<PAGE>
UNITED STATES
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: October 19, 1998
(Date of earliest event reported): August 4, 1998
AMERICAN EDUCATIONAL PRODUCTS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-16310 84-1012129
- ------------------ -------------- ---------------
(State or other (Commission (IRS Employer
jurisdiction of File Identification
incorporation) Number) Number)
6550 Gunpark Drive, Suite 200, Boulder, Colorado 80301
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 527-3230
----------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
<PAGE>
PURPOSE OF THIS AMENDMENT
- -------------------------
On August 17, 1998, the Registrant filed a current report on Form 8-K relative
to the acquisition of certain assets of SV Distribution Company, dba Summit
Learning. Financial information required under Item 7 and Regulation S-B Item
310 was not available at the time of the filing. The purpose of this
amendment is to include the required unaudited pro forma information,
unaudited interim financial statements, and audited annual financial
statements.
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
- ----------------------------------------------
On August 4, 1998, SL Distribution, Inc. ("SL"), a wholly owned subsidiary of
American Educational Products, Inc. (the "Company" or "AMEP"), completed the
acquisition of certain assets of SV Distribution Company ("SV"), a wholly
owned subsidiary of Steck-Vaughn Publishing Company ("Steck-Vaughn"), a unit
of Harcourt General, Inc. Pursuant to the definitive Asset Purchase and Sale
Agreement (the "Agreement") dated as of August 4, 1998, SL purchased
substantially all of the tangible and intangible assets (the "Assets") used in
connection with the distribution of supplemental educational products through
the direct mailing of catalogs under the names "Summit Learning" and "Young
Explorers" (the "Business").
Under the terms of the Agreement, the Company acquired the Assets of the
Business, including inventories, accounts receivable, furniture, fixtures,
office machinery and equipment and other tangible property, all mailing,
client, and customer lists, leasehold improvements and fixtures, prepaid
expenses, contracts and licenses, development assets, and intangible assets.
The purchase price paid by Company to Steck-Vaughn for the Assets of the
Business was the sum of $1,621,743, (subject to future adjustments) of which
the sum of $300,000 was paid in cash at closing and the balance of the
purchase price, with interest at the rate of 8.5% per annum, was evidenced by
a Promissory Note payable in monthly principal installments of $125,000 each
which, together with interest thereon, commence on August 1, 1998 and continue
until July 1, 1999 when the entire outstanding principal balance, together
with any accrued and unpaid interest shall be due and payable in full. The
Company has the right, but not the obligation, to prepay the entire principal
balance and any accrued but unpaid interest at any time without penalty. The
down payment was funded by AMEP's available working capital resources.
Subsequent to August 4, 1998, the Young Explorers consumer catalog was sold to
a third party.
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
- -------------------------------------------
Filed herewith is the following information required by Items 7(a), Financial
Statements of Acquired Businesses, and 7(b), Pro Forma Financial Statements,
of Form 8-K with respect to the acquisition of certain assets of SV
Distribution Company by a subsidiary of AMEP, as disclosed on the Registrant's
Form 8-K filed with the Securities and Exchange Commission on August 17, 1998.
7(a) Financial Statements of Acquired Business
- ----------------------------------------------
SV Distribution Company (dba Summit Learning) Unaudited Financial
Statements
Balance Sheet as of June 30, 1998
Statements of Operations for the Six Months Ended June 30, 1998 and
June 30, 1997.
Statements of Cash Flows for the Six Months ended June 30, 1998 and
June 30, 1997.
Notes to Financial Statements
SV Distribution Company (dba Summit Learning) Audited Financial Statements
Independent Auditor's Report
Balance Sheet as of December 31, 1997.
Statements of Operations and Accumulated Deficit for the Years Ended
December 31, 1997 and December 31, 1996
Statements of Cash Flows for the Years Ended December 31, 1997 and
December 31, 1996
Notes to Financial Statements
7(b) Pro Forma Financial Statements
- -----------------------------------
The following unaudited pro forma consolidated financial statements are filed
with this report:
Pro Forma Consolidated Balance Sheet as of June 30, 1998
Pro Forma Consolidated Statements of Operations:
- For the year ended December 31, 1997
- For the six months ended June 30, 1998
The unaudited pro forma consolidated balance sheet as of June 30, 1998 and
unaudited pro forma consolidated statements of operations for the six months
ended June 30, 1998, and the year ended December 31, 1997, (collectively, the
pro forma consolidated financial statements) give effect to the acquisition by
AMEP of certain assets of SV Distribution Company (dba Summit Learning). In
addition, the pro forma consolidated financial statements give effect to the
disposition of the Young Explorers business. These transactions were accounted
for as a purchase, net of Youn Explorer sale proceeds, in accordance with the
provisions of Accounting Principles Board Opinion No. 16.
