<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM-10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: June 30, 1995
-------------
Commission File Number: 1-1003
------
NOBEL EDUCATION DYNAMICS, INC.
--------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2465204
------------------------------------ -----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1400 N. Providence Road, Suite 3055, Media, PA 19063
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610)891-8200
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all report(s)
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_______
-------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 15,645,063 shares of Common
Stock outstanding at August 2, 1995.
<PAGE>
PART I
------
Financial Information
Item 1 - Financial Statements
-----------------------------
Consolidated balance sheets as of June 30, 1995 and December 31, 1994.
Consolidated statements of operations for the six months ended June 30, 1995 and
1994.
Consolidated statements of operations for the three months ended June 30, 1995
and 1994.
Consolidated cash flow statements for the six months ended June 30, 1995 and
1994.
Notes to Consolidated Financial Statements.
2
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-------------
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1995 1994
----------- -------------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 1,217,799 $ 853,886
Accounts receivable, less allowance for
doubtful accounts of $96,282 in both
1995 and 1994 677,326 614,640
Notes receivable 45,114 45,114
Prepaid expenses and other assets 938,581 806,020
------------ -------------
Total Current Assets 2,878,820 2,319,660
------------ -------------
Property and equipment, at cost 19,585,387 13,398,969
Accumulated depreciation (4,692,324) (4,216,505)
------------ -------------
14,893.063 9,182,464
Property and equipment held for sale 1,304,867 1,266,648
Cost in excess of net assets acquired 11,612,090 8,887,995
Deposits and other assets 1,613,792 1,066,926
Deferred tax asset 2,605,900 510,300
------------ -------------
Total Assets $34,908,532 $ 23,233,993
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
Revolving Line of Credit (unused portion $400,000) $ - $ -
Current portion of long-term obligations 1,997,627 1,767,756
Current portion of capital lease
obligations 46,036 57,194
Accounts payable and other current liabilities 5,430,979 4,594,768
Reserve for restructuring 100,000 96,900
------------ -------------
Total Current Liabilities 7,574,642 6,516,618
------------ -------------
Long-term obligations (see Note 5) 13,203,215 7,846,151
Subordinated long-term debt (see Note 5) 2,076,358
Capital lease obligations 347,594 371,543
Deferred gain on sale/leaseback 59,307 63,303
Minority interest in consolidated subsidiary 180,901 138,073
------------ -------------
Total Liabilities 23,442,017 14,935,688
------------ -------------
Commitments and Contingencies (Notes 3, 7,9, and 15 in 10-K)
Shareholders' Equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized,
2,500,000 issued in 1995 and 2,484,320 issued in 1994 4,984 4,984
Common stock, $.001 par value,
50,000,000 shares authorized, issued
15,645,063 shares in 1995 and 15,445,063 in 1994 15,645 15,445
Additional paid-in capital 19,782,223 19,644,922
Accumulated deficit (8,336,337) (11,367,046)
------------ -------------
Total Shareholders' Equity 11,466,515 8,298,305
------------ -------------
Total Liabilities and Shareholders' Equity $34,908,532 $23,233,993
============ ============
</TABLE>
The accompanying notes and the notes in the financial statements included
in the Registrants Annual Report on form 10-K are an integral part of these
consolidated financial statements.
