FORM 10-QSB
U.S. 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, 1999
[ ] 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
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(Exact name of registrant 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 number)
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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(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,
1999: 13,693,256
Transitional Small Business Disclosure Format
YES __ NO X
THE AMERICAN EDUCATION CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheets 3
June 30, 1999 and December 31, 1998
Consolidated Statements of Income 4
For the Three Months Ended
June 30, 1999 and for the Three
Months Ended June 30, 1998
For the Six Months Ended June 30, 1999 5
And for the Six Months Ended June 30,
1998
Consolidated Statements of Cash Flows 6
For the Six Months Ended June 30, 1999
And for the Six Months Ended June 30,
1998
Notes to Interim Consolidated Financial 7
Statements
Item 2 Management's Discussion and Analysis 9
Of Financial Conditions and Results of
Operations
PART II - OTHER INFORMATION 13
SIGNATURE PAGE 15
PART I - FINANCIAL INFORMATION
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1999 December 31, 1998
Unaudited Audited
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ASSETS
Current assets:
Cash and cash equivalents $ 734,846 $ 720,838
Accounts receivable, net of
allowance for returns and
uncollectible accounts of
$97,099 and $98,515 2,345,662 1,396,021
Inventories 197,128 96,248
Prepaid expenses and deposits 354,677 324,647
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Total current assets 3,632,313 2,537,754
Plant and equipment, at cost
Less accumulated depreciation
and amortization of $237,829
and $195,538 385,254 243,393
Other assets:
Capitalized software costs,
net of accumulated amortization
of $1,425,804 and $1,239,719 1,492,743 1,181,754
Goodwill, net of accumulated
amortization of $69,203 and
$33,638 1,004,307 1,009,651
Deferred income taxes 463,041 857,550
Other assets 21,036 -
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Total other assets 2,981,127 3,048,955
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Total Assets $ 6,998,694 $ 5,830,102
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable trade $ 385,727 $ 325,840
Accrued liabilities 537,905 451,018
Accounts payable - Affiliates 93,903 174,199
Notes payable and current
portion of long term debt 222,204 124,686
Foreign income taxes payable 73,020 23,126
Deferred income taxes 40,627 40,627
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Total current liabilities 1,353,386 1,139,496
Long-term debt 111,205 85,742
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Total liabilities 1,464,591 1,225,238
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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 -
13,693,256 shares 342,331 335,577
Additional paid-in capital 6,339,030 6,151,263
Retained Earnings / (Deficit) (1,881,976) (1,881,976)
Year to date earnings 734,718 -
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Total stockholders' equity 5,534,103 4,604,864
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Total liabilities and stockholders'
equity $ 6,998,694 $ 5,830,102
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The accompanying notes are an integral part of the financial
statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
1999 1998
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Net Sales $ 2,777,748 $ 1,938,336
Cost of goods sold 234,787 214,311
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Gross profit 2,542,961 1,724,025
Operating expenses:
Sales and marketing 811,255 401,531
Operations 47,608 75,012
General and administrative 555,610 376,565
Amortization of capitalized
software costs 95,851 55,785
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Total operating expenses 1,510,324 908,893
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Operating income 1,032,637 815,132
Other income/(expense):
Interest Income 3,783 1,940
Interest Expense (7,899) (2,802)
Other, net (3,539) 3,667
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Net income before taxes 1,024,982 817,937
Current income taxes 24,752 1,260
Deferred income taxes 379,737 238,836
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Net income $ 620,493 $ 577,841
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Basic 13,693,256 12,262,560
Earnings per share $ 0.045 $ 0.047
Diluted 14,374,739 13,447,887
Earnings per share $ 0.043 $ 0.043
The accompanying notes are an integral part of the financial
statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(unaudited)
1999 1998
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Net Sales $ 4,347,893 $ 3,108,556
Cost of goods sold 527,251 335,764
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Gross profit 3,820,642 2,772,792
Operating expenses:
Sales and marketing 1,326,326 775,036
Operations 104,685 139,518
General and administrative 1,022,396 573,909
Amortization of capitalized
software costs 184,280 103,636
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Total operating expenses 2,637,687 1,592,099
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Operating income 1,182,955 1,180,693
Other income/(expense):
Interest Income 8,887 4,326
Interest Expense (14,592) (7,030)
Other, net 5,039 3,746
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Net income before taxes 1,182,289 1,181,735
