<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1995
Commission file number 0-16992
CONCORDE CAREER COLLEGES, INC.
(Exact name of registrant as specified in its charter)
12 & BALTIMORE, CITY CENTER SQUARE
P. O. BOX 26610
KANSAS CITY, MISSOURI 64196
TELEPHONE: (816) 474-8002
INCORPORATED IN THE STATE OF DELAWARE
43-1440321
(I.R.S. Employer Identification No.)
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
--------------
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.
YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of March 21, 1996.
6,958,376 SHARES OF COMMON STOCK, $.10 PAR VALUE
Aggregate market value of Common Stock, held by non-affiliates of the
Registrant at March 21, 1996 was approximately $4,349,000
Documents incorporated by reference -- Proxy Statement for Annual Meeting of
Stockholders to be held May 24, 1996.
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CONCORDE CAREER COLLEGES, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1995
INDEX
-----
ITEM PAGE
- ---- ----
PART I
1. Business............................................................. I-1
2. Properties........................................................... I-8
3. Legal Proceedings.................................................... I-9
4. Submission of Matters to a Vote of Security Holders.................. I-9
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters..................................... II-1
6. Selected Financial Data.............................................. II-1
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... II-3
8. Financial Statements and Supplementary Data.......................... II-10
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................. II-30
PART III
10. Directors, Executive Officers, Promoters and Control
Persons of the Registrant (Incorporated by Reference)............... III-1
11. Executive Compensation (Incorporated by Reference)................... III-1
12. Security Ownership of Certain Beneficial Owners and Management
(Incorporated by Reference)................................. III-1
13. Certain Relationships and Related Transactions
(Incorporated by Reference)................................. III-1
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K......................................................... IV-1
Signatures........................................................... IV-4
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
The discussion set forth below, as well as other portions of this Form
10-K, may contain forward-looking comments. Such comments are based upon
information currently available to management and management's perception
thereof as of the date of this Form 10-K. Actual results of the Company's
operations could materially differ from those forward-looking comments. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, changes in competition and the effects of such
changes; increased competition; changes in the economic, political or regulatory
environments; litigation involving the Company; changes in the availability of a
stable labor force; or changes in management strategies. Readers should take
these factors into account in evaluating any such forward-looking comments.
THE COMPANY
The Company owns and operates proprietary, postsecondary schools which
offer career training designed to provide primarily entry-level skills readily
needed in certain of the major service industries. The Company's schools offer
vocational training programs primarily in the allied health field. The Company
also offers review courses for the CPA Examination. As of December 31, 1995, the
Company owned and operated resident training schools at 13 locations in six
states (the "Schools"), and offered its Certified Public Accountant ("CPA")
review courses in 16 states (the "CPA Review Courses"). For a comparison of the
revenues generated by the Schools and the CPA Review Courses, see Item 7,
"Management's Discussion and Analysis."
The Company was formed in 1988 as a Delaware Corporation, and its principal
office is located at 12th and Baltimore, City Center Square, P.O. Box 26610,
Kansas City, Missouri 64196 (telephone: 816/474-8002). Unless otherwise
indicated, the term "Company" refers to Concorde Career Colleges, Inc. and its
direct and indirect wholly-owned subsidiaries.
RECENT DEVELOPMENTS
In 1994, the Department of Education ("DOE") established a policy of
recertifying all schools participating in the federal funding program under
Title IV of the Higher Education Act ("Title IV programs") every five years.
Since the Companys' Schools participate in Title IV programs, the Company is in
the process of obtaining recertification of the Schools. As of March 19, 1996
full certification has been approved for the Schools in Anaheim, North
Hollywood, San Bernardino, San Diego, and San Jose, California, Kansas City,
Missouri, and Portland, Oregon. Notification has not been received on the
certification of the Memphis, Tennessee, Lauderdale Lakes, Florida, or Denver,
Colorado Schools. Three Schools, Jacksonville, Tampa, and Miami, Florida (Miami
is an additional location of the Tampa School) have received provisional
certification. Provisional certification limits the School's ability to add
programs and change the level of educational award and requires that the School
forfeit its right to due process under DOE guidelines. The Company is unable to
determine with any certainty what impact, if any, provisional certification will
have on its liquidity, results of operations or statement of financial position.
See Item 1, "Business -- Regulation."
In addition, the DOE regularly conducts program reviews of educational
institutions participating in Title IV programs. The Company is disputing a
program review finding concerning "pro rata" refunds of certain monies to or on
behalf of certain withdrawing students who have received Title IV funds. On
February 7, 1996, the Company was notified that an Administrative Law Judge
("ALJ") decided against the Company on this issue and upheld the Company's
obligation to refund such monies which is not a material amount. The issue is
currently on appeal to the Secretary of Education. The review finding affects
the Company's Denver, Colorado location but may also affect the Company's other
Schools. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Contingencies."
During the fourth quarter of 1995 the Company realized a onetime benefit
when it eliminated a $315,000 reserve for bad debt. The reserve was established
in 1994 and related to refunds made during 1994. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Current Trends and Recent Events."
THE SCHOOLS
As of December 31, 1995, the Company operated the Schools located in the
following cities: North Hollywood, Anaheim, San Bernardino, San Diego, and San
Jose, California; Denver, Colorado; Lauderdale Lakes, Jacksonville, Miami (an
additional location of the Tampa School) and Tampa, Florida; Kansas City,
Missouri; Portland, Oregon; and Memphis, Tennessee. All Schools
Part I - Page 1
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offer Allied Health Programs, and the Kansas City School offers a business
program in Computerized Accounting.
In order to increase name recognition of its Schools, the Company has
designated each of the Schools as a "Concorde Career Institute."
ALLIED HEALTH CURRICULUM
The Company's Schools' allied health programs of study are:
Vocational/Practical Nursing, Respiratory Therapy Technician, Surgical
Technician, Pharmacy Technician, Medical Secretary, Medical Assistant, and
Dental Assistant. Not all programs are offered at all Schools. In addition,
certain Schools offer selected short term courses, including Limited X-Ray,
Expanded Duties for Dental Assistants, Medical Insurance Billing, and various
certification test preparations in allied health occupations. Elkins Interactive
Training Network (EITN), a satellite delivery system of educational programs and
seminars, is currently offered on-line in two of the Company's Schools. EITN is
not affiliated with the Company.
The Schools are on a non-traditional academic calendar with starting dates
for programs varying by location and type of program. Programs typically
commence monthly at each School. The Schools' programs of study usually range
from eight to twenty months and include from 720 to 1,572 hours of instruction.
While most programs are taught in a classroom atmosphere, hands-on
clinical/laboratory experience is an integral part of the curriculum at the
Schools. Most programs of study at the Schools include an externship immediately
prior to graduation, varying in duration from four to twelve weeks, depending on
the particular program.
RECRUITMENT AND ADMISSIONS
A School's typical student is either (i) unemployed and enrolls in order to
learn new skills and obtain employment or (ii) underemployed and enrolls in
order to acquire new skills or to update existing skills to increase his/her
earning capacity. The Company recruits students through advertising in various
media, including television, radio, newspapers and direct mail. The Company also
recruits students by presenting seminars and lectures to graduating seniors at
local high schools. Management estimates that approximately 25% of all
enrollments are the result of referrals from the Schools' students and
graduates.
Each School maintains an Admissions Department which is responsible for
conducting admissions interviews with potential applicants to provide
information regarding the Schools' programs and to assist with the application
process. In addition, each applicant for enrollment must take and pass an
entrance examination(s) administered by a person other than admissions
personnel. The entrance examination and interview are designed to determine the
student's ability to benefit from the instruction provided by the School and the
student's level of motivation to complete the program.