3
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the six months ended June 30, 1995 and 1994
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1995 1995
------------ ------------
<S> <C> <C>
Revenues $20,193,058 $17,001,898
------------ ------------
Operating Expenses 15,938,529 13,602,093
------------ ------------
School operating profit 4,254,529 3,399,805
General and administrative expenses 1,595,565 1,439,875
Litigation reserve 500,000 ---
Interest expense 702,331 645,811
Other income (11,381) (586)
Minority interest in profit
of consolidated subsidiary 42,829 43,348
------------ ------------
Income before income taxes 1,425,185 1,271,357
Income tax (benefit) expense (1,704,900) (474,300)
------------ ------------
Net income $ 3,130,085 $ 1,745,657
============ ============
Preferred stock dividends $ 99,372 $ 99,372
------------ ------------
Net income available to common
shareholders $ 3,030,713 $ 1,646,285
============ ============
Primary earnings per share $ 0.18 $ 0.10
============ ============
Fully diluted earnings per share $ 0.14 $ 0.09
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended June 30, 1995 and 1994
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Revenues $10,509,606 $8,712,651
------------ ------------
Operating Expenses 8,360,994 6,916,198
------------ ------------
School operating profit 2,148,612 1,796,453
General and administrative expenses 810,171 839,680
Litigation reserve 500,000 ---
Interest expense 416,190 330,357
Other income (21,704) (4,764)
Minority interest in profit
of consolidated subsidiary 22,135 20,852
------------ -----------
Income before income taxes 421,820 610,328
Income tax (benefit) expense (1,955,900) (492,300)
------------ -----------
Net income $ 2,377,720 $1,102,628
============ ===========
Preferred stock dividends $ 49,686 $ 49,686
------------ -----------
Net income available to common
shareholders $ 2,328,034 $1,052,942
============ ===========
Primary earnings per share $ 0.14 $ 0.07
============ ===========
Fully diluted earnings per share $ 0.11 $ 0.06
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1995 and 1994
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 3,130,085 $ 1,745,657
Adjustment to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 653,314 521,409
Provision for losses on accounts receivable 40,228 24,366
Minority interest income 42,829 43,348
Amortization of deferred gain (3,996) (3,996)
Depreciation of closed centers 40,421 35,319
Reversal of tax valuation allowance (2,105,900) (510,300)
Changes in Assets and Liabilities Net
of Acquisitions:
Decrease (increase) in accounts and
notes receivable (57,801) 20,613
(Increase) decrease in prepaid expenses (177,675) (109,720)
(Increase) decrease in other assets (536,566) (84,467)
(Increase) decrease in accounts payable and
accrued expenses 836,211 (874,188)
Decrease in reserve for restructuring 3,100 (27,647)
------------ -----------
Total Adjustments (1,265,835) (965,263)
Net Cash Provided by Operating Activities 1,864,250 780,394
------------ -----------
Cash Flows from Investing Activities:
Capital expenditures (1,339,142) (596,497)
Proceeds from the sale of land --- 177,052
------------ -----------
Payment for acquisitions (5,138,603) ---
Deposit for acquisition (250,000) ---
------------ -----------
Net Cash (Used In) Provided By
Investing Activities (6,727,745) (419,445)
Cash Flows from Financial Activities:
Repayment of long-term debt (348,333) (873,621)
Repayment of capital lease obligation (35,107) (30,011)
Payments of dividends on preferred stock (99,374) (99,372)
Proceeds from exercise of stock options 137,500 ---
Cash proceeds from real estate mortgage 3,567,300 ---
Note payable 5,422 ---
Increase in Revolving Term Loan II 2,000,000 ---
----------- -----------
Net Cash (Used In) Provided By
Financing Activities 5,227,408 (1,003,004)
Net increase (decrease) in cash and
cash equivalents 363,913 (642,055)
Cash and cash equivalents at
the beginning of year 853,866 1,166,541
----------- ----------
Cash and cash equivalents at end
of the period $ 1,217,779 $ 524,486
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES FOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1995 and 1994
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Supplemental Disclosures of Cash
Flow Information
Cash paid during year for:
Interest $ 372,368 $ 642,810
---------- ---------
Income taxes $ --- $ ---
---------- ---------
Supplemental Schedules of Non-cash
Investing and Financing Activities:
Note payable to Seller for Carefree
acquisition $1,584,962 $ ---
---------- ---------
Note payable to Seller for Keystone
acquisition $ 629,819 $ ---
---------- ---------
Assumption of net liabilities related to
Carefree acquisition $ 156,853 $ ---
---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
Notes to Consolidated Interim Financial Statements
(Unaudited)
The financial statements have been prepared by the Registrant pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") and, in
the opinion of management, include all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial position and
results of operations. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. It is suggested that these financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
Due to the inherent seasonal nature of the education and child care industries,
annualization of amounts in these interim financial statements may not be
indicative of the actual operating results for the full year.
1. Educo, Inc. Acquisition
-----------------------
On May 23, 1995, the Company (the "Buyer") entered into a Stock Purchase
Agreement with Educo, Inc. and its stockholders (the "Sellers"), an
operator of ten schools and preschools located in Maryland, Virginia, North
Carolina, and South Carolina. The purchase price consists of $2 million in
cash 1.25 million shares of the Buyer's common stock in exchange for all of
the Sellers' shares of common stock. The closing date of the acquisition
is scheduled to be on August 31, 1995.
