<PAGE> 1
UNITED STATES 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 Quarterly Period Ended Commission File Number:
June 30, 2000 0-23021
EDUTREK INTERNATIONAL, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2255472
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Embassy Row, 6600 Peachtree Dunwoody Road, Atlanta, Georgia 30328
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
404-965-8000
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<S> <C>
Class A Common Stock, without par value 4,557,450 shares
--------------------------------------- ----------------------------
Class Outstanding at July 24, 2000
Class B Common Stock, without par value 7,359,667 shares
--------------------------------------- ----------------------------
Class Outstanding at July 24, 2000
</TABLE>
<PAGE> 2
EduTrek International, Inc.
Form 10-Q Index
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6
Item 3. Qualitative and Quantitative Disclosures About Market Risk 11
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
<PAGE> 3
This Quarterly Report on Form 10-Q contains forward-looking statements.
Additional written or oral forward-looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission or
otherwise. The words "believe," "plan," "expect," "anticipate," "project," and
similar expressions identify forward-looking statements, which speak only as of
the date the statement was made. Such forward-looking statements are within the
meaning of that term in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements include, but are not limited to, projections of revenues, income or
loss, cash flows, expenses, capital expenditures, plans for future operations,
including current acquisition discussions, financing needs or plans, the impact
of inflation, and plans relating to products or services of the Company, as well
as assumptions relating to the foregoing. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events, or otherwise.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by, or underlying the forward-looking statements. Forward looking statements
regarding the Company's plans for its future business activities depend upon the
Company's ability to address and alleviate the financial difficulties described
under "Recent Developments" herein and in the Company's Annual Report on Form
10-K as filed with the Securities and Exchange Commission. In addition,
statements in this Quarterly Report, including Notes to Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," describe factors, among others, that could contribute to
or cause such differences. Additional factors that could cause actual results to
differ materially from those expressed in such forward-looking statements
include, without limitation, risks inherent in negotiating financing or change
of control transactions, new or revised interpretations of other applicable
laws, rules and regulations, failure to maintain or renew required regulatory
approvals, accreditation or state authorizations, failure to obtain the Southern
Association of Colleges and Schools' ("SACS") approval to operate in new
locations, failure to comply with Department of Education or state financial
responsibility standards, changes in student enrollment, and other factors set
forth in the Company's Annual Report on Form 10-K and other reports or materials
filed or to be filed with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made or to
be made by the Company or its management).
PART I. FINANCIAL INFORMATION
ITEM 1. RECENT DEVELOPMENTS AND FINANCIAL STATEMENTS
<PAGE> 4
EDUTREK INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,682 $ 3,061
Accounts receivable -- net of allowance of $1,501 and $1,985, respectively 3,617 2,444
Income taxes receivable 476 1,717
Other 915 1,123
---------- ----------
Total current assets 6,690 8,345
Property, plant, and equipment -- net of accumulated depreciation 19,084 19,414
Goodwill -- net of accumulated amortization of $3,810 and $3,303, respectively 36,850 37,357
Other 1,401 1,792
---------- ----------
$ 64,025 $ 66,908
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,464 $ 4,060
Accrued expenses 3,754 3,482
Accrued related party transactions -- 112
Value-added tax payable 174 445
Unearned revenues 4,348 9,412
Restructure accrual - current 3,293 3,970
Line of credit and short term borrowings 17,515 10,687
Current maturities -- capital leases and other 2,018 2,197
---------- ----------
Total current liabilities 33,566 34,365
Capital leases and other--less current maturities 6,538 7,498
Deferred rent 2,743 2,346
Restructure accrual - long term 778 834
Other liabilities 226 250
---------- ----------
Total liabilities 43,851 45,293
SHAREHOLDERS' EQUITY
Common stock, Class A voting, one vote per share, without par value, 40,000,000
shares authorized, 4,550,915 and 4,485,168 issued and outstanding, respectively 36,740 36,737
Common stock, Class B voting, ten votes per share, without par value, 10,000,000
shares authorized, 7,359,667 issued and outstanding 4,973 4,973
Accumulated other comprehensive income (loss) (42) (33)
Accumulated deficit (21,497) (20,062)
---------- ----------
Total shareholders' equity 20,174 21,615
---------- ----------
$ 64,025 $ 66,908
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
EDUTREK INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
2000 1999
---------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Net revenues $ 17,081 $ 15,305
Costs and expenses:
Cost of education and facilities 10,319 8,223
Selling and promotional expenses 2,323 3,718
General and administrative expenses 5,140 4,928
Amortization of goodwill 254 252
---------- ----------
Total costs and expenses 18,036 17,121
---------- ----------
Income (loss) from operations (955) (1,816)
Interest expense 576 362
Other income -- net 7 52
---------- ----------
Income (loss) before income taxes and minority interest (1,524) (2,126)
Income tax (provision) benefit -- 942
---------- ----------
Income (loss) before minority interest (1,524) (1,184)
Minority interest in earnings of American University in Dubai (428) (481)
---------- ----------
Net income (loss) $ (1,952) $ (1,665)
========== ==========
Earnings (Loss) Per Share:
Basic net income (loss) per share $ (0.16) $ (0.15)
Diluted net income (loss) per share $ (0.16) $ (0.15)
Average shares outstanding 11,849 10,743
Dilutive effect:
Warrants -- --
Options -- --
---------- ----------
-- --
---------- ----------
