<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal years ended December 31, 1995, 1996 and 1997.
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to _________________.
Commission File No. 2-86551C
Peoples Educational Holdings, Inc.
(Name of small business issuer in its charter)
Concourse Corporation
(Former Name of Small Business Issuer)
Minnesota 41-1368898
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
230 W. Passaic Street, Maywood, NJ 07607
(Address of principal executive offices) (zip code)
Issuer's telephone number (201) 712-1142
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
AMENDMENT NO. 1:
The purpose of this Amendment is to revise the disclosures contained in Item 6
with respect to the description of the Merger Transaction, Item 8, to include a
conformed copy of the signed audit report and to file a revised balance sheet
that includes the number of the issuer's issued and outstanding shares.
<PAGE> 2
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The purpose of this Amendment is to revise the description of the Merger
contained under the heading "Management's Discussion and Analysis or Plan of
Operations - Merger Transaction." Other portions of the Management's Discussion
and Analysis or Plan of Operations remain the same and are not affected by this
revision.
MERGER TRANSACTION
Description of the Merger
In September 1998, the Company and its newly formed and wholly-owned
subsidiary, Peoples Acquisition Corporation ("Acquisition Co."), entered into an
Amended and Restated Agreement and Plan of Merger (the "Merger Agreement") with
Peoples Publishing Group, Inc. ("Peoples Publishing"), a Delaware corporation.
The Merger Agreement constitutes an amendment to and a restating of an Agreement
and Plan of Merger entered into between the Company and Peoples Publishing on
June 4, 1998, and is accordingly made effective as of that date. Peoples
Publishing, with principal offices in Maywood, New Jersey, is engaged primarily
in the publishing of books for use in elementary and secondary schools, grades K
through 12.
Under the terms of the Merger Agreement, Peoples Publishing will merge
with Acquisition Co., and the separate existence of Acquisition Co., which was
formed only to engage in the merger (the "Merger"), will cease. Peoples
Publishing will then be the wholly owned subsidiary of the Company.
In consideration of the Merger, holders of capital stock of Peoples
Publishing will receive newly issued preferred stock of the Company as
summarized below. The Board of Directors of the Company established three new
classes of capital stock out of the undesignated shares authorized by the
Company's Articles of Incorporation. The rights and privileges of each of the
three new classes of Concourse capital stock are summarized as follows:
-- 1998 Convertible Stock. The Company issued 600,000 shares of
the 1998 Convertible Stock (the "1998 Stock") to the
shareholders of Peoples Publishing. Each share of the 1998
Stock is convertible into 21.75 shares of the Company's common
stock, subject to adjustment in certain cases to prevent
dilution of the interests of the holders of 1998 Stock until
December 31, 2001, when the 1998 Stock will be convertible
into 10 shares of the Company's common stock in lieu of 21.75
shares of the Company's common stock. As a result of the
20-to-1 reverse stock split which was approved at the Regular
Meeting of Shareholders held on December 22, 1998, each share
of the 1998 Stock is now convertible into 1.0875 shares of the
Company's common stock. Each holder of the 1998 Stock has one
vote, on all matters submitted to the capital stockholders of
the Company, for each share of the Company's common stock that
holder would be entitled to receive upon conversion of 1998
Stock into the Company's common stock. The 1998 Stock does not
have preferential rights as to dividends or distributions upon
liquidation.
2
<PAGE> 3
-- 1990 Redeemable Cumulative Convertible Preferred Shares. The
Company issued 1,278,120 shares of the 1990 Redeemable
Cumulative Convertible Preferred Shares, having a par value of
$0.001 per share (the "1990 Stock"), to the shareholders of
Peoples Publishing. Each share of 1990 Stock is convertible
into 21.75 shares of the Company's common stock, subject to
adjustment in certain cases to prevent dilution of the
interests of the holders of 1990 Stock. As a result of the
20-to-1 reverse stock split which was approved at the Regular
Meeting of Shareholders held on December 22, 1998, each share
of the 1993 Stock is now convertible into 1.0875 shares of the
Company's common stock. Each holder of 1990 Stock has one
vote, on all matters submitted to the capital stockholders of
the Company, for each share of the Company's common stock that
holder would be entitled to receive upon conversion of the
1990 Stock into the Company's common stock. The holders of
1990 Stock are entitled to receive a lump sum cash dividend of
$0.37 per share plus quarterly cash dividends at the rate of
$0.042 per annum per share, if the Company has sufficient
quarterly earnings, and if adequate cash, after establishing a
reasonable cash reserve, is available for such payment.
