<PAGE>
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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, 1996 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 November 7, 1996 Concorde Career Colleges, Inc. had 6,961,776 shares of
Common Stock outstanding, with a market value of $7,178,000.
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<PAGE>
CONCORDE CAREER COLLEGES, INC.
FORM 10-Q
NINE MONTHS ENDED SEPTEMBER 30, 1996
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1. Financial Information.......................................... 1
Condensed Consolidated Balance Sheets................................... 2,3
Condensed Consolidated Statements of Operations......................... 4
Condensed Consolidated Statements of Cash Flows......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results Operations......................................... 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 12
Item 2. Change in Securities........................................... 14
Item 3. Defaults Upon Senior Securities................................ 14
Item 4. Submission of Matters to a Vote of Security Holders............ 14
Item 5. Other Materially Important Events.............................. 14
Item 6. Exhibits....................................................... 14
Signatures.............................................................. 15
</TABLE>
i
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
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 1995 that was filed by the Company on March 29, 1996.
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 preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(The remainder of this page was left intentionally blank.)
Page 1
<PAGE>
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 2,582,000 $ 3,295,000
Net receivables --
Accounts receivable............................ 18,107,000 17,055,000
Notes receivable for student tuition............ 3,575,000 3,188,000
Allowance for uncollectible accounts............ (2,241,000) (1,394,000)
----------- -----------
19,441,000 18,849,000
Deferred income taxes.............................. 450,000 170,000
Supplies and prepaid expenses...................... 765,000 914,000
----------- -----------
Total current assets............................ 23,238,000 23,228,000
PROPERTY and EQUIPMENT, net: ........................ 2,819,000 3,220,000
COST IN EXCESS OF NET TANGIBLE ASSETS OF BUSINESSES
ACQUIRED, less accumulated amortization of
$1,777,000 at September 30, 1996 and $2,591,000
at December 31, 1995, respectively................. 811,000 1,847,000
OTHER ASSETS:
Long-term notes receivable for student tuition
less allowance for uncollectible accounts of
$988,000 at September 30, 1996 and $709,000 at
December 31, 1995, respectively.................... 3,574,000 2,495,000
Other.............................................. 501,000 30,000
----------- -----------
Total other assets.............................. 4,075,000 2,525,000
----------- -----------
$30,943,000 $30,820,000
=========== ===========
</TABLE>
See accompanying Item 2. Management's Discussion.
Page 2
<PAGE>
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES:
Deferred student tuition........................... $16,771,000 $15,248,000
Current debt due related party..................... 2,884,000 215,000
Accrued salaries and wages......................... 753,000 951,000
Accrued interest................................... 457,000 12,000
Current deferred income taxes...................... 174,000 471,000
Other accrued liabilities and accounts payable..... 1,770,000 2,413,000
----------- -----------
Total current liabilities........................ 22,809,000 19,310,000
LONG TERM DEBT...................................... 1,343,000
OTHER LONG-TERM LIABILITIES......................... 80,000
DEFERRED INCOME TAXES............................... 826,000 690,000
SUBORDINATED DEBT DUE TO RELATED PARTY.............. 2,723,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, 600,000 shares
authorized 266,840 shares issued and outstanding... 27,000 30,000
Common stock, $.10 par value, 19,400,000 shares
authorized, 6,988,576 shares issued and 6,961,776
shares outstanding................................. 699,000 698,000
Capital in excess of par........................... 7,779,000 8,128,000
Accumulated deficit................................ (1,136,000) (2,121,000)
Less-treasury stock, 26,800 shares, at cost........ (61,000) (61,000)
----------- -----------
Total stockholders' equity........................ 7,308,000 6,674,000
----------- -----------
$30,943,000 $30,820,000
=========== ===========
</TABLE>
See accompanying Item 2. Management's Discussion.
