<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 1999.
[ ] 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: 0-22187
ADVANTAGE LEARNING SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WISCONSIN 39-1559474
(STATE OR OTHER (IRS EMPLOYER
JURISDICTION OF INCORPORATION) IDENTIFICATION NO.)
PO BOX 8036
2911 PEACH STREET
WISCONSIN RAPIDS, WISCONSIN
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
54495-8036
(ZIP CODE)
(715) 424-3636
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS APRIL 30, 1999
----- --------------
Common Stock, $0.01 par value 33,888,194
<PAGE> 2
ADVANTAGE LEARNING SYSTEMS, INC.
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheets at March 31, 1999
and December 31, 1998 ............................................. 1
Unaudited Consolidated Statements of Income for the Three
Months Ended March 31, 1999 and 1998 .............................. 2
Unaudited Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998 .............................. 3
Notes to Unaudited Consolidated Financial Statements........................ 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................ 6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................................ 9
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ................................. 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .......................................... 10
</TABLE>
- Index -
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANTAGE LEARNING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1999 December 31,
1998
-------------------- -------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,701 $ 14,222
Short term investments 11,846 18,869
Accounts receivable, less allowance of
$1,364,000 in 1999 and $1,058,000 in 1998 10,017 8,832
Inventories 773 794
Prepaid expenses 847 656
Deferred tax asset 2,434 2,242
-------------------- -------------------
Total current assets 50,618 45,615
-------------------- -------------------
Property, plant and equipment, net 20,356 19,101
Deferred tax asset 1,670 1,647
Intangibles, net 1,343 1,445
Capitalized software, net 180 188
-------------------- -------------------
Total assets $ 74,167 $ 67,996
==================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,371 $ 1,815
Deferred revenue 3,418 3,443
Payroll and employee benefits 1,281 1,080
Income taxes payable 2,673 2,157
Other current liabilities 2,064 2,182
-------------------- -------------------
Total current liabilities 11,807 10,677
-------------------- -------------------
Deferred revenue 1,648 1,398
-------------------- -------------------
Total liabilities 13,455 12,075
Minority interest 276 295
Shareholders' equity 60,436 55,626
-------------------- -------------------
Total liabilities and shareholders' equity $ 74,167 $ 67,996
==================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
- 1 -
<PAGE> 4
ADVANTAGE LEARNING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1999 1998
---------------- ----------------
(In thousands, except per share amounts)
<S> <C> <C>
Net sales:
Products $ 15,060 $ 8,636
Services 3,292 1,987
---------------- ----------------
Total net sales 18,352 10,623
---------------- ----------------
Cost of sales:
Products 1,565 901
Services 1,705 865
---------------- ----------------
Total cost of sales 3,270 1,766
---------------- ----------------
Gross profit 15,082 8,857
Operating expenses:
Product development 1,394 1,027
Selling and marketing 4,722 3,351
General and administrative 2,236 1,737
---------------- ----------------
Total operating expenses 8,352 6,115
---------------- ----------------
Operating income 6,730 2,742
Other income:
Interest income 413 434
Other, net 176 70
---------------- ----------------
Income before taxes 7,319 3,246
Income taxes 3,001 1,347
---------------- ----------------
Net income $ 4,318 $ 1,899
================ ================
Basic and diluted earnings per share $ 0.13 $ 0.06
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
- 2 -
<PAGE> 5
ADVANTAGE LEARNING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1999 1998
------------------- -----------------
(In thousands)
<S> <C> <C>
Reconciliation of net income to net cash provided by operating activities:
Net income $ 4,318 $ 1,899
Noncash (income) expenses included in net income -
Depreciation and amortization 654 403
Deferred income taxes (216) (33)
Change in assets and liabilities -
Accounts receivable (1,185) (984)
Inventory 22 50
Prepaid expenses (191) 159
Accounts payable and other current liabilities 1,156 1,633
Deferred revenue 224 50
Other (41) (17)
------------------- -----------------
Net cash provided by operating activities 4,741 3,160
------------------- -----------------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,752) (960)
Purchase of short term investments, net 7,022 (14,911)
Capitalized software development costs (20) -
------------------- -----------------
Net cash provided by (used in) investing activities 5,250 (15,871)
------------------- -----------------
Cash flows from financing activities:
Equity contribution from minority partner - 66
Proceeds from issuance of stock 222 -
Proceeds from exercise of stock options 266 -
------------------- -----------------
Net cash provided by financing activities 488 66
------------------- -----------------
Net increase (decrease) in cash 10,479 (12,645)
Cash and cash equivalents, beginning of period 14,222 22,320
------------------- -----------------
Cash and cash equivalents, end of period $ 24,701 $ 9,675
=================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE> 6
ADVANTAGE LEARNING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATION
The consolidated financial statements include the financial results of
Advantage Learning Systems, Inc. ("ALS") and its consolidated subsidiaries
(collectively the "Company"). All significant intercompany transactions have
been eliminated in the consolidated financial statements.
