was appointed as
the Chief Executive Officer of the Company, Anil Narang was appointed as the
President and Chief Operating Officer of the Company, and Kellis Veach was
appointed as the Chief Financial Officer and Secretary of the Company. In
addition, our sole director has tendered his resignation to be effective on the
tenth day after mailing of a Schedule 14f-1 statement to our stockholders. Joseph Bianco, Anil
Narang, Dov Perlysky, Howard Spindel and David Cohen were appointed as Directors
of the Company with such appointments to be effective on the tenth day after
mailing the Schedule 14f-1.
-2-
Pursuant to the terms of the Reverse
Merger, Florham has agreed to cause (i) the shares of Common Stock issued and
outstanding prior to the effective time of the Reverse Merger; and (ii) 930,000
shares of Common Stock issuable upon exercise of warrants expiring on June 30,
2016 at an exercise price of $0.05 per share, to be registered for resale under
the Securities Act as soon as practicable following the effective time of the
Reverse Merger.
Promptly following the date of this
Form 8-K, Florham will file an Information Statement on Schedule 14C under the
Exchange Act, and upon the effectiveness of such Information Statement and the
expiration of the requisite 20 day period following mailing of such Information
Statement to Florham shareholders, Florham will amend and restate its
certificate of incorporation to, among other things:
|
·
|
increase
its authorized Common Stock to 50,000,000 shares (the “Share Capital
Increase”); and
|
|
·
|
change
the corporate name of Florham to “Educational Investors Corp.” (the “Name
Change”).
|
On December 23, 2009, holders of a
majority of the issued and outstanding shares of Common Stock of Florham have
consented in writing to approve (i) the Merger Agreement and the transactions
contemplated therein, (ii) the Name Change; (iii) the Share Capital Increase;
and (iv) Florham’s 2009 Stock Incentive Plan (the “Stock Incentive Plan”) for
key employees, directors, consultants and others providing services to Florham,
pursuant to which up to 1,500,000 shares of Common Stock shall be authorized for
issuance thereunder. Accordingly, Florham shareholder approval of such matters
is assured. Consummation of the Name Change and the Share Capital Increase is
scheduled to occur as soon as practicable following the effectiveness of an
Information Statement on Schedule 14C and after the passage of the requisite 20
day period after mailing the Information Statement to Florham stockholders, but
in no event later than January 31, 2010.
As a result of the Reverse Merger, we
believe we are no longer a shell corporation as that term is defined in Rule 405
of the Securities Act and Rule 12b-2 of the Exchange Act.
The
Interest Purchase Agreement
In addition to the Merger Agreement,
on December 16, 2009, EII entered into an Interest Purchase Agreement
(“Purchase Agreement”) with the members of Training Direct and Florham pursuant
to which EII acquired all outstanding membership interests, on a fully diluted
basis, of Training Direct (the “Subject Interests”) in exchange for (a) $200,000
cash, (b) shares of Florham's Common Stock having a deemed value
of $600,000 (the “Acquisition Shares”), with such number of
Acquisition Shares to be determined by dividing $600,000 by the “Discounted
VWAP” (as defined below) for the twenty (20) “Trading Days” (as defined below)
immediately following the consummation of the Reverse Merger, and (c) shares of
Florham’s Common Stock having a deemed value of $300,000 (the “Escrow
Shares”), with such number of Escrow Shares to be determined by dividing
$300,000 by the Discounted VWAP for the twenty (20) Trading Days immediately
following the consummation of the Reverse Merger. The Escrow Shares will be held
in escrow and released therefrom as provided in the Purchase Agreement.
“Discounted VWAP” is defined in the Purchase Agreement as seventy percent (70%)
of the “VWAP” of Florham's Common Stock, but in no event less than $0.40 per
share. “VWAP” is defined in the Purchase Agreement as a fraction, the numerator
of which is the sum of the product of (i) the closing trading price for
Florham's Common Stock on the applicable national securities exchange on each
Trading Day of the twenty (20) Trading Days following the consummation of the
Reverse Merger, and (ii) the volume of Florham's Common Stock on the applicable
national securities exchange for each such day and the denominator of which is
the total volume of Florham's Common Stock on the applicable national securities
exchange during such twenty day period, each as reported by Bloomberg Reporting
Service or other recognized market price reporting service. “Trading Day” is
defined in the Purchase Agreement as any day on which the New York Stock
Exchange or other national securities exchange on which Florham’s Common Stock
trades is open for trading. Assuming the Discounted VWAP for the
twenty Trading Days after the effective date of the Reverse Merger is $0.50, we
will issue an aggregate of 1,200,000 Acquisition Shares and 600,000 Escrow
Shares.
-3-
Training Direct was organized as a
limited liability company in the State of Connecticut on January 7, 2004. The
company owns and operates a Connecticut-licensed vocational training school
which provides vocational education and training programs to its
students.
The closing of the Purchase Agreement
was subject to a number of conditions including, without limitation, approval of
the change of ownership of Training Direct by the Connecticut Department of
Higher Education, the execution by the Company, EII and the EII Securityholders
of all documents necessary to affect the Reverse Merger, approval of
the Purchase Agreement by the Board of Directors of EII and the board of
managers of Training Direct and execution of a certain employment agreement and
consulting agreement. On December 31, 2009, the parties to the Purchase
Agreement deemed all closing conditions to be satisfied and accordingly, the
purchase and sale of the Subject Interests was consummated.
General
Overview of the Business
Valley
Through Valley, EII provides
comprehensive review and update courses and study materials that aid Student
Registered Nurse Anesthetists (“SRNA”) and Graduate Registered Nurse
Anesthetists (“GRNA”) in preparation for the National Certifying Exam (“NCE”)
throughout the continental United States.
Valley’s principal service is a
three-day comprehensive review and update course designed to prepare SRNAs for
the NCE. Valley also offers a 600-page basic manual. Additionally, Valley offers
MemoryMasterTM, which
is a collection of approximately 4,000 questions and answers designed to further
assist its students in preparation for the NCE. Valley presented 10 courses in
2007, 11 courses in 2008 and 12 courses in 2009. In addition, Valley has 13
courses scheduled for 2010.
Valley’s revenue is currently generated
from three sources: (i) seminars, (ii) manuals, and (iii) MemoryMasterTM. In
addition, Valley anticipates that there will be a fourth revenue source
beginning in 2010, which is from on-line practice examinations that management
expects to launch in January 2010.
Seminars
Each review and update course includes
26 hours over a three-day time period. The courses are located throughout the
United States in areas with high concentrations of nursing programs. Seminars
are typically held in hotel conference rooms located close to airports to
minimize logistical issues for traveling students.
Registration for the seminars can be
completed online, by mail or by telephone. Registration for courses for the
following year occurs at the end of August. Once the registration period has
commenced, the seminars are often filled within a couple days. Seminars in
Cleveland and Philadelphia have traditionally had the highest student
enrollments with two courses in Cleveland that included 217 and 216 students,
respectively, and 215 students in Philadelphia in 2007. In 2008, the seminars
had enrollments for two courses in Philadelphia of 224 and 220 students,
respectively, and in Cleveland for two courses of 219 and 216 students,
respectively. In 2009, the seminars had enrollments for two courses in Cleveland
of 212 and 209 students, respectively, a course in Philadelphia with enrollment
of 218 students and a course in Dallas with enrollment of 217
students.
-4-
Manuals
Valley publishes a course manual which
is purchased by students enrolled in the seminars and others. The course manual
consists of over 600 pages and is printed by a third party. While the volume is
fairly substantial, the complexity of the printing is not excessive and the
manuals are not bound. Production costs were approximately $175,000 in 2007,
$186,000 in 2008 and $44,000 for the nine months ended September 30, 2009. The manuals are ordered
from the printers each fall after registration has begun for the following
year’s courses and correspondingly, the majority of the printing costs are
incurred in the fourth quarter. Since the per unit cost to print 100
manuals is the same as the cost to print one, Valley only orders enough books to
meet its known demand. As Valley receives additional orders, it places orders
with its vendor to print the required quantity to meet the additional
demand.
MemoryMasterTM
Valley offers its MemoryMasterTM study
guide collection of approximately 4,000 questions and answers to aid its
students in preparation for the NCE by facilitating the memorization and
understanding of a large body of anesthesia-related facts, concepts and issues.
MemoryMasterTM content
is categorized according to the outline provided by the Council on Certification
of Nurse Anesthesia, which includes:
|
·
|
basic
and related clinical sciences;
|
|
·
|
equipment,
instrumentation and technology;
|
|
·
|
basic
principles of anesthesia;
|
|
·
|
advanced
principles of anesthesia; and
|
|
·
|
professional
issues.
|
MemoryMasterTM is
offered in two forms: (i) a bound, soft covered book, and (ii) flash
cards. The book provides the entire MemoryMasterTM content
in a side-by-side format, with questions appearing on the left side of each page
and the corresponding answers on the right side.
MemoryMasterTM is
printed by the same third party source as the course manuals. MemoryMasterTM can
also be ordered from the printers on an as needed basis. Management estimates
that MemoryMasterTM
accounted for approximately $419,000 of revenue in 2007, $407,000 of revenue in
2008 and $142,000 of revenue during the nine months ended September 30, 2009.
Historically, the fourth quarter includes the greatest amount of
MemoryMasterTM
shipments and related revenue.
On-Line
Practice Examinations
Valley anticipates that there will be a
fourth revenue source beginning in 2010, which is from on-line practice
examinations that management expects to launch in January 2010. Valley’s on-line
practice examinations will be a test assessment program where students can visit
a mock testing center (the “Center”) on-line. Practice examinations and
subject-specific quizzes will be available for student practice purposes. Valley
believes that this will be a popular addition to its offerings, and that most
students who take its courses, and others who do not, will avail themselves of
the new test assessment Center. As of the date hereof, pricing for this program
has not been finalized but it is expected that the Center will be fully
functional by the end of January 2010.
-5-
Training
Direct
Through
its Training Direct subsidiary, EII provides “distance learning” and
“residential training” educational programs for students to become eligible for
entry-level employment in a variety of fields and industries. Training Direct
strives to assist those who may not have realized their full potential in the
workplace by finding such individuals a new career direction and assisting in
progressing their learning skills necessary to reach their earning and personal
development possibilities and goals. Training Direct maintains licenses from the
Connecticut Commissioner of Higher Education, the Connecticut Department of
Health Services and the National Health Career Association, and is an Eligible
Training Provider under the Workforce Investment Act. Such licenses require that
Training Direct have a competent faculty, offer educationally sound and
up-to-date courses and course materials, and be subject to inspections and
approvals by outside examining committees.
Distance
Learning Programs
Distance
learning programs provide an additional opportunity to individuals who may
not have acquired all of the education they need and are unable to take
advantage of residential training educational opportunities. Distance
learning is defined as enrollment and study with an educational institution that
provides lesson materials prepared in a sequential and logical order for study
by students on their own, allowing students to acquire new professional
skills while studying at home at their own pace. In order to help each student
in their field of study, Training Direct provides counseling and lesson
assistance by telephone and through mail.
Training Direct’s distance learning
offerings include educational programs in the following fields and
industries:
|
·
|
medical
office assistance;
|
|
·
|
medical
billing and coding;
|
|
·
|
hotel-motel
front office;
|
|
·
|
veterinary
assistant;
|
|
·
|
paralegal;
and
|
|
·
|
pharmacy
technician.
|
When each
lesson is completed, the student mails the assigned work to the school for
correcting, grading, comment and subject matter guidance by qualified
instructors. Corrected assignments are rapidly returned to the student,
providing a personalized student-teacher relationship.
Residential
Training Program
Training Direct offers a comprehensive
Certified Nurse's Aide Program to assist its students with developing the skills
and knowledge necessary to obtain an entry-level position as a Nurse's Aide in a
health care facility. The training program provides the student with both basic
knowledge and practical experience in the terminology, procedures, and
techniques required of a Nurse's Aide. This training program meets the
Connecticut Department of Health Services guideline for eligibility to take the
State certification exam for Nurse's Aides.
Key
Corporate Objectives
Our goal is to strengthen and
capitalize on our position as a provider of high quality, accessible education
for individuals throughout the United States. Our principal focus is to provide
high quality educational products and services to our students in order for them
to maximize the benefit of their educational experience.
-6-
EII’s key business development
objectives over the next three to five years are to seek and consummate
potential acquisitions with companies engaged in the business of providing
vocational training and test preparation products and services. In addition,
management intends to launch and further develop on-line test assessment
programs and web-based course offerings. For a further description of EII’s key
corporate objectives, see “Business, Our Strategy and Key Corporate
Objectives” in this report.
The following diagrams set forth our
corporate structure, both before and after giving effect to consummation of the
transactions contemplated by the Merger Agreement and the Purchase Agreement
described in this report.
(1)
Corporate name will be changed to “Educational Investors Corp.” pursuant to the
Merger Agreement.
(2)
Effective August 20, 2009, Valley Anesthesia, Inc. purchased certain assets and
assumed certain liabilities and operations of Valley Anesthesia Educational
Programs, Inc. for an aggregate purchase price of $3,838,215, plus certain
contingent payments which are subject to the achievement of predetermined
operating milestones.
Our
Offices and Other Corporate Information
EII’s and Valley’s principal executive
offices are located at 845 Third Avenue, 6th Floor,
New York, New York 10022, and its telephone number is (646) 290-5290. Valley’s
principal operating office is located at 1995 Country Club Blvd, Clive, Iowa
50325 and its telephone number is (515) 221-2590. Valley maintains a website at
www.valleyanesthesia.com.
Training Direct’s principal executive offices are located at 3885 Main Street,
2nd
Floor, Bridgeport, Connecticut 06606 and its telephone number is (203) 372-8842.
Training Direct maintains a website at www.trainingdirectusa.org.
The contents of such websites are not part of this report.
-7-
RISK
FACTORS
Investment
in our securities involves risk. You should carefully consider the risks we
describe below before deciding to invest. The market price of our securities
could decline due to any of these risks, in which case you could lose all or
part of your investment. In assessing these risks, you should also refer to the
other information included in this Report. Our business, financial condition or
results of operations could be affected materially and adversely by any of the
risks discussed below and any others not currently identified or foreseen. This
discussion contains forward-looking statements.
Risks
Related to Our Business and Industry in Which We Operate
We
are subject to risks relating to enrollment of students. If we are
not able to continue to successfully recruit and retain our students, we will
not be able to sustain our revenue growth rate.
Building
awareness of our schools and the programs we offer is critical to our ability to
attract prospective students. If our schools are unable to successfully market
and advertise their educational programs, our schools’ ability to attract and
enroll prospective students in such programs could be adversely affected, and,
consequently, our ability to increase revenue or maintain profitability could be
impaired. It is also critical to our success that we convert these prospective
students to enrolled students in a cost-effective manner and that these enrolled
students remain active in our programs. Some of the factors that could prevent
us from successfully enrolling and retaining students in our programs
include:
·
|
the
emergence of more attractive
competitors;
|
·
|
factors
related to our marketing, including the cost and effectiveness of Internet
advertising and broad-based branding
campaigns;
|
·
|
inability
to expand program content and develop new programs in a timely and
cost-effective manner;
|
·
|
performance
problems with, or capacity constraints of, our online education delivery
systems;
|
·
|
failure
to maintain accreditation;
|
·
|
inability
to continue to recruit, train and retain quality
faculty;
|
·
|
student
or employer dissatisfaction with the quality of our services and
programs;
|
·
|
student
financial, personal or family
constraints;
|
·
|
adverse
publicity regarding us, our competitors or online or for-profit education
generally;
|
·
|
tuition
rate reductions by competitors that we are unwilling or unable to
match;
|
·
|
a
decline in the acceptance of online
education;
|
·
|
increased
regulation of online education, including in states in which we do not
have a physical presence;
|
·
|
a
decrease in the perceived or actual economic benefits that students derive
from our programs or education in general;
and
|
·
|
litigation
or regulatory investigations that may damage our
reputation.
|
In
addition, our educational programs are concentrated in selected areas of
healthcare, law and business. If applicant career interests shift away from
these fields, and we do not anticipate or adequately respond to that trend,
future enrollment and revenue may decline. If employment
opportunities for our graduates in fields related to their educational programs
decline, future enrollment and revenue may decline as potential applicants
choose to enroll at other educational institutions offering different courses of
study.
-8-
We
are subject to risks relating to tuition pricing, which could have a material
adverse affect on our financial results.
If other educational institutions
reduce their price of tuition, our educational programs could become less
attractive to prospective students. In addition, we may be unable, for
competitive reasons, to maintain and increase tuition rates in the future,
thereby adversely affecting future revenues and earnings.
Our financial
performance depends, in part, on our ability to keep pace with changing market
needs and technology; if we fail to keep pace or fail in implementing or
adapting to new technologies, our business may be adversely
affected.
Increasingly,
prospective employers of students who graduate from our schools demand that
their new employees possess appropriate technological skills and also
appropriate “soft” skills, such as communication, critical thinking and teamwork
skills. These skills can evolve rapidly in a changing economic and technological
environment. Accordingly, it is important for our schools’ educational programs
to evolve in response to these economic and technological changes. The expansion
of existing programs and the development of new programs may not be accepted by
current or prospective students or the employers of our graduates. Even if our
schools are able to develop acceptable new programs, our schools may not be able
to begin offering those new programs as quickly as required by prospective
employers or as quickly as our competitors offer similar programs. In addition,
we may be unable to obtain specialized accreditations or licensures that may
make certain programs desirable to students. To offer a new academic program, we
may be required to obtain federal, state and accrediting agency approvals, which
may be conditioned or delayed in a manner that could significantly affect our
growth plans. If we are unable to adequately respond to changes in market
requirements due to regulatory or financial constraints, unusually rapid
technological changes, or other factors, our ability to attract and retain
students could be impaired, the rates at which our graduates obtain jobs
involving their fields of study could suffer, and our business, financial
condition, results of operations and cash flows could be adversely
affected.
Establishing
new academic programs or modifying existing programs requires us to make
investments in management and capital expenditures, incur marketing expenses and
reallocate other resources. We may have limited experience with the courses in
new areas and may need to modify our systems and strategy or enter into
arrangements with other educational institutions to provide new programs
effectively and profitably. If we are unable to increase the number of students
or offer new programs in a cost-effective manner, or are otherwise unable to
manage effectively the operations of newly established academic programs, our
business, financial condition, results of operations and cash flows could be
adversely affected.
We have invested and continue to
invest significant resources in information technology, which is a key element
of our business strategy. Our information technology systems and tools could
become impaired or obsolete due to our action or failure to act. For instance,
we could install new information technology without accurately assessing its
costs or benefits, or we could experience delayed or ineffective implementation
of new information technology. Similarly, we could fail to respond in a timely
or sufficiently competitive way to future technological developments in our
industry. Should our action or failure to act impair or otherwise render our
information technology less effective, this could have a material adverse effect
on our business, financial condition, results of operations and cash
flows.
-9-
We
are subject to risks relating to our information technology, system applications
and security systems, which could have a material adverse affect on our
financial results.
The performance and reliability of our
computer networks and system applications, especially our online educational
platforms and student operational and financial packaging applications, are
critical to our reputation and ability to attract and retain
students. System errors and/or failures could adversely impact our
delivery of educational content to our online students. In addition,
system errors could result in delays and/or errors in processing student
financial payment and related disbursements. Major risks involved in such
network infrastructure include any break-downs or system failures resulting in a
sustained shutdown of all or a material portion of our servers, including
failures which may be attributable to sustained power shutdowns, or efforts to
gain unauthorized access to our systems causing loss or corruption of data or
malfunctions of software or hardware. Security breaches of our
information systems can also create unauthorized disclosure of confidential
information, such as the personal information of our students or credit card
information. If we are unable to prevent such security breaches, our
operations could be disrupted, our students could suffer financial loss or
become the victims of identity theft, or we may suffer reputational damage
and/or financial loss because of lost or misappropriated
information.
Our network systems are also vulnerable
to damage from fire, flood, power loss, telecommunications failures, computer
viruses, hacking and similar events. Any network interruption, virus or other
inadequacy that causes interruptions in the availability of the online
educational programs or deterioration in the quality of access to the online
educational platforms could reduce our student’s satisfaction and ultimately
harm our business, financial condition and results of operations. In addition,
any security breach caused by hackings, which involve efforts to gain
unauthorized access to information or systems, or to cause intentional
malfunctions or loss or corruption of data, software, hardware or other computer
equipment, and the inadvertent transmission of computer viruses could have a
material adverse effect on our business, financial condition and results of
operations. We do not maintain insurance policies covering losses relating to
our network systems and we do not have business interruption
insurance.
Future
acquisitions may have an adverse effect on our ability to manage our
business.
Selective acquisitions form part of our
strategy to expand our business. We have limited prior experience integrating
any new companies into ours, and we believe that integration of a new company’s
operation and personnel will require significant management attention. The
diversion of our management’s attention from our business and any difficulties
encountered in the integration process could have an adverse effect on our
ability to manage our business.
We may pursue acquisitions of
companies, technologies and personnel that are complementary to our existing
business. However, our ability to grow through future acquisitions or
investments or hiring will depend on the availability of suitable acquisition
and investment candidates at an acceptable cost, our ability to compete
effectively to attract these candidates, and the availability of financing to
complete larger acquisitions. We may face significant competition in executing
our growth strategy. Future acquisitions or investments could result in
potential dilutive issuances of equity securities or incurrence of debt,
contingent liabilities or impairment of goodwill and other intangible assets,
any of which could adversely affect our financial condition and results of
operations. The benefits of an acquisition or investment may also take
considerable time to develop and any particular acquisition or investment may
not produce the intended benefits.
