8-K/A 1 pol8kz.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): January 31, 2001 English Language Learning and Instruction System, Inc. _________________________________________________________ (Exact name of registrant as specified in its charter) Politics.com, Inc. __________________________________________________________ (Former name of registrant) Delaware 0-27591 33-0836078 _________________ _________________ _________________ (State or Other Jurisdiction (Commission File Number) I.R.S. Employer of Incorporation) Identification Number) 3520 North University Avenue, Suite 275 Provo, UT 84604 ____________________________________________________________ (Address of Principal Executive Offices) (Zip Code) 2530 South Rural Road Tempe, AZ 85282 ___________________________________________________________ (Former Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (801) 374-3424 Registrant's Former Telephone Number: (480) 731-9100 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS AND EXHIBITS. Attached hereto are the financial statements relating to the acquisition by English Language Learning and Instruction System, Inc., formerly Politics.com, Inc. ("ELLIS"), of Computer Assisted Learning and Instruction, Inc. ("Cali"), as described in the 8-K filed on February 14, 2001. (b) PRO FORMA FINANCIAL INFORMATION. Attached hereto is certain pro forma financial information related to the acquisition of Cali by ELLIS. INDEPENDENT AUDITORS' REPORT The Board of Directors Computer Assisted Learning & Instruction, Inc. We have audited the accompanying consolidated balance sheets of Computer Assisted Learning & Instruction, Inc. and subsidiary (the Company) as of December 31, 2000 and 1999, and the related statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Computer Assisted Learning & Instruction, Inc. and subsidiary as of December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ March 4, 2001 Squire & Company, PC Orem, Utah COMPUTER ASSISTED LEARNING & INSTRUCTION, INC. BALANCE SHEETS December 31, 2000 and 1999 2000 1999 ------------------------------------------ --------------- -------------- ASSETS Current Assets: Cash $ 17,959 $ 61,614 Accounts receivable - net of allowance 1,033,059 470,104 Employee receivable 4,046 1,683 Inventories 45,478 29,466 Prepaid expenses 3,009 13,275 Deferred tax assets 9,857 101,595 --------------- -------------- Total current assets 1,113,408 677,737 Fixed Assets: Property and equipment 716,256 719,812 Accumulated depreciation (356,869) (410,530) --------------- -------------- Net fixed assets 359,387 309,282 Other Assets 34,043 9,444 --------------- -------------- Total assets $ 1,506,838 $ 996,463 =============== ============== The accompanying notes are an integral part of these statements. -2- COMPUTER ASSISTED LEARNING & INSTRUCTION, INC. BALANCE SHEETS (CONTINUED) December 31, 2000 and 1999 2000 1999 ------------------------------------------ --------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 219,757 $ 92,405 Accrued payroll liabilities 85,433 56,133 Pension payable 68,560 161,417 Income taxes payable 343,966 37,144 --------------- -------------- Total current liabilities 717,716 347,099 Deferred Tax Liability 15,571 9,071 Stockholder Loan - 750,660 --------------- -------------- Total liabilities 733,287 1,097,759 Stockholders' Equity: Common stock, no par value, 20,000,000 shares authorized, 11,550,000 shares issued and 11,253,000 shares outstanding 462,451 21,685 Treasury stock, 296,500 shares - - Cumulative other comprehensive loss (740) - Retained earnings (deficit) 311,840 (132,052) --------------- -------------- Total stockholders' equity 773,551 (110,367) --------------- -------------- Total liabilities and stockholders' equity $ 1,506,838 $ 996,463 =============== ============== The accompanying notes are an integral part of these statements. -3- COMPUTER ASSISTED LEARNING & INSTRUCTION, INC. STATEMENTS OF INCOME Years Ended December 31, 2000 and 1999 2000 1999 ------------------------------------------------- ------------- ------------- Software Sales $ 3,795,469 $ 2,349,347 Non-Software Sales 49,644 39,648 ------------- ------------- Total sales 3,845,113 2,388,995 Operating Expenses 2,997,074 2,083,179 ------------- ------------- Operating Income 848,039 305,816 Other Income (Expense): Interest income 12,085 17,615 Other income 19,581 18,404 Loss on sale of fixed assets (12,156) - Interest expense (39) (91,236) ------------- ------------- Total other income (expense) 19,471 (55,217) ------------- ------------- Income Before Income Taxes 867,510 250,599 Provision for Income Tax: Current 325,380 37,244 Deferred 98,238 63,631 ------------- ------------- Total income tax expense 423,618 100,875 ------------- ------------- Net Income $ 443,892 $ 149,724 ============= ============= Earnings Per Share - Basic and Fully Diluted $ 0.25 $ 73.54 ============= ============= Weighted Average Shares Outstanding 1,792,410 2,036 ============= ============= The accompanying notes are an integral part of these statements. -4-