Average shares outstanding assuming dilution 11,849 10,743
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
2000 1999
---------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Net revenues $ 38,089 $ 32,038
Costs and expenses:
Cost of education and facilities 21,252 16,793
Selling and promotional expenses 5,073 6,656
General and administrative expenses 10,477 9,490
Amortization of goodwill 506 504
---------- ----------
Total costs and expenses 37,308 33,443
---------- ----------
Income (loss) from operations 781 (1,405)
Interest expense 1,039 617
Other income -- net 28 84
---------- ----------
Income (loss) before income taxes and minority interest (230) (1,938)
Income tax (provision) benefit -- 1,045
---------- ----------
Income (loss) before minority interest (230) (893)
Minority interest in earnings of American University in Dubai (1,205) (1,178)
---------- ----------
Net income (loss) $ (1,435) $ (2,071)
========== ==========
Earnings (Loss) Per Share:
Basic net income (loss) per share $ (0.12) $ (0.19)
Diluted net income (loss) per share $ (0.12) $ (0.19)
Average shares outstanding 11,847 10,702
Dilutive effect:
Warrants -- --
Options -- --
---------- ----------
-- --
---------- ----------
Average shares outstanding assuming dilution 11,847 10,702
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
EDUTREK INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
---------- ----------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (1,435) $ (2,071)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,502 1,748
Bad debt expense (484) 255
Increase (decrease) in restructuring (733) --
(Increase) decrease in accounts receivable (689) (1,069)
(Increase) decrease in income taxes receivable 1,241 --
Increase (decrease) in accounts payable and accrued liabilities (1,434) 543
Increase (decrease) in unearned revenues (5,064) (3,203)
Increase (decrease) in value-added taxes payable (271) 4
Other 585 (836)
---------- ----------
Net cash provided by (used in) operating activities (5,782) (4,629)
---------- ----------
INVESTING ACTIVITIES
Additions to curriculum development costs (137) (692)
Purchases of property, plant, and equipment (1,153) (2,108)
---------- ----------
Net cash used in investing activities (1,290) (2,800)
---------- ----------
FINANCING ACTIVITIES
Borrowings - net 7,013 8,780
Principal payments under capital lease obligations (1,177) (751)
Principal repayments on long-term debt (147) (243)
Other 4 (136)
---------- ----------
Net cash provided by (used in) financing activities 5,693 7,650
---------- ----------
Effect of exchange rate changes on cash -- (38)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,379) 183
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,061 2,779
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,682 $ 2,962
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 532 $ 492
Income taxes $ 230 $ --
Non-cash investing activities:
Acquisition of property through capital leases $ -- $ 2,694
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
EDUTREK INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON PAID-IN STOCKHOLDERS' COMPREHENSIVE ACCUMULATED
PREDECESSOR STOCK CAPITAL NOTES INCOME DEFICIT TOTAL
----------- ------ ------- ------------ ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance -- May 31, 1996 $ 1 $477 $(4,559) $102 $(3,309) $ (7,288)
Distribution to shareholders (1,890) (1,890)
Capital contributed by stockholder 1,239 1,239
Comprehensive loss:
Net loss (1,305) (1,305)
Foreign currency translation (18) (18)
--------
Total comprehensive loss (1,323)
Notes receivable and advances from shareholders (1,016) (1,016)
--- ---- ------- ---- ------- --------
Balance -- October 8, 1996 $ 1 $477 $(5,575) $ 84 $(5,265) $(10,278)
=== ==== ======= ==== ======= ========
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK --
NUMBER OF SHARES COMMON STOCK
----------------- ----------------------
COMPANY CLASS A CLASS B CLASS A CLASS B
------- ------ ------ ---------- --------
<S> <C> <C> <C> <C>
Issuance of common stock -- July 1, 1996 2,240 $ 1,000
Issuance of common stock in connection with
the acquisition of EduTrek Systems, Inc. 105 1,995
Sale of common stock in connection with
acquisition of Predecessor 2,100 3,000
Issuance of common stock in exchange for
certain fees 350 $ 500
Issuance of warrants in connection with
acquisition of Predecessor
Issuance of common stock in exchange for
stock of Predecessor 210 787
Comprehensive income:
Foreign currency translation
Net income
Total comprehensive income
------ ------ ---------- --------
Balance -- May 31, 1997 665 6,335 1,287 4,000
Issuance of common stock net of initial public offering
costs -- September 29, 1997 2,733 34,560
Conversion of warrants to common stock 879 677
Conversion of Class B Common Stock to Class A
Common Stock 42 (42) 27 (27)
Issuance of common stock under stock option plan 16 13
Comprehensive income:
Foreign currency translation
Net income
Total comprehensive income
------ ------ ---------- --------
Balance -- May 31, 1998 4,335 6,293 36,564 3,973
Issuance of common stock under stock option plan 28 47
Comprehensive loss:
Foreign currency translation
Net loss
Total comprehensive loss
------ ------ ---------- --------
Balance -- December 31, 1998 4,363 6,293 36,611 3,973
Issuance of common stock under stock option plan 81 93
Issuance of common stock under the Employee Stock Purchase Plan 41 33
Issuance of Class B common stock in exchange for Steve Bostic convertible debt 1,067 1,000
Comprehensive loss:
Foreign currency translation
Net loss
Total comprehensive loss
Balance -- December 31, 1999 4,485 7,360 $ 36,737 $ 4,973
------ ------ ---------- --------
Issuance of common stock under stock option plan 1 $ 1
Issuance of common stock under the Employee Stock Purchase Plan
Comprehensive loss:
Foreign currency translation
Net income
Total comprehensive income
Balance -- March 31, 2000 4,486 7,360 36,738 4,973
------ ------ ---------- --------
Issuance of common stock under stock option plan 65 $ 2
Issuance of common stock under the Employee Stock Purchase Plan
Comprehensive loss:
Foreign currency translation
Net income
Total comprehensive income
------ ------ ---------- --------
Balance -- June 30, 2000 4,551 7,360 36,740 4,973
====== ====== ========== ========
<CAPTION>
ACCUMULATED RETAINED
COMMON OTHER EARNINGS
STOCK COMPREHENSIVE (ACCUMULATED
COMPANY WARRANTS INCOME (LOSS) DEFICIT) TOTAL