Additionally, in conjunction with the acquisition, the Company will enter
into a Consulting and Non-Competition Agreement at the time of closing with
Mr. Richard McCool, Educo's current President. Pursuant to the Agreement,
Mr. McCool will provide the Company with consulting services regarding the
business of Educo as the Company requests, commencing October 1, 1995 and
ending September 1, 2005 for a fee of $4,852 per month for ten years.
The projected net revenues of Educo, Inc. are estimated to be approximately
$6 million for the twelve months ended August 31, 1995. The closing of the
transaction is contingent upon normal conditions for closing. The Company
plans to fund the acquisition through the private placement of debt and
equity.
8
<PAGE>
2. Earnings Per Share
------------------
The earnings per share is based on weighted average number of common and
common equivalent shares outstanding as follows:
<TABLE>
<CAPTION>
3 months ended 3 months ended
June 30, 1995 June 30, 1994
-------------- --------------
<S> <C> <C>
Primary 16,590,877 16,129,733
Fully Diluted 22,039,710 19,051,293
6 months ended 6 months ended
June 30, 1995 June 30, 1994
-------------- --------------
Primary 16,618,150 16,129,733
Fully Diluted 22,012,438 19,051,293
</TABLE>
3. Deferred Tax Asset
------------------
In 1992, the Company changed its method of accounting for income taxes
through the adoption of SFAS 109. In 1992 and 1993, a valuation allowance
of $3.7 million had been recorded relating to the net operating loss. In
1994, the Company reduced the valuation allowance and recognized $510,300
of the deferred tax asset. The estimate recorded was based on the analysis
of the last two years of positive operating performance and projected
taxable income for 1994 and 1995. In 1995, based on the fact the Company
had three years of positive net income and the analysis of projections for
the years 1996 through 1999, the Company reduced the valuation allowance by
$2,105,400. Accordingly, this was recorded as a credit to income tax
expense and set up as an asset on the books.
4. Contingencies
-------------
In December, 1994, the Company brought a separate action against Mr.
Carneal in the Court of Common Pleas for Chester County, Pennsylvania,
seeking damages for his mismanagement of the Company. Mr. Carneal removed
that action to the United States District Court for the Eastern District of
Pennsylvania and filed an answer and a counterclaim asserting basically the
same claims he had asserted in his earlier action in Chester County,
Pennsylvania. The Company had moved to dismiss much of Mr. Carneal's
counterclaim. In response to that motion, the Federal court dismissed
several of Mr. Carneal's claims. Discovery has begun concerning the claims
remaining in the case.
In February, 1993, Douglas E. Carneal, former Chief Operating Officer of
the Company, filed suit in the Court of Common Pleas for Chester County,
Pennsylvania against the Company, certain officers and directors, and other
persons arising out of a dispute over amounts which were paid to Mr.
Carneal
9
<PAGE>
following his termination from the Company. In that action, Mr. Carneal
claims that the Company is in breach of an agreement to cause a loan which
he obtained to purchase Company stock to be non-recourse. He further
claims that his termination payments were not made in accordance with his
employment contract, and that he is entitled to accrued but unpaid
vacation. Total compensatory damages sought approximate $800,000 and in
addition is seeking punitive damages and attorney fees. The Company filed
preliminary objections to Carneal's complaint, some of which were
sustained. The Chester County, Pennsylvania, Court of Common Pleas
dismissed several of the claims filed by Douglas Carneal against the
Company, allowing him to replead some of those claims. Carneal filed an
amended Complaint. Nobel's objections to the amended complaint were
dismissed. Discovery has begun concerning the claims.
In May, 1993, Julie Sell and Michael Bright, former executives of the
Company, commenced a suit in the United States District Court for the
Eastern District of Pennsylvania alleging that the Company breached its
contractual duty to pay them salary increases, bonuses and severance pay
under the Company's Executive Severance Pay Plan. On September 15, 1994,
the United States District Court for the Eastern District of Pennsylvania
entered a judgment against the Company and in favor of Julie Sell and
Michael Bright in the combined amount of $406,000 and attorney fees. The
Company had appealed this decision to the United States Court of Appeals
for the Third Circuit. In July 1995, the United States Court of Appeals
ruled in favor of Ms. Sell and Mr. Bright. The Company has filed further
appeal against the amount of the plaintiffs' legal fees and expenses.
5. Recapitalization of the Company
-------------------------------
In April 1995, the Company engaged the services of Legg Mason Wood Walker,
Inc. to seek additional funds for growth through development and/or
acquisitions. As a result, in July the Company signed two commitment
letters to raise a total of $23 million of funding which consists of $15
million of senior debt and $6 million of subordinated debt and $2 million
of convertible preferred stock. Closing of these transactions is
anticipated in the third quarter and is subject to typical due diligence
and documentation closing procedures. There are no assurances the
transactions will close.
