<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: September 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: 4,087,774 shares of Common
Stock outstanding at November 10, 1995.
<PAGE>
PART I
------
Financial Information
Item 1 - Financial Statements
- - -----------------------------
Consolidated balance sheets as of September 30, 1995 and December 31, 1994.
Consolidated statements of operations for the nine months ended September 30,
1995 and 1994.
Consolidated statements of operations for the three months ended September 30,
1995 and 1994.
Consolidated cash flow statements for the nine months ended September 30, 1995
and 1994.
Notes to Consolidated Financial Statements.
2
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
-------------- -------------
<S> <C> <C>
ASSETS
- - ------
Cash and cash equivalents $ 3,711,215 $ 853,886
Accounts receivable, less allowance for
doubtful accounts of $96,282 in both
1995 and 1994 697,012 614,640
Notes receivable --- 45,114
Prepaid expenses and other assets 2,002,884 806,020
----------- ------------
Total Current Assets 6,411,111 2,319,660
----------- ------------
Property and equipment, at cost 21,402,908 13,398,969
Accumulated depreciation (4,976,561) (4,216,505)
----------- ------------
16,426,347 9,182,464
Property and equipment held for sale 1,297,775 1,266,648
Cost in excess of net assets acquired 17,660,188 8,887,995
Deposits and other assets 2,725,427 1,066,926
Deferred tax asset 2,616,200 510,300
----------- ------------
Total Assets $47,137,048 $ 23,233,993
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- - -----------------------------------
Current portion of long-term obligations $ 1,633,145 1,767,756
Current portion of capital lease
obligations 47,935 57,194
Accounts payable and other current liabilities 8,295,097 4,594,768
Reserve for restructuring 100,000 96,900
----------- ------------
Total Current Liabilities 10,076,177 6,516,618
----------- ------------
Revolving line of credit, unused balance $7,500,000 0 0
Long-term obligations 11,830,267 7,846,151
Subordinated long-term debt 9,079,483 ---
Capital lease obligations 336,386 371,543
Deferred gain on sale/leaseback 57,310 63,303
Minority interest in consolidated subsidiary 203,403 138,073
----------- ------------
Total Long-Term Liabilities 21,506,849 8,419,070
----------- ------------
Total Liabilities 31,583,026 14,935,688
----------- ------------
Shareholders' Equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized,
1,063,830 issued in 1995, 2,500,000 issued in 1994
and 2,484,320 issued in 1993 5,505 4,984
Common stock, $.001 par value,
50,000,000 shares authorized, outstanding
4,087,774 shares in 1995 and 15,445,063 in 1994 4,088 15,445
Common stock issuable 313 ---
Additional paid-in capital 23,818,046 19,644,922
Accumulated deficit (8,273,930) (11,367,046)
----------- ------------
Total Shareholders' Equity 15,554,022 8,298,305
----------- ------------
Total Liabilities and Shareholders' Equity $47,137,048 $ 23,233,993
=========== ============
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Company's 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 nine months ended September 30, 1995 and 1994
-----------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Revenues $30,765,128 $24,722,906
----------- -----------
Operating Expenses 24,918,719 20,288,422
----------- -----------
School operating profit 5,846,409 4,434,484
General and administrative expenses 2,473,863 2,080,090
Litigation reserve 500,000 ---
Interest expense 1,213,746 945,792
Other income (92,038) 45,720
Minority interest in profit
of consolidated subsidiary 65,330 61,710
----------- -----------
Income before income taxes 1,685,508 1,301,172
Income tax (benefit) expense (1,614,900) (456,300)
----------- -----------
Net income before extraordinary
item $ 3,300,408 $ 1,757,472
Extraordinary item 62,000* ---
----------- -----------
Net income $ 3,238,408 $ 1,745,472
=========== ===========
Preferred stock dividends $ 145,288 $ 149,058
----------- -----------
Net income available to common
shareholders $ 3,093,120 $ 1,608,414
=========== ===========
Primary earnings per share
before extraordinary item $ 0.71 $ 0.40**
=========== ===========
Primary earnings per share $ 0.69 $ 0.40**
=========== ===========
Fully diluted earnings per share
before extraordinary item $ 0.55 $ 0.36**
=========== ===========
Fully diluted earnings per share $ 0.54 $ 0.36**
=========== ===========
</TABLE>
*Write-off of unamortized loan origination fees relating to refinancing.
**Proforma for 1:4 reverse stock split.
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 September 30, 1995 and 1994
------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Revenues $10,572,070 $7,721,008
----------- ----------
Operating Expenses 8,980,190 6,686,329
----------- ----------
School operating profit 1,591,880 1,034,679
General and administrative expenses 878,298 640,215
Interest expense 511,415 299,981
Other income (80,657) 46,306
Minority interest in profit
of consolidated subsidiary 22,501 18,362
----------- ----------
Income before income taxes 260,323 29,815
Income tax (benefit) expense 90,000 18,000
----------- ----------
Net income before extraordinary
item $ 170,323 $ 11,815
Extraordinary item 62,000* ---
----------- ----------
Net income $ 108,323 $ 11,815
=========== ==========
Preferred stock dividends $ 45,916 $ 49,686
----------- ----------
Net income available to common
shareholders $ 62,407 (37,871)
=========== ==========
Primary earnings per share
before extraordinary item $ 0.03 $ 0.00
=========== ==========
Primary earnings per share $ 0.01 $ 0.00
=========== ==========
Fully diluted earnings per share
before extraordinary item $ 0.03 $ 0.00
=========== ==========
Fully diluted earnings per share $ 0.02 $ 0.00
=========== ==========
</TABLE>
*Write-off of unamortized loan origination fees related to refinancing.