------- -------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Issuance of common stock -- July 1, 1996 $ 1,000
Issuance of common stock in connection with
the acquisition of EduTrek Systems, Inc. $ (237) (237)
Sale of common stock in connection with
acquisition of Predecessor 3,000
Issuance of common stock in exchange for
certain fees 500
Issuance of warrants in connection with
acquisition of Predecessor $ 677 677
Issuance of common stock in exchange for
stock of Predecessor 787
Comprehensive income:
Foreign currency translation $ 147 147
Net income 2,003 2,003
----------
Total comprehensive income 2,150
------ ------ ---------- ----------
Balance -- May 31, 1997 677 147 1,766 7,877
Issuance of common stock net of initial public offering
costs -- September 29, 1997 34,560
Conversion of warrants to common stock (677) --
Conversion of Class B Common Stock to Class A
Common Stock --
Issuance of common stock under stock option plan 13
Comprehensive income:
Foreign currency translation (59) (59)
Net income 1,903 1,903
----------
Total comprehensive income 1,844
------ ------ ---------- ----------
Balance -- May 31, 1998 -- 88 3,669 44,294
Issuance of common stock under stock option plan 47
Comprehensive loss:
Foreign currency translation (64) (64)
Net loss (5,516) (5,516)
----------
Total comprehensive loss (5,580)
------ ------ ---------- ----------
Balance -- December 31, 1998 -- 24 (1,847) 38,761
Issuance of common stock under stock option plan 93
Issuance of common stock under the Employee Stock Purchase Plan 33
Issuance of Class B common stock in exchange for Steve Bostic convertible debt 1,000
Comprehensive loss: --
Foreign currency translation (57) (57)
Net loss (18,215) (18,215)
----------
Total comprehensive loss (18,272)
Balance -- December 31, 1999 $ -- $ (33) $ (20,062) $ 21,615
------ ------ ---------- ----------
Issuance of common stock under stock option plan 1
Issuance of common stock under the Employee Stock Purchase Plan --
Comprehensive loss: --
Foreign currency translation (4) (4)
Net income 517 517
----------
Total comprehensive income 513
Balance -- March 31, 2000 $ -- $ (37) $ (19,545) $ 22,129
------ ------ ---------- ----------
Issuance of common stock under stock option plan 2
Issuance of common stock under the Employee Stock Purchase Plan -- --
Comprehensive loss: --
Foreign currency translation (5) (5)
Net loss (1,952) (1,952)
----------
Total comprehensive loss: (1,957)
------ ------ ---------- ----------
Balance -- June 30, 2000 $ -- $ (42) $ (21,497) $ 20,174
====== ====== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
EduTrek International, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. These unaudited financial statements include all
adjustments, consisting of only normal, recurring accruals, which EduTrek
International, Inc. (the "Company") considers necessary for a fair presentation
of the financial position and the results of operations for these periods.
The results of operations for the three and six months ended June 30,
2000 are not necessarily indicative of the results to be expected for the full
year ending December 31, 2000. For further information, refer to the Company's
consolidated financial statements and notes thereto for the quarter ended March
31, 2000 included in the Quarterly Report on Form 10-Q and the fiscal year ended
December 31, 1999 included in the Annual Report on Form 10-K all items as filed
with the Securities and Exchange Commission.
Note 2 - U.S. and Foreign Operations
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way that public business enterprises
report information about operating segments and related information in financial
statements. SFAS No. 131 uses the management approach for determining what
operating segment information to report. The management approach is based on the
way that management organizes the operating segments within the Company for
making decisions and assessing performance. The Company operates solely in the
education industry, and management makes decisions and assesses performance
based on the geographic locations of its campuses. Therefore, the Company has
elected to report segment information based on geographic areas.
The Company's operations are located in the United States, the United
Kingdom, and Dubai, United Arab Emirates. Net revenues and income (loss) from
operations by geographic area for the three and six months ended June 30, 2000
and 1999 and identifiable assets by geographic area at June 30, 2000 and
December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues:
United States $ 11,875 $ 9,966 $ 25,430 $ 19,718
United Kingdom 3,338 3,616 8,382 8,410
Dubai, UAE 1,868 1,723 4,277 3,910
--------- --------- --------- ---------
Total $ 17,081 $ 15,305 $ 38,089 $ 32,038
========= ========= ========= =========
Income (loss) from operations:
United States $ 61 $ (369) $ 1,538 $ 199
United Kingdom 1,038 1,191 3,137 3,303
Dubai, UAE 206 744 582 1,816
Home Office (2,260) (3,382) (4,476) (6,723)
--------- --------- --------- ---------
Total $ (955) $ (1,816) $ 781 $ (1,405)
========= ========= ========= =========
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
Identifiable assets:
United States $ 59,614 $ 62,248
United Kingdom 2,341 2,302
Dubai, UAE 2,070 2,358
--------- ---------
Total $ 64,025 $ 66,908
========= =========
</TABLE>
Note 3 - Line of Credit and Short Term Borrowings
The Company finances its operating activities and capital requirements,
including debt repayment, principally from cash provided by operating activities
and borrowings under bank facilities, and, recently, from a short-term loan from
a third party.
The Company has a $10,000,000 revolving line of credit ("Line A") and a
$4,350,000 revolving line of credit ("Line B") with a bank (collectively, as
amended, the "Credit Agreement"). The Credit Agreement is secured by
substantially all of the Company's assets.
Line A, as amended, matures on the earlier of April 30, 2001, or 30
days after demand for payment by the bank, such demand to be presented no
earlier than September 30, 2000. Amounts outstanding under Line A bear interest
at the London Interbank Offered Rate ("LIBOR") plus 2.75%. At August 21, 2000,
the Company had outstanding borrowings under Line A of $8,088,640. In addition,
the Company had issued $1,911,360 in letters of credit against Line A. These
letters of credit are required as security under building leases in Los Angeles,
Washington, D.C., and Miami.