The admissions criteria for the Schools vary according to the program of
study. Each applicant for enrollment must have a high school diploma, the
equivalent of a high school diploma or must demonstrate the ability to benefit
from the program sought before admission into the School is granted. All
students must be beyond the age of compulsory high school attendance. The
Company performs credit checks on applicants before admission to identify
applicants who may be in default on a prior student loan.
The following table sets forth the number of applicants and the student
enrollments (net of cancellations) at the Schools for the periods indicated.
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Applicants Interviewed.. 23,158 23,175 21,356
Student Enrollments..... 7,121 6,701 6,532
Admissions.............. 30.7% 28.9% 30.6%
</TABLE>
At December 31, 1995, the Company had approximately 4,286 students in
attendance at the Schools, including approximately 576 students on externship.
Student Retention
The Company strives to help students complete their program of study
through admissions screening policies, financial aid planning and student
services. Each School has a staff member whose function is to provide student
services concerning academic and personal problems which might disrupt or result
in a premature end to a student's studies. Programs of study are offered in the
morning, afternoon, and evening to meet the students' scheduling needs.
Part I - Page 2
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If a student terminates prior to completing a program, federal and state
regulations and accreditation criteria permit the Company to retain only a
certain percentage of the total tuition, which varies with, but equals or
exceeds, the percentage of the program completed. Amounts received by the
Company in excess of such set percentage of tuition are refunded to the student
or the appropriate funding source. See "Financing Student Education," below.
Approximately 35% of all students terminate their program of study prior to
completion. This includes approximately 10% of the student body who are required
by the Schools to discontinue their training due to unsatisfactory academic
performance or poor attendance.
STUDENT PLACEMENT
The Company, through the placement personnel at each School, provides job
placement assistance services for its graduates. The placement personnel
establish and maintain contact with local employers and other sources of
information on positions available in the local area. Additionally, the School's
Director of Graduate Services works with students on preparing resumes and
interviewing techniques. Postgraduate placement assistance is also provided,
including referral to other cities in which the Company's Schools are located. A
number of graduates do not require placement services. Frequently, the
externship programs at the Health Vocation Schools result in placement of
students with the practitioners participating in the externship.
SCHOOL ADMINISTRATION
The Vice President-Operations is responsible for the overall performance of
the Schools. Reporting to him are: the National Director of Compliance/Financial
Aid, the Vice President of Education, the National Field Operations Manager, and
the National Director of Marketing and Admissions.
Each School is operated independently and is managed on site by a School
Director reporting to the National Field Operations Manager. The National Field
Operations Manager is assisted by Corporate Specialists. In addition, each
School is staffed with a Financial Aid Director, a Director of Admissions, a
Director of Education, a Director of Graduate Services, a Business Office
Manager, and several other support staff. Instruction at each school is
conducted by professional educators in the field or by former and current
members of the business or medical community on a full-time or part-time basis.
Instructional staff are selected based upon academic and professional
qualifications, and experience level.
ACCREDITATION AND LICENSING
All the Schools are accredited through various accrediting associations
recognized by the DOE. These associations are the Accrediting Commission of
Career Schools and Colleges of Technology ("ACCSCT") formerly (prior to July 1,
1993) the Accrediting Commission For Trade and Technical Schools of The Career
College Association ("CCA"), and the Council on Occupational Education, formerly
(prior to July 1, 1995) the Commission on Occupational Education Institutes
("COEI"). Accreditation by a nationally recognized accrediting body is
necessary in order for a school to be eligible to participate in federally
sponsored financial aid programs for students. See "Financing Student
Education," below.
Additionally, certain Schools have received programmatic accreditation or
approval for some of their programs from certain of the following accrediting
agencies: The Committee on Allied Health Education and Accreditation, the Joint
Review Committee for Respiratory Therapy Education, the American Dental
Association, the California Board of Dental Examiners, and the Board of
Vocational Nurse and Psychiatric Technician Examiners. While such programmatic
accreditation/approvals are not necessary for participation in federally
sponsored financial aid programs, they are required for certification and/or
licensure of graduates from some of the programs offered by certain of the
Schools, such as the Vocational Nurse program offered at the San Bernardino, San
Diego, Denver, North Hollywood and Anaheim Schools. Additionally, such
accreditation or approvals have been obtained because management believes they
enhance the students' employment opportunities in those states that recognize
these accrediting agencies.
The qualifications of faculty members are regulated by applicable accrediting
bodies. These accrediting bodies have certain faculty standards which must be
met before the Schools are given their accreditation renewal. In addition,
depending upon the curriculum being taught, faculty members must meet certain
standards set by applicable state licensing laws before annual licensing of the
Schools.
Each School is also licensed as an educational institution under applicable
state and local licensing laws, and is subject to a variety of state and local
regulations. Such regulations may include approval of the curriculum, faculty
and general operations.
Part I - Page 3
<PAGE>
FINANCING STUDENT EDUCATION
Tuition and other ancillary fees at the Schools vary from program to program,
depending on the subject matter and length of the program. The total cost per
program ranges from approximately $5,100 to $12,400.
Most students attending the Schools utilize federal government grants and/or
the Federal Family Education loan programs available under the Higher Education
Act of 1965, as amended (the "Act"), and various programs administered
thereunder to finance their tuition. Each School has at least one financial aid
officer who assists students in making application for such federal grants and
federal loans. Management estimates that during 1995 83% of the overall School's
cash receipts were derived from funds obtained by students through these
programs. The Act and the programs administered thereunder were reauthorized by
Congress in July of 1992.
Currently, each of the Schools is an eligible institution for some or all of
the following additional federally funded programs: Federal Pell Grant, Federal
Supplemental Education Opportunity Grant, Federal Perkins Loan Program, Federal
Parent Loan for Undergraduate Students, Federal Stafford Loan, Federal
Unsubsidized Stafford Loan, and Veterans Administration Assistance. Also, some
students are eligible for assistance under the Department of Labor's Job
Training Partnership Act.
Additionally, the states of California, Colorado, and Oregon each offer state
grants for educational programs of the type offered by the Schools. Typically,
many restrictions apply in qualifying and maintaining eligibility for
participation in these state programs.
Students at the Schools principally rely on a combination of two Federal
programs: Federal Pell Grants and Federal Family Education Loans ("FFELs"), also
referred to as Federal Stafford loans. Federal Family Education Loans and
Federal Pell Grants are awarded annually to needy students studying at least
half-time at an approved postsecondary educational institution. Federal Pell
Grants need not be repaid by the student. The maximum Pell Grant a student may
receive for the 1995-96 award year is $2,340, with the amount a student actually
receives being based on a federal regulatory formula devised by the DOE.
FFELs are low interest federal student loans provided by banks and other
lending institutions, the repayment of which is fully guaranteed as to principal
and interest by the federal government through a guarantee agency. The student
pays no interest on the FFEL while in school and for a grace period (up to six
months) thereafter. After such time, repayment is required in monthly
installments, including a variable interest rate with a cap at 9%. The lenders
making FFELs receive interest subsidies during the term of the loan from the
federal government, which also pays all interest on the FFEL while the student
attends school and during the grace period. In the event of default, FFELs are
fully guaranteed as to principal and interest by state or private guarantee
agencies which, in turn, are reimbursed by the federal government according to
the guarantee agency reinsurance provisions contained in the Act.
REGULATION
Both federal and state financial aid programs contain numerous and complex
regulations which require compliance not only by the recipient student but also
by the institution which the student attends. Because of the importance of
compliance with these regulations, the Company monitors the Schools' compliance
through periodic visits to the individual Schools by Corporate Specialists. If
the Company should fail materially to comply with such regulations at any of the
Schools, such failure could have serious consequences, including limitation,
suspension, or termination of eligibility to participate in the funding
programs. Audits by independent certified public accountants of the Schools'
administration of federal funds are mandated by federal regulations.
