FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
Commission File Number 1-13722
WHITMAN EDUCATION GROUP, INC.
New Jersey 22-2246554
- ------------------------------- --------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 Biscayne Boulevard, 6th Floor, Miami, Florida 33137
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(305) 575-6534
--------------
(Registrant's telephone number, including area code)
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.
AS OF FEBRUARY 6, 1996, THERE WERE 12,672,882 SHARES OF COMMON STOCK
OUTSTANDING.
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WHITMAN EDUCATION GROUP, INC.
FORM 10-Q
DECEMBER 31, 1996
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements................................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 12
PART II - Other Information
Item 1. Legal Proceedings...................................... 17
Item 2. Changes in Securities.................................. 17
Item 4. Submission of Matters to a Vote of Security-Holders.... 17
Item 6. Exhibits and Reports on Form 8-K....................... 17
2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
1996 1996
-------------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 4,304,623 $ 2,762,141
Restricted cash ................................................... 343,158 363,314
Accounts receivable, less allowance for doubtful accounts
of $3,123,000 at December 31, 1996 and $1,315,000
at March 31, 1996 ............................................... 17,479,389 15,619,237
Inventories ....................................................... 993,308 795,350
Deferred income tax asset ......................................... 853,267 515,041
Other current assets .............................................. 1,293,369 805,137
------------- -------------
Total current assets ................................................... 25,267,114 20,860,220
------------- -------------
Property and equipment, net ............................................ 8,531,170 7,017,181
Marketable securities - related party .................................. 307,500 776,250
Deferred costs, net .................................................... 173,619 553,929
Deposits and other assets, net ......................................... 1,266,222 1,025,633
Goodwill, net .......................................................... 2,540,227 2,529,693
Restricted cash - escrow ............................................... 6,476,328 2,563,999
------------ -------------
$ 44,562,180 $ 35,326,905
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 2,576,789 $ 1,549,494
Accrued expenses .................................................. 2,309,889 1,537,216
Income taxes payable .............................................. 49,592 348,851
Current portion of capitalized lease obligations .................. 910,185 919,050
Current portion of long-term debt ................................. 461,621 --
Deferred tuition revenue .......................................... 11,051,411 11,705,521
------------- -------------
Total current liabilities .............................................. 17,359,487 16,060,132
------------- -------------
Other liabilities ...................................................... 985,163 387,453
Capitalized lease obligations .......................................... 1,763,896 1,994,035
Long-term debt ......................................................... 8,192,568 9,500,000
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, authorized 100,000,000 shares,
issued and outstanding, excluding shares held in escrow,
12,135,570 shares at December 31, 1996 and 10,311,782
shares at March 31, 1996 ........................................ 18,643,138 7,590,793
Additional paid-in capital ........................................ 671,536 616,500
Retained earnings (deficit) ....................................... (1,576,035) 62,040
Treasury stock, 239,694 shares at December 31, 1996 and
232,714 shares at March 31, 1996 ................................. (1,009,273) (774,773)
Net unrealized loss on noncurrent marketable securities ........... ( 468,300) (109,275)
------------- -------------
Total stockholders' equity ............................................. 16,261,066 7,385,285
------------- -------------
$ 44,562,180 $ 35,326,905
============== =============
</TABLE>
See accompanying notes.
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WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
DECEMBER 31,
1996 1995
------------ -----------
Net revenues.................................. $11,406,633 $ 9,899,367
Costs and Expenses
Cost of educational services.................. 7,646,087 6,225,911
Student services and administrative expense... 4,119,119 3,018,353
Bad debt expense.............................. 864,184 428,371
----------- ----------
Total costs and expenses...................... 12,629,390 9,672,635
----------- -----------
Loss) income from operations................. (1,222,757) 226,732
Interest income............................... 33,740 3,891
Interest expense.............................. (230,204) (291,925)
------------ -----------
Loss before income tax benefit ............... (1,419,221) (61,302)
Income tax benefit............................ 27,001 62,714
------------ -----------
Net (loss) income............................. $(1,392,220) $ 1,412
============ ===========
Net (loss) income per share of common stock.. $ (.12) $ .00
============ ===========
Average number of common stock and common stock
equivalent shares outstanding, excluding common
stock shares held in escrow................. 11,983,320 11,369,624
=========== ===========
See accompanying notes.
