<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1995
Commission file number 1-13722
WHITMAN MEDICAL CORP.
(Exact name of registrant as specified in its charter)
New Jersey 22-2246554
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
485 Building E, U.S. Highway One South
Iselin, New Jersey 08830-3005
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (908) 636-3640
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, no par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
<PAGE>
The aggregate market value of the Common Stock held by non-affiliates
of the registrant on June 13,1995 was $13,657,607. On such date the closing
price of the Common Stock on the American Stock Exchange was $5.875.
The number of shares outstanding of registrant's common stock, as of
June 13, 1995, was 3,978,879.
Documents incorporated by reference. None
2
<PAGE>
PART I
Item 7. Management Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations Fiscal Year 1995 Compared to 1994
In fiscal 1995, Whitman had a net loss of $354,979, or $.10 per
share. The 510,806 shares that remain in escrow in connection with the SBC
acquisition are not considered outstanding for the purposes of the per share
loss computation as their effect is anti-dilutive. In fiscal 1994, Whitman
had net income of $213,561, or $.06 per share.
Whitman had total revenues of $11,759,258 for fiscal 1995, as
compared to total revenues of $6,158,203 for fiscal 1994. For fiscal year
1995, virtually all of Whitman's revenues were generated by its school
operations. Beginning on December 21, 1994 and for the period through the
fiscal year ended March 31, 1995, Whitman's school operations also included
the activities of its wholly-owned subsidiary Sanford-Brown College, Inc. Of
Whitman's total fiscal 1995 revenues, $7,570,591 were earned by UDS and
$4,188,667 were earned by SBC.
In fiscal 1995, the contribution to the operating performance of
Whitman from each of its two school operations, UDS and SBC, was:
UDS SBC
--- ---
Total revenues $ 7,570,591 $ 4,188,667
Operating expenses 7,787,622 3,761,095
Operating (loss) income (217,031) 427,572
Interest expense, net 135,993 132,057
Pretax (loss) income (353,024) 295,515
SBC interest expense includes $148,062 attributable to the bank debt
associated with its acquisition by Whitman. Pretax loss and income of each
subsidiary does not include any attribution of Whitman's corporate overhead of
$330,405.
182431-1
3
UDS' revenues increased 23% in fiscal 1995 as compared to fiscal
1994. The increase was due, almost equally, to the increased tuition rate of
the general ultrasound program and to an increase in enrollment in career
programs attributable to the new CVT and MA programs.
Enrollment in the general ultrasound program at March 31, 1995
declined 11% compared to enrollment at March 31, 1994 due, principally, to the
cancellation of three classes scheduled to start in fiscal 1995 and to a
decrease in retention in the general ultrasound program from 91% in fiscal
1994 to 86% in fiscal 1995.
Starting with the November 1993 class, an expanded general
ultrasound program with an increased tuition rate was offered in nine UDS
facilities; and all UDS facilities offered the expanded program starting with
the February 1994 class. UDS tuition increase affected approximately 79% of
the students whose tuition was recognized as revenues for fiscal 1995. In
fiscal 1995 all students newly enrolled in the general ultrasound program pay
the higher tuition. The expanded program required additional expenditures for
instructors and equipment. Demand for the general ultrasound program remains
stable and UDS has increased the tuition rate in fiscal 1996. Management
believes the planned increase in the general ultrasound tuition rate will not
have an adverse effect on enrollment and ultimately will result in increased
revenues and profits.
Revenues from continuing medical education (CME) courses decreased
by approximately 10% in fiscal 1995 compared to fiscal 1994 due, principally,
to a decrease in revenue from the MRI course. Management believes that
interest in this specialty has waned. Revenues from UDS' other CME courses
increased in fiscal 1995 compared to 1994. Management believes the CME courses
will continue to offer an opportunity to increase revenues per facility.
During fiscal 1995, UDS began a planned expansion to increase the
number of career programs offered. Two new programs, the CVT program and the
MA program, are being phased in during fiscal 1995 and 1996. When the
expansion is complete, each UDS facility will have quadrupled, on the average,
its number of full-time employees. Teaching and other personnel have been
hired. To teach the program and better equip its ultrasound laboratories, UDS
acquired state- of-the-art color flow doppler scanning machines for all of its
teaching facilities. To accommodate the MA program, school facilities had to
be expanded and new specialized rooms added. During fiscal 1995, UDS expanded
11 of its 15 teaching facilities to accommodate the MA program and acquired
computers, laboratory equipment and furniture for those facilities. The
remaining four facilities will be similarly expanded and equipped in fiscal
1996. Management believes Whitman will not realize the benefits from this plan
until the fourth quarter of fiscal 1996 when the physical expansion of the UDS
facilities and the implementation of its new programs are substantially
complete. Management believes that the additional programs will increase
revenues and generate profits by more efficient utilization of the individual
UDS teaching facilities.
Cost of educational services were $6,179,696 in costs in fiscal 1995
as compared to $3,415,312 in fiscal 1994. Of the $6,179,696 in costs in fiscal
1995, $4,294,618 was incurred by UDS and $1,885,078 was incurred by SBC.
182431-1
4
<PAGE>
At UDS, cost of educational services increased approximately 26% in
fiscal 1995 as compared to fiscal 1994. The major components of this category
that increased in fiscal 1995 were instructor payroll, administrative and
sales payroll, rent expense and the cost of books offered for sale. Instructor
payroll increased in fiscal 1995 due, principally to the addition of
instructors to teach the new CVT and MA programs and to the increased cost of
teaching the expanded general ultrasound program. Administration and sales
payroll increased in fiscal 1995 because of the addition of full-time school
sales and administrative staff necessary to operate the expanded school
facilities. Facility rent increased in fiscal 1995 because of the relocation
or expansion of 11 school facilities to larger, more expensive quarters. Books
were offered for sale to students for the first time in fiscal 1995.
General and administrative expense was $5,699,426 in fiscal 1995 as
compared to $2,427,051 in fiscal 1994. Of the $5,699,426, $3,823,409 was
incurred by UDS, representing an increase of approximately $1,400,000, and
$1,876,017 was incurred by SBC.
At UDS, general and administrative expense increased approximately
$1,400,000 or 58% in fiscal 1995 as compared to fiscal 1994. Payroll increased
approximately $392,000, from approximately $925,000 to approximately
$1,317,000, in fiscal 1995. The increase was due, primarily, to the addition of
employees at the corporate office to provide the management structure necessary
to operate the presently expanded schools and the future planned school
expansions and to the addition of employees at the schools to provide expanded
levels of student services. Bad debt expense at UDS increased approximately
$331,000, from approximately $71,000 to approximately $402,000, in fiscal 1995.
The following table reflects the activity in the allowance for doubtful
accounts and bad debt expense for fiscal 1995:
<TABLE>
<CAPTION>
Allowance for doubt- Twelve December 21, 1994
ful accounts roll- months ended to March 1995
forward March 31, 1995 Consolidated
UDS SBC WHITMAN
- --------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Beginning balance $138,582 $943,999 $1,082,581
Bad debt expense 402,304 429,078 831,382
Charged off during year (394,132) (518,967) (913,099)
Ending balance $146,754 $854,110 $1,000,864
</TABLE>
UDS increased the amount of allowance for doubtful accounts charged to expense
in fiscal 1995, in part, to reflect the increase in accounts receivable
outstanding from students in the Cleveland and Dallas facilities. The Cleveland
and Dallas facilities were not able to utilize Title IV program funds until the
fourth quarter of fiscal 1995 and a number of sudents completed their programs
with substantial unsecured, unpaid balances. UDS evaluated the balances and
consistently applied its reserve calculation to determine the associated bad
debt expense. In addition, UDS identified and charged off $262,000 in fiscal
1995. During fiscal 1995, credit terms and collection procedures did not change
significantly. Depreciation and amortization increased $163,000,
from $313,000 to $476,000 in fiscal 1995, principally, because of the expenses
associated with $1,200,000 of new capital equipment and leasehold improvements
acquired primarily in fiscal 1995. These capital items were acquired in
connection with the new CVT program and to improve the equipment used in the
existing ultrasound program. Advertising expense increased $68,000, from
$271,000 to $339,000 in fiscal 1995, due to the increased level of advertising
necessary to acquire the additional students for the newly available programs in
conjunction with the expansion plan. Travel expense increased $79,000 from
$89,000 to $168,000 in fiscal 1995. The increase reflects travel and meetings
conducted in order to train personnel and prepare facilities for the planned
school expansion. General administrative expenses, including professional fees,
increased $111,000, from $392,000 to $503,000 in fiscal 1995. The increase in
these expenses reflects the additional costs of operating the expanded corporate
office and expanded school facilities and the costs associated with the
anticipated additional future expansion.