Additionally, these aid programs require maintaining certain accreditation by
the Schools. See "Accreditation and Licensing" and "Financing Student
Education," above.
One of the DOE's principal criteria for assessing a School's eligibility to
participate in student loan programs is the Cohort Default Rate threshold
percentage requirements enacted in the Student Loan Default Prevention
Initiative Act of 1990. Due to concerns about default rates, the DOE has
promulgated regulations affecting FFEL, Federal Unsubsidized Stafford, Federal
Supplemental Loans for Students ("FSLS") and Federal Perkins Loan Program loans
(collectively, the "Federal Loan Programs"). Cohort Default Rates are calculated
by the Secretary of Education and are designed to reflect the percentage of
current and former students entering repayment in the cohort year who default on
their loans during that year or the following cohort year. This calculation
includes only those defaulted loans on which federal guaranty claims have been
paid. The "cohort year" is the fiscal year of the federal government -- October
1 to September 30. The 1992 Cohort Default Rates were published in August 1994.
The final 1993 Cohort Default Rates were published in February 1996.
Part I - Page 4
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After January 1, 1991, the Secretary of Education was authorized to initiate
proceedings to limit, suspend or terminate the eligibility of a school to
participate in the Federal Loan Programs if the Cohort Default Rate for three
successive years exceeds the prescribed threshold. Beginning with the release
of 1992 Cohort Default Rates in the summer of 1994, a Cohort Default Rate equal
to or exceeding 25% for each of the three most recent fiscal years may be used
as grounds for terminating Federal Financial Education Loan Program ("FFELP")
eligibility.
The following table sets forth the 1992 and 1993 Cohort Default Rates for each
of the Company's Schools that were in operation at the time the Cohort Default
Rates were published. Publication of the Company's Cohort Default Rates for
1990 and 1991 has been suspended due to two injunctions obtained by the Company
to preclude the DOE from using 1990 and 1991 Cohort Default Rates as grounds to
limit, suspend, or terminate the Company's eligibility for Federal Loan
Programs. See Item 3, "Legal Proceedings."
<TABLE>
<CAPTION>
COHORT DEFAULT COHORT DEFAULT
RATES RATES
SCHOOL 1992 1993 1992 1993
----- ----- ---- ----
<S> <C> <C> <C> <C>
Anaheim, CA 35.7 27.5 North Hollywood, CA 22.1 24.9
Denver, CO 34.2 20.0 Portland, OR 33.0 29.2
Jacksonville, FL 38.5 31.9 San Bernardino, CA 32.1 30.7
Kansas City, MO 15.4 20.5 San Diego, CA 29.8 32.5
Lauderdale Lakes, FL 35.2 18.2 San Jose, CA 37.1 23.7
Miami, FL (1) 33.9 25.0 Tampa, FL 33.9 25.0
Memphis, TN 24.1 16.2
</TABLE>
(1) The Miami campus is an additional location of the Tampa School.
The Company is challenging the DOE's authority to enforce the 1992 Cohort
Default Rates applicable to the Company in light of the DOE's rate correction
regulations applicable to such rates adopted on April 25, 1994 and November 29,
1994, which the Company contends are invalid. The Company has requested the
court to officially suspend the 1992 Cohort Default Rates. While the court has
declined to enter a temporary restraining order or a preliminary injunction
prohibiting publication of the 1992 Cohort Default Rates, the Company is
conducting discovery proceedings and intends to pursue its request for an
injunction against the DOE's rate correction regulations and the Schools' 1992
rates.
The Company is also pursuing administrative appeals seeking a reduction of its
previously announced and suspended 1990 and 1991 rates, the 1992 rates and the
recently published 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 no ruling has yet been issued. (See Item 3, "Legal Proceedings.")
If any of the Company's Schools loses its eligibility to participate in
Federal Loan Programs, the continuing operation of that School would be in
doubt. The Company intends to vigorously defend its Schools against any
proceeding by the DOE to limit, suspend, or terminate FFELP eligibility.
Although seven of the Company's Schools have 1993 Cohort Default Rates equal
to or in excess of 25%, students at all of the Company's Schools have access to
lenders. Even though a School is eligible to participate in Title IV programs,
it must also have access to lending institutions such as banks which are willing
to act as lenders for the Schools' students.
In 1994, the DOE established a policy of recertifying all schools
participating in Title IV programs every five years. As a result, the Company is
in the process of recertifying the Schools. As of March 19, 1996 full
certification has been approved for Anaheim, North Hollywood, San Bernardino,
San Diego, and San Jose, California, Kansas City, Missouri, and Portland,
Oregon. Notification has not been received on the certification of the Memphis,
Tennessee, Lauderdale Lakes, Florida, or Denver, Colorado Schools. Three
Schools, Jacksonville, Tampa, and Miami, Florida (Miami is an additional
location of the Tampa School) have received provisional certification.
Provisional certification limits the School's ability to add programs and change
the level of educational award. In addition, the School forfeits its right to
due process under DOE guidelines. The Company is unable to determine with
certainty what impact, if any provisional certification will have on its
liquidity, results of operations or statement of financial position.
Part I - Page 5
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The DOE also established certain "Factors of Financial Responsibility" which
the Schools are required to meet to be eligible to receive Title IV Funds.
Although these factors change regularly, the Company believes its Schools
currently meet all applicable factors.
The Company is not aware of any material violation by the Company of
applicable local, state and federal laws.
CPA REVIEW COURSES
Person/Wolinsky Associates, Inc. ("Person/Wolinsky"), a subsidiary of the
Company, offers review courses in the Spring and Fall for candidates preparing
for the CPA Examination administered by the American Institute of Certified
Public Accountants ("AICPA"). The CPA Review Courses are offered in
approximately 40 separate locations throughout 16 states. Approximately half of
the CPA Review Courses are centrally administered, with the Company coordinating
all marketing efforts, supplying all study materials, arranging for classroom
space from Person/Wolinsky's offices in Port Jefferson Station, New York as well
as receiving all tuition for those classes. Independently administered CPA
Review Courses, representing the other half, are operated by individuals and/or
organizations (inclusive of colleges and universities) using the Person/Wolinsky
name and course materials. The independent administrators are responsible for
the marketing efforts, purchasing study materials from the Company, arranging
for classroom space, collecting tuition and course administration for these CPA
Review Courses. The Company is paid for the use of the materials and receives a
percentage of gross revenue from these independently administered CPA Review
Courses.
Samuel Person, who started the business in 1967 and created the study
materials, continues to manage its operations. Since May 1, 1993, Mr. Person has
reduced the amount of business time devoted to managing Person/Wolinsky.
The classes offered by the CPA Review Courses typically span 9 to 10 weeks and
include 102 hours of instruction. They are usually held in the evening and/or on
the weekends to allow attendance by individuals who are working full-time. The
classes are attended by accountants or recent college graduates who wish to
become certified public accountants and who are candidates for the uniform CPA
examination. The CPA Review Courses attract prospective candidates mainly
through direct mail advertising, as well as promotional efforts on college
campuses. Additionally, candidates for the CPA Review Courses are recruited
through contact with large public accounting firms that employ substantial
numbers of potential students.
The tuition for the CPA Review Courses currently ranges up to $1,320 and is
generally collected 50% in advance of the course commencement date and 50% by
the third week of the course. Most students pay this directly. Sometimes the
students' employers reimburse a portion or all of the tuition costs associated
with preparation for the CPA examination. The Company provides students the
opportunity to finance the tuition over a period of 18 months, at interest rates
currently set at 14%. The Company estimates that less than 10% of all student
tuition is so financed.
