<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1995 Commission File No. 0-16992
------------------ -------
CONCORDE CAREER COLLEGES, INC.
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
Delaware 43-1440321
- --------------------------------- ---------------------------------
(State of other jurisdiction of (I. R. S. Employer Identification
Incorporation or Organization) Number)
4th Floor, City Center Square
12th & Baltimore, P. O. Box 26610
Kansas City, Missouri 64196
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (816) 474-8002
----------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.10 Par Value
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.
(1) Yes X No (2) Yes X No
--------- --------- --------- ---------
As of October 24, 1995, Concorde Career Colleges, Inc. had 6,952,176 shares of
Common Stock outstanding, with a market value of $2,607,000.
<PAGE>
CONCORDE CAREER COLLEGES, INC.
FORM 10-Q
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
INDEX
PAGE
----
<S> <C>
Notes to Condensed Consolidated Financial Statements..................... 1
PART I
Condensed Consolidated Balance Sheets.................................... 2, 3
Condensed Consolidated Statements of Operations.......................... 4
Condensed Consolidated Statements of Cash Flows.......................... 5
Selected Financial Data.................................................. 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 6
PART II
Contingencies and Litigation............................................. 10
Exhibits and Reports on Form 8-K......................................... 11
Signatures............................................................... 12
</TABLE>
v
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1995
The condensed interim financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared according to
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations although the Company believes that the disclosures
are adequate to make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's latest
Form 10-K Annual Report for 1994 that was filed by the Company on March 30,
1995.
The information included in these interim financial statements reflects
all normal recurring adjustments that are, in the opinion of management,
necessary to fairly state the results of the periods presented.
Due to the inherent seasonal nature of the career training business,
annualization of amounts in these interim financial statements may not
necessarily be indicative of the actual operating results for the full year.
(The remainder of this page was left intentionally blank.)
Page 1
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 and DECEMBER 31, 1994
ASSETS
September 30, December 31,
1995 1994
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents............ $ 3,529,000 $ 1,182,000
Net receivables--
Accounts receivable............. 18,776,000 20,412,000
Notes receivable for student
tuition....................... 4,325,000 2,117,000
Allowance for uncollectible
accounts...................... (2,043,000) (2,491,000)
----------- -----------
21,058,000 20,038,000
Supplies and prepaid expenses........ 1,104,000 1,345,000
----------- -----------
Total current assets.......... 25,691,000 22,565,000
PROPERTY and EQUIPMENT, net............... 3,473,000 3,670,000
COST IN EXCESS OF NET TANGIBLE ASSETS
OF BUSINESSES ACQUIRED, less
accumulated amortization of $2,432,000
at September 30, 1995 and $3,160,000
at December 31, 1994, respectively...... 2,006,000 2,199,000
OTHER ASSETS:
Long-term notes receivable for student
tuition less allowance for
uncollectible accounts of $479,000
at September 30, 1995 and $383,000
at December 31, 1994, respectively. 1,481,000 1,935,000
Other................................ 41,000 108,000
----------- -----------
Total other assets............ 1,522,000 2,043,000
----------- -----------
$32,692,000 $30,477,000
=========== ===========
See accompanying notes to condensed consolidated statements.
Page 2
<PAGE>
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 and DECEMBER 31, 1994
CONDENSED LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1995 1994
------------- ------------
CURRENT LIABILITIES:
Deferred student tuition................. $17,073,000 $14,349,000
Current debt maturities.................. 2,231,000 3,150,000
Accrued income taxes..................... 623,000
Accrued salaries and wages............... 766,000 600,000
Accrued interest......................... 19,000 526,000
Current deferred income taxes............ 99,000 424,000
Other accrued liabilities and
accounts payable....................... 2,414,000 1,603,000
----------- -----------
Total current liabilities........... 23,225,000 20,652,000
LONG-TERM DEBT................................ 1,343,000
OTHER LONG-TERM LIABILITIES................... 191,000 57,000
DEFERRED INCOME TAXES......................... 248,000 739,000
SUBORDINATED DEBT DUE TO RELATED PARTY........ 2,682,000 2,611,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, 600,000
shares authorized, 300,000 shares
issued and outstanding................. 30,000 30,000
Common stock, $.10 par value, 19,400,000
shares authorized, 6,978,976 shares
issued and 6,952,176 shares
outstanding............................ 698,000 698,000
Capital in excess of par................. 8,128,000 8,128,000
Accumulated deficit...................... (2,449,000) (3,720,000)
Less--treasury stock, 26,800 shares,
at cost................................ (61,000) (61,000)
----------- -----------
Total stockholders' equity.......... 6,346,000 5,075,000
----------- -----------
$32,692,000 $30,477,000
=========== ===========
See accompanying notes to condensed consolidated statements.