Dividends will be payable on the last day of each calendar
quarter, and will begin to accumulate for the quarter
beginning October 1, 1998. In the event of liquidation of the
Company, holders of the 1990 Stock would be entitled to
receive $0.84624 per share in cash out of the assets of the
Company distributed in such liquidation, and all unpaid but
accrued dividends. If assets are not sufficient to make such
payments in full, along with payment obligations to the
holders of 1993 Stock (discussed below), the holders of 1990
Stock and the holders of 1993 Stock would share distributions
pro-rata, based upon the full amount they would otherwise have
been entitled to receive.
On August 24, 2000, 2001 and 2003, the Company is required to
redeem up to one third of the outstanding 1990 Stock at a
price of $0.84624 per share, plus all cumulated but unpaid
dividends due thereon, only if adequate funds are available to
effect such redemption. If less than adequate funds are
available, the Company must redeem such number of shares of
the 1990 Stock as it can.
-- 1993 Redeemable Cumulative Convertible Preferred Shares. The
Company issued 680,000 shares of the 1993 Redeemable
Cumulative Convertible Preferred Shares, having a par value of
$0.001 per share (the "1993 Stock"), to the shareholders of
Peoples Publishing. Holders of the 1993 Stock have
substantially identical rights as the 1990 Stock, with
respect, among other things, to voting conversion, conversion
rate adjustments, dividends, liquidation and redemption,
except that (i) holders of the 1993 Stock are entitled to a
lump sum cash dividend of $0.33 per share, plus quarterly cash
dividends of $0.062 per annum per share, and (ii) the per
share payment upon liquidation or redemption is $1.25 per
share plus unpaid but accrued dividends.
In addition, holders of options to purchase 128,000 shares of Peoples
Publishing's common stock at an average price of $1.25 per share will receive
similar options to purchase 2,784,000 shares of common stock of the Company at
an average price of $0.0575 per share. The actions of the Board of Directors in
establishing the new shares obliges the Company to take action necessary to
3
<PAGE> 4
increase the Company's authorized common stock in order to facilitate the
conversion rights granted to those newly established shares. Accordingly,
following the Merger, the Company's common stock holders will be asked to vote
in favor of an amendment to the Company's Articles of Incorporation, which,
among other things, would increase the authorized common stock (currently
6,000,000 shares) in order to accommodate such conversion.
Peoples Publishing has loaned the Company $25,000 to pay certain legal
and accounting expenses incurred in connection with the proposed Merger,
including the filing of certain documents with the Securities and Exchange
Commission pursuant to the requirements of the Securities Exchange Act of 1934.
If the Merger is not consummated for reasons other than a breach of warranty or
default on the part of the Company, the $25,000 loan will be forgiven.
The Merger Agreement contemplates that each of the current members of
the Board of Directors of the Company, with the exception of William Hultgren,
will resign at the time the transaction is completed. In addition, it is
contemplated that, following the Merger, Mr. Hultgren will be terminated as an
employee of the Company and will acquire the Company's current assets in
exchange for the assumption of its liabilities.
Subsequent Events
The Merger was consummated effective November 1, 1998. Peoples
Publishing survived the Merger as the Company's wholly-owned subsidiary.
On December 22, 1998, the Company held a regular meeting of
shareholders. The results of the votes taken at the meeting were reported by the
Company in a current report on Form 8-K filed January 15, 1999.
Effects of and Reasons for the Merger
As a result of the Merger, pre-Merger shareholders of the Company
currently hold approximately 5% of the voting power of the Company and former
shareholders of Peoples Publishing own approximately 95% of the voting power of
the Company, as illustrated by the table below. The numbers in the following
table have been adjusted to reflect the 20-to-1 reverse stock split which was
approved at the Regular Meeting of Shareholders held on December 22, 1998:
4
<PAGE> 5
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NUMBER OF UNDERLYING
NUMBER OF STOCK AND NUMBER OF
CLASS SHARES VOTES %
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock 153,260 153,260 5.2
- -------------------------------------------------------------------------------
1998 Convertible Stock 600,000 652,500 22.2
- -------------------------------------------------------------------------------
1993 Convertible Stock 680,000 739,500 25.2
- -------------------------------------------------------------------------------
1990 Convertible Stock 1,278,120 1,389,956 47.4
- -------------------------------------------------------------------------------
</TABLE>
After the Merger, the Company's pre-merger assets were sold to Mr.
