<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: December 31, 1998
Commission File Number 1-1003
NOBEL LEARNING COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2465204
(State or other jurisdiction (IRS Employer
of 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 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: 5,957,565 shares of Common
Stock outstanding at February 12, 1999.
<PAGE>
INDEX TO FORM 10-Q
Nobel Learning Communities, Inc.
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheets,
December 31, 1998 (unaudited) and June 30, 1998............................................. 2
Consolidated Statements of Income for the
six months ended December 31, 1998 (unaudited)
and 1997 (unaudited)........................................................................ 3
Consolidated Statements of Income for the
three months ended December 31, 1998 (unaudited)
and 1997 (unaudited)........................................................................ 4
Consolidated Statements of Cash Flows for the
six months ended December 31, 1998 (unaudited)
and 1997 (unaudited)........................................................................ 5
Notes to Consolidated Interim Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................... 9
</TABLE>
PART II. OTHER INFORMATION
2
<PAGE>
PART I
Financial Information
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995
The Company's fiscal 1999 outlook and all other statements in this report other
than historical facts are forward-looking statements that involve risks and
uncertainties and are subject to change at any time. The Company derives its
forward-looking statements from its operating budgets and forecasts, which are
based upon detailed assumptions about many important factors such as market
demand, market conditions and competitive activities. While the Company
believes that its assumptions are reasonable, it cautions that there are
inherent difficulties in predicting the impact of certain factors, especially
those affecting the acceptance of the Company's newly developed and converted
schools and performance of recently acquired businesses, which could cause
actual results to differ materially from predicted results.
1
<PAGE>
NOBEL LEARNING COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1998 1998
- ------ ------- -------
<S> <C> <C>
Cash and cash equivalents $ 3,364 $ 408
Accounts receivable, less allowance for doubtful accounts of $147 1,234 1,130
Prepaid rent - 1,276
Prepaid insurance and other 270 738
-------- -------
Total Current Assets 4,868 3,552
-------- -------
Property and equipment, at cost 33,706 31,601
Accumulated depreciation (10,790) (9,226)
-------- -------
22,916 22,375
Property and equipment held for sale 1,277 1,371
Cost in excess of net assets acquired 45,727 41,753
Deposits and other assets 3,979 3,541
Deferred taxes 947 1,031
-------- -------
Total Assets $ 79,714 $73,623
======== =======
LIABILITIES AND STOCKHOLDERS EQUITY
- -----------------------------------
Current portion of long-term obligations $ 2,191 $ 2,031
Accounts payable and other current liabilities 9,089 8,147
Unearned income 4,714 3,595
-------- -------
Total Current Liabilities $ 15,994 $13,773
-------- -------
Long-term obligations 14,970 20,311
Long-term subordinated debt 14,334 6,166
Capital lease obligations 117 162
Deferred gain on sale/leaseback 31 35
Minority interest in consolidated subsidiary 476 440
-------- -------
Total Liabilities $ 45,922 $40,887
-------- -------
Stockholders Equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized, issued
and outstanding 4,593,542 in December 31, and June 30, 1998
$5,530 aggregate liquidation preference at December 31, 1998 and June
30, 1998 5 5
Common stock, $.001 par value, 20,000,000 shares authorized, issued and
outstanding 6,121,365 in both December 31, and June 30, 1998 6 6
Treasury Stock, cost; 36,810 shares (375) (375)
Additional paid-in capital 39,239 38,340
Accumulated deficit (5,083) (5,240)
-------- -------
Total Stockholders Equity 33,792 32,736
-------- -------
Total Liabilities and Stockholders Equity $ 79,714 $73,623
======== =======
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these financial
statements.
