FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the Transition Period from ________ to ________
Commission File #0-11078
THE AMERICAN EDUCATION CORPORATION
(Exact name of small business issuer as specified in its charter)
Colorado
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(State or other jurisdiction of incorporation or organization)
84-0838184
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(IRS Employer Identification No.)
7506 North Broadway Extension, Suite 505, Oklahoma City, OK 73116
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(Address of principal executive offices)
(405) 840-6031
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(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.025 per share
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports, and (2) has been subject to such filing requirements for the
past 90 days.
YES X NO__
Number of shares of the issuer's common stock outstanding as of August 1,
2003: 14,367,461
Transitional Small Business Disclosure Format YES NO X
THE AMERICAN EDUCATION CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheets
June 30, 2003 and December 31, 2002 3
Consolidated Statements of Income
For the Three Months Ended June 30, 2003 4
and for the Three Months Ended June 30, 2002
For the Six Months Ended June 30, 2003
and for the Six Months Ended June 30, 2002 5
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2003 6
and for the Six Months Ended June 30, 2002
Notes to Interim Consolidated Financial
Statements 7
Item 2 Management's Discussion and Analysis
Of Financial Conditions and Results of
Operations 9
PART II - OTHER INFORMATION 13
SIGNATURE PAGE 15
PART I - FINANCIAL INFORMATION
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ITEM 1 - Consolidated Balance Sheets
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30 December 31
2003 2002
------------ -----------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 93,948 $ 74,405
Accounts receivable, net of
allowance for returns and
uncollectible accounts of
$209,319 and $102,309 2,844,810 2,001,019
Inventory 46,689 36,444
Prepaid expenses and deposits 77,157 62,758
Deferred tax asset 54,620 54,620
Note receivable from officer 300,000 300,000
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Total current assets 3,417,224 2,529,246
Property and equipment, at cost 1,255,642 1,237,222
Less accumulated depreciation and
amortization (978,653) (900,213)
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Net property and equipment 276,989 337,009
Other assets:
Capitalized software costs, net of
accumulated amortization of $4,894,654
and $4,195,444 4,582,789 4,610,365
Goodwill, net of accumulated
amortization of $369,097 and $369,097 1,840,446 1,840,446
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Total other assets 6,423,235 6,450,811
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Total assets $10,117,448 $9,317,066
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable trade $ 504,044 $ 569,066
Accrued liabilities 1,195,656 1,084,655
Accounts payable - Affiliate -- 60,000
Deferred revenue 441,196 238,080
Notes payable and current portion of
long-term debt 919,001 1,148,701
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Total current liabilities 3,059,897 3,100,502
Other long-term accrued liabilities 204,016 171,555
Deferred income tax liability - Long-term 437,167 206,952
Long-term debt 300,000 26,549
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Total liabilities 4,001,080 3,505,558
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Commitments and contingencies - -
Stockholders' Equity:
Preferred Stock, $.001 par value;
Authorized - 50,000,000 shares-issued
and outstanding-none - -
Common Stock, $.025 par value
Authorized 30,000,000 shares
Issued and outstanding - 14,367,461 shares 359,186 357,874
Additional paid in capital 6,668,569 6,649,240
Treasury stock, at cost, 34,000 shares (19,125) (19,125)
Retained deficit (1,176,481) (1,176,481)
Year-to-date earnings 284,219 -
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Total stockholders' equity 6,116,368 5,811,508
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Total liabilities and stockholders'
equity $10,117,448 $9,317,066
=========== ==========
The accompanying notes are an integral part of the financial statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(unaudited)
2003 2002
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Sales $2,450,636 $2,714,391
Cost of goods sold 337,097 631,608
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Gross profit 2,113,539 2,082,783
Operating expenses:
Selling and marketing 445,665 804,069
Operations 118,463 117,212
General and administrative 650,653 692,870
Amortization of capitalized software
costs 357,598 252,163
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Total operating expenses 1,572,379 1,866,314
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Operating income 541,160 216,469
Other income (expense):
Interest income 152 2,140
Interest expense (23,152) (21,150)
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Net income before income taxes 518,160 197,459
Current income tax benefit -- (40,643)
Deferred income taxes 248,153 133,173
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Net Income $ 270,007 $ 104,929
========== ==========
Basic 14,367,461 14,314,961
Earnings per share $ 0.019 $ 0.007
Diluted 14,453,861 14,314,961
Earnings per share $ 0.019 $ 0.007
The accompanying notes are an integral part of the financial statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(unaudited)