COMPUTER ASSISTED LEARNING & INSTRUCTION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------------------------------------------ Note 1. Summary of Significant Accounting Policies ------------------------------------------ This summary of significant accounting policies of Computer Assisted Learning and Instruction, Inc. and subsidiary (the Company) is presented to assist in understanding the Company's financial statements. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of these financial statements. In the opinion of management, these financial statements include all adjustments which are necessary for the fair presentation of the results for the periods presented. Organization and Business Description - Computer Assisted Learning & Instruction, Inc. (CALI) was incorporated in the state of Utah on January 1, 1994. CALI is engaged in the development, marketing, and support of English language training software. The Company's customers consist primarily of retail distributors located in North America, South America, Europe, and Asia. Revenue Recognition - Revenue from the sale of software products is generally recognized upon delivery, where collection is probable and no significant obligations remain. Sales under certain distributor contracts are on a consignment basis, or under terms which require that the recognition of revenue be deferred until sale of the products by the distributor. Principles of Consolidation - The consolidated financial statements include the accounts of CALI and its wholly-owned subsidiary (see Note 3). All material intercompany transactions and accounts have been eliminated. Cash and Cash Equivalents The Company considers demand deposits at banks and money market funds at other financial institutions with an original maturity of three months or less to be cash equivalents. Inventories - Inventories consisting primarily of product packaging, documentation, and media, are stated at the lower of cost or market. Inventory cost is determined using the first-in, first-out method. Fixed Assets - Property and equipment are stated at cost. Property and equipment are depreciated using the straight-line method for financial reporting purposes. Asset lives vary from three to ten years based on the estimated useful life of the assets. Maintenance, repairs, and renewals which neither materially add to the value of the equipment nor appreciably prolongs its life are charged to expense as incurred. Gains and losses on dispositions are included in net income. Other Assets - Other assets consist of prepaid rents, professional retainer fees, and intangible assets. Research and Development Costs - Research and development expenditures, consisting primarily of software development costs incurred prior to achieving technological feasibility are charged to operations as incurred. After technological feasibility is established any additional software development costs would be capitalized in accordance -7- COMPUTER ASSISTED LEARNING & INSTRUCTION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------------------------------------------ Note 1. Summary of Significant Accounting Policies (continued) ------------------------------------------ with Statement of Financial Accounting Standards (SFAS) No. 86, Capitalization of Software Development Costs. Under the Company's software development process, technological feasibility is established upon completion of a working model. The Company to date has not capitalized any software development costs due to the immateriality of such costs. Advertising - The Company expenses the costs of advertising when the advertising takes place. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and the accompanying notes. Actual amounts could differ from those estimates. Earnings per Share - Basic and fully diluted earnings per share is computed by dividing net income available for common stock by the weighted average number of common shares during the period. Note 2. Fixed Assets ------------ Major classifications of property and equipment for December 31, 2000 and 1999 are as follows: 2000 1999 ------------- ------------- Computer software - 3 year life $ 5,656 $ 32,920 Computer hardware - 3-5 year life 98,892 124,104 Phone equipment - 5 year life 19,884 8,856 Furniture and fixtures - 5-10 year life 424,416 399,748 Automobiles - 10 year life 167,608 154,184 ------------- ------------- 716,256 719,812 Accumulated depreciation and amortization (356,869) (410,530) ------------- ------------- $ 359,387 $ 309,282 ============= ============= Note 3. Wholly-Owned Subsidiary ----------------------- During 2000, the Company established a wholly-owned subsidiary in Brazil, CALI Brasil, Ltda. All income and expenses of this subsidiary are reported in accordance with generally accepted accounting principles in these financial statements. CALI Brasil's earnings (net income) translated from Brazilian reals (the