Future acquisitions would also expose
us to potential risks, including risks associated with the assimilation of new
operations, technologies and personnel, unforeseen or hidden liabilities, the
diversion of resources from our existing businesses, educational programs and
technologies, the inability to generate sufficient revenue to offset the costs
and expenses of acquisitions, and potential loss of, or harm to, our
relationships with employees and students as a result of the integration of new
businesses.
-10-
If regulators do
not approve our domestic acquisitions, the acquired schools’ state licenses,
accreditation, and ability to participate in Title IV programs (if applicable)
may
be impaired.
When we
acquire an institution, we must seek approval from the U.S. Department of
Education if the acquired institution participates in Title IV programs,
and from most applicable state agencies and accrediting agencies because an
acquisition is considered a change of ownership or control of the acquired
institution under applicable regulatory standards. A change of ownership or
control of an institution under the U.S. Department of Education standards
can result in the temporary suspension of the institution’s participation in the
Title IV programs unless a timely and materially complete application for
recertification is filed with the U.S. Department of Education and it
issues a temporary provisional certification. If we are unable to obtain
approvals from the state agencies, accrediting agencies or U.S. Department
of Education for any institution we may acquire in the future, depending on the
size of that acquisition, such a failure to obtain approval could have a
material adverse effect on our business.
If regulators do
not approve or delay their approval of transactions involving a change of
control of our company, our
state licenses and
accreditation may be
impaired.
A change
of ownership or control of EII, depending on the type of change, may have
significant regulatory consequences for Training Direct. State licensing
agencies, including the Connecticut Department of Higher Education (“DHE”), have
adopted the change of ownership and control standards. Such a change of
ownership or control could require recertification and reauthorization by state
licensing agencies, including the DHE. There can be no assurances that such
recertification would be obtained on a timely basis. In addition, some states
where Training Direct is presently licensed have requirements governing change
of ownership or control that require approval of the change to remain authorized
to operate in those states. If regulators do not approve or delay their approval
of transactions involving a change of control of our company, our state licenses
and accreditation may be impaired.
If any regulatory
audit, investigation or other proceeding finds us not in compliance with the
numerous laws and regulations applicable to the postsecondary education
industry, we may not be able to successfully challenge such finding and our
business could suffer.
Due to
the highly regulated nature of the postsecondary education industry, we are
subject to audits, compliance reviews, inquiries, complaints, investigations,
claims of non-compliance and lawsuits by state governmental agencies, regulatory
agencies, accrediting agencies, present and former students and employees,
shareholders and other third parties, any of whom may allege violations of any
of the regulatory requirements applicable to us. If the results of any such
claims or actions are unfavorable to us, we may be required to pay monetary
fines or penalties, be required to repay funds received under state financial
aid programs, have restrictions placed on or terminate our schools’ or programs’
eligibility to participate in state or federal financial aid programs, have
limitations placed on or terminate our schools’ operations or ability to grant
degrees and certificates, have our schools’ accreditations restricted or
revoked, or be subject to civil or criminal penalties. Any one of these
sanctions could materially adversely affect our business, financial condition,
results of operations and cash flows and result in the imposition of significant
restrictions on us and our ability to operate.
If we fail to
maintain any of our state authorizations, we would lose our ability to operate
in that state.
Training
Direct is authorized to operate and to grant certificates by the applicable
state agency of each state where such authorization is required and where we
maintain a campus. The loss of such authorization in one or more states could
have a material adverse effect on our business, financial condition, results of
operations and cash flows. Loss of authorization in one or more states could
increase the likelihood of additional scrutiny and potential loss of operating
and/or degree granting authority in other states in which we operate, which
would further impact our business.
-11-
Government
regulations relating to the Internet could increase our cost of doing business,
affect our ability to grow or otherwise have a material adverse effect on our
business, financial condition, results of operations and cash
flows.
The
increasing popularity and use of the Internet and other online services has led
and may lead to further adoption of new laws and regulatory practices in the
U.S. or foreign countries and to new interpretations of existing laws and
regulations. These new laws and interpretations may relate to issues such as
online privacy, copyrights, trademarks and service marks, sales taxes,
value-added taxes, withholding taxes, allocation and apportionment of income
amongst various state, local and foreign jurisdictions, fair business practices
and the requirement that online education institutions qualify to do business as
foreign corporations or be licensed in one or more jurisdictions where they have
no physical location or other presence. New laws, regulations or interpretations
related to doing business over the Internet could increase our costs and
materially and adversely affect our enrollments, which could have a material
adverse affect on our business, financial condition, results of operations and
cash flows.
Our
success depends on attracting and retaining qualified personnel.
We depend on a core management and key
executives. In particular, we rely on the expertise and experience of our
senior officers and key employees in our business operations, and their
personal relationships with our other significant shareholders, employees, the
regulatory authorities, and our students. If any of them become unable or
unwilling to continue in their present positions, or if they join a competitor
or form a competing company in contravention of their employment agreements, we
may not be able to identify a replacement easily, our business may be
significantly disrupted and our financial condition and results of operations
may be materially adversely affected. We currently maintain key-man life
insurance in the amount of $2.5 million for Anil Narang, our President and Chief
Operating Officer. We do not currently maintain key-man life
insurance for any of our other key personnel.
We
may not be able to adequately protect our intellectual property, and we may be
exposed to infringement claims by third parties.
We believe the copyrights, service
marks, trademarks, trade secrets and other intellectual property we use are
important to our business, and any unauthorized use of such intellectual
property by third parties may adversely affect our business and reputation. We
rely on the intellectual property laws and contractual arrangements with our
employees, clients, business partners and others to protect such intellectual
property rights. Third parties may be able to obtain and use such intellectual
property without authorization. Moreover, litigation may be necessary in the
future to enforce our intellectual property rights, which could result in
substantial costs and diversion of our resources, and have a material adverse
effect on our business, financial condition and results of
operations.
We
may be subject to infringement and misappropriation claims in the future, which
may cause us to incur significant expenses, pay substantial damages and be
prevented from providing our services.
Our success depends, in part, on our
ability to carry out our business without infringing the intellectual property
rights of third parties. We may be subject to litigation involving claims of
patent, copyright or trademark infringement, or other violations of intellectual
property rights of third parties. Future litigation may cause us to incur
significant expenses, and third-party claims, if successfully asserted against
us, may cause us to pay substantial damages, seek licenses from third parties,
pay ongoing royalties, redesign our services or technologies, or prevent us from
providing services or technologies subject to these claims. Even if we were to
prevail, any litigation would likely be costly and time-consuming and divert the
attention of our management and key personnel from our business
operations.
-12-
Risks
Related to Our Financial Condition and Results of Operations
Our
limited operating history and the unproven long-term potential of our business
model make evaluating our business and prospects difficult.
We were incorporated on July 20, 2009
in the State of Delaware, Training Direct was formed on January 7, 2004 in
the State of Connecticut and Valley was incorporated in March 10, 1993 in the
State of Iowa. As our operating history is limited, the revenue and income
potential of our business and markets are yet to be fully proven. In addition,
we are exposed to risks, uncertainties, expenses and difficulties frequently
encountered by companies at an early stage of development. Some of these risks
and uncertainties relate to our ability to:
|
·
|
increase
our student enrollment by expanding the type, scope and technical
sophistication of the educational services we offer;
|
|
·
|
respond
effectively to competitive pressures;
|
|
·
|
respond
in a timely manner to technological changes or resolve unexpected network
interruptions;
|
|
·
|
comply
with changes to regulatory requirements;
|
|
·
|
maintain
adequate control of our costs and
expenses;
|
|
|
|
·
|
increase
awareness of our educational programs; and
|
|
·
|
attract
and retain qualified management and
employees.
|
We cannot predict whether we will meet
internal or external expectations of our future performance. If we are not
successful in addressing these risks and uncertainties, our business, financial
condition and results of operations may be materially adversely
affected.
We
may need additional capital and may not be able to obtain such capital on
acceptable terms.
Capital requirements are difficult to
plan in our industry. We currently expect that we will need capital to fund our
future acquisitions, educational program development, technological
infrastructure and sales and marketing activities.
Our ability to obtain additional
capital on acceptable terms is subject to a variety of uncertainties,
including:
|
·
|
investors’
perceptions of, and demand for, securities of vocational, training and
technical schools;
|
|
·
|
conditions
of the United States and other capital markets in which we may seek
to raise funds;
|
|
·
|
our
future results of operations, financial condition and cash
flows;
|
|
·
|
governmental
regulation of educational program providers;
and
|
-13-
|
·
|
economic,
political and other conditions in United
States.
|
Any failure by us to raise additional
funds on terms favorable to us, or at all, may have a material adverse effect on
our business, financial condition and results of operations. For example, we may
not be able to carry out parts of our growth strategy to acquire vocational,
training and/or technical schools that are complementary to our existing
business or necessary to maintain our growth and competitiveness.
Our business may
be adversely affected by a further economic slowdown in the U.S. or abroad or by
an economic recovery in the U.S.
The U.S
and much of the world economy are in the midst of an economic downturn. We
believe the current economic downturn has contributed to a portion of our recent
enrollment growth as an increased number of working learners seek to advance
their education to improve job security or reemployment prospects. This effect
cannot be quantified. However, to the extent that the economic downturn has
increased demand for our programs, a subsequent economic recovery may eliminate
this effect and reduce such demand as fewer potential students seek to advance
their education. This reduction could have a material adverse effect on our
business, financial condition, results of operations and cash flows. A worsening
of the economic downturn may reduce the demand for our programs among students
and the willingness of employers to sponsor educational opportunities for their
employees, either of which could materially and adversely affect our business,
financial condition, results of operations and cash flows.
We may not be
able to sustain our recent growth rate or profitability, and we may not be able
to manage future growth effectively.
Our
ability to sustain our current rate of growth or profitability depends on a
number of factors, including our ability to obtain and maintain regulatory
approvals, our ability to attract and retain students, our ability to maintain
operating margins, our ability to recruit and retain high quality academic and
administrative personnel and competitive factors. In addition, growth may place
a significant strain on our resources and increase demands on our management
information and reporting systems, financial management controls, and personnel.
Although we have made a substantial investment in augmenting our financial and
management information systems and other resources to support future growth, we
cannot assure you that we will have adequate capacity to accommodate substantial
growth or that we will be able to manage further growth effectively. Failure to
do so could adversely affect our business, financial condition, results of
operations and cash flows.
Risks
Relating to Our Securities
Insiders have substantial control
over us, and they could delay or prevent a change in our corporate control even
if our other stockholders wanted it to occur.
Our
executive officers and directors hold approximately 343% of our outstanding
common stock, which includes (i) shares owned by our officers and/or directors,
(ii) shares attributable to certain entities in which our officers and directors
share beneficial ownership, (iii) shares underlying our Series A Preferred Stock
that will be converted into shares of Florham Common Stock upon the filing of
our amended and restated certificate of incorporation for purposes of increasing
our authorized shares to 50,000,000, and (iv) shares issuable upon exercise of
stock options which have vested as of the date of this
report. Accordingly, these stockholders are able to control all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This could delay or
prevent an outside party from acquiring or merging with us even if our other
stockholders wanted it to occur.
-14-
There
may not be sufficient liquidity in the market for our securities in order for
investors to sell their securities.
Our common stock is quoted on the OTC
Bulletin Board under the current symbol "FHMS". There is a limited trading
market for our common stock. Accordingly, there can be no assurance as to the
liquidity of any markets that may develop for our common stock, the ability of
holders of our common stock to sell our common stock, or the prices at which
holders may be able to sell our common stock.
The market price of our common stock
may be volatile.
The market price of our common stock has been and will
likely continue to be highly volatile, as
is the stock market in general, and the market for OTC Bulletin Board quoted
stocks in particular. Some of the factors that may materially affect the market
price of our common stock are beyond our control, such as changes in financial
estimates by industry and securities analysts, conditions or trends in the
industry in which we operate or sales of our common stock. These
factors may materially adversely affect the market price of our common stock,
regardless of our performance. In addition, the public stock markets
have experienced extreme price and trading volume volatility. This
volatility has significantly affected the market prices of securities of many
companies for reasons frequently unrelated to the operating performance of the
specific companies. These broad market fluctuations may
adversely affect the market price of our common stock.
The
outstanding convertible securities may adversely affect us in the future and
cause dilution to existing shareholders.
As of December 31, 2009, we had
6,166,700 shares of Common Stock outstanding and 250,000 shares of Series A
Preferred Stock outstanding, each of which shares of Series A Preferred Stock
shall be converted, on the basis of 49.11333 shares of Florham Common Stock for
each share of Series A Preferred Stock (an aggregate of 12,278,333 shares of
Florham Common Stock) automatically upon the filing by the Company of an
amendment to its certificate of incorporation increasing its authorized shares
of Florham Common Stock to not less than 50,000,000 shares. In addition, we have
outstanding 5-year options to purchase an aggregate of 3,436,328 shares of
Common Stock and outstanding warrants to purchase 930,000 shares of Common Stock
expiring on June 30, 2016 at an exercise price of $0.05 per share. The
conversion of the Series A Preferred Stock and the exercise of options and
warrants will cause dilution in the interests of other shareholders as a result
of the additional common stock that would be issued upon conversion and/or
exercise. Moreover, subject to any applicable lock-up restrictions, sales of the
shares of our outstanding common stock, shares issuable upon conversion of the
Series A Preferred Stock, and shares issuable upon exercise of the options and
warrants could have a depressive effect on the price of our stock, particularly
if there is not a coinciding increase in demand by purchasers of our common
stock. Further, the terms on which we may obtain additional financing
during the period any of such securities remain outstanding may be adversely
affected by the existence of these securities as well.
Our common stock may be considered a “penny stock” and
may be difficult to sell.
The SEC has adopted regulations which generally define a
“penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to specific exemptions. The market
price of our common stock is less than $5.00 per share and, therefore, it may be
designated as a “penny stock” according to SEC
rules. This designation requires any broker or dealer selling these
securities to disclose certain information concerning the transaction, obtain a
written agreement from the purchaser and determine that the purchaser is
reasonably suitable to purchase the securities. These rules may restrict
the ability of brokers or dealers to sell our common stock and may affect the
ability of investors to sell their shares.
-15-
The market for penny stocks has
experienced numerous frauds and abuses which could adversely impact investors in
our stock.
OTCBB
securities are frequent targets of fraud or market manipulation, both because of
their generally low prices and because OTCBB reporting requirements are less
stringent than those of the stock exchanges.
Patterns
of fraud and abuse include:
|
(a)
|
Control
of the market for the security by one or a few broker-dealers that are
often related to the promoter or
issuer;
|
|
(b)
|
Manipulation
of prices through prearranged matching of purchases and sales and false
and misleading press releases;
|
|
(c)
|
“Boiler
room" practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales
persons;
|
|
(d)
|
Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
|
|
(e)
|
Wholesale
dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the inevitable
collapse of those prices with consequent investor
losses.
|
Our management is aware of the abuses
that have occurred historically in the penny stock market.
We
have not paid dividends in the past and do not expect to pay dividends in the
future, and any return on investment may be limited to the value of our
stock.
We have
never paid any cash dividends on our common stock and do not anticipate paying
any cash dividends on our common stock in the foreseeable future and any return
on investment may be limited to the value of our stock. We plan to
retain any future earnings to finance growth.
-16-
Special
Note Regarding Forward-Looking Statements
This
Report contains certain forward-looking statements. When used in this Report or
in any other presentation, statements which are not historical in nature,
including the words “anticipate,” “estimate,” “should,” “expect,” “believe,”
“intend,” “may,” “project,” “plan” or “continue,” and similar expressions are
intended to identify forward-looking statements. They also include statements
containing a projection of revenues, earnings or losses, capital expenditures,
dividends, capital structure or other financial terms.
The forward-looking statements in this
Report are based upon our management’s beliefs, assumptions and expectations of
our future operations and economic performance, taking into account the
information currently available to them. These statements are not statements of
historical fact. Forward-looking statements involve risks and uncertainties,
some of which are not currently known to us, which may cause our actual results,
performance or financial condition to be materially different from the
expectations of future results, performance or financial condition we express or
imply in any forward-looking statements. These forward-looking statements are
based on our current plans and expectations and are subject to a number of
uncertainties and risks that could significantly affect current plans and
expectations and our future financial condition and results.
We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this Report might not
occur. We qualify any and all of our forward-looking statements entirely by
these cautionary factors. As a consequence, current plans, anticipated actions
and future financial conditions and results may differ from those expressed in
any forward-looking statements made by or on our behalf. You are cautioned not
to unduly rely on such forward-looking statements when evaluating the
information presented herein.
-17-
BUSINESS
Prior to
the Reverse Merger, Florham was a publicly reporting Delaware corporation
offering Internet professional services, including providing its clients with an
integrated set of strategic creative and technology services that enable such
clients to effect and maximize their Internet business. As a result
of the Reverse Merger, Florham will carry out the business and operations of the
EII Group.
Introduction
EII
EII was incorporated in the State of
Delaware on July 20, 2009 for the purpose of acquiring vocational, training and
technical schools, with an initial emphasis on the health care and medical
industries. EII’s wholly-owned subsidiary, Valley Anesthesia, Inc., was
incorporated on July 15, 2009 in the State of Delaware and has its corporate
offices located in New York, New York. Effective August 20, 2009, Valley
Anesthesia, Inc. purchased certain assets and assumed certain liabilities and
operations of Valley Anesthesia Educational Programs, Inc. for an aggregate
purchase price of $3,838,215, plus certain contingent payments which are subject
to the achievement of predetermined operating milestones. EII’s wholly-owned
subsidiary, Training Direct, LLC, was organized as a limited liability company
in the State of Connecticut on January 7, 2004.
Valley
Through Valley, EII provides
comprehensive review and update courses and study materials that aid Student
Registered Nurse Anesthetists (“SRNA”) and Graduate Registered Nurse
Anesthetists (“GRNA”) in preparation for the National Certifying Exam (“NCE”)
throughout the continental United States.
Valley’s principal service is a
three-day comprehensive review and update course designed to prepare SRNAs for
the NCE. Valley also offers a 600-page basic manual. Additionally, Valley offers
MemoryMasterTM, which
is a collection of approximately 4,000 questions and answers designed to further
assist its students in preparation for the NCE. Valley presented 10 courses in
2007, 11 courses in 2008 and 12 courses in 2009. In addition, Valley has 13
courses scheduled for 2010.
Valley’s revenue is currently generated
from three sources: (i) seminars, (ii) manuals, and (iii) MemoryMasterTM. In
addition, Valley anticipates that there will be a fourth revenue source
beginning in 2010, which is from on-line practice examinations that management
expects to launch in January 2010.
Training
Direct
Through
its Training Direct subsidiary, EII provides “distance learning” and
“residential training” educational programs for students to become eligible for
entry-level employment in a variety of fields and industries. Training Direct
strives to assist those who may not have realized their full potential in the
workplace by finding such individuals a new career direction and assisting in
progressing their learning skills necessary to reach their earning and personal
development possibilities and goals. Training Direct maintains licenses from the
Connecticut Commissioner of Higher Education, the Connecticut Department of
Health Services and the National Health Career Association, and is an Eligible
Training Provider under the Workforce Investment Act. Such licenses require that
Training Direct have a competent faculty, offer educationally sound and
up-to-date courses and course materials, and be subject to inspections and
approvals by outside examining committees.
-18-
The following diagrams set forth our
corporate structure, both before and after giving effect to consummation of the
transactions contemplated by the Merger Agreement and the Purchase Agreement
described in this report.
(1) Corporate
name will be changed to “Educational Investors Corp.” pursuant to the Merger
Agreement.
(2) Effective
August 20, 2009, Valley Anesthesia, Inc. purchased certain assets and assumed
certain liabilities and operations of Valley Anesthesia Educational Programs,
Inc. for an aggregate purchase price of $3,838,215, plus certain contingent
payments which are subject to the achievement of predetermined operating
milestones.
Our
Offices and Other Corporate Information
EII’s and Valley’s principal executive
offices are located at 845 Third Avenue, 6th Floor,
New York, New York 10022, and its telephone number is (646) 290-5290. Valley’s
principal operating office is located at 1995 Country Club Blvd, Clive, Iowa
50325 and its telephone number is (515) 221-2590. Valley maintains a website at
www.valleyanesthesia.com.
Training Direct’s principal executive offices are located at 3885 Main Street,
2nd
Floor, Bridgeport, Connecticut 06606 and its telephone number is (203) 372-8842.
Training Direct maintains a website at www.trainingdirectusa.org.
The contents of such websites are not part of this report.
Valley’s
Program Offerings
Seminars
Each review and update course includes
26 hours over a three-day time period. The courses are located throughout the
United States in areas with high concentrations of nursing programs. Seminars
are typically held in hotel conference rooms located close to airports to
minimize logistical issues for traveling students.
-19-
Registration for the seminars can be
completed online, by mail or by telephone. Registration for courses for the
following year occurs at the end of August. Once the registration period has
commenced, the seminars are often filled within a couple days. Seminars in
Cleveland and Philadelphia have traditionally had the highest student
enrollments with two courses in Cleveland that included 217 and 216 students,
respectively, and 215 students in Philadelphia in 2007. In 2008, the seminars
had enrollments for two courses in Philadelphia of 224 and 220 students,
respectively, and in Cleveland for two courses of 219 and 216 students,
respectively. In 2009, the seminars had enrollments for two courses in Cleveland
of 212 and 209 students, respectively, a course in Philadelphia with enrollment
of 218 students and a course in Dallas with enrollment of 217
students.
