SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1994
Commission file number 1-6981
NATIONAL EDUCATION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware I.R.S. No. 95-2774428
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18400 Von Karman Avenue, Irvine, California 92715-1594
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 714/474-9400
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:
29,503,583 common stock shares outstanding at April 30, 1994
<PAGE>
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NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<CAPTION>
Three Months Ended
March 31,
(amounts in thousands, except per share amounts) 1994 1993
__________ __________
<S> <C> <C>
Tuition and Contract Revenues $ 67,527 $ 72,852
Publishing Revenues 9,475 10,183
_________ _________
Net Revenues 77,002 83,035
Costs and Expenses
Tuition and contract course materials, and service costs 34,861 39,753
Publishing costs and materials 4,440 4,452
Selling and promotion 27,978 29,889
General and administrative 12,168 12,548
Provision for doubtful accounts 748 1,425
Amortization of acquired intangible assets 430 1,541
Interest expense 1,452 1,468
Investment income (569) (669)
Other income (95) (357)
_________ _________
Loss before Income Tax Benefit and Minority Interest (4,411) (7,015)
Income tax benefit (1,588) (2,666)
_________ _________
Loss before Minority Interest (2,823) (4,349)
Minority interest in consolidated subsidiary 122 --
_________ _________
Net Loss $ (2,945) $ (4,349)
========== ==========
Primary Loss Per Share $(.10) $(.14)
====== ======
Fully Diluted Loss Per Share $(.10) $(.14)
====== ======
Weighted Average Number of Shares Outstanding
Primary 29,661 30,208
Fully diluted 36,961 37,524
<FN>
Unaudited.
See accompanying notes and management's discussion and analysis.
</TABLE>
2
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
(dollars in thousands)
<CAPTION>
March 31, December 31, March 31,
Assets 1994 1993 1993
____________________________________________________________________ _____________ _____________ _____________
<S> <C> <C> <C>
Current Assets
Cash, including time deposits of $21,316, $32,855 and $48,998 $ 26,826 $ 38,546 $ 54,656
Investment securities:
Held-to-maturity and available-for-sale securities 20,570 -- --
At lower of cost or market (market value of --, $17,964 and $13,632) -- 16,300 12,447
Receivables, net of allowance of $10,690, $10,437 and $9,967 38,902 54,012 41,026
Inventories and supplies 25,830 25,594 25,312
Prepaid and deferred marketing expenses 46,258 37,187 42,867
Other current assets 19,749 19,038 19,817
_________ __________ __________
Total current assets 178,135 190,677 196,125
Contracts Receivable 698 2,212 5,762
Land, Buildings and Equipment, less accumulated
depreciation of $121,302, $118,997 and $117,031 45,672 46,056 43,182
Acquired Intangible Assets, less accumulated
amortization of $96,065, $95,635 and $80,406 51,766 48,497 59,853
Deferred Income Taxes 25,793 25,793 7,827
Other Assets 10,526 10,656 11,574
_________ __________ __________
$ 312,590 $ 323,891 $ 324,323
========= ========== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 7,379 $ 8,635 $ 7,308
Accrued expenses 39,985 42,351 43,731
Accrued salaries and wages 9,033 8,726 10,619
Accrued restructuring expenses 8,271 12,282 --
Deferred contract revenues 15,929 16,425 23,401
Current portion of long-term debt 654 607 1,411
Accrued and deferred income taxes 1,665 3,149 1,142
_________ __________ __________
Total current liabilities 82,916 92,175 87,612
_________ __________ __________
Liabilities Payable After One Year
Long-term debt, less current portion 2,411 2,556 3,068
Senior subordinated convertible debentures 20,000 20,000 20,000
Convertible subordinated debentures 57,494 57,494 57,494
Other noncurrent liabilities 8,176 7,989 9,771
_________ __________ __________
88,081 88,039 90,333
_________ __________ __________
Minority Interest in Equity of Consolidated Subsidiary 8,168 8,046 --
_________ __________ __________
Stockholders' Equity
Preferred stock, $.10 par value; 5,000,000 shares
authorized and unissued -- -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
30,195,041 shares, 30,092,810 shares and 30,032,686 shares issued 2,109 2,108 2,107
Additional paid-in capital 132,615 132,262 131,958
Retained earnings 10,736 13,681 18,951
Unrealized gain on available-for-sale securities, net of tax 943 -- --
Cumulative foreign exchange translation adjustment (8,070) (7,565) (5,981)
Notes receivable under stock option plans -- -- (107)
_________ __________ __________
138,333 140,486 146,928
Less common stock in treasury:
697,461, 689,315 and 120,415 shares (4,908) (4,855) (550)
_________ __________ __________
Total stockholders' equity 133,425 135,631 146,378
_________ __________ __________
$ 312,590 $ 323,891 $ 324,323
========= ========== ==========
<FN>
Unaudited.
See accompanying notes and management's discussion and analysis.
