FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
Commission File #0-11078
THE AMERICAN EDUCATION CORPORATION
(Exact name of registrant as specified in its charter)
Colorado
(State or other jurisdiction of incorporation, or organization)
84-0838184
IRS Employer Identification number)
7506 North Broadway Extension, Suite 505
Oklahoma City, OK 73116
(Address of principal executive offices)
(405) 840-6031
(Registrant's telephone number, including area code)
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
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 registrant's common stock outstanding as
of June 30, 1998: 12,399,079
Transitional Small Business Disclosure Format
YES [ ] NO [X]
THE AMERICAN EDUCATION CORPORATION
INDEX Page No.
PART I - FINANCIAL INFORMATION
Item 1 Balance Sheets 3
June 30, 1998 and December 31, 1997
Statements of Operations
For the Quarter Ended June 30, 1998 4
and for the Quarter Ended June 30, 1997
For the Six Months Ended June 30, 1998 5
and for the Six Months Ended June 30, 1997
Statements of Cash Flows 6
For the Six Months Ended June 30, 1998
and for the Six Months Ended June 30, 1997
Notes to Interim Financial Statements 7
Item 2 Management's Discussion and Analysis of 9
Financial Conditions and Results of Operations
PART II - OTHER INFORMATION 13
SIGNATURE PAGE 14
Part 1 - FINANCIAL INFORMATION
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS 30-Jun-98 31-Dec-97
--------- ---------
Current assets:
Cash $ 220,518 $ 283,636
Accounts receivable, net of allowance
for uncollectible accounts of $94,342
and $32,805 1,701,720 623,287
Inventories 55,652 8,168
Prepaid expenses and deposits 171,346 32,593
Deferred income taxes 15,748 13,122
---------- ----------
Total current assets 2,164,984 960,806
Property and equipment, at cost 344,430 314,998
Less accumulated depreciation and amortization (170,267) (150,938)
----------- -----------
Net property and equipment 174,163 164,060
Other assets:
Capitalized software costs, net of
accumulated amortization of $1,105,365
and $1,000,730 967,725 764,505
Organizational costs 35,728
Goodwill, net of accumulated amortization
of $258,842 and $246,800 228,793 0
Deferred income taxes 1,124,177 1,506,032
---------- ----------
Total other assets 2,356,423 2,270,537
----------- -----------
Total Assets $ 4,695,570 $ 3,395,403
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable trade $ 297,571 $ 132,156
Accrued liabilities 357,847 319,818
Accounts Payable - Affiliate 86,824 18,000
Customer Deposits 105,951 125,739
Current portion of capital lease obligation 29,394 8,021
Income taxes payable 7,600 9,512
----------- -----------
Total current liabilities 885,187 613,246
Long-term debt 86,744 58,000
Capital lease obligation 62,039 46,761
----------- -----------
Total liabilities 1,033,970 718,007
Commitments and contingencies
Stockholders' Equity
Preferred Stock, $.001 par value;
Authorized-50,000,000 shares-issued and
outstanding-none 0 0
Common stock, $.025 par value
Authorized 30,000,000 shares-issued and
outstanding-12,399,079 shares 309,977 304,590
Additional paid-in capital 5,426,955 5,237,093
Retained Earnings/(Deficit) (2,864,287) (2,864,287)
Current Year Earnings 788,955 0
----------- -----------
Total stockholders' equity 3,661,600 2,677,396
----------- -----------
Total liabilities and stockholders' equity $ 4,695,570 $ 3,395,403
=========== ===========
The accompanying notes are an integral part of the financial statements.
THE AMERICAN EDUCATION CORPORATION
STATEMENTS OF OPERATIONS
QUARTERS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
30-Jun-98 30-Jun-97
--------- ---------
Net Sales $ 1,938,336 $ 1,237,332
Cost of goods sold 214,311 139,821
------------ -------------
Gross profit 1,724,025 1,097,511
Operating expenses:
Sales and marketing 387,072 174,038
Operations 90,348 0
General and administrative 335,194 396,745
Amortization of capitalized software costs 40,449 20,864
------------ ------------
Total operating expenses 853,063 591,647
------------ ------------
Operating earnings (loss) 870,962 505,864
Other income/(expense)
Interest and Dividend Income 1,940 64
Miscellaneous income 3,667 3,375
Interest Expense (2,802) (1,250)
Other (55,830) 0
------------- ------------
Net earnings (loss) before taxes 817,937 508,053
Current income taxes 1,260 0
Deferred income taxes 238,836 182,899
Valuation allowance - change at
beginning of year 0 (182,899)
------------- ------------
Net earnings (loss) $ 577,841 $ 508,053
============= ============
Basic 12,262,560 12,083,359
Earnings (loss) per share $ 0.047 $ 0.042
Diluted 13,447,887 14,086,576
Earnings (loss) per share $ 0.043 $ 0.036
The accompanying notes are an integral part of the financial statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
30-Jun-98 30-Jun-97
--------- ---------
Net Sales $ 3,108,556 $ 2,010,073
Cost of goods sold 335,764 227,412
------------ ------------
Gross profit 2,772,792 1,782,661
Operating expenses:
Sales and marketing 751,603 348,133
Operations 166,627 0
General administrative 513,153 677,075
Amortization of capitalized software costs 76,527 40,734
------------ -----------
Total operating expenses 1,507,910 1,065,942
------------ -----------
Operating earnings (loss) 1,264,882 716,719
Other income/(expense)
Interest and Dividend Income 4,326 589
Miscellaneous income 3,746 6,412
Interest Expense (7,030) (2,943)
Incentive Expense (84,189) -
------------- ------------
Net earnings (loss) before taxes 1,181,735 720,774
Current income taxes 8,260 0
Deferred income taxes 384,520 259,479
Valuation allowance - change at
beginning of year 0 (259,479)
------------- ------------
Net earnings (loss) $ 788,955 $ 720,774
============ ============
Basic 12,262,560 12,083,359
Earnings (loss) per share $ 0.064 $ 0.060
Diluted 13,447,887 14,086,576
Earnings (loss) per share $ 0.059 $ 0.051
The accompanying notes are an integral part of the financial statements.