Manuals
Valley publishes a course manual which
is purchased by students enrolled in the seminars and others. The course manual
consists of over 600 pages and is printed by a third party. While the volume is
fairly substantial, the complexity of the printing is not excessive and the
manuals are not bound. Production costs were approximately $175,000 in 2007,
$186,000 in 2008 and $44,000 for the nine months ended September 30, 2009. The manuals are ordered
from the printers each fall after registration has begun for the following
year’s courses and correspondingly, the majority of the printing costs are
incurred in the fourth quarter. Since the per unit cost to print 100
manuals is the same as the cost to print one, Valley only orders enough books to
meet its known demand. As Valley receives additional orders, it places orders
with its vendor to print the required quantity to meet the additional
demand.
MemoryMasterTM
Valley offers its MemoryMasterTM study
guide collection of approximately 4,000 questions and answers to aid its
students in preparation for the NCE by facilitating the memorization and
understanding of a large body of anesthesia-related facts, concepts and issues.
MemoryMasterTM content
is categorized according to the outline provided by the Council on Certification
of Nurse Anesthesia, which includes:
|
·
|
basic
and related clinical sciences;
|
|
·
|
equipment,
instrumentation and technology;
|
|
·
|
basic
principles of anesthesia;
|
|
·
|
advanced
principles of anesthesia; and
|
|
·
|
professional
issues.
|
MemoryMasterTM is
offered in two forms: (i) a bound, soft covered book, and (ii) flash
cards. The book provides the entire MemoryMasterTM content
in a side-by-side format, with questions appearing on the left side of each page
and the corresponding answers on the right side.
MemoryMasterTM is
printed by the same third party source as the course manuals. MemoryMasterTM can
also be ordered from the printers on an as needed basis. Management estimates
that MemoryMasterTM
accounted for approximately $419,000 of revenue in 2007, $407,000 of revenue in
2008 and $142,000 of revenue during the nine months ended September 30, 2009.
Historically, the fourth quarter includes the greatest amount of
MemoryMasterTM
shipments and related revenue.
On-Line
Practice Examinations
Valley anticipates that there will be a
fourth revenue source beginning in 2010, which is from on-line practice
examinations that management expects to launch in January 2010. Valley’s on-line
practice examinations will be a test assessment program where students can visit
a mock testing center (the “Center”) on-line. Practice examinations and
subject-specific quizzes will be available for student practice purposes. Valley
believes that this will be a popular addition to its offerings, and that most
students who take its courses, and others who do not, will avail themselves of
the new test assessment Center. As of the date hereof, pricing for this program
has not been finalized but it is expected that the Center will be fully
functional by the end of January 2010.
-20-
Training
Direct’s Program Offerings
Distance
Learning Programs
Distance
learning programs provide an additional opportunity to individuals who may not
have acquired all of the education they need and are unable to take advantage of
residential training educational opportunities. Distance learning is
defined as enrollment and study with an educational institution that provides
lesson materials prepared in a sequential and logical order for study by
students on their own, allowing students to acquire new professional skills
while studying at home at their own pace. In order to help each student in their
field of study, Training Direct provides counseling and lesson assistance by
telephone and through mail.
Training Direct’s distance learning
offerings include educational programs in the following fields and
industries:
|
·
|
medical
office assistance;
|
|
·
|
medical
billing and coding;
|
|
·
|
hotel-motel
front office;
|
|
·
|
veterinary
assistant;
|
|
·
|
paralegal;
and
|
|
·
|
pharmacy
technician.
|
All of
Training Direct’s courses are priced at $1,295 to $1,600 per program. Students may
pay via cash, credit card, money order or check.
When each
lesson is completed, the student mails the assigned work to the school for
correcting, grading, comment and subject matter guidance by qualified
instructors. Corrected assignments are rapidly returned to the student,
providing a personalized student-teacher relationship.
Medical
Office Assistant Program
Training Direct’s medical office
assistant curriculum prepares the student for a wide range of entry-level office
positions in different areas of the health industry. The curriculum prepares a
student for potential employment in medical offices, clinics, public health
departments and hospitals. The student acquires a basic understanding of medical
terminology, records management, financial administration and administrative
procedures which relate to the functioning of a medical office. An outline of
the medical office assistant curriculum includes the following, without
limitation:
|
·
|
introduction
to medical office assistance;
|
|
·
|
introduction
to medical terminology;
|
|
·
|
advanced
medical terminology and
pharmacology;
|
|
·
|
administrative
medical assistance;
|
|
·
|
medical,
legal and ethical responsibilities;
|
|
·
|
computers
and information processing;
|
-21-
|
·
|
patients'
medical records;
|
|
·
|
drug
and prescription records;
|
|
·
|
office
maintenance and management;
|
|
·
|
fees,
credit and collection;
|
|
·
|
health
insurance systems;
|
|
·
|
bookkeeping;
|
|
·
|
payroll
procedures; and
|
|
·
|
job
search techniques.
|
A high school diploma or general
education degree is required for applicants to become eligible for the program.
Upon successful completion of the program, the student receives a
diploma.
Medical
Billing and Coding Program
Training Direct’s medical insurance
billing and coding curriculum prepares the student for entry-level employment to
process insurance claims for a medical office. There are multiple roles that the
student can fulfill with this curriculum, such as patient and administration
contact, working with computers, and accounting tasks. Specific potential career
duties consist of: (i) data collection from patients, hospitals, laboratories
and physicians; (ii) diagnostic and procedure coding; (iii) timely generation of
claims to maximize cash flow for the medical practice; (iv) keeping up to date
on insurance plans, rules and regulations; (v) bookkeeping transactions; and
(vi) follow-up on claims.
An outline of the medical billing and
coding curriculum includes the following, without limitation:
|
·
|
introduction
to medical terminology;
|
|
·
|
advanced
medical terminology and
pharmacology;
|
|
·
|
fundamentals
of health insurance coverage;
|
|
·
|
source
documents and the insurance claim
cycle;
|
|
·
|
coding
diagnosis;
|
|
·
|
coding
procedures;
|
|
·
|
the
health insurance claim form;
|
|
·
|
fees:
private insurance and managed care, the Medicaid
program;
|
|
·
|
the
Medicare program;
|
|
·
|
workers’
compensation coverage and other disability programs;
and
|
|
·
|
patient
billing: credit and collection
practices.
|
In this program, the student acquires
an understanding of basic medical terminology, anatomy and physiology,
procedural and diagnostic coding, types of medical insurance programs, insurance
claims completion and submission, payment and follow-up procedures, relevant
office skills and the role of computers in the medical office. Upon successful
completion of the program, the student receives a diploma. In addition, this
course offers students an optional opportunity to become nationally certified by
the National Healthcare Association.
Hotel-Motel
Program
Training Direct’s hotel-motel career
training curriculum prepares the student for entry-level employment in the
Hospitality industry. The student learns about the typical organizational
structure of the industry, how each department functions, what the staffing
requirements are for each department, as well as the character traits necessary
for successful employment for each part of the organization. At the completion
of the curriculum, the student is ready to apply for employment in any number of
hospitality functions such as front desk operations, catering, housekeeping,
sales and promotions, maintenance, purchasing and convention organization.
Considerable attention is also given to personnel selection, organization and
management. This is an employee intensive industry where human relations are an
important component to successful career advancement.
-22-
An outline of the hotel-motel
curriculum includes the following, without limitation:
|
·
|
the
Hospitality industry;
|
|
·
|
personnel
requirements;
|
|
·
|
the
General Manager and Assistant
Manager;
|
|
·
|
front
desk operations;
|
|
·
|
the
desk clerk;
|
|
·
|
uniformed
services;
|
|
·
|
guest
relations;
|
|
·
|
the
sales department;
|
|
·
|
conventions
and meetings;
|
|
·
|
accounting
procedures;
|
|
·
|
cleaning
and maintenance personnel;
|
|
·
|
food
and beverage management team;
|
|
·
|
inventories
and control; and
|
|
·
|
career
guidance.
|
Upon successful completion of the
program, the student receives a diploma.
Veterinary
Assistant Program
Training Direct’s veterinary assistant
curriculum prepares the student for entry-level employment under the supervision
of veterinarians to diagnose and treat animals for injuries, illness and routine
veterinary needs such as standard inoculations and periodic check ups.
Veterinary assistants perform many tasks ranging from soothing and quieting
animals under treatment to drawing blood, inserting catheters and conducting
laboratory tests.
An outline of the veterinary assistant
curriculum includes the following, without limitation:
|
·
|
introduction
to medical terminology;
|
|
·
|
advanced
medical terminology and
pharmacology;
|
|
·
|
introduction
to small animal care;
|
|
·
|
animal
rights and welfare;
|
|
·
|
nutrition
and digestive system;
|
|
·
|
animal
studies, including dogs, cats, rabbits, hamsters, amphibians, reptiles,
birds, fish and others;
|
|
·
|
introduction
to veterinary practice;
|
|
·
|
care
and maintenance of a veterinary
facility;
|
|
·
|
administrative
duties;
|
|
·
|
ethics;
and
|
|
·
|
fee
collection procedures, billing and
payroll.
|
-23-
In this program, the student acquires
an understanding of basic medical terminology, the history, breeds and types of
animal groups, feeding, handling, care, housing and diseases of animals, key
terms, organizational structure and functions of the veterinary clinic, and
interacting with professional aspects of veterinary practices. Upon successful
completion of the program, the student receives a diploma.
Paralegal
Program
Training Direct’s paralegal course
prepares students for entry-level employment positions to assist lawyers.
The student gains an understanding of the scope of law that is practiced in law
offices, corporations and government agencies.
This is an intensive course requiring
extensive reading including cases in many areas of the law. In addition to
understanding the breadth of the paralegal profession, students begin by
learning legal terminology and then study the judicial system, civil and
criminal law, the anatomy of a trial as well as pretrial procedures and
research. Students also study different areas of law including Bankruptcy,
Estate Planning, Family Law, Real Estate, Contracts, Torts, Immigration and
Naturalization and Collections.
An outline of the paralegal curriculum
includes the following, without limitation:
|
·
|
the
paralegal profession;
|
|
·
|
law
seminars covering roots of American law, organization of the American
legal system, sources of law, the trial, and legal
terminology;
|
|
·
|
legal
research tools;
|
|
·
|
cause
of action in a civil case, pre-trial discovery, admissibility and use of
evidence, and trial preparation;
|
|
·
|
contracts;
|
|
·
|
Federal
bankruptcy;
|
|
·
|
criminal
law;
|
|
·
|
estate
planning;
|
|
·
|
family
law;
|
|
·
|
real
estate;
|
|
·
|
torts;
|
|
·
|
immigration
and naturalization; and
|
|
·
|
collections.
|
The duration of this course is six
months on a part-time basis. Upon successful completion of the program, the
student receives a diploma.
Pharmacy
Technician Program
Training Direct’s pharmacy technician
curriculum prepares the student for entry-level employment positions to work
under the supervision of pharmacists, to help prepare medications for dispensing
to patients, label of medications, perform inventories and order supplies,
prepare intravenous solutions, help maintain records, and perform other duties
as directed by pharmacists.
An outline of the pharmacy technician
curriculum includes the following, without limitation:
|
·
|
introduction
to pharmacy technicians;
|
|
·
|
introduction
to medical terminology;
|
|
·
|
advanced
medical terminology and
pharmacology;
|
-24-
|
·
|
home
and long term health care;
|
|
·
|
regulatory
standards in pharmacy practice;
|
|
·
|
computer
applications;
|
|
·
|
medication
errors;
|
|
·
|
pharmaceutical
dosage forms;
|
|
·
|
pharmaceutical
calculations;
|
|
·
|
drug
distribution systems; and
|
|
·
|
customer
care.
|
In this course, the student acquires a
basic understanding of medical terminology, pharmacological terms,
organizational structure and function of the pharmacy, regulatory standards in
the practice of pharmacy, drug-use control and information services,
administrative aspects of pharmacy technology and professional aspects of
pharmacy technology. The duration of this course is six months on a part-time
basis. The completion of this program provides the student with the knowledge
necessary to pass the national Pharmacy Technician Certification Board exam. A
high school diploma or general education degree is required for applicants to
become eligible for this program. Upon successful completion of the program, the
student receives a diploma.
Residential
Training Program
Training Direct offers a comprehensive
Certified Nurse's Aide Program to assist its students with developing the skills
and knowledge necessary to obtain an entry-level position as a Nurse's Aide in a
health care facility. The training program provides the student with both basic
knowledge and practical experience in the terminology, procedures, and
techniques required of a Nurse's Aide. This training program meets the
Connecticut Department of Health Services guidelines for eligibility to take the
State certification exam for Nurse's Aides.
Student
Services
Students may write or call Training
Direct’s academic advisors for course assistance. For each course there is an
advisor specialized in that study area who is available to answer questions and
discuss subject matter.
Every program at the school includes
career preparation lessons to review hiring procedures, to help students write
resumes and to improve employment interview skills. Student Services matches
students with potential employers who contact Training Direct throughout the
year to fill openings.
Our
Industry
General
The
domestic non-traditional education sector is a significant and growing component
of the postsecondary degree-granting education industry, which was estimated to
be a $386 billion industry in 2007, according to the Digest of Education
Statistics published in 2009 by the U.S. Department of Education’s National
Center for Education Statistics. According to the same study, in 2007, over
6.9 million, or 38%, of all students enrolled in higher education programs
were over the age of 24, and enrollment in degree-granting institutions between
2008 and 2017 is expected to increase 19% for students over age 25. These
students would not be classified as traditional (i.e., 18 to 24 years of
age, living on campus, supported by parents, and not working full-time). The
non-traditional students typically are looking to improve their skills and
enhance their earnings potential within the context of their careers. We believe
that the demand for non-traditional education will continue to increase,
reflecting the knowledge-based economy in the U.S.
-25-
Many
working learners seek accredited degree programs that provide flexibility to
accommodate the fixed schedules and time commitments associated with their
professional and personal obligations. The education formats offered by our
institutions enable working learners to attend classes and complete coursework
on a more convenient schedule than traditional universities offer. Although more
colleges and universities are beginning to address some of the needs of working
learners, many universities and institutions do not effectively address the
needs of working learners for the following reasons:
·
|
Traditional
universities and colleges were designed to fulfill the educational needs
of conventional, full-time students ages 18 to 24, and that industry
sector remains the primary focus of these universities and institutions.
This focus has resulted in a capital-intensive teaching/learning model
that may be characterized by: (i) a high percentage of full-time, tenured
faculty; (ii) physical classrooms, library facilities and related
full-time staff; (iii) dormitories, student unions, and other significant
physical assets to support the needs of younger students; and (iv) an
emphasis on research and related laboratories, staff, and other
facilities.
|
·
|
The
majority of accredited colleges and universities continue to provide the
bulk of their educational programming on an agrarian calendar with time
off for traditional breaks. The traditional academic year runs from
September to mid-December and from mid-January to May. As a result, most
full-time faculty members only teach during that limited period of time.
While this structure may serve the needs of the full-time, resident, 18 to
24-year-old student, it limits the educational opportunities for working
learners who must delay their education for up to four months during these
traditional breaks.
|
·
|
Traditional
universities and colleges may also be limited in their ability to provide
the necessary customer service for working learners because they lack the
necessary administrative and enrollment
infrastructure.
|
·
|
Diminishing
financial support for public colleges and universities has required them
to focus more tightly on their existing student populations and missions,
which has reduced access to
education.
|
Valley
According to the American Association
of Nurse Anesthetists (“AANA”), in the United States there were 108 accredited
nurse anesthesia programs in 2006, 2007, 2008 and 2009. This number grew from 95
programs in 2005. Most SRNAs are
registered with the AANA. As set forth in the table below, the number
of SRNAs registered with the AANA has increased substantially over the past ten
years. Valley has developed strategic relationships with accredited nurse
anesthesia programs and with the AANA. Many of the programs have requested that
Valley provide courses specifically for their programs, however, Valley
currently provides courses for only one school located in
Tennessee.
SRNAs Registered with AANA
|
||||
Year
|
Registered SRNAs
|
|||
1999
|
2,372 | |||
2005
|
4,300 | |||
2006
|
4,800 | |||
2007
|
5,042 | |||
2008
|
5,317 | |||
2009
|
5,610 |
Source:
AANA
-26-
As indicated above, the number of
registered SRNAs more than doubled from 1999 to 2009. This growth in SRNAs in
the United States has expanded Valley’s potential customer base to whom Valley
markets its services. The following table sets forth a comparison of
registered SRNAs with the number of students enrolled in Valley’s courses each
year:
Valley’s
Market Share
|
||||||||||||
Year
|
Registered SRNAs
|
Students Enrolled in
Valley’s Courses
|
% Registered SRNAs
Enrolled
|
|||||||||
1999
|
2,372 | 986 | 41.6 | % | ||||||||
2005
|
4,300 | 1,522 | 35.4 | % | ||||||||
2006
|
4,800 | 1,901 | 39.6 | % | ||||||||
2007
|
5,042 | 1,976 | 39.1 | % | ||||||||
2008
|
5,317 | 2,085 | 39.2 | % | ||||||||
2009
|
5,610 | 2,148 | 38.3 | % |
Source:
AANA
Training
Direct
Training Direct is one of the largest
schools operating in the state of Connecticut within the Higher Educational
Community that offers short term training programs, which lead to numerous
employment opportunities within the Health Care Profession. Our Certified
Nurse’s Aide training program as well as Medical Billing and Coding Specialist
course are both under four weeks in length and have been very popular among our
student population.
Training Direct is also one of the only
private schools offering distance learning education programs in the State of
Connecticut. Our distance education programs offer our students the
ability to take courses from home without having to attend a classroom setting
due to such things as family or transportation constraints. Training
Direct enrollments in our programs have increased 25% from 2008 to
2009.
Our
Strategy and Key Corporate Objectives
Our goal is to strengthen and
capitalize on our position as a provider of high quality, accessible education
for individuals throughout the United States. Our principal focus is to provide
high quality educational products and services to our students in order for them
to maximize the benefit of their educational experience.
Generally, we intend to use our
expertise to enhance the quality, delivery and student outcomes associated with
the respective curricula across our entire group of subsidiaries. We believe we
can leverage our organizational capabilities to offer innovative products,
optimize our cost structure and create new growth opportunities. Finally, we
intend to continue to invest in our people, systems and organization, as they are the foundation
for our future success. In our opinion, these efforts are the basis for enabling
us to meet and exceed our customer’s expectations and further differentiate us
from our competition.
-27-
Specifically, EII’s key business
development objectives over the next three to five years are to seek and
consummate potential acquisitions with companies engaged in the business of
providing vocational training and test preparation products and services. In
addition, management intends to launch and further develop on-line test
assessment programs and web-based course offerings.
Management has identified a number of
such potential acquisitions within the broad context of vocational training and
test preparation, although we have not signed any letter of intent or other
definitive agreement with respect to any additional acquisitions. Management
believes that in addition to the usual advantages of “rolling up” similar
companies, such as reduced administrative overhead, vocational schools in
particular lend themselves to significant enhancement through synergy among the
schools. For example, Training Direct’s licensure in the State of Connecticut
can be used to sanction related course offerings currently in place in an
acquisition target. Thus by acquisition, Training Direct may be able to
significantly expand its course offerings and subject areas, without
commensurate increases in overhead. Similarly, Valley, which management believes
has a valuable brand name among anesthetists, can acquire a program that
actually trains (rather than test-prepares) anesthetists, making profitable use
of its reputation that has been established over the course of a
decade.
Moreover, management believes that the
vocational training space is highly fragmented and offers many opportunities for
the acquisition and enhancement of small-niche schools, and we plan to
aggressively pursue an acquisition strategy over the course of the next three to
five years.
Generally, we believe that because of
the small, development-stage nature of many potential acquisition targets that
opportunities for synergy, such as those described above for Valley and Training
Direct, will provide significant opportunities for revenue-expansion and
increased profitability, without significant operational cost
increases.
Valley and Training Direct, as well as
many potential acquisition targets, have limited or nascent on-line utilities.
As with the new Valley test assessment center, we believe that both Valley and
Training Direct can expand revenue by offering distance learning and distance
practice products related to their existing in-classroom programs. Training
Direct believes that its existing distance learning program described above,
which involves mailing student work papers back and forth, can be substantially
enhanced by use of the Internet, both in terms of enlarging the number of
students who can take such courses and by significantly reducing
costs.
Valley intends to eventually develop an
online course, so that students who cannot travel to a specific classroom
seminar can still enroll for a Valley course. Such an online program would also
be a useful addition for refresher training for students who have actually
attended a seminar. Development of this program has just begun and it is not
expected to be available for at least two years.
Our
Research and Development
Valley and Training Direct have been
developing on-line educational programs, including Valley’s on-line testing examination
center. In addition, Valley’s and Training Direct’s programs are continually
updated to ensure that students are always current with the most updated
practices and procedures. Any major revisions to Training
Direct’s curriculum are always
reviewed by the Connecticut Department of Higher Education for final
approval. All programs lead to certification from the National Health
Career Association or Connecticut State Licensure. To date, the costs of such
research and development activities have been immaterial and are not borne by
our customers.