Additionally, the Company has signed a commitment letter with W. P. Carey &
Co., Inc. which is the largest lessor of net leased corporate properties in
the United States, whereby it would finance the development and own the
real estate for a portion of Nobel's new build to suit schools. The real
estate organization would then lease back the properties to Nobel. Funds
available for new schools under this agreement total $10 million. There
are no assurances this transaction will close.
10
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
------------------------------------------------------------------------
Results of Operations
---------------------
During the first half of 1995, the Company continued the implementation of its
regrowth strategy:
1. NIPSA Accreditation
-------------------
On July 12, 1995, the Merryhill Country Schools division, consisting of 30
schools located in California, received accreditation from the National
Independent Private School Association ("NIPSA"). The curriculum and
operation of each school was evaluated on an individual basis. Merryhill's
schools received one of the highest evaluations resulting in an
accreditation for seven years.
2. Chesterbrook Academy
--------------------
The Company has begun the conversion of its remaining child care centers to
preschools and schools. This conversion includes the adoption of
Merryhill's accredited curriculum, upgrading of the educational
technologies, and more advanced training of the teaching personnel. Five
existing operations are being converted to Chesterbrook Academy schools in
the fall of 1995, one in New Jersey, two in North Carolina, one in
Illinois, and one in Pennsylvania.
Additionally, the Company intends to open five schools on the east coast in
the second half of 1995 or early 1996 which will be Chesterbrook Academy
schools. One is located in Exton, Pennsylvania, one is located in
Champaign, Illinois, one is located in Audubon, Pennsylvania, one is
located in Glassboro, New Jersey, and one in Limerick, Pennsylvania. This
is a significant, strategic step for the Company for which the focus is to
develop quality educational curriculums in a caring environment. Nobel
projects it will have 52 Merryhill and Chesterbrook schools by the end of
1995 in addition to 38 child care centers.
3. Acquisitions
------------
During the first half of 1995, the Company acquired Carefree Learning
Centers, Inc. located in Pennsylvania and the related real estate from the
Pennsylvania Blue Shield. The assets acquired consisted of eight operating
schools generating $4.4 million in revenues in 1994 and three under
construction, one of which was completed in May 1995. For details of this
acquisition, refer to Form 10-Q dated March 31, 1995.
Additionally, the Company signed a Stock Purchase Agreement on May 23, 1995
with Educo, Inc. to acquire Educo, Inc., a chain of ten preschools and
elementary schools located in Virginia, South Carolina, North Carolina and
Maryland. The purchase
11
<PAGE>
price consists of $2 million in cash and 1.25 million shares of the
Company's common stock in exchange for all of Educo Inc.'s common stock.
The Company intends to close the transaction on August 31, 1995. The
projected net revenues are estimated to be $6 million for their fiscal year
ended August 31, 1995.
4. Recapitalization of the Company
-------------------------------
In April 1995, the Company engaged the services of Legg Mason Wood Walker,
Inc. to seek additional funds for growth through development and/or
acquisitions. As a result, in July the Company signed two commitment
letters to raise a total of $23 million of funding which consists of $15
million of senior debt and $6 million of subordinated debt and $2 million
of convertible preferred stock. Closing of these transactions is
anticipated in the third quarter and is subject to typical due diligence
and documentation closing procedures. There are no assurances the
transactions will close.
Additionally, the Company has signed a commitment letter with W. P. Carey &
Co., Inc. which is one of the largest lessors of net leased corporate
properties in the United States, whereby it would finance the development
and own the real estate for a portion of Nobel's new build to suit schools.
The real estate organization would then lease back the properties to Nobel.
Funds available for new schools under this agreement total $10 million.
There are no assurances this transaction will close.
5. Long-Term Debt
--------------
As discussed in the Company's Form 10-Q dated March 31, 1995, on March 10,
1995, the Company acquired the business operations of Carefree Learning
Centers, Inc. Subsequently, on June 2, 1995, the Company completed the
acquisition of the related real estate which consisted of five properties.
In connection with the acquisition of the business and real estate
described above, the Company increased the Revolving Credit Loan II by
$2,000,000, entered into a mortgage agreement totaling $3,567,300, and
entered into subordinated notes payable to the seller totaling $2,216,782.