THE AMERICAN EDUCATION CORPORATION
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
30-Jun-98 30-Jun-97
--------- ---------
Cash flows from operating activities:
Net earnings (loss) $ 788,955 $ 720,774
Adjustments to reconcile net earnings/(loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 136,006 77,806
Reserve for bad debts 46,736 5,254
Stock issued for compensation 20,250 0
Changes in assets and liabilities:
Accounts receivable (1,041,815) (689,698)
Inventories (23,502) 1,452
Prepaid expenses and other (126,700) 18,456
Deferred tax asset 379,229 0
Accounts payable and accrued liabilities 170,058 48,104
Accounts payable - Affiliate 68,824 0
Customer Deposits (47,429) (75,302)
------------ -------------
Net cash provided by operating activities 370,612 106,846
Cash flow from investing activities:
Acquisition of net assets of subsidiary (70,275) 0
Current portion of notes and leases 15,540 0
Capitalization of organizational costs
and goodwill (35,728) 0
Purchase or capitalized software costs (307,856) (165,598)
Purchase of property and equipment (29,433) (12,778)
------------ ------------
Net cash used in investing activities (427,752) (178,376)
Cash flows from financing activities:
Proceeds received from issuance of debt (250) 0
Principal payment on debt (5,773) 0
----------- ------------
Net cash provided by financing activities (5,978) 0
Net increase (decrease) in cash (63,118) (71,530)
Cash at beginning of the period 283,636 193,347
------------ -----------
Cash at end of the period $ 220,518 $ 121,817
============ ===========
Supplemental Cash Flow Disclosures:
Interest paid $ - $ -
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, 1998 AND 1997
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Business:
The American Education Corporation (the Company) and its
subsidiary's business is the development of
educational computer software, and its distribution to school
districts nationally.
2. Basis of Presentation:
The summary of significant accounting policies of The American
Education Corporation (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
results from its wholly owned subsidiary, Projected Learning
Programs, Inc. All material intercompany transactions have been
eliminated.
The interim consolidated financial statements at June 30, 1998,
and for the three and six month periods ended June 30, 1998, and
1997 are unaudited, but include all adjustments which the Company
considers necessary for a fair presentation. The December 31,
1997, 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 and 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, 1997. The accompanying unaudited interim financial
statements for the three and six month periods ending June 30,
1998, are not necessarily indicative of the results which 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
91-1 on software revenue recognition.
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 acquisition by the Company in 1998 of
Projected Learning Programs, Inc. and is amortized over a period
of 10 years.
6. Inventories:
Inventories are stated at the lower of cost (first-in, first-
out), or market.
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 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.
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 Income Per Share:
The Company has adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" (SFAS 128) as required,
effective November 1, 1997. SFAS 128 requires presentation of
basic and diluted earnings per share, including a restatement of
all prior periods presented. Basic earnings per share is
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, warrants and convertible securities.
The weighted average number of basic and diluted common shares
outstanding is as follows:
June 30, 1998 June 30, 1997
------------- -------------
Basic 12,262,560 12,083,359
Diluted 13,447,887 14,086,576
11. Shareholder's Equity:
On March 11, 1996 the Company granted options to employees,
officers, and directors, to purchase 1,301,195 shares of common
stock at $.50 per share. The options expire March 11, 1999.
Additional options were issued on January 23, 1998 to 24
employees in the amount of 230,500 options. These options
expire on January 23, 2001 or, like the previously issued
options, ninety days after termination of employment. No options
have been exercised and 103,000 options have expired due to
termination of employment.
During the first quarter of 1998, the Board of Directors approved
the issuance of a total of 40,500 shares of common stock as an
annual bonus for contributions made to the Company in 1997. The
recipients of 10,000 shares each as a bonus award are: Jeffrey E.
Butler, President; Thomas Shively, Executive Vice President; and
Jeffrey E. Butler, Jr., Vice President of Marketing. In
addition, Patrick Timmons, Director of Programming was awarded
7,500 shares and each of the outside directors Newton Fink, Monty
McCurry and Stephen Prust were each awarded 1,000 shares of
common stock.
During the second quarter of 1998 58,000 additional stock options
were issued to ten new employees. These options will be ratified
by the Board of Directors to be included under the employee plan
approved at the Annual Meeting of Shareholders held May 29, 1998.
2. 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
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
The Company views accounts receivable, inventory, and cash as its
principal measures of liquidity. To supplement its anticipated
short-term working capital requirements, the Company has, in the
past, entered into various convertible loan agreements beginning
in January 1991, with private investors. Several of these loans
were convertible into common stock of the Company at conversion
prices ranging from $0.1346 to $0.50 per common share. These
loans were converted into common stock of the Company in
June of 1996. At December 31, 1997 and June 30, 1998, $50,000 of
convertible notes, with a conversion price per share of $.1346,
remain outstanding.
The Company's working capital was $1,279,797 at June 30, 1998, an
improvement of $932,237 from $347,560 at December 31, 1997. This
significant improvement is associated with higher levels of
sales, collection of sales proceeds, and retirement of short-term
debt during the period.
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.
During the second quarter the Company closed a revolving line of
credit facility establishing a $500,000 line of credit with the
UMB Oklahoma Bank. The interest rate on borrowed funds is the
national prime rate. The line of credit is based on the Company's
accounts receivable and at June 30, 1998 the balance
outstanding under the line was zero, with available credit under
the line being $500,000.
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1998
AS COMPARED TO THE QUARTER ENDED JUNE 30, 1997
Net software revenues for the three months ended June 30, 1998,
totaled $1,938,336 compared to net software revenues of
$1,237,332 for the same period in 1997. This represents an
increase of approximately 57% over the 1997 quarter. The
increase in revenues for the second quarter of 1998 over the
comparable quarter in 1997 is attributable to the availability
and customer acceptance of additional secondary grade level
titles released in the latter part of fiscal 1997 and
the first quarter of 1998 and expanded channels of distribution.
The Company now has effective, trained distribution in 48 states
that contributed to quarterly sales performance.
Cost of goods sold as a percentage of sales revenue for the three
months ending June 30, 1998, remained the same (11%) as in the
three-month period ending June 1997 even though the 1998
statement of operations includes the lower gross margin software
sold by Projected Learning Programs. This disproportionately low
increase in direct production costs reflects the efficiency in
which software products are now produced on CD-ROM. The use of
this medium also positively affects the cost of packaging,
handling and freight associated with products that are marketed
primarily to the school market, as opposed to traditional retail
outlets. Cost of goods sold represents the actual cost to
produce the software products, including certain allocated
overhead costs, a portion of which is fixed. Excluding the costs
of allocated overhead, product costs provide gross profit margins
ranging from 75 to 95 percent on the Company's principal
products. Consolidated company gross margins are expected to
trend down slightly as lower gross margins on PLP catalog sales
become a higher percentage of total corporate revenues.