Current income taxes 52,514 8,260
Deferred income taxes 395,057 384,520
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Net income $ 734,718 $ 788,955
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Basic 13,589,125 12,262,560
Earnings per share $ 0.054 $ 0.064
Diluted 14,670,208 13,447,887
Earnings per share $ 0.050 $ 0.059
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, 1999 AND 1998
(unaudited)
1999 1998
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Cash flows from operating activities:
Net income $ 734,718 $ 788,955
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 257,183 136,006
Reserve for bad debts and returns (5,728) 46,736
Stock issued for compensation 91,040 20,250
Other (7,718) -
Changes in assets and liabilities:
Accounts receivable (944,330) (1,041,815)
Inventories (100,879) (23,502)
Prepaid expenses and other (16,095) (126,700)
Deferred tax asset 395,057 379,229
Other assets (21,036) -
Accounts payable and accrued
liabilities 182,057 170,058
Accounts payable - Affiliate (80,297) 68,824
Income taxes payable 47,737 -
Customer deposits (51,352) (47,429)
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Net cash provided by operating
activities 480,357 370,612
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Cash flow from investing activities:
Acquisition of net assets of
subsidiary - (70,275)
Capitalization of organizational
costs and goodwill (30,233) (35,728)
Purchase of capitalized software
costs (495,657) (307,856)
Purchase of property and
equipment (179,016) (29,433)
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Net cash used in investing
activities (704,906) (443,292)
Cash flows from financing activities:
Proceeds received from issuance
of debt 250,384 27,992
Principal payments on notes (127,402) (18,430)
Issuance of common stock 115,575 -
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Net cash provided by
financing activities 238,557 9,562
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Net increase (decrease) in cash 14,008 (63,118)
Cash at beginning of the period 720,838 283,636
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Cash at end of the period $ 734,846 $ 220,518
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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, 1999 AND 1998
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NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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1. Nature of Business:
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 subsidiaries, Projected
Learning Programs, Inc., ("PLP") and Learning Pathways, Ltd. ("LPL"). PLP is
a direct mail catalog reseller of primarily other publishers' products to
high schools and colleges. LPL is the exclusive schools and libraries
distributor of the print multimedia and online versions of the World Book
Encyclopedia in Great Britain.
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, 1999, and for the
three and six month periods ended June 30, 1999 and 1998 are unaudited, but
include all adjustments that the Company considers necessary for a fair
presentation. Certain immaterial amounts in the June 30, 1998 financial
statements have been reclassified to conform to the 1999 presentation. The
December 31, 1998 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,
1998. The accompanying unaudited interim financial statements for the three and
six month periods ending June 30, 1999 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 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 acquisitions in 1998 of PLP and LPL and is amortized
over a period of fifteen (15) years.
6. Inventories:
Inventories are stated at the lower of cost (first-in, first-out), or market,
and consist primarily of educational software materials, packing materials and
World Book Encyclopedia print and multimedia products.
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. 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 quarter ended June 30, 1999, the Board of Directors approved the
issuance of a total of 116,680 shares of common stock to key employees, outside
directors and major distributors in recognition of contributions made to the
Company. In addition, 7,500 options to purchase common stock at $.73 to $.75
were exercised.
At June 30, 1999, paid-in capital includes $11,519 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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For the six-month period ended June 30, 1999, the Company generated $480,357 of
cash flow from operating activities as compared to $370,612 or an increase of
30% over the same period of the prior year. Cash was used principally to fund
product development costs and purchase capital equipment. The Company's working
capital was $2,278,927 at June 30, 1999, an improvement of 63% or $880,669 from
$1,398,258 at December 31, 1998. This significant improvement is associated
with higher levels of sales during the period. The Company believes that cash
flows from operations will be adequate to finance its normal financing and
investing activities for the remainder of 1999.
Additional working capital beyond that available within the Company is
available, if required, to expand operations. Management has and will consider
options available in providing such funding, including debt financing and
capital enhancement. At June 30, 1999, the Company had available bank credit
lines for working capital totaling $1,350,000, of which approximately $1,225,000
was unused.