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 nine months ended September 30, 1995 and 1994
-----------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 3,238,408 $ 1,757,472
Adjustment to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 1,046,524 786,372
Depreciation related to closed centers --- 62,675
Provision for losses on accounts receivable 60,358 44,272
Minority interest income and non-cash dividends 65,330 (209,017)
Amortization of deferred gain (5,993) (5,993)
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 (46,147) 132,742
(Increase) decrease in prepaid expenses (1,077,918) 347,856
(Increase) decrease in other assets (1,080,152) (241,926)
(Increase) decrease in reserve for closed
centers 3,100 (29,473)
(Increase) decrease in accounts payable and
accrued expenses 2,760,551 1,210,047
------------ -----------
Total Adjustments (380,247) 1,587,255
Net Cash Provided by Operating Activities 2,858,161 3,344,727
------------ -----------
Cash Flows from Investing Activities:
Capital expenditures (1,359,107) (988,147)
Proceeds from the sale of facilities --- 172,507
Payment for acquisitions (8,373,869) (15,000)
Proceeds from the issuance of common stock --- 27,000
Payment of transaction costs for refinancing (898,000) ---
------------ -----------
Net Cash (Used In) Provided By
Investing Activities (10,630,976) (803,640)
------------ -----------
Cash Flows from Financial Activities:
Note payable 3,302 ---
Repayment of long-term debt (11,413,352) (3,547,188)
Repayment of capital lease obligation (44,416) (45,973)
Cash dividends paid on preferred stock (145,288) (149,058)
Cash proceeds from restructuring of debt 13,500,000 ---
Cash proceeds from issuance of preferred
stock 2,000,000 2,398,313
Cash proceeds from real estate mortgage 3,567,300 ---
Cash proceeds from increase in Revolving
Term II and Line 3,000,000 ---
Cash from preferred stock converted 162,598 ---
------------ -----------
Net Cash (Used In) Provided By
Financing Activities 10,630,144 (1,343,906)
------------ -----------
Net increase (decrease) in cash and
cash equivalents 2,857,329 1,197,181
Cash and cash equivalents at
the beginning of year 853,886 1,166,541
------------ -----------
Cash and cash equivalents at end
of the period $ 3,711,215 $ 2,363,722
============ ===========
</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 nine months ended September 30, 1995 and 1994
-----------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Supplemental Disclosures of Cash
Flow Information
Cash paid during year for:
Interest $1,213,746 $942,792
---------- ---------
Income taxes $ 56,505 $ 45,015
---------- ---------
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 and Educo acquisitions $ 342,119 $ --
---------- ---------
Note payable to Seller for Indy acquisition $1,125,000 $ --
---------- ---------
Issuance of common stock for Educo acquisition $2,000,000 $ --
---------- ---------
</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 Company 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 Company'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. Acquisition of Educo, Inc.
--------------------------
On September 1, 1995, the Company acquired all of the outstanding shares of
common stock of Educo, Inc., a Maryland corporation, pursuant to a Stock
Purchase Agreement with Educo, Inc. and the then existing stockholders of
Educo, Inc. (collectively, the "Educo Stockholders") dated May 23, 1995, as
amended. Educo, Inc. is an operator of 10 schools and preschools located
in Maryland, Virginia, North Carolina and South Carolina. The purchase
price for the stock consisted of (i) $2,000,000 in cash and (ii) an
agreement to issue and deliver to the Educo Stockholders an aggregate of
312,500 shares (after the reverse split) of the Company's Common Stock on
January 15, 1996. The cash portion of the purchase price was financed with
proceeds of the Term Loan from First Valley Bank described in Note 3 below.
2. Acquisition of Child Care Centers in Indiana
--------------------------------------------
On August 25, 1995, the Company acquired from Corydon Day Care Center,
Inc., an Indiana corporation d/b/a "Children Today" ("Corydon"), nine of
its preschools located in the Indianapolis, Indiana area (the "Centers")
and substantially all of the assets (other than real estate) used by
Corydon in the business of operating the Centers. The Company also
acquired a leasehold interest in the buildings and the land upon which the
Centers are located. The purchase price for the business and assets
acquired from Corydon consisted of (i) $1,050,000 in cash and (ii) a
subordinated promissory note in the principal amount of $1,125,000 secured
by a security interest in certain assets located at the Centers. The cash
portion of the purchase price paid by the Company was financed by drawing
on the Company's then existing line of credit with
8
<PAGE>
CoreStates Bank, N.A. which the Company repaid on August 31, 1995 using
proceeds of the Term Loan from First Valley Bank described below in
Footnote 3.
3. Refinancing
-----------
On August 30, 1995, the Company and certain of its subsidiaries
(collectively, the "Borrowers") entered into a Loan and Security Agreement
with First Valley Bank. Pursuant to the Loan Agreement, First Valley Bank
provided the Borrowers a five-year term loan in the original principal
amount of $7,500,000 (the "Term Loan") and established for the Borrowers
from August 30, 1995 and until September 1, 1998 a revolving line of credit
in an amount not to exceed $7,500,000 (the "Line"). Such loans are secured
by liens in favor of the Bank on the Borrowers' properties. The proceeds
of the Term Loan were used by the Borrowers as follows: (i) $5,500,000 was
used by the Company to repay indebtedness of the Company to CoreStates
Bank, N.A. and Foothill Capital Corporation; and (ii) $2,000,000 was used
to fund the cash portion of the acquisition by the Company of Educo, Inc.
and the Educo Stockholders dated May 23, 1995, as amended. The proceeds
advanced under the Line shall be used for working capital purposes, to fund
future acquisitions of educational facilities or companies and construction
of educational facilities by the Borrowers. The Term Loan bears a fixed
interest rate of 8.5%, and the Line bears a performance-based rate in the
range from LIBOR plus 250 basis points to Libor.
In addition, on August 30, 1995, the Company and certain of its
subsidiaries (collectively, the "Nobel Companies") entered into an
Investment Agreement with Allied Capital Corporation and its affiliated
funds (collectively, "Allied"), pursuant to which, on such date, the
Company sold and issued to Allied (i) Senior Subordinated Debentures in the
aggregate principal amount of $6,000,000 (the "Debentures") for a purchase
price of $6,000,000; (ii) 1,063,830 shares of the Company's Series D
Convertible Preferred Stock (the "Preferred Stock") for a purchase price of
$2,000,000; and (iii) Warrants to acquire an aggregate of 309,428 shares of
the Company's Common Stock at $7.52 per share, subject to certain
adjustments under antidilution provisions for a purchase price of $100. A
portion of the proceeds of the sale of the foregoing securities was used to
refinance bank debt existing on August 30, 1995; the remainder will be used
for acquisitions and new campus openings, for transaction expenses and for
general corporate purposes. The Debentures bear interest at the rate of
14% per annum, and principal is repayable commencing October 1, 2000 in
equal quarterly installments. The Preferred Stock is convertible into an
aggregate of 265,958 shares of the Common Stock of the Company, subject to
certain adjustments under antidilution provisions. The provisions of the
agreement allow the debt to be paid down at any time without penalty.
