<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: June 30, 1998
(Date of earliest event reported): April 17, 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>
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 Learning & Leisure,
Inc. by American Educational Products, Inc. (AMEP), as disclosed on AMEP's
Form 8-K filed with the Securities and Exchange Commission on May 1, 1998.
7(a) Financial Statements of Acquired Business
-----------------------------------------
Learning & Leisure, Inc. Unaudited Financial Statements
Consolidated Balance Sheet as of March 31, 1998
Consolidated Statement of Operations for the Three Months Ended
March 31, 1998
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998
Notes to Consolidated Financial Statements
Learning & Leisure, Inc. Audited Financial Statements
Independent Auditor's Report
Consolidated Balance Sheet as of October 31, 1997
Consolidated Statement of Operations for the Year Ended
October 31, 1997
Consolidated Statement of Stockholders' Equity from
November 1, 1996 through October 31, 1997
Consolidated Statement of Cash Flows for the Year Ended
October 31, 1997.
Notes to Consolidated Financial Statements
7(b) Pro Forma Financial Statements
------------------------------
Unaudited Pro Forma Statement of Operations for the Three Months
Ended March 31, 1998
Unaudited Pro Forma Balance Sheet as of March 31, 1998
Unaudited Notes to Pro Forma Financial Statements as of and for the
period ended March 31, 1998
Unaudited Pro Forma Statement of Operations for the Year Ended
December 31, 1997
Unaudited Notes to Pro Forma Financial Statements for the year Ended
December 31, 1997
<PAGE>
<PAGE>
ITEM 7(a). FINANCIAL STATEMENTS OF ACQUIRED BUSINESS
-----------------------------------------
Learning & Leisure, Inc. Unaudited Financial Statements
See attachment A.
Learning & Leisure, Inc. Audited Financial Statements
See attachment B.
ITEM 7(b). PRO FORMA FINANCIAL STATEMENTS
-------------------------------
The following unaudited pro forma balance sheet as of March 31, 1998 and
unaudited pro forma statement of operations for the three months ended March
31, 1998 (collectively, the unaudited pro forma financial statements) give
effect to the acquisition by American Educational Products, Inc. (AMEP) of the
common stock of Learning & Leisure, Inc. (L&L) as if the acquisition had
occurred on March 31, 1998 for purposes of the balance sheet and on January 1,
1998 for purposes of the statement of operations. The transaction was
accounted for as a purchase in accordance with the provisions of Accounting
Principles Board Opinion No. 16.
On April 17, 1998, AMEP completed the purchase of all the outstanding stock of
L&L. With the assumption of debt and transaction costs, the total estimated
purchase price is approximately $2,000,000.
The acquisition was funded by AMEP's available working capital resources plus
a convertible promissory note payable to the sellers. The promissory note
bears interest at 7.5% and is payable in four annual principal installments of
$237,500, plus accrued interest. In addition, AMEP licensed certain
intangible assets, intellectual property, and related tooling from certain
affiliates of the sellers. The license agreement requires four annual
payments of $100,000 per year. Certain former L&L shareholders entered into
consulting and noncompetition contracts with AMEP that require aggregate
payments of $300,000 over a two-year period.
Similarly, the following unaudited pro forma statement of operations for the
year ended December 31, 1997, gives effect to the acquisition by AMEP of the
common stock of L&L as if the acquisition had occurred on January 1, 1997.
The historical financial data included in the unaudited pro forma financial
statements for the twelve month period is for each company's fiscal year end.
AMEP's fiscal year ends on December 31. L&L's fiscal year ends on October 31.
The unaudited pro forma financial data is based on management's best estimate
of the effects of the acquisition of L&L including an estimate of the
allocation of the purchase price to the assets acquired. Pro forma
adjustments are based on currently available information; however, 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 unaudited pro forma financial
statements.
The unaudited pro forma balance sheet as of March 31, 1998 and the unaudited
pro forma statements of operations for the three months ended March 31, 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 of L&L been consummated as of the dates indicated, or that may be
achieved in the future. The unaudited pro forma financial statements should
be read in conjunction with the accompanying unaudited notes, the accompanying
historical financial statements and notes thereto of L&L, and the audited
consolidated financial statements of AMEP and its subsidiaries included in its
Annual Report on Form 10-KSB for 1997.