The pro forma consolidated statements of operations for the six months ended
June 30, 1998 and the year ended December 31, 1997 were prepared assuming that
the net acquisition described above was consummated as of the beginning of
each period presented. The pro forma consolidated balance sheet as of June 30,
1998 includes the pro forma purchase accounting entries for the acquisition
and was prepared assuming that the transaction was consummated as of June 30,
1998.
The unaudited pro forma consolidated financial statements are based upon the
historical consolidated and combined financial statements of the Company and
SV Distribution Company. The results of the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
The pro forma adjustments and the resulting pro forma consolidated financial
statements have been prepared based upon available information and certain
assumptions and estimates deemed appropriate by the Company. A final
determination of required purchase accounting adjustments, and the allocation
of the purchase price to the assets acquired based on their respective fair
values, has not yet been made for the acquisition. Further, the purchase
price is subject to adjustment as agreed between the parties. However, it is
unlikely that the purchase price will exceed the amount included in the pro
forma consolidated financial statements. Accordingly, the purchase accounting
adjustments for the acquisition reflected in the pro forma information are
preliminary and have been made solely for the purposes of developing such
information. The actual purchase accounting adjustments will be based on more
precise evaluations and estimates of fair values. It is possible that the
actual adjustments could differ substantially from those presented in the pro
forma consolidated financial statements.
The pro forma consolidated balance sheet as of June 30, 1998 and the pro forma
consolidated statements of operations for the six months ended June 30, 1998
and for the year ended December 31, 1997 are not necessarily indicative of the
results of operations that actually would have been achieved had the
acquisition been consummated as of the dates indicated, or that may be
achieved in the future. Furthermore, the pro forma consolidated financial
statements do not reflect changes that may occur as the result of post-
combination activities and other matters, other than the sale of assets
related to the Young Explorers catalog.
The pro forma consolidated financial statements and notes thereto should be
read in conjunction with the accompanying historical financial statements and
notes thereto of SV Distribution Company and the audited consolidated
financial statements of AMEP and subsidiaries included in its Annual Report on
Form 10-KSB for 1997.
SIGNATURE
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 hereunto duly authorized.
AMERICAN EDUCATIONAL PRODUCTS, INC.
Dated: October 19, 1998 By: /s/ Clifford C. Thygesen
---------------- -----------------------------------
Clifford C. Thygesen, President
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC.
ATTACHMENTS TO FORM 8-K/A
INDEX
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------
Pro Forma Consolidated Balance Sheet as of June 30, 1998 F-2
Pro Forma Consolidated Statement of Operations for the six
months ended June 30, 1998 F-3
Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1997 F-4
Notes to Pro Forma Consolidated Financial Statements F-5
SV DISTRIBUTION COMPANY (dba SUMMIT LEARNING)
UNAUDITED FINANCIAL STATEMENTS
- ---------------------------------------------
Unaudited Balance Sheet as of June 30, 1998 F-6
Unaudited Statements of Operations and Accumulated Deficit
for the six months ended June 30, 1998 and June 30, 1997 F-7
Unaudited Statements of Cash Flows for the six months ended
June 30, 1998 and June 30, 1997 F-8
Notes to Unaudited Financial Statements F-9
SV DISTRIBUTION COMPANY (dba SUMMIT LEARNING)
AUDITED FINANCIAL STATEMENTS
- ---------------------------------------------
Independent Auditors Report F-10
Balance Sheet as of December 31, 1997 F-11
Statements of Operations and Accumulated Deficit for the