9
<PAGE>
4. Earnings Per Share
------------------
The earnings per share is based on weighted average number of common stock
and common stock equivalent shares outstanding as follows (post-split):
<TABLE>
<CAPTION>
3 months ended 3 months ended
Sept. 30, 1995 Sept. 30, 1994
-------------- --------------
<S> <C> <C>
Primary 4,596,873 4,013,822
Fully Diluted 6,148,980 5,055,788
9 months ended 9 months ended
Sept. 30, 1995 Sept. 30, 1994
-------------- --------------
Primary 4,485,939 4,013,822
Fully Diluted 5,984,299 4,850,514
</TABLE>
5. 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.
6.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
10
<PAGE>
of a dispute over amounts which were paid to Mr. Carneal 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 are approximately $800,000 and, in addition,
Mr. Carneal 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 Mr. Carneal against the Company,
allowing him to replead some of those claims. Mr. 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. 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
September of 1995, the Company satisfied the court ruling and paid $406,000
in the aggregate to Ms. Sell and Mr. Bright plus attorney fees and interest
for a total of $580,000.
7. Reverse Stock Split
-------------------
On September 22, 1995, the shareholders approved a one-for-four reverse
stock split of the Company's common stock. The Company effected the
reverse split on September 29, 1995. For every four shares of common
stock, each shareholder received one share of common stock.
8. Stock Incentive Plan Approved
-----------------------------
On September 22, 1995, the shareholders approved the 1995 Stock Incentive
Plan which enables the Company to issue 375,000 options to purchase common
stock of the Company at the fair market value on the date the options are
issued. The purpose of the Plan is to attract and retain quality
employees.
11
<PAGE>
Item 2 - Management Discussion and Analysis
- - -------------------------------------------
During the nine months ended September 30, 1995, the Company completed several
significant steps in its re-growth strategy. The Company acquired three multi-
chain school and preschool operations which include: (1) The Carefree Learning
Centers, Inc. which consisted of eight schools located in Pennsylvania; (2)
Educo, Inc. which consisted of ten schools located in Maryland, Virginia, North
Carolina and South Carolina; and (3) nine schools of Children Today, Inc.
located in Indianapolis, which increased the Company's licensed capacity by
3,775 children.
Additionally, the Company began the conversion of its child care centers to
Chesterbrook Academy preschools and schools. Five existing operations were
converted in September of 1995 which included one in New Jersey, two in North
Carolina, one in Illinois and one in Pennsylvania. The curriculums were changed
to the Merryhill accredited curriculum, personnel was retrained and educational
technologies were upgraded. Further, two new Chesterbrook Academy schools were
opened in September of 1995, one located in Exton, Pennsylvania and one in
Champaign, Illinois. The Company plans to open three additional Chesterbrook
Academy schools in the first quarter of 1996, two Pennsylvania and one in New
Jersey. This is a significant strategic step for the Company.
On August 30, 1995, the Company completed the refinancing of its principal debt
facilities totaling approximately $11 million through the placement of $23
million of debt, subordinated debt and equity as described below in Liquidity
and Capital Resources.
Results of Operations
- - ---------------------
Nine months ended September 30, 1995 compared to 1994
- - -----------------------------------------------------
Revenues for the nine-month period ended September 30, 1995 increased $6,042,222
or 24.44% from $24,722,906 for the nine months ended September 30, 1994 to
$30,765,128. The increase is due to (i) increased enrollment and tuitions in
the same school operations, (ii) the opening of eight new schools and (iii) the
acquisition of three multi-school operations and one single school in 1995 which
include eight Carefree Learning Centers, Inc. acquired in March of 1995, nine
schools in Indianapolis, Indiana from Children Today, Inc. on August 25, 1995,
ten schools of Educo, Inc. on August 31, 1995 and one single school in North
Carolina. As of September 30, 1994, the Company operated 68 schools. From
September 30, 1994 through September 30, 1995, the Company opened eight new
schools, acquired 28 schools and divested three schools through lease/purchase
options. As of September 30, 1995, the Company operated 101 schools.
Of the $6,042,222 increase in revenues, $1,492,552 was related to an increase in
same school revenues. The same school revenues increased 6% from $24,303,188
for the nine months ended September 30, 1994 to $25,795,740 for the nine months
ended September 30, 1995. This increase was related to enrollment and tuition
increases.
12
<PAGE>
Additionally, an increase in revenue of $1,386,428 was related to the opening
of nine new schools, and $3,582,960 of the increase in revenues was related to
the acquisitions which occurred throughout 1995. These increases were offset by
a decrease in revenues totaling $419,718 related to the planned divestiture of
three schools in the Southeast.
Operating profit for the nine months ended September 30, 1995 increased
$1,411,925 or 32% from $4,434,484 for the nine months ended September 30, 1994
to $5,846,409 for the same period in 1995.
The increase of $1,411,925 was related to several factors: (1) an increase in
the same school operating profit of $752,638 or 17%; (2) operating profit
related to the described acquisitions totaling $403,944; (3) operating profit
related to the opening of eight schools totaling $160,400; (4) an increase in
operating profit due to the divestiture of several schools in the Southeast
which had losses totaling $8,577; and (5) net operating profit totaling $213,195
from the real estate subsidiary offset from losses related to the catalog
totaling $(126,900). The Company is analyzing alternatives for the catalog, one
of which is to discontinue the project.