</TABLE>
3<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
<CAPTION>
Three Months Ended
March 31,
(dollars in thousands) 1994 1993
________________________________________________________ __________ __________
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (2,945) $ (4,349)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 2,716 3,461
Amortization of acquired intangible assets 430 1,541
Provision for doubtful accounts 748 1,425
(Gain)/loss on foreign currency exchange (95) (357)
Change in assets and liabilities:
Receivables, net 16,395 22,009
Inventories and supplies 4 663
Prepaid and deferred marketing expenses (9,238) (6,742)
Accounts payable and accrued expenses (3,940) 1,825
Accrued restructuring reserve (3,647) --
Accrued and deferred income taxes (1,948) (6,973)
Deferred contract revenues (555) (1,845)
Other (1,023) (328)
_________ _________
Net Cash From Operating Activities (3,098) 10,330
_________ _________
Cash Flows For Investing Activities:
Additions to land, building and equipment (2,421) (2,407)
Dispositions of land, buildings and equipment 98 --
Purchase of securities (2,868) (1,452)
Proceeds from the sale or redemption of securities 27 --
Acquisition of business, net of cash acquired (3,870) --
_________ _________
Net Cash For Investing Activities (9,034) (3,859)
_________ _________
Cash Flows From Financing Activities:
Reductions in long-term debt (98) (155)
Minority interest in earnings of consolidated subsidiary 122 --
Common stock, stock options and related tax benefits 354 55
Purchase of common stock for treasury (53) (380)
_________ _________
Net Cash From Financing Activities 325 (480)
_________ _________
Effect of exchange rate changes on cash 87 196
_________ _________
Net change in cash and equivalents (11,720) 6,187
Cash and equivalents at the beginning of the period 38,546 48,469
_________ _________
Cash and equivalents at the end of the period $ 26,826 $ 54,656
========= =========
<FN>
Unaudited.
See accompanying notes and management's discussion and analysis.
</TABLE>
4
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
Note 1 -- Summary of Accounting Policies
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the financial position, results of operations and cash flows. Certain
information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested
that these financial statements be read in conjunction with the financial
statements, accounting policies, and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
The results of operations for interim periods are not necessarily
indicative of the results of operations to be expected for the year.
A substantial portion of selling and promotion costs at National Education
Training Group (NETG) and Steck-Vaughn are deferred and fully amortized
within the calendar year to properly match the costs with revenues due to
the seasonal nature of revenue realization. Due to the seasonal nature of
NETG's and Steck-Vaughn's traditional selling cycle, selling and promotion
costs are typically deferred in the first half of the year and amortized in
the latter half of the year.
Certain prior year amounts have been reclassified to conform with the 1994
presentation.
Note 2 -- Business Combination
During the first quarter of 1994, the Company, through ICS Learning
Systems, purchased the stock of MicroMash, Inc. for approximately
$3,870,000, net of cash received. The transaction was accounted for as a
purchase and the operating results of MicroMash have been included in the
Company's consolidated financial statements since the effective date of
acquisition. The net assets and operating results of MicroMash are not
material to the consolidated financial statements of the Company.
Note 3 -- Earnings (Loss) Per Share
Primary earnings (loss) per share are computed based on the weighted
average number of common shares outstanding during the respective periods,
including dilutive stock options. Fully diluted earnings (loss) per share
are computed based on the assumption that all dilutive convertible
debentures have been converted to common stock, with a corresponding
increase in net income to reflect a reduction in related interest expense,
less applicable taxes.
Note 4 -- Investment Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities (SFAS 115), which resulted in a change in
the accounting for debt and equity securities held for investment
purposes. Prior to January 1, 1994, the Company carried debt and
5
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
equity securities at the lower of aggregate cost or market value. In
accordance with SFAS 115, the Company's debt and equity securities are
now considered as either held-to-maturity or available-for-sale. Held-to-
maturity securities represent those securities that the Company has both
the positive intent and ability to hold to maturity and are carried at
amortized cost. Available-for-sale securities represent those securities
that do not meet the classification of held-to-maturity and are not
actively traded. Unrealized gains and losses on these securities are
excluded from earnings and are reported as a separate component of
stockholders' equity, net of applicable taxes, until realized. Upon
adoption of this standard, the Company recorded increases in
available-for-sale securities of $1,429,000 and a related deferred tax
liability of $486,000, resulting in a net increase of $943,000 in
stockholders' equity. The amortized cost and estimated fair value of the
securities are as follows:
<TABLE>
<CAPTION>
March 31, 1994
_____________________________________________________
Gross Gross
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gain Loss Value
___________________________________________ _________ __________ __________ _________
<S> <C> <C> <C> <C>
Tax exempt municipal bond funds
held-to-maturity $ 8,000 $ -- $ -- $ 8,000
________ ________ ________ ________
Available-for-sale:
Corporate income funds 6,660 467 (191) 6,936
Preferred stock 4,166 554 (163) 4,557
Other 315 762 -- 1,077
________ ________ ________ ________
Total available-for-sale 11,141 1,783 (354) 12,570
________ ________ ________ ________
Total securities $ 19,141 $ 1,783 $ (354) $ 20,570
======== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
_____________________________________________________
Gross Gross
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gain Loss Value
___________________________________________ _________ __________ __________ _________
<S> <C> <C> <C> <C>
Tax exempt municipal bond funds
held-to-maturity $ 5,500 $ -- $ -- $ 5,500
________ ________ ________ ________
Available-for-sale:
Corporate income funds 6,678 503 (123) 7,058
Preferred stock 3,797 581 (54) 4,324
