<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A-1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number: 0-16310
AMERICAN EDUCATIONAL PRODUCTS, INC.
_________________________________________________________________
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1012129
____________________________ ____________
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification number)
5350 Manhattan Circle, Suite 210, Boulder, Colorado 80303
___________________________________________________ ____________
(Address of principal executive offices) (Zip Code)
(303) 543-0123
___________________________
(Issuer's telephone number)
______________________________________________________________________________
Former name, former address, and former fiscal year, if changed since last
report
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the Registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 31, 1996 the Company had 4,176,049 shares of its $.01 par value
common stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
<PAGE>
<PAGE>
INDEX
PART I -- FINANCIAL INFORMATION
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Page
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<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the
three months ended June 30, 1996 and
June 30, 1995 4
Consolidated Statements of Operations for the
six months ended June 30, 1996 and
June 30, 1995 5
Consolidated Statements of Cash Flows for the
three months ended June 30, 1996 and
June 30, 1995 6
Consolidated Statement of Stockholders' Equity
from January 1, 1996 through June 30, 1996 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources - June 30, 1996
Compared to December 31, 1995 9
Results of Operations - Three months ended
June 30, 1996, Compared to the Three
Months ended June 30, 1995 11
Results of Operations - Six months ended
June 30, 1996, Compared to the Three
Months ended June 30, 1995 13
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
</TABLE>
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AMERICAN EDUCATIONAL PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
As of June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
___________ ____________
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 85,000 $ 146,000
Trade receivables, net of allowance of
$65,000 and $109,000 1,434,000 1,783,000
Royalty receivable 172,000 -
Income tax refunds receivable - 304,000
Inventories 2,320,000 2,358,000
Real estate held for sale, net 912,000 -
Prepaid advertising costs 206,000 102,000
Other 91,000 126,000
----------- -----------
TOTAL CURRENT ASSETS 5,220,000 4,819,000
PROPERTY AND EQUIPMENT, net of $3,089,000
and $2,844,000 2,953,000 4,362,000
VIDEO LIBRARY, net of $347,000 and $345,000 605,000 1,407,000
INTANGIBLE ASSETS, net 436,000 511,000
OTHER ASSETS 386,000 141,000
----------- -----------
TOTAL ASSETS $9,600,000 $11,240,000
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $1,366,000 $ 1,081,000
Current maturities of long term debt 987,000 1,412,000
Accounts payable1,137,000 935,000
Mortgage on real estate held for sale 600,000 -
Accrued expenses 433,000 613,000
----------- -----------
TOTAL CURRENT LIABILITIES 4,523,000 4,041,000
LONG TERM DEBT, less current maturities 1,141,000 2,360,000
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 50,000,000
shares authorized; none issued or outstanding - -
Common stock; $0.01 par value; 100,000,000
shares authorized; 4,176,049 and 4,150,658
shares issued and outstanding 42,000 42,000
Additional paid in capital 6,076,000 6,048,000
Retained earnings (accumulated deficit) (2,182,000) (1,251,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,936,000 4,839,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,600,000 $11,240,000
========== ===========
</TABLE> <PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three Months ended June 30, 1996 and June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
___________ ___________
<S> <C> <C>
INCOME:
Net sales $2,514,000 $5,697,000
Cost of goods sold 1,666,000 3,191,000
----------- -----------
Gross profit 848,000 2,506,000
OPERATING EXPENSES:
Advertising and catalog costs 108,000 572,000
Other marketing 566,000 709,000
----------- -----------
Total marketing 674,000 1,281,000
General and administrative 400,000 776,000
----------- -----------
Total operating expenses 1,074,000 2,057,000
----------- -----------
OPERATING INCOME (LOSS) (226,000) 449,000
OTHER INCOME (EXPENSE):
Loss on sale of division (384,000) -
Other income - 20,000
Interest expense (120,000) (222,000)
----------- -----------
Net other income (expense) (504,000) (202,000)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (730,000) 247,000