2. BASIS OF PRESENTATION
The consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results of the interim
periods, and are presented on an unaudited basis. These financial statements
should be read in conjunction with the Company's financial information contained
in the Company's Annual Report on Form 10-K which is on file with the U.S.
Securities and Exchange Commission.
The results of operations for the three month periods ended March 31,
1999 and 1998 are not necessarily indicative of the results to be expected for
the full year.
3. EARNINGS PER COMMON SHARE
Basic earnings per common share has been computed based on the weighted
average number of common shares outstanding. Diluted earnings per common share
has been computed based on the weighted average number of common shares
outstanding, increased by the number of additional common shares that would have
been outstanding if the dilutive potential common shares had been issued.
On January 18, 1999, the board of directors of the Company authorized a
2-for-1 split of common stock in the form of a stock dividend payable on
February 26, 1999 to shareholders of record on February 11, 1999. Accordingly,
all share and per share data presented herein have been restated to reflect this
split. The weighted average shares outstanding during the three months ended
March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
Basic Weighted Average Shares 33,867,084 33,804,766
Impact of Stock Options 288,603 114,968
Diluted Weighted Average Shares 34,155,687 33,919,734
</TABLE>
4. SEGMENT REPORTING
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately because each
business requires different technology and marketing strategies. The Company has
two reportable segments: software and training.
The software segment produces learning information systems software for
the K-12 school market in the United States and Canada. The software assists
educators in assessing and monitoring student development by increasing the
quantity, quality and timeliness of student performance data in the areas of
reading, math and writing. Revenue from the software segment includes product
revenue from the sale of software and service revenue from the sale of software
support agreements.
- 4 -
<PAGE> 7
The training segment provides professional development training
seminars. The program trains educators how to accelerate learning in the
classroom through use of the information that the Company's learning information
systems provide. Revenue from the training segment includes service revenue from
a variety of seminars presented in hotels and schools across the country, and
product revenue from training material.
The Company evaluates the performance of its operating segments based
on operating income before nonrecurring items. Intersegment sales and transfers
and revenue derived outside of the United States are not significant. Summarized
financial information concerning the Company's reportable segments is shown in
the following table:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----------------- -------------
(In thousands)
<S> <C> <C>
Revenues:
Software $ 16,277 $ 9,070
Training 2,075 1,553
----------------- -------------
Total revenues $ 18,352 $ 10,623
================= =============
Operating income:
Software $ 7,434 $ 3,136
Training (704) (394)
----------------- -------------
Total operating income $ 6,730 $ 2,742
================= =============
</TABLE>
The information about the segments presented above is in compliance
with SFAS 131 reporting requirements. The reported measures are consistent with
those used in measuring amounts in the consolidated financial statements.
Such measurements are generally along legal entity lines as aggregated.
It is management's opinion, however, that because many flows of value
between the segments cannot be precisely quantified, this information provides
an incomplete measure of the training segment profit or loss, and should not be
viewed in isolation. Management evaluates the performance of the training
segment based on many factors not captured by the financial accounting system
and often evaluates the Company's financial performance on a total entity basis.
5. COMPREHENSIVE INCOME
Total comprehensive income was $4,322,000 and $1,899,000 in the first
quarter of 1999 and 1998, respectively. The difference between net income and
total comprehensive income comprised solely foreign currency translations.