Page 3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
STUDENT TUITION AND
OTHER REVENUE:.............................. $30,620,000 $29,447,000 $10,318,000 $11,101,000
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Payroll costs............................... 13,789,000 13,219,000 4,375,000 4,704,000
Occupancy................................... 3,627,000 4,047,000 1,095,000 1,431,000
Instructional materials and supplies........ 2,500,000 2,861,000 638,000 1,206,000
Advertising................................. 2,208,000 2,076,000 783,000 753,000
Other general and administrative............ 4,399,000 4,065,000 1,670,000 1,290,000
Provision for uncollectible accounts........ 2,225,000 1,243,000 1,136,000 497,000
----------- ----------- ----------- -----------
Total operating expenses................ 28,748,000 27,511,000 9,697,000 9,881,000
----------- ----------- ----------- -----------
OPERATING INCOME.............................. 1,872,000 1,936,000 621,000 1,220,000
INTEREST EXPENSE.............................. 743,000 524,000 (344,000) 159,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES and GAIN ON SALES.. 1,129,000 1,412,000 965,000 1,061,000
GAIN ON SALE OF ASSETS........................ 184,000 184,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES.................... 1,313,000 1,412,000 1,149,000 1,061,000
PROVISION FOR INCOME TAXES.................... 328,000 141,000 287,000 106,000
----------- ----------- ----------- -----------
NET INCOME.................................... $ 985,000 $ 1,271,000 $ 862,000 $ 955,000
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON SHARE EQUIVALENTS
OUTSTANDING................................. 7,703,000 7,406,000 7,713,000 7,456,000
=========== =========== =========== ===========
EARNINGS PER WEIGHTED AVERAGE
COMMON AND COMMON SHARE
EQUIVALENTS OUTSTANDING..................... $0.11 $0.15 $0.11 $0.12
===== ===== ===== =====
</TABLE>
See accompanying Item 2. Management's Discussion.
Page 4
<PAGE>
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS -- OPERATING ACTIVITIES:
Net income........................................... $ 985,000 $ 1,271,000
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization...................... 811,000 905,000
Provision for losses on accounts receivable........ 2,225,000 1,244,000
Gain on sale of assets............................. (184,000)
Change in assets and liabilities, net -
Change in receivables........................... (3,895,000) (1,809,000)
Change in deferred student tuition.............. 1,523,000 2,723,000
Change in deferred income taxes................. 307,000 (815,000)
Change in accrued income taxes................. (468,000) 623,000
Other changes in assets and liabilities, net.... (742,000) 1,016,000
----------- -----------
Total adjustments........................... (423,000) 3,887,000
----------- -----------
Net operating activities.................. 562,000 5,158,000
CASH FLOWS -- INVESTING ACTIVITIES:
Cash from sale of assets............................. 929,000
Capital expenditures................................. (370,000) (477,000)
----------- -----------
Net investing activities.................. 559,000 (477,000)
CASH FLOWS -- FINANCING ACTIVITIES:
Preferred stock redemption........................... (352,000)
Principal payments on long-term debt................. (1,482,000) (2,334,000)
----------- -----------
Net financing activities.................. (1,834,000) (2,334,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents.. (713,000) 2,347,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...... 3,295,000 1,182,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $ 2,582,000 $ 3,529,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest........................................... $ 161,000 $ 255,000
Income taxes....................................... 761,000 186,000
Cash received during the period for:
Interest........................................... 299,000 258,000
Income tax refunds................................. -0- -0-
</TABLE>
See accompanying Item 2. Management's Discussion.
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 (together the "Resident
Schools"). The Company owned Person/Wolinsky Associates, which offered review
courses for the CPA exam (the "CPA Review Courses"). On August 2, 1996, the
Company sold the assets of Person/Wolinsky Associates. In addition, the Company
sold the assets of its' San Jose, California School on August 30, 1996. The
following table presents the revenue for the Resident Schools 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,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Resident Schools................ $29,393 $26,566 $10,314 $ 9,470
CPA Review Courses............... 1,227 2,881 4 1,631
------- ------- ------- -------
Total....................... $30,620 $29,447 $10,318 $11,101
======= ======= ======= =======
</TABLE>
The following table presents the relative percentage of revenues derived
from the Resident Schools and the CPA Review Courses and certain consolidated
statement of earning items as a percentage of total revenue for periods
indicated.