Total operating expenses; which include selling & marketing,
general & administrative, operations, and amortization of product
development costs, were $853,063 for the three months ended June
30, 1998, compared to $591,647 for the previous year. This
represents an increase of approximately 44% but represents 44% of
sales compared to 48% of sales for the comparable 1997 period.
Operating expenses for the quarter were impacted by costs
associated with development of a new version of the Company's
software technology and the expenses associated with the ongoing
curriculum development costs relating to the release of new
elementary and middle school science titles achieved during the
quarter. During the quarter, the Company released A+Net TM, a new
Internet curriculum management tool that is fully authorable
by educators.
Selling and marketing costs increased by approximately 122%, from
$174,038 for the three months ended June 30, 1997, to $387,072
for the current period. The increase in 1998 is related to
expanded sales, marketing, distributor training and the
commission costs related to the higher sales levels.
General & administrative and operations expenses increased by
approximately 7% during the 1998 quarter, from $396,745 to
$425,542. This increase is primarily attributable to expenses
related to the previously mentioned product development costs
associated with the final development efforts associated with
ongoing programming and curriculum development efforts to
maintain and improve the Company's competitive position.
Net income for the three months ended June 30, 1998, improved by
approximately 14% as compared to the prior year. This
improvement from net income of $508,053 in 1997 to net income of
$577,841 in 1998, reflects the higher revenue levels providing
coverage of essential fixed operating costs, higher revenues per
employee, as well as the improving gross margins related to
previously described manufacturing efficiencies. Pre tax income
for the 1998 period improved 61% from $508,053 in 1997 to
$817,937 in 1998.
Average earnings per diluted share were $0.043 for the quarter
ending June 30, 1998 compared to $0.036 for the same period in
1997. The average number of diluted shares outstanding decreased
from 14,086,576 to 13,447,887 during the same period as a result
of expiration of previously issued stock options to former
employees separated from the Company.
Shareholders' equity as a percent of total assets remained
consistent with the December 31, 1997 level at 78%. The Company's
current ratio has improved from 1.57 at December 31, 1997 to
2.45 at June 30, 1998.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998
AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
Net software revenues for the six months ended June 30, 1998,
totaled $3,108,556 compared to net software revenues of
$2,010,073 for the comparable 1997 period. This represents an
increase of approximately 55% for the 1998 six-month period.
This significant increase in the 1998 total company
revenues highlights the increasing acceptance of the Company's
products by schools as the Company is now installed in over 4400
U.S. and Puerto Rican schools. Significantly, the Company
penetrated new areas of the country with its expanded
distribution force, but also enjoyed a strong re-order trend from
existing customers. Several districts expanded the scope of
curriculum published by the company, or ordered additional
software for deployment in other schools within their districts.
Cost of goods sold for the six months ended June 30, 1998,
increased by approximately 48%, even though sales increased by
55%. This disproportionately low increase in direct costs
reflects the efficiency in which software products are now
produced on CD-ROM. The use of this medium also reduces the cost
of packaging, handling, and freight associated with products that
are marketed primarily to the school market, as opposed to
traditional retail outlets. Cost of goods sold represents the
actual cost to produce the software products, including certain
allocated overhead costs, a portion of which is fixed. Excluding
the costs of allocated overhead, product costs provide gross
profit margins ranging from 75 to 95 percent on the Company's
principal products. As sales volumes increase, consolidated
company gross margins are expected to trend down slightly as
lower gross margins on PLP catalog sales become a higher
percentage of total corporate revenues.
Total operating expenses; which include selling & marketing,
general & administrative, operations, and amortization of product
development costs were $1,507,910for the six months ended June
30, 1998, compared to $1,065,942 for the previous year. This
represents an increase of approximately 41%. During the six-
month period, revenue per employee increased from $136,000 to
$153,000 (12%) demonstrating greater operating efficiencies. In
prior periods, the Company had to maintain a fixed support staff
of technical and business professionals to provide for critical
expansion functions as both an investment in its ability to
service a rapidly growing customer base and its public company
status. Management believes that the operating expense
category has now stabilized in its cost structure relationship to
revenues and that higher revenue and business activities can be
attained with modest incremental additions to operating costs.
Accordingly, it is believed that with stringent control and
planning, management has a high leverage category of expenditures
to concentrate on to secure continuing efficiencies from the
business in future periods. Total operating expenses for the
six-month period were also impacted by the ongoing development
costs associated with the planned expansion and updating of the
curriculum of the product line and continued investment into the
Company software technology.
Selling and marketing costs increased by approximately 116%, from
$348,133 for the six months ended June 30, 1997 to $751,603 for
the comparable 1998 period. The increase for this category of
expense in the 1998 six-month period is attributable to expanded
sales, marketing, distributor training and commission costs
related to the higher sales levels and the release of 14 new
titles.
General & administrative and operations expenses increased by
approximately 0.4% during the 1998 six month period from $677,075
to $679,780. As a percentage of sales, general and administrative
expenses (including "operations" in 1998) fell from 34% to 22%.
This dollar increase is primarily related to higher expenses
associated with the final development efforts associated with new
title and curriculum content released during the period. During
the period, the Company released eight new, updated titles;
replacing its award winning elementary and middle school science
family originally comprised of four titles that were released in
1994. 10 new titles under its existing license with Humanities
Software, Inc. were also released to expand the content offering
and grade level range of this well received product family.
Additional content development update work was initiated on the
language arts and social studies product to bring these
significant elements of the Company's product lines to a current
level of conformity with recent national and state standards for
release in future periods. The Company plans to continue
this investment into an aggressive new content title development
schedule as well as its software programming technology. These
investments should position the Company to maintain its growth
and penetration of existing and new markets.
Net after tax earnings for the six months ended June 30, 1998,
improved by approximately 9% as compared to the prior 1997
period. This improvement from net income of $720,774 in 1997 to
net income of $788,955 in 1998, reflects the higher revenue
levels providing for greater efficiency in the coverage of
essential fixed operating costs, as well as the improving gross
margins related to previously described manufacturing
efficiencies. Pre tax net income improved 64% from $720,774 to
$1,181,735 in the six-month period ending June 30, 1998 compared
to the comparable 1997 period. Net cash provided by operating
activities increase from $106,846 in the 1997 period to $370,612
in the comparable 1998 period. This 247% increase reflects the
Company's ability to generate additional profits without
commensurate increases in overhead.
Average diluted earnings per share were $0.059 for the six months
ending June 30, 1998 compared to $0.051 for the same period in
1997 which is an increase of 15%. The average number of diluted
shares outstanding decreased from 14,086,576 to 13,447,887 during
the same period. This decrease is primarily attributable to a
retirement of previously issued stock options to employees now
separated from the Company.