years ended December 31, 1997 and December 31, 1996 F-12
Statements of Cash Flows for the years ended December 31, 1997,
and December 31, 1996 F-13
Notes to Financial Statements F-14
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Balance Sheet
as of June 30, 1998
<TABLE>
<CAPTION>
Consol-
AMEP SV idated
Historical Historical Pro Forma Balance
6/30/98 6/30/98 Adjustments Sheet
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Cash $ 158,000 $ 648,000 $ (648,000) b $ 158,000
Trade receivables 2,058,000 795,000 (255,000) b 2,598,000
Inventories 3,184,000 798,000 (121,000) c 3,861,000
Prepaid and deferred
marketing expense 255,000 - 188,000 b 443,000
------------ ----------- ----------- ------------
TOTAL CURRENT ASSETS 5,655,000 2,241,000 (836,000) 7,060,000
PROPERTY AND
EQUIPMENT, net 2,746,000 129,000 2,875,000
VIDEO LIBRARY, net 298,000 - - 298,000
INTANGIBLE ASSETS, net 1,498,000 - 136,000 b 1,634,000
OTHER ASSETS 175,000 - - 175,000
------------ ----------- ----------- ------------
TOTAL ASSETS $10,372,000 $2,370,000 $ (700,000) $ 12,042,000
============ =========== =========== =============
Accounts payable $ 580,000 $ 242,000 $ (242,000) b $ 580,000
Note payable, bank 2,362,000 - 300,000 b 2,662,000
Current portion,
long term debt 282,000 - - 282,000
Note payable to
sellers - - 1,322,000 b 1,322,000
Accrued expenses 460,000 24,000 24,000 b 508,000
Payable to parent
company - 5,060,000 (5,060,000) b -
------------ ----------- ----------- ------------
TOTAL CURRENT
LIABILITIES 3,684,000 5,326,000 (3,656,000) 5,354,000
LONG TERM DEBT 1,220,000 - - 1,220,000
STOCKHOLDERS' EQUITY 5,468,000 (2,956,000) 2,956,000 b 5,468,000
------------ ----------- ----------- ------------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $10,372,000 $2,370,000 $ (700,000) $ 12,042,000
============ =========== =========== =============
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statement of Operations
Six Months ending June 30, 1998
<TABLE>
<CAPTION>
AMEP L&L SV Consol-
Historical as adjusted Historical Pro Forma idated
6/30/98 4/17/98 (a) Subtotal 6/30/98 Subtotal Adjustments Operations
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME:
Net sales $4,402,000 $ 269,000 $4,671,000 $ 3,185,000 $7,856,000 $ (297,000) c,e $7,559,000
Cost of goods sold 2,655,000 93,000 2,748,000 1,747,000 4,495,000 (228,000) c,e 4,267,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit 1,747,000 176,000 1,923,000 1,438,000 3,361,000 (69,000) 3,292,000
OPERATING EXPENSES:
Advertising and
catalog costs 88,000 - 88,000 1,499,000 1,587,000 188,000 h 1,399,000
Other marketing 485,000 15,000 500,000 402,000 902,000 (23,000) c 879,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total marketing 573,000 15,000 588,000 1,901,000 2,489,000 (211,000) 2,278,000
General and
administrative 705,000 106,000 811,000 188,000 999,000 - 999,000
Amortization/impairment
of goodwill - - - - - 5,000 g 5,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses 1,278,000 121,000 1,399,000 2,089,000 3,488,000 (206,000) 3,282,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 469,000 55,000 524,000 (651,000) (127,000) (137,000) (10,000)
INTEREST/OTHER
INCOME (EXPENSE) (138,000) (23,000) (161,000) - (161,000) (69,000) d (230,000)
INCOME (LOSS) BEFORE
INCOME TAXES 331,000 32,000 363,000 (651,000) (288,000) (68,000) (220,000)
Income tax benefit
(expense) - - - 267,000 267,000 (267,000) f -
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 331,000 $ 32,000 $ 363,000 $ (384,000) $ (21,000) $ (199,000) $ (220,000)
=========== =========== =========== =========== =========== =========== ===========
Basic Earnings (Loss)
per Share $ 0.34 $ (0.23)
=========== ===========
Diluted Earnings (Loss)
per Share $ 0.31 $ (0.21)
=========== ===========
Weighted average number
of common shares
outstanding 960,000 960,000
Effect of dilutive
securities 93,000 93,000
----------- -----------
Weighted average number
of common shares
outstanding plus
dilutive securities 1,053,000 1,053,000
=========== ===========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statement of Operations