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
-------------------- --------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Allied Health & Computer Schools.............. 96.0% 90.2% 100.0% 85.3%
CPA Review Courses............................ 4.0 9.8 ---.- 14.7
----- ----- ----- -----
Total......................................... 100.0 100.0 100.0 100.0
===== ===== ===== =====
Operating expenses:
Payroll..................................... 45.0 44.9 42.4 42.4
Occupancy................................... 11.8 13.7 10.6 12.9
Materials and supplies...................... 8.2 9.7 6.2 10.9
Advertising................................. 7.2 7.1 7.6 6.8
Other general & administrative.............. 14.4 13.8 16.2 11.6
Provision for uncollectible accounts........ 7.3 4.2 11.0 4.5
----- ----- ----- -----
Total....................................... 93.9 93.4 94.0 89.1
Operating income.............................. 6.1 6.6 6.0 10.9
Interest expense.............................. 2.4 1.8 (3.4) 1.4
----- ----- ----- -----
Income before income taxes and gain on sales.. 3.7 4.8 9.4 9.5
(Gain) on sale of fixed assets................ (0.6) (1.8)
----- ----- ----- -----
Income before income taxes.................... 4.3 4.8 11.2 9.5
Provision for income taxes.................... 1.1 0.5 2.8 1.0
----- ----- ----- -----
Net income.................................... 3.2% 4.3% 8.4% 8.5%
===== ===== ===== =====
</TABLE>
(The remainder of this page was left intentionally blank.)
Page 6
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO
QUARTER ENDED SEPTEMBER 30, 1995
The assets of Person/Wolinsky Associates were sold on August 2, 1996. The
CPA exam is administered twice each year therefore the operations of the CPA
Review Courses were seasonal, impacting the results of the Company during the
quarters ending March 31 and September 30. Due to the sale, the Company did not
receive any revenue or experience any expenses for the Fall course.
Net income of the Company decreased $93,000 or 9.7% to $862,000 for the
three months ended September 30, 1996 compared to net income of $955,000 for the
same period in 1995. The CPA Review Courses had a net loss of $148,000 for the
quarter to net income of $565,000 for the same period in 1995. The Company's
1996 net income was also adversely affected by increased reserves for bad debt
as discussed below. The San Jose School was sold on August 30, 1996. The net
loss from operation of the San Jose School was approximately $94,000 greater for
the quarter as compared to 1995. In addition, the Company recorded a net gain on
the sale of Person/Wolinsky and the San Jose School.
Total revenue decreased 7.1%, or $783,000 to $10,318,000 for the three
months ended September 30, 1996 compared to $11,101,000 in 1995. Revenue for the
CPA Review Courses decreased $1,627,000 while revenue at the Schools increased
$844,000.
Total operating expenses were virtually the same in 1996 as compared to
1995, decreases in expenses were due to the sale of Person/Wolinsky and the San
Jose School.
Payroll decreased $329,000 or 7.0% to $4,375,000 in 1996 compared to
$4,704,000 in 1995. Payroll expense at the Schools has increased as the Company
has added additional staff for enrollment increases and as the Company continues
to upgrade the quality of staff and faculty. The Schools payroll increases were
offset by decreased payroll from the sale of Person/Wolinsky and San Jose.
Occupancy decreased $336,000 or 23.5% to $1,095,000 from $1,431,000 in
1995. Occupancy for the Schools remained relatively stable. Occupancy for
Person/Wolinsky decreased $245,000 compared to 1995.
Instructional materials and supplies expense decreased 47.1% or $568,000 to
$638,000 in 1996 compared to $1,206,000 in 1995. The sale of Person/Wolinsky and
San Jose accounted for $380,000 of the decrease. The remaining decrease is due
to the timing of class starts and the related textbook expense.
General and administrative expenses increased $380,000 or 29.5% to
$1,670,000 from $1,290,000 in 1995. The Schools experienced increases in
professional fees and group health insurance.
Provision for uncollectible accounts increased 128.6% or $639,000 to
$1,136,000 in 1996 compared to $497,000 in 1995. The Company has been increasing
the number of loans provided by the Company's Schools for their students since
the fourth quarter of 1995. As a result, the gross value of notes receivable
increased $1,544,000 from the same period in 1995. The increase in the
provision for bad debts also includes an increase of approximately $559,000 due
to a greater number of these notes being collected by the Schools instead of a
professional note servicing agency. The Company's recently adopted policy that
all new student notes will be serviced by a professional agency is expected to
reduce future risk and required reserve ratios. See discussion in "Liquidity
and Resources."
Interest expense decreased $503,000 to a negative $344,000 in 1996 from
$159,000 in 1995. The change is due to decreases in bank and subordinated debt
and a reduction of $422,000 for the charge to interest for an additional payment
due CenCor in 1997. See discussion in "Liquidity and Resources."