- 5 -
<PAGE> 8
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
The following table sets forth certain consolidated income statement
data in dollars and as a percentage of net sales, except that individual
components of costs of sales and gross profit are shown as a percentage of their
corresponding component of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998 CHANGE
------------------------- ------------------------ ------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Sales:
Products $15,060 82.1% $8,636 81.3% $6,424 74.4%
Services 3,292 17.9% 1,987 18.7% 1,305 65.7%
------------ =========== ----------- ========== ------------
Total net sales 18,352 100.0% 10,623 100.0% 7,729 72.8%
------------ =========== ----------- ========== ------------
Cost of sales:
Products 1,565 10.4% 901 10.4% 664 73.7%
Services 1,705 51.8% 865 43.5% 840 97.1%
------------ ----------- ------------
Total cost of sales 3,270 17.8% 1,766 16.6% 1,504 85.2%
------------ ----------- ------------
Gross profit:
Products 13,495 89.6% 7,735 89.6% 5,760 74.5%
Services 1,587 48.2% 1,122 56.5% 465 41.4%
------------ ----------- ------------
Total gross profit 15,082 82.2% 8,857 83.4% 6,225 70.3%
------------ ----------- ------------
Operating expenses:
Product development 1,394 7.6% 1,027 9.7% 367 35.7%
Selling & marketing 4,722 25.7% 3,351 31.5% 1,371 40.9%
General & administrative 2,236 12.2% 1,737 16.4% 499 28.7%
------------ ----------- ------------
Total operating expenses 8,352 45.5% 6,115 57.6% 2,237 36.6%
------------ ----------- ------------
Operating income 6,730 36.7% 2,742 25.8% 3,988 145.4%
Other income:
Interest income 413 2.2% 434 4.1% (21) -4.8%
Other, net 176 1.0% 70 0.7% 106 151.4%
------------ ----------- ------------
Total other income 589 3.2% 504 4.8% 85 16.9%
------------ ----------- ------------
Income before taxes 7,319 39.9% 3,246 30.6% 4,073 125.5%
Income taxes 3,001 16.4% 1,347 12.7% 1,654 122.8%
------------ ----------- ------------
Net income $ 4,318 23.5% $1,899 17.9% $2,419 127.4%
============ =========== ============
</TABLE>
- 6 -
<PAGE> 9
Net Sales. The Company's net sales increased by $7.7 million, or 72.8%,
to $18.4 million in the first quarter of 1999 from $10.6 million in the first
quarter of 1998. Product sales increased by $6.4 million, or 74.4%, to $15.1
million in the first quarter of 1999 from $8.6 million in the first quarter of
1998. The increase in product sales is primarily attributable to (i) sales of
the Company's new math products which began shipping in late 1998 and (ii)
increased sales of Accelerated Reader title disks, with about 22,000 available
book titles, to a larger base of Accelerated Reader schools.
Service revenue, which consists of revenue from sales of training
sessions and software support agreements, increased by $1.3 million, or 65.7%,
to $3.3 million in the first quarter of 1999 from $2.0 million in the first
quarter of 1998. This increase is primarily attributable to revenue from
software support agreements associated with new product sales along with
renewals of agreements by an expanding base of existing customers, and to an
increased number of Reading Renaissance training sessions.
Cost of Sales. The cost of sales of products increased by $664,000, or
73.7%, to $1.6 million in the first quarter of 1999 from $901,000 in the first
quarter of 1998. As a percentage of product sales, the cost of sales of products
remained constant at 10.4% in the first quarter of 1999 and 1998. The cost of
sales of services increased by $840,000, or 97.1%, to $1.7 million in the first
quarter of 1999 from $865,000 in the first quarter of 1998. As a percentage of
sales of services, the cost of sales of services increased to 51.8% in the first
quarter of 1999 compared to 43.5% in the first quarter of 1998. This increase is
primarily the result of increased costs associated with a new training program,
Math Renaissance, introduced during the quarter, and increased numbers of
seminars in smaller markets. The Company's overall gross profit margin decreased
to 82.2% in the first quarter of 1999 from 83.4% in the first quarter of 1998
due to the decreased gross profit margin on services. Management expects that
the overall gross profit margin will remain relatively constant in 1999.
Product Development. Product development expenses increased by
$367,000, or 35.7%, to $1.4 million in the first quarter of 1999 from $1.0
million in the first quarter of 1998. These expenses increased primarily due to
increased development staff and consulting costs associated with the new math
and writing products, new Accelerated Reader quizzes, and new seminars
introduced in 1998 and early 1999. As a percentage of net sales, product
development costs decreased to 7.6% in the first quarter of 1999 from 9.7% in
the first quarter of 1998. The Company anticipates that the total dollar amount
of product development costs will continue to increase as the Company enhances
and extends its product offerings into other areas of the K-12 curriculum.