Impact of The Year 2000
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Many existing computer systems use only the last two digits to identify years in
the date field. As a result, those systems may not be able to properly identify
the correct year after the beginning of the year 2000, believing that "00" is
referring to the year 1900. Systems that do not properly recognize the correct
date could generate erroneous information or cause a system to fail. This
potential problem is generally referred to as the "Year 2000 Issue."
The Company is continuing its review and assessment of the potential effect of
the Year 2000 Issue. Thus far, the Company has completed a review of its
information technology systems, including both software and hardware, and
determined that they appear to be Year 2000 compliant. Additionally, the
Company has almost completed a previously planned upgrade of its accounting
and reporting systems independent of Year 2000 considerations and is installing
a Year 2000 compliant system. It is anticipated that the installation will be
complete by August 31, 1999.
The Company has tested the educational software systems that it produces for
sale and believes they are Year 2000 compliant.
The Company has been contacting critical suppliers of products and services to
determine the extent to which the Company may be at risk if such parties fail to
resolve their own Year 2000 Issues. These actions are an attempt to mitigate
any risks that may be perceived by such possible failures. However, the effect,
if any, on the Company's results of operations from the failure of third parties
to be Year 2000 compliant cannot be reasonably estimated.
The Company's bank has run tests to determine whether Year 2000 Issues would
affect their systems. They believe that their systems will not be affected in
any significant way. The Company is still evaluating its non-information
technology systems. Based on its preliminary assessment, the Company currently
believes that these systems are or will be Year 2000 compliant. News reports
indicate that providers of utilities such as electricity, gas and telephone
services are taking appropriate steps to minimize any disruption in services.
While the Company currently believes that such disruptions are unlikely, there
can be no absolute assurance that they will not occur.
Based on the Company's overall current assessment to date, no matters have been
identified and the Company does not currently believe that the Year 2000 Issue
will have a material adverse effect on the Company's financial position or
results of operations. The Company also believes any costs that may be incurred
relating to the identification or remediation of Year 2000 Issues will not be
material. The Company's beliefs and expectations, however, are based on certain
assumptions that may prove to be inaccurate, especially those relating to third
parties over which the Company has no control. Potential sources of risk
include the inability of suppliers of goods or services to be Year 2000
compliant, which could result in delays in product deliveries or disruption of
distribution channels.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999
AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1998
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Net sales for the three months ended June 30, 1999, totaled $2,777,748 compared
to $1,938,336 for the same period in 1998. This represents an increase of
approximately 43% over the comparable 1998 quarter. The increase in sales for
the second quarter of 1999 over the comparable quarter in 1998 is attributable
to increases in net sales for the Company and the inclusion of the results of
the Company's United Kingdom subsidiary, Learning Pathways, Ltd., which was
acquired by the Company effective October 1998. First orders for the A+dvanced
Learning System registered trademark software that was modified for the UK
educational standards have been received and were shipped in the latter part
of the second quarter.
Cost of goods sold as a percentage of sales revenue for the three months ending
June 30, 1999 decreased to 8.5% from 11.1% for the same period in 1998. Cost
of goods sold represents the actual cost to produce the software products,
including certain allocated overhead costs, a portion of which is fixed. The
decrease in percentage is attributable to the increase in sales without a
comparable increase in cost of sales due to their fixed nature, offset to a
certain extent by the addition in 1999 of lower gross margin products sold by
LPL.
Total operating expenses, which include selling and marketing, general and
administrative, operations, and amortization of product development costs, were
$1,510,324 for the three months ended June 30, 1999, compared to $908,893 for
the previous year. As a percentage of sales revenue, operating expenses
increased from 46.9% in 1998 to 54.4% in 1999. This increase is primarily due
to a planned investment in product development and personnel infrastructure to
allow the Company to meet its growth objectives in future years.
Selling and marketing costs increased by approximately 102%, from $401,531 for
the three months ended June 30, 1998, to $811,255 for the current period. As a
percentage of net revenues, these costs increased from 20.7% to 29.2%. The
higher selling expenses are the result of the inclusion of LPL's marketing
and selling costs in the consolidated results and management's decision to
increase in the size of both the inside and field sales forces. Management
believes that the Company is required to make these investments to maintain
its historical rate of growth into future years.