Page 7
<PAGE>
The Company recorded a $99,000 loss from the sale of the San Jose School
and a gain of $283,000 from the sale of Person/Wolinsky. Both transactions were
recorded as sales of assets.
In 1996 a tax provision of $287,000 or 25.0% was recorded compared to a
provision of $106,000 or 10.0% in 1995. This tax provision is a result of
evaluating the Company's needs as it related to provision for assessment of
taxes. During future evaluation 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 7,713,000 from 7,446,000. This increase is due to the dilutive effect of the
Company's incentive stock option plan. Earnings per weighted average common and
common share equivalent (EPS) was $0.11 and $0.12 at September 30, 1996 and
1995, respectively. EPS is shown net of preferred stock dividends (not declared)
of $50,000 for the three months ended September 30, 1996 and $63,000 for the
same period in 1995. Cumulative dividends in arrears on the Preferred Stock were
$404,000 as of September 30, 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1995
Net income decreased $286,000 or 22.5% to $985,000 for the nine months
ended September 30, 1996 compared to net income of $1,271,000 in 1995. The 1996
net income was adversely affected by an interest accrual of $457,000 and
increased bad debt expense discussed below. Total revenue increased 4.0%, or
$1,173,000 to $30,620,000 for the nine months ended September 30, 1996 compared
to $29,447,000 in 1995. The increase is a result of enrollment increases and a
modest price increase in the second quarter of 1995.
The CPA Review Course was sold on August 2, 1996. As a result of the sale
the Company had no revenue related to the Fall course. Revenue for the CPA
Review Course decreased 57.4% or $1,654,000 to $1,227,000 from $2,881,000 in
1995. Operating loss for the nine months was $225,000 in 1996 compared to
operating income of $666,000 in 1995. Because the CPA exam is administered twice
each year, the operations of the CPA Review Courses were seasonal, impacting the
results of the Company during the quarters ending March 31 and September 30.
Total operating expenses increased $1,237,000 or 4.5% to $28,748,000 for
the nine months ended September 30, 1996 compared to $27,511,000 in 1995. All
categories of operating expenses decreased as a result of the sale of the CPA
Review Course and the San Jose School.
Payroll increased $570,000 or 4.3% to $13,789,000 in 1996 compared to
$13,219,000 in 1995. The Company has added additional staff as enrollment has
increased. In addition, the Company continues to upgrade the quality of staff
and faculty.
Occupancy decreased $420,000 or 10.4% to $3,627,000 from $4,047,000 in
1995. Person/Wolinsky's occupancy expense decreased $216,000. The Schools
occupancy expense decreased $204,000 primarily due to refunds from workers
compensation insurance.
Instructional materials and supplies expense decreased 12.6% or $361,000 to
$2,500,000 in 1996 compared to $2,861,000 in 1995. The sale of Person/Wolinsky
accounted for $260,000 of the decrease. The remaining change is due to decreased
textbook expense.
Other general and administrative expenses increased 8.2% or $334,000 to
$4,399,000 in 1996 from $4,065,000 in 1995. The change is due to increases in
printing, scholarship expenses and health insurance. The increase was offset by
a provision of $282,000 established in the first quarter of 1995 when the
Company was informed that its' Lauderdale Lakes, Florida School would be
required to refund Title IV funds to government agencies.
Page 8
<PAGE>
Provision for uncollectible accounts increased 79.0% or $982,000 to
$2,225,000 in 1996 compared to $1,243,000 in 1995. The Company has been
increasing the number of loans provided by the Company's Schools for their
students since the fourth quarter of 1995. As a result, the gross value of
notes receivable increased $1,544,000 from the same period in 1995. The
increase in the provision for bad debts also includes an increase of
approximately $559,000 due to a greater number of these notes being collected by
the Schools instead of a professional note servicing agency. The Company's
recently adopted policy that all new student notes will be serviced by a
professional agency is expected to reduce future risk and required reserve
ratios. See discussion in "Liquidity and Resources."
Interest expense increased 41.8% or $219,000 to $743,000 in 1996 from
$524,000 in 1995. Decreases due to reduced bank and subordinated debt were
offset by a $457,000 charge to interest for an additional payment due CenCor in
1997. See discussion in "Liquidity and Resources."
The Company recorded a $99,000 loss from the sale of the San Jose School
and a gain of $283,000 from the sale of Person/Wolinsky. Both sales were
recorded as sales of assets.