Page 3
<PAGE>
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 and 1994
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1995 and 1994
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30 Ended September 30
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
STUDENT TUITION AND OTHER REVENUE.......... $29,447,000 $27,315,000 $11,101,000 $10,513,000
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Payroll costs......................... 13,219,000 11,815,000 4,704,000 4,031,000
Occupancy............................. 4,047,000 4,188,000 1,431,000 1,430,000
Instructional materials and
supplies............................ 2,861,000 2,619,000 1,206,000 1,024,000
Advertising........................... 2,076,000 2,054,000 753,000 685,000
Other general and administrative...... 4,065,000 3,931,000 1,290,000 1,569,000
Provision for uncollectible
accounts............................ 1,243,000 1,378,000 497,000 426,000
---------- ---------- --------- ---------
Total operating expenses......... 27,511,000 25,985,000 9,881,000 9,165,000
---------- ---------- --------- ---------
OPERATING INCOME........................... 1,936,000 1,330,000 1,220,000 1,348,000
INTEREST EXPENSE........................... 524,000 822,000 159,000 267,000
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES................. 1,412,000 508,000 1,061,000 1,081,000
PROVISION (BENEFIT) FOR INCOME TAXES....... 141,000 75,000 106,000 200,000
--------- --------- --------- ---------
NET INCOME................................. $1,271,000 $ 433,000 $ 955,000 $ 881,000
========= ========= ========= =========
WEIGHTED AVERAGE COMMON AND COMMON
SHARE EQUIVALENTS OUTSTANDING............ 7,406,118 6,952,176 7,455,593 6,952,176
========= ========= ========= =========
EARNINGS PER WEIGHTED AVERAGE COMMON
AND COMMON SHARE EQUIVALENTS
OUTSTANDING.............................. $0.17 $0.06 $0.13 $0.13
==== ==== ==== ====
</TABLE>
See accompanying notes to condensed consolidated statements.
Page 4
<PAGE>
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 and 1994
1995 1994
---- ----
CASH FLOWS--OPERATING ACTIVITIES:
Net income (loss)..................... $1,271,000 $ 433,000
Adjustments to reconcile net
income to net cash provided by
operating activities--
Depreciation and amortization..... 905,000 988,000
Provision for losses on
accounts receivable............. 1,244,000 1,378,000
Change in assets and
liabilities, net--
Change in receivables......... (1,809,000) (4,765,000)
Change in deferred student
tuition..................... 2,723,000 4,571,000
Change in deferred
income taxes................ (815,000) (125,000)
Change in accrued
income taxes................ 623,000 170,000
Other changes in assets
and liabilities, net.......... 1,016,000 (275,000)
---------- ---------
Total adjustments......... 3,887,000 1,942,000
---------- ----------
Net....................... 5,158,000 2,375,000
CASH FLOWS--INVESTING ACTIVITIES:
Sale of property & equipment.......... 106,000
Capital expenditures.................. (477,000) (214,000)
---------- ----------
Net............................... (477,000) (108,000)
---------- ---------
CASH FLOWS--FINANCING ACTIVITIES:
Principal payments on long-term
debt................................ (2,334,000) (1,419,000)
---------- ----------
Net............................... (2,334,000) (1,419,000)
---------- ----------
NET........................................ 2,347,000 848,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD...................... 1,182,000 1,663,000
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD............................ $3,529,000 $2,511,000
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest.......................... $255,000 $377,000
Income taxes...................... 186,000 45,000
Cash received during the period for:
Interest.......................... 258,000 327,000
Income tax refunds................ 434,000
See accompanying notes to condensed consolidated statements.