Selling and Marketing. Selling and marketing expenses increased by $1.4
million, or 40.9%, to $4.7 million in the first quarter of 1999 from $3.4
million in the first quarter of 1998. These expenses increased due to (i)
mailings to an increased customer and prospect base and increased
lead-generation advertising and (ii) salary and recruiting costs associated with
the hiring of additional personnel. As a percentage of net sales, selling and
marketing expenses decreased to 25.7% in the first quarter of 1999 from 31.5% in
the first quarter of 1998. This decrease is primarily due to economies of scale
associated with significantly increased product sales and service sales.
Management anticipates that selling and marketing expenses will generally
continue to rise, while remaining relatively constant as a percentage of sales,
as the Company expands its customer and prospect base and number of curricular
areas its products cover.
General and Administrative. General and administrative expenses
increased by $499,000, or 28.7%, to $2.2 million in the first quarter of 1999
from $1.7 million in the first quarter of 1998. The higher expenses for the
first quarter of 1999 are largely due to increased costs associated with the
hiring of additional personnel, including wages and related benefits. As a
percentage of net sales, general and administrative costs decreased to 12.2% in
the first quarter of 1999 compared to 16.4% in the first quarter of 1998.
Operating Income. Operating income increased by $4.0 million, or
145.4%, to $6.7 million in the first quarter of 1999 from $2.7 million in the
first quarter of 1998. As a percentage of net sales, operating income increased
to 36.7% in the first quarter of 1999 compared to 25.8% in the first quarter of
1998.
Income Tax Expense. Income tax expense of $3.0 million was recorded in
the first quarter of 1999 at an effective income tax rate, as a percentage of
pre-tax income, of 41.0% compared to $1.3 million, or 41.5% of pre-tax income in
first quarter 1998.
- 7 -
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company's cash, cash equivalents and
short-term investments increased to $36.5 million from the December 31, 1998
total of $33.1 million. The increase of $3.4 million in the first quarter of
1999 is primarily due to the net effect of an increase of $4.7 million in net
cash provided by operating activities offset by $1.8 million used in the
purchase of property, plant and equipment. The Company believes cash flow from
operations and its current cash position will be sufficient to meet its working
capital requirements for the foreseeable future.
At March 31, 1999, the Company had a $10.0 million unsecured revolving
line of credit with a bank which is available until March 31, 2000. The line of
credit bears interest at either a floating rate based on the prime rate less
1.0%, or a fixed rate for a period of up to 90 days based on LIBOR plus 1.25%.
The rate is at the option of the Company and is determined at the time of
borrowing. As of March 31, 1999, the line of credit had not been used.
YEAR 2000
The Company has investigated the extent to which its operations are
subject to Year 2000 issues and assessed the measures it believes will be
necessary to avoid any material disruption to its operations relating to Year
2000 issues. On the basis of this investigation and assessment, the Company has
taken steps to ensure that its systems and products will not be adversely
impacted by Year 2000 issues. As of March 31, 1999, substantially all of the
Company's systems and products are Year 2000 compliant. The cost to the Company
for such compliance measures has been approximately $100,000, and management
believes that the cost of additional modifications will be approximately
$300,000. The cost of the Company's internal Year 2000 compliance measures is
being funded through operating cash flows.
In addition to assessing its own readiness for the Year 2000, the
Company has initiated formal communications with all of its significant
suppliers to determine the extent to which the Company is vulnerable to those
third parties' potential failure to remediate their own Year 2000 issues. A
significant percentage of these suppliers have responded in writing to the
Company's Year 2000 readiness inquiries. The Company plans to continue
assessment of its third party business partners, including face-to-face meetings
with management and/or on site visits as deemed appropriate. Despite the
Company's diligence, there can be no guarantee that the systems of other
companies, on which the Company's systems rely, will be timely converted or that
a failure to convert by another company or a conversion that is incompatible
with the Company's systems would not have a material adverse effect on the
Company. The cost to the Company for its third party compliance efforts as of
March 31, 1999 has been approximately $650,000, and management believes that the
cost of additional efforts in this regard will be approximately $150,000. The
cost of the Company's external Year 2000 compliance measures is being funded
through operating cash flows.
With respect to Year 2000 risks associated with the Company's systems,
the Company believes that the most reasonably likely worst case scenario is that
the Company will experience a number of minor systems malfunctions and errors in
the early part of the Year 2000 that were not detected during its compliance
efforts. The Company believes that these problems will not be overwhelming and
will not have a material effect on the Company's operations or financial
results.