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WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
DECEMBER 31,
1996 1995
------------ ----------
Net revenues.................................... $33,878,676 $27,610,303
Costs and Expenses
Cost of educational services.................... 22,008,832 17,146,715
Student services and administrative expense..... 11,306,505 8,889,945
Bad debt expense................................ 1,911,953 1,587,082
------------ -----------
Total costs and expenses........................ 35,227,290 27,623,742
------------ -----------
Loss from operations............................ (1,348,614) (13,439)
Interest income................................. 87,426 24,450
Interest expense................................ (743,820) (906,151)
------------ ------------
Loss before income tax (benefit) provision...... (2,005,008) (895,140)
Income tax (benefit) provision.................. (204,738) 188,112
------------- ------------
Net loss........................................ $(1,800,270) $(1,083,252)
============ ============
Net loss per share of common stock.............. $ (.16) $ (.11)
============ ============
Average number of common stock and common stock
equivalent shares outstanding, excluding common
stock shares held in escrow................... 11,082,369 10,231,036
============ ============
See accompanying notes.
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<TABLE>
<CAPTION>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
NET
UNREALIZED
LOSS 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, 1996 ......... 10,311,782 $7,590,793 $616,500 $ 62,040 $ (774,773) $ (109,275) $ 7,385,285
Shares issued for exercise
of options ..................... 330,768 822,726 -- -- -- -- 822,726
Value of stock options issued
for services rendered .......... -- -- 55,036 -- -- -- 55,036
Shares issued, previously escrowed
in connection with purchase
of SBC ......................... 500,000 3,750,000 -- -- -- -- 3,750,000
Shares repurchased in connection
with exercise of options ....... (46,980) -- -- -- (437,500) -- (437,500)
Shares issued in connection with
purchase of DFAS ............... 40,000 -- -- -- 203,000 -- 203,000
Shares issued in connection with
a private placement ............ 1,000,000 6,479,619 -- -- -- -- 6,479,619
Net unrealized loss on non-
current marketable
securities ..................... -- -- -- -- -- (359,025) (359,025)
Net income of Colorado Tech
for the three months ended
March 31, 1996 ................. -- -- -- 162,195 -- -- 162,195
Net loss for the nine months
ended December 31, 1996 ........ -- -- -- (1,800,270) -- -- (1,800,270)
--------- ----------- -------- ------------ ------------ ------------- ------------
Balance at December 31, 1996 ..... 12,135,570 $18,643,138 $671,536 $(1,576,035) $(1,009,273) $ (468,300) $16,261,066
========== =========== ======== ============ ============ ============= ===========
</TABLE>
See accompanying notes.
6
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<TABLE>
<CAPTION>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
DECEMBER 31,
1996 1995
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(1,800,270) $(1,083,252)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization.................. 1,940,090 1,182,508
Bad debt expense............................... 1,911,953 1,587,082
Deferred tax (benefit) expense................. (228,501) 26,425
Changes in operating assets and liabilities:
Restricted cash............................. (712) 212,000
Accounts receivable......................... (2,489,603) (1,240,574)
Inventories................................. (108,817) (239,915)
Other current assets........................ (441,207) 124,984
Deferred costs.............................. (81,759) (4,878)
Deposits and other assets................... (187,686) (363,652)
Accounts payable............................ 557,066 (317,356)
Accrued expenses............................ 454,092 (21,325)
Income taxes payable........................ (147,294) 6,746
Deferred tuition revenue.................... (1,701,254) 820,717
------------ -----------
Net cash (used in) provided by operating activities. (2,323,902) 689,510
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment ................ (2,374,604) (1,160,409)
Payments into escrow related to acquisition
of Sanford-Brown College....................... (162,330) --
------------ -----------
Net cash used in investing activities............... (2,536,934) (1,160,409)
------------ -----------
Cash flows from financing activities:
Proceeds from revolving line of credit and long-term
borrowings........................................ 25,293,627 6,592,000
Principal payments on revolving line of credit,
long-term borrowings and other liability.......... (26,139,438) (6,265,621)
Principal payments on capitalized lease obligations. (800,977) (569,494)
Proceeds from exercise of options .................. 385,226 20,638
Proceeds from sale of common stock ................. 6,479,619 24,895
Repurchase of common stock.......................... -- (153,000)
Proceeds from Huron acquisition..................... 1,200,684 --
------------- ------------
Net cash provided by (used in) financing activities.$ 6,418,741 $ (350,582)
------------- ------------
</TABLE>
Continued on the following page.
7
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<TABLE>
<CAPTION>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
DECEMBER 31,
1996 1995
---------- ----------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents... $ 1,557,905 $ (821,481)
Cash and cash equivalents at beginning of year..... 2,762,141 1,787,281
Net Colorado Tech University activity for the
three months ended March 31, 1996.............. (15,423) --
------------ -----------
Cash and cash equivalents at end of period......... $ 4,304,623 $ 965,800
============ ============
Supplemental disclosures of noncash financing and
investing activities:
Exchange of stock held in escrow for cash held in
escrow related to the Sanford-Brown
College acquisition........................... $ 3,750,000 --
=========== ============
Equipment acquired under capital leases.......... $ 130,472 $ 1,501,656
=========== ============
Treeasury stock issued in connection with
purchase of DFAS.............................. $ 203,000 --
=========== ============
Note issued in connection with purchase of
treasury stock................................ -- $ 153,000
=========== ============
Stock options issued for value of services
rendered...................................... $ 55,036 --
=========== ============
Assets acquired in Huron acquisition............ $ 1,467,220 $ --
=========== ============
Liabilities assumed in Huron acquisition........ $ 2,667,904 $ --
=========== ============
Supplemental disclosures of cash flow information:
Interest paid................................... $ 650,167 $ 551,229
=========== ============
Income taxes paid............................... $ 220,495 $ 155,794
=========== ============
</TABLE>
See accompanying notes.