Other 325 757 -- 1,082
________ ________ ________ ________
Total available-for-sale 10,800 1,841 (177) 12,464
________ ________ ________ ________
Total securities $ 16,300 $ 1,841 $ (177) $ 17,964
======== ======== ========= ========
</TABLE>
6
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
Note 5 -- Statements of Cash Flows Supplementary Information
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(dollars in thousands) 1994 1993
______________________________________________________ ________ _________
<S> <C> <C>
Cash Paid During the Period for:
Interest expense $ 1,101 $ 801
Income taxes, net of income tax refunds 810 3,541
</TABLE>
7
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31, Percent
(dollars in thousands) 1994 1993 Variance Change
______________________________________________ _________ _________ _________ ________
<S> <C> <C> <C> <C>
Net Revenues
ICS Learning Systems $ 28,285 $ 23,624 $ 4,661 19.7
Steck-Vaughn Publishing 9,475 10,183 (708) (7.0)
Education Centers 28,203 35,940 (7,737) (21.5)
NETG 11,039 13,288 (2,249) (16.9)
_________ _________ ________
Total Net Revenues $ 77,002 $ 83,035 $ (6,033) (7.3)
========= ========= =========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Operating Income (Loss):
ICS Learning Systems $ 5,074 $ 4,012 $ 1,062 26.5
Steck-Vaughn Publishing 1,225 1,809 (584) (32.3)
Education Centers (3,340) (2,083) (1,257) (60.3)
NETG (4,548) (7,578) 3,030 40.0
_________ _________ ________
Total Segment Operating Loss (1,589) (3,840) 2,251 58.6
General corporate expenses (2,034) (2,733) 699 25.6
Interest expense (1,452) (1,468) 16 1.1
Investment income 569 669 (100) (14.9)
Other income 95 357 (262) (73.4)
_________ _________ ________
Loss Before Income Tax
Benefit and Minority Interest (4,411) (7,015) 2,604 37.1
Income tax benefit (1,588) (2,666) (1,078) (40.4)
_________ _________ ________
Loss Before Minority Interest (2,823) (4,349) 1,526 35.1
Minority interest 122 -- (122) --
_________ _________ ________
Net Loss $ (2,945) $ (4,349) $ 1,404 32.3
========== ========== ========
</TABLE>
8
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Three Months Ended March 31, 1994 Compared to Three Months Ended
March 31, 1993
Revenues of $77,002,000 for the three months ended March 31, 1994, were
$6,033,000 or 7.3% lower than revenues of $83,035,000 in the prior year.
Net loss for the period was $2,945,000 or $.10 per share compared to a loss
of $4,349,000 or $.14 per share in the prior year.
The revenues and operating income at ICS Learning Systems increased
significantly primarily due to strong revenue performance at the domestic
operation. The international operations experienced a slight increase in
revenues, while operating income decreased slightly. The revenue
growth resulted primarily from the domestic operations which
experienced a 10.8% increase in enrollments. The domestic enrollment
increase was due primarily to the higher enrollment conversion from the
expanded telesales efforts, which enroll students directly over the phone.
International revenues increased slightly during 1994 due primarily to
higher student populations at the beginning of the year, partially offset
by a 9.9% decrease in enrollments which was primarily due to the timing of
advertising spending. Overall operating margins increased due to domestic
revenue growth and related decreases as a percentage of revenues in course
materials and service costs, and selling and promotion expense. General
and administrative expenses were higher due primarily to efforts to support
the future growth of the operations. During the quarter, ICS acquired
MicroMash, a leading provider of computer based interactive courses for
accounting professionals and students. Through this acquisition, ICS is
strategically positioned to aggressively pursue the continuing professional
education marketplace.
Revenues and operating income decreased at Steck-Vaughn primarily due to
the adverse winter weather conditions experienced in the Midwest, mid-
Atlantic and Northeast regions of the United States during the first
quarter of 1994. The weather conditions resulted in school shutdowns and
canceled sales calls. Revenues in other parts of the country not affected
by the adverse weather increased overall as compared to 1993. Despite the
reduced revenues for the quarter, Steck-Vaughn has continued to expand its
products for 1994 and delivery of the new titles is on schedule.
Publishing costs and materials increased slightly as a percentage of
revenues primarily due to the revenue shortfall and semi-fixed costs such
as the newly expanded warehouse facilities. Selling and promotional costs
were relatively flat as compared to the prior year; however, total selling
and promotional spending (a portion of which is deferred, see Note 1)
increased during the quarter as a result of the reorganization and
expansion of the Steck-Vaughn sales force effective January 2, 1994. The
reorganization resulted in the segmentation of the sales force into two
groups. One group focuses on the elementary, junior high and library
marketplaces while the other group focuses on the high school and adult
education marketplaces. The new sales force structure is expected to
enhance the exposure of Steck-Vaughn's rapidly expanding product offerings.
9
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<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Education Centers revenues and operating results decreased during the first
quarter of 1994 as compared to the prior year primarily due to the closure
of 14 schools announced during 1993 and higher operational costs in the
existing locations. The revenues and operating results of the closed
schools have been recorded to accrued restructuring expense since the date
of announced closure. Current year revenues and expenses exclude all
closed school results; however, prior year results include the revenues and
expenses of these schools. Course service costs increased as a percentage
of revenues primarily due to increased training, staffing and benefit costs
at the remaining schools. Provision for bad debt increased, excluding the
closed schools, as a result of internal financing efforts provided to
certain Education Center students who have experienced difficulty in
obtaining access to student financial aid programs. Selling and
promotional costs increased as a percentage of revenue primarily due to
increased advertising and marketing efforts designed to attract additional
student leads and enrollments. General and administrative costs increased
slightly despite the closed schools primarily due to the continued quality
improvement efforts initiated during 1993.