The AICPA currently has plans to significantly modify the CPA examination.
Beginning May 1996 the CPA examination will be "non-disclosed." Official
questions will no longer be provided after the exam has been administered except
for selected samples. The AICPA is currently considering plans to offer a
computerized exam by the year 2000. The Company is currently reassessing the
nature in which it delivers its services to meet the upcoming changes in the CPA
examination.
The following table sets forth the approximate number of students
enrolled in the CPA Review Courses and the course locations during each of the
periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Number of Students... 7,500 9,800 9,400
Number of Locations.. 40 41 44
</TABLE>
OTHER
Prior to 1991 the Company owned a Paralegal Home-Study Course. See "Notes to
Consolidated Financial Statement."
COMPETITION
The Schools are subject to intense competition from public educational
institutions in addition to a large number of other
Part I- Page 6
<PAGE>
public and private companies providing postsecondary education, many of which
are older, larger and have greater financial resources than the Company.
Management believes that the courses of study offered, the School's reputation
and marketing efforts are the principal factors in a student's choice to enroll
in a School. Additionally, the cost of tuition and availability of its
financing, the location and quality of the School's facilities and job placement
assistance offered are important. The specific nature and extent of competition
varies from School to School, depending on the location and type of curriculum
offered. The Company competes principally through advertising and other forms of
marketing, coupled with specialized curricula offered at competitive prices.
Person/Wolinsky is aggressively pursuing alternate means to attract candidates
in home study and other markets.
The CPA Review Courses also are subject to intense competition. In addition to
the Company, several other review courses compete on a national or multi-state
basis. There is also strong local competition located in some major city
markets. In certain locations, the CPA Review Courses also compete with colleges
and universities which provide review classes for their students. Competition
also exists in the form of home-study courses, including printed materials,
audio and video tapes and computer-assisted instructional materials. The number
of candidates taking the CPA exam has steadily declined over the past several
years, reflecting the shrinking job market and reduced number of accounting
graduates, except in 1993, which showed an increase due to anticipation of
changes in the CPA exam in 1994. During 1995, it appears that competitors
intensified their marketing campaigns and price discounting. Management does
not believe the competitive situation is likely to change in 1996, nor can
management evaluate the potential impact changes in the exam will have on the
Company.
Management believes that the quality of course materials and the program's
reputation are the principal factors in a candidate's selection of the CPA
Review Courses. The Company competes principally through direct mail advertising
and marketing efforts on college campuses in connection with the CPA Review
Courses.
EMPLOYEES
As of February 21, 1996, the Company had approximately 689 full and part-time
employees, of which approximately 371 were faculty members at its Schools. There
are 262 management and administrative staff members, of which 208 are employed
at the Schools, 20 are employed in the CPA Review Courses and 34 are employed at
corporate headquarters. The remaining 56 employees are admissions personnel at
the Company's Schools.
Management and supervisory members of the administrative staff and
administrative faculty are salaried. All other faculty and employees are paid
on an hourly basis. The Company employs on both a full-time and part-time
basis, as well as on a substitute/on-call basis. The Company does not have an
agreement with any labor union representing its employees and has not been the
subject of any union organization efforts. The CPA Review course instructors
are independent contractors paid on a project basis.
(The remainder of this page was left blank intentionally.)
Part I - Page 7
<PAGE>
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in Kansas City, Missouri.
All the Schools' facilities are leased. The Company owns a building in Warren,
Michigan, which previously housed a school, and has been rented since September
1992 to a third party tenant. The administrative office for the CPA Review
Courses in Port Jefferson Station, New York is also leased. The review programs
offered by the CPA Review Courses are generally held in temporary meeting rooms
in hotels, motels and colleges under short-term rental agreements for the length
of the specific program.
The following table sets forth the location, approximate square footage and
expiration of lease terms for each of the Schools, the administrative office for
the CPA Review Courses , and an agreement to provide classroom space for a CPA
Review Course at Hofstra University in Hempstead and the Southgate Tower Hotel
in New York City, New York as of December 31, 1995:
<TABLE>
<CAPTION>
SQUARE
LOCATIONS FOOTAGE EXPIRATION (1)
--------- ------- --------------
<S> <C> <C>
Anaheim, CA................................ 15,489 1-31-98
North Hollywood, CA........................ 12,269 12-31-96
San Bernardino, CA......................... 16,950 9-30-98
San Diego, CA.............................. 12,244 11-21-98
San Jose, CA............................... 10,692 11-30-96
Denver, CO................................. 14,860 2-28-98
Lauderdale Lakes, FL....................... 10,205 6-10-00
Jacksonville, FL........................... 12,305 7-31-98
Miami, FL.................................. 8,000 4-30-99
Tampa, FL.................................. 14,200 1-01-97
Kansas City, MO............................ 16,000 3-01-01
Kansas City, MO (Home Office) (2)......... 7,227 10-31-98
Hempstead, NY (CPA Review Course) (3)...... --- 12-31-99
New York City, NY (CPA Review Course) (3).. --- 10-31-00
Port Jefferson Station, NY................. 3,500 6-30-98
Portland, OR............................... 12,972 11-03-96
Memphis, TN................................ 17,951 1-31-00
- -----------
</TABLE>
(1) Several of the leases provide renewal options, although renewals may be at
increased rental rates.
(2) Does not include subleased space -- see notes to consolidated financial
statements.
(3) Lease space is based upon number of seats to be made available.
The Company also rents various equipment under leases which are generally
cancelable within 30 days.
(The remainder of this page was left blank intentionally.)
Part I - Page 8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company's Schools are sued from time to time by a student or students
who claim to be dissatisfied with the results of their program of study.
Typically, the claims allege a breach of contract, deceptive advertising and
misrepresentation and the student or students seek reimbursement of tuition.
Punitive damages sometimes are also sought. In addition, the DOE may allege
regulatory violations found during routine program reviews. The Company has, and
will continue to dispute these findings as appropriate in the normal course of
business. In the opinion of the Company's management such pending litigation and
disputed findings are not material to the Company's financial condition or its
results of operations.
On November 19, 1992, in a suit styled Concorde Career Colleges, Inc. et al
v. Lamar Alexander, Secretary of the United States Department of Education filed
in the United States District Court Western District of Missouri (Case No. 92-
1064-CV-W.6), the Company initiated a suit against the DOE and, on December 23,
1992, obtained a preliminary injunction, which suspends publication of the
Company's 1990 Cohort Default Rates due to apparent inaccuracies and which
requires the DOE to discontinue publication of those rates. The order also
requires that no substitute Cohort Default Rates for 1990 can be published by
the DOE without prior approval of the court. This order remains in effect and
the DOE has not sought any further hearing, nor has it taken any discovery in
this matter.
On July 16, 1993, a second injunction was issued against the DOE suspending
publication of the Company's 1991 Cohort Default Rates. This order remains in
effect by agreement of the DOE. Although the DOE has the right to request a
further hearing on this order, it has not done so, nor has it taken any
discovery in this matter. The effect of these two injunctions is to preclude the
DOE from using 1990 and 1991 Cohort Default Rates as grounds to limit, suspend,
or terminate the Company's eligibility for Federal Loan Programs.
