<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: March 31, 1996
--------------
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 Identification No.)
incorporation or organization)
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 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: 5,697,390 shares of Common
Stock outstanding at April 29, 1996.
<PAGE>
INDEX TO FORM 10-Q
Nobel Education Dynamics, Inc. and Subsidiaries
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements
Consolidated Balance Sheets,
March 31, 1996 (unaudited) and
December 31, 1995................................... 1
Consolidated Statements of Income for the
three months ended March 31, 1996 (unaudited)
and 1995 (unaudited)................................ 2
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 (unaudited)
and 1995 (unaudited)................................ 3
Notes to Consolidated Interim Financial Statements
.................................................... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 7
PART II. OTHER INFORMATION
Not Applicable
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS March 31, 1996 December 31, 1995
- ------ --------------- ------------------
<S> <C> <C>
Cash and cash equivalents $12,810,918 $ 3,714,560
Accounts receivable, less allowance for doubtful
accounts of $103,009 in 1996 and 1995 814,491 727,097
Other accounts receivable - 573,237
Prepaid rent 643,663 609,401
Prepaid insurance and other 684,145 613,784
Deferred taxes 873,962 873,962
----------- -----------
Total Current Assets 15,827,179 7,112,041
----------- -----------
Property and equipment, net 16,342,122 15,864,305
Property and equipment held for sale (Southeast), net 1,277,281 1,307,497
Goodwill, net 22,107,996 17,273,626
Deposits and other assets 2,698,287 2,262,871
Deferred taxes 947,570 1,117,000
----------- -----------
Total Assets $59,200,435 $44,937,340
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
Current portion of long-term debt $ 1,495,035 $ 1,421,559
Accounts payable and other current liabilities 5,180,855 6,521,524
----------- -----------
Total Current Liabilities 6,675,890 7,943,083
----------- -----------
Long Term Debt 13,267,042 11,715,789
Deferred gain on sale/leaseback 53,314 55,312
Minority interest in consolidated subsidiary 247,746 223,881
Long-term subordinated debt 8,850,480 8,878,605
----------- -----------
Total Liabilities 29,094,472 28,816,670
----------- -----------
Stockholders' Equity:
Preferred stock, $.001 par value; 10,000,000 shares
authorized, issued and outstanding 4,845,150 in
1996 and 5,505,150 in 1995 4,845 5,505
Common stock, $.001 par value, 50,000,000 shares
authorized, issued and outstanding 5,697,390
shares in 1996 and 4,095,094 in 1995 5,697 4,095
Additional paid-in capital 36,975,099 21,818,344
Common Stock issuable, 312,500 shares - 2,000,000
Accumulated deficit (6,879,678) (7,707,274)
----------- -----------
Total Stockholders' Equity 30,105,963 16,120,670
----------- -----------
Total Liabilities and Shareholders' Equity $59,200,435 $44,937,340
=========== ===========
</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 financial
statements.
1
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
for the three months ended March 31, 1996 and 1995
--------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Revenues $14,568,269 $9,683,452
Operating Expenses 11,589,831 7,577,535
----------- ----------
School operating profit 2,978,438 2,105,917
General and administrative expenses 1,031,197 785,394
----------- ----------
Operating Profit 1,947,241 1,320,523
Interest Expense 631,241 286,141
Other (Income) Expense (116,605) 10,323
Minority interest in earnings
of consolidated subsidiary 23,865 20,694
----------- ----------
Income before income taxes 1,408,740 1,003,365
----------- ----------
Income tax expense 542,314 251,000
Net income $ 866,426 $ 752,365
=========== ==========
Preferred stock dividends $ 38,826 $ 49,686
----------- ----------
Net income available to common shareholders $ 827,600 $ 702,679
=========== ==========
Primary earning per share $ 0.13 $ 0.18
=========== ==========
Fully diluted earnings per share $ 0.13 $ 0.14
=========== ==========
</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 financial
statements.