NETG revenues decreased for the quarter while operating results improved.
The revenue decrease primarily resulted from lower contract backlog at the
beginning of 1994 as compared to 1993. Overall, new orders and contract
renewals increased during the past nine months; however, the decreasing
contract backlog has more than offset the new orders and renewal increases.
Operating results have improved during the first quarter due to cost
reductions resulting from operating efficiencies throughout the
organization. Course service costs decreased during 1994 primarily due to
the lower revenues, reduced product development expenses and lower overall
royalty rates paid to outside course developers. Selling and marketing
costs decreased significantly primarily due to reductions in the sales
force and lower commission costs resulting from lower revenues. General
and administrative costs decreased primarily due to lower costs at the
international operations which were partially offset by increased
consulting costs at the domestic operations. The increased consulting
costs primarily relate to the reengineering effort underway at NETG which
has significantly contributed to the cost reductions discussed above.
Operating results of ICS and NETG foreign operations by geographic region
experienced similar changes in revenues and income as discussed above.
Foreign currentcy exchange gains, recorded to other income, of $95,000 were
recorded during the quarter compared to gains of $357,000 in the prior
year.
General corporate expenses decreased during the first quarter of 1994
primarily due to cost reductions, which were partially offset by costs
associated with reengineering projects in the Company.
10
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash, marketable securities
and cash provided from operations, which includes funding for Education
Centers' students under government financial aid programs partially
provided through lending institutions. At March 31, 1994, the Company had
$47,396,000 in cash and marketable securities, of which $13,696,000 was
held in the account of Steck-Vaughn.
In December, 1993, the Company entered into a revolving bank credit
agreement in the amount of $10,000,000 which matures on December 21, 1994.
As of March 31, 1994, no amounts were outstanding under the revolving bank
credit agreement.
Cash outflows from operating activities for the three months ended
March 31, 1994 of $3,098,000 were $13,428,000 lower than the cash inflows
from operating activities of $10,330,000 in the prior year. The decrease
in cash flow is primarily attributable to changes in net receivables of
$7,158,000 due to the diminishing contract receivables at NETG from long
term contract revenues and reductions in accrued restructuring expenses at
the Education Centers of $3,647,000.
In addition, changes in net cash flow for the three months ended March 31,
1994 as compared to the prior period were impacted by the acquisition of
MicroMash in the net amount of $3,870,000.
The Company expects that cash, marketable securities, the revolving bank
credit agreement and cash provided from operations, which includes to a
certain extent, the continued funding of Education Centers' students under
government student financial aid programs, will be sufficient to provide
for planned working capital requirements, debt service and capital
expenditures for the foreseeable future.
Based on the 1991 fiscal year default rate information for the Education
Centers' 33 schools, three schools currently have single year default rates
in excess of 40 percent and one school currently has cohort default rates
for three consecutive fiscal years ended 1991 in excess of 30 percent. For
the three months ended March 31, 1994, the revenues and operating income
before Education Centers headquarters expense allocation for the three
schools with single year default rates in excess of 40 percent are
$2,057,000 and $271,000, respectively. The revenue and operating income
before Education Centers headquarters expense allocation for the one school
with default rates for the three consecutive fiscal years ending 1991 of 30
percent or more is $1,251,000 and $274,000, respectively. In addition to
the above schools, 14 schools currently have cohort default rates for two
consecutive years ended 1991 in excess of 25 percent. These 14 schools may
no longer be eligible to participate in the Federal Family Education Loan
Program (FFELP), formerly the Guaranteed Student Loan Programs, in the
event the 1992 cohort default rates expected to be published in the third
quarter of 1994 are 25 percent or higher. In the past, the Company has
successfully appealed the cohort default rate calculations by the
government; however, there can be no assurance that the Company will be
able to successfully appeal these rates in the future. Upon publication of
the fiscal year 1992 cohort default rate, the Company will continue to have
opportunities to review and, if appropriate, appeal the cohort default
rates published by the government.
11
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
In reauthorizing the Higher Education Act (HEA) in 1992, Congress enacted
new and more stringent legislation governing institutions participating in
FFELP. Under the legislation, the Department of Education was directed to
issue regulations in the implementation of the legislation. A number of
these regulations were announced on April 29, 1994. One example requires
each state to establish a state postsecondary review entity (SPRE) to issue
additional regulations regarding institutional eligibility and standards.
Another regulation announced, more commonly known as the "85/15 Rule",
applies only to proprietary institutions such as the Education Centers.
Under this rule, a proprietary institution will be ineligible to
participate in FFELP for at least one year in the event more than 85
percent of its applicable revenues is derived from FFELP. Management will
continue to review the regulations to determine the impact, if any, these
and other regulations will have on the financial condition of the Company.
12
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index following this Form 10-Q.
(b) No reports on Form 8-K were filed for the period for which
this report is filed.
13
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
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.