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Statement of Operations
Three months ended March 31, 1998
<TABLE>
<CAPTION>
AMEP L&L Pro Forma Pro Forma
Historical Historical Adjustments Results
3/31/98 3/31/98
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCOME:
Net Sales $ 1,847,000 $ 269,000 $ 2,116,000
Cost of goods sold 1,193,000 86,000 7,000 a 1,286,000
------------- ------------- ------------- -------------
Gross profit 654,000 183,000 (7,000) 830,000
OPERATING EXPENSES
Advertising and catalog costs 34,000 0 34,000
Other marketing 211,000 15,000 226,000
------------- ------------- ------------- -------------
Total marketing 245,000 15,000 260,000
General & administrative 363,000 135,000 (29,000) a 469,000
------------- ------------- ------------- -------------
Total operating expenses 608,000 150,000 (29,000) 729,000
------------- ------------- ------------- -------------
OPERATING INCOME 46,000 33,000 22,000 101,000
INTEREST (EXPENSE) (67,000) (1,000) (22,000) a (90,000)
GAIN ON SALE OF ASSETS 0 120,000 (120,000) a 0
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (21,000) 152,000 (120,000) 11,000
Income tax (expense) 0 (42,000) 42,000 a 0
NET INCOME (LOSS) $ (21,000) $ 110,000 (78,000) $ 11,000
============ ============ ============ ============
Basic Earnings (Loss) per Share $ (0.02) $ 0.01
============ ============
Diluted Earnings (Loss) per Share $ (0.02) $ 0.01
============ ============
Weighted average number of common
shares outstanding 935,000 935,000
Effect of dilutive securities 0 0
------------ ------------
Weighted average number of common
shares plus dilutive securities 935,000 935,000
============ ============
</TABLE>
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Balance Sheet
as of March 31, 1998
<TABLE>
<CAPTION>
AMEP L&L Pro Forma Pro Forma
Historical Historical Adjustments Results
3/31/98 3/31/98
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash $ 101,000 $ 27,000 $ 128,000
Trade receivables 1,333,000 134,000 1,467,000
Inventories 2,840,000 484,000 3,324,000
Other current assets 401,000 9,000 410,000
------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 4,675,000 654,000 5,329,000
PROPERTY AND EQUIPMENT, net 2,295,000 8,000 400,000 c 2,703,000
VIDEO LIBRARY, net 328,000 0 328,000
INTANGIBLE ASSETS, net 154,000 0 1,045,000 c 1,199,000
OTHER ASSETS 213,000 0 213,000
------------ ------------ ------------ ------------
TOTAL ASSETS $ 7,665,000 $ 662,000 1,445,000 $ 9,772,000
============ ============ ============ ============
Accounts payable $ 528,000 $ 98,000 $ 626,000
Note payable 1,960,000 0 250,000 b 2,210,000
Current portion, long term debt 44,000 0 456,000 b 500,000
Accrued expenses 176,000 0 125,000 b 301,000
Accrued and deferred income taxes 0 49,000 49,000
------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 2,708,000 147,000 831,000 3,686,000
LONG TERM DEBT 91,000 0 1,129,000 b 1,220,000
STOCKHOLDERS' EQUITY 4,866,000 515,000 (515,000) b 4,866,000
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,665,000 $ 662,000 1,445,000 $ 9,772,000
============ ============ ============ ============
</TABLE>
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
Unaudited Notes to Pro Forma Financial Statements
As of and for the three months ended March 31, 1998
<TABLE>
<CAPTION>
<S> <C>
a. The following pro forma adjustments are reflected in
the pro forma statement of operations:
1. Elimination of certain L & L expenses paid to
former officers, directors, and shareholders,
including salaries, life insurance premiums,
and rent $ (66,000)
2. Amortization of goodwill recorded pursuant to
purchase accounting 14,000
3. Amortization of other assets 15,000
4. Consulting contract 8,000
------------
Total General and Administrative (29,000)
5. Increase in depreciation expense related to
increased basis of equipment 7,000
6. Increase in interest expense related to new
borrowings 22,000
7. Eliminate L&L gain on sale of certain assets (120,000)
8. Net tax effect of Pro Forma adjustments and
utilization of net operating loss carryover 42,000
------------
$ (78,000)
============
b. The calculation of the estimated purchase price for
purposes of the pro forma financial statements is
as follows:
Cash paid, net of cash acquired $ 225,000
Promissory note payable to sellers 950,000
Noncompetition contracts and license agreement 635,000
Liabilities assumed 125,000
Other costs incurred 50,000
------------
$ 1,985,000
============
c. The following pro forma adjustments reflect the
allocation of the purchase price to the fair value
of assets acquired pursuant to purchase accounting,
and the elimination of L&L stockholders' equity:
Record property plant and equipment at estimated
fair value $ 400,000
Record goodwill 810,000
Record other intangibles 235,000
Elimination of L&L stockholders' equity 515,000
Cash acquired 25,000
------------
$ 1,985,000
============
</TABLE>
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Statement of Operations
For the Year ended December 31, 1997
<TABLE>
<CAPTION>
AMEP L&L Pro Forma Pro Forma
Historical Historical Adjustments Results
12/31/97 10/31/97
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCOME:
Net Sales $ 8,392,000 $ 1,175,000 $ 9,567,000
Cost of goods sold 5,232,000 460,100 27,000 a 5,719,100