2
<PAGE>
Nobel Learning Communities, Inc. and subsidiaries
consolidated statements of income
for the six months ended December 31, 1998 and 1997
---------------------------------------------------
(Dollars in thousands except per share information)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues $51,653 $41,316
Operating expenses 46,030 36,979
------- -------
School operating profit 5,623 4,337
General and administrative expenses 3,595 3,156
Restructuring expense - 2,960
New school development costs 305 303
------- -------
Operating income (loss) 1,723 (2,082)
Interest expense 1,514 1,087
Other (income) expense (168) (48)
Minority interest in earnings of consolidated subsidiary 36 37
------- -------
Income (loss) before income taxes 341 (3,158)
Income tax expense (benefit) 143 (998)
------- -------
Net income (loss) before extraordinary item $ 198 $(2,160)
======= =======
Extraordinary item - 449
------- -------
Net income $ 198 $(2,609)
======= =======
Preferred stock dividends $ 42 $ 51
------- -------
Net income (loss) available to common stockholders $ 156 $(2,660)
======= =======
Basic earnings (loss) per share before extraordinary item $ 0.03 $ (0.37)
======= =======
Dilutive earnings (loss) per share before extraordinary item $ 0.03 $ (0.37)
======= =======
Basic earnings (loss) per share after extraordinary item $ 0.03 $ (0.44)
======= =======
Dilutive earnings (loss) per share after extraordinary item $ 0.03 $ (0.44)
======= =======
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these financial
statements.
3
<PAGE>
Nobel Learning Communities, Inc. and subsidiaries
consolidated statements of income
for the three months ended December 31, 1998 and 1997
-----------------------------------------------------
(Dollars in thousands except per share information)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues $27,742 $22,389
Operating expenses 24,438 19,637
------- -------
School operating profit 3,304 2,752
General and administrative expenses 1,848 1,680
Restructuring expense -- 2,960
New school development costs 73 185
------- -------
Operating income (loss) 1,383 (2,073)
Interest expense 750 590
Other (income) expense (44) (15)
Minority interest in earnings of consolidated subsidiary 16 18
------- -------
Income (loss) before income taxes 661 (2,666)
Income tax expense (benefit) 277 (792)
------- -------
Net income (loss) before extraordinary item $ 384 $(1,874)
======= =======
Extraordinary item - 449
------- -------
Net income $ 384 $(2,323)
======= =======
Preferred stock dividends $ 21 $ 26
------- -------
Net income (loss) available to common stockholders $ 363 $(2,349)
======= =======
Basic earnings (loss) per share before extraordinary item $ 0.06 $ (0.31)
======= =======
Dilutive earnings (loss) per share before extraordinary item $ 0.05 $ (0.31)
======= =======
Basic earnings (loss) per share after extraordinary item $ 0.06 $ (0.39)
======= =======
Dilutive earnings (loss) per share after extraordinary item $ 0.05 $ (0.39)
======= =======
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these financial
statements.
4
<PAGE>
NOBEL LEARNING COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31, 1998 and 1997
---------------------------------------------------
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
Net Cash Provided by Operating Activities $ 5,894 $ 2,993
Cash flows from Investing Activities:
Capital expenditures (3,418) (11,632)
Proceeds from the sale of real estate 1,134 4,006
Payment for acquisitions (3,394) (2,650)
-------- --------
Net Cash Used in Investing Activities: (5,678) (10,276)
Cash Flows from Financing Activities:
Repayment of long-term debt (11,801) (5,129)
Cash proceeds from line of credit 6,460 -
Repayment of subordinated debt (1,831) (539)
Repayment of capital lease obligation (46) (37)
Payments of dividends on preferred stock (42) (51)
Proceeds from subordinated debt 10,000 -
Proceeds from long term debt 0 13,861
Proceeds from the exercising of stock options 0 160
-------- --------
Net Cash Provided by Financing Activities: 2,740 8,265
-------- --------
Net increase in cash and cash equivalents: 2,956 982
Cash and cash equivalents at the beginning of period: 408 1,623
-------- --------
Cash and cash equivalents at end of the period: $ 3,364 $ 2,605
======== ========
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report Form 10-K are an integral part of these consolidated
financial statements.
5
<PAGE>
NOBEL LEARNING COMMUNITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements
for the six months ended December 31, 1998 and 1997
(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 are 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 June 30, 1998.
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.
The Company manages its business based on geographical regions within the United
States. Under SFAS 131, "Segment Reporting", the Company has aggregated these
regions based on management's belief that these regions have met the aggregation
criteria set forth in the standard.
Note 2 - Earnings Per Share
- ---------------------------
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share", which established new standards for computations for
earnings per share. The Company adopted the new standard effective December 31,
1997.
Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents during the period. In the calculation
of dilutive earnings per share, shares outstanding are adjusted to assume
conversion of the Company's non-interest bearing convertible preferred stock if
they are dilutive. In the calculation of basic earnings per share, weighted
average number of shares outstanding are used as the denominator. The Company
was in a loss position for the six months and three months ended December 31,
1997, resulting in the calculation of dilutive earnings per share being
antidilutive. Earnings per share are computed as follows.
6
<PAGE>
<TABLE>
<CAPTION>
For the Six Months For the Three Months
------------------ --------------------
December 31, 1998 December 31, 1997 December 31, 1998 December 31, 1997
----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C>
Basic (loss) earnings per share
Net income (loss) $ 198 $(2,609) $ 384 $(2,323)
Less preferred dividends 42 51 21 26
------ ------- ------ -------
Net income (loss) available for
common stock $ 156 $(2,660) $ 363 $(2,349)
Average common stock outstanding
6,121 6,053 6,121 6,053
Basic earnings (loss) per share $ 0.03 $ (0.44) $ 0.06 $ (0.39)
Dilutive earnings (loss) per share
- ---------------------------------
Net income (loss) available for
common stock and dilutive
securities $ 198 $(2,660) $ 384 $(2,349)
Average common stock outstanding 6,121 6,053 6,121 6,053
Additional common shares
resulting from dilutive securities
Options, warrants and
convertible securities 1,280 n/a 1,280 n/a
------ ------- ------ -------
Average common stock and
dilutive securities outstanding 7,401 6,053 7,401 6,053
Dilutive earnings per share $ 0.03 $ (0.44) $ 0.05 $ (0.39)
</TABLE>
Note 3 - ebt
- -------------
In July 1998, the Company issued a $10,000,000 senior subordinated note to
Allied Capital corporation. The senior subordinated note bears interest at
10.0% and matures in two installments of principal, $5,000,000 in 2004 and
$5,000,000 in 2005. Payments on the note are subordinate to the Company's
senior bank debt. In connection with the financing transaction, the Company
also issued to Allied Capital Corporation warrants to acquire 531,255 shares of
the Company's common stock at $8.5625 per share. The Company recorded a debt
discount and allocated $900,000 of the proceeds of the transaction to the value
of the warrants. This debt discount is being amortized to interest expense over
the term of the note.
7
<PAGE>
Note 4 - Formation of Subsidiary and Acquisition
- -----------------------------------------------
On August 17, 1998, the Company entered into a transaction with Developmental
Resource Center, Inc. (DRC), which is owned 80% by Nobel Learning Communities,
Inc. and 20% by Dr. Deborah Levy, a recognized leader in the field of special
education programs. The joint venture, Nobel Learning Solutions, LLC acquired
the assets of DRC. The three schools, located in Florida, specialize in full
day programs, summer camps, testing services and clinics for K-8th grade
students who have learning challenges such as dyslexia, attention deficit
disorder (ADD and ADHD) and other learning disabilities.
Note 5 - Commitments and Contingencies
- -------------------------------------
The Company is engaged in 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 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 are 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.
8
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
For the Six Months Ended December 31, 1998 vs. the Six Months Ended December 31,
- --------------------------------------------------------------------------------
1997
- ----
Revenues increased $10,337,000 or 25% to $51,653,000 for the six months ended
December 31, 1998 compared to the same period the prior year. The increase in
revenues is attributable to the increase in the number of schools after December
31, 1997. The Company acquired nine schools, five of which are elementary and
four of which are for the learning challenged. The Company also opened seven
new schools, three of which are preschools and four of which are elementary
schools. The Company operated 130 schools at December 31, 1997 and operated 140
schools at December 31, 1998.
The increase in revenues related to the nine acquired schools totaled
$4,028,000. The increase in revenues relating to the seven new schools totaled
$2,314,000. Same school revenues (schools opened for all of both periods)
increased $4,805,000, which is related to tuition and enrollment increases. The
closing of six schools offset these increases by $810,000.
School operating profit increased $1,286,000 or 30% to $5,623,000 for the six
months ended December 31, 1998 compared to the same period the prior year. Same
school operating profit increased $1,280,000. This increase is attributable to
increase in enrollment and tuition rates. Schools acquired during the last
twelve months contributed $485,000. Start up losses associated with the opening
of the new schools totaled $565,000. School closings positively affected
earnings by $86,000.