NATIONAL EDUCATION CORPORATION
Date: May 12, 1994
By /s/ Keith K. Ogata
___________________________
Keith K. Ogata
Vice President, Chief Financial Officer
and Treasurer
14
<PAGE>
<PAGE>
INDEX TO EXHIBITS
(Item 6(a))
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
_______ ___________ ____________
<S> <C> <C>
10.1 National Education Corporation Retirement Plan
(Restated as of January 1, 1989)(As Amended
through January 1, 1992) (1) . . . . . . . . . . . . . *
10.2 National Education Corporation Retirement Plan
Trust (2). . . . . . . . . . . . . . . . . . . . . . . *
10.3 1981 Long-Term Incentive Plan (3). . . . . . . . . . . *
10.4 1983 Stock Option Plan (4) . . . . . . . . . . . . . . *
10.5 Advanced Systems, Incorporated 1984 Stock
Option and Stock Appreciation Rights Plan (5). . . . . *
10.6 1986 Stock Option and Incentive Plan, as
amended (6). . . . . . . . . . . . . . . . . . . . . . *
10.7 1990 Stock Option and Incentive Plan (7) . . . . . . . *
10.8 1991 Directors' Stock Option Plan (8). . . . . . . . . *
10.9 Rights Agreement, dated October 29, 1986,
between National Education Corporation and
Bank of America National Trust and Savings
Association, Rights Agent (including exhibits
thereto) (9) . . . . . . . . . . . . . . . . . . . . . *
10.10 Addendum No. 1 to Rights Agreement dated
October 29, 1986 (10). . . . . . . . . . . . . . . . . *
10.11 Indenture, dated as of May 15, 1986, between
National Education Corporation and Continental
Illinois National Bank and Trust Company of
Chicago, as Trustee (11) . . . . . . . . . . . . . . . *
10.12 Tripartite Agreement Dated as of May 31, 1990,
among National Education Corporation, Conti-
nental Bank as Resigning Trustee, and IBJ
Schroder Bank & Trust Company as Successor
Trustee (12) . . . . . . . . . . . . . . . . . . . . . *
</TABLE>
15
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
_______ ___________ ____________
<S> <C> <C>
10.13 National Education Corporation Purchase Agree-
ment, Senior Subordinated Convertible Deben-
tures, dated as of February 15, 1991 (13). . . . . . . *
10.14 National Education Corporation Supplemental
Executive Retirement Plan, as amended (14) . . . . . . *
10.15 Supplemental Benefit Plan for Non-Employee
Directors (15) . . . . . . . . . . . . . . . . . . . . *
10.16 Retirement Agreement with J.J. McNaughton (16) . . . . *
10.17 Intercompany Agreement Between National
Education Corporation and Steck-Vaughn
Publishing Corporation dated June 30, 1993 (17). . . . *
10.18 Tax Sharing Agreement Between National
Education Corporation and Its Direct and
Indirect Corporate Subsidiaries dated
January 1, 1993 (18) . . . . . . . . . . . . . . . . . *
10.19 Asset Purchase Agreement Between Steck-Vaughn
Company and Creative Edge Inc. dated as of
April 26, 1993 (19). . . . . . . . . . . . . . . . . . *
10.20 $10,000,000 Credit Agreement Between National
Education Corporation and Bankers Trust
Company as Agent, dated as of December 22,
1993 (the "Credit Agreement") (Confidential
treatment under Rule 24b-2 has been requested
for portions of this exhibit.)(20) . . . . . . . . . . *
10.21 First Amendment to Credit Agreement dated as
of December 31, 1993 (21). . . . . . . . . . . . . . . *
10.22 Second Amendment to Credit Agreement, dated
as of April 15, 1994 (Confidential treatment
under Rule 24b-2 has been requested for
portions of this exhibit.) (22). . . . . . . . . . . .
11.1 Calculation of Primary Earnings Per Share (22) . . . .
11.2 Calculation of Fully Diluted Earnings Per
Share (22) . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
__________________
* incorporated by reference from a previously filed document
16
<PAGE>
<PAGE>
(1) Incorporated by reference to Exhibit 10.1 filed with the Annual
Report on Form 10-K for the year ended December 31, 1992, filed
March 22, 1993.
(2) Incorporated by reference to Exhibit 10(b) filed with
Registration Statement on Form S-8 (No. 2-86904), filed October
3, 1983.
(3) Incorporated by reference to Exhibit 15 filed with Registration
Statement on Form S-8 (No. 2-71650), filed April 7, 1981.
(4) Incorporated by reference to Exhibit D filed with the 1983 Proxy
Statement dated April 25, 1983, for the annual meeting dated
May 19, 1983.
(5) Incorporated by reference to Exhibit 10.15 filed with the Annual
Report on Form 10-K for the year ended December 31, 1987, filed
March 30, 1988.
(6) Incorporated by reference to Exhibit 10.17 filed with the Annual
Report on Form 10-K for the year ended December 31, 1990, filed
April 1, 1991.
(7) Incorporated by reference to Exhibit "A" filed with the 1990
Proxy Statement, filed April 2, 1990.
(8) Incorporated by reference to Exhibit "A" filed with the 1991
Proxy Statement, filed April 1, 1991.
(9) Incorporated by reference to Exhibit 4.1 filed with Form 8-K
Current Report, dated October 29, 1986, filed October 30, 1986.
(10) Incorporated by reference to Exhibit 4 filed with the Annual
Report on Form 10-K for the year ended December 31, 1987, filed
March 30, 1988.
(11) Incorporated by reference to Exhibit 4.2 filed with Amendment
No. 1 to Registration Statement on Form S-3 (No. 33-5552), filed
May 16, 1986.
(12) Incorporated by reference to Exhibit 4 filed with the Form 10-Q
Quarterly Report for the quarterly period ended June 30, 1990.