Income tax benefit (expense) - (92,000)
----------- -----------
NET INCOME (LOSS) $ (730,000) $ 155,000
=========== =========
Earnings (loss) per common share
and common share equivalent ($0.18) $0.04
======= =====
Average number of common and common
equivalent shares outstanding 4,170,000 4,150,000
========= =========
</TABLE>
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<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Six Months ended June 30, 1996 and June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
___________ ___________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net sales $4,562,000 $10,386,000
Cost of goods sold 2,862,000 5,808,000
----------- -----------
Gross profit 1,700,000 4,578,000
OPERATING EXPENSES:
Advertising and catalog costs 132,000 1,266,000
Other marketing 1,099,000 1,376,000
----------- -----------
Total marketing 1,231,000 2,642,000
General and administrative 759,000 1,597,000
----------- -----------
Total operating expenses 1,990,000 4,239,000
----------- -----------
OPERATING INCOME (LOSS) (290,000) 339,000
OTHER INCOME (EXPENSE):
Loss on sale of division (384,000) -
Other income - 49,000
Interest expense (257,000) (451,000)
----------- -----------
Net other income (expense) (641,000) (402,000)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (931,000) (63,000)
Income tax benefit (expense) - 23,000
----------- -----------
NET INCOME (LOSS) $(931,000) $(40,000)
========== =========
Earnings (loss) per common share
and common share equivalent ($0.22) ($0.01)
======= =======
Average number of common and common
equivalent shares outstanding 4,163,000 4,142,000
========= =========
</TABLE>
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AMERICAN EDUCATIONAL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Six Months ended June 30, 1996 and June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
___________ ___________
<S> <C> <C>
INCOME:
Net income (loss) $ (931,000) $ (40,000)
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 361,000 376,000
Amortization 241,000 378,000
Bad debt expense 6,000 19,000
Change in deferred income taxes - 19,000
Loss on sale of division 384,000 -
Changes in operating assets and liabilities:
Decrease (increase) in operating assets:
Accounts receivable 64,000 (857,000)
Income tax refunds receivable 304,000 13,000
Inventories (158,000) 194,000
Prepaid advertising costs (209,000) (52,000)
Other 35,000 (86,000)
Increase (decrease) in operating
liabilities:
Accounts payable 202,000 28,000
Accrued expenses (417,000) 13,000
-------- --------
Net cash provided (used) by operating
activities (118,000) 5,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 1,000,000 -
Purchase of property and equipment (107,000) (79,000)
Cost incurred for video production (136,000) (166,000)
Other 31,000 -
-------- --------
Net cash provided (used) by investing
activities 788,000 (245,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long
term debt 974,000 912,000
Payments on notes payable and long
term debt (1,733,000) (490,000)
Net proceeds from the sale of stock 28,000 84,000
-------- --------
Net cash provided (used) by financing
activities (731,000) 506,000
-------- --------
NET INCREASE (DECREASE) IN CASH (61,000) 266,000
Cash, at beginning of period 146,000 220,000
-------- --------
Cash, at end of period $ 85,000 $486,000
======== ========
/TABLE
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
January 1, 1996 through June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ Additional Retained
Number Paid Earnings
of Common in (Accumulated
Shares Stock Capital Deficit) Total
--------- ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance as of
January 1, 1996 4,150,658 $42,000 $6,048,000 $(1,251,000) $4,839,000
Sale of common stock
under the employee
stock purchase plan 14,614 - 22,000 - 22,000
Exercise of options 10,777 - 6,000 - 6,000
Net loss - - - (931,000) (931,000)
---------- -------- ----------- ------------ -----------
Balance as of
June 30, 1996 4,176,049 $42,000 $6,076,000 $(2,182,000) $3,936,000
========= ======= ========== ============ ==========
</TABLE>
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<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- PRESENTATION
- ----------------------
In the opinion of the Company, these unaudited consolidated financial
statements contain all adjustments (consisting of normal accruals) necessary to
present fairly the financial position as of December 31, 1995 and June 30,
1996, and the results of operations for the three months and six months ended
June 30, 1996 and 1995. These statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995.
