<PAGE> 1
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
Date of Report (date of earliest event reported): November 1, 1998
PEOPLES EDUCATIONAL HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 2-86551C 41-1368898
--------- -------- ----------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
230 W. Passaic Street, Maywood NJ 07607
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 712-1142
Former Name of Registrant: Concourse Corporation
<PAGE> 2
The registrant filed on November 16, 1998 a current report on Form 8-K relating
to the merger in which Peoples Acquisition Corporation, a wholly-owned
subsidiary of the registrant, merged with and into The Peoples Publishing Group,
Inc., a Delaware corporation. The purpose of this amendment is to provide the
financial statements and information required by Item 7 of the Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired:
Exhibits 99.1, 99.2 and 99.3 filed herewith contain the following financial
statements of The Peoples Publishing Group, Inc:
Exhibit 99.1 Year Ended December 31, 1997
Independent Auditors' Report
Balance Sheet as of December 31, 1997
Statement of Operations for Year Ended December 31, 1997
Statement of Cash Flows for Year Ended December 31, 1997
Statement of Changes In Stockholders' Equity for Year
Ended December 31, 1997
Notes to Financial Statements
Exhibit 99.2 Year Ended December 31, 1996
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Operations for Year Ended December 31, 1996
Statement of Cash Flows for Year Ended December 31, 1996
Statement of Changes In Stockholders' Equity for Year
Ended December 31, 1996
Notes to Financial Statements
Exhibit 99.3 Nine Months Ended September 30, 1998 (Unaudited)
Balance Sheet as of September 30, 1998
Statement of Operations for Nine Months Ended September
30, 1998
Statement of Cash Flows for Nine Months Ended September
30, 1998
Schedule of Retained Earnings for Nine Months Ended
Sept. 30, 1998
(b) Pro forma financial information:
Exhibit 99.4 filed herewith contains the following pro forma financial
statements:
Exhibit 99.4 Introductory Paragraph to Pro Forma Information
Unaudited Pro Forma Consolidated Balance Sheet as of September
30, 1998
Unaudited Pro Forma Consolidated Statement of Operations for
Nine Months Ended September 30, 1998
Unaudited Pro Forma Consolidated Statement of Operations for
Year Ended December 31, 1997
(c) Exhibit 23, Consent of Pollack & Culnen, Certified Public Accountants
2
<PAGE> 3
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.
Peoples Educational Holdings, Inc.
Dated: January 15, 1999 By /s/ James J. Peoples
-----------------------
James J. Peoples, Chairman, President and Chief
Executive Officer
3
<PAGE> 1
Exhibit 23
[Pollack & Culnen Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated March 24, 1998 (January 14, 1999 solely with respect to Note 12), and
March 26, 1997 (January 14, 1999 solely with respect to Note 7), on the
financial statements of The Peoples Publishing Group, Inc. as of and for the
year ended December 31, 1997, and as of and for the year ended December 31,
1996, included in this Form 8-K. It should be noted that we have not audited any
financial statements of The Peoples Publishing Group, Inc., subsequent to
December 31, 1997, or performed any audit procedures subsequent to the date of
our report.
Pollack & Culnen, CPA's
/s/ Kevin Pollack, CPA
Kevin J. Pollack, CPA
For The Firm
River Edge, New Jersey
January 14, 1999
<PAGE> 1
EXHIBIT 99.1
THE PEOPLES PUBLISHING GROUP INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
<PAGE> 2
THE PEOPLES PUBLISHING GROUP INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
C O N T E N T S PAGE NO.
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
BALANCE SHEET AS OF DECEMBER 31, 1997 2-3
STATEMENT OF OPERATIONS FOR THE YEAR ENDED 4
DECEMBER 31, 1997
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 5-6
DECEMBER 31, 1997
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY 7
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTES TO FINANCIAL STATEMENTS 8-17
<PAGE> 3
[POLLACK & CULNEN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders of
The Peoples Publishing Group Inc.
We have audited the accompanying balance sheet of The Peoples Publishing Group,
Inc. as of December 31, 1997 and the related statements of changes in
stockholders' equity, operations and cash flows for the year then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement . An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements . An audit also includes
assessing the accounting principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Peoples Publishing Group,
Inc. as of December 31, 1997 and the results of operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
These financial statements have been restated from those originally issued. See
note 12.
/s/ Pollack & Culnen
March 24, 1998 (January 14, 1999 as to note 12)
River Edge, New Jersey
<PAGE> 4
THE PEOPLES PUBLISHING GROUP INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $182,116
Accounts Receivable (Note 3) 646,301
Inventory (Note 2) 336,897
Prepaid Catalog Expenses 61,189
Deferred Income Taxes (Note 9) 125,704
Prepaid Expenses 1,500
Deferred Prepublication Costs (Note 4) 128,088
Advance Royalties 50,040
--------
TOTAL CURRENT ASSETS $ 1,531,835
EQUIPMENT - At Cost, Less Accumulated
Depreciation of $ 55,247 (Note 5) 64,003
OTHER ASSETS
Advance Royalties 23,225
Deferred Income Taxes (Note 9) 200,763
Deferred Prepublication Costs (Note 4) 149,928
Intangible Assets, net (Note 6) 160,683
Security Deposits 4,695
--------
TOTAL OTHER ASSETS 539,294
TOTAL ASSETS $ 2,135,132
===========
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-2-
<PAGE> 5
THE PEOPLES PUBLISHING GROUP INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
<S> <C> <C>
Accounts Payable $ 688,295
Accrued Expenses (Note 10) 100,240
Notes Payable (Note 7) 57,168
Corporate Taxes Payable 3,420
----------
TOTAL CURRENT LIABILITIES $ 849,123
COMMITMENTS (Notes 11 and 14)
MANDATORY REDEEMABLE PREFERRED STOCK
Redeemable Cumulative Convertible Preferred Stock, Par Value
$ .001 6,000,000 shares authorized. 1,958,120 shares issued and
outstanding at redemption value plus accrued dividends (Note 13) 2,550,764
STOCKHOLDER'S EQUITY (DEFICIT)
Common Stock, Par Value $.001; 9,000,000
Shares Authorized, 500,000 Shares Issued
and Outstanding (Note 15) 500
Additional Paid In Capital 9,500
Retained Earnings (Deficit) (1,274,755)
----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,264,755)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $2,135,132
==========
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-3-
<PAGE> 6
THE PEOPLES PUBLISHING GROUP INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Net Sales (Note 8) $ 4,528,065
Cost of Sales 2,528,258
-----------
Gross Profit 1,999,807
Selling and Administrative Expenses 1,691,890
-----------
Income from Operations 307,917
Other Income (Expenses)
Interest Income 14,033
Interest Expense (20,728)
-----------
Income Before Taxes 301,222
Income Tax Provision (Note 9) 125,721
-----------
Net Income 175,501
Preferred Stock Dividends (Note 13) 95,841
-----------
Net Income Applicable to Common Stockholders $ 79,660
===========
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-4-
<PAGE> 7