In 1996, a tax provision of $328,000 or 25.0% was recorded compared to a
provision of $141,000 or 10.0% in 1995. This tax benefit is a result of
evaluating the Company's needs as it related to provision for assessment of
taxes. During future evaluation 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 7,703,000 in 1996 from 7,406,000 in 1995. This increase is due to the
dilutive effect of the Company's incentive stock option plan. Earnings per
weighted average common and common share equivalent (EPS) was $0.11 and $0.15
for the nine months ended September 30,1996 and 1995, respectively. EPS is shown
net of preferred stock dividends (not declared) of $169,000 for the nine months
ended September 30, 1996 and $186,000 for the same period in 1995. Cumulative
dividends in arrears on the Preferred Stock were $404,000 as of September 30,
1996.
LIQUIDITY AND CAPITAL RESOURCES
Effective October 30, 1992, the Company and CenCor, Inc. ("CenCor") entered
into a Restructuring, Security and Guaranty Agreement pursuant to which the
Company was released from its obligations relating to assumed subordinated
indebtedness issued by CenCor. As consideration for the release, the Company
issued to CenCor a Junior Secured Debenture (the "Debenture") in the principal
amount of $5,422,307, representing the full principal amount of the assumed
subordinated debt and accrued interest through October 30, 1992. Interest on the
Debenture accrued from October 30, 1992 through June 30, 1996. The first
principal and interest payment was made June 30, 1996. The entire balance of the
Debenture is due July 31, 1997. Interest accrues at 1.5% over the prime rate. At
July 31, 1997 CenCor is entitled to an amount equal to 25% of the amount by
which the "market capitalization" of the Company exceeds $3,500,000. Market
capitalization is the total common shares of the Company multiplied by the
highest average share price (high-bid) for any period of 30 consecutive trading
days between January 1, 1997 and June 30, 1997. At September 30, 1996 this
payment was accrued and would have been valued at $457,000. The $457,000
represents the latest 30 day average of the Company's stock price at September
30, 1996. The highest 30 day average stock price January 1 through September 30,
1996 has been $1.05 which would be a $952,000 payment. As the Company's average
stock price increases the payment due CenCor increases. (See the table below.)
Management will continue to accrue an estimate of the payment based on the
average stock price.
Page 9
<PAGE>
The table below reflects the payment due CenCor at July 31, 1997 if the
average high-bid stock price reaches the stated levels:
<TABLE>
<CAPTION>
Stock Price Payment Due
--------- -----------
<S> <C> <C>
$ .50 $ -0-
.75 430,000
1.00 865,000
1.50 1,734,000
2.00 2,604,000
</TABLE>
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 is reduced which
improves income before taxes, but the Company will incur non-deductible
dividends on the preferred shares. Approximately half of the proceeds of the
sale of assets of the CPA Review Courses and the San Jose School were used to
redeem preferred stock and the related dividends. Outstanding preferred stock
shares at November 8, 1996 were 266,840.
Additionally, the Company paid the remaining balance of a bank term loan in
1996. The balance of this bank debt was $1,343,000 at December 31, 1995. The
Company currently has no bank line of credit for working capital.
Cash and cash equivalents decreased $713,000 to $2,582,000 at September 30,
1996 from $3,295,000 at January 1, 1996. This compares to a $2,347,000 increase
for the same period in 1995.
Net cash provided by operating activities was $562,000 for the nine months
ended September 30, 1996 a decrease of $4,596,000 as compared to the same period
in 1995. Approximately $610,000 of the decrease is due to the sale of
Person/Wolinsky. The remaining decrease is primarily a result of less cash
collections at the Schools due to increased loans provided by the Company's
Schools, as discussed below. Deferred student tuition increased $1,523,000
compared to an increase of $2,723,000 in 1995. Other changes in assets and
liabilities decreased $742,000 in 1996 compared to an increase of $1,016,000 in
1995. The decrease of $1,958,000 was attributable to decreased accrued expenses
and other liabilities.
Capital expenditures in 1996 were $370,000 compared to $477,000 in 1995.
Capital expenditures for 1996 and 1995 were primarily for additional classroom
equipment. Principal payments on debt were $1,482,000 in 1996 compared to
$2,334,000 in 1995. This included $139,000 in subordinated debt payments to
CenCor. Redemption of preferred stock and the related dividends was $352,000 in
1996.