Prior to 1996, the Company had incurred net operating losses
since its inception in 1981. As a result, there was substantial
doubt as to the realization of the $4,900,000 net operating loss
carryforwards at December 31, 1995. The Company has subsequently
utilized approximately $1,200,000 of net operating loss
carryforwards during the years ending December 31, 1997 and
1996 as a result of improvements in operations. Management
believes that the Company will be generating net income in future
years, and therefore, a deferred tax asset resulting from the net
operating loss carryforwards, in the amount of $1,373,470, has
been recorded to the Company's financial statements. No
valuation allowance has been recorded against the deferred tax
asset.
Company management believes that significant, future
opportunities exist in both the school and home markets for its
products. The Company is now equipped with Macintosh and Windows
program shells that facilitate the rapid and less expensive
development of new subject titles. Management also believes that
the Company is well positioned to compete in the educational
software market as a result of its ongoing investment in software
development tools, experienced and stable professional staff,
growing distribution coverage of key markets and a rapidly
expanding installed base within the school market. Management
believes that the Company can make significant progress within
its existing product development and marketing budgets to allow
the Company to maintain the continued, profitable expansion of
the business.
The Company is investigating sources of intellectual property and
potential partnerships with other publishers with whom it may
base future publications, Internet commercial activities, or
marketing alliances. Some of these investigations may lead to
discussions on possible Company acquisition opportunities and,
increasingly, management views these potential acquisitions of
other entities as a possible avenue for accelerating the growth
of the Company.
THE AMERICAN EDUCATION CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In October 1996, the Company became a party to litigation in
United States District Court for the District of Columbia
entitled Securities and Exchange Commission, Plaintiff v. The
American Education Corporation, Defendant (the "Action"). In the
Action, the Company admitted that, in violation of certain
provisions of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), it failed to file, among other things,
certain annual and quarterly reports. The Company voluntarily
entered into a Consent and Undertaking pursuant to which the
Court has issued a Final Judgment of Permanent Injunction
requiring the Company to (i) file all its delinquent Exchange Act
reports and (ii) in the future, timely file all of its Exchange
Act reports. The failure to file any required report could
result in a contempt citation, the assessment of fines against
the Company, or an action by the Securities and Exchange
Commission to deregister the Company's common stock. As of June
30, 1998 the Company was current with all filings with the SEC
through the end of the fiscal year December 31, 1997 and the
quarter ending March 30, 1998.
The Company filed a complaint on July 8, 1997 in the United
States District Court for the Western District of Oklahoma
against Jostens Learning Corporation ("Jostens"). The complaint
alleges, among other things, that Jostens has improperly adopted
and used the mark "A+dvantage" in connection with its
educational computer programs. The complaint alleges, among
other things, that Jostens' confusingly similar mark has caused
damage to the Company. The complaint requests, among other
things, monetary damages, and injunctive relief. On June 24, 1998
the Company and Jostens reached a verbal and the Court accepted a
mediated settlement without proceeding to trial, in a resolution
favorable to the Company. Terms of this agreement will be
disclosed upon execution of a formal, written settlement
agreement.
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
Omitted from this report as inapplicable.
Item 4. Submission of Matters to Vote of Securities Holders
On May 29, 1998 the Company held its annual meeting of
shareholders. There were five proposals submitted to the
shareholders for approval; one of which was the election of
directors. The following four nominees, who were all of the
current directors of the Company, were re-elected to serve on the
Board of Directors until their successors are duly elected and
qualified: Jeffrey E. Butler; Monty C. McCurry; Newton Fink; and
Stephen E. Prust.
The following is a tabulation with respect to the votes for each
nominee for office:
FOR WITHHELD
---------- --------
Jeffrey E. Butler 10,540,836 1,944
Monty C. McCurry 10,541,176 1,604
Newton Fink 10,540,920 1,860
Stephen E. Prust 10,540,920 1,860
The second proposal submitted to the shareholders at the annual
meeting held on May 29, 1998 was a proposal to amend the
Company's Articles of Incorporation to increase the
Company's authorized common stock from 15,000,000 shares to
30,000,000 shares. The proposal was approved by the following
vote:
FOR AGAINST ABSTAIN
- ---------- ------- -------
10,487,603 43,029 12,148
The third proposal submitted to the shareholders at the annual
meeting held on May 29, 1998 was a proposal to ratify the
selection of Steakley, Gilbert & Bozalis, P.C. as the independent
accountants for the Company for the fiscal year ending December
31, 1998. The selection of Steakley, Gilbert & Bozalis, P.C. was
ratified by the following vote:
FOR AGAINST ABSTAIN
- ---------- ------- -------
10,525,738 6,188 10,854
The fourth proposal submitted to the shareholders at the annual
meeting held on May 29, 1998 was a proposal to approve the
Company's Director's Stock Option Plan. The Director's Stock
Option Plan was approved by the following vote:
FOR AGAINST ABSTAIN NOT VOTED
- ---------- ------- ------- ---------
10,004,464 20,020 16,374 501,922
The fifth proposal submitted to the shareholders at the annual
meeting held on May 29, 1998 was a proposal to approve the
Company's Stock Option Plan for Employees. The Stock Option Plan
for Employees was approved by the following vote:
FOR AGAINST ABSTAIN NOT VOTED
- ---------- ------- ------- ---------
10,013,816 14,600 12,442 501,922
Item 5. Other Information
Omitted from this report as inapplicable.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed as a part of this
report:
Exhibit No. Description
Exhibit 3.1* Amended and Restated Articles of
Incorporation of The American
Education Corporation
Exhibit 3.2** Bylaws of The American Education
Corporation
Exhibit 4*** Form of Stock Certificate
Exhibit 10.1**** Promissory Note of The American Education
Corporation to Rich Carle
Exhibit 10.2***** Directors' Stock Option Plan
Exhibit 10.3****** Stock Option Plan for Employees
Exhibit 10.4**** Loan Agreement between The American
Education Corporation and
UMB Oklahoma Bank
Exhibit 10.5**** Promissory Note between The American
Education Corporation and
UMB Oklahoma Bank
Exhibit 27.1***** Financial Data Schedule (filed only
electronically with the SEC)
* Incorporated by reference to the same numbered exhibit in the
Current Report on Form 8-K filed by the Company on June 25, 1998.