THE PEOPLES PUBLISHING GROUP INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 175,501
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation $ 15,313
Amortization 49,294
--------
64,607
---------
Subtotal 240,108
Decrease (Increase) in Assets:
Accounts Receivable (391,535)
Inventory (194,327)
Prepaid Expenses 9,253
Pre-Publication Costs (92,884)
Prepaid Catalog Expenses 8,121
Advance Royalties (39,199)
Deferred Income Taxes 122,201
Increase (Decrease) in Liabilities:
Accounts Payable 356,240
Accrued Expenses 22,970
Deferred Revenue (4,935)
Corporate Taxes Payable 1,300
--------
Total Adjustments (202,795)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 37,313
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-5-
<PAGE> 8
THE PEOPLES PUBLISHING GROUP INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES - continued $ 37,313
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Fixed Assets (30,662)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Loans (121,365)
---------
Net Decrease in Cash and Cash Equivalents (114,714)
Cash and Cash Equivalents at Beginning of Year 296,830
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 182,116
=========
Supplemental Cash Flow Information:
Cash payments for interest $ 20,719
Cash payments for income taxes 2,220
Non Cash Activities:
Increase in mandatory redeemable preferred stock, and
decrease in retained earnings (deficit) from
accrued dividends 95,841
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-6-
<PAGE> 9
THE PEOPLES PUBLISHING GROUP INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
----- ------- --------- -----
<S> <C> <C> <C> <C>
Balance, January 1, 1997, as restated $ 500 $ 9,500 $(1,354,415) $(1,344,415)
(Note 12)
Accrued dividends on mandatory
redeemable preferred stock (Note 13) 0 0 (95,841) (95,841)
Net Income 0 0 175,501 175,501
----------- ----------- ----------- -----------
Balance, December 31, 1997 $ 500 $ 9,500 $(1,274,755) $(1,264,755)
=========== =========== =========== ===========
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-7-
<PAGE> 10
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The company was organized in 1989 as a Delaware corporation. It is
engaged in the publication and distribution of school instructional
material. It began operating in March of 1990 when it acquired a segment
of New Readers Press, a division of Laubach Literacy International. The
intangible assets exclusive of organization costs as shown on the balance
sheet arose from this acquisition. A summary of the company's accounting
policies that affect the more significant elements of the financial
statements is stated below.
INVENTORY
Inventory is stated as lower of cost or market which is determined using
the first-in, first-out methods.
DEPRECIATION
Property and equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of the assets using the straight line
method. Maintenance and repairs are charged to expense as incurred; major
renewals or improvements are capitalized. On sale or retirement of
property and equipment, the related costs and accumulated depreciation
are removed from the accounts and any gain or loss is included in the
results of current operations.
Depreciation provisions have been computed based upon the following
estimated lives:
Computer and Office Furniture 5 - 7 years
ACCOUNTING FOR LONG-LIVED ASSETS
The company generates operating revenue with its long-lived assets and
builds up an acceptable revenue bas and related cash flows. Management
has and will continue, on a periodic basis, to closely evaluate its
equipment, deferred prepublication costs and intangible assets to
determine potential impairment by comparing their carrying value with the
estimated future net undiscounted cash flows expected to result from the
use of the assets, including cash flows from disposition. Should the sum
of the expected future net cash flows be less than the carrying value,
the Company would recognize an impairment loss at that date. An
impairment loss would be measured by comparing the amount by which the
carrying value exceeds the fair value (estimated discounted future cash
flows or appraisals of assets) of the long-lived assets. To date,
management has determined that no impairment of long-lived assets exists.
See Independent Auditors Report.
-8-
<PAGE> 11
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1) SUMMARY OF SIGNIFICANT POLICIES - continued
DEFERRED PRE-PUBLICATION COSTS
Pre-publication costs of new books consist primarily of freelance page
make-up, outside editorial, design, layout, art, photo services,
mechanicals, film, plate preparation charges, and photo and text
permissions. These costs are amortized over three years by the
straight-line method from the date of initial publication.
PREPAID CATALOG EXPENSES
The cost of Catalogs, which have not been mailed to customers are
capitalized until the actual date of mailings. An expense is recognized in
the financial statements of the company in the period in which they are
actually mailed.
ADVANCE ROYALTIES
Advance royalties are capitalized as incurred, and these costs are expensed
when earned by the authors.
INTANGIBLE ASSETS
Intangible Assets are amortized using the straight-line method over the
following useful lives:
Copyrights 10 years
Trade-Name Rights 3.5 years
Goodwill 40 years
Restrictive Covenant 3 years
Organization Costs 5 years
USE OF ESTIMATES
In preparing financial statements in conformity with Generally Accepted
Accounting Principles (GAAP), management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
See Independent Auditors' Report
-9-
<PAGE> 12
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
1) SUMMARY OF SIGNIFICANT POLICIES - continued
FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial statements include the following financial instruments and
methods and assumptions used in estimating their fair value: for cash and
cash equivalents, the carrying amount is fair value; for trade accounts
receivable and accounts payable, the carryingamounts approximate their fair
values due to the short term nature of these instruments; and for the fixed
rate notes payable fair value has been estimated based on discounted cash
flows using interest rates being offered for similar borrowings. No
separate comparison of fair values versus carrying values is presented for
the aforementioned financial instrumentssince their fair value are not
significantly different than their balance sheet carrying amounts. In
addition, the aggregate fair values of financial instruments would not
represent the underlying value of the company.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the company considers all
short-term securities purchases with a maturity of three months or less
to be cash equivalents.
REVENUE RECOGNITION
Generally, the company recognizes sales upon shipments and estimates sales
returns if right of return exists. The reserve for sales returns as of
December 31, 1997 is $163,433 and is a reduction to accounts receivable.
The reserve for the related cost of sales returns is $156,675 and is a
reduction of accounts payable due to the right of return. A credit for cost
of sales reserves is pending based upon actual sales returns.
2) INVENTORY
Inventories at December 31, 1997 include cost of material shipped of
$ 84,777, and finished goods of $ 252,120.