2003 2002
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Sales $ 4,347,954 $ 4,660,338
Cost of goods sold 664,253 1,181,239
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Gross profit 3,683,701 3,479,099
Operating expenses:
Selling and marketing 988,651 1,427,658
Operations 196,059 180,134
General and administrative 1,253,920 1,334,492
Amortization of capitalized software costs 697,973 493,455
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Total operating expenses 3,136,603 3,435,739
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Operating income 547,098 43,360
Other income (expense):
Interest income 181 4,056
Interest expense (34,194) (52,165)
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Net income (loss) before income taxes 513,085 (4,749)
Current income tax benefit -- (45,924)
Deferred income taxes 228,866 59,331
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Net Income (loss) $ 284,219 $ (18,156)
=========== ===========
Basic 14,350,928 14,297,351
Earnings per share $ 0.02 $ (0.001)
Diluted 14,437,328 14,297,351
Earnings per share $ 0.02 $ (0.001)
The accompanying notes are an integral part of the financial statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(unaudited)
2003 2002
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Cash flows from operating activities:
Net income (loss) $ 284,219 $ (18,156)
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 777,650 592,221
Reserve for bad debts 107,010 43,870
Services rendered for common stock 3,675 8,500
Deferred compensation 32,461 32,460
Other 16,966 (2,538)
Changes in assets and liabilities:
Accounts receivable (950,801) (184,609)
Inventories (10,245) 39,653
Prepaid expenses and other (14,399) 14,127
Accounts payable and accrued liabilities 45,979 235,414
Accounts payable - Affiliate (60,000) 60,000
Deferred revenue 203,116 61,029
Income taxes payable -- (86,356)
Deferred income taxes 230,215 59,301
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Net cash provided by operating activities 665,846 854,916
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Cash flow from investing activities:
Software development costs capitalized (671,634) (803,480)
Purchase of property and equipment (18,420) (33,162)
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Net cash used in investing activities (690,054) (836,642)
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Cash flows from financing activities:
Proceeds received from issuance of debt 300,000 --
Principal payments on notes payable (256,249) (176,122)
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Net cash provided by (used in) financing
activities 43,751 (176,122)
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Net increase (decrease) in cash 19,543 (157,848)
Cash at beginning of the period 74,405 612,052
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Cash at end of the period $ 93,948 $ 454,204
========== ============
The accompanying notes are an integral part of the financial statements.
THE AMERICAN EDUCATION CORPORATION
Part I
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED JUNE 30, 2003 AND 2002
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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1. Nature of Business:
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The American Education Corporation's ("the Company") business is the
development and marketing of educational software to elementary, middle
and secondary schools, adult literacy centers and vocational, junior and
community colleges. In addition, the Company has two active subsidiaries,
Learning Pathways, Ltd. ("LPL"), Derby, UK, and Dolphin, Inc. ("Dolphin"),
Gibbsboro, NJ. LPL modifies the Company's U.S. curriculum offering to
conform to the UK's educational system and markets these products directly
to UK and other international markets. Dolphin is a developer of
educational software for many of the nation's leading textbook and
electronic publishers.
2. Basis of Presentation:
---------------------
The summary of significant accounting policies of 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 the financial
statements.
The Company's consolidated financial statements include the Company and
its wholly-owned subsidiaries. All material intercompany transactions
have been eliminated.
The interim consolidated financial statements at June 30, 2003, and for
the three and six month periods ended June 30, 2003 and 2002 are
unaudited, but include all adjustments that the Company considers
necessary for a fair presentation. The December 31, 2002 balance sheet
was derived from the Company's audited financial statements.
The accompanying unaudited financial statements are for the interim
periods and do not include all disclosures normally provided in annual
financial statements. They should be read in conjunction with the
Company's audited financial statements included in the Company's Form
10-KSB for the year ended December 31, 2002. The accompanying unaudited
interim financial statements for the three and six month periods ending
June 30, 2003 are not necessarily indicative of the results that can be
expected for the entire year.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Revenue Recognition:
-------------------
The Company recognizes revenue in accordance with the American Institute
of Certified Public Accountant's Statement of Position 97-2, 98-9 and
modifications thereto on software revenue recognition. Revenue for
software design services at Dolphin is recognized on the percentage-of-
completion method.