** Incorporated by reference to the registration statement on
Form S-18 (File no. 2-78660-D) of the Company
***Previously filed with the Securities and Exchange Commission
as an exhibit to the Company's registration statement on form S-
18 (File no. 2-78660-D).
**** Filed herewith.
***** Incorporated by reference to Exhibit B to the Definitive
Proxy Statement filed on April 24, 1998.
****** Incorporated by reference to Exhibit C to the Definitive
Proxy Statement filed on April 24, 1998.
B. Reports on Form 8-K
On June 25, 1998 the Company filed a Current Report on Form 8-K
regarding the shareholders' approval of an amendment to the
Company's Articles of Incorporation. Attached, as Exhibit 3.1 to
such Form 8-K was a copy of the Amended and Re-stated Articles of
Incorporation of the Company.
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 6, 1998
By: /s/Jeffrey E. Butler,
Chief Executive Officer
Chairman of the Board
Chief Financial Officer
Treasurer
Exhibit 10.1
Promissory Note of The American Education Corporation to
Rich Carle
THE PAYMENT OF PRINCIPAL AND INTEREST ON THIS NOTE IS SUBJECT TO
CERTAIN RECOUPMENT PROVISIONS SET FORTH IN AN AGREEMENT AND
PLAN OF MERGER DATED AS OF FEBRUARY 26, 1998 (THE "PURCHASE
AGREEMENT") BETWEEN THE MAKER OF THIS NOTE AND THE PERSON TO
WHOM THIS NOTE ORIGINALLY WAS ISSUED. THIS NOTE WAS ORIGINALLY
ISSUED ON FEBRUARY 26, 1998, AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THE TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT. THE ISSUER OF
THIS NOTE WILL FURNISH A COPY OF THESE PROVISIONS TO THE HOLDER
HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST.
PROMISSORY NOTE
$50,000.00
Dated: February 26, 1998
FOR VALUE RECEIVED, The American Education Corporation, a
Colorado corporation (the "Maker"), promises to pay to Rich Carle
(the "Payee") the principal sum of Fifty Thousand Dollars
($50,000.00), as set forth herein.
This Note shall be payable in twenty-four (24) equal monthly
installments of principal and interest in the amount of $2,307.24
commencing April 5, 1998, and continuing on the 5th day of each
month thereafter through and including March 5, 2000. Payments of
principal and interest are to be made in lawful money of the
United States of America. All payments hereunder shall be applied
first to interest and then to principal. Payments shall be made
within ten (10) business days of the date specified above.
Subject to Maker's right of set-off, Maker's failure to pay when
due any principal of or interest on this Note or any other
amounts payable by Maker hereunder shall constitute an Event of
Default under this Note, unless Maker has received approval
from Payee to make a late payment.
Payee may pursue any rights or remedies as the holder of this
Note independently or concurrently. All rights, remedies or
powers conferred upon Payee shall, to the extent not prohibited
by law, be deemed cumulative and not exclusive of any others
thereof, or of any other rights, remedies, or powers available to
Payee. No delay or omission of Payee to exercise any right,
remedy or power shall impair the same or be construed to be a
waiver of any Event of Default or an acquiescence thereto. No
waiver of any Event of Default shall extend to or affect any
subsequent Event of Default or impair any rights, remedies or
powers available to Payee. No single or partial exercise of
any right, remedy or power shall preclude other or future
exercise thereof by Payee.
Maker may prepay the unpaid balance of this Note in whole or in
part without penalty at any time and from time to time.
In any action brought by a party hereto to enforce the obligation
of any other party hereto, the prevailing party shall be entitled
to collect from the other party to such action such party's
reasonable attorneys fees, court costs and other expenses
incidental to such litigation.
This Note shall be construed, enforced and governed in accordance
with the laws of the State of California.
Without limiting any rights of Maker at law or equity, Maker
shall have the right to reduce any amounts due by Maker to Payee
under this Note by the amount owed, at any time and from time to
time, by Payee to Maker under that certain Agreement and Plan of
Merger, dated as of February 26,1998. ALL SUBSEQUENT HOLDERS OF
THIS NOTE SHALL TAKE THIS NOTE SUBJECT TO MAKER'S RIGHT OF
SETOFF.
THE AMERICAN EDUCATION CORPORATION, a Colorado Corporation
BY: /s/Jeffrey E. Butler, Sr.
President
Exhibit 10.4
Loan Agreement between The American Education Corporation and
UMB Oklahoma Bank
LOAN AGREEMENT
BORROWER-NAME and ADDRESS
The American Education Corporation
7506 N. Broadway Ext. Ste. 505
Oklahoma City, OK 73116
DATE OF AGREEMENT 06/09/98
LENDER NAME AND ADDRESS
UMB OKLAHOMA BANK
P 0 BOX 82427
OKLAHOMA CITY, OK 73148-0427
The undersigned Borrower, with principal office, place of record-
keeping and mailing address as shown above, hereby applies to the
Lender named above for the following described loan and/or
extensions of credit:
A Loan dated JUNE 9, 1998 in the amount of $500,000.00, with a
final maturity of APRIL 30, 1999, and all renewals,
extensions, and/or increases thereof.