See Independent Auditors' Report
-10-
<PAGE> 13
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
3) ACCOUNTS RECEIVABLE
Accounts receivable as of December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Trade accounts receivable 829,788
Less allowance for doubtful accounts (20,053)
Less reserve for estimated sales returns (163,434)
---------
Net accounts receivable 646,301
=========
4) DEFERRED PREPUBLICATION COSTS
The activity in deferred Prepublication Costs and the balance
as of December 31, 1997 is as follows:
Prepublication Costs - January 1, 1996 $ 464,100
Accumulated Amortization - January 1, 1996 (278,968)
---------
Net 185,132
Capitalized prepublication costs - current year 205,660
Amortization expense - current year (112,776)
---------
Balance as of December 31, 1997 $ 278,016
=========
The amount to be amortized over the next twelve months is
$ 128,088, which is reflected as a current asset. The
non-current portion is $ 149,928.
5) EQUIPMENT
Equipment consisted of the following at December 31, 1997.
Furniture and Fixtures $ 27,411
Computer Equipment 91,839
Accumulated Depreciation (55,247)
---------
Net $64,003
=========
</TABLE>
See Independent Auditors' Report
-11-
<PAGE> 14
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
6) INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1997.
<TABLE>
<S> <C>
Copyrights $ 658,513
Future List Royalty 124,129
Trade Name Rights 50,000
Goodwill 25,000
Restrictive Covenant 100,000
Organization Costs 1,244
-----------
958,886
Accumulated Amortization (798,203)
----------
Net $ 160,683
==========
</TABLE>
Amortization Expense for 1997 was $ 49,294 which includes $ 6,022 of
royalty expense for future list royalties which is reflected in Cost of
Sales. The majority of intangible assets arose as a result of a business
transaction and are recorded at acquisition cost.
7) NOTES PAYABLE
<TABLE>
<CAPTION>
Current Long-Term
Portion Portion Total
------- ------- -----
<S> <C> <C> <C>
Riverside Bank - Installment Loan $ 57,168 $ -0- $ 57,168
======== ====== ========
</TABLE>
The company obtained a $ 200,000 installment loan from Riverside Bank on
November 12, 1993. The term of the loan is five years and monthly payments
are $ 4,100 consisting of principal and interest charged at a rate of 2.5
points above the bank's index. The loan is due to mature on November 12,
1998. Intangible Assets are pledged as security. Cherry Tree Ventures III,
a limited partnership, which owns the majority of the issued and
outstanding shares of capital stock of the company, has agreed to purchase
the outstanding principal and interest balance of the loan from the lender,
in the event that the company defaults on the loan.
The company has a line of credit for working capital needs with Riverside
Bank. Advances are limited to the lesser of 75% of the aggregate amount of
eligible accounts receivable or $ 250,000. The line of credit was increased
to $ 500,000 upon receipt of the June 30, 1997 borrowing base certificate.
Effective November 1, 1997 through the remainder of the term (April 16,
1998), the maximum availability is reduced to $ 250,000. The amount of the
line of credit varies due to the seasonal variation in the company's
business. There were no borrowings outstanding as of December 31, 1997.
See Independent Auditors' Report
-12-
<PAGE> 15
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
8) DEFERRED SALES
At year end the company had shipments of sales in the amount of $ 600,007
which are not being recognized as revenue as of December 31, 1997. The
company accounts for its revenue using Financial Accounting Standard No. 48
which recognizes revenue when a reasonable estimate of the future returns
can be determined. Due to the nature of the sale and due to the fact the
buyer has the right to return the merchandise purchased, the company cannot
determine a reasonable estimate of the future returns. The company will
recognize the revenue and cost of sales when the right of return lapses.
The company has also not recognized $53,000 in royalties related to the
aforementioned shipments
9) INCOME TAXES
The company accounts for its income taxes using the Financial Accounting
Standards No. 109 which requires the establishment of a deferred tax asset
or liability for the recognition of future deductible or taxable amounts
and operating loss and tax credit carryfowards. Deferred tax expense or
benefit is recognized as a result of the changes in the deferred assets and
liabilities during the year.
Deferred tax assets as of December 31, 1997 consisted of the following
<TABLE>
<S> <C>
Current $125,704
Noncurrent 200,763
-------
Total 326,467
=======
</TABLE>
The company's deferred tax assets represent the tax effects of a net
operating loss carryfoward and deductible temporary differences in
reporting amortization, reserve for uncollectible accounts receivable, and
tax inventory adjustments. Taxes are computed at statutory federal rates of
35% and state tax rate of 9%
Income tax expense for the year ended December 31, 1997 consisted of the
following:
<TABLE>
<S> <C>
Current $ 3,520
Deferred 122,201
---------
Total $ 125,721
=========
</TABLE>
At December 31, 1997, the company has federal net operating loss
carryfowards of $ 246,649 due to expire December 31, 2008.
See Independent Auditors' Report
-13-
<PAGE> 16
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
10) ACCRUED EXPENSES
The components of accrued expenses are as follows:
<TABLE>
<S> <C>
Compensation $ 74,656
Professional Fees 14,592
Catalog Expenses 6,800
Other 4,192
--------
Total $100,240
========
</TABLE>
11) COMMITMENTS
The company is obligated under the following operating leases. The company
renewed the lease for the rental of its premises in October 1996, for an
additional three years. The lease expires in September 1999. Monthly
payments are currently $ 3,368, and will increase each year, based upon the
consumer price index. The company leases two automobiles under 38 and 36
month operating leases. The company leases office equipment under operating
leases that range from 36 to 63 months in duration.
Future minimum rental obligations under the operating leases is as follows.
<TABLE>
<S> <C>
1998 55,526
1999 43,719
2000 6,084
2001 4,766
--------
Total $110,095
========
</TABLE>
12) RESTATEMENT OF FINANCIAL STATEMENTS
These financial statements have been restated from those originally issued
to properly reflect prepaid catalog expenses, deferred income taxes, and
mandatory redeemable preferred stock. For more details please refer to note
7 in the company's December 31, 1996 financial statement.
See Independent Auditors' Report
-14-
<PAGE> 17
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
13) MANDATORY REDEEMABLE PREFERRED STOCK
The company has authorized 6,000,000 shares of preferred stock for
designation and issuance, of which, 4,041,880 were not designated as of
December 31, 1997.
Shareholders of 1990 and 1993 preferred stock are entitled to cumulative
quarterly dividends at the rates of $ .042 and $ .062, respectively, per
share per annum . The preferred stock has a liquidating value of $ .84624
and $ 1.25 , respectively, plus unpaid accumulated dividends prior to
payments to common stock stockholders.