2
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1996 and 1995
--------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 866,426 $ 752,365
Adjustment to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 520,047 293,004
Provision for losses on accounts receivable 8,255 14,465
Minority interest income 23,865 20,694
Amortization of deferred gain (1,998) (1,998)
Depreciation of closed centers 20,360 25,421
Increase in deferred taxes (169,430) -
Changes in Assets and Liabilities Net of Acquisitions:
Increase in accounts and other receivables (81,649) (6,137)
Increase in prepaid assets (104,623) (248,253)
Increase in other assets (337,898) (182,268)
Decrease in accounts payable and other current liabilities (799,237) (79,846)
Decrease in reserve for restructuring - 3,100
-------------- --------------
Net Cash (Used In) Provided by Operating Activities (55,882) 590,547
-------------- --------------
Cash Flows from Investing Activities:
Capital expenditures (717,784) (340,781)
Payments for acquisitions (3,252,636) (568,250)
Cash proceeds from notes receivable from acquisition 373,237 -
-------------- --------------
Net Cash (Used In) Investing Activities (3,597,183) (909,031)
Cash Flows from Financial Activities:
Repayment of long-term debt (291,522) (199,340)
Repayment of capital lease obligations (44,412) (17,079)
Payments of dividends on preferred stock (38,826) (49,689)
Proceeds from exercise of common stock options - 112,500
Cash deposited in escrow - (500,000)
Net proceeds from issuance of common stock 11,657,689 1,000,000
Proceeds from construction loan 266,494 -
Proceeds from borrowing on line of credit 1,200,000 -
-------------- --------------
Net Cash Used in Financing Activities 12,749,423 346,392
Net increase in cash and cash equivalents 9,096,358 27,908
-------------- --------------
Cash and cash equivalents at the beginning of year 3,714,560 853,886
Cash and cash equivalents at end of the period $ 12,810,918 $ 881,794
============== ==============
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrants' Annual Report form 10-K are an integral part of these consolidated
financial statements.
3
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
Notes to Consolidated Interim Financial Statements
for the three months ended March 31, 1996 and 1995
(unaudited)
Note 1 - Basis of Presentation
- ------------------------------
The consolidated 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 the
generally accepted accounting principals 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, 1995.
Due to the inherent seasonal nature of the education and child care businesses,
annualization of amounts in these interim financial statements may not be
indicative of the actual operating results for the full year.
Note 2 - Earnings Per Share
- ---------------------------
The earnings per share is based upon the weighted average number of common and
common share equivalents outstanding as follows:
<TABLE>
<CAPTION>
3 months ended 3 months ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Primary 6,513,681 3,937,322
Fully Diluted 6,890,389 5,351,886
</TABLE>
Note 3 - Business Acquisitions
- ------------------------------
Pursuant to an acquisition agreement dated February 2, 1996, the Company
acquired all the assets of four Virginia corporations, each of which operates a
learning center in Virginia. The purchase price consisted of (i) $3,200,000 in
cash, and (ii) a five-year note in the principal amount of $336,680 bearing
interest at the rate of 7% per annum. The agreement will also require the
Company to pay an earn out, based on the results of the four centers for the
twelve month period following the closing date. The Company also entered into a
five year non-compete agreement that requires monthly payments of $1,667 through
February 2001.
4
<PAGE>
Also on February 2, 1996, the Company acquired the assets of a fifth Virginia
learning center for 96,192 shares of the Company's common stock (valued at
$1,500,000 for financial statement purposes). In addition, the Company will be
required to pay a formula based earn out should profits exceed an agreed upon
goal. As a result of the combined transactions, the Company recorded goodwill in
the amount of approximately $4,935,000, which will be amortized over forty
years.
UNAUDITED PROFORMA INFORMATION:
- -------------------------------
The operating results of the Virginia acquisition is included in the company's
consolidated results of operations from the date of acquisition. The following
pro forma financial information assumes the acquisition occurred at the
beginning of each year. These results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisitions been made at the beginning of 1996, or of the results which
may occur in the future.