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WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, in the opinion of
the management of the Company, include all adjustments, which are of a normal
recurring nature, necessary for a fair presentation of financial position and
the results of operations and cash flows for the periods presented. However, the
financial statements do not include all information and footnotes required for a
presentation in accordance with generally accepted accounting principles. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included or
incorporated by reference in the Company's Form 10-K for the fiscal year ended
March 31, 1996. The results of operations for the interim periods are not
necessarily indicative of the results of operations to be expected for the full
year.
The accompanying financial statements include the accounts of Whitman Education
Group, Inc., and its wholly-owned subsidiaries, which consist of Ultrasound
Technical Services, Inc. ("UDS School"), Sanford-Brown College, Inc.
("Sanford-Brown College"), MDJB, Inc. ("Colorado Tech University") and
Diversified Financial Aid Services, Inc. ("DFAS") The operations of DFAS, a
school consulting and software development company, are not considered to have a
material effect on the financial position and operating results of the Company.
All intercompany accounts and transactions have been eliminated.
Certain December 31, 1995 balances have been reclassified to conform to the
current year's presentation.
Pursuant to the Financial Accounting Standards Board No. 123, "Accounting for
Stock-Based Compensation", the Company has elected to continue to account for
the issuance of stock options and other equity instruments under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees."
The Company has experienced seasonality in its results of operations due to the
pattern of student enrollments. Historically, the Company's quarterly revenues
and income generally are lowest in the second quarter (July to September) of its
fiscal year due to fewer student enrollments during the summer months and an
increase in expenses incurred in advance of new enrollments that tend to be
highest in the fall and winter terms (October through December and January
through March). The Company expects these seasonal trends will continue.
2. ACQUISITION OF HURON UNIVERSITY
On December 30, 1996, Colorado Tech University acquired the South Dakota
operations and certain assets at two campuses of Huron University. The purchase
price consisted of $2.25 million of which approximately $1.95 million was paid
in cash, $150,000 in common stock, acquisition costs of $150,000 and the
assumption of $1.4 million of net liabilities. In addition, the Company assigned
the right to purchase the Huron real property to a third party, Huron Education,
9
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Inc. ("HEI"), a South Dakota not-for-profit organization, in exchange for $3.9
million and simultaneously leased the real property from HEI upon the
satisfaction of $757,000 in existing mortgages and after placing $500,000 in
escrow to be used for the satisfaction of assumed cash obligations of Huron
University. In connection with this transaction, the community of Huron, South
Dakota, through HEI paid to the Company $527,000 (which is included in the $3.9
million received from HEI) as an inducement for the Company to acquire the
operations of Huron University. This inducement has been accounted for as a
deferred credit and will be amortized over the lease period of nine years. These
transactions resulted in a net purchase price of $1,500,000 (comprised of the
receipt of cash totalling $1,200,000 and the assumption of current liabilities
totalling $2,700,000) which was allocated to current assets totalling
$1,500,000.
The acquisition was accounted for using the purchase method of accounting and,
accordingly, the net liabilities acquired are included in the Company's balance
sheets as of December 31, 1996 and operations will begin to be included in the
Company's operations beginning on January 1, 1997.
The following unaudited pro forma information combines the results of operations
of Whitman and Huron University for the nine months ended December 31, 1996 and
1995 as if the transaction had occurred at April 1, 1996 and 1995, respectively,
after giving effect to certain adjustments including additional rent expense and
reductions in interest and depreciation expense (amounts are in thousands,
except per share amounts).
1996 1995
-------- --------
Net Revenues ............. $36,613 $32,853
Net Loss ................. (2,466) (1,559)
Loss per common share..... (0.22) (0.15)
Huron University operated as a regionally accredited degree granting institution
with campuses in Huron and Sioux Falls, South Dakota, enrolling approximately
600 students primarily in management, health sciences, general studies and other
programs. Huron University confers degrees at the associates, bachelors and
masters levels.
Eeffective December 30, 1996, Colorado Tech University entered into a lease with
HEI which provides for a nine year term with an option to renew for an
additional six year term, on certain terms and conditions. The lease also
provides Colorado Tech University with an option to purchase the property at any
time during the lease term.