Page 5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company owns and operates proprietary postsecondary schools which offer
career training, primarily in the allied health field. In addition, the Company
previously operated schools with career training in other fields (together the
"Resident Schools.") The Company also owns Person/Wolinsky Associates, which
offers review courses for the CPA exam (the "CPA Review Courses.") The following
table presents the revenue for each category of School and the CPA Review
Courses for the periods indicated. Amounts are in thousands.
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Allied Health &
Computer Schools.......................... $26,566 $23,532 $ 9,470 $ 8,479
Travel Service School....................... 290 1
CPA Review Courses.......................... 2,881 3,493 1,631 2,033
------ ------ ------ ------
Total....................................... $29,447 $27,315 $11,101 $10,513
====== ====== ====== ======
The following table presents the relative percentage of revenues derived from each category of Resident
School Courses and the CPA Review Courses and certain consolidated statement of earning items as a
percentage of total revenue for periods indicated.
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
Allied Health &
Computer Schools.......................... 90.2% 86.1% 85.3% 80.7%
Travel Service School....................... 1.1
CPA Review Courses.......................... 9.8 12.8 14.7 19.3
----- ----- ----- -----
Total....................................... 100.0 100.0 100.0 100.0
===== ===== ===== =====
Operating expenses:
Payroll................................ 44.9 43.3 42.4 38.4
Occupancy.............................. 13.7 15.3 12.9 13.6
Materials and supplies................. 9.7 9.6 10.9 9.7
Advertising............................ 7.1 7.5 6.8 6.5
Other general & administrative......... 13.8 14.4 11.6 14.9
Provision for uncollectible accounts... 4.2 5.0 4.5 4.1
----- ----- ----- -----
Total.................................. 93.4 95.1 89.1 87.2
Operating income............................ 6.6 4.9 10.9 12.8
Interest expense............................ 1.8 3.0 1.4 2.5
----- ----- ----- -----
Income before income taxes.................. 4.8 1.9 9.5 10.3
Provision (benefit) for income taxes........ 0.5 0.3 1.0 1.9
----- ----- ----- -----
Net income (loss)........................... 4.3% 1.6% 8.5% 8.4%
===== ===== ===== =====
</TABLE>
Page 6
<PAGE>
Results of Operations
QUARTER ENDED SEPTEMBER 30, 1995 COMPARED TO
QUARTER ENDED SEPTEMBER 30, 1994
Total revenue increased $588,000 to $11,101,000 for the three months ended
September 30, 1995 compared to $10,513,000 for the same period in 1994. Revenues
for CPA Review Courses were down 19.8% from $2,034,000 in 1994 to $1,631,000 in
1995. Revenues at the Resident Schools increased by 11.7% from $8,479,000 in
1994 to $9,470,000 in 1995. The Company closed its Allied Health School in
Minneapolis, Minnesota in the fourth quarter of 1994.
Payroll expenses increased 16.7% or $673,000, to $4,704,000 for the three
months ended September 30, 1995 compared to $4,031,000 for the same period in
1994. Decreases in payroll expense from the closing of two schools and the sale
of a third school in 1994 were offset by increased salaries and staff levels at
existing schools. The Company has continued to upgrade the quality of the
School's staff and faculty.
Instructional materials and supplies expense increased 17.8% or $182,000 to
$1,206,000 in 1995 compared to $1,024,000 in 1994. Textbook expense has
increased as curriculum has been updated and improved. Also, uniform expenses
increased due to additional uniforms being provided to students.
Other general and administrative expenses decreased 17.8% or $279,000 to
$1,290,000 in 1995 compared to $1,569,000 in 1994. A $200,000 loss due to
revaluation of assets relating to the closing of the Minneapolis school was
recorded in the third quarter of 1994.
