SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8 - K/A
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
December 1, 1998
(Date of earliest event reported)
The American Education Corporation
(Exact name of registrant as specified in its charter)
Colorado
(State or other jurisdiction of incorporation)
0-11078
Commission File Number
84-0838184
IRS Employer Identification No.
7506 North Broadway Extension, Suite 505, Oklahoma City,
Oklahoma
(Address of principal executive office)
73116
(Zip Code)
(405) 840-6031
Registrant's telephone number, including area code
Item 7. Financial Statements and Exhibits
(a) In accordance with Item 7 (a) (1) of Form 8-K, The American
Education Corporation ( the "Company") files herewith the
required financial statements of Learning Pathways, Limited
("LPL") as an amendment to Form 8-K filed December 15, 1998.
(b) In accordance with Item 7 (b) (2) of Form 8-K, the Company
files herewith the required pro forma financial information of
the Company and LPL as an amendment to the Form 8-K filed on
December 15, 1998.
(c) The following exhibits were filed in accordance with the
provisions of Item 601 of Regulation S-B with the Form 8-K filed
on December 15, 1998:
Exhibit 2.1 Agreement
Exhibit 99.1 Press Release
LEARNING PATHWAYS, LIMITED
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
------------- ---------------
ASSETS
Current Assets:
Cash $ 1,945 $ 12,172
Accounts receivable, net of
allowance for uncollectible
accounts of $3,570 and $0 119,389 68,942
Inventories 20,678 14,899
Prepaid expenses and deposits 21,303 22,427
------------ --------------
Total current assets 163,315 118,440
Property and equipment, at cost 58,913 31,704
less accumulated depreciation
and amortization (4,615) (5,261)
------------ --------------
Net property and equipment 54,298 26,443
Other assets 31,141
Total Assets $ 248,754 $ 144,883
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable trade $ 35,907 $ 62,310
Accrued liabilities 62,517 35,060
Customer deposits 3,581 -
Income taxes payable 22,448 1,836
------------- ---------------
Total current liabilities 124,453 99,206
Stockholders' Equity
Common stock, $1.70 par value
Authorized 500,000 shares
Issued and outstanding
50,000 shares 84,975 41,000
Retained earnings 4,340 -
Year to date earnings 34,986 4,677
------------- --------------
Total stockholders' equity 124,301 45,677
------------- --------------
Total liabilities and
Stockholders' equity $ 248,754 $ 144,883
============= ==============
The accompanying notes are an integral part of the financial
statements.
LEARNING PATHWAYS, LIMITED
STATEMENT OF INCOME
(unaudited)
Nine Period From
Months Ended Incorporation To
September 30, December 31,
1998 1997
------------- ---------------
Net Sales $ 700,651 $ 301,334
Cost of goods sold 277,049 97,419
------------- ---------------
Gross profit 423,602 203,915
Selling, general and
Administrative expenses 368,069 197,401
------------- ---------------
Operating income 55,533 6,514
Current income taxes 20,547 1,837
------------- ---------------
Net income $ 34,986 $ 4,677
============= ===============
The accompanying notes are an integral part of the financial
statements.
LEARNING PATHWAYS, LIMITED
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Period From
Months Ended Incorporation To
September 30, December 31,
1998 1997
------------- ---------------
Cash flows from operating
Activities:
Net Income $ 34,986 $ 4,677
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and amortization 5,176 5,261
Reserve for bad debts 3,750 -
Other 3,501 -
Changes in assets and liabilities:
Accounts receivable (54,017) (68,942)
Inventories (5,779) (14,899)
Prepaid expenses and other 1,124 (22,427)
Accounts payable and accrued
Liabilities 21,666 99,206
Customer deposits 3,581 -
------------- -------------
Net cash provided by
Operating activities 13,988 2,876
------------- -------------
Cash flow from investing
activities:
Increase in other assets (31,141) -
Purchase of property and
equipment (37,049) (31,704)
-------------- -------------
Net cash used in investing
activities (68,190) (31,704)
Cash flows from financing
Activities
Issuance of common stock 43,975 41,000
------------- -------------
Net cash provided by
financing activities 43,975 41,000
------------- -------------
Net increase (decrease)
in cash (10,227) 12,172
Cash at beginning of the
Period 12,172 -
------------- -------------
Cash at end of the period $ 1,945 $ 12,172
============= =============
The accompanying notes are an integral part of the financial
statements.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998
AND THE PERIOD FROM THE DATE OF INCORPORATION TO DECEMBER 31,1997
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Learning Pathways, Limited is an educational products
distribution firm that principally distributes the World Book
Encyclopedia print and multimedia encyclopedia product line in
the United Kingdom. The Company's offices are located in Derby,
England. The Company was incorporated on January 9, 1997.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in
accordance with United States generally accepted principles and
have been stated in U.S. dollars.