Operating profit margins increased from 17.94% for the nine months ended
September 30, 1994 to 19.00% for the nine months ended September 30, 1995. The
increase in the margins is due to improved cost controls in center operating
costs and reduced fixed costs relating to owning the buildings of the Carefree
centers.
General and administrative costs increased $393,773 or 18.9% from $2,080,090 to
$2,473,863 from September 30, 1994 to September 30, 1995. The increase in costs
is related primarily to increases in staff related to the acquisitions. As a
percentage of revenues, general and administrative expenses decreased from 8.41%
of revenues for the nine months ended September 30, 1994 to 8.04% of revenues
for the nine months ended September 30, 1995.
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. The
Company paid the judgment plus attorney fees and interest in September of 1995
totaling $580,000.
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
13
<PAGE>
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.
Interest expense increased $267,954 or 28% from $943,792 or 3.83% of revenues
for the nine months ended September 30, 1994 to $1,213,746 or 3.95% of revenues
for the nine months ended September 30, 1995. The increase is primarily related
to interest paid on the mortgages on the properties acquired from a subsidiary
of Pennsylvania Blue Shield related to the Carefree Learning Centers. These
properties are currently being divested.
Other income and expense increased $137,758 from $45,720 in expense to $92,038
in income. The increase is related to: (1) increased interest income on cash
balances; (2) reversal of over-accrued insurance due to the renegotiation of
insurance premiums; (3) reversals of over-accrued rent due to the renegotiation
of several leases; and (4) decreased costs of the non-operating Southeast
centers which were divested.
Pretax income totaling $1,685,508 for the nine months ended September 30, 1995
increased $384,336 or 30% as compared to $1,301,172 for the same period in 1995.
The increase was due primarily to: (1) operating profit related to the
acquisitions and improved existing margins; and (2) an increase in other income.
On August 31, 1995, the Company completed the refinancing of the Company's
existing principal debt facilities as described in Footnote 3. As a result of
the refinancing, the Company expensed the remaining unamortized loan origination
fees related to the prior debt facilities as an extraordinary item totaling
$62,000.
Net income increased $1,492,936 or 86% from $1,745,472 for the nine months ended
September 30, 1994 to $3,238,408 for the nine months ended September 30, 1995.
Dividends totaling $145,288 and $149,058 were paid to the preferred shareholders
during the nine months ended September 30, 1995 and 1994 respectively.
Results of Operations
- - ---------------------
Three months ended September 30, 1995 compared to 1994
- - ------------------------------------------------------
Revenues increased $2,851,062 or 37% from $7,721,008 for the three months ended
September 30, 1994 to $10,572,070 for the three months ended September 30, 1995.
The increase of $2,851,062 was due to: (1) an increase in same school revenues
of $339,133 or 4.4% due to increased enrollment and tuitions; (2) an increase of
$349,079 related to the opening of four new schools in the quarter; (3) an
increase in revenues of $2,204,095 related to the acquisitions of three multi-
school operations and one single school; and (4) offset by a decrease of $41,245
related to the divestiture of three centers located in the Southeast.
14
<PAGE>
Operating profit increased $557,201 or 53.8% from $1,034,679 for the three
months ended September 30, 1994 to $1,591,880 for the three months ended
September 30, 1995. The increase due to several factors which include: (1) an
increase in same school operating profit totaling $289,219 or 27% as a result of
improved summer programs at the Merryhill schools (Merryhill's operating profit
increased 487% from $57,971 in the third quarter of 1994 to $340,754 in the same
period 1995); (2) an increase of $28,036 related to the opening of four new
schools; (3) an increase of $124,807 related to the acquisitions discussed
above; (4) an increase of $15,149 related to the divestiture of the schools in
the Southeast at the end of 1994 which operated at losses in the third quarter
of 1994; and (5) an increase of $99,990 related to the operation of the real
estate.
Operating profit margin increased from 13.4% for the three months ended
September 30, 1994 to 15.06% for the three months ended September 30, 1995 due
to improved summer programs in the Merryhill Schools, cost controls throughout
the Company and lower rent expense as a percentage of revenues due to owning the
real estate of five of the schools acquired from Pennsylvania Blue Shield. The
Company is in the process of selling these five properties.
General and administrative expenses increased $238,083 or 37% from $640,215 or
8.29% of revenues for the three months ended September 30, 1994 to $878,298 or
8.31% of revenues for the same period in 1995. The increase was primarily
related to: (1) an increase in staffing and travel due to the growth of the
Company through the acquisitions of chains and development of new schools; (2)
an increase in professional fees related to the growth of the Company; and (3)
an increase in investor relations costs related to the increase in the interest
in the stock of the Company and the increase in the number of shareholders.
Interest expense increased $211,434 or 70% from $299,981 for the third quarter
in 1994 to $511,415 for the third quarter in 1995. Interest increased due to:
(1) increased debt levels related to the acquisition of Carefree Learning
Centers, Inc., Children Today, Inc. (the Indianapolis schools), Educo, Inc. and
the Discovery School; (2) the acquisition of the real estate related to five of
the properties of the Carefree Learning Centers, Inc. from Keystone Real Estate,
a subsidiary of Pennsylvania Blue Shield; and (3) the refinancing of the
Company's principal debt facilities at the end of August where a portion of the
debt was replaced with $6,000,000 of subordinated debt with a 14% interest rate.
Other income and expense improved from a $46,306 expense in the third quarter of
1994 to income of $80,657 due primarily to: (1) the reduced costs of non-
operating centers located in the Southeast because four of the centers were
subleased; (2) reversal of over-accrued insurance expense due to the negotiation
of lower insurance premiums of the Company; (3) reversal of over-accrued rent
expense related to the negotiation of several of the Company's leases; and (4)
increased interest income related to higher cash levels.
15
<PAGE>
Net income before the extraordinary item increased $158,508 or 1341% from
$11,815 in the third quarter 1994 to $170,323 in the third quarter of 1995. The
increase was due to increased school operating profit primarily due to improved
summer programs and acquisitions which was offset by increases in general and
administrative expense and interest expense.