Under a required redemption provision, commencing on August 24, 1998, the
company is required to redeem one third of preferred stock from each
shareholder, if adequate cash funds are available, at a price equal to the
liquidating value.
Each share is convertible at the option of the holder into one common share
subject to a possible adjustment for non-cash dividends.
The company is party to a stockholder agreement among certain holders of
common stock and 1990 and 1993 convertible preferred stock, which requires
the approval of a majority of the preferred stockholders party to the
agreement, for significant corporate transactions. In addition, the holders
of preferred stock are entitled up to two directors.
14) EMPLOYMENT AGREEMENTS
The company has employment agreements with two of its officers, James
Peoples and Diane Miller. These agreements are renewed on a periodic basis
and provide for annual base salary which is not subject to annual
increases. The agreements provide for an annual bonus if certain
established revenue goals are met.
See Independent Auditors' Report
-15-
<PAGE> 18
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
15) STOCK OPTIONS
The company has a 1993 Stock Option Plan effective August 24, 1993 and
amended and restated July 28, 1997 (The Plan). The plan permit the granting
of incentive stock options and nonqualified options. A total of 250,000
shares of the Company's common stock have been reserved for issuance
pursuant to options granted under the 1993 Plan.
Grants under the Plan are accounted for following APB Opinion No. 25 and
related interpretations. Had compensation cost for the options been
determined using the fair value method required by FASB Statement No. 123,
the company's net income on a proforma basis for 1997, would have been as
follows:
<TABLE>
<CAPTION>
Net Income:
<S> <C>
As Reported................................$ 175,501
Pro forma................................... 175,501
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants: risk-free interest rate of 6%
for 1997, expected lives of 10 years, and expected volatility of 0%.
See Independent Auditors' Report
-16-
<PAGE> 19
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
15) STOCK OPTIONS - (Continued)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted-
Average Weighted
Grant Average
Fair Value Shares Exercise Price
---------- ------ --------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 100,000 $ 1.25
Granted........................................ 0.55 80,000 $ 1.25
Exercised...................................... 0
-------
Outstanding at December 31, 1997 180,000 $ 1.25
=======
</TABLE>
The following table summarizes additional information about stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Number
Number Contractual of Options
Range of of Options Lives Exercisable at
Exercise Prices Outstanding ( In Years) Dec. 31, 1997
--------------- ----------- ----------- -------------
<S> <C> <C> <C>
$1.25............................................ 180,000 4.5 100,000
======= =======
</TABLE>
See Independent Auditors' Report
-17-
<PAGE> 1
EXHIBIT 99.2
THE PEOPLES PUBLISHING GROUP INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
<PAGE> 2
THE PEOPLES PUBLISHING GROUP INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
C O N T E N T S PAGE NO.
--------------- --------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
BALANCE SHEET AS OF DECEMBER 31, 1996 2-3
STATEMENT OF OPERATIONS FOR THE YEAR ENDED 4
DECEMBER 31, 1996
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 5-6
DECEMBER 31, 1996
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY 7
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTES TO FINANCIAL STATEMENTS 8-17
<PAGE> 3
[POLLACK & CULNEN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders of
The Peoples Publishing Group Inc.
We have audited the accompanying balance sheet of The Peoples Publishing Group,
Inc. as of December 31, 1996 and the related statements of changes in
stockholders' equity, operations and cash flows for the year then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement . An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements . An audit also includes
assessing the accounting principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Peoples Publishing Group,
Inc. as of December 31, 1996 and the results of operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
These financial statements have been restated from those originally issued. See
note 7.
/s/ Pollack & Culnen
March 26, 1997 (January 14, 1999 as to note 7)
River Edge, New Jersey
<PAGE> 4
THE PEOPLES PUBLISHING GROUP INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $296,830
Accounts Receivable ( Net of Allowance
for Doubtful Accounts of $ 9,297) 254,766
Inventory 142,570
Prepaid Catalog Expenses (Note 7) 69,310
Deferred Income Taxes (Note 8) 122,095
Prepaid Expenses 10,753
Deferred Prepublication Costs (Note 2) 87,378
Advance Royalties 6,866
----------
TOTAL CURRENT ASSETS $ 990,568
EQUIPMENT - At Cost, Less Accumulated
Depreciation of $ 39,934 (Note 4) 48,654
OTHER ASSETS
Advance Royalties 27,200
Deferred Income Taxes (Note 8) 326,572
Deferred Prepublication Costs (Note 2) 97,754
Intangible Assets, net (Note 5) 209,977
Security Deposits 4,695
----------
TOTAL OTHER ASSETS 666,198
-----------
TOTAL ASSETS $ 1,705,420
===========
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-2-
<PAGE> 5
THE PEOPLES PUBLISHING GROUP INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
<S> <C> <C>
Accounts Payable $ 284,933
Accrued Expenses (Note 9) 77,269
Notes Payable (Note 6) 168,803
Deferred Revenue 4,935
Corporate Taxes Payable 2,120
----------
TOTAL CURRENT LIABILITIES $ 538,060
LONG TERM LIABILITIES
Notes Payable (Note 6) 56,852
TOTAL LIABILITIES 594,912
COMMITMENTS (Notes 10 and 12)
MANDATORY REDEEMABLE PREFERRED STOCK (Note 11)
Redeemable Cumulative Convertible Preferred Stock, Par Value
$ .001 6,000,000 shares authorized. 1,958,120 shares issued and
outstanding, at redemption value plus accrued dividends. (Note 11) 2,454,923
STOCKHOLDERS' EQUITY (DEFICIT) (Note 7)
Common Stock, Par Value $.001; 9,000,000
Shares Authorized, 500,000 Shares Issued
and Outstanding 500
Additional Paid In Capital 9,500
Retained Earnings (Deficit) (1,354,415)
----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,344,415)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,705,420
===========
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-3-
<PAGE> 6
THE PEOPLES PUBLISHING GROUP INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Net Sales $ 2,081,832
Cost of Sales 567,365
-----------
Gross Profit 1,514,467
Selling and Administrative Expenses 1,298,553
-----------
Income from Operations 215,914
Other Income (Expenses)
Interest Income 8,747
Interest Expense (29,177)
Loss on Sale of Fixed Assets (204)
------------
Income Before Taxes 195,280
Income Tax Provision 93,749
-----------
Net Income 101,531
Preferred Stock Dividends 95,841
-----------
Net Income Applicable to Common Stockholders $ 5,690
===========
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-4-
<PAGE> 7
THE PEOPLES PUBLISHING GROUP INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 101,531
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation $ 11,778
Amortization 50,229
Loss on Sale of Fixed Assets 204
--------
62,211
---------
Subtotal $ 163,742
Decrease (Increase) in Assets:
Accounts Receivable (60,972)
Inventory (10,714)
Prepaid Expenses 1,449