Hultgren in exchange for the assumption of certain liabilities. As a result, the
business of Peoples Publishing is the sole business of the Company following the
Merger. The Company filed a current report on Form 8-K on November 16, 1998
reporting the Merger and describing the business of Peoples Publishing.
The Company decided to consummate the Merger for several reasons. The
Company had experienced steadily declining revenues and operations casting doubt
on the Company's ability to continue as a viable company. In December 1995, due
to the settlement of a lawsuit filed against the company by a competitor, the
Company had to discontinue the sale of some of its primary products. See "Item 3
- - Legal Proceedings" and "Item 1 - Description of Business." No new products had
been developed since 1995 and telemarketing efforts were discontinued in 1996.
From October 1996 through the date of the Merger, the Company had only one
employee; Mr. Hultgren. See "Item 1 - Description of Business." In addition, all
active trading in the Company's stock ceased around October 1996. Prior to the
Merger, the last bid quote for the Company's common stock was from October 22,
1996 at $0.005 per share. Prior to the Merger, the Company had changed from
primarily a product-based company to a company providing services through the
efforts of only one individual. On the other hand, Peoples Publishing was a
corporation with a history of increasing revenues. By combining with Peoples
Publishing, the Company believed it could bring back value to the investment
held by the common shareholders of the Company as compared to the situation of
the Company prior to the Merger. The Company filed a current report on Form
8-K/A on January 15, 1999 to report the audited financial statements of Peoples
Publishing for the two years ended December 31, 1997 and the unaudited financial
statements of Peoples Publishing for the nine months ended September 30, 1998.
Also included in that current report are pro forma financial statements of the
Company and Peoples Publishing. The following tables set forth some excepts from
the financial statements filed with the current report. In order to understand
the financial statements of Peoples Publishing, the complete set of financial
statements contained in the current report should be reviewed.
5
<PAGE> 6
PEOPLES EDUCATIONAL HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------
PEOPLES THE PEOPLES
EDUCATIONAL PUBLISHING PRO FORMA
HOLDINGS, INC. GROUP, INC. CONSOLIDATED
--------------- ------------ ------------
<S> <C> <C> <C>
TOTAL ASSETS $ 40,079 $ 3,895,415 $ 3,935,494
============= ============ ============
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>
6
<PAGE> 7
PEOPLES EDUCATIONAL HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
PEOPLES THE PEOPLES
EDUCATIONAL PUBLISHING PRO FORMA
HOLDINGS, INC. GROUP, INC. CONSOLIDATED
-------------- ------------ ------------
<S> <C> <C> <C>
Operating Revenues $ 166,433 $ 5,292,838 $ 5,459,271
-------------- ------------ ------------
Total Operating Expenses 198,124 4,339,093 4,537,217
-------------- ------------ ------------
Operating Income (Loss) (31,691) 953,745 922,054
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>
7
<PAGE> 8
PEOPLES EDUCATIONAL HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
PEOPLES THE PEOPLES
EDUCATIONAL PUBLISHING PRO FORMA
HOLDINGS, INC. GROUP, INC. CONSOLIDATED
-------------- ------------ ------------
<S> <C> <C> <C>
Operating Revenues $ 175,783 $4,528,065 $ 4,703,848
-------------- ----------- ------------
Total Operating Expenses 191,852 4,220,148 4,412,000
-------------- ----------- ------------
Operating Income (Loss) (16,069) 307,917 291,848
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>
8
<PAGE> 9
ITEM 7 - FINANCIAL STATEMENTS
See financial statements attached.
ITEM 8 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company's accountants for the year ended December 31, 1993 were Fox
McCue & Company. As disclosed in the Company's 10-KSB for the year ended
December 31, 1994, Fox McCue was dismissed on January 9, 1995, which dismissal
was not recommended or approved by the Company's Board of Directors. Fox McCue
had issued qualified auditors reports regarding the Company's ability to
continue as a going concern, but there had been no disagreements with Fox McCue
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
On January 9, 1995, the Company engaged Casey Menden & Co., P.A.