In the third quarter of 1995, the Company refinanced its principal debt
facilities with CoreStates and Foothill Capital which mature in December of
1998. Accordingly, the Company expensed the remaining unamortized loan
origination fees related to the prior debt facilities as an extraordinary item
of $62,000.
Net income before preferred dividends increased $96,508 or 817% from $11,815 for
the third quarter of 1994 to $108,323 for the same period in 1995.
The Company paid $45,216 and $49,686 in preferred stock dividends for the three
months ended September 30, 1995 and 1994, respectively.
Liquidity and Capital Resources
- - -------------------------------
In the third quarter of 1995, the Company completed a $23,000,000 financial
restructuring (the "Recapitalization") which consisted of the placement of: (1)
a $7,500,000 revolving line of credit and $7,500,000 senior term loan, both
financed through First Valley Bank; (2) $6,000,000 of subordinated debentures
sold to Allied Capital Corporation for a purchase price of $6,000,000; (3)
1,063,830 shares of Series D Convertible Preferred Stock sold to Allied Capital
Corporation for a purchase price of $2,000,000; and (4) warrants to acquire an
aggregate of 309,042 shares of the Company's Common Stock, subject to certain
adjustments under antidilution provisions for a purchase price of $100.
Proceeds of the Recapitalization were used as follows: $11,104,101 to repay the
Company's existing principal debt facilities; $2,000,000 for the Educo
acquisition; approximately $1,000,000 to pay transaction fees and approximately
$1,500,000 to provide additional cash to the Company. As of November 12, 1995,
the Company had not requested any advances under the revolving line of credit.
The $7,500,000 revolving line of credit bears interest at an annual rate which
is LIBOR performance based and matures on September 1, 1998. There is also a
usage fee at a rate of 1/4 of 1% of the average daily unused portion of the
line. The balance of the revolving line of credit at September 30, 1995 is zero
with $7,500,000 available.
The senior term loan bears interest at an annual rate of 8.5%. Principal
payments are due quarterly, $200,000 each quarter from December 1, 1995 through
September 1, 1996, $250,000 each quarter from December 1, 1996 through September
1, 1999, and $300,000 each quarter from December 1, 1999 through June 1, 2000.
The revolving line of credit and senior term loan are secured by liens in favor
of First Valley Bank on the Company's real and personal properties.
16
<PAGE>
The $6,000,000 of subordinated debentures sold to Allied Capital bears
interest payable monthly at an annual rate of 14%. Level payments of principal
are due quarterly, beginning in year five (calendar year 2000) and the remaining
balance of the loan matures on August 31, 2002. The debt may be paid off at any
time without penalty. The Company issued 1,063,830 shares of Series D
Convertible Preferred Stock for total cash of $2,000,000 and warrants to acquire
an aggregate of 309,042 shares of common stock at $7.52 per share for $100.
Each share of preferred stock is convertible to one-fourth of a share of common
stock (after the reverse split).
The Company intends to use the remaining available proceeds from the
Recapitalization for acquisitions of quality school chains in its core areas and
also to develop new schools. The Company generally seeks to enter into
arrangements with real estate developers to build and lease schools to the
Company. Non-real estate costs incurred by the Company in connection with
opening a new school are approximately $100,000. The Company's loan agreement
permits the Company each year to construct up to three schools which it will own
itself (or which will otherwise appear on the Company's balance sheet). (Such
number is reduced to two, if the Company enters into an agreement with a third
party to build and lease to the Company five or more newly constructed schools
in a year.) If the Company builds a school and owns the real estate, the
Company intends to sell the properties and subsequently lease them back.
Currently, the Company is pursuing several strategic acquisitions in its core
areas and is in the process of developing several schools. The Company plans to
open two schools in Pennsylvania and one in New Jersey by the end of the first
quarter of 1996. In addition, the Company is pursuing discussion with several
third parties whereby such third party would finance the development and own the
real estate for several schools.
Total cash and cash equivalents increased $1,347,493 or 57% from $2,363,722 as
of September 30, 1994 to $3,711,215 for September 30, 1995 primarily due to the
restructuring of the Company's debt facilities as described above.
Net cash provided by operations decreased $486,566 or 15% from $3,344,727 for
September 30, 1994 to $2,858,161 for September 30, 1995. The decrease in the
cash from operations is due primarily to an increase in deposits and other
assets totaling $1,080,000 related to the recording of loan origination fees and
an increase in prepaid expenses of approximately $1,000,000 related to prepaid
rents and the timing of the close of the month offset by the increase in net
income. These decreases in cash were offset by an increase in net income for
the nine months ended September 30, 1995, an increase in accounts payable and
accrued expenses related to accrued transaction costs from the acquisition, and
the Recapitalization totaling $2,700,000.
17
<PAGE>
The working capital deficit decreased approximately $600,000 from $4,200,000 at
December 31, 1994 to $3,600,000 at September 30, 1995. The decrease in the
deficit is related primarily to the increase in total cash and cash equivalents.
18
<PAGE>
PART II
-------
Other Information
Item 1- Legal Proceedings
- - -------------------------
The Company satisfied the judgment of the United States District Court of the
Eastern District of Pennsylvania in connection with the lawsuit of Julie Sell
and Michael Bright, former executive officers of the Company against the
Company. For further information regarding this proceeding, see Footnote 6 to
the financial statements included in Item 1 of Part I of this filing and
Footnote 4 to the financial statements included in Item 1 of Part I of the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1995.