(13) Incorporated by reference to Exhibit 4 filed with Form 8-K
Current Report, dated February 20, 1991, filed February 27,
1991.
(14) Incorporated by reference to Exhibit 10.17 filed with the Annual
Report on Form 10-K for the year ended December 31, 1991, filed
April 1, 1992.
(15) Incorporated by reference to Exhibit 10.18 filed with the Annual
Report on Form 10-K for the year ended December 31, 1991, filed
April 1, 1992.
17
<PAGE>
<PAGE>
(16) Incorporated by reference to Exhibit 10.19 filed with the Annual
Report on Form 10-K for the year ended December 31, 1991, filed
April 1, 1992.
(17) Incorporated by reference to Exhibit 10.8 filed with Amendment
No. 1 to the Steck-Vaughn Publishing Corporation Registration
Statement on Form S-1, File No. 33-62334, filed June 17, 1993.
(18) Incorporated by reference to Exhibit 10.9 filed with Amendment
No. 1 to the Steck-Vaughn Publishing Corporation Registration
Statement on Form S-1, File No. 33-62334, filed June 17, 1993.
(19) Incorporated by reference to Exhibit 10.13 filed with the Steck-
Vaughn Publishing Corporation Registration Statement on Form
S-1, File No. 33-62334, filed May 7, 1993.
(20) Incorporated by reference to Exhibit 10.20 filed with the Annual
Report on Form 10-K for the year ended December 31, 1993, filed
March 28, 1994.
(21) Incorporated by reference to Exhibit 10.21 filed with the Annual
Report on Form 10-K for the year ended December 31, 1993, filed
March 28, 1994.
(22) Filed herewith.
18
<PAGE>
<PAGE>
EXHIBIT 10.22
* PORTIONS OMITTED PURSUANT TO RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND FILED
SEPARATELY WITH THE COMMISSION IN A REQUEST FOR
CONFIDENTIAL TREATMENT
NATIONAL EDUCATION CORPORATION
SECOND AMENDMENT
TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this
"Amendment") is dated as of April 15, 1994 and entered into by and among
National Education Corporation, a Delaware corporation (the "Borrower"),
the Bank listed on the signature pages hereof (the "Bank"), and Bankers
Trust Company, as agent for the Bank (the "Agent") and, for purposes of
Sections 2 and 3 hereof, the Subsidiaries of the Borrower listed on the
signature pages hereof, and is made with reference to that certain Credit
Agreement dated as of December 22, 1993 by and among the Borrower, the Bank
and the Agent, as amended by that certain First Amendment to Credit
Agreement dated as of December 31, 1993 (as so amended, the "Credit
Agreement"). Capitalized terms used herein without definition shall have
the same meanings herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, the Borrower and the Bank have agreed, upon the
terms and conditions set forth herein, that certain terms and conditions of
the Credit Agreement should be amended; and
WHEREAS, each of the Subsidiaries of the Borrower party to
the Subsidiary Guaranty ("Subsidiary Guarantors") or the Subordination
Agreement ("Subordinated Subsidiaries") desires to acknowledge and consent
to this Amendment and to reaffirm the continuing effectiveness of the
Subsidiary Guaranty or the Subordination Agreement, as the case may be;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein, the parties hereto agree
as follows:
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendment to Section 1.01: Defined Terms. Section
1.01 of the Credit Agreement is hereby amended by adding thereto the
following defined term in the appropriate alphabetical order:
"'Convertible Notes' shall mean the Borrower's
Senior Subordinated Convertible Notes due 2006 in
an aggregate original principal amount of
$20,000,000."
1
<PAGE>
<PAGE>
1.2 Amendments to Section 8.01: Liens. Section 8.01 of
the Credit Agreement is hereby amended by:
(i) deleting the term "and" from the end of
clause (xi) thereof;
(ii) replacing the period at the end of clause
(xii) thereof with "; and"; and
(iii) adding thereto the following clause in the
appropriate numerical order:
"(xiii) Liens on personal property and
assets of SV securing Indebtedness permitted under
clause (xiii) of Section 8.05."
1.3 Amendment to Section 8.05: Indebtedness. Section
8.05 of the Credit Agreement is hereby amended by replacing the term
"$3,000,000" in clause (xii) thereof with the term "$4,500,000".
1.4 Amendments to Section 8.09: Ratio of Liabilities
to Net Worth. Section 8.09 of the Credit Agreement is hereby amended by:
(i) adding the following proviso immediately
before the colon therein:
"; provided that, for purposes of this Section,
any addition to the equity capital of the Borrower
resulting from the conversion of the Convertible
Notes shall be deemed to constitute Indebtedness
for the purposes of determining Consolidated
Liabilities and Adjusted Consolidated Net Worth";
and
(ii) deleting the table therefrom and substituting
there for the following table:
"Quarter Ended Ratio
December 31, 1993 1.26:1.00
March 31, 1994 1.45:1.00
June 30, 1994 *
September 30, 1994 *
December 31, 1994 * ".
* OMITTED PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, AND FILED SEPARATELY WITH THE COMMISSION IN A REQUEST
FOR CONFIDENTIAL TREATMENT
1.5 Amendments to section 8.11: Minimum Consolidated
Net Worth. Section 8.11 of the Credit Agreement is hereby amended by:
2
<PAGE>
<PAGE>
(i) adding the following proviso immediately before the
colon therein:
"; provided that, for purposes of this Section, any
addition to the equity capital of the Borrower resulting
from the conversion of the convertible Notes shall be
deemed to constitute Indebtedness for the purposes of
determining Adjusted Consolidated Net Worth"; and
(ii) deleting the table therefrom and substituting there
for the following table:
"Quarter Ended Amount
December 31, 1993 $142,608,000
March 31, 1994 137,000,000
June 30, 1994 *
September 30, 1994 *
December 31, 1994 * ".