Year ending December 31, 1997
<TABLE>
<CAPTION>
AMEP L&L SV Consol-
Historical as adjusted Historical Pro Forma idated
12/31/97 10/31/97(a) Subtotal 12/31/97 Subtotal Adjustments Operations
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME:
Net sales $8,392,000 $ 1,175,000 $9,567,000 $11,815,000 $21,382,000 $(3,972,000) c,e $17,410,000
Cost of goods sold 5,232,000 487,000 5,719,000 7,079,000 12,798,000 (2,083,000) c,e 10,715,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit 3,160,000 688,000 3,848,000 4,736,000 8,584,000 (1,889,000) 6,695,000
OPERATING EXPENSES:
Advertising and catalog
costs 95,000 19,000 114,000 4,555,000 4,669,000 (1,359,000) c 3,310,000
Other marketing 851,000 121,000 972,000 1,088,000 2,060,000 (581,000) c 1,479,000
----------- ----------- ----------- ----------- ----------- ------------ -----------
Total marketing 946,000 140,000 1,086,000 5,643,000 6,729,000 (1,940,000) 4,789,000
General and
administrative 1,377,000 508,000 1,885,000 324,000 2,209,000 - 2,209,000
Amortization / impairment
of goodwill - - - 2,050,000 2,050,000 (2,040,000) g 10,000
----------- ----------- ----------- ---------- ----------- ----------- -----------
Total operating
expenses 2,323,000 648,000 2,971,000 8,017,000 10,988,000 (3,980,000) 7,008,000
OPERATING INCOME (LOSS) 837,000 40,000 877,000 (3,281,000) (2,404,000) 2,091,000 (313,000)
INTEREST/OTHER INCOME
(EXPENSE) (323,000) (23,000) (346,000) - (346,000) (138,000) d (484,000)
INCOME (LOSS) BEFORE
INCOME TAXES 514,000 17,000 531,000 (3,281,000) (2,750,000) 1,953,000 (797,000)
Income tax benefit
(expense) - - - 1,215,000 1,215,000 (1,215,000) f -
---------- ----------- ---------- ------------ ----------- ------------ -----------
NET INCOME (LOSS) $ 514,000 $ 17,000 $ 531,000 $(2,066,000)$(1,535,000) $ 738,000 $ (797,000)
========== ============ =========== =========== =========== ============= ============
Basic Earnings (Loss)
per Share $ 0.56 $ (0.87)
=========== ===========
Diluted Earnings (Loss)
per Share $ 0.53 $ (0.83)
=========== ===========
Weighted average number
of common shares
outstanding 918,000 918,000
Effect of dilutive
securities 44,000 44,000
----------- -----------
Weighted average number
of common shares
outstanding plus
dilutive securities 962,000 962,000
=========== ===========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------
BASIS OF PRESENTATION
The unaudited pro forma consolidated balance sheet is presented assuming the
SV acquisition and the Young Explorers disposition occurred on June 30, 1998.
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1997, and for the six months ended June 30, 1998, are
presented as if the SV acquisition and the L&L acquisition had occurred at the
beginning of each period presented. The unaudited pro forma consolidated
financial statements may not necessarily be indicative of the results that
would have occurred if the acquisitions actually had been in effect on the
date or for the periods indicated or which may result in the future.
PRO FORMA ADJUSTMENTS
(a) Learning & Leisure, Inc. -- The adjustments represent the revenues and
expenses of the Learning & Leisure, Inc. ("L&L") acquisition for the periods
prior to the April 17, 1998 acquisition date. Pro forma adjustments related
to the L&L acquisition, as previously reported and adjusted in the
Registrant's Form 8-K filed on June 30, 1998, have been included in the column
titled "L&L, as adjusted."
(b) Allocation of purchase price -- The adjustments represent the elimination
of assets that were not acquired, the elimination of liabilities that were not
assumed, the elimination of SV Distribution Company equity, and the allocation
of the total purchase price to the assets acquired in accordance with the
purchase accounting provisions of APB 16, as follows:
Accounts receivable, net $ 540,000
Inventory, net 700,000
Property and equipment 129,000
Prepaid and deferred marketing expenses 188,000
Goodwill 136,000
----------
Total purchase price $1,693,000
The total purchase price includes the agreed upon price payable to Steck-
Vaughn, certain liabilities assumed, and other acquisition costs incurred.