Item 4- Submission of Matters to Vote of Security Holders
- - ---------------------------------------------------------
A. An annual meeting of the Shareholders of the Company was held on September
22, 1995. The shares listed below are pre-split:
B. At the meeting:
1. The following eight persons, each of whom was nominated by the Company
for election as directors of the Company received the highest number
of votes and were, accordingly, elected as the directors of the
Company to hold office until the Annual Meeting of Stockholders in
1996 and until their successors shall have been elected and qualified:
<TABLE>
<CAPTION>
Number of
Name of Candidate Votes Withheld
- - -------------------------- ---------- ---------
<S> <C> <C>
E. Chambers 18,892,465 19,715
A. J. Clegg 18,897,580 14,600
J. Frock 18,893,580 18,600
P. Havens 18,892,665 19,515
M. Jones 18,843,315 68,865
J. Katz 18,890,665 21,515
J. Martinson 18,884,665 27,515
E. Monaco 18,895,965 16,215
</TABLE>
Total shares eligible to vote on record date:
15,445,063 Common Stock and 4,984,000 Preferred Stock
2. The selection of Coopers & Lybrand as the Company's independent
auditors for fiscal 1995 was approved by the affirmative vote of the
majority of shares present in person or represented by proxy at the
meeting and entitled to vote thereon, the votes cast on this proposal
being as follows:
19
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Stock
----------------------
<S> <C>
Voted For 18,851,965
Voted Against 39,600
Abstaining 21,215
----------
Total shares eligible to vote
on the Record Date 18,912,780
</TABLE>
3. One-for-Four Reverse Stock Split
-- --------------------------------
The one-for-four reverse stock split was approved by the affirmative
vote of the majority of the shares entitled to vote thereon, the votes
cast on this proposal being as follows:
<TABLE>
<CAPTION>
Shares of Common
Stock
---------------------
<S> <C>
Voted For 12,118,794
Voted Against 446,117
Abstaining 203,450
Broker Non-Votes 6,512,683
----------
Total votes 18,912,780
</TABLE>
4. The adoption of the Stock Incentive Plan was approved, the affirmative
vote of the majority of the shares entitled to vote thereon, the votes
cast on this proposal being as follows:
<TABLE>
<CAPTION>
<S> <C>
Votes For 11,783,002
Voted Against 520,475
Abstaining 96,620
Broker Non-Votes 6,143,819
----------
Total votes 18,912,780
</TABLE>
20
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
- - ------------------------------------------
(a) Exhibits.
Exhibit Number
(Referenced to
Item 601 of
Regulation S-K) Description of Exhibit
- - --------------- ----------------------
3.1 Registrant's Certificate of
Incorporation, as amended and restated
(including the Certificate of
Amendment of Certificate of
Incorporation of Registrant filed
September 28, 1995 effecting a
one-for-four reverse stock split)
3.2 Registrant's Certificate of
Designation, Preferences and Rights
of Series A Convertible Preferred
Stock.
3.3 Registrant's Certificate of
Designation, Preferences and Rights
of Series C Convertible Preferred
Stock.
3.4 Registrant's Certificate of
Designation, Preferences and Rights
of Series D Convertible Preferred
Stock.
3.5 Registrant's Amended and Restated
By-laws
4.1 Investment Agreement dated as of August 30,
1995 by and among the Registrant, certain
subsidiaries of the Registrant and Allied
Capital Corporation and its affiliated
funds.
4.2 Senior Subordinated Debenture dated as of
August 30, 1995 in the principal amount
of $450,000 payable to the order of Allied
Capital Corporation.
4.3 Common Stock Purchase Warrant dated
August 30, 1995 entitling Allied Capital
Corporation to purchase up to 23,178 shares
(subject to adjustment) of the Common Stock
of the Registrant.
4.4 Registration Rights Agreement dated
August 30, 1995 by and among the Registrant
21
<PAGE>
and Allied Capital and its affiliated
funds.
4.5 Loan and Security Agreement dated
August 30, 1995 among the Registrant,
certain subsidiaries of the Registrant
and First Valley Bank.
4.6 Term Note dated August 30, 1995 in
the principal sum of $7,500,000 payable
to the order of First Valley Bank.
4.7 Line Note dated August 30, 1995 in the
principal sum of $7,500,000 payable to
the order of First Valley Bank.
11 Statement Re-Computation of Per Share
Earnings.
Exhibit 4.2 is one in a series of four Senior Subordinated Debentures
issued pursuant to the Investment Agreement dated as of August 30, 1995 that are
identical except for the original holder thereof and the principal amount
thereof, which are as follows:
Holder Principal Amount
------ ----------------
<TABLE>
<CAPTION>
<S> <C>
Allied Capital Corporation II $2,775,000
Allied Investment Corporation $1,800,000
Allied Investment Corporation II $ 975,000
</TABLE>
Exhibit 4.3 is one in a series of four Common Stock Purchase Warrants
issued pursuant to the Investment Agreement dated as of August 30, 1995 that are
identical except for the Warrant No., the original holder thereof and the number
of shares of Common Stock of the Registrant for which the Warrant may be
exercised, which are as follows:
<TABLE>
<CAPTION>
Number of Shares
of Common Stock
(subject
Warrant No. Holder to adjustment)
- - ----------- ------- -----------------
<S> <C> <C>
2 Allied Capital Corporation II 142,932
3 Allied Investment Corporation 92,713
4 Allied Investment Corporation II 50,220
</TABLE>
Certain schedules (and similar attachments) to Exhibits 4.1 and 4.5
have not been filed. The Registrant will furnish supplementally a copy of any
omitted schedules or attachments to the Commission upon request.
(b) Reports on Form 8-K.
22
<PAGE>
On September 11, 1995, the Company filed a Current Report on Form 8-K to report
(i) the acquisition of nine child care centers from Corydon Day Care Center,
Inc. on August 25, 1995, (ii) the acquisition of Educo, Inc. on September 1,
1995 and (iii) the recapitalization of the Company effected on August 30, 1995
described under Item 2 of Part 1. Financial statements relating thereto will be
filed by an amendment to such Form 8-K.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
NOBEL EDUCATION DYNAMICS, INC.
Dated: November __, 1995 By:/s/ A.J. Clegg
_______________________
A.J. Clegg
Chairman
Dated: November __, 1995 By:/s/ Yvonne DeAngelo
_______________________
Yvonne DeAngelo
Controller
24
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number
(Referenced to
Item 601 of
Regulation S-K) Description of Exhibit
- - --------------- ----------------------
<S> <C> <C>
3.1 Registrant's Certificate of
Incorporation, as amended and restated
(including the Certificate of
Amendment of Certificate of
Incorporation of Registrant filed
September 28, 1995 effecting a
one-for-four reverse stock split)
3.2 Registrant's Certificate of Incorporated by
Designation, Preferences and Rights reference from
of Series A Convertible Preferred the Registrant's
Stock. Current Report
on Form 8-K as filed
with the Commission
on June 14, 1993
3.3 Registrant's Certificate of Incorporated by
Designation, Preferences and Rights reference from
of Series C Convertible Preferred the Registrant's
Stock. Quarterly Report on
Form 10-Q for the fiscal
quarter ended
June 30, 1994.