4. Capitalized Software Costs:
--------------------------
Capitalized software costs consist of licenses for the rights to produce
and market computer software, salaries and other direct costs incurred in
the production of computer software. Costs incurred in conjunction with
product development are charged to research and development expense until
technological feasibility is established. Thereafter, all software
development costs are capitalized and amortized on a straight-line basis
over the product's estimated economic life of between three and five
years.
5. Goodwill:
--------
Goodwill relates to the acquisitions in 1998 of LPL and in 1999 of
Dolphin. Through 2001, goodwill was amortized with a fifteen year life.
Beginning January 1, 2002, goodwill is no longer amortized. Impairment
evaluations are made annually and any necessary expense recognized.
6. Inventories:
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Inventories are stated at the lower of cost (first-in, first-out), or
market, and consist of packaging and educational software materials.
7. Property and Equipment:
----------------------
Property and equipment is stated at cost. Depreciation is provided on the
straight-line basis over the estimated useful life of the assets, which is
five years.
8. Statements of Cash Flows:
------------------------
In the Consolidated Statements of Cash Flows, cash and cash equivalents
may include currency on hand, demand deposits with banks or other
financial institutions, treasury bills, commercial paper, mutual funds or
other investments with original maturities of three months or less. The
carrying values of the Company's assets and liabilities approximate fair
value due to their short-term nature.
9. Income Taxes:
------------
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included
in the financial statements or tax returns, determined by using the
enacted tax rates in effect for the year in which the differences are
expected to reverse.
10. Computation of Earnings Per Share:
---------------------------------
The Company has adopted Statement of Financial Accounting Standards No.
128 "Earnings Per Share" ("SFAS 128"). SFAS 128 requires presentation of
basic and diluted earnings per share. Basic earnings per share are
calculated based only upon the weighted average number of common shares
outstanding during the period. Diluted earnings per share are calculated
based upon the weighted average number of common and, where dilutive,
potential common shares outstanding during the period, utilizing the
treasury stock method. Potential common shares include options to
purchase common stock.
11. Stockholders' Equity:
--------------------
During the six months ended June 30, 2003, directors and distributors were
awarded 52,500 shares of the Company's common stock for services rendered.
At June 30, 2003, paid-in capital includes $7,840 of foreign currency
translation adjustments.
12. Commitments and Contingencies:
-----------------------------
The Company amortizes capitalized software costs over the product's
estimated useful life. Due to inherent technological changes in the
software development industry, the period over which such capitalized
software cost is being amortized may have to be accelerated.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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This report contains forward-looking statements. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the Company "believes," "plans,"
"intends," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans,
objectives, estimates or goals are also forward-looking statements. Such
statements address future events and conditions concerning capital
expenditures, earnings, litigation, liquidity, capital resources and
accounting matters. Actual results in each case could differ materially
from those currently anticipated in such statements by reason of factors
such as economic conditions, including changes in customer demands; future
legislative, regulatory and competitive developments in markets in which
the Company operates; and other circumstances affecting anticipated
revenues and costs.
Liquidity and Capital Resources
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As of June 30, 2003 the Company's principal sources of liquidity included
cash and cash equivalents of $93,948, net accounts receivable of
$2,844,810 and inventory of $46,689. The Company's net cash provided by
operating activities during the six months ended June 30 was $665,846 in
2003 compared to $854,916 in 2002. Net cash used in investing activities
for the same period decreased by 17.5% from $836,642 in 2002 to $690,054
in 2003, and was comprised primarily of investment in capitalized software
development costs. During the six months ended June 30, 2003 debt due to
financial institutions was reduced by $256,249, or 21.8%. In April 2003,
the Company borrowed $300,000 from major shareholder affiliates, which is
subordinated to the debt owed the Company's senior lender. The proceeds
from the subordinated debt were used to reduce accounts payable and
accrued liabilities.
At June 30, 2003, the Company had working capital of $357,327 compared to
$(571,256) at December 31, 2002. The majority of the cash for the Dolphin
acquisition in late 1999 was borrowed under a portion of the Company's
lines of credit. The Company has reached an agreement with its lenders to
extend its loans under the credit lines until November 1, 2003 if the
Company attained certain performance criteria, which were met at June 30,
2003. Therefore, all bank debt is classified as current. The Company is
continuing to seek alternative borrowing arrangements with several
financing sources.