NOTE 2 -- STOCKHOLDERS' EQUITY
- ------------------------------
During the first six months of 1996, the Company issued 65,000 incentive stock
options to key employees. The options were priced at fair market value on the
date of the grant. Also during 1996, the Company issued 186,500 non-qualified
stock options to its directors. The options were priced at fair market value
on the date of the grant.
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------
The following discussion addresses the financial condition and results of
operations for American Educational Products, Inc. and Subsidiaries ("AMEP" or
the "Company"). The four subsidiaries are AEP Media Corporation d.b.a.
Churchill Media ("Churchill"), Hubbard Scientific, Inc. ("Hubbard"), Scott
Resources, Inc. ("Scott") and Summit Learning, Inc. ("Summit"). As of
subsequent to June 30, 1996, only Hubbard and Scott were operating subsidiaries
of AMEP.
In December, 1995, AMEP sold substantially all of the assets of Summit for
total proceeds of $3,982,000.
In June, 1996, AMEP sold substantially all of the assets of Churchill for a
cash payment of $1,000,000 plus royalties on Churchill titles sold during the
next four years. Future royalties are calculated at ten percent of sales and
are subject to an aggregate ceiling of $750,000.
Comparisons between 1996 and 1995 are affected by these divestitures.
LIQUIDITY AND CAPITAL RESOURCES -- JUNE 30, 1996 COMPARED TO DECEMBER 31, 1995
- ------------------------------------------------------------------------------
During the first two quarters of 1996, the Company continued to experience a
lack of liquidity and capital resources. The liquidity shortfall was primarily
caused by continued operating losses, raw material purchases, investment in the
spring catalog mailing program, and payments required under various loan
agreements. The Company was unable to make timely payments to its trade
creditors during this period.
The Company continued its efforts to reduce expenditures and conserve cash.
Those efforts have resulted in decreased operating expenses and are expected to
assist the Company's efforts to achieve profitable operations.
The sale of Churchill in June, 1996, provided additional liquidity to the
Company. Proceeds from the Churchill sale in the amount of $400,000 were used
to pay Churchill creditors and the remaining proceeds were used to reduce bank
debt. As a result, the monthly principal payment required under the term debt
was reduced from $60,000 to $48,500 and the extra principal payments for June,
July, August, and September were eliminated. The final maturity date of
December 31, 1997, was not revised.
The Company's agreements with its bank contain covenants that restrict the
payment of dividends and require, among other requirements, that the Company
maintain minimum financial ratios and achieve certain operating income levels.
As of June 30, 1996, the Company had failed to achieve the minimum operating
income levels. The bank has temporarily waived the operating income
requirement and plans to revise the covenant based upon new projections that
include the above-mentioned asset sales. However, in the event that the
Company's financial performance deteriorates further, the bank would have the
right to foreclose on substantially all the Company's assets. The bank has not
indicated any desire to commence foreclosure proceedings. If it were to
commence such action, it would have material adverse consequences to the
Company and its stockholders.
Since there are no guarantees that the Company will achieve profitable
operations and generate sufficient cash from operations to meet its liquidity
needs, the Company is exploring the sale of assets that are not critical to the
Company's long term strategy. In this regard, the Company sold certain real
estate subsequent to June 30, 1996. Net proceeds approximating $1,000,000 were
used to reduce bank debt and to pay trade creditors. The real estate was no
<PAGE>
<PAGE>
longer used by the Company and had been leased to the purchaser of Summit. The
Company will realize a gain on the sale of approximately $77,000. The
financial results of the sale will be recorded in the third quarter.
The Company's working capital line of credit (LOC) expires on September 30,
1996. The Company believes that its bank will renew the LOC at that time.
Subsequent to June 30, 1996, the Company borrowed substantially all funds
available to it under the various borrowing agreements. It is believed that
funds available to the Company are sufficient to meet its capital requirements
and that, consistent with its seasonal operating trends, borrowings under the
LOC will be reduced during the fourth quarter.