12
<PAGE>
Results of Operations
---------------------
Six months ended June 30, 1995 compared to 1994
-----------------------------------------------
Revenues for the six months period ended June 30, 1995 increased $3,173,635 or
18.7% to $20,175,533 from $17,001,898 in the same period of 1994. The Company
operated 77 schools as of June 30, 1995 compared to 69 schools the same time the
prior year. The increase in the number of schools operated was the net result
of the Company divesting three locations in the southeast through lease purchase
options, not renewing one lease in California, opening two new schools in
California, acquiring eight schools in Pennsylvania in March of 1995 (Carefree
Learning Centers, Inc.), acquiring one school in North Carolina and opening one
school in Pennsylvania.
REVENUES
--------
<TABLE>
<CAPTION>
6 months ended 6 months ended Increase
June 30, 1995 June 30, 1994 (Decrease)
------------- ---------------
<S> <C> <C> <C>
CORE OPERATIONS $16,929,789 $15,821,841 $1,107,948
NEW SCHOOLS
OPENED/ACQUIRED 2,398,689 0 2,398,689
----------- ----------- ----------
SUBTOTAL CORE 19,328,478 15,821,841 3,506,637
----------- ----------- ----------
OPERATIONS
NON-CORE
DIVESTED IN 1994 368,473 (368,473)
NON-CORE SCHOOLS 847,055 811,584 35,471
----------- ----------- ----------
SUBTOTAL NON-CORE
SCHOOLS 847,055 1,180,057 (333,002)
----------- ----------- ----------
TOTAL COMPANY $20,175,533 $17,001,898 $3,173,635
=========== =========== ==========
</TABLE>
The revenues of the Company's Core operations (schools not planned to be
divested) increased $3,506,637 or 22.16% during the first half of 1995. Of this
increase, $2,398,689 or 15.16% was related to the acquisitions of the Carefree
schools, and North Carolina school and the opening of two schools in California
and one school in Pennsylvania. The remaining increase of $1,107,948 or 7% of
the increase was related to the existing Core schools. The increase is a result
of increased tuitions and enrollments.
The Non-core schools revenues decreased $333,002 or 28% from $1,180,057 to
$847,055 due primarily to the divestiture of the three schools located in the
southeast.
13
<PAGE>
SCHOOL OPERATING COSTS
CORE SCHOOL OPERATING COSTS
---------------------------
<TABLE>
<CAPTION>
6 months ended 6 months ended Increase
June 30, 1995 % of June 30, 1994 % of (Decrease)
------------- -------------
$ Revenues $ Revenues
--- -------- --- --------
<S> <C> <C> <C> <C> <C>
TOTAL CORE OPERATING COST $14,932,923 77.26% $12,322,254 77.88% $2,610,669
NEW SCHOOL (ACQUIRED OR
BUILT) OPER. PROFIT 411,501 17.16% 0 0.00% 411,501
SAME CORE SCHOOL OPER.
PROFIT $ 3,984,054 23.53% $ 3,499,587 22.12% 484,467
----------- -----------
TOTAL CORE SCHOOL
OPER. PROFIT $ 4,395,555 22.74% $ 3,499,587 22.12% 895,968
----------- -----------
NON-CORE CENTER OPERATING COSTS
-------------------------------
TOTAL NON-CORE OPER.
COSTS $ 988,081 116.65% $ 1,279,839 108.46% (291,758)
----------- -----------
NON-CORE SCHOOL
OPER. PROFIT $ (141,026) -16.65% $ (99,782) -8.46% (41,244)
------------ ------------
TOTAL OPER. PROFIT $ 4,254,529 21.09% $ 3,399,805 20.00% 854,724
============ ===========
</TABLE>
Operating profit for the six months ended June 30, 1995 increased $854,724 or
25% from $3,399,805 as of June 30, 1994 to $4,254,529 as of June 30, 1995. The
increase is a result of 1) improved operating performance in the core schools
and 2) operating profit from the acquired or opened schools.
The operating profit of the core schools increased $895,968 or 26% of which
$411,501 was attributed to the new schools opened and acquired. The existing
core schools' operating profit increased $484,467 or 14% from $3,499,587 in 1994
to $3,984,054 in 1995. This was due to improved cost controls.
The operating profit margin of the core schools increased slightly from 22.12%
to 22.74%. The existing core schools margins increased from 22.12% for the six
months ended June 30, 1994 to 23.53% for the six months ended June 30, 1995.