Line B, as amended, matures on September 30, 2000. Line B amounts
outstanding bear interest at the Prime rate plus 2.00%. At August 21, 2000, the
Company had outstanding borrowings under Line B of $4,350,000.
On May 30, 2000, the Company executed an amendment to the Credit
Agreement, pursuant to which all previous arrangement fees under the Credit
Agreement were consolidated into one fixed arrangement fee of $1,150,000. This
fee is payable on the later of 1) that date which is (30) days after the lender
makes demand for payment (but will be no earlier than September 30, 2000), 2)
the date of the retirement of amounts outstanding under the Credit Agreement, or
3) April 30, 2001. The first $250,000 of this fixed arrangement fee was charged
to operations in 1999. From January 1, 2000 through June 30, 2000, $291,734 was
charged to operations. The remaining $608,266 is being charged to operations at
the rate of $60,827 per month through April 30, 2001.
The Credit Agreement requires interest only payments until maturity.
While the Company has made all required interest payments through August 21,
2000, based on management's current projected earnings and cash flow, without
obtaining additional debt or equity capital, the Company's ability to make the
required payments of principal and interest on a timely basis is presently in
doubt.
On May 30, 2000, the Company received a $5,000,000 short-term loan from
a third party to finance the short-term working capital needs of the Company.
The loan which matures on November 30, 2000, stipulates that the proceeds cannot
be used to repay or prepay amounts owed under the Credit Agreement. The loan
bears interest at the Prime Rate, and interest is due quarterly. At August 21,
2000, the Company had outstanding borrowings under this loan of $5,000,000. The
loan is secured by substantially all of the Company's assets, on an equal basis
with loans under the Credit Agreement. Without obtaining additional debt or
equity capital, the ability of the Company to make the required payments of
principal and interest on a timely basis is presently in doubt.
<PAGE> 9
Note 4 - Related Party Transactions
Three members of the family of the Company's Chairman and Chief
Executive Officer terminated their employment with EduTrek International, Inc.
during the three months ended June 30, 1999. Termination payments of
approximately $247,000 were accrued in June 1999 with payments scheduled through
May 2000. As of June 30, 2000, all termination payments for related parties had
been paid. One member of the family was rehired effective May 1, 2000;
compensation payments began upon expiration of the previously discussed
termination agreement.
Note 5 - Company Restructuring Activities
In December 1999, the Company's Executive Officers and Board of
Directors implemented procedures to restructure the Company in three different
areas in order to reduce overall expenditures and restore positive cash flow of
the Company. The three areas of restructure were: 1) reduction of Corporate
overhead through elimination and consolidation of positions and space
reductions, 2) the teach-out of current classes in the Washington D.C. campus
and closure of the operation, and 3) termination of the lease for the current
Northern Virginia campus site (operations never commenced in Northern Virginia),
with plans for a new Northern Virginia site yet to be finalized. As a result,
the Company established restructuring accruals at December 31, 1999 totaling
$4.8 million. The accrual for severance and employment contracts included 16
employees. Revenue and loss from operations of the Washington D.C. campus were
$2,527,452 and ($2,075,102), respectively, for the year ended December 31, 1999,
<PAGE> 10
and $216,284 and ($704,000), respectively, for the seven months ended December
31, 1998 (the campus began operations in October 1998). The following table
shows the components of the restructure accrual, and restructuring activities
through June 30, 2000:
RESTRUCTURE SCHEDULE
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
ACCRUAL CATEGORY ORIGINAL ACCRUAL AMOUNT PAYMENTS THROUGH JUNE 30, 2000 BALANCE AT JUNE 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lease Termination and other
related costs $ 4,137,135 $ 491,487 $3,645,648
-----------------------------------------------------------------------------------------------------------------------------------
Severance and employment
contracts, and other related
costs $ 666,340 $ 241,235 $ 425,105
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 6 - Going Concern
The consolidated financial statements for the fiscal year ended
December 31, 1999 were prepared assuming the Company would continue as a going
concern. The Company had reported net losses of $18.2 million for the year ended
December 31, 1999 and $5.5 million for the seven-month transition period ended
December 31, 1998 (following a change in fiscal year end). The Company is highly
leveraged and recent developments have had a material adverse effect on the
Company's short-term liquidity and ability to service its debts. As of June 30,
2000, the Company had $8.1 million of debt outstanding under Line A of the
Credit Agreement, which matures at the earlier of April 30, 2001, or 30 days
after the demand of the lender, such demand to be presented no earlier than
September 30, 2000. Additionally, there are $1.9 million of letters of credit
issued on behalf of the Company. The Company has an additional $4.3 million
outstanding under Line B of the Credit Agreement, which has a maturity date of
September 30, 2000.
On May 30, 2000, the Company received a $5,000,000 short-term loan from
a third party to finance the short term working capital needs of the Company and
for general corporate purposes. The loan which matures on November 30, 2000,
stipulates that the proceeds cannot be used to repay or prepay amounts owed
under the Credit Agreement.
Based upon management's current projected earnings and cash flow of the
Company, without some form of additional capital infusion, whether pursuant to
business combinations, strategic investment in the Company, a refinancing of the
Company's debt, or a combination thereof, management does not believe it will
have the financial resources to make the required debt payments under the Credit
Agreement or the new short-term loan, when due and to meet other cash
requirements. As a result, the Company has retained The Robinson-Humphrey
Company LLC ("Robinson-Humphrey") to assist in determining short-term and
long-term financial requirements and to evaluate potential refinancing and
restructuring alternatives.
If the Company does not make the required debt payments on September
30, 2000, November 30, 2000, or April 30, 2001, it may be unable to continue its
normal operations, except to the extent permitted by its lenders. Substantially
all of the Company's assets are pledged as collateral under the Credit Agreement
and the new short-term loan.