Whitman has been able, and anticipates that at current rates of
inflation it will continue to be able, to increase tuition to accommodate
increases in costs due to inflation.
For accounting purposes, tuition income is recorded as income in the
period in which it is earned and any unearned portion is treated as deferred
tuition revenue, a liability account. In fiscal 1995 deferred tuition revenue
increased $3,122,639 as compared to fiscal 1994; of the increase, $1,617,586
was attributable to SBC and $1,505,053 to UDS. At UDS, the increase in
deferred tuition revenue was due, principally, to the fact that most of the
deferred tuition revenue per student enrolled at March 31, 1995 was at a
higher tuition rate than the deferred tuition revenue per student enrolled at
March 31, 1994.
SFAS #115. The Financial Accounting Standards Board has recently
issued Statement of Financial Accounting Standard No. 115 Accounting for
Certain Investments in Debt and Equity Securities ("SFAS #115"). Whitman adopted
SFAS #115 in fiscal year 1995 which had no material impact on its financial
position or results of operations.
182431-1
5
<PAGE>
Results of Operations Fiscal Year 1994 Compared to 1993
In fiscal 1994, Whitman had net income of $213,561, or $.06 per
share. In fiscal 1993, Whitman had a net loss of $280,263, or $.08 per share
consisting of a loss from continuing operations of $115,318 ($.03 per share)
and a loss from discontinued operations of $164,945 ($.05 per share).
Whitman had revenues of $6,158,203 for fiscal 1994, as compared to
revenues of $4,268,406 for fiscal 1993. All but an insignificant amount of the
Company's revenues in fiscal 1994 were received from UDS. Revenues increased
in fiscal 1994 due to increases in enrollment and tuition. Enrollment in the
general ultrasound program increased by 26% in fiscal 1994 as compared to
fiscal 1993. During fiscal 1993 four facilities were opened. Two of the four
new facilities made no significant impact on fiscal 1993 revenues but did so
on fiscal 1994 revenues.
UDS revenues for fiscal 1993 were reduced because of two events in
Massachusetts. The relocation of the Massachusetts facility from Norwood to
Marlborough, Massachusetts disrupted recruitment for the February 1993 class
and the class was canceled. In addition, tuition refunds were made to settle
claims of students enrolled at the Massachusetts facility, principally in the
February 1991 class. Professional fees were incurred in fiscal 1993 in
connection with these claims. All the claims were resolved and management
believes that these charges and expenses were one time and non-recurring in
nature. Fiscal 1993 revenues also suffered from a low enrollment in the spring
1992 class. Revenues from continuing medical education courses increased from
$276,470 in fiscal 1993 to $583,005 in fiscal 1994. The increase was due,
primarily, to the MRI course which UDS offered in nine facilities in the
second quarter of fiscal 1994 and 15 locations in the fourth quarter of fiscal
1994.
Cost of educational services increased $858,000 in
fiscal 1994 as compared to fiscal 1993. In fiscal 1994, cost of sales and
services related entirely to the operations of UDS. The two major components
of this category that increased were payroll and facility rent. School related
payroll increased $587,000, from $1,572,000 to $2,159,000 in fiscal 1994.
Facility rent increased $241,000 from $448,000 to $689,000 in fiscal 1994. These
increases reflected a year of operating expenses in fiscal 1994 of the newly
opened facilities (Houston and Dallas, Texas, Jacksonville, Florida, Pittsburgh,
Pennsylvania, and Cleveland, Ohio) compared to a partial year of operating
expenses for those same facilities in fiscal 1993. In addition, in fiscal 1994
UDS relocated two facilities (Philadelphia, Pennsylvania and Iselin, New Jersey)
to larger, more costly premises.
In fiscal 1994, UDS incurred general and administrative expense of
$2,427,051, an increase of $597,000 as compared to fiscal 1993. Payroll
increased $153,000, from $555,000 to $708,000, in fiscal 1994. Depreciation and
amortization increased $136,000, from $202,000 to $338,000 in fiscal 1994,
principally, because of the expenses associated with $350,000 of new capital
equipment and leasehold improvements acquired in fiscal 1994. These capital
items were acquired, primarily, to enable UDS to improve the equipment used in
its existing ultrasound program and to prepare to offer its new CVT program.
Advertising expense increased $133,000, from $154,000 to $287,000 in fiscal
1994, due to the increased level of advertising to attract students to enroll in
its new school facilities. Fees related to a proposed acquisition of $155,000
were incurred in fiscal 1994 as compared to $77,000 in fiscal 1993. When it was
determined the acquisition would not be consummated, the related costs were
expensed in the period.
182431-1
6
<PAGE>
At March 31, 1994 deferred tuition revenue totaled $3,348,829 as
compared to $2,698,620 at March 31, 1993. The increase in deferred tuition
revenue was due to the fact that the number of students enrolled at March 31,
1994 was greater than at March 31, 1993, and that most of the deferred tuition
revenue per student enrolled at March 31, 1993 was at a lower tuition rate
than the deferred tuition revenue per student enrolled at March 31, 1994.
UDS revenues for fiscal 1993 were reduced because of two events in
Massachusetts. The relocation of the Massachusetts facility from Norwood to
Marlborough, Massachusetts disrupted recruitment for the February 1993 class
and the class was cancelled. In addition, tuition refunds in the amount of
approximately $42,000 were made to settle claims of students enrolled at the
Massachusetts facility, principally in the February 1991 class. Professional
fees were incurred in fiscal 1993 in connection with these claims. All the
claims were resolved and management believes that these charges and expenses
were one-time and non-recurring. Fiscal 1993 revenues also suffered from a
low enrollment in the spring 1992 class. Revenues from continuing medical
education courses increased from $276,470 in fiscal 1993 to $583,005 in
fiscal 1994. The increase was due, primarily, to the MRI course which UDS
offered in nine facilities in the second quarter of fiscal 1994 and fifteen
locations in the fourth quarter of fiscal 1994.
In fiscal 1993, revenue increased 11% or $419,000. UDS
opened four new school facilities in fiscal 1993. Houston, Texas opened in
June 1992, Jacksonville, Florida opened in December 1992, Dallas, Texas and
Pittsburgh, Pennsylvania both opened in March 1993. Of the $419,000 increase
in fiscal 1993 revenues over fiscal 1992, $397,000 was due directly from the
revenue of the four new school facilities. The remaining increase, $22,000,
was due to the increase in tuition charges.
In fiscal 1994, revenue increased approximately 44% or $1,890,000. Of the
increased revenue, $213,000 was due to the tuition increase which took effect
in eight school facilities in November 1993 (Atlanta, Georgia, Houston and
Dallas, Texas, Pittsburgh and Philadelphia, Pennsylvania, Pompano Beach,
Tampa and Jacksonville, Florida) and the remaining seven school facilities in
February 1994. The remainder of the increased revenue, $1,677,000, was due to
the revenue from the five new school facilities (Houston and Dallas, Texas,
Pittsburgh, Pennsylvania, Jacksonville, Florida and Cleveland, Ohio). Of the
five new school facilities, one was opened in June 1992, one was opened in
December 1992, two were opened in March 1993 and one was opened in June 1993.
Whitman discontinued its medical device business in fiscal 1993.
Revenues from that business were not significant in fiscal 1993, and Whitman
incurred losses totaling $164,945, net of a federal income tax benefit of
$55,088 which arose from the utilization of a net operating loss carry back of
approximately $190,000. Whitman plans to dispose of its remaining patents and
related medical device products.
7
<PAGE>
Liquidity and Capital Resources
At March 31, 1995, the Company had cash on hand of
$1,970,104, as compared to $1,369,462 at March 31, 1994. The increase in cash
on hand was due, primarily, to the receipt by the Company of approximately
$908,000 from Frost-Nevada in March 1995 upon the exercise of stock purchase
warrants (See, "Certain Relationships and Related Transactions"). Included in
cash on hand at March 31, 1995 were $312,000 set aside in accordance with
Department of Education regulations to be available for student refunds.