("Casey Menden"), Bloomington, Minnesota, to act as the Company's certified
public accounting firm, as approved by the Company's Board of Directors. Casey
Menden audited the Company's financial statements for the year ended December
31, 1994 and the report of Casey Menden on such financial statements, dated
March 21, 1995, included an explanatory paragraph that expressed substantial
doubt about the Company's ability to continue as a going concern. These
financial statements were filed with the Company's Form 10-K for the year ended
December 31, 1994 and such report also contained disclosure of the change in
accountants to Casey Menden.
On approximately December 31, 1995, Casey Menden notified the Company
that it was not qualified to act as the auditor and certified public accounting
firm for public companies and resigned. The Company did not have any
disagreement with Casey Menden on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
if not resolved to the satisfaction of Casey Menden, would have caused Casey
Menden to refer to the subject matter of such disagreement in its report. Since
the resignation of Casey Menden, the Company did not engage new outside auditors
until June 10, 1998 as explained below.
On June 10, 1998, the Company appointed McGladrey & Pullen LLP
("McGladrey & Pullen") to act as its certified public accountants, as approved
by the Company's Board of Directors. McGladrey & Pullen audited the Company's
financial statements for the years ended December 31, 1995, 1996 and 1997. Their
report for either of the last two years did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles; except that the report references the doubt
expressed by Casey Menden as to the Company's ability to continue as a going
concern for the year ended December 31, 1994. McGladrey & Pullen continues to
act as the Company's certified public accountants.
During the Company's two most recent fiscal years and the subsequent
interim period ended June 10, 1998, the Company did not have a relationship with
McGladrey & Pullen described in Item 304(a)(2) of Regulation S-B or otherwise.
The only conversations held with McGladrey &Pullen prior to June 10, 1998
related to due diligence issues relative to their engagement.
9
<PAGE> 10
ITEM 13 - EXHIBITS.
Exhibit 16 - Letter on Change in Certifying Accountant
10
<PAGE> 11
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report F-2
Financial Statements
Balance sheets F-3
Statements of operations F-4
Statements of stockholders' equity (deficit) F-5
Statements of cash flows F-6
Notes to financial statements F-7 to F-11
F-1
<PAGE> 12
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Concourse Corporation
Spring Park, Minnesota
We have audited the accompanying balance sheets of Concourse Corporation as of
December 31, 1997, 1996, and 1995, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years 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 audits. The financial statements of Concourse Corporation for the year ended
December 31, 1994, were audited by other auditors whose report, dated March 21,
1995, on those financial statements included an explanatory paragraph that
expressed substantial doubt about the Company's ability to continue as a going
concern.
We conducted our audits 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 principles 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 Concourse Corporation as of
December 31, 1997, 1996, and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
St. Paul, Minnesota /s/ McGladrey & Pullen LLP
July 8, 1998
F-2
<PAGE> 13
CONCOURSE CORPORATION
BALANCE SHEETS
DECEMBER 31, 1997, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
ASSETS 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Assets
Cash $ 10,537 $ 16,189 $ 10,504 $ 48,709
Trade accounts receivable, less allowance for
doubtful accounts of $3,000 (Note 8) 32,835 877 35,605 37,964
Inventories 6,525 6,320 60,591 89,686
Prepaid expenses and other - - 3,134 11,069
--------------------------------------------------------------------
TOTAL CURRENT ASSETS 49,897 23,386 109,834 187,428
--------------------------------------------------------------------
Equipment, at cost
Office equipment and furniture 36,929 36,929 75,921 73,097
Less accumulated depreciation 35,830 34,661 65,381 60,672
--------------------------------------------------------------------
1,099 2,268 10,540 12,425
--------------------------------------------------------------------
$ 50,996 $ 25,654 $ 120,374 $ 199,853
====================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities
Note payable to bank (Note 2) $ - $ - $ - $ 17,505
Subordinated convertible debentures (Note 4) - - 129,609 129,609
Trade accounts payable 13,267 8,335 6,963 2,016
Accrued expenses:
Compensation 36,002 - 18,215 10,482
Interest - - 32,402 16,201
Other 2,389 1,812 2,612 12,123
--------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 51,658 10,147 189,801 187,936
--------------------------------------------------------------------
Deferred Compensation Obligation (Note 5) - - 113,127 89,659
--------------------------------------------------------------------
Commitments and Contingencies (Notes 6, 7, and 10)
Stockholders' Equity (Deficit) (Note 9)
Common stock, par value $0.01 per share;
issued and outstanding 2,704,610 shares in
1997 and 1996, 2,056,558 shares in 1995 and
2,224,500 shares in 1994 27,046 27,046 20,566 22,245
Additional paid-in capital 1,951,385 1,951,385 1,828,256 1,827,417