The Company is currently engaged in proceedings against the DOE challenging
the 1992 and 1993 Cohort Default Rates and the rate correction regulations which
the DOE adopted in 1994. The DOE's rate correction regulations contain a very
restrictive standard for removal of defaulted loans from a school's Cohort
Default Rate due to improper servicing and collection, and the Company contends
that the regulations are unlawful because they contravene provisions of the
Higher Education Act of 1965 (as amended) and are arbitrary and capricious. If
the DOE's rate correction regulations are upheld, the Company's Schools, along
with many other postsecondary institutions, probably would not be able to obtain
any appreciable reduction in the level of their previously published Cohort
Default Rates. These proceedings may extend throughout the remainder of 1996.
For more information on these regulations see Item 1, "Business -- Regulation."
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 were 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 strongly oppose class certification.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Part I - Page 9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock ("Common Stock") is currently traded under
the symbol "CCDC" on the over-the-counter bulletin board. The following table
sets forth the high and low last sale prices, or bid quotes, for the periods
indicated as reported by the over-the-counter bulletin board.
<TABLE>
<CAPTION>
1994 HIGH LOW
- ---- ----- -----
<S> <C> <C>
First Quarter.............................. $0.15 $0.12
Second Quarter............................. $0.55 $0.15
Third Quarter.............................. $0.25 $0.13
Fourth Quarter............................. $0.29 $0.13
1995
- -----
First Quarter.............................. $0.38 $0.25
Second Quarter............................. $0.56 $0.38
Third Quarter.............................. $0.41 $0.38
Fourth Quarter............................. $0.63 $0.30
</TABLE>
At December 31, 1995, there were 310 holders of record of the Common
Stock.
On March 12, 1996, the bid and asked price of the Company's Common Stock
was $.625 and $.8125 per share, respectively.
No cash dividends have been paid on the Common Stock and the Company
does not presently intend to pay cash dividends on Common Stock in the future.
ITEM 6. SELECTED FINANCIAL DATA
The following data should be read in conjunction with Item 8, "Financial
Statements and Supplementary Data," and with Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The following selected financial data has been derived from the
Company's Audited Financial Statements for the years ended 1995 through 1991.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
INCOME STATEMENT DATA: (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues....................... $39,274 $35,032 $34,781 $ 42,648 $53,108
Operating expenses............. 36,835 34,173 33,066 54,036 58,511
Operating income (loss)........ 2,439 859 1,715 (11,388) (5,403)
Interest expense............... 659 1,065 1,152 1,619 1,247
Net income (loss).............. 1,599 (6) 413 (9,626) (4,525)
Earnings (loss) per share (1).. $.18 $(.00) $.06 $(1.38) $(.65)
BALANCE SHEET DATA:
Total assets................... $30,820 $30,477 $30,173 $ 36,664 $44,762
Long-term debt (2)............. 4,066 3,954 10,385 12,281 13,818
Stockholders' equity........... 6,674 5,075 2,081 1,668 11,294
</TABLE>
Part II - Page 1
<PAGE>
<TABLE>
(CONTINUED) DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Number of locations (3):
Health Vocation................ 13 13 15 15 19
Travel Service and Other....... 1 1 2
----- ----- ----- ------ ------
Total........................ 13 13 16 16 21
Net enrollments (3)............. 7,121 6,701 6,532 10,400 14,154
</TABLE>
(1) See Note 8 of Notes to Consolidated Financial Statements for the basis of
presentation of earnings per share.
(2) Consists of long term debt and debt due to related party -- see Note 6 of
Notes to Consolidated Financial Statements.
(3) "Net enrollments" are student enrollments net of cancellations prior to
commencement of the program. The table does not include data for the CPA
Review Courses or for the Paralegal Home Study Courses.
(The remainder of this page was left blank intentionally.)
Part II - Page 2
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table presents the revenue for each category of School and CPA
Review Courses for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
(IN THOUSANDS)
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Health Vocational and Computer Programs.. $36,360 $31,169 $30,564
CPA Review Courses....................... 2,914 3,572 3,376
Travel Service Program................... 291 841
------- ------- -------
Total................................ $39,274 $35,032 $34,781
======= ======= =======
</TABLE>
The following table presents the relative percentage of revenues derived from
each category of School and CPA Review Courses and certain consolidated
statement of earning items as a percentage of total revenues for the periods
indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Health Vocational and Computer Programs.. 92.6% 89.0% 87.9%
CPA Review Courses....................... 7.4 10.2 9.7
Travel Service Program................... 0.8 2.4
----- ----- -----
Total................................ 100.0 100.0 100.0
Operating expenses:
Payroll................................ 45.1 45.0 45.7
Occupancy.............................. 13.2 15.5 12.7
Material and supplies.................. 9.3 9.4 7.4
Advertising............................ 7.2 7.4 8.2
Other general and administrative....... 15.0 15.0 11.2
Provision for uncollectible accounts... 4.0 5.2 9.9
----- ----- -----
Total................................ 93.8 97.5 95.1
Operating income......................... 6.2 2.5 4.9
Interest expense......................... 1.7 3.1 3.3
----- ----- -----
Income (loss) before income tax.......... 4.5 (0.6) 1.6
Provision (benefit) for income tax....... 0.5 (0.6) 0.4
----- ----- -----
Net income (loss)........................ 4.0% (0.0)% 1.2%
===== ===== =====
</TABLE>
(The remainder of this page was left blank intentionally.)
Part II - Page 3
<PAGE>
CURRENT TRENDS AND RECENT EVENTS
Management intends to continue its strategy of upgrading the quality of the
students enrolled in the Schools in order to insure better retention and
placement rates and to reduce default rates. Payroll cost is the Company's
primary expense. As the Company continues to strengthen its staff and increase
program offerings in the future, especially more technical programs, this
expense will continue to increase. Beginning with the fourth quarter of 1995 the
Company instituted a plan to decrease its reliance on Title IV funding. In
addition to seeking alternative sources of financing for its students, the
Company's Schools began financing a larger portion of student tuition with
promissory notes. Management cannot predict the factors, if any, that may change
the present student loan lending climate for the Company or the impact of an
increase in Company funding of student tuition.
During the fourth quarter of 1995 the Company realized a onetime benefit when
it eliminated a $315,000 reserve for bad debt. This reserve was established in
1994 for refunds made during 1994. Lawsuits were filed by other proprietary
schools against the DOE relating to "unpaid charges" in refund calculations.
These lawsuits were settled in the fourth quarter of 1995 and management
believes no liability currently exists relating to this matter.
Each year from 1991 through 1993, total enrollment in the Schools declined.
In 1993, management announced it intended to sell or close any School that does
not fit its strategy to concentrate on programs in the field of allied health
education or has no future as a viable contributor to the Company. During 1994,
the Company closed its Health Vocation Schools at Van Nuys, California and
Minneapolis, Minnesota and sold the Travel Operations School in Santa Ana,
California. Even with these actions total student population increased in 1995
compared to 1994. The Schools in San Bernardino and San Diego, California moved
to more attractive locations in 1994. Although increasing student population is
a goal of the Company, the Company does not believe the increase reflects a
significant change in the competitive situation, nor does it reflect a
significant increase in demand for the Schools' services. The Company has no
current plan to reduce further its number of Schools in operation. Management
of the Company currently believes that it can maintain its profitability and
cash position as long as there is no disruption in the Company's participation
in the Title IV student financial assistance programs or other unanticipated
set-backs. However, the Company cannot predict the activities which may or may
not occur in the uncertain regulatory environment in which the proprietary
vocational training School industry operates. See Item 1, "Business --
Financing Student Education," and "Business -- Regulation." In addition, the
CPA Review Course market has been disrupted by several factors, including an
extremely competitive environment. This situation is not expected to improve in
the near future. See Item 1, "Business -- CPA Review Course" and
"-- Competition."