In the six months of fiscal 1999, the Company recognized certain reductions in
insurance and property tax expense that positively affected school operating
profit. Insurance premium cost for the most recently ended policy year were
less than expected by $225,000. Additional savings in insurance premiums are
also expected in the remainder of fiscal 1999 as compared to comparable periods
as a result of reduced premium cost. Property tax expense was reduced by
$200,000 in the first quarter of fiscal 1999 as result of overestimated property
tax liability on several properties. The insurance premium savings and the
reduced property tax liability on these properties will also positively affect
the remainder of 1999, but at a significantly smaller amount in subsequent
quarters.
In December 1997 the Company recorded a restructuring charge totaling $2,960,000
relating primarily to the writedown of goodwill of the nine schools located in
Indiana. These nine schools are held for sale. During the six months ended
December 31, 1998, no additional restructuring charge was recorded.
New school development cost remained stable, increasing only $2,000 to $305,000
in the first half of fiscal 1999.
General and administrative costs increased $439,000 or 14% to $3,595,000. The
increase is related to management additions in late 1997 necessary to improve
the infrastructure of the Company to support the growth in the number of
schools. As a percentage of revenue, general and administrative expenses
decreased to 7.0% for the first half of fiscal 1999 from 7.6% in the comparable
period.
Operating income increased $3,805,000 from a loss of $2,082,000 for the six
months ended December 31, 1997 to $1,723,000 for the same period in 1998. The
increase is primarily related to (1) the restructuring expense of $2,690,000
recorded in 1997 and (2) an increase in school operating profit totaling
$1,286,000 or 30% as described above. Operating income increased $845,000 or
96% to
9
<PAGE>
$1,723,000 for the first half of fiscal year 1999 as compared to the same
period before the restructuring charge.
For the first half of fiscal 1999, EBITDA (defined as earnings before interest,
income taxes, depreciation and amortization) before the restructuring charge and
extraordinary item totaled $4,346,000. This represents an increase of
$1,643,000 over the comparable period prior to the restructuring charge. EBITDA
is not a measure of performance under generally accepted accounting principals,
however the Company and the investment community consider it an important
calculation.
Interest expense increased $427,000 to $1,514,000 for the first half of fiscal
1999. This increase is the result of additional borrowings related to
acquisitions and an increase in the Company's average interest rate due to the
$10,000,000 senior subordinated note issued in July 1998 which bears interest at
10%.
Income tax expense totaled $143,000 in the first half of fiscal 1999, which
represents a 42% effective tax rate.
For the Quarter Ended December 31, 1998 vs. the Quarter Ended December 31, 1997
- -------------------------------------------------------------------------------
Revenues increased $5,353,000 or 24% to $27,742,000 for the three months ended
December 31, 1998 compared to the same period the prior year. The increase in
revenues is attributed to the increase in the number of schools after December
31, 1997, and to a lesser extent, enrollment and tuition increases in the same
school base.
The increase in revenues related to the nine schools acquired totaled
$2,315,000. The increase in revenues related to the seven schools opened
totaled $1,373,000. Same school revenues increased $2,055,000, which is related
to both an increase in enrollment and tuition. The closing of six schools
offset these increases by $390,000.
School operating profit increased $552,000 or 20% to $3,304,000 for the three
months ended December 31, 1998 compared to the same period the prior year. Same
school operating profit increased $551,000. The increase is attributable to the
increase in enrollment and tuition rates. Schools acquired during the last
twelve months contributed $284,000 for the quarter. Start up losses associated
with the opening of new schools totaled $283,000.
New school development cost decreased by $113,000 in the second quarter of
fiscal 1999 as a result of the number and type of new schools opened and the
timing of the openings.
General and administrative costs increased $168,000 or 10% to $1,848,000. The
increase is related to management additions in late 1997 necessary to improve
the infrastructure of the Company to support the growth in the number of
schools. As a percentage of revenue, general and administrative expenses
decreased to 6.7% for the second quarter of fiscal 1999 from 7.5% in the
comparable period.
Operating profit increased $3,456,000 from a loss of $2,073,000 for the three
months ended December 31, 1997 to income of $1,383,000 for the three months
ended December 31, 1998. The increase is primarily related to 1) a $2,960,000
restructuring charge recorded in 1997 and 2) an increase in school operating
profit of $552,000 or 20%.