-28-
Our
Customers and Marketing
Valley
Customers
Valley’s customer base consists almost
exclusively of SRNAs preparing to take the NCE. It takes considerable commitment
by individuals to become a Certified Registered Nurse Anesthetist (“CRNA”). The
education and experience requirements to become a CRNA include the
following:
|
·
|
a
Bachelor’s of Science in Nursing or other appropriate baccalaureate
degree;
|
|
·
|
a
current license as a registered
nurse;
|
|
·
|
at
least one year’s experience in an acute care nursing
setting;
|
|
·
|
graduation
from an accredited graduate school of nurse
anesthesia;
|
|
·
|
clinical
training in university-based or large community hospitals;
and
|
|
·
|
passing
a national certification examination following
graduation.
|
Because there are extensive steps and
financial resources required for eligibility to sit for the NCE, SRNAs are
highly incented to pass the exam and are typically willing to enroll in courses
to obtain any advantage for passing the NCE. According to the AANA,
in 2005 the reported average annual salary for a CRNA was $160,000. The high
salaries paid to CRNAs provide further incentive to SRNAs to pass the
certification exam on the first or second attempt. Moreover, due to what
management believes is a high demand for CRNAs in the industry, students that
pass the certifying exam are employed almost immediately.
As a result of the strong demand for
CRNAs and the benefits associated with passing the exam, annual enrollment in
Valley’s courses has increased since 1998:
Student
Enrollments in Valley’s Courses
|
||||||||
Year
|
No. of Students Enrolled
|
Growth Rate
|
||||||
1998
|
935 | N/A | ||||||
1999
|
986 | 5.5 | % | |||||
2000
|
1,113 | 12.9 | % | |||||
2001
|
1,211 | 8.8 | % | |||||
2002
|
1,354 | 11.8 | % | |||||
2003
|
1,488 | 9.9 | % | |||||
2004
|
1,510 | 1.5 | % | |||||
2005
|
1,522 | 0.8 | % | |||||
2006
|
1,901 | 24.9 | % | |||||
2007
|
1,976 | 4.0 | % | |||||
2008
|
2,085 | 5.5 | % | |||||
2009
|
2,148 | 3.0 | % |
Marketing
Once a year, Valley undertakes a
mailing of approximately 5,000 brochures to students and program directors for
schools that teach SRNAs. Such brochures include information regarding Valley’s
review and update course, course schedules, course pricing, and other related
data. In addition, Valley relies on word of mouth amongst SRNAs, program
directors and schools with respect to its review and update
courses.
-29-
Training
Direct
Customers
Training Direct enrolls a wide variety
of students in its programs; from working executives in our distance education
courses, to the unemployed who have been referred to us by a variety of state
agencies for our residential programs. Training Direct targets people
looking to enhance their current careers or seeking to enter the Health Care
Industry.
Marketing
Training Direct does a variety of
community outreach as well as print media, which covers over half of the State
of Connecticut. Because of its reputation in the community, Training Direct’s
referral business has been consistently strong. Training Direct expects
advertising and promotional costs to remain consistent with our growth and
revenue.
Our
Competition and Competitive Advantages
Valley
Valley recognizes few if any direct
competitors. There are a limited number of companies publishing manuals designed
to help students prepare for the NCE, including, without limitation, Concepts
Anesthesia Review, and Board Stiff Live. However, these competitors are not
providing an exam review course. Management believes that this enables Valley to
take advantage of potential growth opportunities within its market with limited
price or other competition. Within the past 30 to 60 days,
Dannemiller, a company engaged in the continuing medical education business,
announced that it will be offering a review course for the NCE.
Training
Direct
Training Direct has very limited
competition in Connecticut. Both the Nurse’s Aide Training and Medical
Billing and Coding courses are very much in demand because Training Direct is
located in an area which has a very high concentration of hospitals and medical
facilities.
Our
Regulatory Environment
Our operations are subject to
significant regulations. New or revised interpretations of regulatory
requirements could have a material adverse effect on us. In addition, changes in
existing or new interpretations of applicable laws, rules, or regulations could
have a material adverse effect on our accreditation, authorization to operate in
various states, permissible activities, and operating costs. The failure to
maintain or renew any required regulatory approvals, accreditation, or state
authorizations could have a material adverse effect on us.
-30-
Training Direct’s operations are
regulated by the Department of Higher Education of the State of Connecticut (the
“DHE”) from which Training Direct received its initial approval and license in
2004. The DHE seeks to promote a postsecondary system of distinctive strengths
which, through overall coordination and focused investment, assures state
citizens access to high quality educational opportunities, responsiveness to
individual and State needs, and efficiency and effectiveness in the use of
resources. The Board of Governors for Higher Education is the statewide
coordinating and planning authority for Connecticut's public and independent
colleges and universities. The Board makes higher education policy,
reviews public college and university missions and budgets, recommends
system-wide budgets to the Governor and State General Assembly, licenses and
accredits academic programs and institutions (both public and independent),
evaluates institutional effectiveness and coordinates programs and services
between the public and independent sectors. Under the Board’s supervision,
the DHE carries out Board policy, administers statewide student financial
aid programs, oversees private occupational schools and conducts research and
analysis on issues important to legislators and the public.
The DHE maintains and ensures that the
approved occupational schools offer programs and courses that have proper
organization and structure that meet their stated objectives. Also, the
DHE maintains and ensures that approved occupational schools under their
licensure follow all state statutes and regulations.
Our
Intellectual Property
We own and use the trademark
MemoryMasterTM, which
is registered with the United States Patent and Trademark Office in the name of
Valley. In addition, all of Valley’s other course materials are the subject of
copyright registrations with the United States Patent and Trademark Office in
the name of Valley. Copyright registrations expire over various periods of time.
We vigorously defend against infringements of our trademarks, service marks, and
copyrights.
Seasonality
Our quarterly revenue and net income
fluctuate primarily as a result of the pattern of student
enrollments. Generally, the schools’ highest enrollment and revenues
typically occur in the fall, which corresponds to the third and fourth quarters
our fiscal year. Enrollment is slightly lower in the spring, and the lowest
enrollment generally occurs during the summer months. Our operating
costs do not fluctuate as significantly on a quarterly basis.
Results
of operations reflect both this seasonal enrollment pattern and the pattern of
student recruiting activity costs that precede the start of every
term.
Employees
After the Reverse Merger and the
acquisition of Training Direct, we have 3 executive officers. Valley has a total
of 4 full-time employees. Training Direct has a total of 6 full-time
employees and 10 part-time employees. Over the next 12 months,
we do not expect to add significant personnel. None of our employees are covered
by collective bargaining agreements. We believe that our relations with our
employees are good.
-31-
Item
2. Management’s Discussion and Analysis or Plan of
Operation
Educational
Investors, Inc. (“EII”) was incorporated on July 20, 2009. We have
included elsewhere in this report the consolidated financial statements of
Educational Investors, Inc. as of September 30, 2009 and for the period from
inception (July 20, 2009) through September 30, 2009.
EII
through its wholly-owned subsidiary, Valley Anesthesia, Inc. (“Valley”),
purchased certain assets and assumed certain liabilities of Valley Anesthesia
Educational Programs, Inc. (“VAEP”) effective August 20, 2009. We have included
elsewhere in this report the historical financial statements of Valley
Anesthesia Educational Programs, Inc. as of December 31, 2007 and 2008 and for
the years then ended, and as of August 20, 2009 and for the period from January
1, 2009 through August 20, 2009.
EII
acquired the Membership Interest in Training Direct LLC (“Training Direct”)
effective December 31, 2009. We have included elsewhere in this
report the historical financial statements of Training Direct, LLC as of
December 31, 2007 and 2008 and for the years then ended, and as of
September 30, 2009 and for the nine months then ended.
The
following discussion and analysis of financial condition and results of
operations relates to the operations and financial condition reported in the
financial statements of Educational Investors, Inc. and subsidiary as of
September 30, 2009 and for the period from July 20, 2009 (inception) through
September 30, 2009, Valley Anesthesia Educational Programs, Inc. as of December
31, 2007 and 2008 and for the years then ended, and as of August 20, 2009 and
for the period from January 1, 2009 through August 20, 2009, and Training
Direct, LLC as of December 31, 2007 and 2008 and for the years then ended, and
as of September 30, 2009 and for the nine months then ended and should be read
in conjunction with such financial statements and related notes included in this
report.
Overview
EII was
incorporated for the purpose of acquiring vocational, training and technical
schools, with an initial emphasis on the health care and medical
industries. Through its Valley Anesthesia, Inc. subsidiary, EII
provides comprehensive review and update courses and study materials that aid
Student Registered Nurse Anesthetists (“SRNA”) and Graduate Registered Nurse
Anesthetists (“GRNA”) in preparation for the National Certifying Exam (“NCE”)
throughout the continental United States. Through its Training Direct
subsidiary, EII provides “distance learning” and “residential training”
educational programs for students to become eligible for entry-level employment
in a variety of fields and industries. The company strives to assist those who
may not have realized their full potential in the workplace in finding a new
career direction and progressing in learning skills necessary to reach their
earning and personal development possibilities and goals. Training Direct
maintains approvals from the Connecticut Commissioner of Higher Education, the
Connecticut Department of Health Services and the National Health Career
Association, and is an Eligible Training Provider under the Workforce Investment
Act. Such approvals require that the company have a competent faculty, offer
educationally sound and up to date courses and course materials, and be subject
to inspections and approvals by outside examining committees.
Acquisitions
Effective
August 20, 2009, Valley purchased certain assets and assumed certain liabilities
of Valley Anesthesia Educational Programs, Inc. for $3,838,215. The
purchase price included $2,000,000 cash, note at fair value of $1,702,883,
present value of earnout of $79,990 and net liabilities assumed of $55,342. The
purchase method of accounting was used for this transaction and the purchase
price was allocated to the fair value of financial assets, liabilities,
tradename/trademark/content, group and non-group registrations, website, review
manuals and covenant not-to compete aggregating $3,654,658, and the excess of
the purchase price over the fair value of the identifiable assets was realized
as goodwill.
-32-
On December 16, 2009, which closed
December 31, 2009, EII entered into an Interest Purchase Agreement
("TDI Agreement") with Training Direct LLC ("TDI") and its members and the
Company pursuant to which EII acquired all outstanding membership interests, on
a fully diluted basis, of TDI in exchange for (a) $200,000 cash, (b) shares of
the Company's Common Stock having a deemed value of $600,000 (the "Acquisition
Shares"), with such number of Acquisition Shares to be determined by dividing
$600,000 by the "Discounted VWAP" (as defined below) for the twenty (20)
"Trading Days" (as defined below) immediately following the consummation of the
Reverse Merger and (c) shares of the Company's Common Stock having a deemed
value of $300,000 (the "Escrow Shares"), with such number of Escrow Shares to be
determined by dividing $300,000 by the Discounted VWAP for the twenty (20)
Trading Days immediately following the consummation of the Reverse Merger. The
Escrow Shares will be held in escrow and released therefrom as provided in the
TDI Agreement. "Discounted VWAP" is defined in the TDI Agreement as seventy
percent (70%) of the "VWAP" of the Company's Common Stock, but is in no event
less than $0.40 per share. "VWAP" is defined in the TDI Agreement as a fraction,
the numerator of which is the sum of the product of (i) the closing trading
price for the Company's Common Stock on the applicable national securities
exchange on each Trading Day of the twenty (20) Trading Days following the
consummation of the Reverse Merger and (ii) the volume of the
Company's Common Stock on the applicable national securities exchange
for each such day and the denominator of which is the total volume of the
Company's Common Stock on the applicable national securities exchange during
such twenty day period, each as reported by Bloomberg Reporting Service or other
recognized market price reporting service. "Trading Day" is defined in the TDI
Agreement as any day on which the New York Stock Exchange or other national
securities exchange on which the Company's Common Stock trades is open for
trading.
Educational
Investors, Inc. and Subsidiary
Liquidity
and Capital Resources
As of
September 30, 2009, we had working capital of approximately $148,000, including
cash and cash equivalents.
Net cash
provided by operating activities was approximately $670,000 for the period from
inception (July 20, 2009) through September 30, 2009.
Net cash
used in investing activities for the period from inception (July 20, 2009)
through September 30, 2009 totaled approximately $2,022,000 and
related to the purchase of certain assets of Valley Anesthesia Educational
Programs, Inc. in the amount of $2,000,000 and the purchase of fixed assets and
website for online testing in the approximate amount of $22,000.
Net cash
provided by financing activities for the period from inception (July 20, 2009)
through September 30, 2009 was approximately $2,450,000 from the net proceeds
from the sale of common stock and options.
Although
we expect that our available funds and funds generated from our operations will
be sufficient to meet our anticipated needs for 12 months, we may need to obtain
additional capital to continue to grow our business. Our cash requirements may
vary materially from those currently anticipated due to changes in our
operations, including expansion of our personnel and the timing of our receipt
of revenues. Our ability to obtain additional financing in the future will
depend in part upon the prevailing capital market conditions, as well as our
business performance. There can be no assurance that we will be successful
in our efforts to arrange additional financing on terms satisfactory to us or at
all.
-33-
Critical
Accounting Policies and Estimates
Our
financial information has been prepared in accordance with generally accepted
accounting principles in the United States, which requires us to make judgments,
estimates and assumptions that affect (1) the reported amounts of our assets and
liabilities, (2) the disclosure of our contingent assets and liabilities at the
end of each fiscal period and (3) the reported amounts of revenues and expenses
during each fiscal period. We continually evaluate these estimates
based on our own historical experience, knowledge and assessment of current
business and other conditions, our expectations regarding the future based on
available information and reasonable assumptions, which together form our basis
for making judgments about matters that are not readily apparent from other
sources. Since the use of estimates is an integral component of the
financial reporting process, our actual results could differ from those
estimates. Some of our accounting policies require a higher degree of
judgment than others in their application.
When
reviewing our financial statements, you should consider (1) our selection of
critical accounting policies, (2) the judgment and other uncertainties affecting
the application of those policies, and (3) the sensitivity of reported results
to changes in conditions and assumptions. We believe the following
accounting policies involve the most significant judgment and estimates used in
the preparation of our financial statements.
Use
of estimates in the preparation of financial statements
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those
estimates. Estimates are used in accounting for, among other things,
useful lives for depreciation and amortization, future cash flows associated
with impairment testing for long-lived assets, deferred tax assets and
contingencies.
Cash
The
Company maintains cash and cash equivalents with financial institutions which
may at times exceed federally insured limits.
Property
and equipment
Property
and equipment are recorded at cost. Depreciation is provided in
amounts sufficient to amortize the cost of the related assets over their useful
lives using the straight line method.
Maintenance,
repairs and minor renewals are charged to expense when
incurred. Replacements and major renewals are
capitalized.
Impairment
of long-lived assets
In the
event that facts and circumstances indicate that the cost of an asset may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset’s carrying amount to determine if
a write-down to market value is required.
-34-
Website
– Online Testing
Purchased
computer software is capitalized and amortized over its estimated useful life
starting when it is placed in service.
Income
taxes
The
Company utilizes the asset and liability method of accounting for income
taxes. The asset and liability method requires that the current or
deferred tax consequences of all events recognized in the financial statements
are measured by applying the provisions of enacted tax laws to determine the
amount of taxes payable or refundable currently or in future
years. An allowance against deferred tax assets is recognized when it
is more likely than not that such tax benefits will not be
realized. Adjustment to the deferred tax assets and liabilities
balances are recognized in income as they occur.
Revenue
Recognition
The
Company derives its revenue substantially from fees charged for courses and
manuals. The fee is recognized as revenue at the time of the
attendance at the course and when the manual is shipped to
customers. The Company recognizes revenue from the sale of study
guides when the study guides are shipped to customers. All courses and study
guides are paid in advance and the Company refunds only a portion of the fee
upon cancellation of a course. Deferred revenue is recorded when payments are
received in advance of course attendance and the shipment of the manuals and
study guides. The Company does not accept returns of manuals and study
guides.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
Results
of Operations
The
following table shows the results of our business. Results for the
nine months ended September 30, 2008 and for the period from January 1, 2009
through August 20, 2009 are those of Valley Anesthesia Educational Programs,
Inc., the company from which EII purchased certain assets and assumed certain
liabilities as explained above. The period from July 20, 2009
through September 30, 2009 represents the results of operations of
EII.
-35-
Comparison
of the Nine Months Ended September 30, 2009 and 2008
VAEP
|
EII
|
|||||||||||||||
January 1
|
July 20
|
|||||||||||||||
through
|
through
|
|||||||||||||||
August 20
|
September 30
|
Combined
|
VAEP
|
|||||||||||||
NINE MONTHS ENDED SEPTEMBER 30
|
2009
|
2009
|
2009
|
2008
|
||||||||||||
NET REVENUE
|
$ | 923,903 | $ | 333,765 | $ | 1,257,668 | $ | 1,280,778 | ||||||||
COST
OF REVENUE
|
196,502 | 76,104 | 272,606 | 227,218 | ||||||||||||
SELLING
AND ADMINISTRATIVE EXPENSES
|
249,454 | 60,423 | 309,877 | 302,434 | ||||||||||||
ACQUISITION
COSTS
|
- | 316,733 | 316,733 | - | ||||||||||||
DEPRECIATION
AND AMORTIZATION
|
6,578 | 35,068 | 41,646 | 5,422 | ||||||||||||
TOTAL
OPERATING EXPENSES
|
452,534 | 488,328 | 940,862 | 535,074 | ||||||||||||
INCOME
(LOSS) FROM OPERATIONS
|
471,369 | (154,563 | ) | 316,806 | 745,704 | |||||||||||
INTEREST
EXPENSE
|
- | (9,389 | ) | (9,389 | ) | - | ||||||||||
INTEREST
AND DIVIDEND INCOME
|
3,674 | 150 | 3,824 | 4,838 | ||||||||||||
TOTAL
OTHER INCOME
|
3,674 | (9,239 | ) | (5,565 | ) | 4,838 | ||||||||||
NET
INCOME (LOSS)
|
$ | 475,043 | $ | (163,802 | ) | $ | 311,241 | $ | 750,542 |
Revenue. Net
revenue for the nine months ended September 30, 2009 was approximately
$1,258,000 compared to approximately $1,281,000 for the nine months ended
September 30, 2008. This is a decrease of approximately $23,000 or
2%. While course attendance increased for the nine months ended
September 30, 2008 from 1,781 students to 1,818 students for the nine
months ended September 30, 2009, the company did not begin shipping the 2010
manuals until September 15, 2009 compared to September 9, 2008 for the 2009
manuals because of printing delays.
Cost of
Revenue. Cost of revenue was approximately $273,000 (21.7% of
net revenue) for the nine months ended September 30, 2009 compared to
approximately $227,000 (17.7% of net revenue) for the nine months ended
September 30, 2008, or an increase of approximately $46,000 or
20%. The costs of conference facilities at a hotel for an additional
course and the cost of printing of manuals and study guides primarily
accounted for this increase.
Selling and Administrative Expenses.
Selling and administrative expenses were approximately $310,000
(24.6% of net revenue) for the nine months ended September 30, 2009 as compared
to approximately $302,000 (23.6% of net revenue) for the nine months ended
September 30, 2009, an increase of approximately $8,000 or 3%. With the
formation of EII, EII incurred expenses, including the addition of three
officers and their attendant expenses, in the approximate amount of $56,000
during the period ended September 30, 2009. Professional fees decreased by
approximately $40,000 from the nine months ended September 30,
2008.
Acquisition
Costs. EII incurred approximately $317,000 (25.2% of net
revenue) of costs related to the purchase of certain assets and assumption of
certain liabilities of Valley Anesthesia Educational Programs, Inc. during the
nine months ended September 30, 2009.
Depreciation and
Amortization. Depreciation and amortization for the nine
months ended September 30, 2009 was approximately $42,000 (3.3% of net revenue)
compared to approximately $5,000 (.3% of net revenue) for the nine months ended
September 30, 2008, an increase of approximately $37,000 or 740%. The
amortization of intangible assets allocated in the purchase of certain assets
and assumption of certain liabilities from Valley Anesthesia Educational
Programs, Inc. accounted for this increase.
-36-
Interest expense. Interest
expense in the amount of approximately $9,000 relates to the note issued to
sellers in connection with the purchase of certain assets and assumption of
certain liabilities from Valley Anesthesia Educational Programs,
Inc.
Other expense.
Interest and dividend income was approximately $4,000 for the nine
months ended September 30, 2009 compared to approximately $5,000 for the nine
months ended September 30, 2008, a decrease of approximately $1,000 or
25%. VAEP invested excess cash in interest bearing bank
accounts.
Net income. Net income
was approximately $303,000 for the nine months ended September 30, 2009, as
compared to net income of approximately $751,000 for the nine months ended
September 30, 2009, a decrease of approximately $448,000. The decrease in
net income was mainly due the acquisition related costs of $317,000, increased
amortization of intangible assets of $37,000, and interest of approximately
$9,000.
Valley
Anesthesia Educational Programs, Inc.
Liquidity
and Capital Resources
As of
December 31, 2008, we had negative working capital of approximately $540,000,
including cash and cash equivalents, as compared to approximately $550,000 as of
December 31, 2007. The negative working capital included deferred revenue of
approximately $705,000 and $765,000 at December 31, 2008 and 2007,
respectively. This deferred revenue is earned in the following year.