These amounts are subject to future adjustment as a result of the final
evaluation and analysis.
Certain assets, including cash balances and amounts due to SV from its parent,
were not acquired by AMEP.
(c) Elimination of Young Explorers -- The adjustments represent the
elimination of inventories, revenues, and expenses related to the Young
Explorers portion of the SV business. The Young Explorers business previously
operated as an integral component of SV was sold by AMEP to a third party
subsequent to August 4, 1998.
(d) Interest -- The adjustments represent the interest expense associated
with the debt incurred in connection with the acquisition of SV assuming that
the entire purchase was financed with debt. An annual interest rate of 8.5%
was used in the calculation.
(e) Intercompany Sales -- The adjustments represent the elimination of sales
and cost of goods sold for transactions between AMEP and SV prior to the
acquisition date.
(f) Income taxes -- The adjustments represent the elimination of tax benefits
allocated to SV by its parent company.
(g) Amortization and impairment of goodwill -- The adjustments represent the
amortization of goodwill associated with the acquisition of SV over its
estimated useful life of 15 years. Further, the adjustments represent the
elimination of historical expenses related to acquired intangible assets
recorded on the books of SV for previous acquisitions made by SV.
(h) Advertising and catalog costs -- The adjustments represent the reversed
of catalog cost impairment recorded by SV in connection with the sale of the
Company.
<PAGE>
<PAGE>
SV DISTRIBUTION COMPANY dba SUMMIT LEARNING
UNAUDITED BALANCE SHEET
as of June 30, 1998
<TABLE>
<CAPTION>
June 30,
1998
-------------
<S> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 648,000
Receivables, net of allowance of $172,000 524,000
Receivable from parent company 271,000
Inventories 798,000
-------------
TOTAL CURRENT ASSETS 2,241,000
PROPERTY AND EQUIPMENT, net 129,000
-------------
TOTAL ASSETS $ 2,370,000
=============
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 242,000
Accrued salaries, wages, and bonuses 6,000
Payable to parent company 5,060,000
Other liabilities 18,000
-------------
TOTAL CURRENT LIABILITIES 5,326,000
STOCKHOLDER'S EQUITY
Common stock; $0.01 par value;
1000 shares authorized;
1000 shares issued and outstanding -
Additional paid-in capital -
Accumulated deficit (2,956,000)
-------------
TOTAL STOCKHOLDER'S EQUITY (2,956,000)
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,370,000
=============
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<PAGE>
SV DISTRIBUTION COMPANY dba SUMMIT LEARNING
UNAUDITED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
for the Six Months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
------------- -------------
<S> <C> <C>
INCOME
Net Revenues $ 3,185,000 $ 4,683,000
Product costs and fulfillment 1,747,000 2,615,000
------------- -------------
GROSS PROFIT 1,438,000 2,068,000
OPERATING EXPENSES
Advertising and catalog costs 1,499,000 1,235,000
Other selling and marketing costs 402,000 313,000
General and administrative 188,000 175,000
Amortization and impairment of acquired
intangible assets - 115,000
------------- -------------
TOTAL OPERATING EXPENSES 2,089,000 1,838,000
OPERATING INCOME (LOSS) (651,000) 230,000
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (651,000) 230,000
Income tax benefit (expense) 267,000 (85,000)
------------- -------------
NET INCOME (LOSS) (384,000) 145,000
ACCUMULATED DEFICIT, beginning of period (2,572,000) (506,000)
------------- -------------
ACCUMULATED DEFICIT, end of period $ (2,956,000) $ (361,000)
============= =============
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<PAGE>
SV DISTRIBUTION COMPANY dba SUMMIT LEARNING
UNAUDITED STATEMENTS OF CASH FLOWS
for the Six Months ended June 30, 1998, and 1997
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (384,000) $ 145,000
Adjustments to reconcile net income (loss)
to cash from operating activities:
Depreciation 15,000 11,000
Amortization and impairment of acquired
intangible assets - 115,000
Income tax benefit (267,000) 85,000
Provision for doubtful accounts 22,000 -
Change in assets and liabilities:
Receivables (143,000) (463,000)
Inventories (158,000) (222,000)
Prepaid and deferred marketing expenses - (308,000)
Payable to parent company 2,598,000 598,000
Accounts payable (1,054,000) 110,000
Other (4,000) (14,000)
------------- -------------