This increase was offset by margins of 17.16% resulting from new schools
acquired or opened. Typically new schools which are opened generate losses for
the first three to four months due to pre-opening costs and the process of
building enrollment.
General and administrative expenses totaling $1,595,565 for the six months ended
June 30, 1995 increased $155,090 or 11% as compared to $1,439,875 for the six
months ended June 30, 1994 primarily due to the increase in staff related to
Corporate restructuring and growth in revenues. In August of 1994, Mr. Clegg,
the Chairman and Mr. Frock, Executive Vice President, formerly of JBS Investment
Company, Inc., joined the Company as full time employees relinquishing their
operating duties at JBS. As a percentage of revenues general and administrative
expenses decreased slightly from 8.47% in 1994 to 7.90% in 1995.
14
<PAGE>
In June of 1995, the Company recorded a reserve of $500,000 related to the
lawsuits by former management. The United States Court of Appeals for the Third
Circuit ruled in favor of Mr. Bright and Ms. Sell and against the Company.
Total estimated settlement losses related to the award are estimated to be
$406,000 plus legal expenses.
During the first six months of 1995, interest expense totaling $702,331
increased $56,520 or 9% compared to $645,811 for the same period the prior year
due to higher debt balances related to the acquisitions of Carefree Learning
Centers and its related real estate company Keystone Real Estate.
Pretax income totaling $1,425,185 for the six months ended June 30, 1995
increased $153,828 or 12% as compared to $1,271,357 for the six months ended
June 30, 1994. The increase was due primarily to increased school operating
profit which was offset by the $500,000 charge related to the outcome of prior
management lawsuits.
In 1992, the Company changed its method of accounting for income taxes through
the adoption of SFAS 109. In 1992 and 1993, a valuation allowance of $3.7
million had been recorded relating to the net operating loss. In 1994, the
Company reduced the valuation allowance and recognized $510,300 of the deferred
tax asset. The 1994 estimate recorded was based on the analysis of the last two
years of positive operating performance and projected taxable income for 1994
and 1995. In 1995, based on the fact the Company had three years of positive
net income and the analysis of projections for the years 1996 through 1999, the
Company reduced the valuation allowance by $2,105,400. Accordingly, this was
recorded as a credit to income tax expense and set up as an asset on the
Company's books.
Net income before preferred dividends totaling $3,130,085 increased $1,384,428
or 84% for the six months ended June 30, 1995 versus $1,745,657 for the same
period in 1994.
Dividends totaling $99,372 were paid on the Company's preferred stock during the
six months ended June 30, 1995.
Three-Month Period Ended June 30, 1995 Compared to 1994
-------------------------------------------------------
Revenues increased $1,796,955 or 21% from $8,712,651 for the second quarter
ended June 30, 1994 to $10,509,606 for the second quarter ended June 30, 1995.
Of the $1,796,955, $1,711,180 was related to the opening of two new schools and
the acquisition of the Carefree Learning Centers which occurred in March 1995.
The core operations increased $281,527 or 4% from the second quarter of 1994 to
same period in 1995. The increases were offset by a decrease of $195,752 in
revenues related to the operations in the non-core regions.
School operating profit increased $352,159 or 19% from $1,796,453 for the second
quarter of 1994 to $2,148,612 for the same period in 1995. Of this increase,
$270,574 was related to the acquisition and the opening of two new schools.
Operating profit related to the core operations increased $61,945 or 3%. The
remaining
15
<PAGE>
increase of $19,640 is related to the divestiture of several schools located in
the southeast which typically operated at losses.
Operating profit margins decreased very slightly from 20.6% for the second
quarter ended June 30, 1994 to 20.4% for the second quarter ended June 30, 1995.
The slight decrease is related to (1) lower margins at the new schools due to
pre-opening costs and (2) slightly lower margins in the acquisition as
management is starting to implement cost controls.
General and administrative expenses decreased $29,509 or 3.5% from $839,680 or
9.64% of revenues for the second quarter 1994 to $810,171 or 7.71% of revenues
for the second quarter ended June 30, 1995. In 1994, the Company recorded a
$200,000 charge related to legal fees for the cost of prior management's
lawsuits.
In June 1995, the Company recorded $500,000 in a reserve related to the outcome
of former management's lawsuits. In July 1995, the Court ruled in favor of the
plaintiffs, Mr. Bright and Ms. Sell, and awarded them claims totaling
approximately $406,000 and attorney fees.