For the second quarter of fiscal 1999, EBITDA (defined as earnings before
interest, income taxes, depreciation and amortization) before the restructuring
charge and extraordinary item totaled $2,734,000. This represents an increase
of $871,000 over the comparable period. EBITDA is not a
10
<PAGE>
measure of performance under generally accepted accounting principals, however
the Company and the investment community consider it an important calculation.
Interest expense increased $160,000 to $750,000 for the second quarter of fiscal
1999. This increase is the result of additional borrowings related to
acquisitions and an increase in the Company's average interest rate due to the
$10,000,000 senior subordinated note issued in July 1998 which bears interest at
10%.
The income tax expense totaled $277,000 in the second quarter of fiscal 1999,
which represents a 42% effective tax rate.
Liquidity and Capital Resources
- -------------------------------
Management is continuing to pursue a three-pronged growth strategy for the
Company, which includes (1) internal growth of existing schools through the
expansion of certain facilities, (2) new school development in both existing and
new markets and (3) strategic acquisitions. The Company's principal sources of
liquidity are (1) cash flow generated from operations, (2) future borrowings
under the Company's $25,000,000 revolving line of credit, (3) the use of site
developers to build schools and lease them to the Company, and (4) issuance of
subordinated indebtedness or shares of common stock to sellers in acquisition
transactions.
The Company anticipates that its existing principal credit facilities, cash
generated from operations, and continued support of site developers to build and
lease schools will be sufficient to satisfy working capital needs, capital
expenditures and renovations and the building of new schools in the near term
future.
At December 31, 1998, the principal amounts outstanding under the Revolving and
Term Facilities were $14,286,451.
In July 1998, the Company issued a $10,000,000 senior subordinated note to
Allied Capital Corporation ("Note"). The net proceeds were used to reduce the
outstanding balance of the Company's Revolving and Term Facilities. The Note
bears interest at 10% and matures in two installments of principal: $5,000,000
in 2004 and $5,000,000 in 2005. In connection with the financing transaction,
the Company also issued to Allied Capital Corporation warrants to acquire
531,255 shares of the Company's common stock at $8.5625 per share. The Company
recorded a debt discount and allocated $900,000 of the proceeds of the
transaction to the value of the warrants. The debt discount is being amortized
to interest expense over the term of the Note.
On December 21, 1998, the Board of Directors authorized the repurchase of
$1,000,000 of the Company's common stock. As of February 8, 1999, 163,800
shares have been repurchased for $854,000.
Total cash and cash equivalents increased $2,956,000 in the first half of fiscal
1999 to $3,364,000. The increase is a function of an increase in deferred
revenue, accounts payable and proceeds from debt facilities.
Net cash flow from operations increased by $2,901,000 to $5,894,000 in the first
half of fiscal 1999 primarily as a result of an increase in net income.
The working capital deficit equaled $11,126,000 at December 31, 1998 compared to
$10,221,000 at June 30, 1998. Working capital deficit increased primarily as a
result of the increase in accounts and unearned income.
11
<PAGE>
Year 2000 Compliance
- --------------------
Management has implemented measures to ensure that the Company's information
systems and applications will recognize and process information pertaining to
the Year 2000. The measures being conducted utilize both internal and external
resources and are directed at risk assessments, remediation, acquisition of new
systems and applications, and testing of the systems and applications for Year
2000 compliance.
The Company believes that the only computer systems that are critical to its
operations are certain accounting and payroll software. The Company licenses
such software from two outside vendors. Both of these vendors have publicized
reports giving assurances that the software used by the Company is Year 2000
compliant. The Company will be testing the software to assure compliance and
will complete the testing by March 1999. The Company has completed an inventory
of all hardware, primarily personal computers and corporate network equipment.
All non-compliant hardware will be replaced by March 1999.
Concurrent with the Company's Year 2000 compliance efforts, the Company is
upgrading its management information system to link the schools to the corporate
office as well as to other schools. This process includes purchasing new and
replacing old equipment and software to improve management efficiencies as well
as assure Year 2000 compliance. Management anticipates that the process will be
complete by December 1999 and projects spending between $1.5 million and $2.0
million on this project.