------------ ------------ ------------ ------------
Gross profit 3,160,000 714,900 (27,000) 3,847,900
OPERATING EXPENSES
Advertising and catalog costs 95,000 18,600 113,600
Other marketing 851,000 121,200 972,200
------------ ------------ ------------ ------------
Total marketing 946,000 139,800 1,085,800
General & administrative 1,377,000 507,600 (118,000) a 1,766,600
------------ ------------ ------------ ------------
Total operating expenses 2,323,000 647,400 (118,000) 2,852,400
------------ ------------ ------------ ------------
OPERATING INCOME 837,000 67,500 91,000 995,500
INTEREST (EXPENSE) (323,000) (7,900) (89,000) a (419,900)
INCOME (LOSS) BEFORE INCOME TAXES 514,000 59,600 2,000 575,600
Income tax (expense) 0 (13,000) 13,000 a 0
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 514,000 $ 46,600 15,000 $ 575,600
============ ============ ============ ============
Basic Earnings (Loss) per Share $ 0.56 $ 0.63
============ ============ ============ ============
Diluted Earnings (Loss) per Share $ 0.53 $ 0.60
============ ============ ============ ============
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
plus dilutive securities 962,000 962,000
============ ============
</TABLE>
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC. AND SUBSIDIARIES
Unaudited Notes to Pro Forma Financial Statements
For the year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
a. The following pro forma adjustments are reflected
in the pro forma statement of operations:
1. Elimination of certain L & L expenses paid to
former officers, directors, and shareholders,
including salaries, life insurance premiums,
and rent $ (265,000)
2. Amortization of goodwill recorded pursuant to
purchase accounting 56,000
3. Amortization of other assets 59,000
4. Consulting contract 32,000
-----------
Total General and Administrative (118,000)
5. Increase in depreciation expense related to
increased basis of equipment 27,000
6. Increase in interest expense related to new
borrowings 89,000
7. Net tax effect of Pro Forma adjustments and
utilization of net operating loss carryover (13,000)
-----------
$ (15,000)
===========
</TABLE>
<PAGE>
<PAGE>
ATTACHMENT A
LEARNING & LEISURE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED BALANCE SHEET - March 31, 1998 2
CONSOLIDATED STATEMENT OF OPERATIONS -
For the Three Months Ended March 31, 1998 3
CONSOLIDATED STATEMENT OF CASH FLOW -
For the Three Months Ended March 31, 1998 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5
<PAGE>
<PAGE>
LEARNING & LEISURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of March 31, 1998
<TABLE>
<CAPTION>
Unaudited
-------------
<S> <C>
ASSETS
- ------
CURRENT ASSETS
Cash $ 27,200
Trade receivables, net of allowance of $25,000 134,000
Inventories 483,600
Prepaid expenses 8,200
Other 1,000
------------
TOTAL CURRENT ASSETS 654,000
PROPERTY AND EQUIPMENT, net 8,000
------------
TOTAL ASSETS $ 662,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 97,600
Deferred income taxes 800
Income taxes payable 48,800
------------
TOTAL CURRENT LIABILITIES 147,200
STOCKHOLDERS' EQUITY
Common stock; no par value; 100,000 shares authorized;
11,017 shares issued and outstanding 175,700
Retained earnings 339,100
------------
TOTAL STOCKHOLDERS' EQUITY 514,800
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 662,000
============
</TABLE>
<PAGE>
<PAGE>
LEARNING & LEISURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
for the Three months ended March 31, 1998
<TABLE>
<CAPTION>
Unaudited
-------------
<S> <C>
INCOME:
Net sales $ 268,800
Cost of goods sold 86,000
------------
Gross profit 182,800
OPERATING EXPENSES:
Other marketing 14,800
------------
Total marketing 14,800
General and administrative 135,000
------------
Total operating expenses 149,800
------------
OPERATING INCOME 33,000
Gain
from sale of asset 120,000
Interest expense (1,400)
------------
INCOME BEFORE INCOME TAXES 151,600
Income tax expense (42,000)
------------
NET INCOME $ 109,600
============
</TABLE>
<PAGE>
<PAGE>
LEARNING & LEISURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
For the Three months ended March 31, 1998
<TABLE>
<CAPTION>
Unaudited
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 109,600
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 1,300
Gain on sale of asset (120,000)
Changes in operating assets and liabilities:
Decrease (increase) in operating assets:
Accounts receivable (46,100)
Inventories (35,700)
Other 3,800
Increase (decrease) in operating liabilities:
Accounts payable 46,200
Income taxes payable 26,300
------------
Net cash provided (used) by operating activities (14,600)
NET INCREASE (DECREASE) IN CASH (14,600)
Cash, at beginning of period 41,800
------------
Cash, at end of period $ 27,200
============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ -
============
Income taxes $ (11,000)
============
</TABLE>
<PAGE>
<PAGE>
LEARNING & LEISURE, INC. AND SUBSIDIARIES
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 March 31, 1998, and the results
of operations for the three months ended March 31, 1998. These statements
should be read in conjunction with the Company's audited financial statements
and notes thereto for the year ended October 31, 1997.