Provision for uncollectible accounts increased 16.7% or $71,000 to $497,000
in 1995 from $426,000. The increase is due to an increased reliance on non-Title
IV funding, primarily institution loans, for the three months ended September
30, 1995 as compared to the same period in 1994. Non-Title IV funding is
typically subject to greater reserves than Title IV funding.
Interest expense decreased 40.4% or $108,000 to $159,000 in 1995 from
$267,000 in 1994. This decrease is due to reduced bank and subordinated debt as
discussed in "Liquidity and Resources."
In 1995, a tax provision of $106,000 or 10.0% was recorded compared to
$200,000 or 18.5% in 1994. This provision is a result of evaluating the
Company's needs as it related to provision for assessment of taxes. Future
evaluation of the provision for assessment of taxes may increase or decrease the
overall provision for income taxes.
Weighted average common and common share equivalents outstanding increased
to 7,455,593 from 6,952,176. This increase is due to the dilutive effect of the
Company's incentive stock option plan.
NINE MONTHS ENDED SEPTEMBER 30, 1995
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1994
Total revenue increased $2,132,000, to $29,447,000 for the nine months ended
September 30, 1995 compared to the same period in 1994. Revenues for CPA Review
Courses decreased 17.5%, to $2,881,000 for the nine months ended September 30,
1995 from $3,493,000 for the same period in 1994. Revenues at the Resident
Schools increased 12.9% to $26,566,000 in 1995. Revenue at the Travel Operations
School was $289,000 in the first nine months of 1994.
The consolidated profit in 1995, as in 1994, received a substantial benefit
from the CPA Review Courses. Due to aggressive competition and a declining
number of CPA Exam candidates, revenues were down 17.5% in 1995 compared to
1994. Because the CPA examination is administered twice each year, the
operations of the CPA Review Courses are seasonal, impacting the results of the
Company during the quarters ending March 31 and September 30.
Payroll expenses increased 11.9% or $1,404,000, to $13,219,000 for the nine
months ended September 30, 1995 compared to $11,815,000 for the same period in
1994. Decreases in payroll expense from the closing of two schools and the sale
of a third school in 1994 were offset by increased salaries and staffing levels
at existing schools.
Instructional materials and supplies expense increased 9.2% or $242,000 to
$2,861,000 in 1995 compared to $2,619,000 in 1994. Textbook expense has
increased as curriculum has been updated and improved. Also uniform expense
increased due to additional uniforms being provided to students.
Page 7
<PAGE>
Provision for uncollectible accounts decreased 9.8% or $135,000 to
$1,243,000 in 1995 from $1,378,000 in 1994. This decrease is primarily due to
the decrease in student accounts and notes receivable, net of deferred student
tuition outstanding at September 30, 1995 as compared to September 30, 1994. The
decrease in outstanding receivables was offset by a recent increase in Non-Title
IV funding.
Interest expense decreased 36.3% or $298,000, to $524,000 in 1995 from
$822,000 in 1994. This decrease is due to reduced bank debt and reduced
subordinated debenture as discussed in "Liquidity and Resources."
In 1995, a tax provision of $141,000 or 10% was recorded compared to $75,000
or 14.8% in 1994. This provision is a result of evaluating the Company's needs
as it relates to provision for assessment of taxes. Future evaluation of the
provision for assessment of taxes may increase or decrease the overall provision
for income taxes.
Weighted average common and common share equivalents outstanding increased
to 7,406,118 at September 30, 1995 from 6,952,176 at September 30, 1994.
Liquidity and Capital Resources
In October 1992 the Company issued to CenCor, Inc. ("CenCor") a Junior
Secured Debenture ("the Debenture") in the principal amount of $5,422,307.
Interest on the Debenture accrues from October 30, 1992, no principal or
interest is to be paid until June 30, 1996. The entire balance of the Debenture
is due July 31, 1997. In addition to compounded quarterly interest, initially at
1% over the effective rate charged by the Company's bank lender, CenCor is
entitled to an amount equal to 25% of the market value of the Company's
outstanding common stock in excess of $3,500,000 at July 31, 1997.