NET CASH FROM OPERATING ACTIVITIES 625,000 57,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment - (18,000)
------------- -------------
NET CASH USED FOR INVESTING ACTIVITIES - (18,000)
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 625,000 39,000
CASH AND CASH EQUIVALENTS,
at beginning of period 23,000 183,000
------------- -------------
CASH AND CASH EQUIVALENTS,
at end of period $ 648,000 $ 222,000
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ - $ -
Income taxes paid to parent company $ - $ -
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
<PAGE>
SV DISTRIBUTION COMPANY dba SUMMIT LEARNING
NOTES TO FINANCIAL STATEMENTS
----------------------------
(Unaudited)
Note 1 - Presentation
- ---------------------
In the opinion of management, these unaudited financial statements contain
all adjustments (consisting of normal accruals) necessary to present fairly
the financial position as of June 30, 1998, and the results of operations for
the six months ended June 30, 1998, and June 30, 1997. These statements
should be read in conjunction with the audited financial statements and
accompanying notes included in this report on Form 8-K/A.
Note 2 - Advertising and Catalog Costs
- --------------------------------------
In connection with the pending sale of the Company, all prepaid and
deferred marketing expenses were considered impaired as of June 30, 1998.
Accordingly, additional costs of $200,000 were charged to expense during the
period ended June 30, 1998.
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors
SV Distribution Company
Austin, Texas
We have audited the accompanying balance sheet of SV Distribution Company (dba
Summit Learning) as of December 31, 1997, and the related statements of
operations and accumulated deficit, and cash flows for the years ended
December 31, 1997, and December 31, 1996. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 SV Distribution Company as of
December 31, 1997, and the results of its operations and its cash flows for
the years ended December 31, 1997, and December 31, 1996, in conformity with
generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
October 2, 1998
<PAGE>
<PAGE>
SV DISTRIBUTION COMPANY dba SUMMIT LEARNING
BALANCE SHEET
as of December 31, 1997
<TABLE>
<CAPTION>
December 31,
1997
-------------
<S> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 23,000
Receivables, net of allowance of $120,000 704,000
Inventories 640,000
-------------
TOTAL CURRENT ASSETS 1,367,000
PROPERTY AND EQUIPMENT, net 113,000
TOTAL ASSETS $ 1,480,000
=============
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,296,000
Accrued salaries, wages, and bonuses 11,000
Payable to parent company 2,729,000
Other liabilities 16,000
-------------
TOTAL CURRENT LIABILITIES 4,052,000
STOCKHOLDER'S EQUITY
Common stock; $0.01 par value; 1000 shares
authorized; 1000 shares issued
and outstanding -
Additional paid-in capital -
Accumulated deficit (2,572,000)
-------------
TOTAL STOCKHOLDER'S EQUITY (2,572,000)
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,480,000
=============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE>
SV DISTRIBUTION COMPANY dba SUMMIT LEARNING
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
for the Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
INCOME
Net Revenues $ 11,815,000 $11,360,000
Product costs and fulfillment 7,079,000 6,678,000
------------- -------------
GROSS PROFIT 4,736,000 4,682,000
OPERATING EXPENSES
Advertising and catalog costs 4,555,000 3,973,000
Other selling and marketing costs 1,088,000 932,000
General and administrative 324,000 289,000
Amortization and impairment of acquired
intangible assets 2,050,000 231,000
------------- -------------
TOTAL OPERATING EXPENSES 8,017,000 5,425,000
OPERATING (LOSS) (3,281,000) (743,000)
------------- -------------
(LOSS) BEFORE INCOME TAXES (3,281,000) (743,000)
Income tax benefit (expense) 1,215,000 275,000
------------- -------------
NET (LOSS) (2,066,000) (468,000)
ACCUMULATED DEFICIT, beginning of period (506,000) (38,000)
------------- -------------
ACCUMULATED DEFICIT, end of period $ (2,572,000) $ (506,000)
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE>
SV DISTRIBUTION COMPANY dba SUMMIT LEARNING
STATEMENTS OF CASH FLOWS
for the Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (2,066,000) $ (468,000)
Adjustments to reconcile net (loss) to
cash used for operating activities:
Depreciation 24,000 16,000
Amortization and impairment of
acquired intangible assets 2,050,000 230,000
Income tax benefit (1,215,000) (275,000)