Huron was a participating institution under one or more of the student financial
assistance programs of Title IV of the Higher Education Act of 1965, as amended
("Title IV Programs"). The Title IV Programs are administered by the United
States Department of Education ("DOE"). The sale of the assets described above
terminated Huron University's access to the Title IV Program funds. The Company
has applied to the DOE for certification of Huron University as additional
locations of Colorado Tech University. Pending the issuance of the certification
of the Huron University locations, the Company is reserving all of the shares of
Whitman stock, valued at $150,000, issuable to the owners of Huron University.
In addition, if recertification is not granted by the DOE, the Company has the
option of rescinding the purchase of Huron University. The owners of Huron
University have established a $300,000 letter of credit for the benefit of DOE
and Colorado Tech University for any Title IV liabilities relating to periods
prior to December 30, 1996.
3. MERGER WITH COLORADO TECH UNIVERSITY
On March 29, 1996, the Company completed the merger with Colorado Tech
University which was accounted for using the pooling of interests method of
accounting. Accordingly, the Company's consolidated financial statements have
been restated to include the accounts and operations of Colorado Tech University
for all periods prior to the merger.
The Company reports its financial results on a fiscal year basis ending March
31, whereas Colorado Tech University had reported its financial results on a
calendar year basis. The consolidated financial
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statements for the three and nine month periods ended December 31, 1996 have
been adjusted to conform Colorado Tech University's year end with that of the
Company. The effect arising from the exclusion of net income of Colorado Tech
University of $162,195 for the three month period ended March 31, 1996 in the
accompanying consolidated statements of operations for the three and nine month
periods ended December 31, 1996 and cash flows for the nine month period ended
December 31, 1996, is presented in the accompanying condensed consolidated
statement of changes in stockholders' equity as an adjustment to retained
earnings for the change in fiscal year of Colorado Tech University. The
consolidated financial statements for all periods prior to fiscal 1997 have not
been restated for the change in fiscal year of Colorado Tech University.
Accordingly, the consolidated financial statements for the periods ending on or
prior to March 31, 1996 include the operating results of the Company on a March
31 fiscal year basis and of Colorado Tech University on a calendar year basis.
If the condensed consolidated financial statements for the three and nine month
periods ended December 31, 1995 had been adjusted to conform Colorado Tech
University's year end with that of the Company, the net effect would have
resulted in an increase in net income of approximately $229,000 and a reduction
of net income of $140,000, respectively.
4. CONTINGENCIES
The schools operated by the Company participate in various student financial aid
programs. These programs are subject to periodic review by the United States
Department of Education ("DOE"). Disbursements under each program are subject to
disallowance and repayment by the schools. In fiscal 1995, the DOE conducted a
program review on Sanford-Brown College's Title IV activity for the award years
1992 through 1994 prior to the Company's purchase of Sanford-Brown College. On
November 7, 1996, the DOE issued its program reviews for the Sanford-Brown
College campuses. The program reviews cited various deficiencies in
Sanford-Brown College's administration of federal student financial aid
programs. The DOE cited, among other things, impaired administrative capability,
inaccurate Pell grant records and late or unmade refunds. Sanford-Brown College
has disputed some of the DOE's findings and is currently working with the DOE to
resolve all of the remaining issues. Sanford-Brown College will be required to
repay to the DOE certain Title IV funds for which its documentation is improper
or inadequate. The asset purchase agreement with Sanford-Brown College provides
for the seller's indemnification of the Company for any material liability that
may exist in connection with the program reviews. The seller has acknowledged
his indemnification obligation. UDS School and Colorado Tech University have no
known liabilities under program reviews related to their Title IV programs.
Should the schools be limited, suspended or terminated from participation in
Title IV programs, from which UDS School, Colorado Tech University and
Sanford-Brown College receive approximately 66%, 32% and 76% of their funding,
respectively, it would have a material negative impact on the results of
operations, liquidity and net worth of the Company.
In January 1997, the DOE released official 1994 cohort default rates for both
the Sanford-Brown College Missouri campuses and the Sanford-Brown College
Illinois campus. The rates were 22.5% and 22.0%, respectively. In January 1997,
the DOE also released an official 1993 cohort default rate for the Illinois
campus of 41.3%. As a result of the 1994 default rates being published at lower
than 25%, the Sanford-Brown College campuses are no longer subject to
termination from participation in federal Title IV programs for three
consecutive years of excessive default rates. However, as a result of the
official rate received by Sanford-Brown College's Illinois campus for 1993, that
campus may be subject to a termination, suspension or limitation action by the
DOE in the event Sanford-Brown College does not prevail in its appeal of that
rate, although the Company believes that
11
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notwithstanding its appeal, a limitation, suspension or termination action is
unlikely because of the issuance of a subsequent default rate of less than 25%.