In addition, the Company did not meet the financial responsibility
standards of the U.S. Department of Education as of December 31, 1999. As a
result, the Company could be required to post a letter of credit of up to $15
million with the Department of Education by September 2000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." Therefore, the Company and Robinson-Humphrey
are evaluating certain approaches to restructuring or recapitalization to
address this contingency in addition to the financial difficulties discussed
above. These potential approaches include among other things, business
combinations, a strategic investment in the Company, a refinancing of the
Company's debt, or a combination thereof. The Company's objective is to raise
sufficient capital to meet its debt service obligations, correct the financial
responsibility deficiencies, and also to post any letters of credit required by
the Department of Education. Failure to post a letter of credit could result in
the termination of the Company as an institution eligible for student Title IV
financial aid, which would severely and negatively affect cash flows of the
Company and possibly result in the Company being unable to continue its normal
operations.
Certain states in which the Company operates have regulatory agencies
which perform their own financial capability reviews based on annual fiscal year
results. These reviews include fiscal responsibility tests, with which the
Company did not comply, as of December 31, 1999. Management believes that by
successfully addressing the financial responsibility standards of the U.S.
Department of Education, it will meet the financial requirements of all the
states in which it operates, although there can be no assurance of such.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. The consolidated financial statements for the three and six
months ended June 30, 2000, and the fiscal year ended December 31, 1999, did not
include any adjustments that might result from the outcome of this uncertainty.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS
The Company and its financial advisor, The Robinson-Humphrey Company,
LLC, have been evaluating various strategic alternatives available to the
Company to address its liquidity difficulties. See"--Liquidity and Capital
Resources."
The Company is currently negotiating with two separate entities with
respect to (i) a potential merger of the Company into one of the entities, or
(ii) the sale of additional equity to the other entity in an amount sufficient
to satisfy the Company's current liquidity requirements. As of August 21, 2000,
the material terms of such transactions had not been agreed upon, although
management believes that it is likely a definitive agreement for one of the
transactions will be executed by the end of August 2000. There can be no
assurance, however, as to the structure or terms of any such transaction, as to
whether a definitive agreement with either party will be executed, or, if
executed, that such transaction will ultimately be consummated. As part of the
current negotiations, management is attempting to negotiate some form of
financing to enable the Company to meet its cash requirements until any such
acquisition transaction can be consummated.
Based on its current estimates of cash flow, management believes that
absent some form of additional capital infusion or restructuring, whether
pursuant to a business combination, strategic investment in the Company,
refinancing of the Company's debt, or a combination thereof, by the end of
August 2000, the Company will not have sufficient cash resources to make
required debt payments or to meet its cash operating requirements.
On May 30, 2000, the Company entered into a letter of intent with a
different party providing for the sale of certain assets of the Company's Global
Studies Business for $27 million. In addition, with the execution of the letter
of intent, the Company borrowed $5,000,000 from this third party to assist in
funding its short-term working capital requirements. On August 7, 2000, most of
the operative provisions of the letter of intent expired without the parties
reaching a definitive agreement for the contemplated sale of assets, primarily
due to the parties' anticipated inability to obtain required regulatory
approvals in a timely manner. Certain provisions of the letter of intent,
however, continue in effect. In particular, (1) if certain assets of the
Company's Global Studies Business are sold to a third party on or before
December 31, 2000, then the Company will pay the third party one-half of the
amount, if any, by which the purchase price exceeds $27,000,000 and (2) if the
Company's Global Studies Business is included in any sale of the Company or its
affiliates, in a transaction that incorporates more than just the Global Studies
Business, then the Company will pay the third party $500,000.
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the consolidated
financial statements and notes thereto for the three and six months ended June
30, 2000 included in Item 1 of this report, the "Selected Consolidated Financial
Data" and the Company's consolidated financial statements and notes thereto for
the fiscal year ended December 31, 1999 included in the Company's Annual Report
on Form 10-K, the 7 month transition period from June 1, 1998 to December 31,
1998 included in the Company's Transition Report on Form 10-K, as well as in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1998. Unless otherwise specified, any reference to a "fiscal year"
is to a fiscal year ended December 31.
The following table sets forth, for the periods indicated, the
percentage relationship of certain statement of operations items to net revenues
for the Company:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of education and facilities 60.4% 53.7% 55.8% 52.4%
Selling and promotional expenses 13.6% 24.3% 13.3% 20.8%
General and administrative expenses 30.1% 32.2% 27.5% 29.6%
Amortization of goodwill 1.5% 1.6% 1.3% 1.6%
------- ------- ------- -------
Total costs and expenses 105.6% 111.9% 97.9% 104.4%
------- ------- ------- -------
Income (loss) from operations -5.6% -11.9% 2.1% -4.4%
Interest expense 3.4% 2.4% 2.7% 1.9%
Other income -- net 0.0% 0.3% 0.1% 0.3%
------- ------- ------- -------
Income (loss) before income taxes and minority interest -8.9% -13.9% -0.6% -6.0%
Income tax (provision) benefit 0.0% 6.2% 0.0% 3.3%
------- ------- ------- -------
Income (loss) before minority interest -8.9% -7.7% -0.6% -2.8%
Minority interest in earnings of American University in Dubai -2.5% -3.1% -3.2% -3.7%
------- ------- ------- -------
Net income (loss) -11.4% -10.9% -3.8% -6.5%
</TABLE>
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
NET REVENUES. Net revenues increased approximately $1.8 million or 11.6%. The
increase was due to an increase in student enrollment primarily at the four
Power Campuses and a tuition increase for both Traditional and Power Campuses.
COST OF EDUCATION AND FACILITIES. Cost of education and facilities increased
approximately $2.1 million or 25.5%. Of this amount, education costs increased
approximately $1.3 million or 22.5% due to an increase in the number of faculty
supporting the Power Campuses in conjunction with the campuses' enrollment
growth, as well as the related courseware, computer and other education costs.