Beginning with the fourth quarter of 1995, the Company increased the number
of loans provided by the Company's Schools for their students due to the
Department of Education's regulation which requires that the Schools receive no
more than 85% of their cash revenue from Title IV funding. These loans defer
cash collections, and currently reduce the Company's cash flow. In the third
quarter of 1996 a review of the Schools notes and related reserves identified a
concern with notes being serviced by the Schools and the Schools' ability to
adequately collect those notes. $5,857,000 of the Company's notes are in the
hand of a third party servicer. Notes at the third party servicer are easily
identified and the collection effort quantifiable. Notes being serviced by the
Schools are not easily analyzed and the collection effort is hard to quantify.
As a result the Company has increased its reserves for the notes being serviced
by its Schools until the collectibility can be better quantified. In addition,
the Company has changed its policy and in the future all new notes will be
serviced by a third party agency. Increased reliance on loans may have an
additional impact on future liquidity and may increase bad debt expense.
Page 10
<PAGE>
The Company is moving its North Hollywood School to a new location in 1997.
A lease agreement has been signed. The new building will provide better access
and additional space for new programs. Leasehold improvements and new equipment
will cost approximately $850,000. The Company must obtain waivers of debt
agreement covenants to proceed with the move.
On August 2, 1996 the assets of Person/Wolinsky Associates, a wholly owned
subsidiary of the Company were sold. As a result of the sale the Company
received proceeds of $879,000. In addition, a $750,000 non-compete agreement is
payable to the Company in ten equal annual installments commencing December 15,
1996.
On August 30, 1996 the Company sold the assets of its Allied Health School
located in San Jose, California. The Company received proceeds of $50,000 and a
$300,000 promissory note, due February 27, 1997 for the school's assets.
CenCor, which agreed to release its security interest in the assets and
consent to these sales, received approximately $378,000 in the form of a
preferred stock redemption. Approximately 33,000 shares of preferred stock were
released and $46,000 of accumulated dividends paid as a result of these
transactions.
Earnings per weighted average common and common equivalent share is shown
net of preferred stock dividends (not declared) of $50,000 for the three months
ended September 30, 1996 and $63,000 for the same period in 1995. Preferred
stock dividends (not declared) were $169,000 for the nine months ended September
30, 1996 compared to $186,000 for the same period in 1995. Cumulative Preferred
Stock dividends in arrears were $404,000 as of September 30, 1996.
The Department of Education ("DOE") regularly conducts program reviews of
educational institutions participating in Title IV programs. During September
1996, the Company received Final Program Review Determination Letters from the
DOE for two if its Schools. The letters asked for repayment of liabilities which
are immaterial to the Company's financial position. Some of the liabilities are
being appealed. In addition, several findings are being referred to the DOE's
Compliance and Enforcement Division ("CED") for possible further action. The
Company does not know what further action may be taken. However, the DOE could
limit, suspend, or terminate the Schools' eligibility to participate in Title IV
funding programs. The Company will appeal any such action.
While the outcome of matters involving the DOE cannot be determined with
certainty, management believes that the final outcome will not have a material
impact to its results of operations or its financial position.
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.
(The remainder of this page was left intentionally blank.)
Page 11
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Department of Education Matters
The Department of Education ("DOE") is authorized to limit, suspend, or
terminate (LS&T) the eligibility of a school to participate in Federal Title IV
student loan programs and, in certain circumstances, the Pell grant program, if
the rate of students who default on their loans during a defined period is equal
to or exceeds 25% during each of the three most recent fiscal years. As a result
of litigation, the Company's 1990 and 1991 rates were suspended. The 1992 and
1993 rates have been published for the Company's Schools and the Company has
received preliminary 1994 rates. Three of the Company's Schools have pre appeal
rates which equal or exceed 25% for three consecutive years. The Company
believes that the preliminary 1994 rates for two of the Schools may be lowered
below 25% when they are appealed. However, all three Schools could be in
jeopardy of LS&T if the preliminary 1994 rates are not lowered through appeal
and if the current appeals of 1992 and 1993 rates do not bring those rates below
25%. The final 1994 rates are expected to be published in mid December, 1996.