Although the Company could be affected by the systems of other companies with
which it does business, management does not believe that the Company's business
will be materially adversely effected by the failure of third parties to be Year
2000 compliant. Because of the geographical distribution of the Company's
schools, the Company is not dependent on any one or a small group of vendors for
goods and services and the needs of our customers for our services should not be
adversely affected by Year 2000 issues.
Management expects that the Company will be Year 2000 compliant by the end of
1999. A failure to meet this deadline should not disrupt the Company's delivery
of its services to customers. However, a failure of the Company's system could
indirectly significantly impact operations, as for example, by an inability to
pay employees and vendors in a timely manner.
12
<PAGE>
Part II
-------
Other Information
Item 4 - Submission of Matters to Vote of Security Holders
A. An annual meeting of the stockholders of the Company was held on November 19,
1998. The total shares eligible to vote on the record date included
6,121,365 shares of Common Stock, 468,493 shares of Series A Preferred Stock,
2,500,000 shares of Series C Preferred Stock and 1,063,830 shares of Series D
Preferred Stock. Each share of Series A Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock is convertible into 0.294, 0.25 and 0.25
shares of Common Stock, respectively. These shares represent a total of
7,150,060 votes.
B. At the meeting:
1. Election of Director
--------------------
Two directors were elected to serve until the 2001 Annual Meeting:
<TABLE>
<CAPTION>
Votes Number Withheld Total Votes
--------- --------------- -----------
<S> <C> <C> <C>
Morgan Jones 5,141,315 25,422 5,166,737
William Walton 5,140,952 25,785 5,166,737
</TABLE>
The term of office of the following directors continues until the 1999
Annual Meeting:
Edward Chambers
A.J. Clegg
Peter Havens
The term of office of the following directors continues until the 2000
Annual Meeting:
John R. Frock
Eugene G. Monaco
Robert Zobel
2. Ratification of Independent Auditors
------------------------------------
The selection of PricewaterhouseCoopers, LLP as the Company's independent
auditors for fiscal 1999 was approved by the requisite vote, the votes cast
being as follows:
Voted for 5,156,455
Voted against 6,247
Withheld 0
Abstentions 4,035
---------
5,166,737
13
<PAGE>
3. Amendment of the Company's Amended and Restated Certificate of
--------------------------------------------------------------
Incorporation
-------------
The approval of the proposal to amend the Company's Amended and Restated
Certificate of Incorporation to change the name of the Company was approved by
the requisite vote, the votes cast being as follows:
<TABLE>
<CAPTION>
<S> <C>
Voted for 5,150,423
Voted against 7,204
Withheld 0
Abstentions 9,110
---------
5,166,737
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 Certificate of Incorporation of Registrant, as amended
27 Financial Data Schedule.
(b) Reports on Form 8-K
None
14
<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 LEARNING COMMUNITIES, INC.
Dated: February 12, 1999 By: /s/ William E. Bailey
-------------------------------
William E. Bailey
Vice President/Chief Financial Officer
(duly authorized officer and
principal financial officer)
<PAGE>
Exhibits
Exhibit
Number Description of Exhibit
3 Certificate of Incorporation of Registrant, as amended.
27 Financial Data Schedule.
<PAGE>
Exhibit 3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NOBEL LEARNING COMMUNITIES, INC.
FIRST: The name of the Corporation is Nobel Learning Communities,
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 Thirty Million (30,000,000) shares, divided into Twenty Million
(20,000,000) 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 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,
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
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 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:
1. The directors of the Corporation shall be elected at the annual
meeting of stockholders, except as provided in Section 3 of this Article Eighth.
The directors shall be divided into three (3) classes, as nearly equal in number
as possible, designated Class I, Class II and Class III. Class I directors shall
initially serve until the 1997 annual meeting of stockholders; Class II
directors shall initially serve until the 1998 annual meeting of stockholders;
and Class III directors shall initially serve until the 1999 annual meeting of
stockholders. At each annual meeting of stockholders beginning with the 1997
annual meeting, successors to the class of directors whose term expires at that
annual meeting shall be elected for a term expiring at the third succeeding
annual meeting of stockholders after their election. Except as otherwise
provided by law, if the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible. In no case shall a decrease in the
number of directors shorten the term of any incumbent director. Notwithstanding
the foregoing, whenever the holders of any one or more classes or series of
preferred stock of the Corporation shall have the right to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies, and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto, or the resolution
or resolutions of the Board of Directors relating to the issuance of such shares
of preferred stock, and such directors so elected shall not be divided into
classes pursuant to this Article Eighth unless expressly provided by such terms
or such resolution or resolutions.