OPERATING RESULTS
1995 COMPARED TO 1994
Net income increased $1,605,000 to $1,599,000 for the twelve months ended
December 31, 1995 compared to a net loss of $6,000 in 1994. After considering
the cumulative preferred stock dividends (not declared) in 1995 the results
would be a net income available to common shareholders of $1,351,000 for the
year ended December 31, 1995. For a description of the Preferred Stock see
"-- Liquidity and Capital Resources."
Total revenue increased 12.1% or $4,242,000, to $39,274,000 from $35,032,000
in 1994.
The 1994 revenue includes $1,135,000 for three Schools closed or sold during
1994. Revenue for the CPA Review Course decreased 18.4% or $658,000 in 1995 to
$2,914,000 from $3,572,000 in 1994. This decrease is the result of a non-
recurring enrollment increase in the 1994 Spring session and downward market
conditions in 1995. Revenue from the 13 Schools increased 20.2% or $6,066,000
in 1995 as compared to 1994. This increase was the result of enrollment
increases coupled with a modest price increase.
Total operating expenses increased 7.8% or $2,662,000, to $36,835,000 in 1995
from $34,173,000 in 1994.
PAYROLL - Increased 12.5% or $1,966,000 to $17,725,000 in 1995 from
$15,759,000 in 1994. The Company has added additional staff as enrollments
increased. In addition, the Company continues to upgrade the quality of the
staff and faculty.
OCCUPANCY - Decreased 4.4% or $237,000 to $5,197,000 in 1995 from $5,434,000
in 1994. The decrease is primarily due to the closing and sale of three Schools
during 1994.
Part II - Page 4
<PAGE>
MATERIALS AND SUPPLIES - Increased 10.4% or $342,000 to $3,637,000 in 1995
from $3,295,000 in 1994. Textbook expense has increased as curriculum is
continually updated and improved.
ADVERTISING - Increased 7.7% or $202,000 to $2,820,000 in 1995 from $2,618,000
in 1994. The increase is primarily due to increased advertising, not the mix or
cost of advertising.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES - Increased 11.8% or $620,000 to
$5,879,000 in 1995 from $5,259,000 in 1994. A $249,000 loss due to the
revaluation of assets relating to the closing of the Minnesota School was
incurred in 1994. A provision of $282,000 was established in the first quarter
of 1995 when the Company was informed that its Lauderdale Lakes, Florida School
will be required to refund Title IV funds to government agencies. Those funds
had been previously disbursed to the School's students. In the fourth quarter
of 1995 the Company reevaluated the carrying amount of the intangibles for its
San Jose, California school, resulting in additional amortization expense of
$95,000 in 1995. Group health insurance increased $247,000 due to increased
Company contribution to the Health Care Plan. Outside services increased
$326,000 as the Company increased its utilization of an outside servicer for
Default Management. In addition, decreases in professional fees were somewhat
offset by increased office and general corporate expense.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS - Decreased 12.8% or $231,000 to
$1,577,000 from $1,808,000 in 1994. In the fourth quarter of 1995 a favorable
adjustment of $315,000 to the bad debt reserve was made as a result of favorable
litigation against the DOE brought by other plaintiffs in this industry. This
adjustment reverses reserves established during 1994 relating to refund
calculation made during 1994. The 1994 provision was favorably impacted by the
recovery of approximately $495,000 of previously written off accounts. See
"-- Liquidity and Capital Resources."
INTEREST EXPENSE - Decreased 38.1% or $406,000 to $659,000 in 1995 from
$1,065,000 in 1994. This decrease is due to the reduction in debt and the
related debt expense. Debt was reduced in part by conversion of $3,000,000 debt
to equity in 1994. See "-- Liquidity and Capital Resources."
PROVISION FOR INCOME TAXES - The Company recorded a tax provision of $181,000
in 1995 as compared to a tax benefit of $200,000 in 1994. The effective rate in
1995 was 10.2% as compared to 97.1% in 1994. During 1995, the Company reduced
the valuation allowance related to deferred tax assets by $360,000. A valuation
allowance of $667,000 remains against the portion of deferred tax assets that,
using a more likely than not criteria, may not be realizable. Future evaluation
of the valuation allowance may increase or decrease the overall provision for
income taxes.
1994 COMPARED TO 1993
The Company incurred a net loss of $6,000 for 1994 compared to a net income of
$413,000 in 1993. After considering the cumulative preferred stock dividends
(not declared), in 1994 the results would be a net loss to common shareholders
of $36,000 for the year ended December 31, 1994.
Total revenue increased by 0.7 percent, or $251,000, to $35,032,000 in 1994
from $34,781,000 in 1993. The closure of two Schools and the sale of a third
School during 1994 resulted in a decrease in revenues of $2,165,000. Revenue
for the CPA Review Course increased 5.8% or $196,000 to $3,572,000 in 1994 from
$3,376,000 in 1993. This increase was a result of a non-recurring enrollment
increase in the Spring session. Revenue from the remaining 13 Schools increased
8.2% or $2,220,000 in 1994 as compared to 1993. This increase was a result of
increased enrollments. The three Schools closed or sold in 1994 had a combined
operating loss before corporate allocations of $1,009,000.
Total operating expenses increased 3.3% or $1,077,000, to $34,173,000 in 1994
from $33,066,000 in 1993.
PAYROLL - Decreased 0.9% or $136,000 to $15,759,000 in 1994 from $15,895,000
in 1993. Decreased payroll expenses from the closure of two Schools and the
sale of a third School were offset by increasing costs as the Company continued
to upgrade the quality of the staff and faculty.
OCCUPANCY - Increased 23.5% or $1,034,000 to $5,434,000 in 1994 as compared
to $4,400,000 in 1993. The principal reason for this change relates to a credit
in 1993. Four Schools were closed during 1992 and the Company recognized
approximately $1,051,000 of future lease costs. During 1993 a credit to
expenses of approximately $970,000 was recorded when settlement was
Part II - Page 5
<PAGE>
made for these leases for less than the amount accrued. In December 1993, an
expense of $150,000 was recognized to revalue fixed assets based on the sale of
assets of the Travel Operations School.
MATERIALS AND SUPPLIES - Increased by 28.2% or $725,000 to $3,295,000 in
1994 from $2,570,000 in 1993. A non recurring credit of $349,000 was taken in
1993. Also textbooks expense has increased as curriculum has been updated and
improved. Uniform expense increased in 1994 due to additional uniforms being
provided to students.
ADVERTISING - Decreased 7.9% or $224,000 to $2,618,000 in 1994 as compared to
$2,842,000 in 1993. This decrease is directly attributable to the closing of
two Schools and the sale of a third School.
OTHER GENERAL AND ADMINISTRATIVE EXPENSES - Increased 34.7% or $1,354,000 to
$5,259,000 in 1994 as compared to $3,905,000 in 1993. In 1993 a one time
reduction of $500,000 was taken in accrued legal and accounting fees. Also a
$249,000 loss due to the revaluation of assets relating to the closing of the
Minnesota School was incurred in 1994. The Company participates in a the
Supplemental Educational Opportunity Grant ("SEOG") and the Federal Perkins Loan
programs in which it matches a portion of the awarded amount. Due to a change
in the timing and matching percentage an additional expense of $157,000 was
recognized in 1994. Increases in equipment repair and maintenance, employee
procurement expense, and dues and subscriptions accounted for much of the
remaining increase.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS - Decreased by 47.7% or $1,646,000 to
$1,808,000 in 1994 from $3,454,000 in 1993. The reason for this decrease was
that during 1992 the Company financed a substantial portion of student tuition
through promissory notes because many of its school were without loan lending
banks for much of the year. The losses relating to these notes were generally
recognized in 1992 but continued into 1993. Improved collection efforts, higher
admission standards, and availability of lenders during 1993 and 1994 led to the
reduction in the provision.