With respect to Year 2000 risks associated with the Company's software
products, the Company cannot be certain that the software will operate error
free, or that the Company will not be subject to litigation, whether the
software operates error free or not. However, the Company believes that based on
its efforts to ensure compliance, it is not reasonably likely that the Company
will be subject to such litigation.
With respect to Year 2000 risks associated with third party suppliers,
the Company believes that the most reasonably likely worst case scenario is that
some of the Company's significant suppliers will not be Year 2000 compliant.
Management also believes that the number of such suppliers will have been
minimized by the Company's program of identifying non-compliant suppliers and
replacing or jointly developing alternative supply or delivery solutions prior
to the Year 2000.
The Company has limited the scope of its risk assessment to those
factors which it can reasonably be expected to have an influence upon. For
example, the Company has made the assumption that government agencies, utility
companies and national telecommunication providers will continue to operate.
Obviously, the lack of such services could have a material effect on the
Company's ability to operate, but the Company has little, if any, ability to
influence such an outcome, or to make alternative arrangements in advance for
such services in the event they are not available.
- 8 -
<PAGE> 11
Based upon the modifications made to its products and the new internal
systems which have been put in place, the Company believes it has substantially
completed the contingency plan to handle the most reasonably likely worst case
scenarios described above. However, if unanticipated Year 2000 related problems
occur, it could result in a material financial risk to the Company.
FORWARD-LOOKING STATEMENTS
In accordance with the Private Securities Litigation Reform Act of
1995, the Company can obtain a "safe-harbor" for forward-looking statements by
identifying those statements and by accompanying those statements with
cautionary statements which identify factors that could cause actual results to
differ materially from those in the forward-looking statements. Accordingly, the
foregoing "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains certain forward-looking statements relating to
growth plans, projected sales, revenues, earnings and costs, and product
development schedules and plans. The Company's actual results may differ
materially from those contained in the forward-looking statements herein.
Factors which may cause such a difference to occur include those factors
identified in Item 1, Business, Forward-Looking Statements, contained in the
Company's Form 10-K for the year ended December 31, 1998, which factors are
incorporated herein by reference to such Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At March 31, 1999, the Company had no material market risk exposure
(e.g., interest rate risk, foreign currency exchange rate risk or commodity
price risk).
- 9 -
<PAGE> 12
Part II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) The net proceeds to the Company from its initial public offering, after
deducting underwriting discounts of $3,606,400 and other expenses of
approximately $941,000, were approximately $46,972,000. From September
24, 1997 through March 31, 1999, the Company used the net proceeds from
the offering as follows:
(i)Approximately $1.6 million was used to pay compensation expenses
related to the termination of the Company's phantom stock plan.
(ii) Approximately $7.2 million was used to pay the entire principal
and accrued interest on the mortgage note and an unsecured note, both
related to the construction of the Company's facility in Wisconsin
Rapids, Wisconsin.
(iii) Approximately $5.1 million was used to pay the entire principal
and accrued interest on notes from the Company's principal shareholders
related to the 1996 acquisition of IPS Publishing, Inc.
(iv) Approximately $10.9 million was used to pay distributions of S
corporation retained profits to S corporation shareholders.
(v) Approximately $7.4 million was used to invest in Athena Holdings
LLC, a limited liability company formed for the purpose of constructing
the Company's facility in Madison, Wisconsin.
(vi) Approximately $800,000 was used for pilot operations in various
markets and miscellaneous acquisitions.
The Company has broad discretion with respect to the use of the remaining
proceeds.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Articles of Incorporation
of Advantage Learning Systems, Inc., as
amended
27.1 Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter covered by this
report.
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<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANTAGE LEARNING SYSTEMS, INC.
(Registrant)
May 13, 1999 /s/ Michael H. Baum
------------ ------------------------------
Date Michael H. Baum
Chief Executive Officer
(Principal Executive Officer)
May 13, 1999 /s/ Timothy Sherlock
------------ ------------------------------
Date Timothy Sherlock
Secretary, Vice President, and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 14
Index to Exhibits
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Articles of Incorporation
of Advantage Learning Systems, Inc., as
amended
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 3.1
AMENDMENT TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
ADVANTAGE LEARNING SYSTEMS, INC.