With the expansion of the Company's product lines, the addition of new
products and improved coverage of certain markets combined with indicators
signaling regional increases in school spending, management believes that
the Company will return to a pattern of growth similar to that
demonstrated in prior years. Management believes that it can undertake
this expansion with most of the Company's working capital requirements
secured from its operating cash flows. If successful, the Company should
be able to continue to enhance the liquidity of the business and the
overall strength of the Company's balance sheet and financial position.
Additional working capital beyond that available within the Company has
been and may be required to expand operations. Management has and will
consider options available in providing such funding, including debt
financing and capital enhancement.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2003
AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2002
- --------------------------------------------------------
Net sales for the three months ended June 30, 2003 totaled $2,450,636
compared to $2,714,391 for the same period in 2002. This represents a
decrease of 9.7% over the comparable 2002 quarter and is attributable to a
combination of an increase in orders at AEC, offset by planned sales
decreases at the LPL and Dolphin subsidiaries. A decline in the
subsidiaries' revenues is a result of downsizing operations and a
refocusing of these business units to achieve a return to profitable
operations. AEC's revenue increase over the same quarter in 2002 is a
result of certain states that are important to the Company's market
penetration continuing to increase their education spending for the type
of products offered by the Company, after over a year of spending delays
or deferments.
During 2002, it became evident at both LPL and Dolphin that their cost
structures were too high based upon the revenue generated and immediate
prospects for increase in revenues, resulting in losses at both
subsidiaries. At LPL a decision was made to reduce the staff from 24
employees to 7 employees in the last half of 2002. Due to severance and
benefit rules in the UK, the effects of this reduction, along with the
corresponding reduction in benefits and other associated administrative
costs, did not fully impact LPL until after the beginning of 2003. At
Dolphin, changes in subsidiary management were implemented in the third
quarter of 2002 and personnel levels were reduced from 23 to 13 employees.
Total cost savings realized from these completed actions approximated
$351,000 during the second quarter of 2003 and $557,000 for the six months
ended June 30, 2003.
Cost of goods sold as a percentage of sales revenue for the three months
ending June 30, 2003 decreased to 13.8% from 23.3% of net revenues for the
same period in 2002. This major improvement is attributed to a reduction
in cost of goods sold at LPL as a result of lower sales and discontinuance
of the resale of low margin computer hardware and other products. The
decrease at Dolphin is primarily due to the reduction in personnel costs
noted above and a smaller contribution of Dolphin-related revenues to
consolidated corporate net revenues. The Company's principal product
familes, A+nyWhere Learning System(r) and A+dvanced Learning System(r)
("A+LS"), provided gross profit margins of 97% in the second quarter of
2003. Cost of goods sold represents the actual cost to produce the
software products and includes certain allocated overhead costs.
Total operating expenses, which include selling and marketing, general and
administrative, operations, and amortization of product development costs,
decreased to $1,572,379 for the three months ended June 30, 2003, compared
to $1,866,314 for the same 2002 quarter. As a percentage of sales
revenue, operating expenses decreased from 68.8% in 2002 to 64.2% in 2003.
This decrease in operating expenses as a percentage of revenues is
primarily due to decreases in commissions due on direct sales offset
somewhat by the increase in amortization of product development costs.
During the second quarter of 2003, the Company made substantial progress
in development efforts on revised, updated and expanded curriculum
offerings for its A+nyWhere Learning System product family as well as
continued investment into A+dvancer(tm), the Company's post-secondary
testing and online curriculum offering that was released late in the
second quarter of 2003. The increase in amortization expense is a result
of increases in capitalized development costs that are associated with
these essential investments in the Company's future and competitive
position.
As a component of total operating expenses, selling and marketing costs
decreased by 44.6%, from $804,069 for the three months ended June 30,
2002, to $445,665 for the current period. The decrease in the second
quarter 2003 selling expenses is largely attributable to the decrease in
commissions mentioned above and reductions in personnel at LPL and
Dolphin. General and administrative expenses, including operations,
decreased from $810,082 to $769,116 or by 5.1%. This decrease is primarily
attributable to the decreases in operating costs at LPL and Dolphin
discussed above.
Interest expense was $23,152 for the three months ended June 30, 2003
compared to $21,150 for the same 2002 quarter reflecting slightly higher
interest rates in effect during the second quarter of 2003. Net income
was $270,007 for the three months ended June 30, 2003, compared to
$104,929 for the same period in 2002, primarily as a result of the
decreases in costs discussed above.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2003
AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2002
- ------------------------------------------------------
Net sales for the six months ended June 30, 2003, totaled $4,347,954
compared to $4,660,338 for the same period in 2002. This represents a
decrease of 6.7% over the comparable 2002 period. This decrease is
attributable to increases in sales at AEC being offset by planned
decreases in sales at LPL and Dolphin as a result of the restructuring
programs discussed in the second quarter analysis above.