In consideration of Lender making such loan(s) and/or credit
extensions, or any part or renewals thereof, Borrower agrees
with Lender as follows:
I. REPRESENTATIONS ND WARRANTIES. Borrower represents and
warrants to Lender that:
A. Borrower is duly organized, existing and in good standing
under the laws of the state indicated above;
B. The borrowing hereunder and the execution, delivery and
performance by Borrower of this Agreement, any promissory
note payable to Lender or its order, or any other agreements
contemplated in connection herewith have been duly
authorized by all necessary action of Borrower and are not in
contravention of any law, rule or regulation or of the terms
of the Borrower's Articles of Incorporation (or Partnership)
or Bylaws, or of any agreement or instrument to which
Borrower is a party or by which Borrower may be bound;
C. All balance sheets, income statements, other financial
information and other representations which have been or may
hereafter be furnished to Lender fairly represent the
financial condition of Borrower as of the date and for the
period shown, have been prepared in conformity with generally
accepted accounting principles applied on a basis consistent
with that of previous such statements and include all of
Borrower's contingent liabilities; all other information,
reports, documents, papers and data furnished to Lender are or
shall be at the time furnished accurate and correct in all
material respects and complete insofar as completeness may be
necessary to give Lender a true and accurate knowledge of the
subject matter; there has been no material change in the
financial condition of Borrower since the effective date of
the last furnished financial information which has not been
reported to Lender in writing;
D. No litigation or governmental proceeding is pending or, to the
knowledge of the Borrower or any of its officers, threatened
against or affects Borrower which may result in any
material adverse change in Borrower's business, properties or
operation;
E. None of Borrower's assets are subject to any lien, security
interest, or other encumbrance except as has been disclosed in
writing to Lender; and
F. Proceeds of loans and extensions of credit arising hereunder
will be used only for the purposes shown below:
Working Capital
Form 04 0-M 1 (1/96)
@ Copyright a/89 American Bank Systems
II. AFFIRMATIVE AGREEMENTS. Borrower agrees to:
A. Maintain adequate records, in accordance with generally
accepted accounting practices, of all transactions so that
at any time and from time to time the true and complete
financial condition of Borrower may be readily determined;
make available at Lender's request such records for Lender's
inspection; furnish promptly to Lender and in such form as
Lender may request any additional financial or other
information concerning the assets, liabilities, operations and
transactions of Borrower, and permit Lender to make and obtain
copies of any such records or information;
B. Deliver to Lender within 45 days after the close of each
quarterly period of each fiscal year (except the last such
quarterly period in each fiscal year) an interim financial
statement consisting of Borrower's balance sheet, profit and
loss, and reconciliation of surplus reflecting the financial
condition of Borrower at the close of the quarter and the
results of operation for the quarter and since the beginning
of the fiscal year; prepare such financial statements in
conformity with generally accepted accounting principles on a
basis consistent with that of the preceding fiscal year,
such statements to be certified as true and correct by the
chief financial officer of Borrower and to include such other
financial and other information as Lender may reasonably
request;
C. Deliver to Lender within 90 days after the close of each
fiscal year of Borrower a copy of the annual audit report of
Borrower, prepared in conformity with generally accepted
accounting principles and applied on a basis consistent with
that of the preceding fiscal year, and signed by independent
certified public accountants satisfactory to Lender;
D. Deliver to Lender within 30 days after the close of each
fiscal year a certificate signed by Borrower's chief financial
officer containing a statement as to whether or not, to the
knowledge of such officer, a Default as hereinafter defined
has occurred and is continuing, or whether there exists any
event or condition which might become a Default after the
lapse of time, and if the certificate shows that a Default has
occurred and is continuing or such an event or condition
exist, the certificate shall also specify what steps are being
taken by Borrower to rectify the same;
E. Inform Lender promptly of any litigation, or of any claim or
controversy which might become the subject of litigation,
against Borrower or affecting any of Borrower's property, if
such litigation or potential litigation, in the event of an
unfavorable outcome, would have a material adverse effect on
Borrower's financial condition or might cause a Default;
F. Permit officers of Lender to visit and inspect any of the
properties of Borrower;
G. Pay promptly when due any and all taxes, assessments and
governmental charges upon Borrower or against any of
Borrower's property, unless the same is being contested in
good faith by appropriate proceedings and reserves deemed
adequate by Lender have been established therefor;
H. Pay promptly all lawful claims whether for labor, materials or
otherwise, which might or could, if unpaid, become a lien
or charge on any property or assets of Borrower, unless and to
the extent only that the same are being contested in good
faith by appropriate proceedings and reserves deemed adequate
by Lender have been established therefor;
1. Maintain existence of Borrower and promptly and properly
comply with all laws, statutes, ordinances and governmental
regulations applicable to it or to any of its property, business
operations and transactions;
Maintain with financially sound and reputable insurance companies
or associations approved by Lender, insurance of the kinds and
covering the risks and in the amounts usually carried by
companies engaged in businesses similar to that of Borrower,
which insurance in all events shall be satisfactory to Lender,
and, at Lender's request deliver to Lender evidence of the
maintenance of such insurance;
Maintain all of its tangible property in good condition and
repair, and make all necessary replacements thereof and operate
the same properly and efficiently; and
L. Preserve and maintain all licenses, privileges, franchises,
certificates and the like necessary for the operation of
Borrower's business.
Form 04 0708 1 (1/96) Page 2
Copyright
9/89 American Bank Systems
III. NEGATIVE AGREEMENTS. Unless the prior written consent of
Lender has been obtained, Borrower agrees NOT to:
Permit its net working capital, being the excess of current
assets over current liabilities, to be less than: N/A
Permit the ratio of current assets to current liabilities to be
less than: N/A
Permit the net worth of Borrower to be less than: Two Million
Seven Hundred Fifty Thousand 'Dollars ($2,750,000.00)
Permit the ratio of its total liabilities to net worth to exceed:
I - 0: 1
Invest in fixed assets in any fiscal year an amount in excess of:
N/A
Pay or contract to pay in any year in the aggregate any salaries,
commissions, bonuses, or other compensation, either current or to
be deferred, in excess of the following amounts for the following
named persons or groups:
NAME OF PERSON OR GROUP AMOUNT
Declare or pay any dividends (other than stock dividends
consisting of its own stock but not the stock of any subsidiary
or affiliate) on any of its outstanding stock except as set forth
herein;
Make any loans or advances or sell any of its accounts receivable
with or without recourse, except as set forth herein;
Make any loans or advances to any officer or employee of Borrower
or to any officer or employee of an affiliate or subsidiary
except as set forth herein;
Incur or assume any indebtedness for borrowed money except only
money borrowed from Lender pursuant to this agreement;
Endorse, guarantee or otherwise become surety for or contingently
liable upon the obligations of any person, firm or corporation,
provided, however, that the foregoing shall not apply to
endorsements of negotiable instruments by borrower in the
ordinary course of business;
Mortgage, assign, hypothecate, grant a security interest in, or
encumber any of Borrower's assets except to Lender, provided,
however, the foregoing shall not apply to liens for taxes not
delinquent or being contested in good faith, mechanic's and
materialmen's liens with respect to obligations not overdue or
being contested in good faith, and liens resulting from deposits
to secure the payment of workmen's compensation or other Social
Security or to secure the performance of bids or contracts
in the ordinary course of business;
Reorganize, merge, or consolidate with, or acquire all or
substantially all of the assets of any other company, firm or
association, or make any other substantial change in the
capitalization of Borrower or the general character of its
business;
Sell any of its assets used or useful in its business, except in
the regular course of business;
Sell any of its assets with the understanding or agreement that
such assets shall be leased back to Borrower;
Enter into any lease in which the annual rental exceeds:
Permit the aggregate of all of its lease payments in any twelve-
month period to exceed:
Form 04 0708 1 (L/96) Page 3
(D Copyright 9/89 American Bank Systems
IV. EVENTS OF DEFAULT. Borrower shall be in Default under this
Agreement upon the happening of any one or more of the following
events or conditions, herein called "Default":
A. Any payment required by any note or obligation of Borrower to
Lender or to others is not made when due or in accordance with
the terms of the applicable contract, not in dispute.