Receivables at March 31, 1995 were $14,216,126 (net of an allowance of
$1,000,864 for doubtful accounts), compared to receivables of $5,399,170 (net
of an allowance of $138,582 for doubtful accounts) at March 31, 1994. Of the
$14,216,126 in accounts receivable, $7,330,306 was held by UDS and $6,885,820
was held by SBC.
The Company's primary source of operating liquidity is the
cash received from payments of tuition and fees. At both UDS and SBC, most
students receive some form of financial aid under the Title IV federal student
financial aid programs. Disbursements under each program are subject to
disallowance and repayment by the Schools. At present, SBC has an open program
review on its Title IV activity for the award years 1992 through 1994. No
determination as to whether a liability exists or the amount of liability,
should one exist, can be made. Accordingly, no contingency is reflected. UDS has
no known liabilities related to its Title IV programs. Should the Schools be
limited, suspended or terminated from the Title IV programs, from which UDS and
SBC receives 66% and 76% of its funding, respectively, the result would have a
material negative impact on the results of operations, liquidity and net worth
of the Company. The Company will continue to evaluate the effect of any changes
in these contingencies and, as determinable, will reflect their impact in the
financial statements. At present, there are no known environmental contingencies
or issues.
The Company has entered into master equipment leases
totaling $2,190,000 to finance the purchase of capital equipment. At March 31,
1995, approximately $700,000 remained available under those leases with which
to purchase capital equipment.
The Company has available to it a bank line of credit
expiring August 31, 1996 in the amount of $500,000 and a working capital
facility expiring April 16, 1996 in the amount of $2,500,000. At March 31,
1995, the entire bank line of credit was available for use and the working
capital facility had approximately $876,000 available for use. Since March 31,
1995, cash flow
8
<PAGE>
generated from the operations of SBC, particularly cash received from the
federal government upon the recertification of SBC in May 1995, have been
applied to reduce the outstanding balance in the working capital facility.
Management believes the cash flow from SBC operations will be sufficient to
repay the balance on the working capital facility in fiscal 1996.
In fiscal 1995, the Company used cash in operating
activities of $2,687,421 as compared to $706,497 used in fiscal 1994. Of the
$2,687,421 in cash used in operating activities in fiscal 1995, UDS used
$1,328,993 in operations and SBC used $1,358,428 in operations.
At UDS, the cash used in operating activities was due,
principally, to the expenditures utilized to expand UDS (management, staff,
programs, equipment and size of facilities) in advance of the receipt of
revenues from anticipated expanded enrollments in existing and new programs
and to an increase in accounts receivable. The increase in accounts receivable
was due, principally, to the increase in the tuition rate of the general
Ultrasound program and to the delay until the fourth quarter of fiscal 1995
that the Cleveland and Dallas facilities experienced in receiving approval for
participation in Title IV programs. Title IV money is received periodically by
the institution at points determined by Title IV regulations based upon the
program in which the student is enrolled and attending. At UDS, historically,
revenue has recognized in advance of the related cash flow. In addition, once
a facility is approved to participate in the programs there is a delay of
several months before funds are received by the institution. At March 31,
1995, accounts receivable related to the Cleveland and Dallas facilities were
approximately $850,000. Management believes that UDS will continue to use cash
in the first three quarters of fiscal 1996 but by the fourth quarter the UDS
planned expansion will begin to generate positive cash flow from operations.
Management further believes that the excess cash generated from SBC
operations, the availability of the bank line of
9
<PAGE>
credit and the working capital facility and the balance available under the
master equipment leases will be sufficient to provide the necessary resources
to accomplish the expansion of UDS.
On December 21, 1994 as a result of its change of ownership,
SBC was automatically required to cease awarding and disbursing Title IV funds
to many of its students, pending recertification by the United States
Department of Education. The cash used in operating activities at SBC in
fiscal 1995 was due to the decertification of SBC. SBC was recertified to
participate in Title IV programs in May 1995. In anticipation of the negative
impact on cash flow caused by this process, the Company, on the guaranty of
Frost-Nevada, obtained the $2,500,000 working capital facility. Upon
recertification most of the Title IV funds for student tuitions which were
delayed have been or will be recoverable from the government. SBC has
established long term tuition payment plans with the students for the funds
which are not recoverable. Management believes that any negative impact upon
bad debts will not be material.
UDS and SBC have been approved for participation in the
federal government's program of direct lending beginning in July 1995. Direct
lending provides Title IV loans to eligible students directly from the federal
government bypassing traditional lending institutions. Management believes
participation in direct lending will have a positive affect on cash flow.
As part of the recertification process the Department of
Education conducted program reviews of SBC. As a result of the program reviews
the Department of Education placed SBC on reimbursement for certain Title IV
programs, the only such program significant to SBC being the Pell Grant
program. Management believes that although reimbursement will result in some
delay in receipt of Pell Grant revenues, SBC will continue to generate
positive cash flow sufficient for its operating requirements and to repay the
working capital loan.
10
<PAGE>
In order to finance the acquisition of SBC, the Company
obtained a bank term loan in the amount of $6,000,000 which is due on April
16, 1996. The loan could not be obtained by the Company without the guaranty
of Frost-Nevada. The Company does not expect to have sufficient positive cash
flow by April 16, 1996 to repay the entire obligation. The Company intends to
seek financing which may include an extension of the due date of the term
loan, refinancing of the loan and/or equity financing. There are no assurances
that the Company will continue to have the Frost-Nevada guaranty available to
it. If the Company is not able to refinance the term loan it could have a
material adverse effect on the Company's net income (loss), liquidity and
equity.
11
<PAGE>
PART III
Item 11. Executive Compensation
Tables I, II and III set forth the compensation and stock
options paid, accrued or issued by the Company with respect to the executive
officers of the Company. The Company has no stock appreciation or long term
incentive plans.
12
<PAGE>
<TABLE>
<CAPTION>
TABLE I
Summary Compensation Table
Annual Compensation
- ---------------------------------------------------------------------------------------------------------
Other Annual
Name and Principal Year ended Compensation
Position March 31,1995 Salary ($) Bonus ($) ($) (1)
- -------------------------- ------------- ---------- --------- ---------------------
<S> <C> <C> <C> <C>
Randy Proto(2) 1995 43,269(3) 0 0
President 1994
1993
Marvin Gordon 1995 115,758 0 1,670
Vice President 1994 115,758 0 1,713
1993 109,425 0 1,653
Joseph Lichtenstein 1995 115,758 0 1,716
Vice President 1994 115,758 0 1,629
1993 109,425 0 1,674
<CAPTION>
Long Term Compensation
--------------------------------------------------------------------------
Award Payouts
--------------- --------------------- ------------- ---------------------
Restricted
Stock LTIP All Other
Award(s) Options/SARs Payouts Compensation
($) (#) ($) ($)
--------------- ---------------------- ------------ -------------
<S> <C> <C> <C> <C>
Randy Proto 0 275,000 0 0
President
Marvin Gordon 0 0 0 0
Vice President 0 0 0 0
0 100,000 0 0
Joseph Lichtenstein 0 0 0 0
Vice President 0 0 0 0
0 100,000 0 0
- ------------------------------------------------------------
</TABLE>
(1) The Company provides use of a corporate automobile.
(2) Mr. Proto succeeded Mr. Marvin Gordon as the Company's President
effective November 25, 1994.
(3) Based on Mr. Proto's annual salary of $150,000.
13
<PAGE>
TABLE II
Option/SAR Grants during the Year ended
March 31, 1995
<TABLE>
<CAPTION>
Individual Grants
- ------------------------ ------------------------------------------------------- -----------------------
Number of
Securities
Underlying % of Total Options/SARs
Options/SARs Granted to Employees in Exercise or Base
Name Granted (#) Fiscal Year Price ($/Share)
- ---- --------------- --------------------------------- -----------------
<S> <C> <C> <C>
Randy Proto 275,000 72.9% $4.25
Marvin Gordon 0 0 0
Joseph Lichtenstein 0 0 0
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Option Term
---------------------- ------------------------------------------
Expiration
Date 5% 10%
------------- ----------------- ------------
<S> <C> <C> <C>
Randy Proto 11/24/04 1,903,771 3,031,437
Marvin Gordon 0
Joseph Lichtenstein 0
</TABLE>
14
<PAGE>
TABLE III
Aggregated Option/SAR Exercises in 1995
and Options/SAR Values at March 31, 1995
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SAR Option/SARs
at March 31, 1995 at March 31, 1995
Shares Acquired Value Realized (#) Exercisable/ ($) Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
- ---- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Randy Proto 0 0 275,000 (1) (2)U 653,125 U
Marvin Gordon 5,000 0 (3) 100,000 (1) E 225,000 E
Joseph Lichtenstein 15,000 0 (3) 100,000 (1) E 225,000 E
- --------------------------------------
<FN>
(1) These represent unexercised options.