<PAGE>
<PAGE>
ATTACHMENT B
LEARNING & LEISURE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT 2
CONSOLIDATED BALANCE SHEET - October 31, 1997 3
CONSOLIDATED STATEMENT OF OPERATIONS -
For the Year Ended October 31, 1997 4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY -
From November 1, 1996, through October 31, 1997 5
CONSOLIDATED STATEMENT OF CASH FLOW -
For the Year Ended October 31, 1997 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Learning & Leisure, Inc.
New Hyde Park, New York
We have audited the accompanying consolidated balance sheet of Learning &
Leisure, Inc. and Subsidiaries as of October 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year ended October 31, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Learning &
Leisure, Inc. and Subsidiaries as of October 31, 1997, and the results of
their operations and their cash flows for the year ended October 31, 1997, in
conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
May 31, 1998
<PAGE>
<PAGE>
LEARNING & LEISURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
as of October 31, 1997
<TABLE>
<CAPTION>
1997
-------------
<S> <C>
ASSETS
- ------
CURRENT ASSETS
Cash $ 90,900
Trade receivables, net of allowance of $25,000 149,800
Inventories 467,400
Prepaid expenses 13,600
Other 1,000
------------
TOTAL CURRENT ASSETS 722,700
PROPERTY AND EQUIPMENT, net 4,500
------------
TOTAL ASSETS $ 727,200
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 121,000
Accrued interest payable to stockholders 115,500
Accrued expenses 34,000
Deferred income taxes 22,200
Income taxes payable 9,700
Advances from stockholders 1,800
------------
TOTAL CURRENT LIABILITIES 304,200
COMMITMENTS (Note 2)
STOCKHOLDERS' EQUITY
Common stock; no par value; 100,000 shares authorized;
11,017 shares issued and outstanding 175,700
Retained earnings 247,300
------------
TOTAL STOCKHOLDERS' EQUITY 423,000
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 727,200
============
</TABLE>
<PAGE>
<PAGE>
LEARNING & LEISURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended October 31, 1997
<TABLE>
<CAPTION>
1997
------------
<S> <C>
INCOME:
Net sales $ 1,175,000
Cost of goods sold 460,100
------------
Gross profit 714,900
OPERATING EXPENSES:
Advertising and catalog costs 18,600
Other marketing 121,200
------------
Total marketing 139,800
General and administrative 507,600
------------
Total operating expenses 647,400
------------
OPERATING INCOME 67,500
Interest expense (7,900)
------------
INCOME BEFORE INCOME TAXES 59,600
Income tax expense (14,000)
------------
NET INCOME $ 45,600
============
/TABLE
<PAGE>
<PAGE>
LEARNING & LEISURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
November 1, 1996, through October 31, 1997
<TABLE>
<CAPTION>
Common Stock
----------------------------
Number
of Common Retained
Shares Stock Earnings Total
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Balance as of November 1, 1996 10,000 $ 83,400 $ 201,700 $285,100
Conversion of notes payable
into common stock 1,017 92,300 - 92,300
Net income - - 45,600 45,600
---------- ----------- ----------- --------
Balance as of October 31, 1997 11,017 $ 175,700 $ 247,300 $423,000
========== =========== =========== ========
</TABLE>
<PAGE>
<PAGE>
LEARNING & LEISURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
For the Year Ended October 31, 1997
<TABLE>
<CAPTION>
1997
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,600
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 3,400
Bad debt expense 10,000
Deferred income tax expense 3,000
Changes in operating assets and liabilities:
Decrease (increase) in operating assets:
Accounts receivable (65,600)
Inventories (52,100)
Other 6,700
Increase (decrease) in operating liabilities:
Accounts payable (13,700)
Accrued interest payable to 7,100
Accrued expenses 23,700
Income taxes payable 7,700
------------
Net cash provided (used) by operating (24,200)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,000)
------------
Net cash provided (used) by investing (1,000)
------------
NET INCREASE (DECREASE) IN CASH (25,200)
Cash, at beginning of period 116,100
------------
Cash, at end of period $ 90,900
============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 800
============
Income taxes $ -
============
Non-cash investing and financing activities:
Conversion of notes payable to stockholders
into common stock $ 92,300
============
</TABLE>
<PAGE>
<PAGE>
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------------------
NATURE OF BUSINESS - Learning & Leisure, Inc. was organized as a New
York corporation in 1972. L&L currently has one operating subsidiary,
National Teaching Aids, Inc. The other subsidiary, Visual Systems for
Learning, Inc. is inactive. The consolidated group of companies is
collectively referred to as "the Company".