The Company believes that if the Illinois campus is terminated from
participation in Title IV programs it would not have a material negative impact
on the results of operations, liquidity and net worth of the Company. In light
of the receipt of the prior years' default rates, the Company and the seller are
currently negotiating the final terms of the release of the funds and common
stock held in escrow. During the three month period ended March 31, 1997, the
Company will reflect an increase in goodwill and equity of approximately $8.8
million and $2.3 million, respectively, in connection with the release of the
restricted cash and common stock held in escrow.
The Company is a party to routine litigation incidental to its business.
Management does not believe that an adverse result in any or all of such routine
litigation will have a material adverse effect on the Company's financial
condition or results of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements of the Company, the related notes to
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Form
10-K for the year ended March 31,1996 and the condensed consolidated financial
statements and the related notes to the condensed consolidated financial
statements included in Item 1 of this Quarterly Report on Form 10-Q.
Colorado Tech University is presented on a calendar year basis for the three and
nine month periods ended December 31, 1995. If Colorado Tech University's
operations had been combined to conform to the Company's fiscal year, the net
effect would have resulted in an increase in revenues of $720,000 and $136,000
for the three and nine month periods ended December 31, 1995, respectively, and
an increase in expenses of $292,000 and $264,000, respectively. Accordingly, the
Company's results from operations for the three and nine months ended December
31, 1995 would have resulted in operating income of $655,000 and operating
losses of $141,000, respectively, as compared to losses from operations of $1.2
million and $1.3 million for the three and nine months ended December 31, 1996,
respectively.
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 1995
The following table sets forth the Company's net revenues by subsidiary for the
three months ended December 31, 1996 and December 31, 1995 (in thousands):
THREE MONTHS ENDED DECEMBER 31,
1996 1995
--------- --------
UDS School $ 5,049 $ 4,132
Sanford-Brown College 3,344 3,981
Colorado Tech University 3,014 1,786
------- --------
$11,407 $ 9,899
======= =======
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Net revenues increased by $1.5 million or 15.2% to $11.4 million for the three
months ended December 31, 1996 from $9.9 million for the three months ended
December 31, 1995. The increase of $917,000 for the UDS School was primarily due
to an increase in student enrollments in the General Ultrasound ("GUS") and
Medical Assisting ("MA") programs. The increase in student enrollments in the
GUS and MA programs for the three months ended December 31, 1996 as compared to
the three months ended December 31, 1995 generated an increase in revenues from
such programs of approximately $406,000 and $557,000, respectively. Net revenues
decreased by $637,000 for Sanford-Brown College primarily due to an increase in
the amount of scholarships awarded and due to a decrease in the average monthly
earning rate per student as a result of an increase in the length of the
curriculum, a decrease in the frequency of class starts and the negative effect
of the change in billing rates for general education courses and core courses as
compared to the prior period. The increase of $1.2 million for Colorado Tech
University was primarily due to an increase in net revenues generated from the
introduction of additional business programs and from revenues generated by the
Denver campus which opened in October 1996.
The following table sets forth the Company's operating expenses by subsidiary
for the three months ended December 31, 1996 and December 31, 1995 (in
thousands): <TABLE>
STUDENT SERVICES
EDUCATIONAL AND
SERVICES ADMINISTRATIVE BAD DEBT TOTAL
----------- ---------------- -------- -------
THREE MONTHS ENDED DECEMBER 31, 1996
- ------------------------------------
<S> <C> <C> <C> <C>
UDS School $ 3,321 $ 1,419 $ 288 $ 5,028
Sanford-Brown College 2,523 1,156 553 4,232
Colorado Tech University 1,802 1,227 23 3,052
Corporate -- 317 -- 317
------- ------- ------ -------
$ 7,646 $ 4,119 $ 864 $12,629
======= ======= ===== =======
THREE MONTHS ENDED DECEMBER 31, 1995
- ------------------------------------
UDS School $ 2,990 $ 993 $ 165 $ 4,148
Sanford-Brown College 1,970 1,168 244 3,382
Colorado Tech University 1,266 734 19 2,019
Corporate -- 123 -- 123
------- ------ ------ -------
$ 6,226 $ 3,018 $ 428 $ 9,672
======= ======= ===== ========
</TABLE>
Cost of educational services increased by $1.4 million or 22.8% to $7.6 million
for the three months ended December 31, 1996 from $6.2 million for the three
months ended December 31, 1995. The increase of $331,000 for the UDS School was
primarily due to an increase in faculty and administrative salaries, and an
increase in occupancy costs. Such an increase was primarily due to the costs
incurred to support the increase in student enrollments in the GUS and MA
programs. The increases of $553,000 for Sanford-Brown College and $536,000 for
Colorado Tech University were primarily due to increases in faculty salaries and
depreciation. The increase in cost of educational services for Colorado Tech
University was primarily associated with expenses of $332,000 incurred in
connection with the opening of the Denver campus.