(2) These shares vest over five years. At March 31, 1995, 0 (zero) shares were vested.
(3) The exercise price exceeded the market price at the date of exercise.
- --------------------------------------
E Exercisable
U Unexercisable
</TABLE>
15
<PAGE>
Randy S. Proto receives an annual salary of $150,000. He has
no employment agreement with the Company. In consideration of Mr. Proto's
agreement to enter the employ of the Company and become its President, Mr.
Proto was granted options to purchase 275,000 of the Company's Common Stock at
a price of $4.25 a share. The options granted Mr. Proto vest over a period of
five years. The first portion of those options vest on November 25, 1995.
Messrs. Gordon and Lichtenstein had identical employment
agreements that expired on April 5, 1995 which provided for basic salaries of
$100,000 each per annum adjusted for any increase in the cost of living. With
the expiration of his employment agreements, Mr. Lichtenstein has continued to
receive the same salary as before. Mr. Gordon's duties and functions with the
Company have been reduced since the expiration of his employment agreement and
his salary has been reduced commensurately.
The Company's Directors and Consultants Stock Option Plan
provides that once a year members of the Company's Board of Directors who are
not employees of the Company automatically receive stock options in accordance
with a formula award. In fiscal 1995, pursuant to that provision, options at
an exercise price of $4.88 a share were automatically granted to Dr. Frost
(25,000 shares), Mr. Kaye (5,000 shares) and Mr. Pfenniger (5,000 shares). In
addition, in connection with their joining the Board of Directors in fiscal
1995, Messrs. Borsting and Knight were granted options to purchase 5,000
shares each at a price of $6.375 per share under the Directors and Consultants
Stock Option Plan.
16
<PAGE>
Item 12. Security Ownership of Certain
Beneficial Owners and Management
The following table sets forth information as of June 1,
1995 concerning stock ownership of all persons known by the Company to own
beneficially five (5%) percent or more of the Company's Common Stock. Except
as otherwise indicated, all shares are beneficially owned and the sole
investment and voting power is held by each person set forth herein.
17
<PAGE>
<TABLE>
<CAPTION>
Amount and
Name and Address of Beneficial Percent
Title of Class Beneficial Holder Ownership of Class
- -------------- ------------------- ---------- ---------
<S> <C> <C> <C>
Common Stock Marvin Gordon 207,983 (1) 5.1%
20 Ivy Court
Perrineville
New Jersey 08535
Common Stock Joseph Lichtenstein 221,983 (1) 5.4%
101 Devon Road
Colonia
New Jersey 07067
Common Stock Frost-Nevada, 1,923,814 (2) 43.7%
Limited Partnership
3500 Lakeside Court
Suite 200
Reno, Nevada 89509
Common Stock Azure Limited (4) 600,000 15.1%
c/o Charter Management
Limited
P.O. Box 134
Town Mills
Trinity Square
St. Peter Fort
Guernsey Channel Islands
Common Stock SBC Liquidating, Inc. 98,232 (3) 2.5%
<FN>
(1) Includes 100,000 shares which can be obtained by the exercise of
stock options within 60 days.
(2) Includes 425,000 shares which can be obtained by the exercise of
stock purchase warrants within 60 days and 75,000 shares which can be
obtained by Dr. Phillip Frost by the exercise of stock options within
60 days. Exercise of these warrants and options are subject to the
restrictions of the New Jersey Shareholders Protection Act.
(3) Does not include 510,806 shares registered in the name of SBC
Liquidating, Inc. that are held in escrow. In connection with the
purchase by the Company of Sanford-Brown College, 609,038 shares of
the Company's Common Stock were registered in the name of SBC
Liquidating, Inc. and were delivered into escrow under an agreement
which provides for the return to the Company of all or a portion of
the escrowed shares upon the occurrence of
</TABLE>
18
<PAGE>
certain contingencies. Mr. James Combs, the prior owner of SBC,
is the sole shareholder of SBC Liquidating, Inc. Among
other things, all of the shares were required to be returned
to the Company if the United States Department of Education
failed to recertify SBC for participation on the Title IV programs.
SBC Liquidating, Inc. disclaimed beneficial ownership of the escrowed
shares. In May of 1995 SBC was recertified by the United States
Department of Education and 98,232 of the escrowed shares were
delivered to SBC Liquidating, Inc. The balance of the escrowed shares
remain in escrow and continue to be subject to return to the Company
upon the occurrence of certain contingencies. SBC Liquidating, Inc. has
disclaimed beneficial ownership of any of the shares except for the
98,232 delivered to it out of escrow.
(4) Azure Limited holds the referenced shares as Trustee for the benefit of
Charter Trust Company Limited ("Charter"), a limited liability
corporation oranized under the laws of Guernsey, a Channel Island which
is part of the United Kingdom. Charter holds such shares through Azure
Limited, as Trustee, for the I. Kaye Family Trust (the "Trust"), which
was created by Mr. Isaac Kaye, a director of Whitman, in March 1988.
The beneficiaries of the Trust includes Mr. Kaye's children and remote
issue (including their spouses) of Mr. Kaye's father, any person or
class of persons selected by the trustee of the Trust and such
charities as the trustee shall from time to time select; provided,
however, that neither the trustee, Mr. Kaye or his spouse (during the
lifetime of Mr. Kaye), nor any other person excluded by the trustee may
be a beneficiary of the Trust. Mr. Kaye disclaims beneficial ownership
of the shares owned by the Trust.
The following table sets forth information as of June 1,
1995 concerning the number of shares of Common Stock beneficially owned by
each director and officer and by all directors and officers of the Company as
a group.
<TABLE>
<CAPTION>
Amount and
Nature of
Title of Name of Beneficial Beneficial Percent
Class Owner Ownership (1) of Class
- --------------------------- --------------------------------- -------------------------- -----------------
<S> <C> <C> <C>
Common Stock Marvin Gordon 207,983 (2) 5.1%
Common Stock Joseph Lichtenstein 221,983 (2) 5.4%
Common Stock Phillip Frost, M.D. 1,923,814 (3) 43.7%
Common Stock Isaac Kaye 15,000 (4) (5)
Common Stock Richard C. Pfenniger, Jr. 40,000 (4) 1.0%
Common Stock Peter S. Knight 5,000 (4) (5)
Common Stock Jack R. Borsting 5,300 (6) (5)
Common Stock Randy S. Proto 100 (5)
Common Stock All officers and directors
as a group (8 persons) 2,419,180 51%
</TABLE>
(1) All shares are beneficially owned and the sole investment power is
held by the persons named except as otherwise indicated.
19
<PAGE>
(2) Includes 100,000 shares which can be obtained by the exercise of
stock options within 60 days.
(3) Includes 425,000 shares which can be obtained by the exercise of
stock purchase warrants registered in the name of Frost-Nevada,
Limited Partnership within 60 days and 75,000 shares which can be
obtained by Dr. Frost by the exercise of stock options within 60
days. Exercise of these warrants and options are subject to the
restrictions of the New Jersey Shareholders Protection Act.
(4) Consists of shares which can be obtained by the exercise of stock
options within 60 days.
(5) Less than one (1%) percent.
(6) Includes 5,000 shares which can be obtained by the exercise of stock
options within 60 days.
The Company does not know of any arrangements, the
operations of which may at a subsequent date result in a change of control of
the Company.
20
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements,
Schedules and Reports on Form 8-K.
(a) Financial Statements: See pages F-l through F-17 of Item 8 in the
section following the signature page of this Report.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors F-l
Consolidated Balance Sheet F-3
Consolidated Statements of
Operations F-4
Consolidated Statements of
Changes in Stockholders' Equity F-5
Consolidated Statements of
Cash Flow F-6
Notes to Consolidated
Financial Statements F-7
</TABLE>
All of the schedules have been omitted because of the absence of the
conditions under which they are required or because the required information
is included in the consolidated financial statements or the notes thereto.
(b) There was one report on Form 8-K filed during
the last quarter of the year ended March 31, 1995 reporting on the closing of
the acquisition of Sanford Brown-College (See, "Business-Acquisition of Sanford-
Brown College").