Pre-Publication Costs 11,520
Security Deposits (250)
Prepaid Catalog Expenses (37,406)
Advance Royalties 3,091
Deferred Income Taxes 91,529
Increase (Decrease) in Liabilities:
Accounts Payable (97,267)
Accrued Expenses 2,990
Deferred Revenue (8,446)
Corporate Taxes Payable 200
--------
Total Adjustments (104,276)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 59,466
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-5-
<PAGE> 8
THE PEOPLES PUBLISHING GROUP INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES - continued $ 59,466
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Fixed Assets (15,346)
Proceeds from Sale of Fixed Assets 500
-------
Net Cash Flows From Investing Activities (14,846)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Installment Note (36,240)
---------
Net Increase in Cash and Cash Equivalents 8,380
Cash and Cash Equivalents at Beginning of Year 288,450
---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 296,830
=========
Supplemental Cash Flow Information:
Cash payments for interest $32,811
Income Taxes 2,020
Non Cash Activities:
Increase in mandatory redeemable preferred stock, and
decrease in retained earnings (deficit) from
accrued dividends 95,841
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-6-
<PAGE> 9
THE PEOPLES PUBLISHING GROUP INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
----- ------- --------- -----
<S> <C> <C> <C> <C>
Balance, beginning of year as
previously reported $500 $9,500 $(1,062,896) $(1,052,896)
Prior Period Adjustment
(Note 7) 0 0 (297,209) (297,209)
---- ------ ----------- -----------
Balance, beginning of year
restated 500 9,500 (1,360,105)
(1,350,105)
Accrued dividends on mandatory
redeemable preferred stock (NOTE 11) 0 0 (95,841) (95,841)
Net Income 0 0 101,531 101,531
---- ------ ----------- -----------
Balance, December 31, 1996 $500 $9,500 (1,354,415) (1,344,415)
==== ====== =========== ===========
</TABLE>
See Independent Auditors' Report And Notes To Financial Statements
-7-
<PAGE> 10
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The company was organized in 1989 as a Delaware corporation. It is
engaged in the publication and distribution of school instructional
material. It began operating in March of 1990 when it acquired a
segment of New Readers Press, a division of Laubach Literacy
International. The intangible assets exclusive of organization costs as
shown on the balance sheet arose from this acquisition. A summary of
the company's accounting policies that affect the more significant
elements of the financial statements is stated below.
INVENTORY
Inventory is stated at lower of cost or market which is determined
using the first-in, first-out methods. Inventory consists only of
finished goods.
DEPRECIATION
Property and equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of the assets using the straight line
method. Maintenance and repairs are charged to expense as incurred;
major renewals or improvements are capitalized. On sale or retirement
of property and equipment, the related costs and accumulated
depreciation are removed from the accounts and any gain or loss is
included in the results of current operations.
Depreciation provisions have been computed based upon the following
estimated lives:
Computer and Office Furniture 5 - 7 years
ACCOUNTING FOR LONG-LIVED ASSETS
The company generates operating revenue with its long-lived assets and
builds up an acceptable revenue base and related cash flows. Management
has and will continue, on a periodic basis, to closely evaluate its
equipment, deferred prepublication, and intangible assets, to determine
potential impairment by comparing their carrying value with the
estimated future net undiscounted cash flows expected to result from
the use of the assets, including cash flows from disposition. Should
the sum of the expected future net cash flows be less than the carrying
value, the Company would recognize an impairment loss at that date. An
impairment loss would be measured by comparing the amount by which the
carrying value exceeds the fair value (estimated) discounted future
cash flows or appraisals of assets) of the long-lived assets. To date,
management has determined that no impairment of long-lived assets
exists.
See Independent Auditors Report.
-8-
<PAGE> 11
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1) SUMMARY OF SIGNIFICANT POLICIES - continued
DEFERRED PRE-PUBLICATION COSTS
Pre-publication costs of new books consist primarily of freelance page
make-up, outside editorial, design, layout, art, photo services,
mechanicals, film, plate preparation charges, and photo and text
permissions. These costs are amortized over three years by the
straight-line method from the date of initial publication.
PREPAID CATALOG EXPENSES
The cost of Catalogs, which have not been mailed to customers are
capitalized until the actual date of mailings. An expense is recognized
in the financial statements of the Company in the period in which they
are actually mailed.
ADVANCE ROYALTIES
Advance royalties are capitalized as incurred, and these costs are
expensed when earned by the authors.
INTANGIBLE ASSETS
Intangible Assets are amortized using the straight-line method over the
following useful lives:
Copyrights 10 years
Trade-Name Rights 3.5 years
Goodwill 40 years
Restrictive Covenant 3 years
Organization Costs 5 years
USE OF ESTIMATES
In preparing financial statements in conformity with Generally Accepted
Accounting Principles (GAAP), management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during
the reporting period. Actual results could differ from those estimates.
See Independent Auditors' Report
-9-
<PAGE> 12
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
1) SUMMARY OF SIGNIFICANT POLICIES - continued
FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial statements include the following financial instruments
and methods and assumptions used in estimating their fair value: for
cash and cash equivalents, the carrying amount is fair value; for trade
accounts receivable and accounts payable, the carrying amounts
approximate their fair values due to the short term nature of these
instruments; and for the fixed rate notes payable fair value has been
estimated based on discounted cash flows using interest rates being
offered for similar borrowings. No separate comparison of fair values
versus carrying values is presented for the aforementioned financial
instruments since their fair value are not significantly different than
their balance sheet carrying amounts. In addition, the aggregate fair
values of financial instruments would not represent the underlying
value of the company.
REVENUE RECOGNITION
Generally, the company recognizes sales upon shipments and estimates
sales returns if right of return exists.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the company considers all
short-term securities purchases with a maturity of three months or less
to be cash equivalents.
2) DEFERRED PREPUBLICATION COSTS
The activity in deferred prepublication costs and the balance as of
December 31, 1996 is as follows:
Prepublication Costs - December 31, 1995 $ 392,297
Accumulated Amortization - December 31, 1995 (195,644)
---------
Net 196,653
Capitalized prepublication costs - current year 71,803
Amortization expense - current year (83,324)
Balance as of December 31, 1996 $ 185,132
=========
The amount to be amortized over the next twelve months is $ 87,378,
which is reflected as current asset. The non-current portion is
$97,754.