General and administrative and expenses, including operations, on a
consolidated basis increased from $451,577 to $603,218, but as a percentage
of net revenues decreased from 23.3% to 21.7%. The dollar increase is primarily
attributable to the planned increases in administrative, development and
support staff added over the last six months to prepare the Company to handle
the increases in overall business activity that have occurred. Management
believes the Company will continue to experience favorable growth trends in
1999 and future years. The Company also experienced higher costs associated
with activities to support the development of A+SSESS! Version 3.0, the new
Java 2-based A+nyWhere Learning System trademark and new curriculum content
development associated with the new product family scheduled for late 1999
release. In addition, the administrative costs of LPL are now included in the
consolidated corporate results in 1999.
Net income for the three months ended June 30, 1999, was $620,493 compared to
$577,841 for the same period in 1998, or an increase of 7.4%.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999
AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
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Revenues for the six months ended June 30, 1999, totaled $4,347,893 as compared
to $3,108,556 for the same 1998 period. This represents an increase of
approximately 40% for the comparable 1999 six-month period. This significant
increase in the 1999 total company revenues highlights the increasing acceptance
of the Company's A+dvanced Learning System family of products, which is now
installed in over 6,500 U.S. and Puerto Rican schools. The 1999 total revenues
also reflect the inclusion of the results of LPL in the consolidated financial
statements. First orders for the A+dvanced Learning System software that has
been modified for use in the UK schools have been received and were shipped in
the latter part of the second quarter.
Cost of goods sold as a percentage of net revenues for the six months ended June
30, 1999, increased to 12.1% from 10.8% in 1998. This increase is attributed to
a change in the Company's sales mix by the addition of the lower gross margin
products sold by PLP and LPL. AEC's gross margins for the six-month period in
1999, excluding PLP and LPL, remained at 94% of net revenues, unchanged from
the same period in 1998. Cost of goods sold represents the actual cost to
produce the software products, or in the case of PLP or LPL the cost to acquire
software from other publishers, and includes certain allocated overhead costs.
Consolidated company gross margins are expected to trend down slightly as lower
gross margins on PLP catalog sales and LPL World Book resale products become a
higher percentage of total corporate revenues.
Total operating expenses, which include selling, marketing, general and
administrative, operations and amortization of product development costs were
$2,637,687 for the six months ended June 30, 1999, compared to $1,592,099 for
the previous year, an increase of approximately 66%. As a percentage of sales
revenue, operating expenses increased from 51.2% in 1998 to 60.7% in 1999
reflecting management's planned investment in company infrastructure to meet
anticipated future growth in both the UK and U.S. operations.
On a fully consolidated basis, selling and marketing costs increased by
approximately 71%, from $775,036 for the six months ended June 30, 1998 to
$1,326,326 for the comparable 1999 period. This increase is attributable to the
investment in personnel discussed above, which support the higher sales levels
and are necessary to capitalize on what management believes to be significant
opportunities for future growth in both the U.S. and UK markets.
General and administrative expenses that include operations and product
development expenditures increased from $713,427 to $1,127,081 on a consolidated
basis. As a percentage of sales, these expenses increased from 23% to 26%.
This increase in spending is related to planned increases in the administrative,
development and support personnel and the costs associated with the expanded
development efforts associated with new technology and curriculum content
development. During the first half of 1999, the LPL organization was also
expanded to provide the personnel for the modification of the Company's U.S.-
based curriculum to meet the criteria of the British educational system.
As a result of the higher sales combined with the higher operating costs as
discussed above, pre-tax income for the six months ended June 30, 1999 was
relatively unchanged from the prior year with $1,182,289 compared to the
$1,181,735 recorded in 1998. Management believes that these results are
excellent in light of intensive development programs in both the U.S. and the
UK to prepare the Company for future growth and the release of a major new
product offering later in 1999.
Net income for the six months ended June 30, 1999 was $734,718 compared to
$788,955 for the same period in 1998. This decrease is a result of a higher
estimate for the provision for income taxes as a percent of pre-tax income in
1999 compared to 1998. Diluted earnings per share were $.050 in 1999 based on
14,670,208 shares outstanding compared to $.059 in 1998 based on 13,447,887
shares outstanding. The increase in diluted shares outstanding is a result
of the issuance of common stock for the purchase of LPL, key employee stock
awards for services, and issuance of stock options.