Net
cash provided by operating activities was approximately $673,000 for the year
ended December 31, 2008 compared to approximately $717,000 for the year ended
December 31, 2007. The decrease in cash provided by operating
activities was related to the increase in net income of approximately $100,000
offset by the decrease in deferred income of approximately $60,000.
Net cash
used in investing activities for the years ended December 31, 2008 and 2007
related to the purchase of fixed assets in the approximate amounts of $9,000 and
$17,000, respectively.
Net cash
used by financing activities for the years ended December 31, 2008 and 2007 were
for distributions to shareholders in the approximate amounts of $723,000 and
$599,000, respectively. VAEP elected to be taxed as an S Corporation
under the Internal Revenue Code and applicable state statues.
Critical
Accounting Policies and Estimates
Our
financial information has been prepared in accordance with generally accepted
accounting principles in the United States, which requires us to make judgments,
estimates and assumptions that affect (1) the reported amounts of our assets and
liabilities, (2) the disclosure of our contingent assets and liabilities at the
end of each fiscal period and (3) the reported amounts of revenues and expenses
during each fiscal period. We continually evaluate these estimates
based on our own historical experience, knowledge and assessment of current
business and other conditions, our expectations regarding the future based on
available information and reasonable assumptions, which together form our basis
for making judgments about matters that are not readily apparent from other
sources. Since the use of estimates is an integral component of the
financial reporting process, our actual results could differ from those
estimates. Some of our accounting policies require a higher degree of
judgment than others in their application.
-37-
When
reviewing our financial statements, you should consider (1) our selection of
critical accounting policies, (2) the judgment and other uncertainties affecting
the application of those policies, and (3) the sensitivity of reported results
to changes in conditions and assumptions. We believe the following
accounting policies involve the most significant judgment and estimates used in
the preparation of our financial statements.
Use
of estimates in the preparation of financial statements
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those
estimates. Estimates are used in accounting for, among other things,
future cash flows associated with impairment testing for long-lived assets and
contingencies.
Cash
The
Company maintains cash and cash equivalents with financial institutions which
may at times exceed federally insured limits.
Fixed
assets
Fixed
assets are recorded at cost. Depreciation of office equipment is
calculated using the straight line method over the three year estimated useful
lives of the related assets. Expenditures for repairs and maintenance
are charged to expense as incurred.
Impairment
of long-lived assets
In the
event that facts and circumstances indicate that the cost of an asset may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset’s carrying amount to determine if
a write-down to market value is required.
Income
taxes
The
Company has elected to be taxed as an S Corporation under the Internal Revenue
Code and applicable state statues. Accordingly, no provision has been made
for federal or state taxes.
The
Company has elected to defer the application of ASC 740 Accounting for Uncertainty in Income
Taxes. ASC 740 is effective for the Company’s fiscal period beginning
January 1, 2009. ASC 740 clarifies the accounting for uncertainty in
income taxes recognized in a company’s financial statements.
Although
the Company is considered a pass-through entity for Federal and state income tax
purposes, ASC 740 is applicable. The Financial Accounting Standards Board
has deferred guidance on the application of the provisions of ASC 740 as they
relate to pass-through entities. However, certain taxing jurisdictions do
not recognize the Company’s income tax status as a pass-through entity.
The Company’s accounting policy for evaluating uncertain tax positions taken or
expected to be taken in income tax filings, should they arise, is based on its
assessment of tax positions that have uncertainty as to the probability of being
sustained upon examination by those jurisdictions. Therefore, the Company
may be subject to income tax liability-related exposures.
-38-
Revenue
Recognition
The
Company derives its revenue substantially from fees charged for courses and
manuals. The fee is recognized as revenue at the time of the
attendance at the course and when the manual is shipped to
customers. The Company recognizes revenue from the sale of study
guides when the study guides are shipped to customers. All courses and study
guides are paid in advance and the Company refunds only a portion of the fee
upon cancellation. Deferred revenue is recorded when payments are received in
advance of course attendance and the shipment of the manuals and study guides.
The Company does not accept returns of manuals and study guides.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
Results
of Operations
The
following table shows the results of our business. All references to the
results of operations and financial condition are those of Valley Anesthesia
Educational Programs, Inc.
Comparison
of Fiscal Year Ended December 31, 2008 and 2007
YEAR ENDED DECEMBER 31
|
2008
|
2007
|
||||||
REVENUE | $ | 1,885,014 | $ | 1,726,960 | ||||
LESS:
REFUNDS AND RETURNED CHECKS
|
20,441 | 21,419 | ||||||
NET
REVENUE
|
1,864,573 | 1,705,541 | ||||||
COST
OF REVENUE
|
467,280 | 448,736 | ||||||
SELLING
AND ADMINISTRATIVE EXPENSES
|
660,118 | 616,745 | ||||||
DEPRECIATION
AND AMORTIZATION
|
10,422 | 7,268 | ||||||
TOTAL
OPERATING EXPENSES
|
1,137,820 | 1,072,749 | ||||||
INCOME
FROM OPERATIONS
|
726,753 | 632,792 | ||||||
INTEREST
AND DIVIDEND INCOME
|
5,392 | - | ||||||
TOTAL
OTHER INCOME
|
5,392 | - | ||||||
NET
INCOME
|
$ | 732,145 | $ | 632,792 |
Revenue. Net revenue for
the year ended December 31, 2008 was approximately $1,865,000 compared to net
revenue of approximately $1,706,000 for the year ended December 31, 2007, an
increase of approximately $159,000 or 9%. The number of students
enrolled in the courses increased from 1,976 in 2007 to 2,085 in 2008, a 6%
increase. The selling price of manuals increased by approximately 1% and the
revenue from the sale of study guides decreased from approximately $419,000 to
$407,000.
Cost of
Revenue. Cost of revenue for the year ended
December 31, 2008 was approximately $467,000 (25.1% of net revenue) compared to
cost of revenue for the year ended December 31, 2007 of approximately $449,000
(26.3% of net revenue), an increase of approximately $18,000 or
4%. The increase in the cost of hotel conference facilities is
attributable to the addition of one course.
Selling and Administrative Expenses.
Selling and administrative expenses were approximately $660,000
(35.4% of net revenue) for the year ended December 31, 2008 as compared to
approximately $617,000 (36.2% of net revenue) for the year ended December 31,
2007, an increase of approximately $43,000 or 1%.
-39-
Other expense. Interest
and dividend income was approximately $5,000 for the year ended December 31,
2008. There was no interest and dividend income for the year
ended December 31, 2007. During the year ended December 31, 2008,
VAEP invested cash in interest bearing bank accounts.
Net income. Net income was
approximately $732,000 for the year ended December 31, 2008, as compared to
approximately $633,000 for the year ended December 31, 2007, an increase of
$99,000 or 16%. The increase in net income was mainly due to the increase
in revenue.
Training
Direct, LLC.
Liquidity
and Capital Resources
As of
September 30, 2009, we had working capital of approximately $29,000, including
cash and cash equivalents, as compared to approximately $50,000 and $41,000 as
of December 31, 2008 and 2007, respectively.
Net
cash provided by operating activities was approximately $59,000 for the nine
months ended September 30, 2009 compared to approximately $19,000 and $51,000
for the years ended December 31, 2008 and 2007, respectively. The
increase in cash provided from operating activities for the nine months ended
September 30, 2009 was primarily related to net income of approximately
$48,000. The decrease in cash provided by operating activities for
the year ended December 31, 2008 was related to the decrease in net loss of
approximately $11,000 and by the decrease in the changes of operating assets and
liabilities of approximately $43,000.
Net cash
used in investing activities for the nine months ended September 30, 2009 was
related to the purchase of fixed assets in the approximate amount of $119,000 in
anticipation of the company moving into new facilities in October
2009. For the year ended December 31, 2008 cash used in investing
activities related to the purchase of fixed assets in the approximate amount of
$3,000. There were no investing activities for the year ended
December 31, 2007.
Net
cash provided by financing activities during the nine months ended September 30,
2009 was from borrowings under an unsecured line of credit in the amount of
approximately $5,000 and an equipment lease in the net amount of approximately
$44,000, and net contributions by members in the approximate amount of
$8,000. Net cash used by financing activities for the years ended
December 31, 2008 and 2007 were for distributions to members in the approximate
amounts of $7,000 and $53,000, respectively. Training Direct is a
limited liability company which is treated as a partnership for income tax
purposes. Accordingly, the members are responsible for income taxes
on their proportionate share of the company’s income.
Critical
Accounting Policies and Estimates
Our
financial information has been prepared in accordance with generally accepted
accounting principles in the United States, which requires us to make judgments,
estimates and assumptions that affect (1) the reported amounts of our assets and
liabilities, (2) the disclosure of our contingent assets and liabilities at the
end of each fiscal period and (3) the reported amounts of revenues and expenses
during each fiscal period. We continually evaluate these estimates
based on our own historical experience, knowledge and assessment of current
business and other conditions, our expectations regarding the future based on
available information and reasonable assumptions, which together form our basis
for making judgments about matters that are not readily apparent from other
sources. Since the use of estimates is an integral component of the
financial reporting process, our actual results could differ from those
estimates. Some of our accounting policies require a higher degree of
judgment than others in their application.
-40-
When
reviewing our financial statements, you should consider (1) our selection of
critical accounting policies, (2) the judgment and other uncertainties affecting
the application of those policies, and (3) the sensitivity of reported results
to changes in conditions and assumptions. We believe the following
accounting policies involve the most significant judgment and estimates used in
the preparation of our financial statements.
Use
of estimates in the preparation of financial statements
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those
estimates. Estimates are used in accounting for, among other things,
future cash flows associated with impairment testing for long-lived assets and
contingencies.
Cash
The
Company maintains cash and cash equivalents with financial institutions which
may at times exceed federally insured limits.
Property
and equipment
Property
and equipment is recorded at cost. Depreciation is provided using the
straight line method over the estimated useful lives of the respective
assets. Expenditures for repairs and maintenance are charged to
expense as incurred.
Income
taxes
The
Company is a limited liability company which is treated as a partnership for tax
purposes. Accordingly, the company’s members are responsible for
income taxes on their proportionate share of the company’s income.
Revenue
Recognition
The
financial statements of the company are prepared on the accrual basis of
accounting. Tuition billed to students is recognized as revenue,
determined by the percentage of completion method, based on each student’s
academic progress.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
-41-
Results
of Operations
The
following table shows the results of our business. All references to the
results of operations and financial condition are those of Training Direct,
LLC
Comparison
of Fiscal Year Ended December 31, 2008 and 2007
YEAR ENDED DECEMBER 31
|
2008
|
2007
|
||||||
REVENUE
|
$ | 852,288 | $ | 661,699 | ||||
LESS:
REFUNDS
|
18,609 | 10,097 | ||||||
NET
REVENUE
|
833,679 | 651,602 | ||||||
STUDENT
INSTRUCTIONAL COSTS
|
268,965 | 215,637 | ||||||
RECRUITMENT
COSTS
|
151,804 | 115,062 | ||||||
OCCUPANCY
COSTS
|
55,986 | 70,884 | ||||||
GENERAL
AND ADMINISTRATIVE EXPENSES
|
337,933 | 242,300 | ||||||
TOTAL
OPERATING COSTS AND EXPENSES
|
814,688 | 643,883 | ||||||
OPERATING
INCOME BEFORE DEPRECIATION
|
18,991 | 7,719 | ||||||
DEPRECIATION
EXPENSE
|
29,241 | 29,045 | ||||||
NET
LOSS
|
$ | (10,250 | ) | $ | (21,326 | ) |
Revenue. Net revenue for
the year ended December 31, 2008 was approximately $834,000 compared to net
revenue of approximately $652,000 for the year ended December 31, 2007, an
increase of approximately $182,000 or 28%. The number of
students enrolled in courses increased to 714 for the year ended December 31,
2008 from 606 for the year ended December 31, 2007, an increase of 18%. In addition, medical
billing and encoding courses were added to the curriculum in 2008, which have a
higher tuition.
Student Instructional
Costs. Student instructional costs increased from
approximately $216,000 (33.1% of net revenue) for the year ended December 31,
2007 to approximately $269,000 (32.3% of net revenue) for the year ended
December 31, 2008, an increase of $53,000 or 25%. This increase is proportionate
with the increase in net revenue, in that class size has consistently been
maintained at 10 to 12 students.
Recruitment
Costs. Recruitment costs for the year ended December 31, 2008
were approximately $152,000 (18.1% of net revenue) compared to approximately
$115,000 (17.6% of net revenue) for the year ended December 31, 2007, an
increase of approximately $37,000 or 32%. Commissions paid to
admissions representatives increased from approximately $48,000 for the year
ended December 31, 2007 to approximately $78,000 for the year ended December 31,
2008 or approximately $30,000. This increase is proportionate with
the increase in student enrollment. In addition, changes were made to
the commission plan.
Occupancy
Costs. Occupancy costs for the year ended December 31, 2008
were approximately $56,000 (6.7% of net revenue) for the year ended December 31,
2008 compared to approximately $71,000 (10.9% of net revenue) for the year ended
December 31, 2007, a decrease of approximately $15,000 or 27%. Rent
expense decreased from approximately $49,000 for the year ended December 31,
2007 to approximately $32,000 for the year ended December 31, 2008, or
approximately $17,000. During 2007, additional space was rented under
an agreement that was not renewed in 2008.
-42-
General and Administrative Expenses.
General and administrative expenses were approximately $338,000
(40.6% of net revenue) for the year ended December 31, 2008 as compared to
approximately $242,000 (37.1% of net revenue) for the year ended December 31,
2007, an increase of approximately $96,000 or 40%. For the year ended December
31, 2008, salaries increased by approximately $52,000 primarily due to the
addition of a person to administer student services, health insurance premiums
increased by approximately $12,000, bank charges related to credit card
processing fees for student enrollment increased by approximately $10,000, and
other general and administrative costs, compared to the year ended December 31,
2007.
Net loss. Net loss was
approximately $10,000 for the year ended December 31, 2008, as compared to
approximately $21,000 for the year ended December 31, 2007, a decrease of
$11,000.
Comparison
of the Nine Months Ended September 30, 2009 and 2008
NINE MONTHS ENDED SEPTEMBER
30
|
2009
|
2008
|
||||||
REVENUE
|
$ | 846,122 | $ | 626,831 | ||||
LESS:
REFUNDS
|
26,252 | 10,253 | ||||||
NET
REVENUE
|
819,870 | 616,578 | ||||||
STUDENT
INSTRUCTIONAL COSTS
|
282,284 | 211,164 | ||||||
RECRUITMENT
COSTS
|
130,963 | 116,629 | ||||||
OCCUPANCY
COSTS
|
52,426 | 41,965 | ||||||
GENERAL
AND ADMINISTRATIVE EXPENSES
|
293,796 | 245,148 | ||||||
TOTAL
OPERATING COSTS AND EXPENSES
|
759,469 | 614,906 | ||||||
OPERATING
INCOME BEFORE DEPRECIATION
|
60,401 | 1,672 | ||||||
DEPRECIATION
EXPENSE
|
12,009 | 29,045 | ||||||
NET
INCOME (LOSS)
|
$ | 48,392 | $ | (27,373 | ) |
Revenue. Net revenue for
the nine months ended September 30, 2009 was approximately $820,000 compared to
net revenue of approximately $617,000 for the nine months ended September 30,
2008, an increase of approximately $203,000 or 33%. The number of
students enrolled in courses during the nine months ended September 30, 2009 was
704 compared to 562 students enrolled during the nine months ended September 30,
2008, an increase of 25%. During the nine months ended September 30,
2009, there were 257 agency students enrolled compared to 158 for the nine
months ended September 30, 2008 in courses with higher tuition.
Student Instructional
Costs. Student instructional costs increased from
approximately $211,000 (34.2% of net revenue) for the nine months ended
September 30, 2008 to approximately $282,000 (34.4% of net revenue) for the nine
months ended September 30, 2009, an increase of $71,000 or 34%. The increase is
proportionate to the increase in revenue and was principally due to the increase
in salaries for instructors in the approximate amount of $29,000 and other
instructional costs, uniforms and supplies of approximately
$42,000. Class size has consistently been maintained at 10 to 12
students.
Recruitment
Costs. Recruitment costs for the nine months ended September
30, 2009 were approximately $131,000 (16.0% of net revenue) compared to
approximately $117,000 (18.9% of net revenue) for the nine months ended
September 30, 2008, an increase of approximately $14,000 or 12%. The increase is
primarily attributable to increased commissions.
Occupancy
Costs. Occupancy costs for the nine months ended September 30,
2009 were approximately $52,000 (6.3% of net revenue) compared to approximately
$42,000 (6.8% of net revenue) for the nine months ended September 30, 2008, an
increase of approximately $10,000 or 25%. The increase was generally
attributable to the increased cost of utilities of approximately $4,000 and
repairs and maintenance of $4,000.
-43-
General and Administrative Expenses.
General and administrative expenses were approximately $294,000
(35.9% of net revenue) for the nine months ended September 30, 2009 as compared
to approximately $245,000 (39.8% of net revenue) for the nine months ended
September 30, 2008, an increase of approximately $49,000 or 20%. For
the nine months ended September 30, 2009 compared to the nine months ended
September 30, 2008, salaries increased by approximately $43,000 primarily due to
the addition of a person to the administrative staff.
Net income (loss). Net
income was approximately $48,000 for the nine months ended September 30, 2009,
as compared to a net loss of approximately $27,000 for the nine months ended
September 30, 2008, an increase of $75,000.
Description
of Property
EII’s and Valley’s
principal executive offices are located at 845 Third Avenue, 6th Floor, New York, New York 10022. EII
rents office space from one of its officers under a lease expiring
August 20, 2010 and pays $725 per month. EII also reimburses another
officer $2,992 per month for rent of office space on a month-to-month
basis. Valley’s principal
operating office is located at 1995 Country Club Blvd, Clive, Iowa 50325.
Training Direct’s principal executive offices are located at 3885 Main Street,
2nd Floor, Bridgeport, Connecticut 06606,
which also houses the company’s classrooms, and offices for administration,
admissions, and student services, in approximately 6,000 square feet. Such
premises are leased with a rental payment of $5,850 per month and expires in
October 2019.
-44-
Security
Ownership of Certain Beneficial Owners and Management and Principal
Stockholders
As of
December 30, 2009, we had a total of 166,700 shares of common stock issued and
outstanding. Pursuant to the Reverse Merger, we have a total of
6,166,700 shares of common stock issued and outstanding.
The following
table sets forth, as of December 31, 2009: (a) the names and addresses of each
beneficial owner of more than five percent (5%) of our common stock known to us,
the number of shares of common stock beneficially owned by each such person, and
the percent of our common stock so owned before and after the Reverse Merger and
acquisition of Training Direct; and (b) the names and addresses of each director
and executive officer before and after the Reverse Merger and acquisition of
Training Direct, the number of shares our common stock beneficially owned, and
the percentage of our common stock so owned, by each such person, and by all of
our directors and executive officers as a group before and after the Reverse
Merger and acquisition of Training Direct. Each person has sole voting and
investment power with respect to the shares of our common stock, except as
otherwise indicated. Beneficial ownership consists of a direct interest in the
shares of common stock, except as otherwise indicated. Individual beneficial
ownership also includes shares of common stock that a person has the right to
acquire within 60 days from December 31, 2009.
At the
closing of the Reverse Merger, all present officers of Florham have resigned and
Joseph Bianco was appointed as the Chief Executive Officer of the Company, Anil
Narang was appointed as the President and Chief Operating Officer of the
Company, and Kellis Veach was appointed as the Chief Financial Officer and
Secretary of the Company. In addition, our sole director has tendered his
resignation to be effective on the tenth day after mailing of a Schedule 14f-1
statement to our stockholders. Joseph Bianco, Anil
Narang, Dov Perlysky, Howard Spindel and David Cohen were appointed as Directors
of the Company with such appointments to be effective on the tenth day after
mailing the Schedule 14f-1.
Unless
otherwise noted, the principal address of each of the directors and officers
listed below is 845 Third Avenue, 6th Floor,
New York, New York 10022.
-45-
Name
|
Share
Amount and
Nature of
Beneficial
Ownership
Before the
Reverse
Merger
|
Percentage of
Outstanding
Shares
Before
the
Reverse
Merger (1)
|
Share Amount
and Nature of
Beneficial
Ownership After
the Reverse
Merger (2)
|
Percentage of
Outstanding
Shares After the
Reverse Merger
(2)
|
||||||||||||
David
Stahler (3)
|
53,600 | 32.15 | % | 53,600 | * | |||||||||||
Sanjo
Squared, LLC (4)
|
— | — | 7,311,333 | (5) | 118.56 | % | ||||||||||
Kinder
Investments, L.P. (6)
|
100 | * | 10,967,100 | (7) | 177.84 | % | ||||||||||
Joseph
J. Bianco
|
— | — | 4,935,151 | (8) | 80.03 | % | ||||||||||
Anil
Narang
|
— | — | 4,935,150 | (9) | 80.03 | % | ||||||||||
Kellis
Veach
|
— | — | — | (10) | — | |||||||||||
Dov
Perlysky
|
5,600 | (11) | 3.4 | % | 11,082,270 | (12) | 179.71 | % | ||||||||
Howard
Spindel
|
100 | (13) | * | 109,770 | (14) | 1.78 | % | |||||||||
David
Cohen
|
— | — | 109,670 | (14) | 1.78 | % | ||||||||||
All
Directors, Executive Officers and Director Nominees before the Reverse
Merger, as a Group
|
59,300 | 35.57 | % | 59,300 | * | |||||||||||
All
Directors, Executive Officers and Director Nominees after the Reverse
Merger and after the Effective Date of the Schedule 14f-1, as a
Group
|
— | 21,172,011 | 343.33 | % |
* Less
than one percent
|
(1)
|
The
numbers in this column are based on 166,700 shares
outstanding.
|
|
(2)
|
The
numbers are based on 6,166,700 shares outstanding, which represent the
number of shares the Company has outstanding after the Reverse Merger, and
does not include the issuance of (i) the Acquisition Shares or the Escrow
Shares to the sellers under the Purchase Agreement, which, assuming the
Discounted VWAP for the twenty Trading Days after the effective date of
the Reverse Merger is $0.50, we will issue an aggregate of 1,200,000
Acquisition Shares and 600,000 Escrow Shares, (ii) 12,278,333 shares of
common stock issuable upon conversion of 250,000 shares of Series A
Preferred Stock, or (iii) the issuance of shares upon exercise of
outstanding options or warrants.
|
|
(3)
|
Mr.