The Company sells a wide variety of educational products through
multiple sales channels. The Company's products include those developed
and produced by the Company, as well as products manufactured by other
companies. The Company's customers include educational institutions,
wholesalers, and individual educators. Approximately 97% of the
Company's sales are in the United States and the remainder are sold in
various locations throughout the world. Approximately 37% of the
Company's sales are to three customers, each of whom individually
accounts for more than 10% of the Company's sales.
A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
REVENUE RECOGNITION - Sales are recorded at time of shipment and an
allowance is provided for returns.
CASH EQUIVALENTS - Short term liquid investments with maturities less
than three months are considered cash equivalents.
INVENTORIES - Inventories are valued at the lower of cost [using a
system that approximates a first-in, first-out (FIFO) basis] or market,
and consist of the following at October 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Raw materals $ 64,900
Work in process 12,300
Finished goods 390,200
----------
Total $ 467,400
</TABLE>
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed by the straight-line method over estimated
useful lives ranging generally from 3 to 20 years. Depreciation expense
was $3,400 for the year ended October 31, 1997.
Maintenance and repairs are charged to expenses when incurred. Property
replacements and betterments that extend the life of assets, including
reproduction masters for significant, non-routine product updates, are
capitalized and subsequently depreciated.
Property and equipment consist of the following at October 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Reproduction masters and molds $ 378,000
Plant machinery and equipment 53,000
Office furniture and equipment 15,000
Computer hardware and software 18,000
----------
464,000
Less accumulated depreciation (459,500)
----------
Total $ 4,500
</TABLE>
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.
USE OF ESTIMATES - The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting
principles requires the Company's management to make estimates and
assumptions that affect the amounts reported in these financial
statements and accompanying notes. Actual results could differ from
those estimates.
2. COMMITMENTS AND RELATED PARTIES:
-------------------------------
The Company leases office and warehouse space, office equipment, and
automobiles under noncancellable operating leases. Total rental expense
was $65,000, for the year ended October 31, 1997. Future minimum rental
commitments at October 31, 1997, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 66,000
1999 1,000
2000 1,000
2001 1,000
2002 1,000
----------
Total $ 70,000
</TABLE>
The office and warehouse facilities require annual lease payments
approximating $60,000 and are leased from a company whose owners include
the stockholders of Learning & Leisure, Inc.
The Company has certain royalty agreements with third parties on various
products. Total royalty expense for the year ended October 31, 1997, was
$13,000. Approximately 10% of the royalties are paid to stockholders and
their relatives.
3. INCOME TAXES:
------------
The composition of income tax expense for the year ended October 31,
1997, was as follows:
<TABLE>
<CAPTION>
<S> <C>
Current $ 11,000
Deferred 3,000
----------
Total $ 14,000
</TABLE>
The percentage income tax expense recorded for 1997 was approximately
24%. The difference between the recorded percentage and the Federal
statutory rate of 18% is primarily caused by the addition of state
taxes.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The significant components of deferred tax assets and
liabilities as of October 31, 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets (liabilities):
Current
Accounts receivable $ 7,500
Inventories (29,700)
----------
Total $ (22,200)
</TABLE>
4. SUBSEQUENT EVENTS:
-----------------
In April, 1998, all of the outstanding stock of Learning & Leisure,
Inc. was purchased by Hubbard Scientific, Inc., a subsidiary of
American Educational Products, Inc. (NASDAQ: AMEP). The transaction
will be reported as a purchase by American Educational Products, Inc.
and the operations of Learning & Leisure, Inc. and its subsidiaries
will be merged with Hubbard Scientific, Inc. effective with the date
of acquisition.
<PAGE>
<PAGE>
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: April 17, 1998 By: /s/ Clifford C. Thygesen
-------------- ---------------------------------
Clifford C. Thygesen, President