Effective November 15, 1994 CenCor exchanged $3,000,000 face value of the
Debenture for 300,000 shares of Cumulative Preferred Stock ("the Preferred
Stock"). The Preferred Stock, $.10 par value, has a per share liquidation
preference of $10.00. Cumulative quarterly dividends accrue at a rate equal to
73% of the then current interest rate on the Debenture. The dividends cumulate
until such time as the Debenture has been repaid in full which is currently
scheduled for July 31, 1997. At such time, the accumulated quarterly dividends
will be paid ratably over the ensuing 12 fiscal quarters. The Preferred Stock
has no mandatory redemption date but the Company may redeem the Preferred Stock,
in whole or in part, at any time, at liquidation value plus accrued cumulative
dividends. The exchange reduced long-term debt and increased the equity of the
Company by $3,000,000. By virtue of the reduced debt, interest will be reduced
in future periods which will improve income before taxes, but the Company will
incur non-deductible dividends on the preferred shares.
Additionally, the Company has a bank term loan. Total scheduled payments
during 1995 are approximately $3,150,000. The Company has made and anticipates
future loan payments will be made from cash flows from operating activities
generated in 1995 as the Company continues to collect its accounts receivable
more effectively and has eliminated negative cash flows relating to the three
schools closed or sold in 1994. The balance of this bank debt was $4,493,000 at
December 31, 1994 and $2,159,000 at September 30, 1995. A final payment of
$1,343,000 was due in January 1996, but, pursuant to an agreement dated November
3, 1995, the final payment has been rescheduled to January 1997.
Net cash provided by operating activities increased $2,783,000 to $5,158,000
for the nine months ended September 30, 1995 as compared to the same period in
1994. Depreciation and amortization decreased $83,000 to $905,000 in 1995 as
compared to $988,000 in 1994. This decrease is a result of fully amortized or
depreciated assets. Provision for uncollectible accounts decreased as the
related receivables decreased. Deferred student tuition increased in 1995 by
$2,723,000 compared to an increase of $4,571,000 in 1994. Other changes in
assets and liabilities increased $1,016,000 in 1995. This increase was
attributable to increases in accrued expenses and other liabilities.
Capital expenditures in 1995 were $477,000 compared to $214,000 in 1994. In
1995 expenditures were primarily for leasehold improvements at two locations for
additional programs, computer equipment, and additional classroom equipment. In
1994 expenditures were primarily for additional classroom equipment. Certain
debt agreements limit annual capital expenditures to $500,000. Cash received
from the sale of equipment from closed and sold schools was $106,000 in 1994.
Financing activities consumed $2,334,000 in 1995 compared to $1,419,000 in 1994.
All financing activities were for payment of outstanding debt.
Recently, due to governmental regulations, the Company has begun to increase
the amount of institutional loans provided by the Company's Schools for their
students. Institutional loans are loans made by the School to the School's
students. Currently this has not had a material impact on the Company's cash
flow. However, increased reliance on institutional loans may have an impact on
future liquidity.
Page 8
<PAGE>
The Company generally relies on the availability of various federal and
state student financial aid programs to provide funding for the students
attending the Company's Schools. The Company also relies on the availability of
lending institutions willing to participate in these programs and to grant loans
to these students. If the Company's Schools would be limited, suspended or
terminated from participation in the federal or state student financial aid
programs, or if lending institutions withdrew access to student loans, the
Company's continuing operations would be in doubt. Management does not
anticipate any material change in liquidity based on the Company's Schools'
participation in these programs.
Inflation and General Economic Conditions
Inflation has not been a significant factor to the Company due to the
moderate levels of inflation over the past several years. The Company does not
foresee any detrimental effects from inflation as long as the inflation rate
remains at a normal level. If the rate of inflation increases above the current
level, the Company believes it will be able to pass along higher costs through
increased tuition rates.