INTERIM FINANCIAL STATEMENTS
The interim financial statements include all adjustments which
in the opinion of management are necessary in order to make the
financial statements not misleading.
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.
CASH AND CASH EQIVALENTS
The Company considers all liquid investments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market, on a
first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is
provided on a straight-line basis of the estimated useful life
of the assets, which is four years. Property and equipment at
September 30, 1998 consisted of office equipment totaling
$12,252 and motor vehicles totaling $46,661.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these
estimates.
NOTE 2- COMMON STOCK
Common stock at September 30, 1998 consisted of 500,000 shares
authorized with a par value of one pound sterling. A total of
50,000 shares were issued and outstanding.
NOTE 3- INCOME TAXES
Income taxes have been provided at September 30, 1998 at an
assumed U.S. effective federal and state tax rate of 38%.
NOTE 4- SUBSEQUENT EVENT
Effective October 1, 1998, the stockholders of Learning
Pathways, Ltd. sold all of their common stock to The American
Education Corporation for $165,760 in cash and payables and
510,030 shares of common stock. In addition, 63,754 shares of
stock are contingently issuable in 1999 and again in 2000 if
certain financial targets are achieved. The transaction will be
accounted for as a purchase.
PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated statement of
income for the year ended December 31, 1997 reflects the
historical accounts of The American Education Corporation
("AEC" or "the Company") for that period, adjusted giving
effect to the acquisition, by AEC of Learning Pathways,
Limited as if the event had occurred on the first day of the
period presented. The following unaudited pro forma consolidated
statement of income for the nine months ended September 30, 1998
reflects the historical accounts of the Company for that period,
adjusted giving effect to the acquisition, as if the event had
occurred on the first day of the period presented. The following
unaudited pro forma consolidated balance sheet as of September
30, 1998 reflects the historical accounts of the Company as of
that date as adjusted to give pro forma effect to the
acquisition, as if the event had occurred on September 30, 1998.
The unaudited pro forma consolidated financial data and related
notes should be read in conjunction with the financial
statements and financial information pertaining to the Company
and Learning Pathways, Limited included elsewhere herein and
documents previously filed with the Securities and Exchange
Commission by the Company. The Company believes that the
assumptions used in the following statements provide a
reasonable basis on which to present the unaudited pro forma
financial data. The unaudited pro forma consolidated financial
data are provided for informational purposes only and should not
be construed to be indicative of the Company's financial
condition, results of operations or covenant compliance had the
acquisition transaction described above been consummated on the
dates assumed, and are not intended to project the Company's
financial condition on any future date or its results of
operations for any future period.
UNAUDITED PRO FORMA CONSOLIDATED BLANCE SHEETS
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Historical
-----------------------
The American Learning
Education Pathways Pro Forma Pro Forma
Corporation Limited Adjustments Consolidated
------------ -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 787,449 $ 1,945 $ (82,880)(a)$ 706,514
Accounts receivable 1,385,392 119,389 1,504,781
Inventories 60,820 20,678 81,498
Prepaid expenses
And deposits 243,556 21,303 264,859
Deferred income taxes 15,748 - 15,748
------------ --------- ------------ -----------
2,492,965 163,315 (82,880) 2,573,400
Property and equipment,
at cost 386,720 58,913 445,633
Less accumulated
Depreciation and
Amortization (182,009) (4,615) (186,624)
------------ --------- ------------- ----------
Net property and
Equipment 204,711 54,298 259,009
Other assets:
Capitalized software
costs, net of
amortization 1,035,723 - 1,035,723
Organizational costs 33,793 - 33,793
Goodwill, net of
accumulated
amortization 222,772 - 704,498 (a) 927,270
Other 31,141 31,141
Deferred income
Taxes 874,639 - 874,639
------------- ---------- --------------- -----------
Total other assets 2,166,927 31,141 704,498 2,902,566
------------- ---------- --------------- -----------
Total Assets $ 4,864,603 $ 248,754 $ 621,618 $5,734,975
============= ========== =============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
trade $ 202,261 $ 35,907 $ $ 238,168
Accrued liabilities 324,726 62,517 387,243