Management continually assesses the Company's need for capital resources. From
time to time, the Company may evaluate and pursue additional sources of
capital, as required.
The Company experienced an 10% working capital decrease during the first two
quarters of 1996. While current assets of $5,220,000 increased $401,000 from
December 31, 1995, current liabilities increased by $482,000, from $4,041,000
to $4,523,000. As a result, working capital decreased from $778,000 to
$697,000. The current ratio remained at 1.2. These changes were primarily
caused by the net loss for the first half and the sale of Churchill.
Total assets decreased 15% from $11,240,000 at December 31, 1995 to $9,600,000
at June 30, 1996, primarily because of the Churchill sale. During the same
period, total liabilities decreased from $6,401,000 to $5,664,000, a decrease
of 12%. All of the cash proceeds received from the Churchill sale were used to
reduce indebtedness to various creditors. Stockholders' equity decreased
$903,000, or 19%, from $4,839,000 to $3,936,000, primarily as a result of the
net loss for the period.
Accounts receivable decreased from $1,783,000 at December 31, 1995, to
$1,434,000 at June 30, 1996, a decrease of $349,000 or 20%. Substantially all
of the decrease resulted from the Churchill sale.
The royalty receivable results from the sale of Churchill and represents
royalties expected to be received during the next twelve months.
All refunds receivable from income taxing authorities were received during the
first six months of 1996.
Inventories decreased from $2,358,000 at the end of 1995 to $2,320,000 at June
30, 1996, a decrease of $38,000 or 2%. Churchill's sale reduced inventory by
$232,000. The other divisions increased inventories. This increase is
attributable to investment in inventory for new product introductions and
investment in inventory for normal increases in sales activity expected during
the third quarter.
Prepaid advertising costs increased from $102,000 at December 31, 1995, to
$206,000 at June 30, 1996, an increase of $104,000 or 102%. This increase is
due to investment in the spring 1996 catalog program offset by partial
amortization of this program and by the sale of Churchill. Churchill's sale
reduced prepaid advertising by $75,000.
Net property and equipment decreased from $4,362,000 at December 31, 1995, to
$2,953,000 at June 30, 1996, a decrease of $1,409,000 or 32%. Churchill's sale
reduced property and equipment by $243,000. Certain real estate with a net
book value of $912,000 was reclassified to real estate held for sale. The
remaining decrease represents depreciation of $361,000 offset by additions of
$107,000.
<PAGE>
<PAGE>
Video and film library costs decreased from $1,407,000 at December 31, 1995, to
$605,000 at June 30, 1996, a decrease of $802,000 or 57%. Churchill's sale
accounted for $772,000 of the decrease. The remaining decrease consists of
amortization of $166,000 offset by additional investment in video products of
$136,000.
Intangible assets decreased from $511,000 at December 31, 1995, to $436,000 at
June 30, 1996, a decrease of $75,000 or 15%. The decrease results from
regular monthly amortization of the assets.
Other assets increased from $141,000 at December 31, 1995 to $386,000 at June
30, 1996. Other assets includes estimated royalties to be received in future
years from the purchaser of Churchill in the amount of $318,000.
Accounts payable and accrued expenses increased by $22,000 from December 31,
1995, to June 30, 1996. The Company used approximately $400,000 received from
the sale of Churchill to reduce accounts payable and accrued expenses. The
reduction was offset by increases in amounts due other vendors and creditors.
The Company has not been able to make all payments to trade creditors in a
timely fashion during the first six months of 1996. This trend is expected to
continue at least until the Company returns to profitability.
At June 30, 1996, the Company had borrowings under its working capital line of
credit facility in the amount of $1,366,000, up $285,000 from $1,081,000 at
December 31, 1995.
Long term debt, including current maturities and mortgage on real estate held
for sale, decreased $1,044,000 as a result of monthly long-term debt payments
and additional payments of $600,000 resulting from the Churchill sale.