(c) Exhibits.
21
<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.
WHITMAN MEDICAL CORP.
By: /s/ Randy S. Proto
------------------------
Randy S. Proto, President
Dated: January 19, 1996
22
<PAGE>
<TABLE>
<CAPTION>
Filed Herewith
or Incorporated
Number Title By Reference
- ------ ----- ---------------
<S> <C> <C>
3.1 Certificate of Incorporation (1)
3.2 By-Laws, as amended (2)
10.5 Form of 1982 Incentive (3)
Stock Option Plan
10.9 Form of Directors and (4)
Consultants Stock Option Plan
10.11 Form of Employment Agreement (5)
with Joseph Lichtenstein
10.12 Form of Employment Agreement (5)
Marvin Gordon
10.13 Common Stock Purchase Agreement (6)
between Whitman Medical Corp. and
certain investors, dated as of April 6, 1992
10.14 Registration Rights Agreement (6)
dated as of April 6, 1992
10.16 First Amendment to Employment (6)
Agreement to Joseph Lichtenstein
10.17 First Amendment to Employment (6)
Agreement of Marvin Gordon
10.18 Amended and Restated 1981 Non-Qualified (7)
Stock Option Plan
10.19 Amended and Restated 1982 Incentive (7)
Stock Option Plan
10.20 Amended and Restated 1986 Directors (7)
and Consultants Stock Option Plan
10.21 1992 Incentive Stock Option Plan (8)
10.22 Asset Purchase Agreement, dated November 30, (9)
1994 among Whitman Medical Corp., Whitman
Acquisition Corporation, Sanford-Brown College,
Inc., James L. Combs
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Filed Herewith
or Incorporated
Number Title By Reference
- ------ ----- ---------------
<S> <C> <C>
10.23 Form of Escrow Agreement among (9)
Whitman Acquisition Corporation, Sanford-
Brown College, Inc., and Midlantic Bank, N.A.,
as Escrow Agent
10.24 Escrow Agreement dated December 21, (10)
1994, among Whitman Acquisition
Corporation, Sanford-Brown College, Inc.,
and Midlantic Bank, N.A., as Escrow Agent
10.25 Non Competition Agreement dated December 21, (10)
1994 among Whitman Acquisition Corporation,
Sanford Brown College, Inc., James L. Combs
10.26 Employment Agreement dated December 21, (10)
1994 between Whitman Acquisition Corporation
and Brett Combs
10.27 Credit Agreement dated December 20, 1994 (10)
among Bank of America Illinois, Whitman Medical
Corp. and Frost-Nevada, Limited Partnership
10.28 Form of Term Note dated December 20, 1994 by (10)
Whitman Medical Corp. in favor of Bank of
America Illinois
10.29 Form of Revolver Note dated December 20, 1994 (10)
by Whitman Medical Corp. in favor of Bank of
America Illinois
10.30 Form of Stock Purchase Warrant to purchase (10)
575,000 shares of common stock to be issued by
Whitman Medical Corp. in favor Frost-Nevada,
Limited Partnership
11 Statement re computation of per share earnings (11)
22 Subsidiaries (11)
</TABLE>
- ----------------------------
(1) Filed as Exhibits to the Company's Registration Statement on Form S-18.
24
<PAGE>
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1982.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1983.
(4) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1987.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1990.
(6) Filed as an Exhibit to the Company's Report on Form 8-K dated
April 6, 1992.
(7) Filed as an Exhibit to the Company's Registration Statement on
Form S-8 filed September 9, 1992.
(8) Filed as an Exhibit to the Company's Proxy Statement for the Annual
Meeting of Shareholders held on November 19, 1992.
(9) Filed as an Exhibit to the Company's Report on Form 8-K dated
November 30, 1994.
(10) Filed as an Exhibit to the Company's Report on Form 8-K dated
December 21, 1994.
(11) Filed herewith.
25
<PAGE>
Report of Independent Auditors
The Board of Directors
Whitman Medical Corp.
We have audited the accompanying consolidated balance sheets of Whitman Medical
Corp. and subsidiaries as of March 31, 1994 and 1995 and the related
consolidated statements of operations, changes in stockholders'equity and cash
flows for each of the three years in the period ended March 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Whitman
Medical Corp. and subsidiaries at March 31, 1994 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
MetroPark, New Jersey
May 5, 1995, except for Note 15, as to
which the date is June 15, 1995.
F-2
Whitman Medical Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION> MARCH 31
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 1,369,462 $ 1,658,104
Restricted cash ................................................................. 312,000
Accounts receivable, less allowance for doubtful accounts of $138,582
in 1994 and $1,000,864 in 1995 ................................................. 5,399,170 14,216,126
Inventories ..................................................................... 290,450
Other current assets ............................................................ 114,582 520,044
------------ ------------
Total current assets ............................................................... 6,883,214 16,996,724
Equipment and leasehold improvements, net .......................................... 991,201 3,678,239
Marketable securities .............................................................. 750,000 750,000
Deferred costs, net of accumulated amortization of $388,099 in 1994 and
$553,434 in 1995 .................................................................. 317,248 518,705
Deposits and other assets, net of amortization of $42,687 in 1994 and
$58,998 in 1995 ................................................................... 207,264 449,872
Goodwill, net of accumulated amortization of $87,971 in 1994 and
$113,762 in 1995 .................................................................. 75,672 2,572,979
Restricted cash - escrow ........................................................... 2,400,000
------------ ------------
$ 9,224,599 $ 27,366,519
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................ $ 117,833 $ 829,959
Accrued expenses ................................................................ 165,149 764,881
Income taxes payable ............................................................ 53,163
Current portion of capitalized lease obligations ................................ 152,615 391,496
Deferred tuition revenue ........................................................ 3,348,829 9,910,213
------------ ------------
Total current liabilities .......................................................... 3,837,589 11,896,549
Capitalized lease obligations ...................................................... 484,077 1,620,453
Long-term bank notes ............................................................... 7,623,621
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, authorized 50,000,000 shares, issued and
outstanding, excluding shares held in escrow, 3,351,036 shares in
1994 and 3,854,748 shares in 1995 .............................................. 5,505,936 7,008,878
Additional paid-in capital ...................................................... 175,000
Retained earnings (deficit) ..................................................... 29,997 (324,982)
Treasury stock, 58,374 shares in 1994 and 1995 .................................. (430,500) (430,500)
Net unrealized loss on noncurrent marketable securities ......................... (202,500) (202,500)
------------ ------------
Total stockholders' equity ......................................................... 4,902,933 6,225,896
------------ ------------
$ 9,224,599 $ 27,366,519
============ ============
</TABLE>
See accompanying notes.