The Company has experienced significant growth in its online content
delivery business since the introduction of its client-server online
version of the A+nyWhere Learning System in early 2002 followed
by the Company's browser-based Version 4.0 in the fall of 2002. Orders for
the first half of 2003 have increased by 85% over the last half of 2002.
Generally accepted accounting principles require the revenue to be
deferred and recognized ratably over the period of service, accordingly
this increase will not have a significant affect on the Company's revenues
until 2004. Late in the second quarter of 2003, the Company released
A+dvancer, an online college diagnostic, prescriptive admissions test and
remedial curriculum offering for reading, writing, mathematics and algebra
that is aligned to the College Board's ACCUPLACER(tm), Online tests.
ACCUPLACER Online tests are widely recognized as the admissions standard for
academically challenged students. The Company's new A+dvancer products provide
for expanded testing and the online delivery of highly focused remedial
coursework. The Company believes that this new product offering will continue
to provide additional impetus to the growth of the its online business in
future periods.
Cost of goods sold as a percentage of sales revenue for the six months
ending June 30, 2003 decreased to 15.3% compared to 25.3% for the same
period in 2002. This major improvement is attributed to a reduction in
cost of goods sold at LPL as a result of lower sales and discontinuance of
the resale of low margin computer hardware and other products. The
decrease at Dolphin is primarily due to the reduction in personnel costs
noted above and a smaller contribution of Dolphin-related revenues to
consolidated corporate net revenues. The Company's principal product
families, A+dvanced Learning System and the A+nyWhere Learning System,
provided gross profit margins of 95% in the first six months of 2003.
Total operating expenses, which include selling and marketing, general and
administrative, operations, and amortization of product development costs,
were $3,136,603 for the six months ended June 30, 2003, compared to
$3,435,739 for the same 2002 fiscal period. As a percentage of sales
revenue, operating expenses decreased from 73.7% in 2002 to 72.1% in 2003.
This decrease in operating expenses results primarily from decreases in
sales and marketing expense resulting from a reduction in commissions due
on direct sales and the cost reductions at the Company's subsidiaries,
partially offset by the increase in amortization of product development
costs.
General and administrative expenses, including operations, decreased from
$1,514,626 to $1,449,979 or 4.3%. This improvement is primarily
attributable to decreases in administrative costs at the Company's
subsidiaries.
Interest expense for the six months ended June 30, decreased from $52,165
in 2002 to $34,194 in 2003 reflecting the reduction in debt levels and
interest rates in 2003 compared to the prior year. There is net income of
$284,219 for the six months ended June 30, 2003, compared to a net loss of
$(18,156) for the same period in 2002 as a result of the decreased
expenses noted above.
Company management continues to believe that significant future growth
opportunities exist in the school, adult literacy, post secondary and the
home or self-directed education markets on a worldwide basis. These
markets may be accessed by not only the Company's traditional
distribution-based methods of selling and marketing, but also by the
growth and increasing acceptance of electronic learning, or e-learning.
The Company's ongoing investment in content, computer adaptive assessment
tools, programming technology, and server infrastructure should provide a
broad platform to secure new business partners and address the many
opportunities that are believed to be emerging in the educational
technology industry on a global basis. The Company's investment into the
United Kingdom through its acquisition of Learning Pathways, Ltd. in 1998
underscores management's conviction that the Company is engaged in a
global marketplace. In this global market, the Company's English-language
content, which is suitable for both the U.S. and the UK's instructional
systems, will meet the requirements for many countries where English-
language instruction is part of the required coursework. Management
believes that the Company's investment into content, technology and its
online learning business model should provide for expanded growth
opportunities on a worldwide basis in the future.
The Company's future competitive position has been enhanced as a result of
its ongoing investment in personnel, facilities, additional content and
infrastructure as well as its entry into international markets. The most
significant of these investments has been the sustained spending on the
Company's new Java-based A+nyWhere Learning System, A+ University staff
development product line and A+dvancer, a post-secondary testing and online
curriculum product offering. In its planning of the future, management
believes that the Internet will become a principal method for the future
delivery of its product to its customers. These investments combine to
form a stronger overall corporate foundation that combined with what
management believes to be a new lower cost structure and the development of
important new partnerships provide a favorable, competitive basis for
sustained, future growth and profitability.