Other than the foregoing, management knows of no trends, demands, or
uncertainties that are reasonably likely to have a material impact on the
Company's short-term liquidity or capital resources.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED JUNE 30, 1996, COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1995
- ---------------------------------------------------------------------------
As previously discussed, the comparison of operating results for the second
quarter of 1996 to the second quarter of 1995 is affected by the sale of Summit
in 1995. In addition, the pending sale of Churchill during the second quarter
of 1996 had a negative impact on Churchill operations. The performance of
Churchill deteriorated significantly during 1996 as the employees prepared for
the sale.
The Company's revenues were $2,514,000 in the second three months of 1996, a
decrease of $3,183,000 or 56% from the same period 1995 revenues of $5,697,000.
Summit's impact on revenues during this period in 1995 was $2,509,000. After
adjusting for Summit and Churchill, sales at Hubbard and Scott were $2,151,000
for the quarter, a decrease of $339,000 from 1995 second quarter sales of
$2,491,000. As discussed below, the decline is attributed to price reductions.
The cost of goods sold for the quarter ended June 30, 1996, was $1,666,000, a
decrease of $1,525,000 or 48% from the same period 1995 figure of $3,191,000.
Summit's impact on cost of goods sold during this period in 1995 was
$1,369,000.
Consolidated gross profits for the second quarter of 1996 were $848,000, a
decrease of $1,658,000 or 66% from the same period 1995 gross profits of
$2,506,000. Summit's impact on consolidated gross profits during this period
in 1995 was $1,140,000. After adjusting for Summit and Churchill, gross <PAGE>
<PAGE>
profits at Hubbard and Scott were $711,000 for the quarter, a decrease of
$263,000 from 1995 second quarter gross profits of $974,000. As a percentage
of sales for Hubbard and Scott, the gross margin decreased from 39% in 1995 to
33% in 1996. The decreased gross margin percent was caused by sales promotion
programs that reduced the average selling price of certain products and by
costs associated with under utilized factory capacity.
The advertising component of marketing costs for the second quarter of 1996 was
$108,000, a decrease of $464,000 or 81% from the same period 1995 cost of
$572,000. Summit's advertising costs for the second quarter of 1995 were
$525,000. After adjusting for Summit and Churchill, advertising costs as
percent of sales at Hubbard and Scott were 3% of sales in the second three
months of 1996 and 1% of sales in the second three months of 1995. Hubbard and
Scott produce direct mail catalogs featuring their manufactured products.
Other marketing costs for the second quarter of 1996 were $566,000, a decrease
of $143,000 or 20% from the same period 1995 cost of $709,000. Summit's other
marketing costs for the second quarter of 1995 were $141,000. After adjusting
for Summit and Churchill, other marketing costs as a percentage of sales at
Hubbard and Scott were 16% in the second three months of 1996, and 10% in the
second three months of 1995. In 1996, the Company increased its institutional
marketing activities. Specifically, it increased its presence at industry
trade shows and conventions, it increased the number of presentations to
distributors, and it increased the number of marketing personnel compared to
the same period in 1995.
General and administrative expenses were $400,000, a decrease of $376,000 or
48% from the second quarter of 1995 general and administrative expense of
$776,000. Summit's general and administrative expense for the second quarter
of 1995 was $105,000. After adjusting for Summit and Churchill, G & A costs as
a percent of Hubbard and Scott sales were 15% in the second quarter of 1996,
and 21% in the second quarter of 1995. The reduction reflects decreased
administrative staff levels, decreased office space, and decreased telephone
expense.
Total operating costs decreased 48% from $2,057,000 in the second three months
of 1995 to $1,074,000 in the second three months of 1996. Summit's total
operating costs during this period in 1995 was $772,000. After adjusting for
Summit and Churchill, operating costs as a percentage of Hubbard and Scott
sales approximated 34% in 1996 and 32% in 1995.