In 1994 and 1993 the provision was also impacted by the recovery of
approximately $495,000 and $559,000, respectively, of previously written-off
accounts. See "-- Liquidity and Capital Resources."
INTEREST EXPENSE - Decreased by 7.6% or $87,000 to $1,065,000 in 1994 from
$1,152,000 in 1993. This decrease is due to the reduction in debt and the
related interest expense.
PROVISION FOR INCOME TAXES - The Company recorded a tax benefit in 1994 of
$200,000. This benefit is a result of evaluating the Company's needs as it
relates to provision for assessment of taxes. This benefit resulted in a 97.1
percent effective rate in 1994 as compared to 27 percent in 1993. Future
evaluation of the provision for assessment of taxes may increase or decrease the
overall provision for income taxes.
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. Although
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, 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 December 31, 1995 this
payment was accrued and would have been valued at $1,000. As the Company's
average stock price increases the payment due increases. (See the table below.)
In the future Management will continue to accrue an estimate of the payment
based on the average stock price. Other terms of the Agreement are
substantially equivalent to the terms of the Company's secured bank debt
agreement.
Part II - Page 6
<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>
$ .50 $ - 0-
.75 429,000
1.00 864,000
1.50 1,733,000
2.00 2,603,000
</TABLE>
Pursuant to a December 1993 amendment, the Company assigned to CenCor
approximately $8,400,000 of accounts and notes receivable, all of which had been
charged off by the Company in the normal course of business, and thereby
discharged all interest accrued on the Debenture through December 31, 1993.
CenCor has the right to make limited substitutions of additional accounts in the
event collections on the accounts originally conveyed to CenCor are not equal to
the accrued interest as of December 31, 1993, but may only require the Company
to convey accounts which have been charged off in the normal course of business.
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
accumulate 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. In addition, the Company assigned to CenCor additional accounts and
notes receivable with a face value of approximately $15,000,000 that had been
charged-off by the Company in the normal course of business. This assignment
was on terms and conditions similar to those set forth in the December 31, 1993
amendment, and discharged approximately $495,000 of interest, which represents
the amount of interest that accrued on the Debenture through December 31, 1994.
Management believes that the amount of receivables assigned to CenCor in 1994
and 1993 were reflective of the estimated collectibility of the related
receivables.
Additionally, the Company negotiated a restructuring of its secured bank
debt as of April 30, 1993. This debt was due on March 1, 1993 in the amount of
$8,892,000. The restructured agreement converted the debt to a term loan due on
January 3, 1996, with stipulated monthly payment amounts. Additional payments
were tied to income tax refunds already received and future sales of specific
assets. A portion of the 1993 maturities on the Company's bank term loan were
funded from income tax refunds which were not available in 1994. Effective
September 1, 1994 the Company negotiated a modification of the payment schedule
of its secured bank debt without extending its maturity. In 1995, $3,171,000 of
payments were made on the bank term loan. These payments were funded by using
approximately $257,000 of the December 31, 1994 cash balance and by using
$2,914,000 of cash flows from operating activities. The Company anticipates
future loan payments will be made from cash flows from operating activities 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 $1,343,000 at December 31, 1995. In
addition, effective November 1, 1995 the Company negotiated a restructuring of
the maturity of its secured bank debt. The remaining $1,343,000 balance is due
January 3, 1997, but may be prepaid without penalty in 1996.
Net cash provided by operating activities increased from $1,850,000 in
1994 to $5,842,000 in 1995. Income tax refunds were $434,000 in 1994, while no
tax refunds were received in 1995. Deferred student tuition increased in 1995
by $842,000 compared to an increase of $2,604,000 in 1994. The increased cash
flow is directly attributed to more profitable operations and collection of
receivables. Net receivables before bad debt charge off increased $948,000 in
1995 compared to $3,838,000 in 1994.
Capital expenditures in 1995 were $558,000 compared to $331,000 in 1994.
For both years, expenditures were primarily for additional classroom equipment.
During 1995 the Company obtained waivers of debt agreement covenants which had
limited capital expenditures to $500,000 per year. Financing activities,
consisting of debt payments, consumed $3,171,000 in 1995 compared to $2,059,000
in 1994.
Part II - Page 7
<PAGE>
During 1991 and 1992 the Company financed a substantial portion of student
tuition through promissory notes when many of its Schools were without student
lending banks for Title IV loans. During and since 1993, the Company had
lending banks or lender of last resort access for all its Schools. As a result,
bad debt expense had been substantially reduced, and the ratio of current to
long-term, net accounts and notes receivable had improved from 81% in 1993 to
91% in 1994. During 1995 the Company instituted a plan to decrease its reliance
on Title IV funding. During the fourth quarter of 1995 the Company increased
the number of promissory notes it issued to students. As a result the ratio of
current to long term net accounts and notes receivable decreased to 88% in 1995.
As the Company continues to decrease its reliance on Title IV funding the
provision for bad debt expense may increase and cash from operations may be
temporarily reduced. See " -- Current Trends and Recent Events.".
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.
CONTINGENCIES
The Company is disputing a DOE program review finding concerning "pro
rata" refunds of certain monies to or on behalf of certain withdrawing students
in the Denver School who received Title IV funds. On February 7, 1996, an
Administrative Law Judge for this case decided against the Company and upheld
the Company's obligation to refund such monies which is not a material amount.
The issue is currently on appeal to the Secretary of Education. The review
finding affects the Company's Denver, Colorado location but may also affect the
Company's other Schools.
During 1994 the DOE performed a program review at the Company's
Jacksonville, Florida School. As a result of the program review, the DOE
reported a preliminary finding of differences between the academic program of
study as listed in the School's catalog and the programs of study actually
provided to students. No specific liability has been proposed as a result of
this preliminary finding, but the DOE's report stated that the School would be
liable for certain "second and subsequent payments" made to students who did not
complete the program of study. Management believes that the preliminary finding
is in error. The Company vigorously contested this preliminary finding and
submitted information supporting its position. The program reviewer is still
considering this issue and has not yet issued a final report. This finding (if
made) also will be applicable to the Company's other Florida Schools.
During July 1993, former students of the Jacksonville, Florida School
filed lawsuits against the school, alleging deceptive trade practices, breach of
contract, and fraud and misrepresentation. (See Item 3, "Legal Proceedings.")
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 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 March 15, 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
March 15, 1996, SCI had received payments totaling approximately $30,000
pursuant to that agreement.
Part II - Page 8
<PAGE>
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.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121") during 1995. SFAS 121 established accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill, as well as for long-lived assets and certain
identifiable intangibles which are to be disposed. Under SFAS 121, events or
changes in circumstances of a long-lived asset indicate that the carrying amount
of an asset may not be recoverable, the Company must estimate the future cash
flows expected to result from the use of the asset and its eventual disposition;
if the sum of the expected future cash flows (undiscounted and without interest)
is lower than the carrying amount of the asset, an impairment loss must be
recognized to the extent that the carrying amount of the asset exceeds its fair
value. Adoption of SFAS 121 is mandatory for the Company in first quarter 1996.
The adoption of SFAS 121 is not expected to have a material impact on the
Company.
FASB also issued Statement 123, "Accounting for Stock-Based Compensation"
("SFAS 123") in October 1995. SFAS 123 allows companies to continue under the
current approach set forth in Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") for recognizing stock-
based expense in the financial statements, but encourages companies to adopt the
new accounting method based on the estimated fair value of employee stock
options. If a company elects to retain the current method under APB 25, pro
forma disclosures of net income and earnings per share as if they had adopted
the fair value accounting method under SFAS 123 are effective for fiscal years
beginning after December 15, 1995. The Company intends to retain the current
accounting approach under APB 25, and will present the applicable pro forma
disclosures in the notes to consolidated financial statements for the year ended
December 31, 1996 pursuant to the requirements of SFAS 123.