See Independent Auditors' Report
-10-
<PAGE> 13
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
3) ACCOUNTS RECEIVABLE
<S> <C>
Trade Accounts Receivable $ 264,063
Less: Allowance for Doubtful Accounts (9,297)
---------
Net Accounts Receivable $ 254,766
=========
4) EQUIPMENT
Equipment consisted of the following at December 31, 1996
Furniture and Fixtures $ 23,036
Computer 65,552
Accumulated Depreciation (39,934)
---------
Net $ 48,654
=========
5) INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996
Copyrights $ 658,513
Future List Royalty 124,129
Trade Name Rights 50,000
Goodwill 25,000
Restrictive Covenant 100,000
Organization Costs 1,244
---------
958,886
Accumulated Amortization (748,909)
---------
Net $ 209,977
=========
</TABLE>
Amortization Expense for 1996 was $ 50,229 which includes $ 6,957 of
royalty expense for future list royalties which is reflected in Cost of
Sales.
The majority of intangible assets arose as a result of a business
transaction and are recorded at cost.
See Independent Auditors' Report
-11-
<PAGE> 14
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
6) NOTES PAYABLE
<TABLE>
<CAPTION>
Current Long-Term
Portion Portion Total
------- ------- -----
<S> <C> <C> <C>
Riverside Bank - Installment Loan $ 40,681 $56,852 $ 97,533
Riverside Bank - Line of Credit 81,000 -0- 81,000
Vicks Lithograph and Print Corp.-
Installment Note 47,122 -0- 47,122
-------- ------- --------
Total $168,803 $56,852 $225,655
======== ======= ========
</TABLE>
The company obtained a $ 200,000 installment loan from Riverside Bank
on November 12, 1993. The term of the loan is five years and monthly
payments are $ 4,100 consisting of principal and interest charged at a
rate of 2.5 points above the banks index. The loan is due to mature on
November 12, 1998. Intangible Assets are pledged as security. Cherry
Tree Ventures, a limited partnership, which owns the majority of the
issued and outstanding shares of capital stock of the company, has
agreed to purchase the outstanding principal and interest balance of
the loan from the lender, in the event that the company defaults on the
loan.
The company has a line of credit for working capital needs with
Riverside Bank for $100,000. As of December 31, 1996, the company had $
81,000 outstanding against this line of credit. The loan will mature on
April 4, 1997. Borrowings accrue interest at one percent above the
banks index rate. The loan is secured by business assets, primarily
accounts receivable.
The company converted $192,000 in accounts payable, owed to Vicks
Lithograph Print Corp., to an installment loan in March 1996. The term
of the loan is fifteen months. Interest is charged at 8.25% and
payments are made monthly. The loan will mature in June 1997.
See Independent Auditors' Report
-12-
<PAGE> 15
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
7) PRIOR PERIOD ADJUSTMENT
The prior period adjustment of $ (297,209), in the statement of changes
in stockholders equity, represents a reduction of stockholders equity
resulting from the recognition of a $ 540,196 deferred tax asset, a
decrease in prepaid catalog expenses in the amount of $ 264,927, a
related increase in accrued catalog expenses in the amount of $ 34,316,
and a $538,162 adjustment to mandatory redeemable preferred stock for
additional accrued dividends and a remaining liquidating preference
adjustment. This restatement was made to properly reflect those items
on the company's December 31, 1996 Balance Sheet and their effect on
the statement of operations for the year then ended.
Balance Sheet amounts as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
As Previously
Reported Adjustment As Restated
-------- ---------- -----------
<S> <C> <C> <C>
Deferred Tax Assets - Current $ - 0 - $ 80,065 $ 80,065
Deferred Tax Assets - Noncurrent - 0 - 460,131 460,131
Prepaid Catalogs - Current 235,256 (203,352) 31,904
Prepaid Catalogs - Noncurrent 61,575 (61,575) - 0 -
Accrued Expense (39,963) (34,316) (74,279)
Mandatory redeemable
preferred stock (1,820,920) (538,162) (2,359,082)
$(297,209)
=========
</TABLE>
8) INCOME TAXES
The company accounts for its income taxes using the Financial
Accounting Standards No. 109 which requires the establishment of a
deferred tax asset or liability for the recognition of future
deductible or taxable amounts and operating loss and tax credit
carryfowards. Deferred tax expense or benefit is recognized as a result
of the changes in the deferred tax assets and liabilities during the
year.
See Independent Auditors' Report
-13-
<PAGE> 16
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
8) INCOME TAXES - CONTINUED
Deferred tax assets as of December 31, 1996 consisted of the following
Current $122,095
Noncurrent 326,572
--------
Total $448,667
========
The company's deferred tax assets represent the tax effects of a net
operating loss carryfoward and deductible temporary differences in
reporting amortization, reserve for uncollectible accounts receivable,
and tax inventory adjustments.Taxes are computed at statutory federal
rates of 35% and state tax rate of 9%
Income tax expense for the year ended December 31, 1996 consisted of
the following:
Current: $ 2,220
Deferred: 91,529
--------
Total $ 93,749
========
At December 31, 1996, the company has net operating loss carryfowards
of approximately $ 550,000 due to expire as follows as follows:
December 31, 2006 37,332
December 31, 2007 230,126
December 31, 2008 282,542
--------
Total $550,000
========
9) ACCRUED EXPENSES
The components of accrued expenses are as follows:
Interest $18,724
Professional Fees 10,620
Outside Services 12,500
Compensation 22,621
Other 12,804
-------
Total $77,269
=======
See Independent Auditors' Report
-14-
<PAGE> 17
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
10) COMMITMENTS
The company is obligated under the following operating leases. The
company renewed the lease for the rental of its premises in October
1996, for an additional three years. The lease expires in September
1999. Monthly payments are currently $ 3,297, and will increase each
year, based upon the consumer price index. The company leases two
automobiles under 38 and 36 month operating leases. The company leases
office equipment under operating leases that range from 36 to 63 months
in duration.
Future minimum rental obligations under the operating leases is as
follows.
1997 48,000
1998 50,354
1999 38,547
2000 912
2001 456
---- -------
Total 138,269
=======
11) MANDATORY REDEEMABLE PREFERRED STOCK
The company has authorized 6,000,000 shares of preferred stock for
designation and issuance, of which, 4,041,880 were not designated as of
December 31, 1996.