(The remainder of this page was left intentionally blank.)
Page 9
<PAGE>
PART II OTHER INFORMATION
ITEM 1. CONTINGENCIES AND LITIGATION:
Southern Career Institute
On May 31, 1990, the Company, through a wholly-owned subsidiary, Concorde
Career Institute, Inc., a Florida corporation, acquired substantially all the
assets of Southern Career Institute, Inc., a proprietary, postsecondary
vocational home-study school specializing in paralegal education, for a total
investment of $5,383,000. The acquisition was accounted for as a purchase and
after the acquisition the school was operated as Southern Career Institute
(SCI).
In 1991, an accrediting commission failed to reaffirm accreditation of SCI
under the ownership of Concorde Career Institute, Inc. Also in 1991, SCI
received notice from the Department of Education (DOE) alleging that commencing
June 1, 1990 SCI was ineligible to participate in federal student financial
assistance programs. The DOE gave notice that it intends to require SCI to repay
all student financial assistance funds disbursed from June 1, 1990 to November
7, 1990, the effective date upon which the DOE discontinued disbursing student
financial assistance funds. The amount being claimed by DOE is not determinable,
but the total of the amounts shown on six separate notices dated January 13,
1994 is approximately $2.7 million. By letter dated February 24, 1994, counsel
for SCI provided certain information to the collection agency for DOE and
offered to settle all claims of DOE for the $9,828 on deposit in the SCI bank
account. As of November 6, 1995, neither SCI nor its counsel has received a
response to the settlement offer.
Because management of SCI had determined in late 1991 to wind down SCI's
operations and discontinue its business, SCI entered into a transaction with an
entity created by the former owner of Southern Career Institute, Inc. as the
purchaser. The purchaser acquired SCI's tuition receivables and agreed to
"teach-out" the then enrolled students, but did not assume any obligations to
DOE. The purchaser also agreed to pay SCI a portion of amounts it realized on
collections of the tuition receivables in excess of its operating costs. As
of November 6, 1995, SCI had received payments totaling approximately $30,000
pursuant to that agreement.
In light of applicable corporate law which limits the liability of
stockholders and the manner in which SCI was operated by Concorde Career
Institute, Inc. as a subsidiary of the Company, it is the opinion of management
of the Company that the Company will not be liable for debts of SCI. Therefore,
if SCI is required to pay the DOE's claims it is the opinion of management it
will not have a material adverse impact on the Company s financial condition and
its results of operations.
Department of Education Matters
On May 1, 1995 the Company received notification from the DOE of a
clarification in refund calculations for students that have withdrawn or dropped
from school. Portions of the Department's refund regulation have been challenged
in court by other schools. The court has prohibited the DOE from enforcing
certain provisions of the refund regulation for those schools filing suit. The
DOE has stated that it will apply this relief from the date of the injunction,
November 28, 1994 to all institutions until the lawsuits have been settled. The
Company has established an escrow account for the portion of the refund
calculation in question. This pertains to refunds made prior to November 28,
1994. The plaintiffs and the DOE submitted cross-motions for summary judgement.
In a September 5, 1995 ruling, both the plaintiff's and defendant's motions were
granted in part and denied in part. Management and Company Counsel are
evaluating the ruling. If the evaluation is found to be favorable, the Company
may be allowed to release the money in the escrow account for use in operations
and may benefit from a decrease in provision for bad debt expense.
Other
During July 1993, nine former students of the Jacksonville, Florida school
filed individual lawsuits against the school, alleging deceptive trade
practices, breach of contract, and fraud and misrepresentation. These suits have
since been dismissed, and these and additional former students have been added
to another complaint which was filed in the Circuit Court, Fourth Judicial
District, Duval County, Florida (Case 93-04005-CA). The latter case was served
on August 26, 1993, and has since been amended and now comprises 69 plaintiffs.