* OMITTED PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED, AND FILED SEPARATELY WITH THE COMMISSION IN
A REQUEST FOR CONFIDENTIAL TREATMENT
Section 2. REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Amendment
and to amend the provisions of the Credit Agreement in the manner provided
herein, the Borrower, and each Subsidiary party to the Subsidiary Guaranty
and/or the Subordination Agreement with respect to itself only, represents
and warrants to the Bank that the following statements are true, correct
and complete:
A. Corporate Power and Authority. The Borrower has
all requisite corporate power and authority to enter into this Amendment
and to carry out the transactions contemplated by, and perform its
obligations under, the Credit Agreement as amended by this Amendment (the
"Amended Agreement"). Each such Subsidiary has all requisite corporate
power and authority to enter into this Amendment and to be bound hereby.
B. Authorization of Agreements. The execution and
delivery of this Amendment by the Borrower and each such Subsidiary and the
performance of the Amended Agreement by the Borrower have been duly
authorized by all necessary corporate action by the Borrower and each such
Subsidiary, as the case may be.
3
<PAGE>
<PAGE>
C. No Conflict. The execution and delivery by the
Borrower and each such Subsidiary of this Amendment and the performance by
the Borrower of the Amended Agreement do not and will not (i) violate any
provision of any law, rule or regulation applicable to the Borrower or any
of its Subsidiaries, the Certificate of Incorporation or Bylaws of the
Borrower or any of its Subsidiaries or any order, judgment or decree of any
court or other agency of government binding on the Borrower or any of its
Subsidiaries, (ii) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under, or require the
consent of any Person under, any mortgage, deed of trust, credit agreement,
loan agreement or any other agreement contract or instrument to which the
Borrower or any of its Subsidiaries a party or by which it or any of its
property or assets is bound or to which it may be subject or (iii) result
in or require the creation or imposition of any Lien upon any of their
properties or assets.
D. Governmental Consents. The execution and delivery
by the Borrower and each such Subsidiary of this Amendment and the
performance by the Borrower of the Amended Agreement do not and will not
require any registration with, consent or approval of, or notice to, or
other action to, with or by, any Federal, state or other governmental
authority or regulatory body or other Person.
E. Binding Obligation. This Amendment and, in the
case of the Borrower, the Amended Agreement, are the legally valid and
binding obligation(s) of the Borrower and each such Subsidiary, enforceable
against the Borrower or such Subsidiary in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.
F. Incorporation of Representations and Warranties
From Credit Agreement. The representations and warranties contained in
Section 6 of the Credit Agreement are and will be true, correct and
complete in all material respects on and as of the date hereof to the same
extent as though made on and as of that date, except to the extent that
such representations and warranties specifically relate to an earlier date,
in which case they are true, correct and complete in all material respects
as of such earlier date.
G. Absence of Default. No event has occurred and is
continuing or will result from the consummation of the transactions
contemplated by this Amendment which would constitute an Event of Default
or a Default.
4
<PAGE>
<PAGE>
Section 3. ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned Subsidiaries of the Borrower
acknowledges that it has reviewed the terms and provisions of the Credit
Agreement and this Amendment and consents to the amendment of the Credit
Agreement effected pursuant to this Amendment. Each of the undersigned
Subsidiary Guarantors hereby confirms that the Subsidiary Guaranty will
continue to guaranty to the fullest extent possible the payment and
performance of all Guarantied Obligations (as defined in the Subsidiary
Guaranty), including, without limitation, the payment and performance of
all Obligations of the Borrower now or hereafter existing under or in
respect of the Amended Agreement. Each of the undersigned Subordinated
Subsidiaries hereby confirms that the Subordination Agreement will continue
to subordinate the Subordinated Debt (as defined in the Subordination
Agreement) to Senior Obligations (as defined in the Subordination
Agreement), including, without limitation, all obligations of the Borrower
now or hereafter existing to make payments under or in respect of the
Amended Agreement.
Each Subsidiary Guarantor acknowledges and agrees that the
Subsidiary Guaranty shall continue in full force and effect and that all of
its obligations thereunder shall be valid and enforceable and shall not be
impaired or affected by the execution or effectiveness of this Amendment.
Each Subsidiary Guarantor represents and warrants that all representations
and warranties contained in the Subsidiary Guaranty are true, correct and
complete in all material respects on and as of the date hereof to the same
extent as though made on and as of that date except to the extent that such
representations and warranties specifically relate to an earlier date, in
which case they are true, correct and complete in all material respects as
of such earlier date.
Each Subordinated Subsidiary acknowledges and agrees that
the Subordination Agreement shall continue in full force and effect and
that all of its obligations thereunder shall be valid and enforceable and
shall not be impaired or affected by the execution or effectiveness of this
Amendment. Each Subordinated Subsidiary represents and warrants that all
representations and warranties contained in the Subordination Agreement are
true, correct and complete in all material respects on and as of the date
hereof to the same extent as though made on and as of that date except to
the extent that such representations and warranties specifically relate to
an earlier date, in which case they are true, correct and complete in all
material respects as of such earlier date.