Provision for doubtful accounts 20,000 -
Change in assets and liabilities:
Receivables (70,000) (431,000)
Inventories 84,000 6,000
Prepaid and deferred marketing expenses 333,000 (333,000)
Payable to parent company 126,000 751,000
Accounts payable 662,000 634,000
Other (46,000) 73,000
------------- -------------
NET CASH FROM (USED FOR)
OPERATING ACTIVITIES (98,000) 203,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (62,000) (20,000)
------------- -------------
NET CASH USED FOR INVESTING ACTIVITIES (62,000) (20,000)
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (160,000) 183,000
CASH AND CASH EQUIVALENTS,
at beginning of period 183,000 -
------------- -------------
CASH AND CASH EQUIVALENTS,
at end of period $ 23,000 $ 183,000
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ - $ -
Income taxes paid to parent company $ - $ -
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE>
SV DISTRIBUTION COMPANY d.b.a. SUMMIT LEARNING
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
SV Distribution Company (the "Company") is a wholly owned subsidiary of
Steck-Vaughn Publishing Corporation. The parent company provides certain
general corporate functions for the Company without charge. Since the
Company was operated as an integral part of the consolidated parent
corporation, the financial results presented herein do not represent, and
are not intended to represent, the financial results that might have
occurred as if the Company was operated as an independent entity.
The Company operates under the tradename "Summit Learning" and sells
supplemental educational materials to educational institutions located
throughout the United States. The materials primarily consist of
manipulative products for students. As the Company's principal customers
are supported by government funding, the demand for the Company's product
is subject to the availability of such funds and the inherent uncertainty
and risk resulting therefrom. With educational funding controlled
primarily by state and local governments, however, management believes
that the Company's broad national customer base would mitigate the impact
of funding restrictions at a relatively few locations.
The Company is subject to credit risk through its trade receivables, for
which no collateral is held. This risk is mitigated by the national,
diversified customer base and that no one customer represents a
significant portion of total receivables.
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 the 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.
REVENUES AND EXPENSES - Revenues are recognized upon shipment of such
products and an allowance is provided for returns.
The Company applies AICPA Statement of Position 93-7 (Reporting on
Advertising Costs) to its financial reporting of advertising activities.
The catalogs of SV Distribution Company are treated as direct response
advertising, with the costs of the catalogs charged to expense in
accordance with historical response rates. At the balance sheet date,
the current asset classification titled "Prepaid and deferred marketing
expenses" includes the costs of catalogs in progress, undistributed
completed catalogs, and catalog development costs. As of each balance
sheet date, the Company evaluates the recoverability of prepaid and
deferred marketing expenses and charges to expense any amounts deemed not
recoverable.
For the year ended December 31, 1997, total advertising and catalog costs
of $4,555,000 include an impairment amount of $1,191,000 for catalog
costs that were not considered recoverable during 1998.
All other advertising costs are expensed when the advertising first takes
place.
LONG-LIVED ASSETS - Management periodically assesses recoverability of
all long-lived assets, including intangibles. The assessment for
impairment is performed whenever changes in circumstance indicate that
the carrying value of an asset may not be recoverable. The assessment
compares the carrying value of the assets to the estimated future cash
flows of the assets, exclusive of interest. If an impairment is
indicated, a provision is made to reduce the asset's carrying value to
its estimated fair value.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK -
The carrying value of the Company's trade receivables and trade payables
are considered to approximate fair value due to their short maturities.
The Company has a concentration of credit risk along educational lines.
Management believes that the allowance for doubtful accounts is
sufficient to cover the related credit risk.