3.4 Registrant's Certificate of Incorporated by
Designation, Preferences and Rights reference from
of Series D Convertible Preferred the Registrant's
Stock. Current Report on
on Form 8-K as filed
with the Commission
on September 11, 1995
3.5 Registrant's Amended and Restated Incorporated by
By-laws reference from
Registrant's Annual
Report on Form 10-K
for the year ended
December 31, 1990.
4.1 Investment Agreement dated as of August 30, Incorporated by
1995 by and among the Registrant, certain reference from
subsidiaries of the Registrant and Allied the Registrant's
Capital Corporation and its affiliated Current Report on
funds. Form 8-K as filed
with the Commission
on September 11, 1995
4.2 Senior Subordinated Debenture dated as of Incorporated by
August 30, 1995 in the principal amount reference from
of $450,000 payable to the order of Allied the Registrant's
Capital Corporation Current Report on
Form 8-K as filed
with the Commission
on September 11, 1995
4.3 Common Stock Purchase Warrant dated Incorporated by
August 30, 1995 entitling Allied Capital reference from
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Corporation to purchase up to 23,178 shares the Registrant's
(subject to adjustment) of the Common Stock Current Report on
of the Registrant. Form 8-K as filed
with the Commission
on September 11, 1995
4.4 Registration Rights Agreement dated Incorporated by
August 30, 1995 by and among the Registrant reference from
and Allied Capital and its affiliated the Registrant's
funds. Current Report on
Form 8-K as filed
with the Commission
on September 11, 1995
4.5 Loan and Security Agreement dated Incorporated by
August 30, 1995 among the Registrant, reference from the
certain subsidiaries of the Registrant Registrant's Current
and First Valley Bank. Report on Form 8-K as
filed with the
Commission on
September 11, 1995
4.6 Term Note dated August 30, 1995 in Incorporated by
the principal sum of $7,500,000 payable reference from the
to the order of First Valley Bank. Registrant's Current
Report on Form 8-K as
filed with the
Commission on
September 11, 1995
4.7 Line Note dated August 30, 1995 in the Incorporated by
principal sum of $7,500,000 payable to reference from the
the order of First Valley Bank. Registrant's Current
Report on Form 8-K as
filed with the
Commission on
September 11, 1995
11 Statement Re-Computation of Per Share
Earnings.
</TABLE>
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NOBEL EDUCATION DYNAMICS, INC.
FIRST: The name of the Corporation is Nobel Education
Dynamics, Inc.
SECOND: The address of the Corporation's registered office in the
State of Delaware is the Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801. The name of the Corporation's registered agent at
such address is Corporation Trust Company.
THIRD: The purpose for which the Corporation is organized is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: The amount of total authorized capital stock of the
Corporation is Sixty Million (60,000,000) shares, divided into Fifty Million
(50,000,000) shares of Common Stock, par value $.001 per share, and Ten Million
(10,000,000) shares of undesignated Preferred Stock, par value $.001 per share.
No stockholder shall have any preemptive right to subscribe to or
purchase any issue of stock or other securities of the Corporation, or any
treasury stock or other treasury securities.
The powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights are as follows:
PART 1
UNDESIGNATED PREFERRED STOCK
1. Issuance in Series. Shares of Preferred Stock may be issued in
-------------------
one or more series at such time or times, and for such consideration or
considerations as the Board of Directors may determine. All shares of any one
series of any such Preferred Stock will be identical with each other in all
respects, except that shares of one series issued at different times may differ
as to dates from which dividends thereon may be cumulative. All series will
rank equally and be identical in all respects, except as permitted by the
following provisions of Section 2.
2. Authority of the Board with Respect to Series. The Board of
----------------------------------------------
Directors is authorized at any time and from time to time, subject to
limitations prescribed by law and the provisions of this Article FOURTH, to
provide for the issuance of shares of Preferred Stock in one or more series and
by filing a certificate pursuant to the applicable law of the State of Delaware
to
<PAGE>
establish the number of shares to be included in each such series, and to fix
the powers, designations, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions thereof as
are stated and expressed in the resolution or resolutions providing for the
issue thereof adopted by the Board of Directors, and as are not stated and
expressed in the Certificate of Incorporation including, but not limited to,
determination of any of the following:
(a) the distinctive serial designation and the number of shares
constituting a series;
(b) the dividend rate or rates of the shares of a series, whether
dividends are cumulative and, if so, from which date, the payment date or dates
for dividends, the relative rights of priority, if any, and the participating or
other special rights, if any, with respect to dividends;
(c) the voting powers, full or limited, if any, of the shares of the
series;
(d) whether the shares of the series are redeemable and, if so, the
terms and conditions on which the shares may be redeemed, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
(e) the amount or amounts payable upon the shares of a series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation prior to any payment or distribution of the assets of the
Corporation to any other class or series of the same or any other class or
classes of stock of the Corporation ranking junior to that series of Preferred
Stock;
(f) whether the shares of a series are entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of shares
of that series and, if so entitled, the amount of the fund and the manner of its
application, including the price or prices at which the shares may be redeemed
or purchased through the application of the fund;
(g) whether the shares of a series are convertible into, or
exchangeable for, shares of any other class or series of the same or any other
class or classes of stock of the Corporation and, if so convertible or
exchangeable, the conversion price or prices, or the rates of exchange, and the
adjustments thereof, if any, at which the conversion or exchange may be made,
and any other terms and conditions of the conversion or exchange; and
(h) any other preferences, privileges and powers, and relative
participating, optional or other special rights, and
<PAGE>
qualifications, limitations or restrictions of a series, as the Board of
Directors may deem advisable and as are not inconsistent with the provisions of
this Certificate of Incorporation.