Facility costs increased approximately $818,000 or 32.2% as the result of space
growth in conjunction with the Power Campuses enrollment growth, as well as the
cost of maintaining dual sites for some locations during the transition to
larger or more accommodating locations. For the reasons set forth above, cost of
education and facilities increased as a percentage of net revenues to 60.4% in
the 2000 period from 53.7% in the 1999 period.
SELLING AND PROMOTIONAL EXPENSES. Selling and promotional expenses decreased
approximately $1.4 million or 37.5%. The decrease was a direct result of the
cost control efforts instituted by the Company and the more focused marketing
initiatives for both the Traditional and Power Campuses. As a percentage of net
revenues, selling and promotional expenses decreased to 13.6% in the 2000 period
from 24.3% in the 1999 period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $212,000 or 4.3%. As a percentage of net revenues,
however, general and administrative expenses decreased to 30.1% in the 2000
period from 32.2% in the 1999 period. The dollar increase was primarily due to
additions throughout 1999 of personnel at the new Power Campuses and the home
office to support the Company's growth partially offset by the restructuring
efforts, which began in December 1999. The increase also reflects the effects of
higher banking charges incurred for the liquidity challenges faced by the
Company in the 2000 period. With respect to the allowance for doubtful accounts,
approximately $171,000 was recorded in the 2000 period as a normal quarterly
operating provision. Approximately $783,000 of uncollectible student receivables
was written-off against the allowance for doubtful accounts in June 2000. There
was no corresponding write-off in the 1999 period.
<PAGE> 12
AMORTIZATION OF GOODWILL. Goodwill amortization of $254,000 and $252,000 for the
2000 and 1999 periods respectively, was the result of the October 1996
acquisition of American European Corporation and Subsidiaries with goodwill
costs being amortized over a 40-year period.
INTEREST EXPENSE. Interest expense increased approximately $214,000 or 59.1% as
a result of increased outstanding borrowings under the Company's revolving line
of credit, and the accrued interest incurred on the $5.0 million short-term
loan, dated May 30, 2000.
OTHER INCOME - NET. Other income - net decreased approximately $45,000 or
86.5%.
INCOME TAX (PROVISION) BENEFIT. The Company generated a pretax loss for the
three months ended June 30, 2000, thus generating a deferred tax benefit.
However, management believes the recoverability of the Company's current
and prior year's unused deferred tax asset is uncertain due to the recent
losses and therefore is recognizing no tax benefit in the current quarter.
MINORITY INTEREST IN EARNINGS OF AMERICAN UNIVERSITY IN DUBAI. Minority interest
in earnings increased approximately $53,000 or 11.0% due to an increase in
operating income at the Dubai campus.
NET INCOME (LOSS). For the reasons set forth above, the Company experienced a
net loss of approximately $2.0 million for the 2000 period compared to a net
loss of approximately $1.7 million for the 1999 period.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
NET REVENUES. Net revenues increased approximately $6.1 million or 18.9%. The
increase was due to an increase in student enrollment primarily at the four
Power Campuses and a tuition increase for both Traditional and Power Campuses.
COST OF EDUCATION AND FACILITIES. Cost of education and facilities increased
approximately $4.5 million or 26.6%. Of this amount, education costs increased
approximately $4.6 million or 40.4% due to an increase in the number of faculty
supporting the Power Campuses in conjunction with the campuses' enrollment
growth, as well as the related courseware, computer and other education costs.
Royalty expense decreased approximately $200,000 due to the termination of the
ITI Courseware licensing agreement in 1998, which impacted the 1999 period.
Facility costs increased approximately $139,000 or 2.6% as the result of space
growth in conjunction with the Power Campuses enrollment growth, as well as the
cost of maintaining dual sites for some locations during the transition to
larger or more accommodating locations. For the reasons set forth above, cost of
education and facilities increased as a percentage of net revenues to 55.8% in
the 2000 period from 52.4% in the 1999 period.
SELLING AND PROMOTIONAL EXPENSES. Selling and promotional expenses decreased
approximately $1.6 million or 23.8%. The decrease was a direct result of the
cost control efforts instituted by the Company and the more focused marketing
initiatives for both the Traditional and Power Campuses. As a percentage of net
revenues, selling and promotional expenses decreased to 13.3% in the 2000 period
from 20.8% in the 1999 period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $987,000 or 10.4%. As a percentage of net revenues,
however, general and administrative expenses decreased to 27.5% in the 2000
period from 29.6% in the 1999 period. The dollar increase was primarily due to
additions throughout 1999 of personnel at the new Power Campuses and the home
office to support the Company's growth, partially offset by the restructuring
efforts which began in December 1999. The increase also reflects the effects of
higher banking charges incurred for the liquidity challenges faced by the
Company in the 2000 period. With respect to the allowance for doubtful accounts,
approximately $336,000 was recorded in the 2000 period as normal operating
provision. Approximately $783,000 of uncollectible student receivables was
written-off against the allowance for doubtful accounts in June 2000. There was
no corresponding write-off in the 1999 period.
<PAGE> 13
AMORTIZATION OF GOODWILL. Goodwill amortization of $506,000 and $504,000 for the
2000 and 1999 periods respectively, was the result of the October 1996
acquisition of American European Corporation and Subsidiaries with goodwill
costs being amortized over a 40-year period.
INTEREST EXPENSE. Interest expense increased approximately $422,000 or 68.4% as
a result of increased outstanding borrowings under the Company's revolving line
of credit, and the accrued interest incurred on the $5.0 million short-term loan
dated May 30, 2000.
OTHER INCOME - NET. Other income - net decreased approximately $56,000 or 66.7%.