B. Borrower defaults in the performance of any covenant,
obligation, warranty or provision contained in this or in any
agreement to which Borrower is a party or in any note,
obligation, contract or undertaking of Borrower to or with
Lender or others.
C. Any warranty, representation, financial information or
statement made or furnished to Lender by or in behalf of
Borrower proves to have been false in any material respect
when made or furnished.
D. The making of any levy against or seizure, garnishment or
attachment of any property of Borrower.
E. Failure by Borrower to pay any indebtedness at maturity, or
the occurrence of any event which results in acceleration of
the maturity of any obligation of Borrower to ender or to
others under any promissory note, agreement, or undertaking.
F. Death, dissolution or termination of existence of Borrower.
G. Appointment of a receiver over any part of the property of
Borrower, the assignment of property of Borrower for the
benefit of creditors, or the commencement of any proceedings
under any bankruptcy or insolvency laws by or against Borrower
or any guarantor or surety of Borrower.
Upon the occurrence or the existence of a Default, Lender may, at
its option and without notice or demand to Borrower and without
demand or presentment which are hereby waived, immediately
declare due and payable all liabilities and obligations of
Borrower to Lender, cease extending credit to Borrower, and
exercise any and all rights and remedies possessed by Lender.
V. GENERAL PROVISIONS. Borrower agrees to the following:
A. No modification, consent or waiver of any provision of this
Agreement, nor consent by Lender to any departure by Borrower
therefrom, shall be effective unless the same shall be in
writing and signed by an officer of Lender, and then shall be
effective only in the specific instance and for the purpose
for which given;
B. No act, delay or omission, including Lender's waiver of remedy
because of any Default hereunder, shall constitute a waiver of
any of Lender's rights and remedies under this Agreement or
any other agreement between the parties. All rights and
remedies of Lender are cumulative and may be exercised singly
or concurrently, and the exercise of any one or more remedies
will not be a waiver of any other. No waiver, change,
modification or discharge of any of Lender's rights or of
Borrower's duties as so specified or allowed will be effective
unless in writing and signed by a duly authorized officer of
Lender, and any such waiver will not be a bar to the exercise
of any right or remedy on any subsequent Default;
C. This Agreement shall inure to the benefit of the successors
and assigns of Lender and shall be binding upon the heirs,
executors, administrators, successors and assigns of
Borrower;
D. Lender at any time at its option may pledge, transfer or
assign its rights under this Agreement in whole or in part,
and any pledgee, transferee, or assignee shall have all the
rights of Lender as to the rights or parts thereof so pledged,
transferred or assigned, provided, however, that Borrower
shall not assign any of its rights hereunder except with the
written consent of Lender;
E. If more than one Borrower executes this Agreement, their
responsibilities hereunder shall be joint and several and the
reference to Borrower herein shall be deemed to refer to
each borrower;
F. If any provision of this Agreement shall for any reason be
held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such
invalid or unenforceable provision has never been contained
herein;
G. Any property, tangible or intangible, of Borrower in
possession of Lender at any time, or any indebtedness due from
Lender to Borrower, and any deposit or credit balances due
from Lender to Borrower, or any of the foregoing of any party
hereto, is pledged to secure the undertakings of Borrower
hereunder and may at any time while Borrower is indebted to
Lender be appropriated, held or applied toward the payment of
any obligation of Borrower to Lender; and
H. Borrower may at any time prepay any or all principal and/or
accrued interest without penalty.
VI. TERMINATION. This Agreement shall terminate, except as
otherwise provided herein, on the following date:
Any obligation of Lender to extend credit or to renew outstanding
obligations of Borrower shall terminate on the termination date
indicated above. However, such termination date shall not have
application to borrower in the event that any obligation of
Borrower to Lender is unpaid, in which event all of the
provisions of this Agreement shall remain in full force and
effect as they relate to Borrower until such obligation and all
other liabilities of Borrower to Lender have been paid in full.
VII. ADDITIONAL PROVISIONS. Borrower agrees to the additional
provisions attached hereto and made a part of this Agreement,
which are controlling to the extent of any conflict with the
preceding provisions.
LENDER SIGNATURE BORROWER(S) SIGNATURE(S)
The American Education Corporation
UMB OKLAHOMA BANK
By: Richard J. Lehrter, EVP Jeffrey E. Butler, Sr.
President
Form 04 0708 1 (3/96)
Page 4
@Copyright 8/89
American Bank System;
Exhibit 10.5
Promissory Note between The American Education Corporation and
UMB Oklahoma Bank
CUSTOMER COPY
PROMISSORY NOTE - Fixed or Variable Rate - Commercial
REVOLVING
DEBTOR(S) NAME AND ADDRESS
The American Education Corporation
7506 N. Broadway Ext., Ste. 505
Oklahoma City, OK 73116
Accrued interest due and payable MONTHLY, beginning 06/30/98 and
MONTHLY thereafter, with outstanding principal balance plus
unpaid accrued interest due and payable on 04/30/99.
NOTE NUMBER DATE OF NOTE MATURITY DATE
093088 06/09/98 04/30/99
PRINCIPAL AMOUNT $500,000.00
OFFICER
RJL
FIXED INTEREST RATE OF _____% PER ANNUM. INTEREST PAYABLE:
VARIABLE INTEREST RATE of 0.00% ABOVE/BELOW
UMB KC Prime Floating
INITIAL RATE 8.500 %INTEREST PAYABLE MONTHLY
COLLATERAL CATEGORIES:
Accounts, Inventory, and General intangibles
SOCIAL SECURITY/TIN NUMBER:
840838184
PURPOSE:
WORKING CAPITAL
PROMISE TO PAY. For value received, the undersigned Debtor,
whether one or more, and jointly and severally if more than one,
agrees to the terms of this Note and promises to pay to the order
of the Lender named below at its place of business as indicated
in this Note or at such other places as may be designated in
writing by Lender, the Principal Amount of this Note together
with interest on the unpaid Principal Amount until Maturity
at the per annum interest rate or rates stated above and
according to the Payment Terms stated in this Note. Interest on
this Note is calculated on the actual number of days elapsed on a
basis of a 360-day year unless otherwise indicated above. For
purposes of computing interest and determining the date principal
and interest payments are received, all payments will be deemed
made only when received in collected funds. Payments are applied
first to accrued and unpaid interest and other charges, and then
to unpaid Principal Amount. In this Note, Debtor" includes any
party liable under this Note, including endorsers, co-makers,
guarantors and otherwise, and Lender" includes all subsequent
holders.