Stahler’s address is c/o Florham Consulting Corp., 64 Beaver Street, Suite
233, New York, New York 10004.
|
|
(4)
|
The
persons sharing voting, dispositive or investment powers over Sanjo (50%
each) are Joseph J. Bianco and Anil Narang, Managers. The address of Sanjo
is c/o Educational Investors, Inc., 845 Third Avenue, 6th
Floor, New York, New York 10022.
|
|
(5)
|
This
number represents: (i) 2,400,000 shares of Florham Common Stock, and (ii)
100,000 shares of Series A Preferred Stock, each of which shares of Series
A Preferred Stock shall be converted, on the basis of 49.11333 shares of
Florham Common Stock for each share of Series A Preferred Stock (an
aggregate of 4,911,333 shares of Florham Common Stock) automatically upon
the filing by the Company of an amendment to its certificate of
incorporation increasing its authorized shares of Florham Common Stock to
not less than 50,000,000 shares.
|
-46-
|
(6)
|
The
General Partner of Kinder is Nesher, LLC. The person having voting,
dispositive or investment powers over Nesher is Dov Perlysky, Managing
Member. The address of Kinder is c/o Educational Investors, Inc., 845
Third Avenue, 6th
Floor, New York, New York 10022.
|
|
(7)
|
This
number represents: (i) 100 shares of Florham Common Stock owned prior to
the Reverse Merger; (ii) 3,600,000 shares of Florham Common Stock, and
(iii) 150,000 shares of Series A Preferred Stock, which automatically
convert into an aggregate of 7,367,000 shares of Florham Common Stock upon
the filing by the Company of an amendment to its certificate of
incorporation increasing its authorized shares of Florham Common Stock to
not less than 50,000,000 shares.
|
|
(8)
|
This
number represents: (i) options to purchase 1,279,484 shares of Florham
Common Stock at an exercise price equal to $0.228 per share with respect
to 639,742 options and $0.50 per share with respect to 639,742 options;
(ii) 1,200,000 shares of Florham Common Stock owned by Sanjo Squared, LLC;
and (iii) 50,000 shares of Series A Preferred Stock owned by Sanjo, each
of which shares of Series A Preferred Stock shall be converted, on the
basis of 49.11333 shares of Florham Common Stock for each share of Series
A Preferred Stock (an aggregate of 2,455,667 shares of Florham Common
Stock) automatically upon the filing by the Company of an amendment to its
certificate of incorporation increasing its authorized shares of Florham
Common Stock to not less than 50,000,000
shares.
|
|
(9)
|
This
number represents: (i) options to purchase 1,279,484 shares of Florham
Common Stock at an exercise price equal to $0.228 per share with respect
to 639,742 options and $0.50 per share with respect to 639,742 options;
(ii) 1,200,000 shares of Florham Common Stock owned by Sanjo Squared, LLC;
and (iii) 50,000 shares of Series A Preferred Stock owned by Sanjo, each
of which shares of Series A Preferred Stock shall be converted, on the
basis of 49.11333 shares of Florham Common Stock for each share of Series
A Preferred Stock (an aggregate of 2,455,666 shares of Florham Common
Stock) automatically upon the filing by the Company of an amendment to its
certificate of incorporation increasing its authorized shares of Florham
Common Stock to not less than 50,000,000
shares.
|
|
(10)
|
Does
not include options to purchase an aggregate of 164,505 shares of Florham
Common Stock at an exercise price of $0.50 per share, of which (i) 82,252
options shall vest on December 31, 2010; and (ii) 82,253 options shall
vest on December 31, 2011.
|
|
(11)
|
This
number represents: (i) 500 shares owned by Kinder Investments, L.P.; (ii)
100 shares owned by Mr. Perlysky; and (iii) 5,000 shares owned by Krovim,
LLC, whose manager is Nesher, LLC. Mr. Perlysky is the Managing Member of
Nesher, LLC. Does not include: (a) 100 shares owned by Laya Perlysky, Mr.
Perlysky’s spouse; and (b) 1,800 shares owned by the LDP Family
Partnership, whose General Partner is Mrs. Perlysky. Mr. Perlysky
disclaims beneficial ownership of the shares owned by Mrs. Perlysky and
the LDP Family Partnership.
|
|
(12)
|
This
number represents: (i) 500 shares owned by Kinder Investments, L.P.; (ii)
100 shares owned by Mr. Perlysky; (iii) 5,000 shares owned by Krovim, LLC,
whose manager is Nesher, LLC; (iv) options to purchase 109,670 shares of
Florham Common Stock at an exercise price equal to $0.50 per share; (v)
3,600,000 shares of Florham Common Stock owned by Kinder Investments,
L.P., and (vi) 150,000 shares of Series A Preferred Stock owned by Kinder,
which automatically converts into an aggregate of 7,367,000 shares of
Florham Common Stock upon the filing by the Company of an amendment to its
certificate of incorporation increasing its authorized shares of Florham
Common Stock to not less than 50,000,000
shares.
|
|
(13)
|
This
number represents shares owned by Jash Group, Inc. Mr. Spindel, Senior
Vice President of Jash Group, Inc., has the ability to vote these shares
but otherwise disclaims beneficial ownership. Does not include 100 shares
owned by Mr. Spindel’s spouse, as to which he disclaims beneficial
ownership.
|
|
(14)
|
This
number represents options to purchase shares of Florham Common Stock at an
exercise price equal to $0.50 per
share.
|
-47-
As a result
of consummation of the transactions under the Merger Agreement and the Purchase
Agreement, Florham owns 100% of the capital stock of EII, EII owns 100% of the
capital stock of Valley Anesthesia, Inc., which in turn owns certain assets and
assumed certain liabilities and operations of Valley, and EII owns 100% of the
membership interests of Training Direct. The former stockholders of EII own an
aggregate of 6,000,000 shares of Florham common stock after giving effect to the
transactions under the Merger Agreement but before giving effect to dilution
resulting from the conversion by the former stockholders of EII of any of their
shares of Series A Preferred Stock or exercise of any options to purchase common
stock issued to our officers, directors and consultants.
The former
members of Training Direct will receive shares of Florham's Common Stock having
a deemed value of $600,000 (the “Acquisition Shares”), with such number of
Acquisition Shares to be determined by dividing $600,000 by the “Discounted
VWAP” (as defined below) for the twenty (20) “Trading Days” (as defined below)
immediately following the consummation of the Reverse Merger, and (c) shares of
Florham’s Common Stock having a deemed value of $300,000 (the “Escrow Shares”),
with such number of Escrow Shares to be determined by dividing $300,000 by the
Discounted VWAP for the twenty (20) Trading Days immediately following the
consummation of the Reverse Merger. The Escrow Shares will be held in escrow and
released therefrom as provided in the Purchase Agreement. Assuming the
Discounted VWAP for the twenty Trading Days after the effective date of the
Reverse Merger is $0.50, we will issue an aggregate of 1,200,000 Acquisition
Shares and 600,000 Escrow Shares.
Directors
and Executive Officers
The following
discussion sets forth information regarding the executive officers of Florham
and the EII Group as at the date hereof. The individual serving as
our sole director prior to the Reverse Merger tendered his resignation, which is
expected to become effective on the tenth day after the mailing of a Schedule
14f-1 Information Statement to our stockholders. At the closing of the Reverse
Merger, all present officers of Florham have resigned and Joseph Bianco was
appointed as the Chief Executive Officer of the Company, Anil Narang was
appointed as the President and Chief Operating Officer of the Company, and
Kellis Veach was appointed as the Chief Financial Officer and Secretary of the
Company. In addition, Joseph Bianco, Anil Narang, Dov Perlysky, Howard Spindel
and David Cohen were appointed as Directors of the Company, with such
appointments to be effective on the tenth day after mailing the Schedule
14f-1. The officers and directors to take effect after the
Reverse Merger were not affiliated with us prior to the Reverse
Merger.
The Board of
Directors is comprised of only one class. All of the directors will serve until
the next annual meeting of shareholders and until their successors are elected
and qualified, or until their earlier death, retirement, resignation or removal.
Anil Narang, our President, Chief Operating Officer and Director, and Ashok
Narang, the Vice President and Director of Training Direct, are brothers. Except
as set forth in the precedent sentence, there are no family relationships among
our directors and executive officers. Provided below is a brief description of
our director’s business experience during the past five years and an indication
of directorships he has held in other companies subject to the reporting
requirements under the Federal securities laws.
Officers
and Directors before the Reverse Merger
Name
|
Age
|
Position(s)
with Florham
|
||
David
Stahler
|
|
24
|
|
President,
Chief Financial Officer, Secretary and
Sole Director
|
-48-
David Stahler has since 2006
provided Internet professional services to our clients and other companies. Such
services include designing graphic and advertising materials and providing
advice with respect to websites and Internet and other marketing
campaigns. In 2008, Mr. Stahler received his B.A. degree in
psychology with a minor in finance from Touro College in New
York. Mr. Stahler has also provided mentoring and counseling services
to college-age adults.
Officers
and Directors pursuant to the Reverse Merger
Name
|
Age
|
Position
|
||
Joseph
J. Bianco
|
59
|
Chief
Executive Officer and Chairman of the Board
|
||
Anil
Narang
|
46
|
President,
Chief Operating Officer and Director
|
||
Kellis
Veach
|
67
|
Chief
Financial Officer and Secretary
|
||
Dov
Perlysky
|
47
|
Director
|
||
Howard
Spindel
|
64
|
Director
|
||
David
Cohen
|
|
71
|
|
Director
|
Joseph J. Bianco
purchased Lotus Performance Cars, Inc. in 1982, which he subsequently
sold to General Motors in 1987. In 1990, Mr. Bianco
co-founded and became Chief Executive Officer of Alliance Entertainment
Corporation. In 1996, Mr. Bianco and his partner sold control
of NYSE-Listed Alliance, then the leading independent distributor of CD
music in the world, and resumed his private investing activities. In
1998, an investor group led by Mr. Bianco bought the first of several
magazine distributors that were consolidated into the Interlink Companies, of
which Mr. Bianco was Chairman. Interlink, a leading distributor of
magazines to booksellers and other retailers was sold in 2001 to the
Source-Interlink Companies. From 1997 to 2000, Mr. Bianco was also
Chairman of Cognitive Arts, Inc., a leading creator of educational
software, which was purchased from Northwestern University. From 2003 to 2004,
he served on the board of directors of Whitewing Environmental, Inc. Mr.
Bianco also serves on the Board of several other private corporations as
well as two non-profit organizations. Mr. Bianco graduated
from Yale Law School in 1975, where he was an editor of the
Yale Law Journal. He became Associate Dean at Cardozo School of Law at
Yeshiva University and is the author of two books and various
articles.
Anil Narang
co-founded and became President of Alliance Entertainment
Corporation in 1990. In 1996, Mr. Narang and his partner sold control
of NYSE-Listed Alliance, then the leading independent distributor of CD
music in the world. In 1998, an investor group including Mr. Narang bought
the first of several magazine distributors that were consolidated into the
Interlink Companies. Interlink, a leading distributor of magazines to
booksellers and other retailers was sold in 2001 to the Source-Interlink
Companies. From 1997 to 2000, Mr. Narang was Vice Chairman
of Cognitive Arts, Inc., a leading creator of educational software, which
was purchased from Northwestern University. In 2003, Mr. Narang co-founded and
became Co-CEO of Sheridan Square Entertainment, which was one of the largest
independent record labels in the United States. He and his partners sold
Sheridan to BTP Acquisition Corp in 2007 in a private transaction. Mr. Narang
holds a Bachelor of Arts degree in economics from Colgate University, and an MBA
in Finance from New York University.
Kellis Veach
joined EII as Chief Financial Officer and Secretary-Treasurer in July
2009. From 2008 to 2009, Mr. Veach was Chief Financial Officer of STB
TeleMedia, Inc. From 2003 to 2008, Mr. Veach served as
Vice-President of Sheridan Square Entertainment, Inc., and as Chief
Financial Officer of its distribution subsidiary. Mr. Veach was a director of
Woozyfly, Inc. from January to May, 2009. Mr. Veach graduated from Indiana
University with a Bachelor of Science in Business.
-49-
Dov Perlysky has served as the
Managing Member of Nesher LLC, a financial management company, from 2000 to the
present. From 1999 to the present, he has served as a director of Engex, Inc., a
closed-end mutual fund. From 2004 to the present, Mr. Perlysky has been a
director of Pharma-Bio Serv, Inc., a public company providing pharmaceutical
validation services. From 2007 to the present, he has served as a director of
Highlands State Bank, a community bank. Mr. Perlysky earned a Bachelor of
Science degree in Mathematics and Computer Science from the University of
Illinois in 1985, and a Master’s of Management degree from Northwestern
University, J.L. Kellogg Graduate School of Management, in 1991.
Howard Spindel
is a Senior Managing Director of Integrated Management Solutions, a consulting
organization that renders services to the financial services community since
1985. During 2005, he co-founded Integrated Investment Solutions LLC, an
affiliated hedge fund administrator. He currently serves as the Financial and
Operations Principal, Registered Options Principal or General Securities
Principal of over two dozen Financial Industry Regulatory Authority (FINRA)
members. Mr. Spindel currently serves on the Board of Directors of the Financial
Management Society of the Securities Industry and Financial Markets Association
(SIFMA), on SIFMA’s Capital Committee, on FINRA’s Small Firms Advisory Board and
as chair of the Audit Committee of the Boards of Directors of two publicly-held
companies, Engex, Inc. and Pharma-Bio Serv. In 1982, Mr. Spindel was
an operations partner of Greenfield Partners, a New York Stock Exchange (NYSE)
member firm. In 1980, he became a financial and operations partner at S.B. Lewis
& Company, a NYSE member firm specializing in arbitrage and mergers and
acquisitions. In 1977, Mr. Spindel served as comptroller of Wm. D. Mayer &
Co., another NYSE member firm specializing in options trading. In 1975, Mr.
Spindel became associated with the NYSE as manager of the Capital and
Operational Standards Section of its Regulation and Surveillance Group. In 1974,
he was with Coopers & Lybrand as an audit supervisor. In 1968, Mr. Spindel
began his career in the Technical Research and Review Department and on the
audit staff of Oppenheim, Appel, Dixon & Co. He earned a Bachelor of Science
degree in Accounting from Hunter College of the City University of New York in
1968. In 1971, Mr. Spindel became a Certified Public Accountant and
is a member of the American Institute of Certified Public Accountants and the
New York State Society of Certified Public Accountants.
David Cohen,
Ph.D, after 20 years as an academic research scientist, served as Provost
at Northwestern University in the early 1990s and moved to Columbia University
in 1995 to serve as Vice President and Dean of the Faculty for Arts and Sciences
until 2003 and as Professor of Biological Sciences and Professor of Neuroscience
in Psychiatry until 2008. He is currently Vice President and Dean of the Faculty
Emeritus for Arts and Sciences at Columbia and Professor Emeritus of
Neuroscience in Psychiatry and Alan H. Kempner Professor Emeritus of Biological
Sciences at Columbia. Dr. Cohen has served on the board of directors of Zenith
Electronics, KLi Corporation, Thuris Corporation, Learning Sciences
Corporation,, and Eduventures, Inc., as well as in an advisory capacity to
Knowledge Investment Partners and Identity Theft 911. In addition, Dr. Cohen has
served on the board of directors or trustees for various not-for-profit
organizations, including the Columbia University Press, the Research Libraries
Group, Trevor Day School, The Grass Foundation, Argonne National Laboratory, and
the Fermi National Accelerator Laboratory. He has served as a consultant for the
National Institutes of Health, the National Science Foundation, the Department
of Defense, and the National Academy of Sciences His major elected offices
include President of the Society for Neuroscience and Chairman of the
Association of American Medical Colleges. Beginning in 2009, Dr. Cohen began
serving as Provost of the University of the People, a recently launched on-line,
not-for-profit global university He earned a Bachelor of Arts degree from
Harvard University in 1960 and a Ph.D. from the University of California,
Berkeley, in 1963.
Significant
Employees
The following are employees who are
not executive officers, but who are expected to make significant contributions
to our business:
-50-
Timothy Sauvage,
President of Valley, co-founded Valley Anesthesia Educational Programs,
Inc. in 1993 and became President of Valley Anesthesia, Inc. in August 20, 2009
with the sale of assets to Valley Anesthesia, Inc. Mr. Sauvage is Chief Nurse
Anesthetist at the Central Iowa Health Care System in Des Moines, Iowa. Mr.
Sauvage has been in the nurse anesthesia education market for 21 years. He
formerly served as Director of Veterans Affairs-Drake University Anesthesia
Clinical Specialization. Mr. Sauvage’s areas of responsibility include teaching
at each of Valley’s courses, assisting with updating the course manual and
MemoryMasterTM, and
providing overall guidance and direction for the company. Mr. Sauvage graduated
from Murray State University with a Bachelor of Science in Nursing. He obtained
a Master of Science in Clinical Anesthesia from the Minneapolis School of
Anesthesia and has done post graduate work at Iowa State University in Ames,
Iowa.
Barbara Paradise,
Vice President of Valley, whose husband was a co-founder of Valley
Anesthesia Educational Programs, Inc., served as Vice President of Valley
Anesthesia Educational Programs, Inc. since 2001, and became Vice President of
Valley Anesthesia, Inc. in August 2008 with the sale of assets to Valley
Anesthesia, Inc. Ms Paradise contributes to the overall vision of the company,
and her responsibilities include overseeing the office operations, preparing
marketing materials, coordinating production/printing of the course manual and
MemoryMasterTM, order
processing, and customer service. Ms. Paradise graduated from
University of Wisconsin – Stout with a degree in Home Economics and has done
some graduate work at the University of Minnesota.
Joseph Monaco,
President of Training Direct, has been involved in proprietary education
since 1980. Over the past 30 years, he has held positions as President, Chief
Operating Officer, Chief Financial Officer, and Licensed School Director, for
more than 8 post-secondary institutions. He has served on multiple State
Association Boards of Directors, and has been active with multiple Federal
Accrediting Bureaus. Mr. Monaco has worked closely with the State Education
Department, Officials, and State Agencies supporting Vocational Training and
other Federal and State Higher Education Organizations. Mr. Monaco attended
Fairfield University, Fairfield CT and has received various recognition and
achievement awards for his service to the Vocational – Proprietary School
sector.
Ashok Narang, Vice President of
Training Direct, joined
Training Direct as Vice President and Director in the Spring of 2004. Mr. Narang
has a Bachelor of Arts in Political Science from Syracuse University, a Master
of Science Degree in Education from the University of Bridgeport and a
6th Year Professional Diploma for Advanced
Study in Educational Management and Administration, also from the University of
Bridgeport.
Employment
and Consulting Agreements
Bianco
Employment Agreement
On August 20,
2009, EII entered into an Employment Agreement with Joseph Bianco (the “Bianco
Employment Agreement”) pursuant to which Mr. Bianco was engaged through December
31, 2012 (the “Term”) as EII’s Chief Executive Officer with the responsibility
for the overall operation of EII, as well as other duties as may be assigned to
Mr. Bianco by the board of directors of EII, including providing services to EII
and its other subsidiaries. EII pays to Mr. Bianco a salary of $70,000 per annum
(the “Base Salary”) and he is entitled to receive an annual bonus (the “Bonus”)
as shall be determined in the sole discretion of the independent members of the
board of directors of EII. Commencing on January 1, 2010, the Base Salary will
be increased to an annual amount which shall be commensurate with both (i) the
trailing twelve-month consolidated pro-forma (based on acquisitions or other
material events that may occur) earnings before interest, taxes,
depreciation and amortization of intangible assets of the EII Group for the
fiscal year ended December 31, 2009, and (ii) the then
business prospects of the EII Group, all as shall be determined by the
independent members of the Board of Directors of EII.