Interest expense decreased from $222,000 in the second quarter of 1995 to
$120,000 in the second quarter of 1996, a decrease of $102,000 or 46%. The
decreased interest expense is the result of lower debt levels made possible by
proceeds from the 1995 sale of Summit. The Company estimates that proceeds
from the sale of Churchill will further reduce quarterly interest expense by
$15,000.
The Company did not recognize any tax benefit for the second quarter of 1996.
By the end of 1995, all income tax liabilities had been offset against
operating losses. The Company has net operating loss carryovers of
approximately $2,500,000 available for Federal income tax purposes. The
Company will be able to offset those carryforwards against future taxable
income, if any. It will be able to record a benefit from those carryforwards
when they appear to be realizable.
The net loss for the second three months of 1996 was $730,000, compared with
net income of $155,000 in the same period of 1995. Loss per share was $0.18
for the second three months of 1996, compared to earnings per share of $0.04
for the second quarter of 1995.
<PAGE>
<PAGE>
Inflation has not had any material effect on the Company's operations during
1996. During 1995, price increases in postage, paper, plastic, and formed
metal parts adversely impacted profitability. The Company attempts to reduce
the impact of cost increases through design changes and improved factory
efficiencies. There is no guarantee that it will be successful in these
attempts.
The Company historically has experienced significant seasonality in its sales
primarily due to the purchasing cycle of educational institutions. Typically,
the first and fourth fiscal quarters each generate approximately 20% of annual
sales, with the second and third fiscal quarters each generating approximately
30% of annual sales. This distribution of sales is likely to continue
throughout 1996.
Other than the foregoing, management knows of no trends, demands, or
uncertainties that are reasonably likely to have a material impact on the
Company's results of operations.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1995
- ----------------------------------------------------------------------------
As previously discussed, the comparison of operating results for the first six
months of 1996 to the first six months of 1995 is affected by the sale of
Summit in 1995. In addition, the pending sale of Churchill during the second
quarter of 1996 had a negative impact on Churchill operations. The performance
of Churchill deteriorated significantly during 1996 as the employees prepared
for the sale.
The Company's revenues were $4,562,000 in the first six months of 1996, a
decrease of $5,824,000, or 56%, from the same period 1995 revenues of
$10,386,000. Summit's impact on revenues during this period in 1995 was
$4,767,000. Churchill's sales for 1996 were $865,000, compared to $1,332,000
for 1995. After adjusting for Summit and Churchill, revenues at Hubbard and
Scott were $3,696,000 for the six months, a decrease of $591,000 from 1995 six
month sales of $4,287,000. As discussed below, the decline resulted primarily
from price reductions.
The cost of goods sold for the six months ended June 30, 1996 was $2,862,000, a
decrease of 51% from the prior year figure of $5,808,000. Summit's cost of
goods sold for the first half of 1995 was $2,521,000. After adjusting for
Summit and Churchill, gross profits at Hubbard and Scott were $1,280,000 for
the six months, a decrease of $346,000 from 1995 six month gross profits of
$1,626,000. As a percentage of sales for Hubbard and Scott, the gross margin
decreased from 38% in 1995 to 35% in 1996. The decreased gross margin percent
was caused by sales promotion programs that reduced the average selling price
of certain products and by costs associated with under utilized factory
capacity.
Advertising costs decreased $1,134,000 or 90% from the first half of 1995.
Summit's advertising cost for the first half of 1995 was $1,144,000. After
adjusting for Summit and Churchill, advertising costs as percent of sales at
Hubbard and Scott were 2% of sales in the six months of 1996 and 1% of sales in
the six months of 1995.
Other marketing costs decreased by $277,000 or 20% from the comparable period
ended June 30, 1995. Summit's other marketing costs for the first half of 1995
was $294,000. After adjusting for Summit and Churchill, other marketing costs
as a percentage of sales at Hubbard and Scott were 17% in the six months of
1996 and 12% in the six months of 1995. In 1996, the Company increased its
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institutional marketing activities. Specifically, it increased its presence at
industry trade shows and conventions, it increased the number of presentations
to distributors, and it increased the number of marketing personnel compared to
the same period in 1995.