Interest expense increased $85,833 or 16% from $330,357 for the second quarter
of 1994 to $416,190 for the second quarter of 1995. The increase in interest is
due to higher debt balances resulting from the acquisition of Carefree Learning
Centers, Inc. and the related real estate.
Pretax income, before the effects of the $500,000 legal reserve, totaled
$921,820 for the three months ended June 30, 1995. This was an increase of
$311,482 or 51% over the pretax income for the second quarter of 1994 which was
$610,328. Pretax income, after the $500,000 legal reserve, decreased $188,508
from $610,328 in the second quarter of 1994 to $421,820 in the second quarter of
1995. Increased school operating profit of $352,159 was offset by the $500,000
charge related to lawsuits from prior management.
In 1992, the Company changed its method of accounting for income taxes through
the adoption of SFAS 109. In 1992 and 1993, a valuation allowance of $3.7
million had been recorded relating to the net operating loss. In 1994, the
Company reduced the valuation allowance and recognized $510,300 of the deferred
tax asset. The estimate recorded was based on the analysis of the last two
years of positive operating performance and projected taxable income for 1994
and 1995. In 1995, based on the fact the Company had three years of positive
net income and the analysis of projections for the years 1996 through 1999, the
Company reduced the valuation allowance by $2,105,400. Accordingly, this was
recorded as a credit to income tax expense and set up as an asset on the books.
Net income before dividends for the three months ended June 30, 1995 increased
to $2,377,720 from $1,102,628 for the same period the prior year. The increase
of $1,275,092 was primarily the result of the reversal of the valuation
allowance related to the deferred tax asset.
16
<PAGE>
Dividends totaling $49,686 were paid to the preferred stockholders in the second
quarter of 1995 and 1994.
The table shows pretax net income before the effect of the charge related to
litigation and the reversal of the valuation allowances.
RESTATED QUARTERLY COMPARISON
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(000'S OMITTED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenue $10,510 $ 8,713
Pretax income before legal reserve
and tax adjustment 922 610
------- -------
*EPS (primary) on operating income $ .055 $ .038
*EPS (fully diluted) on operating income $ .042 $ .032
Legal reserve (500) ---
Tax asset 2,100 500
Tax liability (144) (8)
------- -------
Net income $ 2,378 $ 1,103
*EPS (primary) $ 0.14 $ 0.07
*EPS (fully diluted) $ 0.11 $ 0.06
Stockholders' equity $11,467 $ 5,378
======= =======
*Primary shares outstanding 16,591 16,130
*Fully diluted shares and share
equivalents 22,040 19,051
</TABLE>
Liquidity and Capital Resources
-------------------------------
During the first quarter of 1995, the Company continued its regrowth strategy.
On the operations level, the Company acquired the operations of Carefree
Learning Centers, Inc., consisting of eight operating learning centers and three
under construction or in various stages of development. This represents the
first significant acquisition of a multi-school operation since the
restructuring of the Company. Additionally, the Company signed a Stock Purchase
Agreement with Educo, Inc. to acquire ten preschool and elementary schools.
This transaction is expected to close in August 1995.
On the financing level, the Company entered into an agreement with Legg Mason
Wood and Walker, Inc. to raise $23 million in debt, subordinated debt, and
preferred stock. In connection with the recapitalization, the Company entered
into commitment letters with a senior lender and subordinated lender for a total
of $23 million.
17
<PAGE>
The funding is expected to close in August 1995. Proceeds of the financing will
be used to pay off existing principal debt facilities totaling $9,815,032 which
mature in 1998, strategic acquisitions, and new school development.
The existing principal debt facilities consist of the Revolving Line of Credit
totaling $1,000,000 with an unused balance of $400,000, the Revolving Credit
Loan II with a principal balance at June 30, 1995, of $7,745,675, and Term Loan
I with a principal balance of $2,069,357 at June 30, 1995. Term Loan I has
scheduled principal payments of $55,555 per month plus interest. The Revolving
Credit Loan II has scheduled principal reductions of $600,000 on December 23,
2995, $600,000 on December 23, 1996, $1,100,000 on December 23, 1997, and
$2,150,000 on December 23, 1998. In 1994, in connection with the appeal of the
judgment with former officers described in Note 3, the Company was required to
post security with the court for payment of the judgment in the event the
judgment is not overturned on appeal. The Company posted the required security
by arranging for the issuance of a letter of credit by its bank in the amount of
$600,000 pursuant to a Fourth Amendment of the Loan Agreement, and the available
balance of the Company's Revolving Line of Credit was reduced to $400,000.