Accumulated deficit (1,979,093) (1,962,924) (2,031,376) (1,927,404)
--------------------------------------------------------------------
(662) 15,507 (182,554) (77,742)
--------------------------------------------------------------------
$ 50,996 $ 25,654 $ 120,374 $ 199,853
====================================================================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 14
CONCOURSE CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues (Note 8) $ 175,783 $ 196,300 $ 341,252 $ 557,269
---------------------------------------------------------------------
Costs, expenses, and other:
Cost of products sold and
services rendered 99,805 119,203 75,610 73,105
Selling, general, and
administrative expenses 92,047 154,074 352,670 530,249
---------------------------------------------------------------------
TOTAL COSTS AND
EXPENSES 191,852 273,277 428,280 603,354
---------------------------------------------------------------------
OPERATING LOSS (16,069) (76,977) (87,028) (46,085)
Nonoperating income (expense):
Deferred compensation
obligation forgiven (Note 5) - 113,127 - -
Accrued interest forgiven (Note 4) - 32,402 - -
Interest expense - - (16,936) (16,853)
Other, net (100) (100) (8) (100)
---------------------------------------------------------------------
NET INCOME (LOSS) $ (16,169) $ 68,452 $ (103,972) $ (63,038)
=====================================================================
Basic and diluted net income (loss)
per common share $ (0.01) $ 0.03 $ (0.05) $ (0.03)
=====================================================================
Weighted-average common shares
outstanding 2,704,610 2,218,571 2,140,529 2,224,500
=====================================================================
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 15
CONCOURSE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 2,224,500 $ 22,245 $ 1,827,417 $ (1,864,366) $ (14,704)
Net loss - - - (63,038) (63,038)
----------------------------------------------------------------------------
Balance, December 31, 1994 2,224,500 22,245 1,827,417 (1,927,404) (77,742)
Redemption of 167,942 shares of common stock (167,942) (1,679) 839 - (840)
Net loss - - - (103,972) (103,972)
----------------------------------------------------------------------------
Balance, December 31, 1995 2,056,558 20,566 1,828,256 (2,031,376) (182,554)
Conversion of subordinated debentures into
common stock (Note 4) 648,052 6,480 123,129 - 129,609
Net income - - - 68,452 68,452
----------------------------------------------------------------------------
Balance, December 31, 1996 2,704,610 27,046 1,951,385 (1,962,924) 15,507
Net loss - - - (16,169) (16,169)
----------------------------------------------------------------------------
Balance, December 31, 1997 2,704,610 $ 27,046 $ 1,951,385 $ (1,979,093) $ (662)
============================================================================
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 16
CONCOURSE CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ (16,169) $ 68,452 $ (103,972) $ (63,038)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 1,169 3,768 4,973 5,042
Loss on disposals of equipment - 3,014 - -
Deferred compensation expense (income) - (113,127) 23,468 31,664
Forgiveness of accrued interest - (32,402) - -
Changes in current assets and liabilities:
Trade accounts receivable (31,958) 34,728 2,359 26,827
Inventories (205) 54,271 29,095 39,134
Prepaid expenses and other - 3,134 7,935 (4,109)
Trade accounts payable 4,932 1,372 4,947 (36,044)
Accrued expenses 36,579 (19,015) 14,423 (25,256)
--------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (5,652) 4,195 (16,772) (25,780)
--------------------------------------------------------
Cash Flows From Investing Activities
Purchases of equipment - (852) (3,088) (1,719)
Proceeds from disposal of equipment - 2,342 - -
--------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES - 1,490 (3,088) (1,719)
--------------------------------------------------------
Cash Flows From Financing Activities
Net proceeds (payments) under line-of-credit agreement - - (17,505) 12,583
Redemption of common stock - - (840) -
--------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES - - (18,345) 12,583
--------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (5,652) 5,685 (38,205) (14,916)
Cash
Beginning 16,189 10,504 48,709 63,625
--------------------------------------------------------
Ending $ 10,537 $ 16,189 $ 10,504 $ 48,709
========================================================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ - $ - $ 16,936 $ 16,853
Income taxes 100 100 100 100
========================================================
Supplemental Schedule of Noncash Investing and Financing Activities
Conversion of subordinated debentures into common stock (Note 4) $ - $ 129,609 $ - $ -
Forgiveness of accrued interest (Note 4) - 32,402 - -
========================================================
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 17
CONCOURSE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Concourse Corporation is engaged in the business of
developing and marketing computer-assisted instruction programs and packaged
instructional seminars for business and industry, as well as related consulting
services. Credit terms are established on a customer-by-customer basis. Since
October 1996, all of the Company's revenue has been generated by the Company's
president, who is also its only employee.