2. A director shall hold office until the annual meeting of
stockholders for the year in which his or her term expires and until his or her
successor shall be elected. Directors may be removed only by the holders of at
least a majority of the outstanding Common Stock and only for cause at a meeting
called for such purpose. Except as may otherwise be provided by law, cause for
removal shall be construed to exist only if (i) the director whose removal is
proposed has been
<PAGE>
convicted of a felony by a court of competent jurisdiction and the conviction is
no longer subject to direct appeal, (ii) the director has been adjudged by a
court of competent jurisdiction to be liable for negligence or misconduct in the
performance of his or her duty to the corporation in a matter of substantial
importance to the Corporation and the adjudication is no longer subject to
direct appeal or (iii) any other situation exists which at least eighty percent
(80%) of the other directors, in their sole discretion, agree constitutes cause
for removal.
3. If any vacancy occurs on the Board of Directors or any new
directorship is created by an increase in the authorized number of directors, a
majority of the directors in office, though less than a quorum, may fill the
vacancy or fill the newly created directorship. Any director elected to fill a
vacancy shall have the same term as that of his or her predecessor, or, if such
vacancy is a result of an increase in the number of directors, as that of the
other directors of the class of which he or she shall be a member.
4. Notwithstanding any other provision of this Certificate of
Incorporation or the Bylaws of the Corporation (and in addition to any other
vote that may be required by law, the Certificate of Incorporation or the Bylaws
of the Corporation), the affirmative vote of the holders of shares entitled to
cast at least two-thirds of the votes represented by the shares of all classes
of stock of the Corporation entitled to vote generally in elections of
directors, considered for purposes of this Article EIGHTH as one class, shall be
required to amend, alter, change, repeal or adopt any provision inconsistent
with this Article EIGHTH.
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.
ELEVENTH: Subject to the special rights, if any, of the holders of any
class or series of preferred stock established in or pursuant to the provisions
of the Certificate of Incorporation, any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected by any consent
in writing by such holders.
TWELFTH: Nominations for the Board.
1. Subject to the special rights, if any, of the holders of any
class or series of preferred stock then outstanding, nominations for the
election of directors may be made by the Board of Directors or a committee
appointed by the Board of Directors or by a stockholder entitled to vote in the
election of directors. However, a stockholder entitled to vote in the election
of directors may make such a nomination only if such stockholder has given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to, or mailed by United States
mail, postage prepaid and received at, the principal executive offices of the
Corporation (a) with respect to an election to be held at an annual meeting of
stockholders, not later than seventy-five (75)
<PAGE>
days prior to the first anniversary of the preceding year's annual meeting (or,
if the date of the annual meeting is changed by more than twenty (20) days from
such anniversary date, not later than ten (10) days after the date the
Corporation first mails to stockholders of the Corporation notice of the date of
the annual meeting), and (b) with respect to an election to be held at a special
meeting of stockholders called for that purpose, not later than ten (10) days
after the date the Corporation first mails to stockholders of the Corporation
notice of the date of the special meeting.
2. Each stockholder's notice of intent to make a nomination must set
forth: (a) the name(s) and address(es) of the stockholder who intends to make
the nomination; (b) a representation that the stockholder (i) is a holder of
record of stock of the Corporation entitled to vote at such meeting, (ii) will
continue to hold such stock through the date on which the meeting is held, and
(iii) intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) the name, age, business and
residence address(es) and principal occupation or employment of each nominee;
(d) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination is to be made by the stockholder; (e) such
other information regarding each nominee proposed by such stockholder as would
be required to be included in a proxy statement filed pursuant to Regulation 14A
promulgated under Section 14 of the Securities Exchange Act of 1934, as amended,
as now in effect or hereafter modified, had the nominee been nominated by the
Board of Directors; and (f) the consent of each nominee to serve as a director
of the Corporation if so elected. The Corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
Corporation to determine the qualifications of such person to serve as a
director.