On the education level relative to the Company's upgrading of their child care
centers to schools, Nobel is developing the curriculum, training the staff, and
standardizing the process of the Chesterbrook Academy schools in the east and
midwest. The Company plans to open eleven Chesterbrook Academy schools in 1995
through new school openings or the conversion of existing child care centers.
The cost of converting an existing child care center to a Chesterbrook Academy
is estimated to be approximately $30,000. The Company intends to use cash from
operations to convert the existing centers. The conversion of all the Rocking
Horse child care centers is planned to occur over the next three years.
Total cash and cash equivalents increased $693,313 or more than doubled from
$524,146 at June 30, 1994 to $1,217,799 at June 30, 1995. The increase in cash
was due to (1) cash from operating activities totaling $1,864,250 resulting from
an increase in accounts payable and accrued expenses related to the timing of
payroll and the litigation accrual and (2) cash payment totaling $137,500
related to the exercise of stock options. This was offset by cash used for the
acquisitions, building new schools, and capital expenditures.
Net cash provided by operations increased $1,083,856 or more than doubled from
$780,394 at June 30, 1994 to $1,864,250 at June 30, 1995 due primarily to the
timing of payroll as compared to the prior year.
The working capital deficit increased $498,864 or 12% from $4,196,958 at
December 31, 1994 to $4,695,822 at June 30, 1995. This was due primarily to the
increase in accounts payable and accrued expenses which resulted from (1) timing
of payroll and (2) recording $500,000 litigation accrual.
The Company intends to continue its regrowth strategy and, as
18
<PAGE>
stated, is in the process of recapitalizing with more flexible senior debt and
significant growth capital via additional equity and subordinated debt. The
Company's strategy is to continue to open new build to suit schools and to
acquire appropriate strategic schools and centers in its core growth area.
Typically, new centers and schools are funded by real estate developers.
However, the Company is close to raising additional capital through a single
investor via a real estate partnership, financing the projects until completion,
and then selling and leasing back the properties. The traditional funding by
real estate developers is a slow process, and the Company is ready to grow more
aggressively; therefore, it is seeking $1 million each to build a school with
pre-opening costs totaling between $75,000 and $90,000 per school.
Additionally, the Company is also considering various strategic acquisitions.
The acquisitions, if any, will be financing principally through the proceeds of
alternative equity placements or subordinated debt as described within.
19
<PAGE>
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.
NOBEL EDUCATION DYNAMICS, INC.
Dated: August 11, 1995 By: /s/
----------------------------------
A.J. Clegg
Chairman
Dated: August 11, 1995 By: /s/
-----------------------------------
Yvonne DeAngelo
Controller
<PAGE>
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.
NOBEL EDUCATION DYNAMICS, INC.
Dated: August 11, 1995 By:_________________________________
A.J. Clegg
Chairman
Dated: August 11, 1995 By:__________________________________
Yvonne DeAngelo
Controller
<PAGE>
Exhibit Number
(Referenced to
Item 601 of
Regulation S-K) Description of Exhibit
--------------- ----------------------
11 Statement Re-computation of Per
Share Earnings Per Share.
27 Financial Data Schedule
<PAGE>
Exhibit 11
----------
Statement re-computation of per share earnings.
-----------------------------------------------
1. Earnings Per Share
------------------
The earnings per share is based on the weighted average number of common
stock and common equivalent shares outstanding. The calculation is as
follows:
<TABLE>
<CAPTION>
6 months ended 6 months ended
June 30, 1995 June 30, 1994
--------------- ---------------
<S> <C> <C>
Primary $ 3,130,085 - $99,372 = .18 $ 1,745,657 - $99,372 = .10
--------------------- ---------------------
16,618,150 16,129,733
Fully Diluted $ 3,130,085 = .14 $ 1,745,657 = .09
----------- -----------
22,012,438 19,051,293
3 months ended 3 months ended
June 30, 1995 June 30, 1994
-------------- --------------
Primary $ 2,377,720 - $49,686 = .14 $ 1,102,628 - $49,686 = .07
--------------------- ---------------------
16,590,877 16,129,733
Fully Diluted $ 2,377,720 = .11 $ 1,102,628 = .06
----------- -----------
$22,039,710 $19,051,293
</TABLE>