functional currency) to US dollars (the reporting currency) for the year ending December 31, 2000 was $17,109. The Company reports the assets, liabilities, and equity of its subsidiary using the exchange rate at the date of the balance sheet. The Company reports the income and expenses of its subsidiary using a weighted-average exchange rate over the period the income statement. Gains or losses on translating the functional currency to the reporting currency are reported as a component of cumulative other comprehensive income. -8- COMPUTER ASSISTED LEARNING & INSTRUCTION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------------------------------------------------------------------------- Note 4. Income Taxes ------------ The provision for income taxes is based on income and expense reported in the financial statements which differs from that reported for income tax purposes. Accordingly, deferred income taxes are provided in recognition of such differences. Temporary differences include vacation accrual, excess tax depreciation and unpaid interest on the stockholder loan. Income tax liabilities, expense, and deferred taxes are computed by following the procedures outlined in Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes". The applicable federal and state tax rates in effect at December 31, 2000 and 1999 were used in calculating the income tax liabilities, expense, and deferred taxes. In 1999, the balance of the Company's net operating loss carryforwards was used to offset a portion of income. Income tax expense for the years ended December 31, 2000 and 1999, is computed as follows: 2000 1999 ------------- ------------ Current: Federal income tax expense $ 282,761 $ 31,965 State income tax expense 42,619 5,279 Deferred income tax expense 98,238 63,631 ------------- ------------ Income tax expense $ 423,618 $ 100,875 ============= ============ Deferred tax assets and liabilities consist of the following: 2000 1999 ------------- ------------ Deferred tax assets: Allowance for doubtful accounts $ 1,865 $ 1,865 Accrued, unpaid interest - 91,832 Vacation accrual 7,992 7,898 ------------- ------------ Total deferred tax assets 9,857 101,595 Deferred tax liabilities: Excess tax depreciation (15,571) (9,071) ------------- ------------ Net deferred tax assets (liabilities) $ (5,714) $ 92,524 ============= ============ Note 5. Related Party Transactions -------------------------- The Company's majority stockholder loaned the Company $709,800 as of December 31, 1999 including unpaid interest of $40,860. During 2000, the Company repaid $309,894 of this loan. This stockholder then converted the remaining balance, $440,766, to additional paid-in capital. Also during 1999, the Company paid this stockholder $77,500 for vehicles and boats and $8,000 was paid to another company officer for a vehicle. -9- COMPUTER ASSISTED LEARNING & INSTRUCTION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------------------------------------------------------------------------- Note 6. Concentrations -------------- The Company is engaged in a single business segment, the development and marketing of language training software. The computer software industry is highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements or the emergence of competitive products with new capabilities or technologies, could adversely affect operating results. The Company sells its products primarily through distributors and resellers. Sales to the two largest distributors by the Company accounted for approximately 28 and 41 percent of the Company's net revenues for December 31, 2000 and 1999, respectively. The Company believes that no single end-user customer accounted for more than five percent of the Company's sales in 2000 and 1999. Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The credit risk associated with accounts receivable is mitigated by the Company's credit evaluation process, reasonably short collection terms, and the geographical dispersion of sales transactions. The Company estimates an allowance for doubtful accounts of $5,000 based on the credit worthiness of its distributors and customers as well as general economic conditions. Note 7. Leases ------ On August 21, 1998, the Company entered into a three-year lease agreement for an office building in Provo, Utah. The monthly payment is $3,000 and the lease is renewable in September of each succeeding year. During the year ended December 31, 2000, the Company was released from this agreement when they signed a new lease at a different location. The new lease carries a three-year term, beginning in March of 2000. The initial monthly payment of $6,839 will be adjusted annually for increases in the consumer price index. Future minimum payments are required as follows for the years ending December 31: 2001 $ 77,569 2002 85,241 2003 14,230 ----------- $ 177,040 =========== Note 8. Pension Plan On December 31, 1999, the Company adopted a defined benefit pension plan, effective