The Company is challenging the DOE's authority to enforce the 1992 Cohort
Default Rates and the rates for all subsequent years, in light of the DOE's rate
correction regulations, adopted on April 25, 1994 and November 29, 1994, which
the Company contends are inconsistent with Title IV statutory provisions and
therefore are invalid. The Company has requested the Court to officially suspend
the 1992 Cohort Default Rates and to enjoin enforcement of subsequent rates.
While the Court thus far has declined to enter a temporary restraining order or
a preliminary injunction prohibiting enforcement of the 1992 Cohort Default
Rates and subsequent rates, the Company has conducted some discovery and intends
to further pursue its request for an injunction if necessary to maintain its
Title IV eligibility.
The Company also has pursued administrative appeals seeking a reduction of
its previously published 1992 and 1993 rates. These appeals are being pursued
under a rate correction appeal process established by Congress in late 1993 for
the correction of default rates for demonstrated occurrences of improper loan
servicing and collections. The Company's appeals were commenced in the fall of
1994 and in the spring of 1996. The appeals were for loan servicing errors
and/or erroneous data.
During the third quarter of 1996, the Company received responses on its
appeals for eight of its Schools' 1992 and 1993 rates. 1992 rates were adjusted
for five Schools, and 1993 rates were adjusted for seven of the Company's
Schools. The adjustments did not decrease the rates more than 4.5%. All but two
of the adjusted rates are greater than 25%. The Company's Schools have
outstanding erroneous data appeals for 1992 and 1993 rates. As previously
noted, the Company's Schools have servicing errors and erroneous data appeals
pending, for 1993 rates. Consequently, the referenced Schools will continue
to maintain Title IV eligibility until receipt of rulings on all 1992, 1993, and
1994 appeals.
While the outcome of matters pertaining to the DOE and litigation 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.
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").
Page 12
<PAGE>
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 intended 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 8, 1996, 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 8, 1996, SCI had received payments totaling approximately $30,000
pursuant to that agreement.
In light of the manner in which SCI was operated by Concorde Career
Institute, Inc. as a subsidiary of the Company, applicable corporate law limits
the liability of stockholders and 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.
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 was amended to comprise 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 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 was granted in part and denied in part. The
Company has answered the complaint, and filed numerous affirmative defenses.
Discovery restricted to class certification issues is currently ongoing, with a
hearing to determine whether or not the class should be certified anticipated in
the late fall, 1996. In the meantime, all activity and progress in the other
suits have been stayed. The Company will continue to strongly oppose class
certification.
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 and the litigation above will not result in liabilities
that would have a material adverse effect on the Company's financial position or
results of operations.
Page 13
<PAGE>
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 -- NONE
(The remainder of this page was left intentionally blank.)
Page 14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONCORDE CAREER COLLEGES, INC.
DATED: NOVEMBER 18, 1996
BY: /S/ JACK L. BROZMAN
-------------------------------------
JACK L. BROZMAN, PRESIDENT
BY: /S/ GREGG GIMLIN
-------------------------------------
GREGG GIMLIN, CHIEF FINANCIAL OFFICER
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
September 30, 1996 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-31-1996 Dec-31-1996
<PERIOD-START> Jan-01-1996 Jul-01-1996
<PERIOD-END> Sep-30-1996 Sep-30-1996
<CASH> 2,582 0
<SECURITIES> 0 0
<RECEIVABLES> 21,682 0
<ALLOWANCES> 2,241 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 23,238 0
<PP&E> 11,761 0
<DEPRECIATION> 8,942 0
<TOTAL-ASSETS> 30,943 0
<CURRENT-LIABILITIES> 22,809 0
<BONDS> 0 0
<COMMON> 699 0
0 0
27 0
<OTHER-SE> 6,582 0
<TOTAL-LIABILITY-AND-EQUITY> 30,943 0
<SALES> 30,620 10,318
<TOTAL-REVENUES> 30,620 10,318
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 26,523 8,561
<LOSS-PROVISION> 2,225 1,136
<INTEREST-EXPENSE> 743 (344)
<INCOME-PRETAX> 1,129 965
<INCOME-TAX> 328 287
<INCOME-CONTINUING> 328 287
<DISCONTINUED> 0 0
<EXTRAORDINARY> (184) (184)
<CHANGES> 0 0
<NET-INCOME> 985 862
<EPS-PRIMARY> 0.11 0.11
<EPS-DILUTED> 0.11 0.11
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