Accounts Payable -
affiliate 90,006 - 82,880 (a) 172,886
Customer Deposits 117,703 3,581 121,284
Current portion of
capital lease
obligation 13,412 - 13,412
Income taxes payable 5,154 22,448 27,602
------------- ---------- --------------- -----------
Total current
liabilities 753,262 124,453 82,880 960,595
Long-term debt 26,243 - 26,243
Capital lease
obligation 81,800 - 81,800
------------- ---------- --------------- -----------
Total liabilities 861,305 124,453 82,880 1,068,638
Commitments and contingencies
Stockholders' Equity
Common Stock 322,826 84,975 12,751 (a) 335,577
(84,975)(a)
Additional paid-in
capital 5,503,536 - 650,288 (a) 6,153,824
-
Retained Earnings/
(Deficit) (2,864,287) 4,340 (4,340)(a) (2,864,287)
Year to date
earnings 1,041,223 34,986 (34,986)(a) 1,041,223
------------- ---------- --------------- -----------
Total stockholders'
equity 4,003,298 124,301 538,738 4,666,337
------------- ---------- --------------- -----------
Total liabilities and
stockholders'
equity $ 4,864,603 $ 248,754 $ 621,618 $5,734,975
============= ========== =============== ===========
</TABLE>
See notes to Unaudited Pro Forma Consolidated Balance Sheet.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED September 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Historical
-----------------------
The American Learning
Education Pathways Pro Forma Pro Forma
Corporation Limited Adjustments Consolidated
------------ -------- ----------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 4,637,744 $700,651 $ - $ 5,338,395
Cost of goods sold 512,540 277,049 - 789,589
------------ -------- ------------ ------------
Gross Profit 4,125,204 423,602 - 4,548,806
Operating Expenses 2,362,662 368,069 39,996 (a) 2,770,727
Operating income 1,762,542 55,533 (39,996) 1,778,079
Other income (expense) (69,023) - - (69,023)
------------ --------- ------------ -------------
Net income before
taxes 1,693,519 55,533 (39,996) 1,709,056
Income taxes 652,296 20,547 - 672,843
------------ --------- ------------ -------------
Net income $ 1,041,223 $ 34,986 $ (39,996) $ 1,036,213
============ ========= ============ =============
Basic 12,323,579 510,030 12,833,609
Earnings per share $ 0.084 $ 0.081
============ ============
Diluted 13,370,007 510,030 13,880,037
Earnings per share $ 0.078 $ 0.075
============ ============
</TABLE>
See notes to Unaudited Pro Forma Consolidated Statements of Income
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Historical
-----------------------
The American Learning
Education Pathways Pro Forma Pro Forma
Corporation Limited Adjustments Consolidated
------------ -------- ----------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 3,670,654 $301,334 $ - $ 3,971,988
Cost of goods sold 266,980 97,419 - 364,399
------------ -------- ------------ ------------
Gross Profit 3,403,674 203,915 - 3,607,589
Operating Expenses 2,514,394 197,401 52,275 (a) 2,764,070
------------ -------- ------------ ------------
Operating income 889,280 6,514 (52,275) 843,519
Other income (expense) 112,630 - - 112,630
------------ --------- ------------ -------------
Net income before
taxes 1,001,910 6,514 (52,275) 956,149
Income taxes 315,564 1,837 - 317,401
Change in valuation
allowance-beginning
of year (1,825,206) (1,825,206)
------------- --------- ----------- -------------
Net income $ 2,511,552 $ 4,677 $ (52,275) $ 2,463,954
============ ========= ============ =============
Basic 12,178,567 510,030 12,688,597
Earnings per share $ 0.206 $ 0.194
============ ============
Diluted 13,211,071 510,030 13,721,101
Earnings per share $ 0.190 $ 0.180
============ ============
</TABLE>
See notes to Unaudited Pro Forma Consolidated Statements of Income
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(a) Represents the amortization over an assumed useful life of
15 years, of the goodwill resulting from the acquisition of
Learning Pathways, Limited.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Represents the preliminary allocation of the purchase price
of the Learning Pathways acquisition based on the estimated fair
value of the net assets acquired. The estimated purchase price
allocation consists of the following:
Consideration: Cash $ 82,880
Account payable 82,880
Common stock 663,039
Total 828,799
Less: Estimated fair
value of tangible
net assets acquired 124,301
Excess of purchase price
Over fair value of net
tangible assets
acquired $ 704,498
Acquisition expenses are assumed to be immaterial to this
transaction.
There are no intercompany transactions to be eliminated in the
pro forma financial statements.
Signatures
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
The American Education Corporation
Date: February 11, 1999,
By: /s/Jeffrey E. Butler, Sr.
Chairman of the Board of Directors
President and Chief Executive Officer