The Company filed various objections and motions, including Motions to Dismiss
and Motions to Strike. After hearings, the trial court dismissed the lawsuit,
but allowed the lawsuit to be amended on behalf of one plaintiff, and authorized
the remaining plaintiffs to file individual suits if they so desired. The order
of dismissal was appealed and reversed. During the appeal process, two
additional suits making essentially the same claims have been filed. The matter
is still in discovery. The Company believes these suits are without merit and
plans to defend against them vigorously. In May 1995, plaintiffs requested
permission to amend the complaint by the 69 plaintiffs
Page 10
<PAGE>
to convert the case to a class action, which class would include the plaintiffs
in all three cases. The Company opposed the motion, and the proposed class
action complaint was dismissed in August 1995, with permission to amend again.
The amended class action complaint was filed in August 1995, and the Company
again moved to dismiss the complaint, and to strike portions from the complaint.
The motion to dismiss was denied November 7, 1995; the motion to strike is
pending. The Company is evaluating an appeal of the denial of the motion to
dismiss, and will strongly oppose class certification if an appeal is not taken,
or, if taken, is unsuccessful.
In July 1995, the Department of Education, issued its initial program review
report related to the program review it conducted at Concorde's Jacksonville
School, in July 1994. The Department conducted the review, in part, as a result
of being made aware of the contents of the lawsuit described above. One purpose
of the review was to determine whether the School misrepresented the nature of
its educational programs, its financial charges, or the employability of its
graduates. The Department's initially reported as one of its findings that the
School did make such misrepresentations. The Company believed the Department's
methodology was significantly flawed, and that this finding was totally without
merit. Although, other findings from the DOE's program review remain open, on
November 7, 1995 the DOE notified the Company that this particular finding was
closed. No informal fine was imposed and no further action by the Company is
necessary.
The DOE regularly conducts program reviews of educational institutions
participating in Title IV programs. Program reviews for most of the Company's
Schools were conducted in 1993 and 1994. Several reports concerning these
program reviews were received prior to September 1995. In September 1995 the
Company received a reply from the DOE regarding the Company's response to a
program review report for one of its larger Schools. The DOE reply stated that
the Company's earlier response was insufficient, and failure to satisfy the DOE
requests could result in formal administrative action against the institution
which may include, the initiation of a formal fine and/or the initiation of
limitation, suspension or termination (LS&T) proceedings. The Company disagrees
with the DOE reply and believes its response was complete and satisfactory and
that the DOE ignored facts presented in the Company's response. The Company also
believes the DOE s reply is arbitrary and inconsistent with previous official
actions taken in similar program reviews. The Company's legal counsel has
responded to the DOE and the DOE has referred the matter to the Office of the
General Counsel. While the final outcome cannot be determined with certainty,
management believes that the final outcome will not have a material impact on
its results of operations or its financial position.
The Company has litigation pending which arose in the ordinary course of
business. Litigation is subject to many uncertainties and the outcome of the
individual matters is not presently determinable. It is management s opinion
that this litigation will not result in liabilities that would have a material
adverse effect on the Company's financial position or results of operations.
ITEM 2. CHANGE IN SECURITIES--NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--NONE
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS--NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K--NONE
(The remainder of this page was left intentionally blank.)
Page 11
<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.
CONCORDE CAREER COLLEGES, INC.
DATED: NOVEMBER 9, 1995
BY: /s/ JACK L. BROZMAN
--------------------------------
JACK L. BROZMAN, PRESIDENT
BY: /s/ GREGG GIMLIN
---------------------------------
GREGG GIMLIN, CHIEF FINANCIAL OFFICER
Page 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q
SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 JUL-01-1995
<PERIOD-END> SEP-30-1995 SEP-30-1995
<CASH> 3,529 0
<SECURITIES> 0 0
<RECEIVABLES> 23,101 0
<ALLOWANCES> 2,043 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 25,691 0
<PP&E> 12,284 0
<DEPRECIATION> 8,811 0
<TOTAL-ASSETS> 32,692 0
<CURRENT-LIABILITIES> 23,225 0
<BONDS> 2,682 0
<COMMON> 698 0
0 0
30 0
<OTHER-SE> 5,618 0
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