ITEM 3 - CONTROLS AND PROCEDURES
- --------------------------------
Within 90 days prior to the filing of this report, the Management of the
Company, including the Chief Executive Officer and the Chief Financial
Officer has evaluated the Company's disclosure controls and procedures.
Based upon this evaluation, management has concluded that the controls and
procedures are designed to ensure that information required to be
disclosed by the issuer in the reports filed or submitted by it under the
Exchange Act are recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms. There have
been no significant changes in internal controls, subsequent to the date
that management, including the Chief Executive Officer and Chief Financial
Officer, completed this evaluation.
THE AMERICAN EDUCATION CORPORATION
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
-----------------
Management knows of no pending or threatened litigation involving the
Company that is considered material to the on-going operations and
viability of the Company.
Item 2. Changes in Securities
---------------------
During the six months ended June 30, 2003, directors and distributors were
awarded 52,500 shares of the Company's common stock for services rendered.
Item 3. Default Upon Senior Securities
------------------------------
Omitted from this report as inapplicable.
Item 4. Submission of Matters to Vote of Securities Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
Omitted from this report as inapplicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
The following exhibits have been filed as a part of this report:
Exhibit
No. Description of Exhibits
- ------- -----------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of The
American Education Corporation (incorporated by reference to
the exhibit in the Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 25, 1998)
3.2 Bylaws of The American Education Corporation (incorporated
by reference to the Company's registration statement on Form
S-8 filed with the Securities and Exchange Commission on
October 22, 1999)
4.1 Form of Stock Certificate (incorporated by reference to the
Company's registration statement on Form S-8 filed with the
Securities and Exchange Commission on October 22, 1999)
4.2 Directors' Stock Option Plan (incorporated by reference to
Exhibit B to the Definitive Proxy Statement filed with the
Securities and Exchange Commission on April 24, 1998)
4.3 First Amendment to the Directors' Stock Option Plan
(incorporated by reference to the Company's registration
statement on Form S-8 filed with the Securities and
Exchange Commission on October 22, 1999)
4.4 Stock Option Plan for Employees (incorporated by reference
to Exhibit C to the Definitive Proxy Statement filed with
the Securities and Exchange Commission on April 24, 1998)
4.5 First Amendment to the Stock Option Plan for Employees
(incorporated by reference to the Company's registration
statement on Form S-8 filed with the Securities and Exchange
Commission on October 22, 1999)
4.6 Second Amendment to the Stock Option Plan for Employees
(incorporated by reference to Exhibit 4.7 to the Company's
registration statement on Form S-8 filed with the Securities
and Exchange Commission on September 29, 2000)
10.1 Purchase Agreement for the acquisition by the Company of
Learning Pathways, Limited (incorporated by reference to the
exhibit in the Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 15, 1998)
10.2 Stock Purchase Agreement for the acquisition by the Company
of Dolphin, Inc. (incorporated by reference to the exhibit
in the Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 10, 2000)
(b) Reports on Form 8-K
An 8-K was filed on August 4, 2003 containing the press release announcing
earning results for the second quarter.
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, thereunto duly authorized.
The American Education Corporation
August 14, 2003
By: /s/Jeffrey E. Butler
--------------------
Jeffrey E. Butler,
Chief Executive Officer
Chairman of the Board
Treasurer
CERTIFICATIONS
I, Jeffrey E. Butler, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of The American
Education Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"), and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: August 14, 2003
/s/ Jeffrey E. Butler
- ----------------------
Jeffrey E. Butler
Title: Chief Executive Officer
I, Neil R. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of The American
Education Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"), and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: August 14, 2003
/s/ Neil R. Johnson
- --------------------
Neil R. Johnson
Title: Chief Financial Officer
Certification of Periodic Financial Report
Pursuant to 18 U.S.C. Section 1350
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, each of the undersigned officers of The
American Education Corporation (the "Company") certifies that the Quarterly
Report on Form 10-QSB of the Company for the quarter ended June 30, 2003
(the "Report") fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Dated: August 14, 2003
/s/ Jeffrey E. Butler
- ---------------------
Jeffrey E. Butler, Chief Executive Officer
Dated: August 14, 2003
/s/ Neil R. Johnson
- -------------------
Neil R. Johnson, Chief Financial Officer
This certification is made solely for purpose of 18 U.S.C. Section 1350,
subject to the knowledge standard contained therein, and not for any other
purpose.