Pursuant to and in accordance with Section 180.1003 of the Wisconsin
Statutes, the following amendment to the Amended and Restated Articles of
Incorporation was duly adopted by the vote required on February 18, 1999 by the
Board of Directors and April 14, 1999 by the shareholders of Advantage Learning
Systems, Inc.:
BE IT RESOLVED, that the first paragraph of Article IV of the
Amended and Restated Articles of Incorporation of Advantage Learning
Systems, Inc. be, and hereby is, amended to read as follows:
ARTICLE IV
The aggregate number of shares which the Corporation shall
have the authority to issue, the designation of each class of shares,
the authorized number of shares of each class and the par value thereof
per share shall be as follows:
<TABLE>
<CAPTION>
Designation Par Value Authorized
of Class per Share Number of Shares
-------- --------- ----------------
<S> <C> <C>
Common Stock $.01 150,000,000
Preferred Stock $.01 5,000,000
</TABLE>
BE IT FURTHER RESOLVED, except as set forth above, Article IV
shall remain in full force and effect without further amendment or
modification.
Executed in duplicate as of the 26th day of April, 1999.
ADVANTAGE LEARNING SYSTEMS, INC.
By: /s/ Michael H. Baum, CEO
-----------------------------------------
This instrument was drafted by: (Title)
Renee Hardt Torr, Esq.
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
<PAGE> 2
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
ADVANTAGE LEARNING SYSTEMS, INC.
These amended and restated Articles of Incorporation supersede
and replace the heretofore existing Articles of Incorporation of Advantage
Learning Systems, Inc., as amended, a corporation organized under Chapter 180 of
the Wisconsin Statutes:
ARTICLE I
The name of the Corporation is Advantage Learning Systems,
Inc.
ARTICLE II
The period of existence of the Corporation shall be perpetual.
ARTICLE III
The Corporation is authorized to engage in any lawful activity
for which corporations may be organized under Chapter 180 of the Wisconsin
Statutes and any successor provisions.
ARTICLE IV
The aggregate number of shares which the Corporation shall
have the authority to issue, the designation of each class of shares, the
authorized number of shares of each class and the par value thereof per share
shall be as follows:
<TABLE>
<CAPTION>
Designation Par Value Authorized
of Class Per Share Number of Shares
-------- --------- ----------------
<S> <C> <C>
Common Stock............................. $.01 50,000,000
Preferred Stock.......................... $.01 5,000,000
</TABLE>
The preferences, limitations and relative rights of shares of
each class and the authority of the Board of Directors of the Corporation to
create and to designate series of Preferred Stock and to determine the
preferences, limitations and relative rights as between series shall be as
follows:
<PAGE> 3
A. Common Stock.
1. Voting. Except as otherwise provided by law and
except as may be determined by the Board of Directors of the
Corporation with respect to shares of Preferred Stock as provided in
Section B, below, only the holders of shares of Common Stock shall be
entitled to vote for the election of directors of the Corporation and
for all other corporate purposes. Except as otherwise provided by law,
upon any such vote, each holder of Common Stock shall be entitled to
one vote for each share of Common Stock held of record by such
shareholder.
2. Dividends. Subject to the provisions of paragraph
(2) of Section B, below, the holders of Common Stock shall be entitled
to receive such dividends as may be declared thereon from time to time
by the Board of Directors of the Corporation, in its discretion, out of
any funds of the Corporation at the time legally available for payment
of dividends.
3. Liquidation. In the event of the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
after there have been paid to or set aside for the holders of shares of
Preferred Stock the full preferential amounts, if any, to which they
are entitled as provided in paragraph (3) of Section B, below, the
holders of outstanding shares of Common Stock shall be entitled to
share ratably, according to the number of shares held by each, in the
remaining assets of the Corporation available for distribution.
B. Preferred Stock.
1. Series and Variations Between Series. The Board of
Directors of the Corporation is authorized, to the full extent
permitted under the Wisconsin Business Corporation Law and the
provisions of this Section B, to provide for the issuance of the
Preferred Stock in one or more series, each of such series to be
distinctively designated, and to have such voting rights, redemption or
conversion rights, dividend or distribution rights, preferences with
respect to dividends or distributions, or other preferences,
limitations or relative rights as shall be provided by the Board of
Directors of the Corporation consistent with the provisions of this
Article IV. The Board of Directors of the Corporation, unless otherwise
provided when the series is established, may increase or decrease the
number of shares of any series, provided that the number of shares of
any series shall not be reduced below the number of shares then
outstanding.