<TABLE>
<CAPTION>
(Unaudited)
3 months ended 3 months ended
March 31, 1995 March 31, 1996
--------------- --------------
<S> <C> <C>
Revenues $14,779,687 $10,350,459
Net Income 941,079 918,740
Earnings Per Share
Primary $ 0.14 $ 0.21
Fully Diluted $ 0.14 $ 0.17
</TABLE>
Note 4 - Long Term Debt
- -----------------------
On April 6, 1996, the Company amended its existing loan and security agreements
with its principal lender. As a result of this new agreement, the Company
entered into a second term loan in the principal amount of $6 million, and
immediately used the proceeds to retire an existing $6 million subordinated
debenture that bore interest at 14%. The second term loan bears interest at 8%
and requires quarterly principal payments in the amount of $200,000 through
September 1, 1996. Thereafter, quarterly payments of $280,000 are due through
September 1, 1999, at which time the quarterly payments increase to $350,000
through June 1, 2000 with the remaining balance due on September 1, 2000.
Note 5 - Commitments and Contingencies
- --------------------------------------
The Company is engaged in other legal actions arising in the ordinary course of
its business. The Company believes that the ultimate outcome of all such matters
above will not have a material adverse effect on the Company's consolidated
financial position. The significance of these matters on the Company's future
operating results and cash flows depends on the level of future
5
<PAGE>
results of operations and cash flows as well as on the timing and amounts, if
any, of the ultimate outcome.
The Company carries fire and other casualty insurance on its centers and
liability insurance in amounts which management believes is adequate for its
operations. As is the case with other entities in the education and preschool
industry, the Company cannot effectively insure itself against certain risks
inherent in its operations. Some forms of child abuse have sublimits per claim
in the general liability coverage.
6
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Three months ended March 31, 1996 compared to 1995
- --------------------------------------------------
Revenues increased 50.4% for the three month period ended March 31, 1996 as
compared to the comparable period in 1995. The increase was due primarily to
several acquisitions which occurred subsequent to the first quarter of 1995, the
opening of seven new schools and increases in both tuition and enrollment in
schools open in corresponding time periods during both years.
School operating profit increased 41.4% to $2,978,438 for the three month period
ended March 31, 1996 as compared to the same period ended March 31, 1995. This
dollar increase was primarily attributable to the acquisitions completed
subsequent to March 31, 1995 coupled with an increase in operating profits at
the Company's existing schools. As a percentage of revenue, school operating
profit margins decreased 1.31% to 20.44% for the three month period ended March
31, 1996 as compared to the comparable period in 1995. The margin decrease was
due to lower margins in the newly acquired schools. The Company recognizes that
a period of time is required to bring its newly acquired schools to the
operating efficiencies of its existing centers.
General and administrative expenses increased by $245,803 to $1,031,197 for the
three month period ended March 31, 1996 as compared to the same period ended
March 31, 1995. However, as a percentage of revenues, general and administrative
expenses decreased from 8.1% in 1995 to 7.1% in 1996. The dollar increase was
primarily attributable to the necessary increases in the Company's
infrastructure to support its revenue growth. However, the reduction of general
and administrative expenses as a percentage of sales was due to the economies of
scale as the Company continues to grow its revenue base.
The increase in interest expense of $345,100 during the quarter ended March 31,
1996, as compared to the comparable quarter in 1995, was primarily attributable
to a $6 million subordinated debt instrument, bearing interest at 14%, which the
Company entered into during August of 1995, and the mortgage interest expense
incurred on certain properties acquired through an acquisition consummated
during May of 1995. Other income increased by approximately $127,000 and is
attributable to the interest income earned on the $11.7 million net proceeds
generated from the private placement of one million shares of the Company's
common stock and the recoveries of certain amounts due the Company previously
written off.
Income before income taxes increased 40.4% to $1,408,740 for the three month
period ended March 31, 1996 as compared to the same period ended March 31, 1995.
The increase is primarily attributable to the additional profits generated by
both the newly acquired schools and those internally developed, and also, to a
lesser degree, the economies of scale the Company benefits from as it spreads
its general and administrative expenses over a broader revenue base.
7
<PAGE>
Income tax expense increased 116% to $542,314 for the three month period ended
March 31, 1996 as compared to the same period ended March 31, 1995. The dollar
increase is primarily attributable to the Company's increase in income before
income taxes coupled with an increase in the Company's effective tax rate from
25% in 1995 to 38.5% in 1996. The effective tax rate increase is attributable to
the reversal of the valuation allowance in 1995.