REVENUE RECOGNITION: The Company recognizes revenue upon either the shipment of
its products to the customer or upon completion of each seminar conducted on
behalf of a customer.
INVENTORIES: Inventories, consisting primarily of finished goods (educational
materials), are stated at the lower of cost (specific-identification method) or
market. The first-in, first-out (FIFO) method is used for valuing inventoriable
production and outside vendor service costs.
DEPRECIATION: Depreciation for office equipment and furniture is computed by
using the straight-line method based on estimated useful lives of five to seven
years.
NET INCOME (LOSS) PER SHARE: The Company has adopted Statement of Financial
Accounting Standards No. 128 (SFAS No. 128), Earnings Per Share, which
superseded APB Opinion No. 15. SFAS No. 128 requires the presentation of
earnings per share by all entities that have common stock or potential common
stock, such as options, warrants, and convertible securities, outstanding that
trade in a public market. Those entities that have only common stock outstanding
are required to present basic earnings per share amounts. Basic per share
amounts are computed, generally, by dividing net income or loss by the
weighted-average number of common shares outstanding. All other entities are
required to present basic and diluted per share amounts. Diluted per share
amounts assume the conversion, exercise, or issuance of all potential common
stock instruments unless the effect is antidilutive, thereby reducing a loss or
increasing the income per common share. The Company has applied Statement No.
128 for all periods presented, as required by the statement.
During 1997, the Company had no potential common stock instruments outstanding.
During 1996, 1995, and 1994, the Company had convertible subordinated debentures
outstanding. However, the inclusion of those debentures in the calculation of
diluted net income (loss) per share would have had an antidilutive effect and,
accordingly, were not included in this calculation. Therefore, basic and diluted
income (loss) per share amounts are the same for each period presented.
INCOME TAXES: Deferred income tax assets and liabilities are computed annually
for temporary differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts in the
future. Deferred taxes are based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts more likely than not to be realized. Income tax expense is
the tax payable or refundable for the year plus or minus the change during the
year in deferred tax assets and liabilities.
F-7
<PAGE> 18
CONCOURSE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
MANAGEMENT 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 those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The financial statements include the
following financial instruments: cash, trade accounts receivable, and accounts
payable. No separate comparison of fair values versus carrying values is
presented for the aforementioned financial instruments since their fair values
are the carrying amounts reflected on the balance sheet. The aggregate fair
values of the financial instruments would not represent the underlying value of
the Company.
NOTE 2. LINE OF CREDIT
The Company had a $39,000 bank line-of-credit agreement secured by cash
equivalents and a corporate guarantee. As of December 31, 1994, the balance
outstanding under this agreement was $17,505. There was no balance outstanding
as of December 31, 1995, as the agreement expired in October 1995. The Company
did not obtain a renewal of this agreement in 1996 or 1997.