13
<PAGE>
Student services and administrative expenses increased by $1.1 million or 36.5%
to $4.1 million for the three months ended December 31, 1996 from $3.0 million
for the three months ended December 31, 1995. The increase of $426,000 for the
UDS School was primarily due to the additional administrative support for the
increase in student enrollments in the GUS and MA programs and consisted of
increases in general and administrative salaries, and other administrative
expenses. The increase of $493,000 for Colorado Tech University was primarily
due to start-up costs incurred for the Denver campus.
Bad debt expense increased by $436,000 for the three months ended December 31,
1996 primarily due to an increase in student enrollments from the prior period
and an increase in student receivable balances at Sanford-Brown College
resulting from financial aid processing delays.
Net interest expense decreased by $92,000 for the three months ended December
31, 1996, due to lower interest rates and a reduction in the amortization of
deferred interest expense.
The Company reported a net loss of $1,392,000 and net income of $1,000 for the
three months ended December 31, 1996 and 1995, respectively. The decrease in net
income was primarily due to a reduction in income from operations of
Sanford-Brown College.
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE NINE MONTHS ENDED
DECEMBER 31, 1995
The following table sets forth the Company's revenues by subsidiary for the nine
months ended December 31, 1996 and December 31, 1995 (in thousands):
NINE MONTHS ENDED DECEMBER 31,
1996 1995
-------- ---------
UDS School $14,759 $ 9,496
Sanford-Brown College 11,268 11,693
Colorado Tech University 7,852 6,421
-------- --------
$33,879 $27,610
======= =======
Net revenues increased by $6.3 million or 22.7% to $33.9 million for the nine
months ended December 31, 1996 from $27.6 million for the nine months ended
December 31, 1995. The increase of $5.3 million for the UDS School was primarily
due to an increase in student enrollments in the CVT and MA programs. The
increase in student enrollments in the CVT and MA programs for the nine months
ended December 31, 1996 as compared to the nine months ended December 31, 1995
generated an increase in net revenues from such programs of approximately $1.5
million and $3.6 million, respectively. The decrease of $426,000 for
Sanford-Brown College was due to a decrease in the average monthly earning rate
per student as a result of the lengthening of the curriculum, a decrease in the
frequency of class starts and the negative effect of the change in billing rates
for general education courses and core courses in the current period as compared
to the prior period. The increase of $1.4 million for Colorado Tech University
was due to net revenues generated from the introduction of additional business
programs, the opening of the Denver campus in October 1996 and an increase in
tuition rates of 5%.
14
<PAGE>
The following table sets forth the Company's operating expenses by subsidiary
for the nine months ended December 31, 1996 and December 31, 1995 (in
thousands):
STUDENT SERVICES
EDUCATIONAL AND
SERVICES ADMINISTRATIVE BAD DEBT TOTAL
----------- ---------------- -------- ------
NINE MONTHS ENDED DECEMBER 31, 1996
- -----------------------------------
UDS School $ 9,733 $ 4,425 $ 663 $14,821
Sanford-Brown College 7,336 3,309 1,203 11,848
Colorado Tech University 4,940 2,530 46 7,516
Corporate -- 1,042 -- 1,042
-------- ------- ------ -------
$ 22,009 $11,306 $1,912 $35,227
======== ======= ====== =======
NINE MONTHS ENDED DECEMBER 31, 1995
- -----------------------------------
UDS School $ 7,305 $ 2,958 $ 434 $10,697
Sanford-Brown College 5,829 3,399 1,115 10,343
Colorado Tech University 4,013 1,996 38 6,047
Corporate -- 537 -- 537
------- ------- ------ -------
$17,147 $ 8,890 $1,587 $27,624
======= ======= ====== =======
Cost of educational services increased by $4.9 million or 28.4% to $22.0 million
for the nine months ended December 31, 1996 from $17.1 million for the nine
months ended December 31, 1995. The increase of $2.4 million for the UDS School
was primarily due to increases in faculty and administrative salaries, and
occupancy costs. Such increases were primarily due to the costs incurred to
support the increase in student enrollments in the CVT and MA programs. The
increase of $1.5 million for Sanford-Brown College was primarily due to
increases in faculty salaries and depreciation. The increase of $927,000 for
Colorado Tech University was primarily due to increases in salaries,
professional fees, depreciation and amortization, and start-up costs for the
Denver campus.
Student services and administrative expenses increased by $2.4 million or 27.2%
to $11.3 million for the nine months ended December 31, 1996 from $8.9 million
for the nine months ended December 31, 1995. The increase of $1.5 million for
the UDS School was primarily due to the additional administrative support for
the increase in student enrollments in the CVT and MA programs. Such an increase
consisted primarily of increases in general and administrative salaries,
professional fees, and depreciation expense. The increase of $534,000 for
Colorado Tech University was primarily due to increases in marketing and general
and administrative costs for the Denver campus. Corporate expenses increased by
$505,000 due to an increase in salaries and professional fees.