2. Dividends. Before any dividends (other than a
dividend payable solely in Common Stock) shall be paid or set apart for
payment upon shares of Common Stock, the holders of each series of
Preferred Stock shall be entitled to receive dividends at the rate
(which may be fixed or variable) and at such times as specified in the
particular series, if any. The holders of shares of Preferred Stock
shall have no rights to participate with the
2
<PAGE> 4
holders of shares of Common Stock in any dividends in excess of the
preferential dividends, if any, fixed for such Preferred Stock.
3. Liquidation. In the event of liquidation,
dissolution or winding up (whether voluntary or involuntary) of the
Corporation, the holders of shares of Preferred Stock shall be entitled
to be paid the full amount payable on such shares upon the liquidation,
dissolution or winding up of the Corporation fixed by the Board of
Directors with respect to such shares, if any, before any amount shall
be paid to the holders of the Common Stock.
ARTICLE V
No holder of any shares of the Corporation shall have any
pre-emptive or subscription rights nor be entitled, as of right, to purchase or
subscribe for any part of the unissued shares of the Corporation or of any
additional shares issued by reason of any increase of authorized shares of the
Corporation or other securities whether or not convertible into shares of the
Corporation.
ARTICLE VI
A dividend payable in shares of any class or series of the
Corporation may be paid in shares of any other class or series.
ARTICLE VII
The address of the initial registered office of the
Corporation is 44 East Mifflin Street, Madison, Wisconsin 53703. The name of its
initial registered agent at such address is CT Corporation System.
ARTICLE VIII
The number of directors (exclusive of directors, if any,
elected by the holders of one or more series of Preferred Stock established
pursuant to Article IV of these Articles of Incorporation) shall not be less
than one (1) nor more than fifteen (15) directors, the exact number of directors
to be determined from time to time by resolution adopted by the affirmative vote
of a majority of the entire Board of Directors then in office.
The term of office of each director shall be one year. A
director shall hold office until the next annual meeting following his or her
election and until his or her successor shall be elected and shall qualify. Any
newly created directorship resulting from an increase in the number of directors
and any other vacancy on the Board of Directors, however caused, shall be filled
by the vote of a majority of the directors then in office, although less than a
quorum, or by a sole
3
<PAGE> 5
remaining director. Any director so elected to fill any vacancy in the Board of
Directors, including a vacancy created by an increase in the number of
directors, shall hold office until the next annual meeting following his or her
election and until his or her successor shall be elected and shall qualify.
Exclusive of directors, if any, elected by the holders of one
or more series of Preferred Stock, no director of the Corporation may be removed
from office, except for Cause and by the affirmative vote of a majority of the
outstanding shares of the Corporation entitled to vote at a meeting of
shareholders duly called for such purpose. As used in this Article VIII, the
term "Cause" shall mean solely malfeasance arising from the performance of a
director's duties which has a materially adverse effect on the business of the
Corporation.
ARTICLE IX
The Corporation's By-Laws may be amended, altered or repealed,
and new By-Laws may be enacted, only by the affirmative vote of the holders of
not less than two-thirds of the outstanding shares of the Corporation entitled
to vote at a meeting of shareholders duly called for such purpose and by the
affirmative vote of the holders of not less than two-thirds of the shares of
each class or series, if any, entitled to vote thereon at such meeting, or by
the affirmative vote of not less than a majority of the entire Board of
Directors then in office.
This instrument was drafted by:
Dennis F. Connolly
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
4
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 24,701
<SECURITIES> 11,846
<RECEIVABLES> 11,381
<ALLOWANCES> 1,364
<INVENTORY> 773
<CURRENT-ASSETS> 50,618
<PP&E> 23,636
<DEPRECIATION> 3,280
<TOTAL-ASSETS> 74,167
<CURRENT-LIABILITIES> 11,807
<BONDS> 0
0
0
<COMMON> 339
<OTHER-SE> 60,067
<TOTAL-LIABILITY-AND-EQUITY> 74,167
<SALES> 15,060
<TOTAL-REVENUES> 18,352
<CGS> 1,565
<TOTAL-COSTS> 3,270
<OTHER-EXPENSES> 8,352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,319
<INCOME-TAX> 3,001
<INCOME-CONTINUING> 4,318
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,318
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