INCOME TAX (PROVISION) BENEFIT. The Company generated a pretax loss for the six
months ended June 30, 2000, thus generating a deferred tax benefit. however,
management believes the recoverability of the Company's current and prior
year's unused deferred tax asset is uncertain due to the recent losses and
therefore is recognizing no tax benefit for the first two fiscal quarters
combined.
MINORITY INTEREST IN EARNINGS OF AMERICAN UNIVERSITY IN DUBAI. Minority interest
in earnings decreased approximately $27,000 or 2.3% due to an increase in
operating expenses at the Dubai campus.
NET INCOME (LOSS). For the reasons set forth above, the Company experienced a
net loss of approximately $1.4 million for the 2000 period compared to a net
loss of approximately $2.1 million for the 1999 period.
SEASONALITY
The Company experiences seasonality in its results of operations
primarily as a result of changes in the level of student enrollments. While the
Company enrolls students throughout the year, the second and third fiscal
quarter revenues are lower than the first and fourth fiscal quarters, and the
second and third fiscal quarter costs and expenses are higher as a percentage of
net revenues than the first and fourth fiscal quarters. This seasonality is
partially mitigated by technology education programs, which are offered
throughout the year, at Power Campuses in California, Georgia, Florida, and the
District of Columbia.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operating activities and capital requirements,
including debt repayment, principally from cash provided by operating activities
and borrowings under bank facilities and, recently, from the proceeds of a
short-term loan from a third party.
The Company has a $10,000,000 revolving line of credit ("Line A") and a
$4,350,000 revolving line of credit ("Line B") with a bank (collectively, as
amended, the "Credit Agreement"). The Credit Agreement is secured by
substantially all of the Company's assets.
Line A, as amended, matures on the earlier of April 30, 2001, or 30
days after demand for payment by the bank, such demand to be presented no
earlier than September 30, 2000. Amounts outstanding under Line A bear interest
at the London Interbank Offered Rate ("LIBOR") plus 2.75%. At August 21, 2000,
the Company had outstanding borrowings under Line A of $8,088,640. In addition,
the Company had issued $1,911,360 in letters of credit against Line A. These
letters of credit are required as security under building leases in Los Angeles,
Washington, D.C., and Miami.
Line B, as amended, matures on September 30, 2000. Line B amounts
outstanding bear interest at the Prime rate plus 2.00%. At August 21, 2000, the
Company had outstanding borrowings under Line B of $4,350,000.
On May 30, 2000, the Company executed an amendment to the Credit
Agreement, pursuant to which all previous arrangement fees under the Credit
Agreement were consolidated into one fixed arrangement fee of $1,150,000. This
fee is payable on the later of 1) that date which is (30) days after the lender
makes demand for payment (but will be no earlier than September 30, 2000), 2)
the date of the retirement of amounts outstanding under the Credit Agreement, or
3) April 30, 2001. The first $250,000 of this fixed arrangement fee was charged
to operations in 1999. From January 1, 2000 through June 30, 2000, $291,734 was
charged to operations. The remaining $608,266 is being charged to operations at
the rate of $60,827 per month through April 30, 2001.
The Credit Agreement requires interest only payments until maturity.
While the Company has made all required interest payments through August 21,
2000, based on management's current projected earnings and cash flow, without
obtaining additional debt or equity capital, the Company's ability to make
future required payments of principal and interest on a timely basis is
presently in doubt.
On May 30, 2000, the Company received a $5,000,000 short-term loan from a
third party to finance the short-term working capital needs of the Company. The
loan, which matures on November 30, 2000, stipulates that the proceeds cannot be
used to repay or prepay amounts owed under the Credit Agreement. Amounts
outstanding under the loan bear interest at the Prime rate, and interest is due
quarterly. At August 21, 2000, the Company had outstanding borrowings under the
loan of $5,000,000. The loan is secured by substantially all of the Company's
assets, on an equal basis with loans under the Credit Agreement. Without
obtaining additional debt or equity capital, the ability of the Company to make
the required payments of principal and interest on a timely basis is presently
in doubt.
Purchases of property, plant, and equipment for the six months ended
June 30, 2000 were approximately $492,000. These purchases were primarily for:
(1) the completion of the build-out of the Miami campus; (2) customary hardware
and software costs; (3) investments in computer technology to support
information technology curriculum; and (4) increases in normal recurring capital
expenditures due to the overall increases in student and employment levels
resulting from the Company's growth. For the six months ended June 30, 2000, the
Company also capitalized curriculum development costs totaling approximately
$63,000. The Company expects to fund capital expenditures for existing and any
future new campuses through cash from operations and, if the Company is able to
obtain sufficient refinancing, through debt or sale of equity. However, there
can be no assurance that the Company will be able to fund its capital programs.
The Company's ability to fund its working capital and capital
expenditure requirements, implement new programs, make interest and principal
payments on its indebtedness, and meet its other cash requirements, depends on,
among other things, current cash and cash equivalents, internally generated
funds, the proceeds of the Company's Credit Agreement, and other loans. Based on
current estimates of cash flow, the Company does not believe it will have
sufficient cash resources to make required debt payments and to meet its other
cash requirements. The Company is evaluating various alternatives to address
both its liquidity requirements and its failure as of December 31, 1999 to meet
the financial responsibility standards of the Department of Education (discussed
below). The Company has retained The Robinson-Humphrey Company LLC to assist in
determining short-term and long-term financial requirements. Robinson-Humphrey
is advising the Company on various strategic alternatives, which include, but
are not limited to, business combinations, a strategic investment in the
Company, a refinancing of the Company's debt, or a combination thereof. The
objective of any such transactions would be to inject sufficient capital to
alleviate the current liquidity crisis, correct the ratio deficiencies, and also
to post any letters of credit, if required by the Department of Education. There
can be no assurance that the Company will be able to effect any such transaction
or obtain any such capital infusion as and when required, or on acceptable
terms.