Bad debt expense increased by $325,000 for the nine months ended December 31,
1996 primarily due to an increase of $229,000 at the UDS School associated with
the increase in student enrollments.
15
<PAGE>
Net interest expense decreased by $225,000 or 25.6% for the nine months ended
December 31, 1996 to $656,000 from $882,000 for the nine months ended December
31, 1995. The decrease was due to a reduction in interest rates and a reduction
in the amortization of deferred interest expense.
The Company reported a net loss of $1,800,000 and a net loss of $1,083,000 for
the nine months ended December 31, 1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1996 and March 31, 1996 were $4.3
million and $2.8 million, respectively. The Company's working capital totalled
$7.9 million at December 31, 1996 and $4.8 million at March 31, 1996. In
accordance with Department of Education regulations, the Company maintained
$343,000 and $363,000 in restricted cash at December 31, 1996 and March 31,
1996, respectively, for funds to be available for student refunds.
Net cash of $2.3 million was used for operating activities for the nine months
ended December 31, 1996 compared to net cash of $690,000 generated from
operations for the nine months ended December 31, 1995. The $3.0 million
increase in cash utilized in operations was primarily due to increases in
student receivables of $2.3 million at both Colorado Tech University and
Sanford-Brown College.
Net cash of $2.5 million and $1.2 million was used for investing activities in
the nine months ended December 31, 1996 and 1995, respectively. The increase of
$1.3 million was primarily due to an increase in capital expenditures.
Net cash of $6.4 million was provided by financing activities for the nine
months ended December 31, 1996, an increase of $6.8 million from the nine months
ended December 31, 1995. The increase was primarily due to a private placement
of 1,000,000 shares of the Company's common stock to an unaffiliated
institutional investor for $6.5 million.
The Company has bank lines of credit of $2.0 million expiring in May 1998 and a
revolver note maturing in April 1999 in the amount of $5.5 million. At December
31, 1996, the Company had $6.1 million outstanding and $1.4 million available
under these facilities. Borrowings under these facilities decreased by $1.3
million from the amounts outstanding at March 31, 1996. The amounts borrowed
under the working capital facility for the nine months ended December 31, 1996
were primarily used for operations and capital expenditures. The Company
believes that with its working capital, its cash flow from operations and its
lines of credit and working capital facility it will have sufficient resources
to fund its operational requirements.
CAUTIONARY STATEMENT
Certain statements made in the foregoing Management's Discussion and Analysis of
Financial Condition and Results of Operations are forward-looking and are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements involve risks and uncertainties which may
cause results to differ materially from those set forth in these statements,
including general economic conditions, competition from other educational
institutions, changes in the education regulatory environment and other factors
identified in Whitman's filings with the Securities and Exchange Commission.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business.
Management does not believe that an adverse result in of any or all of such
routine litigation will have a material adverse effect on the Company's
financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES
On October 17, 1996, the Company completed a private placement of 1,000,000
shares of its common stock to an unaffiliated institutional investor for an
aggregate cash purchase price of $6.5 million. The shares were not registered
under the Securities Act of 1933 (the "1933 Act") in reliance upon the exemption
from registration provided by Section 4(2) of the 1933 Act. The investor
received certain rights to have the shares registered by the Company at a later
date.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On October 11, 1996, the Company held its annual meeting of shareholders. At
that meeting, all of the nominees for director were elected by the vote set
forth opposite their names in the table below.
FOR WITHHELD
--------- --------
Jack R. Borsting 9,831,013 534,692
Phillip Frost, M.D. 9,832,405 533,300
Peter S. Knight 9,832,405 533,300
Richard M. Krasno 9,831,405 534,300
Lois F. Lipsett 9,831,405 534,300
Richard C. Pfenniger, Jr. 9,832,305 533,400
In addition, the shareholders of the Company approved the Whitman Education
Group, Inc. 1996 Stock Option Plan (the "1996 Plan") pursuant to which the
Company may grant both incentive stock options or non-qualified stock options
for up to 1,500,000 shares of the Company's common stock. A total of 7,795,036
shares were voted in favor of the 1996 Plan, 645,964 shares were voted against
the 1996 Plan, 20,350 shares abstained from the vote and 1,904,355 shares were
not voted.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. EXHIBITS METHOD OF FILING
2.1 Asset Purchase Agreement dated Incorporated by reference to the
December 30, 1996 by and among Company's Form 8-K dated January 27,
Colorado Technical University, 1996.
Inc., Lansdowne University Ltd.,
EIEA America, Inc., Eastern
International Educational
Association and Dr. Chikara Higashi
17
<PAGE>
10.1 Whitman Education Group, Inc. Incorporated by reference to the
1996 Stock Option Plan Company's Form S-8 dated November 13,
1996.