Company management believes that significant future opportunities exist in the
school, adult literacy and home markets for future company growth. The Company
recently announced the beta release of A+SSESS Version 3.0 and the A+nyWhere
Learning System trademark, which is designed to meet the distributed/connected
environment that exists in many progressive school districts. This Java 2-based
product family will assess, prescribe and deliver the appropriate company
educational content to meet individual student learning needs. This product
family opens the door to Internet-delivered distributed learning business and
other new business models for the Company.
The Company is now equipped with a range of Macintosh and Windows instructional
software engines that facilitate the low cost and rapid development of new
subject titles. In addition, the Company has expanded its content and
intellectual property base with the internal development of substantial
educational content to maintain its future competitive position during the
first six months of 1999. Management believes, as a result of these ongoing
investments in curriculum content and technology, that the Company is well
positioned to compete in the K-12, adult and correctional market segments of
the educational technology industry. Management also believes that its expanded
employee base of technical and business professionals has materially
strengthened the Company's future competitive position. The Company is now
active in both the U.S. and UK markets and has, during the first six months
of 1999, significantly expanded company product offerings, manpower and
distribution strengths.
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 quarter ended June 30, 1999, the Board of Directors approved the
issuance of a total of 116,680 shares of common stock to key employees,
outside directors and major distributors in recognition of contributions made
to the Company. In addition, 7,500 options to purchase common stock at $.73
to $.75 were exercised.
Item 3. Default Upon Senior Securities
Omitted from this report as inapplicable.
Item 4. Submission of Matters to Vote of Securities Holders
On July 23, 1999, the Company held its annual meeting of shareholders. There
were four proposals submitted to the shareholders for approval; one of which
was the election of directors. The following five 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, Stephen E. Prust and Geoffrey Glossop.
The following is a tabulation with respect to the votes for each nominee for
office:
FOR WITHHELD
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Jeffrey E. Butler 12,101,618 18,364
Monty C. McCurry 12,101,618 18,364
Newton Fink 12,101,618 18,364
Stephen E. Prust 12,101,618 18,364
Geoffrey Glossop 12,103,218 16,764
The second proposal submitted to the shareholders was a proposal to amend the
Company's Articles of Incorporation to permit the Company's Board of Directors
to declare up to a one-for-four share reverse stock split. The proposal was
approved by the following vote:
FOR AGAINST ABSTAIN
- ---------- ------- -------
11,370,848 735,195 13,939
The third proposal 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, 1999. The selection of Steakley, Gilbert & Bozalis,
P.C. was ratified by the following vote:
FOR AGAINST ABSTAIN
- ---------- ------- -------
12,089,740 17,168 13,074
The fourth proposal was a proposal to amend the Company's Stock Option Plan
for Employees to increase the number of options in the Plan from 750,000 to
1,050,000. The amendment was approved by
the following vote:
FOR AGAINST ABSTAIN
- ---------- ------- -------
11,992,700 65,778 61,504
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
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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 filed
with the Securities and Exchange Commission on Form S-18
(File No. 2-78660-D))
4.1 Form of Stock Certificate (incorporated by reference to
the Company's registration statement filed with the
Securities and Exchange Commission on Form S-18 (File No.
2-78660-D))
10.1 Promissory Note issued by the Company to Richard Carle
for the acquisition of Projected Learning Systems, Inc.,
(incorporated by reference to the exhibit contained in
the Company's Quarterly Report on Form 10-QSB for the
fiscal quarter ended June 30, 1998)
10.2 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)
10.3 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)
10.4 Loan Agreement and Promissory Note between the Company
and UMB Oklahoma Bank establishing a line of credit for
working capital (incorporated by reference to the
exhibit contained in the Company's Quarterly Report on
Form 10-QSB for the fiscal quarter ended June 30, 1998)
10.5 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)
27 Financial Data Schedule (filed herewith; electronic
filing only)
SIGNATURES
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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 16, 1999
By: s/a Jeffrey E. Butler
Chief Executive Officer
Chairman of the Board
Treasurer