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 September 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
- ----------------------------------
(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 Sept. 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
September 30, 1999 and
December 31, 1998
Consolidated Statements of Income 4
For the Three Months Ended
September 30, 1999 and for the Three
Months Ended September 30, 1998
For the Nine Months Ended September 30, 5
1999 and for the Nine Months Ended
September 30, 1998
Consolidated Statements of Cash Flows 6
For the Nine Months Ended September 30,
1999 and for the Nine Months Ended
September 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
ITEM 1
- ------
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 1999 December 31, 1998
Unaudited Audited
------------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,143,484 $ 720,838
Accounts receivable, net of
allowance for returns and
uncollectible accounts of
$112,634 and $98,515 2,132,332 1,396,021
Inventories 185,308 96,248
Prepaid expenses and deposits 417,319 324,647
--------- ---------
Total current assets 3,878,443 2,537,754
Plant and equipment, at cost
Less accumulated depreciation
and amortization of $263,528
and $195,538 426,771 243,393
Other assets:
Capitalized software costs,
net of accumulated amortization
of $1,533,302 and $1,239,719 1,685,969 1,181,754
Goodwill, net of accumulated
amortization of $87,095 and
$33,638 986,416 1,009,651
Deferred income taxes 313,994 857,550
Other assets 21,036 -
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Total other assets 3,007,415 3,048,955
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Total Assets $ 7,312,629 $ 5,830,102
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable trade $ 365,024 $ 325,840
Accrued liabilities 678,344 451,018
Accounts payable - Affiliates 95,216 174,199
Notes payable and current
portion of long term debt 129,749 124,686
Foreign income taxes payable 86,428 23,126
Deferred income taxes 40,627 40,627
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Total current liabilities 1,395,388 1,139,496
Long-term debt 137,479 85,742
Other liabilities 6,450 -
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Total liabilities 1,539,317 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 6,347,971 6,151,263
Retained Earnings / (Deficit) (1,881,976) (1,881,976)
Year-to-date earnings 964,986 -
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Total stockholders' equity 5,773,312 4,604,864
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Total liabilities and stockholders'
equity $ 7,312,629 $ 5,830,102
========= =========
The accompanying notes are an integral part of the financial
statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(unaudited)
1999 1998
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Net Sales $ 2,143,201 $ 1,529,188
Cost of goods sold 184,167 176,776
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Gross profit 1,959,034 1,352,412
Operating expenses:
Sales and marketing 898,930 438,928
Operations 67,676 80,096
General and administrative 506,909 314,265
Amortization of capitalized
software costs 107,263 62,672
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Total operating expenses 1,580,778 895,961
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Operating income 378,256 456,451
Other income/(expense):
Interest Income 8,514 4,515
Interest Expense (7,030) (7,807)
Other, net (4,261) 58,624
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Net income before taxes 375,479 511,783
Current income taxes 9,932 9,978
Deferred income taxes 135,279 249,538
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Net income $ 230,268 $ 252,267
============= ===========
Basic 13,693,256 12,323,579
Earnings per share $ 0.017 $ 0.020
Diluted 14,396,654 13,370,007
Earnings per share $ 0.016 $ 0.019
The accompanying notes are an integral part of the financial
statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(unaudited)
1999 1998
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Net Sales $ 6,491,095 $ 4,637,744
Cost of goods sold 711,419 512,540
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Gross profit 5,779,676 4,125,204
Operating expenses:
Sales and marketing 2,225,256 1,213,963
Operations 172,361 219,614
General and administrative 1,529,305 888,174
Amortization of capitalized
software costs 291,543 166,308
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Total operating expenses 4,218,465 2,488,059
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Operating income 1,561,211 1,637,145
Other income/(expense):
Interest Income 17,401 8,841
Interest Expense (21,622) (14,837)
Other, net 779 62,370
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Net income before taxes 1,557,769 1,693,519
Current income taxes 62,446 18,238
Deferred income taxes 530,337 634,058
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Net income $ 964,986 $ 1,041,223
============= ===========
Basic 13,624,217 12,323,579
Earnings per share $ 0.071 $ 0.084
Diluted 14,327,615 13,370,007
Earnings per share $ 0.067 $ 0.078
The accompanying notes are an integral part of the financial
statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(unaudited)
1999 1998
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Cash flows from operating activities:
Net income $ 964,986 $ 1,041,223
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 415,030 216,106
Reserve for bad debts and returns 14,119 19,554
Stock issued for compensation 91,040 20,250
Other (3,142) 46,636
Changes in assets and liabilities:
Accounts receivable (750,430) (698,045)
Inventories (89,060) (28,670)
Prepaid expenses and other (92,672) (199,170)
Deferred tax asset 543,556 628,767
Other assets (21,036) -
Accounts payable and accrued
liabilities 266,510 (39,385)
Accounts payable - Affiliate (78,983) 72,006
Income taxes payable 63,302 -
Customer deposits 6,450 -
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Net cash provided by operating
activities 1,329,670 1,079,272
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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) (33,793)
Purchase of capitalized software
costs (797,798) (438,191)
Purchase of property and
equipment (251,368) (22,905)
----------- ----------
Net cash used in investing
activities (1,079,399) (565,164)
Cash flows from financing activities:
Proceeds received from issuance
of debt 290,817 -
Principal payments on notes (234,017) (37,975)
Issuance of common stock 115,575 27,680
----------- ----------
Net cash provided by
financing activities 172,375 (10,295)
----------- ----------
Net increase (decrease) in cash 422,646 503,813
Cash at beginning of the period 720,838 283,636
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Cash at end of the period $ 1,143,484 $ 787,449
=========== ==========
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 SEPTEMBER 30, 1999 AND 1998
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 September 30, 1999, and for
the three and nine month periods ended September 30, 1999 and 1998 are
unaudited, but include all adjustments that the Company considers necessary
for a fair presentation. Certain immaterial amounts in the September 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 nine month periods ending September 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:
- --------------------------
At September 30, 1999, paid-in capital includes $3,730 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
- ------------------------------------------------------------------
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
- -------------------------------
For the nine-month period ended September 30, 1999, the Company generated
$1,329,670 of cash flow from operating activities as compared to $1,079,272
or an increase of 23% 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 $2,483,055 at September 30, 1999, an
improvement of 78% or $1,084,797 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 September 30, 1999, the Company had available bank
credit lines for working capital totaling $1,350,000, of which approximately
$1,300,000 was unused.
Impact of The Year 2000
- -----------------------
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 completed a previously planned upgrade of its accounting and
reporting systems independent of Year 2000 considerations and installed a Year
2000 compliant system.
The Company has tested the educational software systems that it produces for
sale and believes they are Year 2000 compliant.
The Company has contacted 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 SEPTEMBER 30, 1999
AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1998
- -------------------------------------------------------------
Net sales for the three months ended September 30, 1999, totaled $2,143,201
compared to $1,529,188 for the same period in 1998. This represents an
increase of approximately 40% over the comparable 1998 quarter. The increase
in sales for the third 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.
Cost of goods sold as a percentage of sales revenue for the three months ending
September 30, 1999 decreased to 8.6% from 11.6% 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 $1,580,778 for the three months ended September 30, 1999, compared to
$895,961 for the previous year. As a percentage of sales revenue, operating
expenses increased from 58.6% in 1998 to 73.8% 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 105%, from $438,928 for
the three months ended September 30, 1998, to $898,930 for the current period.
As a percentage of net revenues, these costs increased from 28.7% to 41.9%.
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 expenses, including operations, on a consolidated
basis increased from $394,361 to $574,585, and as a percentage of net revenues
increased from 25.8% to 26.8%. The dollar increase is primarily attributable
to the planned increases in administrative, development and support staff
added over the last nine 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! trademark Version 3.0, the new Java
2-based A+nyWhere Learning System registered trademark and the development
of new curriculum content. In addition, the administrative costs of LPL are
now included in the consolidated corporate results in 1999.
Net income for the three months ended September 30, 1999, was $230,268 compared
to $252,267 for the same period in 1998, or a decrease of 8.7%.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998
- ------------------------------------------------------------
Revenues for the nine months ended September 30, 1999, totaled $6,491,095 as
compared to $4,637,744 for the same 1998 period. This represents an increase
of approximately 40% for the comparable 1999 nine-month period. This
significant increase in the 1999 total company revenues highlights the
increasing acceptance of the Company's A+dvanced Learning System registered
trademark family of products which is now installed in over 7,000 schools,
centers of adult literacy and correctional institutions. The 1999 total
revenues also reflect the inclusion of the results of LPL in the consolidated
financial statements.