-51-
In addition to the Base Salary and
Bonus, Mr. Bianco may be granted options to purchase, or stock appreciation
rights in, shares of the common stock of EII. On August 20, 2009, Mr. Bianco
purchased options to purchase 1,666,667 (the “Bianco EII Stock Options”) shares
of EII common stock at an exercise price equal to $0.25 per share with respect
to 583,334 options and $0.45 per share with respect to 583,333 options in
exchange for a $10,000 principal amount promissory note from Mr. Bianco. Under
the Merger Agreement, the Bianco EII Stock Options were converted into 5-year
options to purchase an aggregate of 1,279,484 shares of Common Stock at an
exercise price equal to $0.228 per share with respect to 639,742 options (the
“Bianco Tier I Options”) and $0.50 per share with respect to 639,742 options
(the “Bianco Tier II Options”). The Bianco Tier I Options shall be exercisable
only if the EBTDA Per Share for the applicable Measuring Period exceeds the Base
Tier I EBTDA Per Share and the Bianco Tier II Options shall be exercisable only
if the EBTDA Per Share for the applicable Measuring Period exceeds the Base Tier
II EBTDA. The Bianco Tier I and Tier II Options shall be deemed vested as of the
date of grant.
Base Tier I EBTDA Per Share means: (1)
$0.036 for the Measuring Year ending December 31, 2010, (2) $0.055 for the
Measuring Year ending December 31, 2011, (3) $0.091 for the Measuring Year
ending December 31, 2012, (4) $0.109 for the Measuring Year ending December 31,
2013, and (5) $0.137 for the Measuring Year ending December 31, 2014. Base Tier
II EBTDA Per Share means: (1) $0.055 for the Measuring Year ending December 31,
2010, (2) $0.091 for the Measuring Year ending December 31, 2011, (3) $0.137 for
the Measuring Year ending December 31, 2012, (4) $0.164 for the Measuring Year
ending December 31, 2013, and (5) $0.191 for the Measuring Year ending December
31, 2014. EBTDA Per Share means (1) the net income after taxes (exclusive of any
non-recurring or extraordinary items paid or accrued) of the Company and its
consolidated subsidiaries (if any) in the applicable Measuring Year, plus (A) federal and state
income taxes paid or accrued in such Measuring Year, (B) amounts paid or accrued
in such Measuring Year in respect of depreciation of tangible assets, and (C)
amounts paid or accrued in such Measuring Year in respect of amortization of
intangible assets, including goodwill, all as set forth on the audited
consolidated statements of income or operations of the Company and its
consolidated subsidiaries (if any) in the applicable Measuring Year and as
determined in accordance with GAAP by the Company’s independent accountants,
divided by (2) the
weighted average of the outstanding Common Stock, measured on a fully diluted
basis.
The Bianco Employment Agreement
contains customary confidentiality, non-competition and non-solicitation
provisions.
Narang
Employment Agreement
On August 20, 2009, EII entered into an
Employment Agreement with Anil Narang (the “Narang Employment Agreement”)
pursuant to which Mr. Narang was engaged through December 31, 2012 (the “Term”)
as EII’s President and Chief Operating Officer with the responsibility for the
overall operation of EII together with Mr. Bianco, as well as other duties as
may be assigned to Mr. Narang by the board of directors of EII, including
providing services to EII and its other subsidiaries. EII pays to Mr. Narang a
salary of $70,000 per annum (the “Base Salary”) and he is entitled to receive an
annual bonus (the “Bonus”) as shall be determined in the sole discretion of the
independent members of the board of directors of EII. Commencing on January 1,
2010, the Base Salary will be increased to an annual amount which shall be
commensurate with both (i) the trailing twelve-month consolidated pro-forma
(based on acquisitions or other material events that may occur) earnings
before interest, taxes, depreciation and amortization of intangible assets of
the EII Group for the fiscal year ended December 31, 2009, and (ii) the then
business prospects of the EII Group, all as shall be determined by the
independent members of the Board of Directors of EII.
-52-
In addition to the Base Salary and
Bonus, Mr. Narang may be granted options to purchase, or stock appreciation
rights in, shares of the common stock of EII. On August 20, 2009, Mr. Narang
purchased options to purchase 1,666,667 (the “Narang EII Stock Options”) shares
of EII common stock at an exercise price equal to $0.25 per share with respect
to 583,334 options and $0.45 per share with respect to 583,333 options in
exchange for a $10,000 principal amount promissory note from Mr. Narang. Under
the Merger Agreement, the Narang EII Stock Options were converted into 5-year
options to purchase an aggregate of 1,279,484 shares of Common Stock at an
exercise price equal to $0.228 per share with respect to 639,742 options (the
“Narang Tier I Options”) and $0.50 per share with respect to 639,742 options
(the “Narang Tier II Options”). The Narang Tier I Options shall be exercisable
only if the EBTDA Per Share for the applicable Measuring Period exceeds the Base
Tier I EBTDA Per Share and the Narang Tier II Options shall be exercisable only
if the EBTDA Per Share for the applicable Measuring Period exceeds the Base Tier
II EBTDA. The Narang Tier I and Tier II Options shall be deemed vested as of the
date of grant. Base Tier I EBTDA Per Share and EBTDA Per Share have
the same meanings set forth above under the heading “Bianco Employment
Agreement”.
The Narang Employment Agreement
contains customary confidentiality, non-competition and non-solicitation
provisions.
Veach
Employment Agreement
On August 20, 2009, EII entered into an
Employment Agreement with Kellis Veach (the “Veach Employment Agreement”)
pursuant to which Mr. Veach was engaged through December 31, 2012 (the “Term”)
as EII’s Chief Financial Officer with the responsibility for financial reporting
and operation of EII, as well as other duties as may be assigned to Mr. Veach by
the board of directors of EII, including providing services to EII and its other
subsidiaries. EII pays to Mr. Veach a salary of $70,000 per annum (the “Base
Salary”) and he is entitled to receive an annual bonus (the “Bonus”) as shall be
determined in the sole discretion of the independent members of the board of
directors of EII. Commencing on January 1, 2010, the Base Salary will be
increased to an annual amount which shall be commensurate with both (i) the
trailing twelve-month consolidated pro-forma (based on acquisitions or other
material events that may occur) earnings before interest, taxes,
depreciation and amortization of intangible assets of the EII Group for the
fiscal year ended December 31, 2009, and (ii) the then
business prospects of the EII Group, all as shall be determined by the
independent members of the Board of Directors of EII. In addition to
the Base Salary and Bonus, Mr. Veach may be granted options to purchase, or
stock appreciation rights in, shares of the common stock of EII.
The Veach Employment Agreement contains
customary confidentiality, non-competition and non-solicitation
provisions.
Assignment
and Assumption Agreements
On December 31, 2009, Florham entered
into certain Assignment and Assumption Agreements with EII, Joseph Bianco, Anil
Narang and Kellis Veach under which EII assigned to Florham all of EII’s rights,
title and interest, and delegated all of its obligations and liabilities, to
each of the Bianco, Narang and Veach Employment Agreements to Florham. In
addition, Florham assumed all covenants, agreements, and other obligations to be
performed by EII under the Bianco, Narang and Veach Employment Agreements, and
Messrs Bianco, Narang and Veach each consented to the Assignment and Assumption
Agreement applicable to him.
-53-
Joseph
Monaco Consulting Agreement
On December 31, 2009, EII entered into
a Consulting Agreement with Joseph Monaco (the “Consulting Agreement”) under
which Mr. Monaco was engaged through December 31, 2010 (the “Term”) to provide
EII with such general business and consulting services as may be assigned to him
by the board of directors, including, without limitation, advising EII, its
subsidiaries, and the board with respect to (i) relationships with various state
educational departments and agencies, and (ii) analyzing and pursuing potential
acquisitions. During the Term, EII will pay Mr. Monaco a consulting fee of
$75,000 per annum and will reimburse him for all documented out-of-pocket
expenses incurred by him in the interest of the business. The Consulting
Agreement contains customary confidentiality, non-competition and
non-solicitation provisions.
Ashok
Narang Employment Agreement with Training Direct
On December 31, 2009, Training Direct
entered into an Employment Agreement with Ashok Narang (the “Training Direct
Employment Agreement”) pursuant to which Mr. Narang was engaged through December
31, 2012 (the “Term”) as Training Direct’s Vice President with the
responsibility for the overall operation of Training Direct, as well as other
duties as may be assigned to Mr. Narang by the board of directors of the
Company, including providing services to the Company and its other subsidiaries.
Training Direct will pay Mr. Narang a salary of $135,000 per annum (the “Base
Salary”) and he is entitled to receive an annual bonus (the “Bonus”) as shall be
determined in the sole discretion of the independent members of the board of
directors of the Company. In addition to the Base Salary and Bonus, Mr. Narang
may be granted options to purchase, or stock appreciation rights in, shares of
the common stock of the Company. The Training Direct Employment Agreement
contains customary confidentiality, non-competition and non-solicitation
provisions.
Board
of Directors
All directors will hold office until
the next annual meeting of shareholders and until their successors have been
duly elected and qualified. Officers are elected by and serve at the discretion
of the Board of Directors.
Role
of the Board of Directors
Pursuant to Delaware law, our business,
property and affairs are managed under the direction of the Company’s board of
directors. The board has responsibility for establishing broad corporate
policies and for the overall performance and direction of the Company, but is
not involved in day-to-day operations. Members of the board keep informed of the
Company’s business by participating in board meetings, by reviewing analyses and
reports sent to them regularly, and through discussions with its executive
officers.
Board
Committees
We have not established an audit
committee, compensation committee, nominating committee or other committee of
our board of directors. However, we intend to establish an audit committee,
compensation committee, nominating committee or other committee of our board of
directors which complies with the independence and other rules of the NYSE Amex
Stock Exchange.
Advisory
Board
We do not
currently have an advisory board.
-54-
Code
of Ethics
As of the date of this report, we have
not adopted a Code of Ethics applicable to all of our employees, officers and
directors, wherever they are located and whether they work for the Company on a
full or part-time basis. The Company intends to adopt a Code of
Ethics in the near future so that it complies with the NYSE Amex rules and
regulations. The Code will provide rules and procedures to help the
Company’s employees, officers and directors recognize and respond to situations
that present ethical issues. Compliance with this code will be
mandatory and those who violate the standards in this Code will be subject to
disciplinary action.
Executive
Compensation
Florham
Executive and Director Compensation Information
Prior to
the Reverse Merger, no compensation was paid to David Stahler for his services
as our President, Chief Financial Officer and Secretary. In addition, Mr.
Stahler did not receive any other compensation, whether in the form of stock
awards, stock options, or otherwise. Prior to the Reverse Merger, no
compensation was paid to David Stahler for his services as our sole
director.
The
Company Executive and Director Compensation Information
The Company did not pay any
compensation to our chief executive officer, or any of our directors, for
services rendered during the fiscal years ended December 31, 2008 and December
31, 2007.
Grants
of Plan-Based Awards and Outstanding Equity Awards at Fiscal
Year-End
We did not grant any options or awards
to any of our named executive officers during our last two completed fiscal
years ended December 31, 2008 and December 31, 2007, nor did any of our
executive officers exercise any such options or awards during such
period.
Retirement/Resignation
Plans
We do not have any plans or
arrangements in place regarding the payment to any of our executive officers
following such person’s retirement or resignation.
Director
Compensation
We have not paid our directors fees in
the past for attending scheduled and special meetings of our board of directors.
In the future, we may adopt a policy of paying independent directors a fee for
their attendance at board and committee meetings. We reimburse each director for
reasonable travel expenses related to such director's attendance at board of
directors and committee meetings.
Certain
Relationships and Related Party Transactions
Florham
Related Party Transactions
Florham
used office space provided to us by its former President, David Stahler, at no
cost. The amount of office space used by Florham was insignificant.
The
mother of Florham’s prior President is a co-trustee of a trust which owns
approximately 14% of the capital stock of Chocolate Printing Company, Inc., one
of Florham’s prior clients.
-55-
The
Company’s Related Party Transactions
Lease
EII’s and Valley’s principal executive
offices are located at 845 Third Avenue, 6th Floor,
New York, New York 10022. EII rents office space from one of its officers under
a lease expiring August 20, 2010 and pays $725 per month. EII also
reimburses another officer $2,992 per month for rent of office space on a
month-to-month basis.
Employment
and Consulting Agreements
On August 20, 2009, EII entered into an
Employment Agreement with Joseph Bianco (the “Bianco Employment Agreement”)
pursuant to which Mr. Bianco was engaged through December 31, 2012 (the “Term”)
as EII’s Chief Executive Officer with the responsibility for the overall
operation of EII, as well as other duties as may be assigned to Mr. Bianco by
the board of directors of EII, including providing services to EII and its other
subsidiaries. EII pays to Mr. Bianco a salary of $70,000 per annum (the “Base
Salary”) and he is entitled to receive an annual bonus (the “Bonus”) as shall be
determined in the sole discretion of the independent members of the board of
directors of EII. Commencing on January 1, 2010, the Base Salary will be
increased to an annual amount which shall be commensurate with both (i) the
trailing twelve-month consolidated pro-forma (based on acquisitions or other
material events that may occur) earnings before interest, taxes,
depreciation and amortization of intangible assets of the EII Group for the
fiscal year ended December 31, 2009, and (ii) the then
business prospects of the EII Group, all as shall be determined by the
independent members of the Board of Directors of EII. The Bianco Employment
Agreement contains customary confidentiality, non-competition and
non-solicitation provisions.
On August 20, 2009, EII entered into an
Employment Agreement with Anil Narang (the “Narang Employment Agreement”)
pursuant to which Mr. Narang was engaged through December 31, 2012 (the “Term”)
as EII’s President and Chief Operating Officer with the responsibility for the
overall operation of EII together with Mr. Bianco, as well as other duties as
may be assigned to Mr. Narang by the board of directors of EII, including
providing services to EII and its other subsidiaries. EII pays to Mr. Narang a
salary of $70,000 per annum (the “Base Salary”) and he is entitled to receive an
annual bonus (the “Bonus”) as shall be determined in the sole discretion of the
independent members of the board of directors of EII. Commencing on January 1,
2010, the Base Salary will be increased to an annual amount which shall be
commensurate with both (i) the trailing twelve-month consolidated pro-forma
(based on acquisitions or other material events that may occur) earnings
before interest, taxes, depreciation and amortization of intangible assets of
the EII Group for the fiscal year ended December 31, 2009, and (ii) the then
business prospects of the EII Group, all as shall be determined by the
independent members of the Board of Directors of EII. The Narang Employment
Agreement contains customary confidentiality, non-competition and
non-solicitation provisions.
On August 20, 2009, EII entered into an
Employment Agreement with Kellis Veach (the “Veach Employment Agreement”)
pursuant to which Mr. Veach was engaged through December 31, 2012 (the “Term”)
as EII’s Chief Financial Officer with the responsibility for financial reporting
and operation of EII, as well as other duties as may be assigned to Mr. Veach by
the board of directors of EII, including providing services to EII and its other
subsidiaries. EII pays to Mr. Veach a salary of $70,000 per annum (the “Base
Salary”) and he is entitled to receive an annual bonus (the “Bonus”) as shall be
determined in the sole discretion of the independent members of the board of
directors of EII. Commencing on January 1, 2010, the Base Salary will be
increased to an annual amount which shall be commensurate with both (i) the
trailing twelve-month consolidated pro-forma (based on acquisitions or other
material events that may occur) earnings before interest, taxes,
depreciation and amortization of intangible assets of the EII Group for the
fiscal year ended December 31, 2009, and (ii) the then
business prospects of the EII Group, all as shall be determined by the
independent members of the Board of Directors of EII. In addition to
the Base Salary and Bonus, Mr. Veach may be granted options to purchase, or
stock appreciation rights in, shares of the common stock of EII. The
Veach Employment Agreement contains customary confidentiality, non-competition
and non-solicitation provisions.
-56-
On December 31, 2009, Florham entered
into certain Assignment and Assumption Agreements with EII, Joseph Bianco, Anil
Narang and Kellis Veach under which EII assigned to Florham all of EII’s rights,
title and interest, and delegated all of its obligations and liabilities, to
each of the Bianco, Narang and Veach Employment Agreements to Florham. In
addition, Florham assumed all covenants, agreements, and other obligations to be
performed by EII under the Bianco, Narang and Veach Employment Agreements, and
Messrs Bianco, Narang and Veach each consented to the Assignment and Assumption
Agreement applicable to him.
On December 31, 2009, EII entered into
a Consulting Agreement with Joseph Monaco (the “Consulting Agreement”) under
which Mr. Monaco was engaged through December 31, 2010 (the “Term”) to provide
EII with such general business and consulting services as may be assigned to him
by the board of directors, including, without limitation, advising EII, its
subsidiaries, and the board with respect to (i) relationships with various state
educational departments and agencies, and (ii) analyzing and pursuing potential
acquisitions. During the Term, EII will pay Mr. Monaco a consulting fee of
$75,000 per annum and will reimburse him for all documented out-of-pocket
expenses incurred by him in the interest of the business. The Consulting
Agreement contains customary confidentiality, non-competition and
non-solicitation provisions.
On December 31, 2009, Training Direct
entered into an Employment Agreement with Ashok Narang (the “Training Direct
Employment Agreement”) pursuant to which Mr. Narang was engaged through December
31, 2012 (the “Term”) as Training Direct’s Vice President with the
responsibility for the overall operation of Training Direct, as well as other
duties as may be assigned to Mr. Narang by the board of directors of the
Company, including providing services to the Company and its other subsidiaries.
Training Direct will pay Mr. Narang a salary of $135,000 per annum (the “Base
Salary”) and he is entitled to receive an annual bonus (the “Bonus”) as shall be
determined in the sole discretion of the independent members of the board of
directors of the Company. In addition to the Base Salary and Bonus, Mr. Narang
may be granted options to purchase, or stock appreciation rights in, shares of
the common stock of the Company. The Training Direct Employment Agreement
contains customary confidentiality, non-competition and non-solicitation
provisions.
Stock
Option Grants/Issuances to Management, Directors and Consultants
On August 20, 2009, Joseph Bianco
purchased options to purchase 1,666,667 (the “Bianco EII Stock Options”) shares
of EII common stock at an exercise price equal to $0.25 per share with respect
to 583,334 options and $0.45 per share with respect to 583,333 options in
exchange for a $10,000 principal amount promissory note from Mr. Bianco, as
compensation for services performed on behalf of EII in his capacity as Chief
Executive Officer.
Under the Merger Agreement, the Bianco
EII Stock Options were converted into 5-year options to purchase an aggregate of
1,279,484 shares of Florham Common Stock at an exercise price equal to $0.228
per share with respect to 639,742 options (the “Bianco Tier I Options”) and
$0.50 per share with respect to 639,742 options (the “Bianco Tier II Options”).
The Bianco Tier I Options shall be exercisable only if the EBTDA Per Share for
the applicable Measuring Period exceeds the Base Tier I EBTDA Per Share and the
Bianco Tier II Options shall be exercisable only if the EBTDA Per Share for the
applicable Measuring Period exceeds the Base Tier II EBTDA. The Bianco Tier I
and Tier II Options shall be deemed vested as of the date of
grant.
-57-
Base Tier I EBTDA Per Share means: (1)
$0.036 for the Measuring Year ending December 31, 2010, (2) $0.055 for the
Measuring Year ending December 31, 2011, (3) $0.091 for the Measuring Year
ending December 31, 2012, (4) $0.109 for the Measuring Year ending December 31,
2013, and (5) $0.137 for the Measuring Year ending December 31, 2014. Base Tier
II EBTDA Per Share means: (1) $0.055 for the Measuring Year ending December 31,
2010, (2) $0.091 for the Measuring Year ending December 31, 2011, (3) $0.137 for
the Measuring Year ending December 31, 2012, (4) $0.164 for the Measuring Year
ending December 31, 2013, and (5) $0.191 for the Measuring Year ending December
31, 2014. EBTDA Per Share means (1) the net income after taxes (exclusive of any
non-recurring or extraordinary items paid or accrued) of the Company and its
consolidated subsidiaries (if any) in the applicable Measuring Year, plus (A) federal and state
income taxes paid or accrued in such Measuring Year, (B) amounts paid or accrued
in such Measuring Year in respect of depreciation of tangible assets, and (C)
amounts paid or accrued in such Measuring Year in respect of amortization of
intangible assets, including goodwill, all as set forth on the audited
consolidated statements of income or operations of the Company and its
consolidated subsidiaries (if any) in the applicable Measuring Year and as
determined in accordance with GAAP by the Company’s independent accountants,
divided by (2) the
weighted average of the outstanding Common Stock, measured on a fully diluted
basis.
On August 20, 2009, Anil Narang
purchased options to purchase 1,666,667 (the “Narang EII Stock Options”) shares
of EII common stock at an exercise price equal to $0.25 per share with respect
to 583,334 options and $0.45 per share with respect to 583,333 options in
exchange for a $10,000 principal amount promissory note from Mr. Narang, as
compensation for services performed on behalf of EII in his capacity as
President and Chief Operating Officer.
Under the Merger Agreement, the Narang
EII Stock Options were converted into 5-year options to purchase an aggregate of
1,279,484 shares of Common Stock at an exercise price equal to $0.228 per share
with respect to 639,742 options (the “Narang Tier I Options”) and $0.50 per
share with respect to 639,742 options (the “Narang Tier II Options”). The Narang
Tier I Options shall be exercisable only if the EBTDA Per Share for the
applicable Measuring Period exceeds the Base Tier I EBTDA Per Share and the
Narang Tier II Options shall be exercisable only if the EBTDA Per Share for the
applicable Measuring Period exceeds the Base Tier II EBTDA. The Narang Tier I
and Tier II Options shall be deemed vested as of the date of
grant. Base Tier I EBTDA Per Share and EBTDA Per Share have the same
meanings set forth above.