VARIABLE RATE. If this is a Variable Rate transaction as
indicated above, the interest rate shall vary from time to time
with changes (whether increases or decreases) in the Index Rate
shown above. The interest rate on this Note will be the Index
Rate plus a Margin, if any, as indicated above. Each change will
become effective on the same date the Index Rate changes unless a
different effective date is indicated above. If the Index Rate is
Lender's base or prime rate, it is determined by Lender in its
sole discretion, primarily on a basis of its cost of funds, is
not necessarily the lowest rate Lender is charging its customers,
and is not necessarily a published rate.
PAYMENTS NOT MADE WHEN DUE. Any principal and/or interest amount
not paid when due shall bear interest at a rate 6 percent per
annum greater than the per annum interest rate prevailing on this
Note at the time the unsaid amount came due, but in no event at a
rate less than 15 percent per annum. In addition or in the
alternative to the interest rate provided for in this paragraph
Lender may assess a charge of $10.00 times the number of days
late to cover cost of past due notices and other added expenses.
In no event shall the interest rate and related charges either
before or after maturity be greater than permitted by law.
ALL PARTIES PRINCIPAL. All Debtors shall each be regarded as a
principal and each Debtor agrees that any party to this Note,
with Lender's approval and without notice to any other party may
from time to time renew this Note or consent to one or more
extensions or deferrals of the Maturity date for any term(s) or
to any other modification(s), and all debtors shall be liable in
same manner as on the original note.
ADVANCES AND PAYMENTS. It is agreed that the sum of all advances
under this Note may exceed the Principal Amount as shown above,
but the unpaid balance shall never exceed said Principal Amount.
Advances and payments on this Note shall be recorded on records
of Lender and such records shall be prima facie evidence of such
advances, payments and unpaid principal balance. Subsequent
advances and the procedures described in this Note shall not be
construed or interpreted as granting a continuing line of credit
for Principal Amount. Lender reserves the right to apply any
payment by Debtor, or for account of Debtor, toward this Note or
any other obligation of Debtor to Lender.
PREPAYMENT. Except as otherwise provided in this Note, Debtor
shall have the right to prepay all or any part of principal due
under this Note at any time without penalty, subject to the
following conditions: (a) all interest must be paid through the
date of any prepayment; and (b) if this Note provides for monthly
other periodic payments, there will be no changes in the due
dates or amounts following any partial prepayment unless
Lender agrees to such changes in writing.
COLLATERAL. This Note and all other obligations of Debtor to
Lender, including renewals and extensions, are secured by all
collateral securing this Note and by all other security interests
and mortgages previously or later granted to Lender and by all
money, deposits and other property owned by any debtor and in
Lender's possession or control.
ACCELERATION. At option of Lender, the unpaid balance of this
Note and all other obligations of Debtor to Lender, whether
direct or indirect, absolute or contingent, now existing or later
arising, shall become immediately due and payable without notice
or demand, upon or after the occurrence or existence of any of
the following In events or conditions: (a) Any payment required
by this Note or by any other note or obligation of Debtor to
Lender or to others is not made when due, or any event or
condition occurs or exists which results in acceleration of the
maturity of any Debtor's obligation to Lender or to others under
any promissory note, agreement or undertaking; (b) Debtor
defaults in performing any covenant, obligation, warranty or
provision contained in any loan agreement or in any instrument or
document securing or relating to this Note or any other note or
obligation of Debtor to Lender or to others; (c) any warranty,
representation, financial information or statement made or
furnished to Lender by or on behalf of Debtor proves to have been
false in any material respect when made, or furnished; (d) any
levy, seizure, garnishment or attachment is made against any
asset of any Debtor; (e) Lender determines, at any time and in
Lender's sole discretion, that the prospect or payment of this
Note is impaired; (f) whenever, in Lender's sole judgment,
the collateral for the debt evidenced by this Note becomes
unsatisfactory or insufficient either in character or value and,
upon request, Debtor fails to provide additional collateral as
required by Lender; (g) all or any part of the collateral for the
debt evidenced by this Note is lost, stolen, substantially
damaged or destroyed; (h) death, incompetency, dissolution,
change in ownership or senior management, or termination of
existence of any Debtor; or (i) a receiver is appointed over all
or part of any Debtor's property, or any Debtor makes an
assignment for the benefit of creditors, files for relief under
any bankruptcy or insolvency laws , or becomes subject to an
involuntary proceeding under such laws.
RIGHT OF OFFSET. Except as otherwise restricted by law, any
indebtedness due from Lender to Debtor, including, without
limitation, any deposits or credit balances due from
Lender, is pledged to secure payment of this Note and any other
obligation to Lender of Debtor, and may at any time while the
whole or any part of such obligation(s) remain(s) unpaid, either
before or after Maturity of this Note, be set off, appropriated,
held or applied toward the payment of this Note or any other
obligation to Lender by any Debtor.
ADDITIONAL PROVISIONS. (1) Debtor agrees, if requested, to
furnish to Lender copies of income tax returns as well as balance
sheets and income statements for each fiscal year following Date
of Note and at more frequent intervals as Lender may require.
(2) No waiver by Lender of any payment or other right under this
Note or any related agreement or documentation shall operate as a
waiver of any other payment or right. All Debtors waive
presentment, notice of acceleration, notice of dishonor and
protest and consent to substitutions, releases and failure to
perfect as to collateral and to additions or releases of any
Debtor. (3) This Note and the obligations evidenced by it are to
be construed and governed by the laws of the state indicated in
Lender's address shown in this Note. (4) All Debtors agree to pay
costs of collection, including, as allowed by law, an attorney's
fee equal to a minimum of 15% of all sums due upon default or
such other maximum fee as allowed by law. (5) All parties signing
below acknowledge receiving a completed copy of this Note and
related documents, which contain the complete and entire
agreement between Lender and any party liable for payment under
this Note. No variation, condition, modification, change or
amendment to this Note or related documents shall be binding
unless in writing and signed by all parties. No legal
relationship is created by the execution of this Note and related
documents except that of debtor and creditor or as stated in
writing.
LENDER NAME AND ADDRESS
UMB OKLAHOMA BANK
DEBTOR(S) SIGNATURE(S)
The American Education Corporation
P 0 BOX 82427
OKLAHOMA CITY, OK 73148-0427
Jeffrey E. Butler, Sr.,
President