Net income increased 15.2% to $866,426 for the three month period ended March
31, 1996 as compared to the same period ended March 31, 1995. The net increase
is attributable to the additional profits from new schools and, to a lesser
degree, the economies of scale, which was then partially offset by a greater
effective tax rate incurred during the first quarter of 1996.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company has historically funded its growth and cash needs through its
existing bank borrowings, cash flow from operations and periodically from the
proceeds of various equity private placements. To further fund its growth
strategy of both acquisitions and the development of new schools, the Company
raised net proceeds of $11.7 million through the private placement of one
million shares of the Company's common stock which was completed on March 5,
1996. In addition to utilizing these proceeds for acquisitions and new school
development, the Company may also utilize some of these proceeds to pay down
existing debt or for general working capital purposes.
The Company's existing loan and security agreements consist of a $7,500,000 term
loan, of which $7,100,000 is presently outstanding, and a $7,500,000 line of
credit. The term loan bears interest at 8-1/2% and principal payments are due
quarterly, $200,000 each quarter from December 1, 1995 through September 1,
1996. Thereafter, quarterly payments of $250,000 are due 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 bears
interest at a LIBOR based performance rate and matures September 1, 1998. As of
March 31, 1996, $6.3 million was available to the Company under this line of
credit.
On April 6, 1996, the Company amended its existing loan and security agreements
with its principal lender. As a result of this amendment, the Company entered
into a second term loan in the principal amount of $6 million, and immediately
used the proceeds to retire an existing $6 million subordinated debenture that
bore interest at 14%. The second term loan bore interest at 8% and requires
quarterly principal payments of $200,000 through September 1, 1996. Thereafter,
quarterly payments of $280,000 are due through September 1, 1999, at which time
the quarterly payments increase to $350,000 through June 1, 2000 with the
remaining balance due on September 1, 2000.
The Company anticipates that the existing principal credit facilities, cash
generated from operations and the proceeds from the $11.7 private placement will
be sufficient to satisfy its working capital needs and to fund expansion for the
foreseeable future.
Net cash used in operations was $55,882 during the first three months of 1996,
compared to cash provided by operations of $590,547 during the same period in
1995. The net cash used in operations in the 1996 period reflected the Company's
net income for the period reduced by the decrease in accounts payable and other
current liabilities. At March 31, 1996, the Company had working capital of
approximately $9,152,000 as compared to a deficit of $831,000 as of March 31,
1995. The change in working capital is primarily attributable to the stock
private placement described above.
9
<PAGE>
Part II
-------
Other Information
Not applicable.
10
<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: May 3, 1996
By: /s/ John Frock
----------------------------------------
John Frock
Executive Vice President
Dated: May 3, 1996
By: /s/ Yvonne DeAngelo
----------------------------------------
Yvonne DeAngelo
V.P. Finance and Administration
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAY-31-1996 MAR-31-1995
<CASH> 12,811 3,715
<SECURITIES> 0 0
<RECEIVABLES> 815 727
<ALLOWANCES> (103) (103)
<INVENTORY> 0 0
<CURRENT-ASSETS> 15,827 7,112
<PP&E> 22,068 21,220
<DEPRECIATION> (5,725) (5,355)
<TOTAL-ASSETS> 59,200 44,937
<CURRENT-LIABILITIES> 6,676 7,943
<BONDS> 0 0
0 0
6 4
<COMMON> 5 55
<OTHER-SE> 30,094 16,110
<TOTAL-LIABILITY-AND-EQUITY> 59,200 44,937
<SALES> 14,568 9,683
<TOTAL-REVENUES> 14,568 9,683
<CGS> 11,590 7,577
<TOTAL-COSTS> 12,620 8,362
<OTHER-EXPENSES> (117) 10
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 631 286
<INCOME-PRETAX> 1,409 1,003
<INCOME-TAX> 542 251
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 866 752
<EPS-PRIMARY> 0.13 0.18
<EPS-DILUTED> 0.13 0.14
</TABLE>