Shareholders of 1990 and 1993 preferred stock are entitled to
cumulative quarterly dividends at the rates of $ .042 and $ .062,
respectively, per share per annum . The preferred stock has a
liquidating value of $ .84624 and $ 1.25 , respectively, plus unpaid
accumulated dividends prior to payments to common stock stockholders.
Under a required redemption provision, commencing on August 24, 1998,
the company is required to redeem one third of preferred stock from
each shareholder, if adequate cash funds are available, at a price
equal to the liquidating value.
Each share is convertible at the option of the holder into one common
share subject to a possible adjustment for non-cash dividends.
See Independent Auditors' Report
-15-
<PAGE> 18
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
12) EMPLOYMENT AGREEMENTS
The company has employment agreements with two of its officers, James
Peoples and Diane Miller. These agreements are renewed on a periodic
basis and provide for annual base salary which is not subject to annual
increases. The agreements provides for an annual bonus if certain
established revenue goals are met.
13) STOCK OPTIONS
The company has a 1993 Stock Option Plan effective August 24, 1993 (the
Plan). The Plan permits the granting of incentive stock options and
nonqualified options. A total of 250,000 shares of the Company's common
stock have been reserved for issuance pursuant to options granted under
the 1993 Plan.
Grants under the Plan are accounted for following APB Opinion No. 25
and related interpretations. Had compensation cost for the options been
determined using the fair value method required by FASB Statement No.
123, the company's net income on a proforma basis, for 1996 would have
as follows:
Net Income:
As Reported.................$101,531
Pro forma.....................95,646
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants: risk-free interest rate
of 8% for 1993, expected lives of 5 years, and expected volatility of
0%.
See Independent Auditors' Report
-16-
<PAGE> 19
THE PEOPLES PUBLISHING GROUP INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
14) STOCK OPTIONS (CONTINUED)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted-
Average Weighted
Grant Average
Fair Value Shares Exercise Price
---------- ------ --------------
<S> <C> <C> <C>
Outstanding at December 31, 1995 100,000 $1.25
Granted........................... 0
Exercised......................... 0
-------
Outstanding at December 31, 1996 100,000 $1.25
=======
</TABLE>
The following table summarizes additional information about stock
options outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Number
Number Contractual of Options
Range of of Options Lives Exercisable at
Exercise Prices Outstanding (In Years) Dec. 31, 1996
--------------- ----------- ----------- -------------
<S> <C> <C> <C>
$1.25............................. 100,000 1.35 100,000
====== ======= =======
</TABLE>
See Independent Auditors' Report
-17-
<PAGE> 1
EXHIBIT 99.3
THE PEOPLES PUBLISHING GROUP INC.
FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
<PAGE> 2
THE PEOPLES PUBLISHING GROUP INC.
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $1,194,850
Accounts Receivable - Net of
Allowance for Doubtful
Accounts $ 38,053 1,316,062
Inventory 380,525
Deferred Pre-publication Costs 252,000
Prepaid Catalog Expenses 11,080
Prepaid Expenses 3,368
Deferred Income Taxes 27,060
Advance Royalties 60,000
----------
TOTAL CURRENT ASSETS $3,244,945
FIXED ASSETS
Furniture and Fixtures 31,491
Computer Equipment 152,860
----------
Total Fixed Assets 184,351
Accumulated Depreciation 73,487
----------
NET FIXED ASSETS 110,864
OTHER ASSETS
Advance Royalties 38,137
Net Copyrights 64,007
N.R.P. Futures List Royalty 37,678
Pre-publication Costs 208,653
Goodwill 19,792
Loan Receivable Officers 125,000
Deferred Income Taxes 41,644
Security Deposits 4,695
----------
TOTAL OTHER ASSETS 539,606
----------
TOTAL ASSETS $3,895,415
==========
</TABLE>
<PAGE> 3
THE PEOPLES PUBLISHING GROUP INC.
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
<S> <C> <C>
Accounts Payable $ 1,500,174
Accrued Expenses 91,938
Current Portion Line of Credit 296,000
Current Portion of Loan Payable Bank 23,517
Current Income Taxes Payable 3,091
----------
TOTAL CURRENT LIABILITIES $ 1,914,720
MANDATORY REDEEMABLE PREFERRED STOCK 2,622,645
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock 600
Additional Paid In Capital 134,400
Retained Earnings (776,950)
-----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (641,950)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,895,415
===========
</TABLE>
<PAGE> 4
THE PEOPLES PUBLISHING GROUP INC.
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Net Sales $5,292,838
Cost of Sales 2,692,362
----------
Gross Profit 2,600,476
Selling and Administrative Expenses 1,646,731
----------
Income from Operations 953,121
Other Income (Expenses)
Interest Income 20,326
Interest Expense (10,950)
----------
Net Income Before Taxes 963,121
Income Tax Provision 393,435
----------
Net Income 569,686
Preferred Stock Dividends 71,881
----------
Net Income Applicable to Common Stockholders $ 497,805
==========
</TABLE>
<PAGE> 5
THE PEOPLES PUBLISHING GROUP INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 569,686
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation $ 18,242
Amortization 39,206
CHANGES IN ASSETS AND LIABILITIES
Increase in Accounts Receivable (669,761)
Increase in Inventory (43,628)
Decrease in Prepaid Catalog Expenses 50,109
Increase in Prepaid Expenses (1,868)
Increase in Pre-Publication Costs (182,637)
Increase in Advance Royalties (24,872)
Decrease in Deferred Income Taxes 257,763
Increase in Accounts Payable 811,879
Decrease in Accrued Expenses (8,302)
Increase in Income Taxes Payable 329
---------
Total Adjustments 245,802
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 815,488
</TABLE>
<PAGE> 6
THE PEOPLES PUBLISHING GROUP INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES - continued $ 815,488
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Fixed Assets (65,103)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Borrowings of Credit Line 296,000
Payments on Installment Notes (33,651)
-----------
Net Increase From Financing Activities 262,349
-----------
Net Increase in Cash and Cash Equivalents 1,012,734
Cash and Cash Equivalents at Beginning of Year 182,116
-----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,194,850
===========
</TABLE>
<PAGE> 7
THE PEOPLES PUBLISHING GROUP INC.
SCHEDULE OF RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Retained Earnings - January 1, 1998 $(1,274,755)
Accrued dividends on mandatory redeemable
preferred stock (71,881)
Net Income for the nine months ended
September 30, 1998 569,686
-----------
Retained Earnings - September 30, 1998 $ (776,950)
===========
</TABLE>
<PAGE> 1
EXHIBIT 99.4
PEOPLES EDUCATIONAL HOLDINGS, INC.