3. Dividends. Before any dividends on any class or classes of stock
----------
of the Corporation ranking junior to the Preferred Stock (other than dividends
payable in shares of any class or classes of stock of the Corporation ranking
junior to the Preferred Stock) may be declared or paid or set apart for payment,
the holders of shares of Preferred Stock of each series are entitled to such
cash dividends, but only when and as declared by the Board of Directors out of
funds legally available therefor, as they may be entitled to in accordance with
the resolution or resolutions adopted by the Board of Directors providing for
the issue of the series, payable on such dates in each year as may be fixed in
the resolution or resolutions. The term "class or classes of stock of the
Corporation ranking junior to the Preferred Stock" means the Common Stock and
any other class or classes of stock of the Corporation hereafter authorized
which rank junior to the Preferred Stock as to dividends or upon liquidation,
dissolution or winding up of the Corporation.
4. Reacquired Shares. Shares of Preferred Stock which have been
------------------
issued and reacquired in any manner by the Corporation (excluding, until the
Corporation elects to retire them, shares which are held as treasury shares but
including shares redeemed, shares purchased and retired and shares which gave
been converted into shares of Common Stock) will have the status of authorized
and unissued shares of Preferred Stock and may be reissued.
5. Voting Rights. Unless and except to the extent otherwise required
--------------
by law or provided in the resolution or resolutions of the Board of Directors
creating any series of Preferred Stock pursuant to this Part I, the holders of
Preferred Stock shall have no voting power with respect to any matter
whatsoever.
PART II
COMMON STOCK
1. Junior to Preferred Stock. The Common Stock shall rank junior to
--------------------------
the Preferred Stock with respect to payment of dividends and distribution on
liquidation, dissolution or winding up of the Corporation.
2. Voting Rights. Except as expressly provided by law, or as
--------------
otherwise provided in Part I above, all voting rights shall be vested in the
holders of the Common Stock. At each meeting of stockholders of the
Corporation, each holder of Common Stock shall be entitled to one vote for each
such share on each matter to come before the meeting, except as otherwise
provided in this Certificate of Incorporation or by law.
<PAGE>
3. Dividends. After all accumulated and unpaid dividends upon all
----------
shares of Preferred Stock for all previous dividend periods shall have been paid
and full dividends on all shares of Preferred Stock for the then current
dividend period shall have been declared and a sum sufficient for the payment
thereof set apart therefor, and after or concurrently with the setting aside of
any and all amounts then or theretofore required to be set aside for any sinking
fund
obligation or obligation of a similar nature in respect of any class or series
of Preferred Stock or any other class or series of stock having preferential
dividend rights, then and not otherwise, dividends may be declared upon and paid
to the holders of the Common Stock to the exclusion of the holders of the
Preferred Stock.
4. Rights Upon Liquidation. In the event of voluntary or involuntary
------------------------
liquidation or dissolution or winding up of the Corporation, after payment in
full of amounts, if any, required to be paid to the holders of shares of stock
having preferential liquidation rights, including without limitation the holders
of the Preferred Stock, the holders of the Common Stock shall be entitled, to
the exclusion of the holders of shares of stock having preferential liquidation
rights, including without limitation the holders of the Preferred Stock, to
share ratably in all remaining assets of the Corporation.
FIFTH: In furtherance and not in limitation of the general powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to make, alter or repeal the By-Laws of the Corporation,
except as specifically stated therein.
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of $291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of $279 of Title 8 of the Delaware Code, order
a meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said Court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the Court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders
<PAGE>
or class of stockholders of this Corporation, as the case may be, and also on
this Corporation.
SEVENTH: The term of existence of the Corporation shall be perpetual.
EIGHTH: Any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares entitled to
vote at an election of directors.
NINTH: The election of directors shall be conducted in the manner
prescribed in the By-Laws of the Corporation and need not be by ballot.
TENTH: A director of the Corporation shall have no personal liability
to the Corporation or to its stockholders for monetary damages for breach of
fiduciary duty as a director except to the extent that Section 102 (b) (7) (or
any successor provision) of the Delaware General Corporation Law, as amended
from time to time, expressly provides that the liability of a director may not
be eliminated or limited.
<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>
9 months ended 9 months ended
September 30, 1995 September 30, 1994
---------------------------- ----------------------------
<S> <C> <C>
Primary $3,238,408 - $145,288 = .69 $1,745,472 - $149,058 = .40
--------------------------- ---------------------------
4,485,939 4,013,822
Fully Diluted $ 3,238,408 = .54 $ 1,745,472 = .36
--------------------------- ---------------------------
5,984,299 4,850,514
3 months ended 3 months ended
September 30, 1995 September 30, 1994
---------------------------- ----------------------------
Primary $ 108,323 - $45,916 = .01 $ 11,815 - $49,686 = .00
--------------------------- ---------------------------
4,596,873 4,013,822
Fully Diluted $ 108,323 = .02 $ 11,815 = .00
--------------------------- ---------------------------
$ 6,148,980 $ 5,055,788
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> SEP-30-1995 SEP-30-1995
<CASH> 3,711 853
<SECURITIES> 0 0
<RECEIVABLES> 697 614
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,411 2,320
<PP&E> 21,402 13,399
<DEPRECIATION> (4,977) (4,217)
<TOTAL-ASSETS> 47,137 23,233
<CURRENT-LIABILITIES> 10,076 6,516
<BONDS> 0 0
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 47,137 23,234
<SALES> 30,765 24,723
<TOTAL-REVENUES> 30,765 24,723
<CGS> 0 0
<TOTAL-COSTS> 24,918 20,288
<OTHER-EXPENSES> (92) 46
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,214 946
<INCOME-PRETAX> 1,685 1,301
<INCOME-TAX> (1,615) (456)
<INCOME-CONTINUING> 3,300 1,745
<DISCONTINUED> 0 0
<EXTRAORDINARY> 62 0
<CHANGES> 0 0
<NET-INCOME> 3,238 1,745
<EPS-PRIMARY> 0.69 0.40
<EPS-DILUTED> 0.54 0.36
</TABLE>