NOTE 3. INCOME TAXES
A reconciliation of federal statutory income taxes to the Company's effective
tax provision is as follows:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------
1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computed "expected" federal tax
expense (benefit) at statutory rates $ (5,000) $ 23,000 $ (34,000) $(21,000)
Effect of income taxed at lower rates 3,000 (12,000) 12,000 11,000
State income taxes, net of federal benefit - (3,000) - -
Net operating losses unused (used) 2,000 (10,000) 19,000 2,000
Other - 2,000 3,000 8,000
---------------------------------------------------------------
$ - $ - $ - $ -
===============================================================
</TABLE>
Net deferred taxes included the following at December 31, 1997, 1996, 1995, and
1994:
<TABLE>
<CAPTION>
1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets $ 289,000 $ 287,000 $ 297,000 $ 278,000
Valuation allowance for deferred tax
assets (289,000) (287,000) (297,000) $(278,000)
---------------------------------------------------------------
Net $ - $ - $ - -
===============================================================
</TABLE>
F-8
<PAGE> 19
CONCOURSE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 3. INCOME TAXES (CONTINUED)
Deferred tax assets are comprised of the following at December 31, 1997, 1996,
1995, and 1994:
<TABLE>
<CAPTION>
1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss carryforwards $ 289,000 $ 287,000 $ 275,000 $ 263,000
Accrued expenses - - 22,000 15,000
-------------------------------------------------------------------
Subtotal 289,000 287,000 297,000 278,000
Valuation allowance for deferred tax
assets (289,000) (287,000) (297,000) (278,000)
-------------------------------------------------------------------
$ - $ - $ - $ -
===================================================================
</TABLE>
At December 31, 1997, the Company has approximately $1,927,000 of federal net
operating loss (NOL) carryforwards available to offset future taxable income.
These NOL carryforwards expire as follows:
<TABLE>
<CAPTION>
Years ending December 31:
<S> <C>
1998 $ 115,000
1999 876,000
2000 442,000
2001 154,000
2004 23,000
2006 76,000
2008 37,000
2009 30,000
2010 81,000
2011 77,000
2012 16,000
------------------
$ 1,927,000
==================
</TABLE>
The planned merger (see Note 10), if completed, will limit the annual
availability of the aforementioned NOL carryforwards.
NOTE 4. SUBORDINATED CONVERTIBLE DEBENTURES
In February 1986, the Company sold $473,000 of 12.5 percent subordinated
convertible debentures pursuant to registration exemptions provided by federal
and state securities laws. The debentures were issued in $1,000 denominations
and at the time of issuance were convertible into common stock at $1.25 per
share, or 800 shares per denomination.
F-9
<PAGE> 20
CONCOURSE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. SUBORDINATED CONVERTIBLE DEBENTURES (CONTINUED)
During 1987, the Company negotiated revisions with the debenture holders whereby
the maturity date was extended to January 1, 1990, as well as changes to the
conversion features and interest payments.
As a result of insufficient funds, the Company was unable to repay the
debentures which became due and payable on January 1, 1990. The remaining
principal of outstanding debentures was $129,609 at December 31, 1995, as a
result of periodic payments made to debenture holders during 1990 to 1992,
including interest thereon. The remaining accrued interest related to these
debentures was $32,402 at December 31, 1995. During 1996, these debentures were
converted into 648,052 shares of common stock. The related accrued interest of
$32,402 was forgiven and is included as a component of nonoperating income for
the year ended December 31, 1996.
NOTE 5. DEFERRED COMPENSATION
In 1989, the Company entered into nonqualified deferred compensation agreements
for the benefit of two key executives, one of which is a stockholder. The
agreements provided for a postretirement benefit to be paid for ten years
immediately following retirement. The agreements also contained early death and
disability benefit provisions. During 1996, the two key executives covered by
the agreements released the Company from these deferred compensation obligations
in full, and no additional future benefit payments related to these agreements
are required by the Company. Accordingly, in 1996, the Company recognized income
resulting from the reversal of the related deferred compensation obligation.
NOTE 6. LEASE COMMITMENT
The Company had a lease commitment on the office space it used to conduct
business during 1994 and 1995. Rent expense was $33,179 and $30,933 for 1995 and
1994, respectively. This lease commitment expired at December 31, 1995. The
Company renewed this commitment for reduced space through October 1996, at which
point the lease was terminated altogether. Since this time, the Company has
operated out of the home of its president, who is also its only employee. No
other lease commitments have been incurred during the year ending December 31,
1997.
NOTE 7. LITIGATION
The Company was named in a legal action alleging violations of copyright laws
and illegal trade practices. This litigation was fully settled in 1995.
NOTE 8. MAJOR CUSTOMER
As of and for the year ended December 31, 1997, 96 percent of the Company's
trade accounts receivable were from one customer, and 53 percent of the
Company's revenues for the year were from this same customer. There were no
major customers for the years ending December 31, 1996, 1995, or 1994.
F-10
<PAGE> 21
CONCOURSE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 9. AUTHORIZED SHARES
The Company has 10,000,000 shares of capital stock authorized for issuance. Of
these shares, 6,000,000 are designated as common stock and 4,000,000 are
undesignated.