PRO FORMA FINANCIAL STATEMENTS
The accompanying unaudited pro forma consolidated Balance Sheet and pro forma
consolidated Statements of Operations are derived from the Balance Sheets of
Peoples Educational Holdings, Inc. (PEH) (Formerly Concourse Corporation) and
The Peoples Publishing Group, Inc. (PPG) as of September 30, 1998 and their
Statements of Operations for the year ended December 31, 1997 and the nine
months ended September 30, 1998 included elsewhere herein or previously filed.
The unaudited pro forma consolidated Balance Sheet and unaudited pro forma
consolidated Statements of Operations reflect the merger of Peoples Acquisition
Corporation (a wholly owned subsidiary of PEH) with and into PPG using the
purchase method of accounting and assumes that such merger was consummated on
September 30, 1998 and January 1, 1997, respectively. This transaction resulted
in PPG becoming a wholly owned subsidiary of PEH and these pro forma financial
statements reflect the consolidation of these entities. For accounting purposes
this transaction is being accounted for as a reverse acquisition with PPG
effectively as the acquirer. The unaudited pro forma consolidated Balance Sheet
and unaudited pro forma consolidated Statements of Operations should be read in
conjunction with the financial statements of PEH and PPG and notes thereto
included elsewhere herein or previously filed. The unaudited pro forma
consolidated Statements of Operations do not purport to represent what the
consolidated results of operations would have actually have been if the merger
had occurred on January 1, 1997 or project the consolidated results of
operations for any future period date. Management believes that no pro forma
adjustments are necessary in preparing the pro forma consolidated Balance Sheet
and pro forma consolidated Statement of Operations.
<PAGE> 2
PEOPLES EDUCATIONAL HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
Pro Forma
PEH PPG Consolidated
-------------- -------------- ---------------
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 10,841 $1,194,850 $1,205,691
Accounts receivable 29,632 1,354,115 1,383,747
Allowance for doubtful accounts (3,000) (38,053) (41,053)
Inventory 1,858 380,525 382,383
Deferred pre-publication costs 0 252,000 252,000
State tax receivable 200 0 200
Prepaid expenses 0 14,448 14,448
Deferred income taxes 0 27,060 27,060
Advance royalties 0 60,000 60,000
-------- ---------- ----------
Total current assets 39,531 3,244,945 3,284,476
-------- ---------- ----------
Property, equipment and leasehold improvements:
Equipment, furniture and leasehold improvements 36,929 184,351 221,280
Less accumulated depreciation (36,381) (73,487) (109,868)
-------- ---------- ----------
Net property, equipment and leasehold improvements 548 110,864 111,412
-------- ---------- ----------
Other assets:
Advance royalties 0 38,137 38,137
Pre-publication costs 0 208,653 208,653
Loan receivable officers 0 125,000 125,000
Deferred income taxes 0 41,644 41,644
Security deposits 0 4,695 4,695
Intangible assets 0 121,477 121,477
-------- ---------- ----------
Total other assets 0 539,606 539,606
-------- ---------- ----------
TOTAL ASSETS $ 40,079 $3,895,415 $3,935,494
======== ========== ==========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable 10,201 1,500,174 1,510,375
Notes payable 25,000 319,517 344,517
Accrued expenses - employees 29,167 15,485 44,652
Accrued expenses 4,435 76,453 80,888
Current income taxes payable 0 3,091 3,091
-------- ---------- ----------
Total current liabilities 68,803 1,914,720 1,983,523
-------- ---------- ----------
Mandatory redeemable preferred stock 0 2,622,645 2,622,645
-------- ---------- ----------
Total stockholders' equity (deficit) (28,724) (641,950) (670,674)
-------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 40,079 $3,895,415 $3,935,494
======== ========== ==========
</TABLE>
<PAGE> 3
PEOPLES EDUCATIONAL HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------
Pro Forma
PEH PPG Consolidated
-------------- ------------- -------------
<S> <C> <C> <C>
Operating Revenues $166,433 $5,292,838 $5,459,271
------------- ------------ ------------
Costs and Other Expenses:
Cost of products sold and
services rendered 134,382 2,692,362 2,826,744
Selling, general and
administrative expenses 63,742 1,646,731 1,710,473
------------- ------------ ------------
Total Operating Expenses 198,124 4,339,093 4,537,217
------------- ------------ ------------
Operating Income (Loss) (31,691) 953,745 922,054
Other Income (Expense):
Interest income 0 20,326 20,326
Interest expense 0 (10,950) (10,950)
------------- ------------ ------------
Income (Loss) Before Income Taxes (31,691) 963,121 931,430
Income Tax Provision 0 393,435 393,435
------------- ------------ ------------
Net Income (Loss) (31,691) 569,686 537,995
Preferred stock dividends 0 71,881 71,881
------------- ------------ ------------
Net income applicable to common stockholders ($31,691) $497,805 $466,114
============= ============ ============
Earnings per common share
Basic ($0.01) $0.16
Diluted ($0.01) $0.01
Average common shares outstanding
Basic 2,906,221 2,906,221
Diluted 2,906,221 61,487,660
</TABLE>
<PAGE> 4
PEOPLES EDUCATIONAL HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Twelve Months Ended December 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
Pro Forma
PEH PPG Consolidated
------------- ------------- --------------
<S> <C> <C> <C>
Operating Revenues $175,783 $4,528,065 $4,703,848
------------- ------------- --------------
Costs and Other Expenses:
Cost of products sold and
services rendered 99,805 2,528,258 2,628,063
Selling, general and
administrative expenses 92,047 1,691,890 1,783,937
------------- ------------- --------------
Total Operating Expenses 191,852 4,220,148 4,412,000
------------- ------------- --------------
Operating Income (Loss) (16,069) 307,917 291,848
Other Income (Expense):
Interest income 0 14,033 14,033
Interest expense 0 (20,728) (20,728)
Other (100) 0 (100)
------------- ------------- --------------
Income (Loss) Before Income Taxes (16,169) 301,222 285,053
Income Tax Provision 0 125,721 125,721
------------- ------------- --------------
Net Income (Loss) (16,169) 175,501 159,332
Preferred stock dividends 0 95,841 95,841
------------- ------------- --------------
Net income applicable to common stockholders ($16,169) $79,660 $63,491
============= ============= ==============
Earnings per common share
Basic ($0.01) $0.02
Diluted ($0.01) $0.00
Average common shares outstanding
Basic 2,704,610 2,704,810
Diluted 2,704,610 61,487,660
</TABLE>