Each of the undersigned Subsidiaries of the Borrower
acknowledges and agrees that (i) notwithstanding the conditions to
effectiveness set forth in this Amendment, such Subsidiary is not required
by the terms of the Credit Agreement or any other Credit Document to
consent to the amendments to the Credit Agreement effected pursuant to this
Amendment and (ii) nothing in the Credit Agreement, this Amendment or any
other Credit Document shall be deemed to require the consent of any such
Subsidiary to any future amendments to the Credit Agreement.
5
<PAGE>
<PAGE>
Section 4. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement
and the Other Credit Documents.
(i) On and after the date hereof, each reference
in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Credit
Agreement, and each reference in the other Credit Documents to the
"Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended by this Amendment.
(ii) Except as specifically amended or modified by
this Amendment, the Credit Agreement and the other Credit
Documents shall remain in full force and effect and are hereby
ratified and confirmed.
(iii) The execution, delivery and performance of
this Amendment shall not, except as expressly provided herein,
constitute a waiver of any provision of, or operate as a waiver of
any right, power or remedy of the Agent or any Bank under, the
Credit Agreement or any of the other Credit Documents.
B. Fees and Expenses. The Borrower acknowledges that
all costs, fees and expenses as described in subsection 11.01 of the Credit
Agreement incurred by the Agent and its counsel with respect to this
Amendment and the documents and transactions contemplated hereby shall be
for the account of the Borrower.
C. Execution in Counterparts; Effectiveness. This
Amendment may be executed in any number of counterparts, and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts taken
together shall constitute but one and the same instrument. This Amendment
shall become effective as of the date hereof upon the execution of a
counterpart hereof by the Borrower, each Subsidiary of the Borrower party
to the Subsidiary Guaranty or the Subordination Agreement and the Bank and
the delivery of such counterparts to the Agent.
D. Headings. Section and subsection headings in this
Amendment are included herein for convenience of reference only and shall
not constitute a part of this Amendment for any other purpose or be given
any substantive effect.
E. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE
DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
6
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first above written by their
respective officers thereunto duly authorized.
NATIONAL EDUCATION CORPORATION
By: /s/ KEITH K. OGATA
________________________
Title: VICE PRESIDENT
NETG HOLDING, INC.
NATIONAL EDUCATION TRAINING
GROUP, INC.,
SPECTRUM INTERACTIVE INCORPORATED
NATIONAL EDUCATION CENTERs, INC.
ICS LEARNING SYSTEMS, INC.
INTERNATIONAL CORRESPONDENCE
SCHOOLS, INC.,
as the subsidiary Guarantors
By: /s/ KEITH K. OGATA
________________________
Title: VICE PRESIDENT
STECK-VAUGHN PUBLISHING
CORPORATION
NATIONAL EDUCATION INTERNATIONAL
CORP.
NATIONAL EDUCATION CREDIT
CORPORATION
NATIONAL EDUCATION FOREIGN SALES
CORP.
NATIONAL EDUCATION PAYROLL CORP.
NEC SUB. INC
NATIONAL EDUCATION CENTERS, INC.
ICS LEARNING SYSTEMS, INC.
NETG HOLDING, INC.,
as the Subordinated subsidiaries
By: /s/ KEITH K. OGATA
________________________
Title: VICE PRESIDENT
BANKERS TRUST COMPANY, as the
Bank and as the Agent
By: /s/ MARY JO JOLLY
__________________________
Title: ASSISTANT VICE PRESIDENT
7
<PAGE>
<PAGE>
EXHIBIT 11.1
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CALCULATION OF PRIMARY EARNINGS PER SHARE
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
________________________
1994 1993
_________ _________
<S> <C> <C>
NET INCOME (LOSS) $ (2,945) $ (4,349)
========= =========
COMMON STOCK:
Shares outstanding from beginning of period 29,405 29,968
Pro rata shares:
Stock options exercised 76 2
Shares purchased for treasury,
from date of purchase (4) --
Assumed exercise of stock options,
using treasury stock method 180 238
Shares issued for restricted stock -- --
________ ________
Weighted average number of shares outstanding 29,657 30,208
======== ========
PRIMARY EARNINGS (LOSS) PER SHARE $(.10) $(.02)
====== ======
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 11.2
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CALCULATION OF FULLY DILUTED EARNINGS PER SHARE
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
__________________________
1994 1993
_________ _________
<S> <C> <C>
NET INCOME (LOSS) $ (2,945) $ (4,349)
Add back debenture interest, debt discount
and expense amortization, less applicable taxes 811 811
________ ________
NET INCOME (LOSS) FOR FULLY DILUTED COMPUTATION $ (2,134) $ (3,538)
========= =========
<S> <C> <C>
COMMON STOCK:
Shares outstanding from beginning of period 29,405 29,968
Stock options exercised 76 2
Shares purchased for treasury,
from date of purchase (4) --
Assumed exercise of stock options,
using treasury stock method 180 238
Shares issued for restricted stock -- --
Assumed conversion of subordinated debentures,
from the latter of the beginning of the
period or the date of issue 7,300 7,300
________ ________
Weighted average number of shares outstanding 36,957 37,508
======== ========
FULLY DILUTED EARNINGS (LOSS) PER SHARE $(.10) $(.14)
====== ======
</TABLE>