NOTE 10. MERGER
In September 1998, the Company and its newly formed and wholly-owned subsidiary,
Peoples Acquisition Corporation (PAC), entered into an Amended and Restated
Agreement and Plan of Merger (Merger Agreement) with Peoples Publishing Group,
Inc. (PPG), a Pennsylvania corporation. Under the Merger Agreement, which is
effective as of June 4, 1998, PPG will be merged with PAC and become the
surviving corporation. Following the merger, the shareholders of PPG will own
approximately 95 percent of the Company's outstanding voting capital stock. PPG,
with principal offices in Maywood, New Jersey, is engaged primarily in the
publishing of books for use in elementary and secondary schools, grades K
through 12.
The merger is expected to be completed on or about October 1, 1998. Closing of
the merger is contingent upon a number of factors, including the continued
accuracy of warranties and representations made in the Merger Agreement by each
party. There is no assurance that the merger will be completed.
NOTE 11. SUBSEQUENT EVENT
Subsequent to year end, the Company's general counsel agreed to forgive
approximately $17,000 of indebtedness owed by the Company. The Company also
issued 75,000 shares of common stock to its general counsel for services
rendered to the Corporation, valued by the Board of Directors at approximately
$930.
F-11
<PAGE> 22
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Peoples Educational Holdings, Inc.
By: /s/ James J. Peoples
-------------------------------------
James J. Peoples, Chairman, President
Dated: February 4, 1999 and Chief Executive Officer
<PAGE> 1
EXHIBIT 16
[Casey, Menden, Faust & Nelson, P.A. letterhead]
December 22, 1998
Mr. John Sniegon, Assistant Chief Accountant
Securities and Exchange Commision
450 Fifth Street NW.
Washington, DC 20549
Dear SEC,
We agree with the enclosed attachment, Item 8 Exhibit.
If there are any further questions, please feel free to contact us at (612)
946-7900.
Sincerely,
/s/ Douglas J. Faust
Douglas J. Faust, C.P.A.
<PAGE> 2
ITEM 8 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company's accountants for the year ended December 31, 1993 were Fox
McCue & Company. As disclosed in the Company's 10-KSB for the year ended
December 31, 1994, Fox McCue was dismissed on January 9, 1995, which dismissal
was not recommended or approved by the Company's Board of Directors. Fox McCue
had issued qualified auditors reports regarding the Company's ability to
continue as a going concern, but there had been no disagreements with Fox McCue
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
On January 9, 1995, the Company engaged Casey Menden & Co., P.A.
("Casey Menden"), Bloomington, Minnesota, to act as the Company's certified
public accounting firm, as approved by the Company's Board of Directors. Casey
Menden audited the Company's financial statements for the year ended December
31, 1994 and the report of Casey Menden on such financial statements, dated
March 21, 1995, included an explanatory paragraph that expressed substantial
doubt about the Company's ability to continue as a going concern. These
financial statements were filed with the Company's Form 10-K for the year ended
December 31, 1994 and such report also contained disclosure of the change in
accountants to Casey Menden.
On approximately December 31, 1995, Casey Menden notified the Company
that it was not qualified to act as the auditor and certified public accounting
firm for public companies and resigned. The Company did not have any
disagreement with Casey Menden on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
if not resolved to the satisfaction of Casey Menden, would have caused Casey
Menden to refer to the subject matter of such disagreement in its report. Since
the resignation of Casey Menden, the Company did not engage new outside auditors
until June 10, 1998 as explained below.
On June 10, 1998, the Company appointed McGladrey & Pullen LLP
("McGladrey & Pullen") to act as its certified public accountants, as approved
by the Company's Board of Directors. McGladrey & Pullen audited the Company's
financial statements for the years ended December 31, 1995, 1996 and 1997. Their
report for either of the last two years did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles; except that the report references the doubt
expressed by Casey Menden as to the Company's ability to continue as a going
concern for the year ended December 31, 1994. McGladrey & Pullen continues to
act as the Company's certified public accountants.
During the Company's two most recent fiscal years and the subsequent
interim period ended June 10, 1998, the Company did not have a relationship with
McGladrey & Pullen described in Item 304(a)(2) of Regulation S-B or otherwise.
The only conversations held with McGladrey &Pullen prior to June 10, 1998
related to due diligence issues relative to their engagement.