The Department of Education requires that Title IV program funds
collected by an institution for unbilled tuition be kept in separate cash or
cash equivalent account until the students are billed for the portion of their
program related to these funds. In addition, all funds transferred to the
Company through electronic funds transfer programs are held in a separate cash
account until certain conditions are satisfied. As of June 30, 2000, the Company
had approximately $22,000 in these separate accounts to comply with these
requirements. These funds generally remain in these separate accounts for an
average of 3-14 days from the date of collection. These restrictions on cash
have not affected the Company's ability to fund daily operations.
All institutions participating in Title IV programs must satisfy
specific standards of financial responsibility. Institutions are evaluated for
compliance with those standards annually as each institution submits its audited
financial statements to the Department of Education (the Company has now
submitted its audited financial statements with respect to the year ended
December 31, 1999). The standards consist of an equity ratio, a primary reserve
ratio, and a net income ratio. An institution that is determined by the
Department of Education not to meet the standards is nonetheless entitled to
participate in Title IV programs if it can demonstrate to the Department of
Education that it is financially responsible on an alternative basis. An
institution may do so by demonstrating, with the support of a statement from a
certified public accountant, proof of prior compliance with the numeric
standards and other information specified in the regulations, and that its
continued operation is not jeopardized by its financial condition.
Alternatively, an institution may post surety either in an amount equal to 50%
of the total Title IV program funds received by students enrolled at such
institution during the prior year, or in an amount equal to 10% of such prior
year's funds. Additionally, an institution would agree to disburse those funds
only on a reimbursement basis (as described below). The Department of Education
has interpreted this surety condition to require the posting of an irrevocable
letter of credit in favor of the Department of Education.
As of December 31, 1999, the Company did not meet the financial
responsibility standards of the Department of Education. The Company anticipates
that it may be required to post an irrevocable letter of credit on or about
September 2000 in the amount of up to approximately $15.0 million, which
represents approximately 50% of the Title IV funds received by students during
the prior year. Alternatively, the Company may be required to post an
irrevocable letter of credit on or about September 2000 in the amount of up to
approximately $3.0 million, which represents approximately 10% of the Title IV
funds received by students during the prior year, or to reach some other
acceptable arrangement with the Department of Education. Approximately 50% of
the Company's revenue is derived from Title IV funds. Failure to post a letter
of credit, or reach some other acceptable agreement with the Department of
Education would result in the termination of the Company as an institution
eligible for Title IV financial aid and would negatively impact future cash
flows of the Company and possibly result in the Company being unable to continue
its normal operations. The Company has provided the Department of Education
certain information regarding its financial status and the low student loan
default rate. It has requested that the Department of Education consider such
information in connection with its decision to any surety.
With respect to the Company's not meeting financial responsibility
standards, or if the Company were deemed not to be in compliance with good
administrative practice with respect to financial aid, the Company could be
required to receive Title IV funds from the Department of Education under the
reimbursement payment method. Under this method, the Company would be required
to first make disbursements to eligible students and parents through credits to
the student's accounts before it requests or receives funds for those
disbursements from the Department of Education. Any requirement that the Company
operate under the reimbursement method would result in an approximate 30-60 day
delay in the receipt by the Company of tuition monies under Title IV. Failure to
finance the resulting additional liquidity needs could create material working
capital shortages for the Company, if the Company is required to receive
payments from the Department of Education under the reimbursement method. This
liquidity financing could be in addition to posting of a letter of credit in the
amount of up to approximately $15.0 million, which represents approximately 50%
of the Title IV funds received by students during the prior year. The Company
believes that its administrative practice with respect to financial aid is in
accordance with acceptable practice.
Certain states in which the Company operates have regulatory agencies
which perform their own financial capability reviews, which include fiscal
tests. The Company is not currently in compliance with some of these state
requirements. Management believes that, by successfully addressing the financial
responsibility standards of the Department of Education, it will meet the
financial requirements of all the states in which it operates, although there
can be no assurance of such.
<PAGE> 14
IMPACT OF INFLATION
The Company does not believe its operations have been materially
affected by inflation.
<PAGE> 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk
No response is required to this item.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On Friday, June 23, 2000, the Company held its Annual Meeting of
Shareholders. At the meeting, the following persons were elected to serve on the
Company's Board of Director's for a term of one year and until their successors
are elected and have qualified: Steve Bostic, Paul D. Beckham, Fred C. Davison,
Gaylen D. Kemp, J. Robert Fitzgerald, Ronald P. Hogan, and Gerald Tellefsen. The
number of votes cast for and against the election of each nominee for director
was as follows:
<TABLE>
<CAPTION>
Authority
to Vote
Director For Withheld
---------------------- -------------------- -----------------
<S> <C> <C>
Steve Bostic 77,703,539 20,217
Paul D. Beckham 77,704,079 19,677
Fred C. Davison 77,704,079 19,677
Gaylen D. Kemp 77,704,079 19,677
J. Robert Fitzgerald 77,704,079 19,677
Ronald P. Hogan 77,704,079 19,677
Gerald Tellefsen 77,704,079 19,677
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.5.7 - Seventh Amendment to Credit Agreement dated May 30, 2000
between the Company and First Union National Bank
10.7 - Promissory Note dated May 30, 2000 in principal amount of
$5,000,000.
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. During the quarter ended June 30, 2000, the
Company filed one Current Report on Form 8-K reporting certain
events under Item 5 of the Form.
<PAGE> 16
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.
EDUTREK INTERNATIONAL, INC.
Date: August 21, 2000 By: /s/ Steve Bostic
----------------------------------
Steve Bostic, President and
Chief Executive Officer
(principal executive officer)
Date: August 21, 2000 By: /s/ David J. Horn
---------------------------------
David J. Horn, Chief Financial
Officer (principal financial and
accounting officer)