for the 1999 plan year, covering all employees who meet age and length of service requirements. The benefits are based on years of service and the employee's compensation during the last three consecutive years of employment. The Company's funding policy is to contribute annually an amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits -10- COMPUTER ASSISTED LEARNING & INSTRUCTION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------------------------------- Note 8. Pension Plan (continued) ------------------------ attributed to service to date but also for those benefits expected to be earned in the future. Contributions vest to employees at the end of six years of service. The required contribution, accrued in the financial statements, for the years ending December 31, 2000 and 1999 was $68,560 and $161,417. The following table sets forth the plan's funded status: December 31, December 31, 2000 1999 ------------- -------------- Change in benefit obligations: Benefit obligation at beginning of year $ 161,417 $ - Service cost 160,271 161,417 Interest cost 13,023 - Amortization of transition 1,073 - ------------- -------------- Benefit obligation at end of period 335,784 161,417 ------------- -------------- Change in plan assets: Fair value of plan assets at beginning of year - - Actual return on plan assets 1,214 - Employer contribution 161,417 - Benefits paid - - ------------- -------------- Fair value of plan assets at end of period 162,631 - ------------- -------------- Accrued benefit cost $ (173,153) $ (161,417) ============= ============== Net pension cost included the following components: December 31, September 30, 2000 1999 ------------- -------------- Service cost $ 160,271 $ 161,417 Interest cost 13,023 - Expected return on plan assets (5,696) - Amortization of prior service cost 9,501 - ------------- -------------- $ 177,099 $ 161,417 ============== ============= The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation was 7 percent for the period ended December 31, 2000. The net pension cost determined by the actuary of $177,099 differs from the required minimum contribution determined by the actuary of $68,560. This difference is due to a significant reduction in compensation to an officer of the Company that was not considered when these amounts were determined by the actuary. Only the actual required minimum contribution of $68,560 has been accrued on the financial statements. -11- COMPUTER ASSISTED LEARNING & INSTRUCTION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------- Note 9. Commitments ----------- The Company has entered into an agreement to pay $4,500 a month until September 2001 for public relations and investment banking services. Note 10. Recent Accounting Pronouncements -------------------------------- In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value. The statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 1999, the FASB issued SFAS No. 137, which deferred the application of SFAS NO. 133 from fiscal years beginning after June 15, 1999 to fiscal years beginning after June 15, 2000. The application of SFAS No. 133 is not expected to have a material impact on the Company's financial statement. Note 11. Subsequent Event ---------------- On December 15, 2000, the Company entered into an Agreement and Plan of Reorganization (Reorganization Agreement). This Reorganization Agreement was executed on January 31, 2001 and was accounted for as a reverse merger with Politics.com, Inc., a Delaware corporation incorporated in January 1997. All of the outstanding common stock of CALI was exchanged for 11,550,000 of common stock of Politics.com, Inc (POCO). The transaction, accounted for as a reverse merger acquisition, resulted in the recapitalization of CALI inasmuch as it was deemed to be the acquiring entity for accounting purposes. Politics.com, Inc. then changed its name to English Language Learning and Instruction System, Inc. (ELLIS). In connection with the reverse merger, the 11,550,000 shares of common stock of CALI were exchanged at a rate of one share of CALI for one share of POCO. -12- PRO FORMA COMBINED FINANCIAL STATEMENTS ENGLISH LANGUAGE LEARNING AND INSTRUCTION SYSTEM, INC. (F/K/A POLITICS.COM, INC. AND COMPUTER ASSISTED LEARNING AND INSTRUCTION, INC.) AS OF DECEMBER 31, 2000 (UNAUDITED) English Language Learning and Instruction System, Inc. (F/K/A Politics.com, Inc. and Computer Assisted Learning and Instruction, Inc.) Pro Forma Combined Financial Statements (Unaudited) The following unaudited pro forma combined balance sheet and statements of income aggregate the audited balance sheet and statements of income of English Language Learning and Instruction System, Inc. (a Delaware Corporation) (ELLIS) as of December 31, 2000 and 1999, and the audited balance sheet and statement of income of Computer Assisted Learning & Instruction, Inc. (a Utah Corporation) (CALI) as of December 31, 2000 and 1999, giving effect to a transaction which was completed