General and administrative expenses were $759,000, a decrease of $838,000 or
52% from the first half of 1995 G & A expense of $1,597,000. Summit's general
and administrative expense for the six months of 1995 was $248,000. After
adjusting for Summit and Churchill, G & A costs as a percent of Hubbard and
Scott sales were 17% in the six months of 1996 and 24% in the six months of
1995. The reduction reflects decreased administrative staff levels, decreased
office space, and decreased telephone expense. Also reducing G & A expenses in
1996 were proceeds of $100,000 received in connection with settlement of a
lawsuit. Absent the settlement proceeds, G & A expense would have been 19% of
Hubbard and Scott sales in the first six months of 1996.
Total operating costs decreased 53% from $4,239,000 in the first six months of
1995 to $1,990,000 in 1996. Summit's total operating costs during this period
in 1995 was $1,686,000. After adjusting for Summit and Churchill, operating
costs as a percentage of Hubbard and Scott sales approximated 36% in both 1996
and 1995.
Interest expense decreased from $451,000 in the first half of 1995 to $257,000
in the first half of 1996, a decrease of $194,000, or 43%. The decreased
interest expense is the result of lower debt levels made possible by proceeds
from the 1995 sale of Summit. The Company estimates that proceeds from the
sale of Churchill will further reduce quarterly interest expense by $15,000.
The Company did not recognize any tax benefit for the six months of 1996. By
the end of 1995, all income tax liabilities had been offset against operating
losses. The Company has net operating loss carryovers of approximately
$2,500,000 available for Federal income tax purposes. The Company will be able
to offset those carryforwards against future taxable income, if any. It will
be able to record a benefit from those carryforwards when they appear to be
realizable.
The net loss for the first six months of 1996 was $931,000, compared with a net
loss of $40,000 in the same period of 1995. Loss per share was $0.22 for 1996,
a $0.21 decrease from 1995's first half loss per share of $0.01.
Inflation has not had any material effect on the Company's operations during
1996. During 1995, price increases in postage, paper, plastic, and formed
metal parts adversely impacted profitability. The Company attempts to reduce
the impact of cost increases through design changes and improved factory
efficiencies. There is no guarantee that it will be successful in these
attempts.
The Company historically has experienced significant seasonality in its sales
primarily due to the purchasing cycle of educational institutions. Typically,
the first and fourth fiscal quarters each generate approximately 20% of annual
sales, with the second and third fiscal quarters each generating approximately
30% of annual sales. This distribution of sales is likely to continue
throughout 1996.
Other than the foregoing, management knows of no trends, demands, or
uncertainties that are reasonably likely to have a material impact on the
Company's results of operations.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No legal proceedings have been filed on behalf of or against the Company
nor have any claims been made.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant held its annual meeting of stockholders on June 3, 1996.
At that meeting, the stockholders voted upon the following matters:
1. Election of Directors
The following persons were elected to serve as directors of the
Registrant:
VOTES VOTES
FOR WITHHELD
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Clifford C. Thygesen 2,720,246 8,963
Dr. Robert A. Scott 2,720,556 8,653
Clifford L. Neuman 2,720,546 8,663
Dr. Dale LaFrenz 2,713,416 15,793
Dr. Wayne R. Kirschling 2,713,416 15,793
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
None.
Reports on Form 8-K:
On July 2, 1996, the Registrant filed a Current Report on Form 8-K
dated June 17, 1996, related to the sale of Churchill. That report
included:
Item 2. Disposition of Assets
Item 7. Financial Statements and Exhibits
(b) Pro Forma Financial Information
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SIGNATURE
In accordance with the requirements of the Securities and Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AMERICAN EDUCATIONAL PRODUCTS, INC.
Dated: August 12, 1996 By: /s/ Clifford C. Thygesen
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Clifford C. Thygsen, President
Dated: August 12, 1996 By: /s/ Frank L. Jennings
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Frank L. Jennings, Chief Financial Officer
and Vice President of Finance