On December 31, 2009, the board of
directors of EII granted Kellis Veach 5-year options to purchase 150,000 (the
“Veach EII Stock Options”) shares of EII common stock at an exercise price equal
to $0.50 per share, as compensation for services performed on behalf of EII in
his capacity as Chief Financial Officer. The Veach EII Stock Options shall be
exercisable as to 75,000 shares on December 31, 2010 and as to 75,000 shares on
December 31, 2011.
On December 31, 2009, the board of
directors of EII granted Ashok Narang 5-year options to purchase 150,000 (the
“Ashok Narang EII Stock Options”) shares of EII common stock at an exercise
price equal to $0.50 per share, as compensation for services performed on behalf
of EII in his capacity as President of Training Direct. The Ashok Narang EII
Stock Options shall be exercisable as to 75,000 shares on December 31, 2010 and
as to 75,000 shares on December 31, 2011.
Under the Merger Agreement, the Veach
and Ashok Narang Stock Options were each converted into 5-year options to
purchase an aggregate of 164,505 shares of Florham Common Stock with respect to
Mr. Veach and 164,505 shares of Florham Common Stock with respect to Mr. Narang,
each at an exercise price of $0.50. These options are exercisable as to 82,252
shares on December 31, 2010 and as to 82,253 shares on December 31,
2011.
-58-
On December 31, 2009, the board of
directors of EII granted Howard Spindel 5-year options to purchase 100,000 (the
“Spindel EII Stock Options”) shares of EII common stock at an exercise price
equal to $0.50 per share, as compensation for services performed on behalf of
EII in his capacity as a director. The Spindel EII Stock Options vest
in full on the date of grant.
On December 31, 2009, the board of
directors of EII granted Dov Perlysky 5-year options to purchase 100,000 (the
“Perlysky EII Stock Options”) shares of EII common stock at an exercise price
equal to $0.50 per share, as compensation for services performed on behalf of
EII in his capacity as a director. The Perlysky EII Stock Options vest in full
on the date of grant.
On December 31, 2009, the board of
directors of EII granted David Cohen 5-year options to purchase 100,000 (the
“Cohen EII Stock Options”) shares of EII common stock at an exercise price equal
to $0.50 per share, as compensation for services performed on behalf of EII in
his capacity as a director. The Cohen EII Stock Options vest in full on the date
of grant.
On December 31, 2009, the board of
directors of EII granted Jonathan Turkel 5-year options to purchase 100,000 (the
“Turkel EII Stock Options”) shares of EII common stock at an exercise price
equal to $0.50 per share, as compensation for services performed on behalf of
EII in his capacity as a consultant. The Turkel EII Stock Options vest in full
on the date of grant.
Under the Merger Agreement, the
Spindel, Perlysky, Cohen and Turkel EII Stock Options were each converted into
5-year options to purchase an aggregate of (i) 109,670 shares of Florham Common
Stock with respect to Mr. Spindel, (ii) 109,670 shares of Florham Common Stock
with respect to Mr. Perlysky, (iii) 109,670 shares of Florham Common Stock with
respect to Dr. Cohen, and (iv) 109,670 shares of Florham Common Stock with
respect to Mr. Turkel, each at an exercise price of $0.50. Each of these options
vest in full on the date of grant.
On December 31, 2009, the board of
directors of Florham granted Leonard Katz a 5-year option to purchase an
aggregate of 109,670 shares of Florham Common Stock at an exercise price of
$0.50 in his capacity as a consultant. This option vests in full on the date of
grant.
Florham
Common Stock as Part of Merger Consideration
Under the Merger Agreement, the
shareholders of EII were issued an aggregate of 6,000,000 shares of Florham's
common stock as part of the merger consideration. Of such shares, 2,400,000 were
issued to Sanjo Squared, LLC, an entity controlled by two of our officers and
directors, and 3,600,000 were issued to Kinder Investments, L.P., an entity
controlled by one of our directors. Such shares are subject to the terms of
lock-up agreements as set forth below.
Lock
Up Agreements
All of the Florham shares of Common
Stock owned or to be owned by the management shareholders (directly or
indirectly) are restricted from public or private sale for a period of twelve
months following the effective date of the Reverse Merger (December 31,
2009).
-59-
Series
A Convertible Preferred Stock
Under the Merger Agreement, the
shareholders of EII were issued 250,000 shares of Florham’s Series A Preferred
Stock, with each share of Florham's Series A Preferred Stock automatically
convertible into 49.11333 shares of Florham's Common Stock upon the filing by
Florham of an amendment to its certificate of incorporation which increases the
authorized shares of Florham's Common Stock to at least 50,000,000. Of such
shares, 100,000 were issued to Sanjo Squared, LLC and 150,000 were issued to
Kinder Investments, L.P.
Review,
Approval and Ratification of Related Party Transactions
Given our small size and limited
financial resources, we had not adopted prior to the Reverse Merger formal
policies and procedures for the review, approval or ratification of
transactions, such as those described above, with our executive officers,
directors and significant shareholders. However, we intend that such
transactions will, on a going-forward basis, be subject to the review, approval
or ratification of our board of directors, or an appropriate committee
thereof.
Director
Independence
Presently, we are not required to
comply with the director independence requirements of any securities
exchange. In determining whether our directors are independent,
however, we intend to comply with the rules of the NYSE Amex Stock
Exchange. The board of directors also will consult with counsel to
ensure that the board of directors’ determinations are consistent with those
rules and all relevant securities and other laws and regulations regarding the
independence of directors, including those adopted under the Sarbanes-Oxley Act
of 2002 with respect to the independence of future audit committee
members. The NYSE Amex listing standards define an “independent
director” generally as a person, other than an officer of a company, who does
not have a relationship with the company that would interfere with the
director’s exercise of independent judgment.
Currently
we do not satisfy the “independent director” requirements of the NYSE Amex Stock
Exchange, which requires that a majority of a company’s directors be
independent. Our board of directors intends to appoint additional
members, each of whom will satisfy such independence requirements.
Legal
Proceedings
Neither we nor any of our direct or
indirect subsidiaries is a party to, nor is any of our property the subject of,
any legal proceedings other than ordinary routine litigation incidental to their
respective businesses. There are no proceedings pending in which any
of our officers, directors or 5% shareholders are adverse to us or any of our
subsidiaries or in which they are taking a position or have a material interest
that is adverse to us or any of our subsidiaries.
Neither we nor any of our subsidiaries
is a party to any administrative or judicial proceeding arising under federal,
state or local environmental laws.
From time to time, we may be involved
in litigation relating to claims arising out of our operations in the normal
course of business.
Changes
in and Disagreements with Accountants
We have had no disagreements with our
independent registered public accountants with respect to accounting practices
or procedures or financial disclosure.
-60-
Market
Price and Dividends on Registrant’s Common Equity and Related Stockholder
Matters
The common stock was approved for
quotation on the Over–the-Counter Bulletin Board on April 28, 2008 under the
symbol “FHMS”.
The following table sets forth the
quarterly high and low bid prices for the common stock for the last two fiscal
years. The prices set forth below represent inter-dealer quotations, without
retail markup, markdown or commission and may not be reflective of actual
transactions.
Fiscal Quarter
|
High
|
Low
|
||||||
Quarter
ended June 30, 2008*
|
$ | 2.25 | $ | 1.25 | ||||
Quarter
ended September 30, 2008
|
$ | 1.25 | $ | 1.01 | ||||
Quarter
ended December 31, 2008
|
$ | 1.10 | $ | 1.01 | ||||
Quarter
ended March 31, 2009
|
$ | 1.01 | $ | 0.16 | ||||
Quarter
ended June 30, 2009
|
$ | 0.35 | $ | 0.16 | ||||
Quarter
ended September 30, 2009
|
$ | 0.26 | $ | 0.16 |
*From April 28, 2008 through the fiscal
quarter ended June 30, 2008.
At December 31, 2009, the closing bid
price of the common stock was $0.26 and we had approximately 117 record holders
of our common stock. This number excludes any estimate by us of the number of
beneficial owners of shares held in street name, the accuracy of which cannot be
guaranteed.
Dividend
Policy
We have
never declared or paid dividends on our common stock. We intend to
retain earnings, if any, to support the development of our business and
therefore do not anticipate paying cash dividends for the foreseeable
future. Payment of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including current financial condition, operating results and current and
anticipated cash needs.
Securities
Authorized for Issuance Under Equity Compensation Plans
As of December 31, 2008, Florham did
not have any options or other securities outstanding under any employee stock
option and incentive plan.
Recent
Sales of Unregistered Securities
Reference is made to the “The Agreement and Plan of Merger”,
“The Interest Purchase Agreement” and “Certain Relationships and Related
Party Transactions” sections of this report
and the disclosures set forth thereunder.
We believe that all of the offerings
and sales were deemed to be exempt under Rule 506 of Regulation D and Section
4(2) of the Securities Act of 1933, as amended. No advertising or general
solicitation was employed in offering the securities. The offerings and sales
were made to a limited number of persons, all of whom were accredited investors,
business associates of the Company or executive officers of the Company, and
transfer was restricted by the Company in accordance with the requirements of
the Securities Act of 1933. In addition to representations by the
above-referenced persons, we have made independent determinations that all of
the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.
-61-
Description
of Securities
Authorized
Capital Stock
The authorized capital stock of Florham
consists of 12,000,000 shares of common stock, par value $0.0001 per share and
2,000,000 shares of “blank check” preferred stock, par value $0.0001 per
share. As of the date of this report, Florham has 6,166,700 shares of
common stock issued and outstanding and 250,000 shares of Series A Convertible
Preferred Stock issued and outstanding.
As stated elsewhere in this report, as
part of the Reverse Merger, we agreed to increase our authorized Common Stock to
50,000,000 shares.
The following summary description
relating to Florham’s capital stock and other securities does not purport to be
complete.
Florham
Common Stock
Holders of common stock are entitled to
cast one vote for each share on all matters submitted to a vote of shareholders,
including the election of directors. The holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefore (see "Dividend Policy’). Such
holders do not have any preemptive or other rights to subscribe for additional
shares. All holders of common stock are entitled to share ratably in any assets
for distribution to shareholders upon the liquidation, dissolution or winding up
of the Company. There are no conversion, redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common
stock are fully paid and non-assessable.
Florham
Preferred Stock
Florham’s Board of Directors is
authorized, without further action by the shareholders, to issue, from time to
time, up to 2,000,000 shares of preferred stock in one or more classes or
series. Similarly, the Board of Directors will be authorized to fix
or alter the designations, powers, preferences, and the number of shares which
constitute each such class or series of preferred stock. Such
designations, powers or preferences may include, without limitation, dividend
rights (and whether dividends are cumulative), conversion rights, if any, voting
rights (including the number of votes, if any, per share), redemption rights
(including sinking fund provisions, if any), and liquidation preferences of any
unissued shares or wholly unissued series of preferred stock. As of the date of
this filing and under the Merger Agreement, the shareholders of EII were issued
250,000 shares of Florham’s Series A Preferred Stock.
Except for the Series A Preferred Stock
issued to the shareholders of EII under the Merger Agreement, it is not possible
to state the actual effect of any authorization of preferred stock upon the
rights of holders of common stock until the Board of Directors determines the
specific rights of the holders of any series of preferred stock. The
Board of Director’s authority to issue preferred stock also provides a
convenient vehicle in connection with possible acquisitions and other corporate
purposes, but could have the effect of making it more difficult for a third
party to acquire a majority of our outstanding voting
stock. Accordingly, the issuance of preferred stock may be used as an
“anti-takeover” device without further action on the part of our stockholders,
and may adversely affect the holders of the common stock.
-62-
The
Series A Preferred Stock
Each share of Florham Series A
Preferred Stock:
(a) is automatically
convertible into 49.11333 shares of Florham's Common Stock upon the filing by
Florham of an amendment to its certificate of incorporation which increases the
authorized shares of Florham's Common Stock to at least 50,000,000;
(b) provides that
holders shall be entitled to receive dividends when, as and if declared by the
Board of Directors. No cash dividends or distributions shall be
declared or paid or set apart for payment on the Common Stock unless such cash
dividend or distribution is likewise declared, paid or set apart for payment on
the Series A Preferred Stock in an amount equal to the dividend or distribution
that would be payable if all of the issued and outstanding shares of the Series
A Preferred Stock had been fully converted into Common Stock on the day
immediately prior to the date which shall be the earliest to occur of the
declaration, payment, or distribution or such dividend;
(c) has a par value
of $0.0001 per share;
(d) has a stated or
liquidation value of $0.01 per share (the “Stated Value”);
(e) has a preference
over the Florham Common Stock on liquidation or sale of Florham equal to the sum
of the Stated Value per share and an amount equal to all unpaid dividends on the
Series A Preferred Stock, if any; and
(f) votes together
with the Florham Common Stock on an “as converted basis.”
The conversion price and the number of
shares of common stock issuable upon conversion of the Series A Preferred Stock
are subject to customary adjustments as set forth in the Certificate of
Designations of the Series A Preferred Stock.
For a more complete description of the
Series A Preferred Stock, reference is made to the Certificate of Designations
of the Series A Preferred Stock attached as an exhibit to this Form
8-K.
Stock
Incentive Plan
EII
2009 Stock Incentive Plan
Prior to the Reverse Merger, EII
maintained a 2009 stock incentive plan that provided for the grant of
non-qualified or incentive stock options, stock appreciation rights, cash-based
awards, or other stock-based awards to its employees, officers, directors or
consultants. Stock options granted pursuant to the terms of this plan
generally cannot be granted with an exercise price of less than 100% of the fair
market value on the date of the grant (110% for awards issued to a 10% or more
stockholder) and the term of the options granted under the plan cannot be
greater than 10 years, or 5 years for a stockholder who owns 10% or more of our
equity. An aggregate of 800,000 shares were reserved under the plan,
of which -0- shares were available for future grant as of the date of this
report. There were 800,000 options outstanding under this plan; such options had
an exercise price of $0.50 per share and expired 5 years from the date of
grant. On the effective date of the Reverse Merger, the options
granted under the EII 2009 Stock Incentive Plan were converted into options to
purchase an aggregate of 877,360 shares of Florham Common Stock at a conversion
ratio equal to 1.0967 Florham options for every 1 EII option held by the
holders. The Florham stock options have the same terms and conditions
as the prior EII stock options.
-63-
Florham
2009 Stock Incentive Plan
On December 31, 2009, the board of
directors of Florham adopted a 2009 Stock Incentive Plan to provide for the
grant of non-qualified or incentive stock options, stock appreciation rights,
cash-based awards, or other stock-based awards to its employees, officers,
directors or consultants. Stock options granted pursuant to the terms
of this plan generally will not be granted with an exercise price of less than
100% of the fair market value on the date of the grant (110% for awards issued
to a 10% or more stockholder) and the term of the options granted under the plan
will not greater than 10 years, or 5 years for a stockholder who owns 10% or
more of our equity. An aggregate of 1,500,000 shares are
reserved under the plan.
The board of directors of Florham will
form a compensation committee of the board of directors which will review
Florham’s Stock Incentive Plan to determine if any revisions are required that
would be better suitable for the Company post-Reverse Merger. If any
revisions are required, the compensation committee will recommend them to the
Board and seek approval from a majority of the members of the board of
directors. Once approved by the board of directors, such stock option or stock
incentive plan will thereafter be submitted to the Florham stockholders for
approval.
Dividend
Policy
We have never declared or paid
dividends on our common stock. We intend to retain earnings, if any, to support
the development of our business and therefore do not anticipate paying cash
dividends for the foreseeable future. Payment of future dividends, if any, will
be at the discretion of our board of directors after taking into account various
factors, including current financial condition, operating results and current
and anticipated cash needs.
Indemnification
of Directors
Our Certificate of Incorporation
provide that no director or officer of the corporation past, present or future,
shall be personally liable to the corporation or any of its shareholders for
damages for breach of fiduciary duty as a director or officer, except for
liability (1) for any breach of the director's duty of loyalty to the
corporation or its stockholders; (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (3) under
Section 174 of the Delaware General Corporation Law; or (4) for any transaction
from which the director derived an improper personal benefit.
Our bylaws provide for the
indemnification of our directors and officers, as to those liabilities and on
those terms and conditions as appropriate.
WHERE
YOU CAN FIND MORE INFORMATION
We will file a registration statement
on Form S-1 with the SEC covering (i) the shares of Common Stock issued and
outstanding prior to the effective time of the Reverse Merger; and (ii) 930,000
shares of Common Stock issuable upon exercise of warrants expiring on June 30,
2016 at an exercise price of $0.05 per share, as soon as practicable following
the effective time of the Reverse Merger.
We also file annual, quarterly and
special reports, and other information with the SEC. You may read or obtain a
copy of the registration statement to be filed or any other information we file
with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information regarding the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our
SEC filings are also available to the public from the SEC web site at www.sec.gov, which
contains our reports, proxy and information statements, and other information we
file electronically with the SEC.
-64-
Item
5.03. Amendments to the Articles of Incorporation or Bylaws; Change
in Fiscal Year
Pursuant
to the Reverse Merger, we agreed to amend and restate our certificate of
incorporation to change our name to “Educational Investors Corp.” and increase
our authorized Common Stock to 50,000,000 shares.
To effect these actions, we must file
and mail an Information Statement on Schedule 14C promptly following the
closing. Upon the effectiveness of such Information Statement and the expiration
of the requisite 20 day period following the mailing of the Schedule 14C, our
amended and restated certificate of incorporation will become
effective.
Item
9.01. Financial Statements and Exhibits.
|
(a)
|
Financial
statements of businesses acquired:
|
(i) The Audited Financial Statements for
Valley Anesthesia Educational Programs, Inc. as of December 31, 2008 and 2007
are included following this Item 9.01(a).
(ii) The Audited Financial Statements for
Training Direct, LLC as of December 31, 2008 and 2007 are included following
this Item 9.01(a).
(iii)
The Audited Financial Statements for Educational Investors, Inc. as of September
30, 2009 are included following this Item 9.01(a).
(iv)
The Unaudited Financial Statements for Training Direct, LLC as of September 30,
2009 are included following this Item 9.01(a).
(v)
The Audited Financial Statements of Valley Anesthesia Educational Programs, Inc.
as of August 20, 2009 are included following this Item 9.01(a).
|
(b)
|
Pro
Forma financial information
|
The
Unaudited Pro Forma Financial information of Educational Investors, Inc.,
Training Direct, LLC and Florham Consulting Corp. for the periods ended
September 30, 2009 and December 31, 2008, respectively, related to the
acquisition of Educational Investors, Inc. and its subsidiaries are included
following this Item 9.01(b).
|
(c)
|
Exhibits
|
See the Exhibit Index hereto, which is
incorporated by reference herein.
-65-
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
FLORHAM
CONSULTING CORP.
(Registrant)
By:
|
/s/ Joseph J.
Bianco
|
|
Name:
|
Joseph
J. Bianco
|
|
Title:
|
Chief
Executive Officer
|
Date: July
29, 2010
-66-
EXHIBIT
INDEX
10.1
|
Agreement
and Plan of Merger dated as of December 16, 2009 by and among Educational
Investors, Inc., Florham Consulting Corp., EII Acquisition Corp., Sanjo
Squared, LLC, Kinder Investments, L.P., Joseph J. Bianco and Anil
Narang.
|
10.2
|
Certificate
of Designation, Preferences and Rights of the Series A Convertible
Preferred Stock of Florham Consulting Corp.
|
10.3
|
Employment
Agreement dated as of August 20, 2009 between Educational Investors, Inc.
and Joseph J. Bianco.
|
10.4
|
Employment
Agreement dated as of August 20, 2009 between Educational Investors, Inc.
and Anil Narang.
|
10.5
|
Employment
Agreement dated as of August 20, 2009 between Educational Investors, Inc.
and Kellis Veach.
|
10.6
|
Form
of Assignment and Assumption Agreement.
|
10.7
|
Consulting
Agreement dated as of December 31, 2009 between Educational Investors,
Inc. and Joseph Monaco.
|
10.8
|
Form
of Lock-Up Agreement.
|
10.9
|
Form
of Florham Consulting Corp. Management Stock Option
Agreement.
|
10.10
|
Form
of Florham Consulting Corp. Management Stock Option Agreement for Joseph
J. Bianco and Anil Narang.
|
10.11
|
Form
of Florham Consulting Corp. Director/Consultant Stock Option
Agreement.
|
10.12
|
Interest
Purchase Agreement dated as of December 16, 2009 by and among Educational
Investors, Inc., Florham Consulting Corp., TD Management, Inc. and Joseph
Monaco.
|
10.13
|
Employment
Agreement dated as of December 31, 2009 between Training Direct, LLC and
Ashok Narang.
|
99.1
|
Audited Financial Statements for Valley
Anesthesia Educational Programs, Inc. as of
December 31, 2008 and
2007.
|
-67-
99.2
|
Audited Financial Statements for Training
Direct, LLC as of December 31, 2008 and
2007.
|
99.3
|
The
Audited Financial Statements for Educational Investors, Inc. as of
September 30, 2009.
|
99.4
|
The
Unaudited Financial Statements for Training Direct, LLC as of September
30, 2009.
|
99.5
|
The
Audited Financial Statements of Valley Anesthesia Educational Programs,
Inc. as of August 20, 2009.
|
99.6
|
The
Unaudited Pro Forma Financial Information of Educational Investors, Inc.,
Training Direct, LLC and Florham Consulting Corp. for the periods ended
September 30, 2009 and December 31,
2008.
|
-68-