F-3
Whitman Medical Corp. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Tuition .................................................... $ 4,268,406 $ 6,158,203 $ 10,954,572
Other educational materials ................................ 634,623
Other ...................................................... 170,063
------------ ------------ ------------
Total revenues ............................................. 4,268,406 6,158,203 11,759,258
COSTS AND EXPENSES
Cost of educational services ............................... 2,557,344 3,415,312 6,179,696
General and administrative expense ......................... 1,830,134 2,427,051 5,699,426
------------ ------------ ------------
Total costs and expenses ................................... 4,387,478 5,842,363 11,879,122
------------ ------------ ------------
(Loss) income from operations .............................. (119,072) 315,840 (119,864)
Interest income ............................................ 75,419 57,742 58,075
Interest expense ........................................... (49,923) (79,627) (326,125)
------------ ------------ ------------
(Loss) income from continuing operations before income
tax (benefit) provision ................................... (93,576) 293,955 (387,914)
Income tax (benefit) provision ............................. 21,742 80,394 (32,935)
------------ ------------ ------------
(Loss) income from continuing operations ................... (115,318) 213,561 (354,979)
Discontinued operations:
Loss from operations of subsidiary, net of tax benefit
of $15,321 .............................................. (42,224)
Loss on disposal of subsidiary, net of tax
benefit of $39,767 ...................................... (122,721)
------------
Total loss from discontinued operations .................... (164,945)
------------ ------------ ------------
Net (loss) income .......................................... $ (280,263) $ 213,561 $ (354,979)
============ ============ ============
(Loss) income per share of common stock:
Continuing operations ................................... $ (.03) $ .06 $ (.10)
Discontinued operations ................................. (.05)
------------ ------------ ------------
Net (loss) income .......................................... $ (.08) $ .06 $ (.10)
============ ============ ============
Average number of common and common equivalent shares
outstanding, excluding common shares held in escrow ....... 3,534,434 3,645,886 3,599,993
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<TABLE>
<CAPTION>
Whitman Medical Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Years ended March 31, 1993, 1994 and 1995
Net
Unrealized
(Loss)
Gain on
Common Additional Retained Noncurrent
Shares Common Paid-In Earnings Treasury Marketable
Outstanding Stock Capital (Deficit) Stock Securities Total
----------- ----------- ----------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1992 ............... 1,143,710 $ 1,810,007 $ 96,699 $ -- $ -- $1,906,706
Shares issued in private placement .. 2,000,000 2,984,402 2,984,402
Shares issued for exercise of
stock options 164,000 451,540 451,540
Shares received for payment of 150,000
stock options exercised ............ (58,374) (430,500) (430,500)
Net unrealized loss on noncurrent
marketable securities .............. (228,750) (228,750)
Net loss ............................ (280,263) (280,263)
----------- ----------- ----------- --------- ---------- ---------- ----------
Balance at March 31, 1993 .............. 3,249,336 5,245,949 (183,564) (430,500) (228,750) 4,403,135
Shares issued for exercise of
stock options....................... 101,700 259,987 259,987
Net unrealized gain on noncurrent 26,250
marketable securities .............. 26,250
Net income .......................... 213,561 213,561
----------- ----------- ----------- --------- ---------- ---------- ----------
Balance at March 31, 1994 .............. 3,351,036 5,505,936 29,997 (430,500) (202,500) 4,902,933
Shares issued for exercise of stock
options and warrants ............... 405,480 1,002,942 1,002,942
Shares issued in acquisition ........ 98,232 500,000 500,000
Value of warrants issued for loan
guarantee .......................... $175,000 175,000
Net loss ............................ (354,979) (354,979)
----------- ----------- ----------- --------- ---------- ---------- ----------
Balance at March 31, 1995 ............. 3,854,748 $ 7,008,878 $175,000 $(324,982) $(430,500) $(202,500) $6,225,896
=========== =========== =========== ========= ========== ========== ==========
</TABLE>
See accompanying notes.
F-5
Whitman Medical Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income .......................................... $ (280,263) $ 213,561 $ (354,979)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization ........................... 201,913 323,196 616,104
Bad debt expense ........................................ 74,624 70,863 831,382
Loss on sale of equipment and write-off of patents
from disposal of discontinued operations ............... 10,138 3,307 9,338
Changes in operating assets and liabilities,
net of effects from purchase of Sanford-Brown College:
Restricted cash ....................................... (312,000)
Accounts receivable ................................... (1,034,372) (1,839,745) (6,122,288)
Inventories ........................................... 142,067 (197,390)
Other current assets .................................. (94,249) 5,291 (190,269)
Deferred costs ........................................ (262,326) (136,935) (191,792)
Deposits and other assets ............................. (8,945) (16,554) (94,239)
Accounts payable ...................................... 56,367 3,305 108,127
Accrued expenses ...................................... 78,452 (25,549) 22,537
Income taxes payable .................................. 5,111 42,554 (53,163)
Deferred tuition revenue .............................. 904,105 650,209 3,122,639
------------ ------------ ------------
Net cash used in operating activities ...................... (207,378) (706,497) (2,805,993)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Sanford-Brown College ....................... (2,590,110)
Payments into escrow for acquisition of Sanford-Brown College (2,400,000)
Purchase of equipment and leasehold improvements ........... (173,717) (71,016) (438,481)
Proceeds from sale of equipment ............................ 60,476 4,200 37,300
------------ ------------ ------------
Net cash used in investing activities ...................... (113,241) (66,816) (5,391,291)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term bank loan .......................... 6,000,000
Proceeds from revolving line of credit and long-term
borrowings ................................................ 200,000 250,000 2,428,621
Principal payment on revolving line of credit and
long-term borrowings ...................................... (180,000) (270,000) (805,000)
Principal payments of capitalized lease obligations ........ (128,157) (143,205) (140,637)
Proceeds from exercise of options and warrants ............. 21,040 259,987 1,002,942
Proceeds from sale of common stock - private placement ..... 2,100,000
------------ ------------ ------------
Net cash provided by financing activities .................. 2,012,883 96,782 8,485,926
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ........... 1,692,264 (676,531) 288,642
Cash and cash equivalents at beginning of year ............. 353,729 2,045,993 1,369,462
------------ ------------ ------------
Cash and cash equivalents at end of year ................... $ 2,045,993 $ 1,369,462 $ 1,658,104
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid .............................................. $ 49,923 $ 76,627 $ 277,000
============ ============ ============
Income taxes paid .......................................... $ 46,188 $ 14,422 $ 89,738
============ ============ ============
Stock issued in connection with acquisition ................ $ 500,000
============ ============ ============
</TABLE>
See accompanying notes.
F-6
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1993, 1994 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company's primary business is the operation of proprietary schools
devoted to career program training primarily in the business and medical
fields. The Company's revenues are received from students who attend the
Company's schools. The majority of these students participate in one or
more federal financial aid programs. The Company also maintains patents for
some medical devices and licenses one product for use in the health care field.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Whitman
Medical Corp. and its subsidiaries, all of which are wholly-owned. All
significant intercompany transactions have been eliminated. On November 19,
1992 the Company increased the number of common shares authorized from
4,000,000 to 50,000,000.
CASH AND CASH EQUIVALENTS
The Company's policy is to invest cash in excess of operating requirements
in income producing investments. The Company considers all investments
with a maturity of three months or less as of the date of purchase as cash
equivalents.
RESTRICTED CASH
Cash invested in U.S. government securities is restricted for payment of
student refunds, as required by the United States Department of Education
(USDE). While the funds are immediately available for refunds, they are
currently invested. Such cash is restricted for refunds at March 31, 1995 as
follows:
<TABLE>
<CAPTION>
<S> <C>
Sanford Brown College .......................... $287,000
Ultrasound Diagnostic Schools .................. 25,000
--------
$312,000
========
</TABLE>
REVENUES, RECEIVABLES AND DEFERRED TUITION REVENUE
Upon enrollment, the Company bills the student for the full contract amount of
the course resulting in the recording of an accounts receivable and a
corresponding deferred tuition revenue liability. The deferred tuition revenue
liability is reduced and recognized into income on a straight-line basis over
the term of the course being attended by the student.
F-7
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment, furniture and fixtures and automobiles are stated at cost, less
accumulated depreciation. Expenditures for maintenance and repairs which do not
add to the value of the related assets or materially extend their original
lives are expensed as incurred.
Depreciation of equipment, furniture and fixtures and automobiles is computed
principally by the straight-line method over the estimated useful lives of the
assets ranging from 1 to 10 years. Leasehold improvements are amortized over
the term of the related leases, which approximates the estimated useful lives.
DEFERRED COSTS
Deferred costs consist primarily of costs associated with the opening of new
school locations, the expansion of facilities to accommodate new programs and
the development of new curriculum at existing locations. Such costs are
amortized on a straight-line basis over thirty-six months.
GOODWILL
The Company amortizes the goodwill associated with acquisitions using the
straight-line method, principally over a forty-year period. The realizability
of goodwill and other intangibles is evaluated periodically as events or
circumstances indicate a possible inability to recover their carrying amount.
Such evaluation is based on various analyses, including cash flow and
profitability projections that incorporate, as applicable, the impact on
existing Company businesses. The analyses necessarily involve significant
management judgment to evaluate the capacity of an acquired business to perform
within projections.
(LOSS) INCOME PER SHARE
(Loss) income per common share are computed by dividing net (loss) income by
the weighted average number of common shares, as well as common share
equivalents, outstanding during the period assuming exercise of all stock
options and warrants to the extent dilutive using the treasury stock method.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
F-8
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory consists primarily of books, uniforms and supplies and is valued at
the lower of cost or market using the FIFO (first-in , first-out) method.
2. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
MARCH 31
1994 1995
------------ ------------
<S> <C> <C>
Student receivables ........................... $ 5,537,752 $ 15,216,990
Less allowance for doubtful accounts .......... (138,582) (1,000,864)
------------ ------------
$ 5,399,170 $ 14,216,126
============ ============
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Balance at beginning of year ............................ $ 50,377 $ 104,763 $ 138,582
Acquisition of Sanford-Brown College .................... 943,999
Charged to expense ...................................... 74,624 70,863 831,382
Accounts charged off during the year .................... (20,238) (37,044) (913,099)
------------ ------------ ------------
$ 104,763 $ 138,582 $ 1,000,864
============ ============ ============
</TABLE>
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
MARCH 31
1994 1995
------------ ------------
<S> <C> <C>
Furniture and fixtures ........................ $ 280,501 $ 1,035,865
Equipment ..................................... 1,273,183 2,734,680
Automobiles ................................... 148,936 124,689
Leasehold improvements ........................ 145,562 988,885
Other ......................................... 25,512
------------ ------------
1,848,182 4,909,631
Less accumulated depreciation and amortization (856,981) (1,231,392)
------------ ------------
$ 991,201 $ 3,678,239
============ ============
</TABLE>
F-9
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. MARKETABLE SECURITIES
The Company's marketable equity securities, which are considered available-for-
sale, have been classified as non-current as it is Company's intention to hold
such security for a foreseeable future. Available-for-sale securities are
carried at fair value, with unrealized gains and losses, net of tax, reported
in a separate component of stockholders' equity.
Marketable securities consist of the following at both March 31, 1994 and 1995:
<TABLE>
<CAPTION>
UNREALIZED
COST MARKET LOSS
------------ ------------ ------------
<S> <C> <C> <C>
Noncurrent portfolio:
IVAX Common Stock, 30,000 shares,
$.10 par value ......................................... $ 952,500 $ 750,000 $ (202,500)
</TABLE>
5. INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
This statement became effective for the fiscal year ended March 31, 1994 and
did not have a material impact on the Company's financial statements.
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
Current:
Federal ................................................. $ 46,776 $ (51,680)
State and local ......................................... $ 21,742 33,618 18,745
------------ ------------ -----------
Total ...................................................... $ 21,742 $ 80,394 $ (32,935)
============ ============ ===========
</TABLE>
F-10
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
The differences between the statutory income tax rate and the effective tax
rate for continuing operations are summarized below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Statutory tax rate ..................................... (34.0)% 34.0% (34.0)%
State income taxes, net ................................ (23.2) 11.4 6.9
Utilization of tax credits and operating losses ........ 34.0 (13.2)
Valuation allowance .................................... 1.5 20.7
Other, net ............................................. (6.4) (2.1)
------------ ------------ ------------
Effective tax rate ..................................... (23.2)% 27.3% (8.5)%
============ ============ ============
</TABLE>
Deferred tax assets of approximately $50,000 and $129,000 at March 31, 1994 and
1995, respectively, have been offset by a valuation allowance of the same
amount and consists of the following:
<TABLE>
<CAPTION>
MARCH 31
1994 1995
------------ ------------
<S> <C> <C>
Accounts receivable reserves .................. $ 50,000 $ 20,000
Prepaid expenses .............................. (18,000)
Other (net) ................................... 8,000
Net operating loss carryforwards .............. 85,000
Tax credit carryforwards ...................... 34,000
------------ ------------
Deferred tax asset ............................ 50,000 129,000
Less valuation allowance ...................... (50,000) (129,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>
At March 31, 1995 the Company has available net operating loss carryforwards of
$250,000, expiring in the year 2010.
F-11
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. DEBT
Long-term debt consists of the following at March 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Term note due April 16, 1996 (with interest at prime less 1/2%,
8.5% at March 31, 1995).......................................... $6,000,000
$2.5 million revolving credit facility expiring April 16, 1996
(with interest at prime less 1/2%, 8.5% at March 31, 1995) ...... 1,623,621
----------
$7,623,621
==========
</TABLE>
The Company also has a $500,000 unsecured revolving line of credit which
expires on August 31, 1996. Under the terms of this facility, the Company may
borrow funds at 1.5% above the bank's floating prime rate. The average
amount outstanding during 1994 and 1995 was $70,000 and $261,000 at an
average interest rate of 7.5% and 10.11%, respectively. The maximum month end
borrowing outstanding in 1994 and 1995 was $150,000 and $375,000, respectively.
There were no borrowings outstanding under this agreement at March 31, 1994
and 1995.
7. CAPITALIZED LEASE OBLIGATIONS
The Company leases equipment under several lease agreements which are
accounted for as capitalized leases. The assets and liabilities under capital
leases are recorded at the lower of the net present value of the minimum lease
payments or the fair value of the asset. The assets are amortized over the
related lease term.
During 1995, the Company entered into leases totaling approximately $1,500,000
in connection with the purchases of equipment and automobiles.
The following is a summary of assets held under capital leases which are
included in equipment and leasehold improvements:
<TABLE>
<CAPTION>
MARCH 31
1994 1995
------------ ------------
<S> <C> <C>
Equipment .................................. $932,335 $2,444,743
Automobiles................................. 142,169 124,689
Less accumulated amortization .............. (363,558) (584,137)
------------ ------------
$710,946 $1,985,295
============ ============
</TABLE>
F-12
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
Amortization of leased assets is included in depreciation and amortization
expense.
Future minimum lease payments under capital leases as of March 31, 1995 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Years ended March 31:
1996 ...................................... $ 588,136
1997 ...................................... 593,550
1998 ...................................... 524,473
1999 ...................................... 417,679
2000 ...................................... 378,028
Thereafter ................................ 30,575
----------
Total minimum lease payments ................ 2,532,441
Less amount representing interest ........... (520,492)
----------
$2,011,949
==========
</TABLE>
8. STOCK OPTION PLANS AND WARRANTS
The Company has adopted stock option plans under which employees, directors
and consultants of the Company may be issued options covering up to 1,712,000
shares of the common stock. Options are granted at the fair market value of the
stock at the date of the grant. A summary of stock option activity related to
the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
AVERAGE NUMBER
PRICE OF SHARES
------------ ------------
<S> <C> <C>
Outstanding April 1, 1992 ................... $ 2.97 384,200
Granted................................... 4.89 354,500
Exercised................................. 2.75 (164,000)
Cancelled ................................ 4.38 (2,000)
------------ ------------
Outstanding March 31, 1993 .................. 4.21 572,700
Granted................................... 10.84 87,500
Exercised ................................ 2.56 (101,700)
Cancelled ................................ 3.00 (3,500)
------------ ------------
Outstanding March 31, 1994 .................. 5.56 555,000
Granted .................................. 4.68 377,050
Exercised ................................ 4.74 (20,000)
Cancelled ................................ 4.91 (33,750)
------------ ------------
Outstanding March 31, 1995 .................. 5.23 878,300
============ ============
Exercisable March 31, 1995 .................. $ 5.36 525,000
============ ============
</TABLE>
F-13
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCK OPTION PLANS AND WARRANTS (CONTINUED)
In connection with the 1993 private placement, a stock purchase warrant was
issued to a company beneficially owned by a stockholder of the Company to
purchase 75,000 shares of the Company's common stock at an exercise price of
$4.00 a share. In fiscal 1994, this stock purchase warrant, plus warrants
for 160,480 shares held by another company beneficially owned by this
stockholder, were acquired by a partnership beneficially owned by the
Chairman of the Board.
In connection with the term loan and revolving credit facility, a company
beneficially owned by the Chairman of the Board provided a guarantee of the
debt in exchange for warrants to purchase 575,000 shares of common stock at
$6.25 per share, the fair value of the common stock at the date of issuance.
At the Company's request, the stock purchase warrant to purchase 75,000 shares
issued in 1993 and 160,480 shares issued in 1994, and the warrants to purchase
150,000 shares (included in 575,000 mentioned above) were exercised during
fiscal 1995 at agreed upon discounted prices. The stock purchase warrant to
purchase 75,000 shares, with an original exercise price of $4.00 per share and
an expiration date of April 1997, was exercised at a discounted price of $3.12
per share. The stock purchase warrant to purchase 160,480 shares, with an
original exercise price of $1.56 per share and an expiration date of July 1999,
was exercised at a discounted price of $.93 per share. The warrants to purchase
150,000 shares, with an original exercise price of $6.25 per share and an
expiration date of January 2000, were exercised at a discounted price of $3.51
per share. Included in the total warrants exercised were 150,000 warrants as to
which $175,000 of interest expense has been recorded at March 31, 1995, which
is being recognized as expense over a 16 month period.
Common stock reserved for issuance under the stock option plans and outstanding
warrants aggregate 1,830,300 shares.