on January 31, 2001, wherein ELLIS acquired CALI (the "Acquisition"). The business combination is treated as a recapitalization of CALI with ELLIS issuing common stock in exchange for all of the issued and outstanding shares of CALI. The following pro forma balance sheet and statements of income used management assumptions as described in the notes and the historical financial information available at December 31, 2000 and 1999. Again, the format and amounts used in these pro forma financial statements are based on those financial statements. The pro forma combined balance sheet and statements of income should be read in conjunction with the separate financial statements and related notes thereto of ELLIS and CALI. The pro forma combined financial statements are not necessarily indicative of the combined balance sheet and statements of income which might have existed for the period indicated or the results of operations as they may be now or in the future. ENGLISH LANGUAGE LEARNING AND INSTRUCTION SYSTEM, INC. (F/K/A Politics.com, Inc. and Computer Assisted Learning and Instruction, Inc.) PRO FORMA COMBINED BALANCE SHEET December 31, 2000 (Unaudited) ------------------------------------------------------------------------------

ENGLISH LANGUAGE LEARNING AND INSTRUCTION SYSTEM, INC. F/K/A POLITICS.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 ------------------------------------------------------------------------------ Politics.com, Inc. - On July 27, 1999, Loan Oak, Inc., a Delaware corporation (Lone Oak), acquired all of the issued and outstanding common stock of Politics.com, Inc., a Nevada corporation (Politics-Nevada). The transaction has been treated for accounting purposes as a reverse acquisition (purchase) with Politics-Nevada being the acquirer and Lone Oak being the acquired company. As a result of the acquisition, Politics-Nevada became a wholly-owned subsidiary of Lone Oak. In connection with this transaction, Lone Oak changed its name to Politics.com, Inc., a Delaware corporation. Politics-Nevada was incorporated on March 23, 1999 in the State of Nevada. Politics-Nevada is a development stage enterprise that intended to be a global Internet media company, offering a branded network of information, communication, entertainment, community and commerce services with a common theme of politics. Computer Assisted Learning & Instruction, Inc.-- The Company was organized under the laws of the State of Utah on January 1, 1994. The Company was formed for the purpose of, but not limited to, the development, marketing, and support of English language training software. (A) Pro forma Adjustments -- On November 30, 2000, Politics.com, Inc. established a wholly-owned subsidiary, New Politics.com, Inc. (a Nevada corporation) (New Politics), and entered into an asset purchase agreement whereby New Politics acquired from Politics.com, Inc. all of Politics.com, Inc.'s assets and liabilities. As consideration for acquiring the assets, New Politics assumed complete and sole responsibility of and for all obligations associated with the assets acquired. The Company's ownership interest in New Politics was distributed to the Company's stockholders by issuing one share of New Politics for every share of the Company held by such stockholders. The "spin-off" was approved by the Company's stockholders on January 31, 2001. On December 15, 2000 Politics.com, Inc. entered into an Agreement and Plan of Reorganization (the Reorganization Agreement) by and between Politics.com, Inc. and Computer Assisted Learning & Instruction, Inc., a Utah corporation (CALI). The Reorganization Agreement contemplated a closing date of January 31, 2001. Following the "spin-off", on January 31, 2001, under the terms of the Reorganization Agreement, the shareholders of CALI exchanged 100% of the outstanding common stock of CALI for 11,550,000 shares of Politics.com, Inc. common stock, representing approximately 85.6 percent of the outstanding common stock of Politics.com, Inc. and Politics.com, Inc. changed its name to English Language Learning and Instruction System, Inc. (ELLIS). The exchange resulted in CALI's shareholders holding a larger portion of the voting rights of Politics.com, Inc. than would be held after the merger by the persons who were Politics.com, Inc. shareholders prior to the merger. Accordingly, the transaction was treated for accounting purposes as a reverse merger (purchase) with CALI being the acquirer and Politics.com, Inc. being the acquired company. Consequently, the pro forma adjustment has been made to record the "spin-off" of all assets and liabilities of Politics.com, Inc. held by its subsidiary, New Politics.com, Inc. -6- 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. ENGLISH LANGUAGE LEARNING AND INSTRUCTION SYSTEM, INC. /s/ Timothy D. Otto By:______________________________ Chief Executive Officer, President and Director Date: April 14, 2001

ENGLISH LANGUAGE LEARNING & INSTRUCTION SYSTEM INC 8-K/A