INCOME TAXES - The Company accounts for income taxes under the liability
method of SFAS 109. Deferred income taxes reflect the effect of
temporary differences between the tax basis of assets and liabilities and
the carrying value of those assets and liabilities for financial
reporting purposes. Deferred income taxes also reflect the value of net
operating losses and an offsetting valuation allowance. Tax effects are
computed using the tax rates and laws enacted as of the balance sheet
date. The Company joins with its parent in filing a consolidated tax
return. An income tax charge (or benefit) is allocated to the Company at
statutory rates. The balance sheet impact of deferred tax items is
recorded at the parent company.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
securities with an original maturity of less than three months to be cash
equivalents.
INVENTORIES - Inventories are valued at the lower of cost or market.
Cost is determined using an average cost method that approximates the
first-in, first-out method (FIFO) and consist of the following:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31, 1997
------------------
Finished goods $ 1,040,000
Less valuation allowance (400,000)
------------------
Total $ 640,000
</TABLE>
ACQUIRED INTANGIBLE ASSETS - Acquired intangible assets representing the
excess of cost over identifiable assets purchased by the Company are
amortized ratably over an estimated useful life of ten years.
In 1997, the Company recorded an impairment allowance of $1,819,000 for
acquired intangible assets. (See Note 2)
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed by the straight-line method over an estimated
useful life of 5 years.
Maintenance and repairs are charged to expenses when incurred. Property
replacements and betterments that extend the life of assets are
capitalized and subsequently depreciated.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1997
------------------
Property and equipment $ 153,000
Less accumulated depreciation (40,000)
------------------
Total $ 113,000
</TABLE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - Statement of Financial
Accounting Standards 130 "Reporting Comprehensive Income" and Statement
of Financial Accounting Standards 131 "Disclosures About Segments of an
Enterprise and Related Information" were recently issued. Statement 130
establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments
by owners and distributions to owners. Among other disclosures,
Statement 130 requires that all items that are required to be recognized
under current accounting standards as components of comprehensive income
be reported in a financial statement that displays with the same
prominence as other financial statements. Statement 131 supersedes
Statement of Financial Accounting Standards 14 "Financial Reporting for
Segments of a Business Enterprise." Statement 131 establishes standards
on the way that public companies report financial information about
operating segments in interim financial statements issued to the public.
It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. Statement 131 defines
operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and
in assessing performance.
Statements 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997, and require comparative information
for earlier years to be restated. Because of the recent issuance of
these standards, management has not fully evaluated the impact, if any,
that the standards may have on future financial statement disclosures.
Results of operations and financial position, however, will be unaffected
by implementation of these standards.
2. IMPAIRMENT OF LONG-LIVED ASSETS:
--------------------------------
During 1997, the Company determined that the acquired intangible assets
from its 1995 purchase of Summit Learning had been impaired. The
carrying value of this asset was reduced to zero.
3. COMMITMENTS:
------------
The Company leases warehouse facilities and office space under a
noncancellable operating lease. Total rental expense was $122,000 and
$113,000 for the years ending December 31, 1997 and 1996, respectively.
Future minimum rental commitments at December 31, 1997 are:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ 112,000
1999 $ 19,000
-------------
$ 131,000
=============
</TABLE>
4. INCOME TAXES ALLOCATED FROM PARENT
----------------------------------
The income tax benefit allocated to the Company was at an effective rate
of 37% for both 1997 and 1996. The difference between the effective rate
and the U. S. Federal statutory tax rate of 34% represented the impact of
state and local taxes.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996
---------------------------
Current $ 41,000 $ 141,000
Deferred 1,174,000 134,000
---------------------------
Total $1,215,000 $ 275,000
</TABLE>
The Company is a member of an affiliated group of companies that joins in
filing a consolidated income tax return. This affiliated group has the
ability to utilize net operating losses to offset taxable income of other
members in the affiliated group. The allocation of tax benefits from the
parent company has been reflected in the balance sheet as a reduction in
the accounts payable to parent company.
5. SUBSEQUENT EVENT
----------------
Pursuant to a letter of intent to sell substantially all of the assets of
Summit Learning to American Educational Products, Inc. (AMEP), the
Company entered into a management contract with AMEP under which AMEP
assumed certain management responsibilities for Summit Learning
commencing July 1, 1998. The asset sale was consummated on August 4,
1998. The transaction, involving aggregate purchase price plus other
costs of approximately $1,700,000, will be recorded using the purchase
method of accounting prescribed by APB 16.