11 Computation of Net Loss Per Included herewith.
Share of Common
Stock
27 Financial Data Schedule Included herewith.
b. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
18
<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 EDUCATION GROUP, INC.
----------------------------------------------
(Registrant)
Date: February 14, 1997 /S/ RANDY S. PROTO
----------------------------------------------
RANDY S. PROTO, PRESIDENT
Date: February 14, 1997 /S/ FERNANDO L. FERNANDEZ
----------------------------------------------
FERNANDO L. FERNANDEZ, CHIEF FINANCIAL OFFICER
19
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET (LOSS) INCOME PER SHARE OF COMMON STOCK
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
Primary:
Average shares outstanding................. 11,983,320 10,244,152
Net effect of dilutive stock options and
warrants based on the treasury stock
method using the average market price.. -- 103,860
Sanford-Brown shares held in escrow........ -- 1,021,612
----------- -----------
Total...................................... 11,983,320 11,369,624
============ ===========
Net (loss) income.......................... $(1,392,220) $ 1,412
Per share amount........................... $ (.12) $ (.00)
Fully diluted:
Average shares outstanding................. 11,983,320 10,244,152
Net effect of stock options and warrants
based on the treasury stock method
using quarter-end market price......... 2,241,509 256,096
Sanford-Brown shares held in escrow........ 521,612 1,021,612
------------ ------------
Total...................................... 14,746,441 11,521,860
============ ============
Net (loss) income.......................... $ (1,392,220) $ 1,412
Per share amount........................... $ (.09) $ (.00)
Net loss per share of common stock for primary purposes is computed by
dividing net loss by the weighted average number of shares outstanding during
the period adjusted for common stock equivalents when such adjustments result in
dilution of earnings per share. The Company has considered all common stock
equivalents for purposes of calculating fully diluted earnings per share
regardless of their anti-dilutive effect. Included as common stock equivalents
for the three months ended December 31, 1996 for fully diluted purposes are
521,512 shares issued in connection with the acquisition of Sanford-Brown
College that remain in escrow to be disbursed to the seller or returned to the
Company upon the occurrence of, or failure to achieve, certain events.
Exhibit 11
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE OF COMMON STOCK
FOR THE NINE MONTHS ENDED
DECEMBER 31,1996 DECEMBER 31, 1995
---------------- -----------------
Primary:
Average shares outstanding.................. 11,082,369 10,231,036
Net effect of dilutive stock options and
warrants based on the treasury stock
method using the average market price.. -- --
Sanford-Brown shares held in escrow......... -- --
------------ -------------
Total....................................... 11,082,369 10,231,036
============= =============
Net loss.................................... $ (1,800,270) $(1,083,252)
Per share amount............................ $ (.16) $ (.11)
Fully diluted:
Average shares outstanding.................. 11,082,369 10,231,036
Net effect of stock options and warrants
based on the treasury stock method
using quarter-end market price.......... 2,241,509 256,096
Sanford-Brown shares held in escrow......... 521,612 1,021,612
------------ -----------
Total....................................... 13,845,490 11,508,744
============= ===========
Net loss.................................... $ (1,800,270) $(1,083,252)
Per share amount............................ $ (.13) $ (.09)
Net loss per share of common stock for primary purposes is computed by
dividing net loss by the weighted average number of shares outstanding during
the period adjusted for common stock equivalents when such adjustments result in
dilution of earnings per share. The Company has considered all common stock
equivalents for purposes of calculating fully diluted earnings per share
regardless of their anti-dilutive effect. Included as common stock equivalents
for the nine months ended December 31, 1996 for fully diluted purposes are
521,512 shares issued in connection with the acquisition of Sanford-Brown
College that remain in escrow to be disbursed to the seller or returned to the
Company upon the occurrence of, or failure to achieve, certain events.
Exhibit 11
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,647,781
<SECURITIES> 307,500
<RECEIVABLES> 20,602,528
<ALLOWANCES> (3,123,139)
<INVENTORY> 993,308
<CURRENT-ASSETS> 25,267,114
<PP&E> 14,134,786
<DEPRECIATION> (5,603,616)
<TOTAL-ASSETS> 44,562,180
<CURRENT-LIABILITIES> 17,359,487
<BONDS> 0
0
0
<COMMON> 18,643,138
<OTHER-SE> (2,382,072)
<TOTAL-LIABILITY-AND-EQUITY> 44,562,180
<SALES> 33,878,676
<TOTAL-REVENUES> 33,878,676
<CGS> 22,008,832
<TOTAL-COSTS> 35,227,290
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (656,394)
<INCOME-PRETAX> (2,005,008)
<INCOME-TAX> (204,738)
<INCOME-CONTINUING> (1,800,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,800,270)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.13)
</TABLE>