9. LEASE COMMITMENTS
Future minimum annual rental commitments under noncancellable operating leases
as of March 31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996.......................... $ 2,070,388
1997.......................... 1,994,434
1998.......................... 1,901,711
1999.......................... 1,748,147
2000.......................... 1,557,866
Thereafter.................... 1,761,170
------------
Total minimum lease payments.. $ 11,033,716
============
</TABLE>
Rent expense during fiscal 1993, 1994 and 1995 was $447,842, $688,887 and
$1,108,306, respectively.
F-14
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. DISCONTINUED OPERATIONS
In fiscal 1993, the Company discontinued operations of its manufacturing
subsidiary and the Company sold and/or disposed of all of the subsidiary's
assets. The loss from the discontinued operations amounted to $164,945, net of
a federal income tax benefit of $55,088. The Company plans to dispose of its
remaining patents and medical device products.
11. RELATED PARTY TRANSACTIONS
The Company purchased various advertising services from a marketing and
advertising agency owned by a former director of the Company totaling
$102,000 during the fiscal year ended March 31, 1993. No such purchases were
made during the fiscal years ended March 31, 1994 and 1995.
The Company paid rent to a partnership in which an officer and director of
the Company and an outside consultant (and former director) of the Company
maintain an interest. These rents totaled $39,000, $47,000 and $61,000 during
the fiscal years ended March 31, 1993, 1994 and 1995, respectively.
The Company paid rent to a partnership containing one general partner who is
a consultant (and former director) of the Company. These rents totaled
$33,000, $39,000, and $35,000 during the fiscal years ended March 31, 1993,
1994 and 1995, respectively.
The Company paid for accounting services provided by an outside accounting
corporation owned partially by a consultant (and former director) of the
Company. These services totaled $78,000, $53,000, and $48,000 during the
fiscal years ended March 31, 1993, 1994 and 1995, respectively.
During the fiscal year ended March 31, 1995, the Company purchased $290,000
in medical supplies and equipment from a medical supply distributor owned by
the wife of an officer and director of the Company. No such purchases were
made during the fiscal years ended March 31, 1993 and 1994.
The Seller of Sanford-Brown College (SBC) is the beneficial owner of three
buildings occupied by SBC under lease agreements. In fiscal 1995, the
Company's SBC subsidiary paid the Seller rent totaling $119,000.
F-15
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
In April 1995, the Company entered into an agreement with another company 40%
owned by the Company's president. In addition to paying a fee for services,
the Company agreed to purchase textbooks and materials totaling $160,000 over a
two-year period. These textbooks and materials will be resold to the Company's
students.
12. ACQUISITION
On December 21, 1994, the Company completed the purchase of Sanford-Brown
College, a privately held proprietary business and allied healthcare
college. Sanford-Brown was acquired for $3.5 million in cash and $500,000
(98,232 shares) in common stock and contingent consideration of $2.4 million in
cash and 510,806 shares of common stock held in escrow at March 31, 1995.
The balance of $2,400,000 and 510,806 shares of Whitman common stock currently
held in escrow pursuant to Whitman's acquisition of Sanford Brown College will
be disbursed, in whole or in part, to Whitman or the Seller based principally
upon the Cohort Default Rates for each of the Missouri and Granite City,
Illinois locations of SBC. The Cohort Default Rate is the rate at which the
student borrowers entering repayment in one federal fiscal year default on
repayment of student loans obtained under any Federal Family Education Loan
Programs before the end of the following fiscal year. Specifically, the entire
$2,400,000 and 255,403 shares of the Whitman common stock retained in escrow
will be released to the Seller or Whitman based upon the Cohort Default Rate
for the SBC Missouri locations for each of fiscal year 1992, 1993 and 1994 (the
"Missouri Escrow Allocation"). The remaining 255,403 shares of Whitman common
stock held in escrow have been allocated to the SBC Granite City, Illinois
location and will be released based upon such location's compliance with
permitted Cohort Default Rates and other financial requirements (the "Granite
City Escrow Allocation").
With respect to the Missouri Escrow Allocation, if the Cohort Default Rate for
SBC Missouri in 1992, 1993 or 1994 is less than 25%, the Missouri Escrow
Allocation will be released to the Seller of SBC. If, however, SBC Missouri is
decertified by ED because of excessive Cohort Default Rates in 1992, 1993 and
1994, the Missouri Escrow Allocation and the Granite City Escrow Allocation
will be returned to Whitman; provided, however, that notwithstanding the
foregoing, the Missouri Escrow Allocation will be released to the Seller upon
the first to occur of (a) confirmation from ED that SBC Missouri will not be
decertified as a result of Cohort Default Rates exceeding 25% for the period
1992 through 1994; (b) the receipt of an unqualified opinion from a law firm
designated by Seller and Whitman that, notwithstanding that Cohort Default
Rates for the period 1992 through 1994 are likely to exceed 25%, SBC Missouri
will not be decertified by ED as a result; or (c) the mutual agreement of the
parties to release the Missouri Escrow Allocation.
With respect to the Granite City Escrow Allocation, if the conditions for the
relase of the Missouri Escrow Allocation have been satisfied and an audit
report indicates that Granite City is in compliance with the 85/15 rule as
prescribed by ED for its fiscal year ending as of June 30, 1995, 49,116 shares
of Whitman common stock held in escrow shall be released to the Seller.
Additionally, if SBC Granite City (a) demonstrates compliance with the 85/15
rule as of June 30, 1995, (b) has a finally determined Cohort Default Rate for
1993 or 1994 of less than 25% and (c) the conditions for the release of the
Missouri Escrow Allocation have been satisifed, the remaining balance of the
Granite City Escrow Allocation shall be released to Seller; provided, however,
if any one of (a), (b) or (c), is not achieved by the final determination of
the 1994 Cohort Default Rate, the balance of the Granite City Escrow Allocation
shall be disbursed to Whitman.
The acquisition has been accounted for as a purchase, and the net assets and
results of operations are included in the Company's consolidated financial
statements since the date of acquisition. The purchase price has been
allocated to the assets and liabilities of Sanford-Brown based on their
relative fair market value which approximated their net book value. The
purchase price and expenses associated with the acquisition exceeded the
fair value of Sanford-Brown's net assets by approximately $2.4 million
which has been assigned to goodwill.
In connection with the acquisition, the Company acquired assets with a fair
market value of approximately $6.3 million and assumed liabilities of
approximately $4.6 million.
Based on the terms of the escrow agreement, upon the occurrence of certain
events, the escrow agent will disburse cash and stock to either the seller or
the Company. If and when the cash and stock in escrow are released to the
seller, their value will be accounted for as an increase in goodwill.
F-16
Whitman Medical Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. ACQUISITION (CONTINUED)
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company and its subsidiaries for the
years ended March 31, 1994 and 1995 as though the acquisition described above
was made at the beginning of each fiscal year:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Net Revenues .................................. $20,297,114 $22,532,602
Income before taxes ........................... 2,079,135 220,949
Net income .................................... 1,406,457 115,886
Net income per share .......................... $ .36 $ .03
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
In fiscal 1995 the Company entered into financing agreements to acquire capital
equipment totaling $2,190,000. The capital equipment, primarily ultra sound
scanners, are being used in the new career programs being offered. In fiscal
1995, $1,488,000 of capital equipment was financed under the agreements.
14. STUDENT FINANCIAL AID PROGRAMS
The Colleges operated by the Company participate in various student
financial aid programs. These programs are subject to respective periodic
review by the United States Department of Education. Disbursements under each
program are subject to disallowance and repayment by the Schools. At present,
SBC has an open program review on its Title IV activity for the award years 1992
through 1994. No determination as to whether a liability exists or the amount of
liability, should one exist, can be made. Accordingly, no contingency is
reflected. UDS has no known liabilities related to its Title IV programs. Should
the Schools be limited, suspended or terminated from participation in Title IV
programs, from which UDS and SBC receives 66% and 76% of its funding,
respectively, it would have a material negative impact on the results of
operations, liquidity and net worth of the Company.
15. SUBSEQUENT EVENT
On June 15, 1995, the Company entered into a letter of intent to acquire another
company that operates a regionally accredited degree granting institution.
The consummation of the transaction is subject to the fulfillment of several
conditions, including that the transaction qualifies for pooling of interests
accounting treatment, the performance of a due diligence investigation by the
Company and certain regulatory approvals, including approval by the United
States Department of Education. There can be no assurance that a final
agreement will be entered into, or if entered into, the terms of any such
agreement.
F-17