3. The presiding officer of the stockholders' meeting shall
determine and declare at the stockholders' meeting whether the nomination was
made in accordance with the terms of this Article Twelfth. If the presiding
officer determines that a stockholder proposal was not made in accordance with
the terms of this Article Twelfth, he or she shall so declare at the
stockholders' meeting and any such defective nomination shall be disregarded.
THIRTEENTH: Proposals.
1. At an annual or special meeting of stockholders (other than a
special meeting called at the written request of stockholders of the Corporation
in accordance with the Corporation's Bylaws) only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
brought before the meeting (a) by, or at the direction of, a majority of the
directors, or (b) by any stockholder the Corporation who complies with the
notice procedures set forth in this Article Thirteenth. For a proposal to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to, or mailed by United
States mail, postage prepaid and received at, the principal executive offices of
the Corporation (i) with respect to a proposal to be considered at an annual
meeting of stockholders, not later than seventy-five (75) days prior to the
first anniversary of the preceding year's annual meeting (or, if the date of the
annual meeting is changed by more than twenty (20) days from such anniversary
date, not later than ten (10) days after the date the Corporation first mails to
stockholders of the Corporation
<PAGE>
notice of the date of the annual meeting), and (ii) with respect to a proposal
to be considered at a special meeting of stockholders, not later than ten (10)
days after the date the Corporation first mails to stockholders of the
Corporation notice of the date of the special meeting.
2. A stockholder's notice to the Secretary must set forth as to each
proposal the stockholder desires to bring before the stockholders' meeting (a) a
brief description of such proposal and the reasons supporting such proposal, (b)
a representation that the stockholder (i) is a holder of record of stock of the
Corporation entitled to vote at such meeting, (ii) will continue to hold such
stock through the date on which the meeting is held, (iii) intends to appear in
person or by proxy at the meeting to make such proposal, and (c) any financial
interest of the stockholder in such proposal.
3. The presiding officer of the stockholders' meeting shall determine and
declare at the stockholders' meeting whether the stockholder proposal was made
in accordance with the terms of this Article Thirteenth. If the presiding
officer determines that a stockholder proposal was not made in accordance with
the terms of this Article Thirteenth, he or she shall so declare at the
stockholders' meeting and any such proposal shall not be acted upon at the
stockholder's meeting.
FOURTEENTH: Notwithstanding any other provision of this Certificate of
Incorporation or the Bylaws of the Corporation (and in addition to any other
vote that may be required by law, the Certificate of Incorporation or the Bylaws
of the Corporation), the affirmative vote of the holders of shares entitled to
cast at least two-thirds of the votes represented by the shares of all classes
of stock of the Corporation entitled to vote generally in elections of
directors, considered for purposes of this Article FOURTEENTH as one class,
shall be required to amend, alter, change, repeal or adopt any provision
inconsistent with Article TENTH, ELEVENTH, TWELFTH, THIRTEENTH or this Article
FOURTEENTH.
per share earnings.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1999 DEC-31-1997
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 3,364 408
<SECURITIES> 0 0
<RECEIVABLES> 1,234 1,130
<ALLOWANCES> (147) (147)
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,868 3,552
<PP&E> 33,706 31,601
<DEPRECIATION> (10,790) (9,226)
<TOTAL-ASSETS> 79,714 73,623
<CURRENT-LIABILITIES> 15,994 13,773
<BONDS> 0 0
0 0
5 5
<COMMON> 6 6
<OTHER-SE> 33,781 32,725
<TOTAL-LIABILITY-AND-EQUITY> 79,714 73,623
<SALES> 51,653 41,316
<TOTAL-REVENUES> 51,653 41,316
<CGS> 46,030 36,379
<TOTAL-COSTS> 49,930 43,398
<OTHER-EXPENSES> (168) (48)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,514 1,087
<INCOME-PRETAX> 341 (3,158)
<INCOME-TAX> 143 (998)
<INCOME-CONTINUING> 198 (2,160)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 449
<CHANGES> 0 0
<NET-INCOME> 198 (2,609)
<EPS-PRIMARY> 0.03 (0.44)
<EPS-DILUTED> 0.03 (0.44)
</TABLE>