Cost of goods sold as a percentage of net revenues for the nine months ended
September 30, 1999, remained constant at 11.0%, the same as the prior year.
AEC's gross margins for the nine-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
$4,218,465 for the nine months ended September 30, 1999, compared to $2,488,059
for the previous year, an increase of approximately 70%. As a percentage of
sales revenue, operating expenses increased from 53.6% in 1998 to 65.0% in
1999 reflecting management's planned investment in company infrastructure to
meet anticipated future growth in both the U.K. and U.S. operations.
On a fully consolidated basis, selling and marketing costs increased by
approximately 83%, from $1,213,963 for the nine months ended September 30, 1998
to $2,225,256 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 U.K. markets.
General and administrative expenses, which include operations and product
development expenditures, increased from $1,107,788 to $1,701,666 on a
consolidated basis. As a percentage of sales, these expenses increased from
23.9% to 26.2%. 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 for new technology and curriculum content.
During the first nine months 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 nine months ended September 30, 1999
was $1,557,769 compared to the $1,693,519 recorded in 1998. Management
believes that these results are excellent in light of intensive development
programs in both the U.S. and the U.K. to prepare the Company for future
growth and the release of a major new product offering later in 1999.
Net income for the nine months ended September 30, 1999 was $964,986 compared
to $1,041,223 for the same period in 1998. Diluted earnings per share were
$.067 in 1999 based on 14,327,615 shares outstanding compared to $.078 in
1998 based on 13,370,007 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 the 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
earlier announced the beta release of A+SSESS Version 3.0 and the A+nyWhere
Learning System, 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 an 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 nine 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 U.K. markets and has, during the first nine months
of 1999, significantly expanded company product offerings, manpower and
distribution strengths.
THE AMERICAN EDUCATION CORPORATION
PART II - OTHER INFORMATION
- ---------------------------
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 September 30, 1999, the Company granted options to
purchase 550,000 shares of the Common Stock at a price of $0.73 per share.
One-third of the options vest immediately, one-third vests after one year and
the remainder vests after two years. Additionally, options to purchase 21,000
shares of the Company's Common Stock at a price of $0.73 per share were issued
to the Company's outside directors under the Director's Stock Option Plan.
These options were issued in private transactions exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
Item 3. Default Upon Senior Securities
- ------------------------------------------
Omitted from this report as inapplicable.
Item 4. Submission of Matters to Vote of Securities Holders
- ---------------------------------------------------------------
None.
Item 5. Other Information
- -----------------------------
Omitted from this report as inapplicable.
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------
The following exhibits have been filed as a part of this report:
Exhibit No. Description of Exhibits
- --------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of The
American Education Corporation (incorporated by
Reference to the exhibit in the Current Report on
Form 8-K filed with the Securities and Exchange
Commission on June 25, 1998)
3.2 Bylaws of The American Education Corporation
(incorporated by reference to the Company's
registration statement filed with the Securities and
Exchange Commission on Form S-8 (File No. 333-89583))
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-8
(File No. 333-89583))
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
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
November 12, 1999
By: Jeffrey E. Butler
Chief Executive Officer
Chairman of the Board
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM - FORM
10-QSB AND IS QUAILFIED IN ITS ENTIRETY BY REFRENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 1,143,484
<SECURITIES> 0
<RECEIVABLES> 2,244,966
<ALLOWANCES> 112,634
<INVENTORY> 185,308
<CURRENT-ASSETS> 3,878,443
<PP&E> 690,299
<DEPRECIATION> 263,528
<TOTAL-ASSETS> 7,312,629
<CURRENT-LIABILITIES> 1,395,388
<BONDS> 0
0
0
<COMMON> 342,331
<OTHER-SE> 5,430,981
<TOTAL-LIABILITY-AND-EQUITY> 7,312,629
<SALES> 6,491,095
<TOTAL-REVENUES> 6,491,095
<CGS> 711,419
<TOTAL-COSTS> 4,218,465
<OTHER-EXPENSES> 18,180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (21,622)
<INCOME-PRETAX> 1,557,769
<INCOME-TAX> 592,783
<INCOME-CONTINUING> 964,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 964,986
<EPS-BASIC> .071
<EPS-DILUTED> .067
</TABLE>