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Part II - Page 9
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Concorde Career Colleges, Inc. and Subsidiaries:
Reports of Independent Accountants............................................................. II-11-12
Consolidated Balance Sheet--December 31, 1995 and 1994......................................... II-13
Consolidated Statement of Operations--For the Three Years in the Period
Ended December 31, 1995...................................................................... II-14
Consolidated Statement of Cash Flows--For the Three Years in the Period
Ended December 31, 1995....................................................................... II-15
Consolidated Statement of Changes In Stockholders' Equity--For the Three Years in the Period
Ended December 31, 1995....................................................................... II-16
Notes to Consolidated Financial Statements--For the Three Years in the Period
Ended December 31, 1995....................................................................... II-17-27
Consent of Independent Accountants............................................................. II-28-29
</TABLE>
(The remainder of this page was left blank intentionally.)
Part II - Page 10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Concorde Career Colleges, Inc., and Subsidiaries:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Concorde Career Colleges, Inc. and its subsidiaries at December 31,
1995 and 1994, and the results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
March 15, 1996
Part II - Page 11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Concorde Career Colleges, Inc., and Subsidiaries:
We have audited the accompanying statements of income, stockholder's
equity and cash flows of Concorde Career Colleges, Inc. (a Delaware
corporation), and Subsidiaries for the year ended December 31, 1993. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Concorde Career Colleges, Inc., and Subsidiaries for the year ended December 31,
1993, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in Item
14 of this Form 10-K is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
April 7, 1994
Part II - Page 12
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 3,295,000 $ 1,182,000
Refundable income taxes................................................ 151,000
Net receivables (Note 3)............................................... 18,849,000 20,038,000
Supplies and prepaid expenses.......................................... 914,000 1,194,000
Deferred income taxes (Note 7)......................................... 170,000
---------- ----------
Total current assets.............................................. 23,228,000 22,565,000
NET FIXED ASSETS (Note 4).................................................. 3,220,000 3,670,000
NET INTANGIBLE ASSETS (Note 2)............................................. 1,847,000 2,199,000
NET NOTES RECEIVABLE AND Other assets (Note 3)............................. 2,525,000 2,043,000
---------- ----------
TOTAL ASSETS............................................................... $30,820,000 $30,477,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
-------- --------
CURRENT LIABILITIES:
Deferred student tuition............................................... $15,248,000 $14,349,000
Current debt maturities (Note 6)....................................... 215,000 3,150,000
Accounts payable and other accrued liabilities (Note 5)................ 3,847,000 3,153,000
---------- ---------
Total current liabilities......................................... 19,310,000 20,652,000
LONG TERM DEBT (Note 6).................................................... 1,343,000 1,343,000
OTHER LONG-TERM LIABILITIES................................................ 80,000 57,000
DEFERRED INCOME TAXES (Note 7)............................................. 690,000 739,000
SUBORDINATED DEBT DUE TO RELATED PARTY (Note 6)............................ 2,723,000 2,611,000
COMMITMENTS AND CONTINGENCIES (NOTES 4, 6, 8, and 10)
STOCKHOLDERS' EQUITY (Notes 6 and 8):
Preferred stock, $.10 par value, 600,000 shares
authorized shares issued and outstanding............................. 30,000 30,000
Common stock, $.10 par value, 19,400,000 shares authorized,
6,978,976 shares issued and outstanding.............................. 698,000 698,000
Capital in excess of par............................................... 8,128,000 8,128,000
Accumulated deficit.................................................... (2,121,000) (3,720,000)
Less-treasury stock, 26,800 shares, at cost............................ (61,000) (61,000)
---------- ----------
Total stockholders' equity........................................ 6,674,000 5,075,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................ $30,820,000 $30,477,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Part II - Page 13
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1995 1994 1993
---------------- ---------------- --------------
<S> <C> <C> <C>
STUDENT TUITION AND OTHER REVENUE (Note 2)....................... $39,274,000 $35,032,000 $34,781,000
----------- ----------- -----------
OPERATING EXPENSES:
Payroll costs................................................ 17,725,000 15,759,000 15,895,000
Occupancy (Note 4)........................................... 5,197,000 5,434,000 4,400,000
Instructional materials and supplies......................... 3,637,000 3,295,000 2,570,000
Advertising.................................................. 2,820,000 2,618,000 2,842,000
Other general and administrative............................. 5,879,000 5,259,000 3,905,000
Provision for uncollectible accounts......................... 1,577,000 1,808,000 3,454,000
----------- ----------- -----------
36,835,000 34,173,000 33,066,000
----------- ----------- -----------
OPERATING INCOME................................................. 2,439,000 859,000 1,715,000
INTEREST EXPENSE (Note 6 )....................................... 659,000 1,065,000 1,152,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................................ 1,780,000 (206,000) 563,000
PROVISION FOR (BENEFIT OF) INCOME TAXES (Note 7)................. 181,000 (200,000) 150,000
----------- ----------- -----------
NET INCOME (LOSS)................................................ $ 1,599,000 $ (6,000) $ 413,000
=========== =========== ===========
EARNINGS (LOSS) PER WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARE AVAILABLE TO COMMON
SHAREHOLDERS (Note 8).......................................... $ .18 $ (.00) $ .06
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(The remainder of this page was left blank intentionally.)
Part II - Page 14
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS -- OPERATING ACTIVITIES:
Net income (loss)...................................................... $1,599,000 $ (6,000) $ 413,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Depreciation and amortization......................................... 1,410,000 1,299,000 2,039,000
Provision for uncollectible accounts................................... 1,577,000 1,808,000 3,454,000
Change in assets and liabilities, net of effects
from dispositions--
(Increase) decrease in refundable income taxes........................ 151,000 252,000 5,132,000
(Increase) in receivables, net........................................ (948,000) (3,838,000) (2,294,000)
Increase (decrease) in deferred student tuition....................... 842,000 2,604,000 (1,985,000)
Other changes in assets and liabilities, net.......................... 1,854,000 (155,000) (3,141,000)
Decrease in deferred income taxes..................................... (643,000) (114,000)
---------- ---------- ----------
Total adjustments................................................... 4,243,000 1,856,000 3,205,000
---------- ---------- ----------
Net................................................................. 5,842,000 1,850,000 3,618,000
---------- ---------- ----------
CASH FLOWS -- INVESTING ACTIVITIES:
Proceeds from sale of school assets.................................... 59,000
Capital expenditures................................................... (558,000) (331,000) (280,000)
---------- ---------- ----------
Net................................................................. (558,000) (272,000) (280,000)
---------- ---------- ----------
CASH FLOWS -- FINANCING ACTIVITIES:
Principal payments on term notes....................................... (3,171,000) (2,059,000) (2,360,000)
Increase in long-term debt............................................. 189,000
---------- ---------- ----------
Net................................................................. (3,171,000) (2,059,000) (2,171,000)
---------- ---------- ----------
NET..................................................................... 2,113,000 (481,000) 1,167,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................ 1,182,000 1,663,000 496,000
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............................. $3,295,000 $1,182,000 $1,663,000
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Note 1)
CASH PAID DURING THE YEAR FOR:
Interest............................................................... $ 297,000 $ 493,000 $ 855,000
Income taxes........................................................... 189,000 337,000 1,574,000
CASH RECEIVED DURING THE YEAR FOR:
Interest............................................................... $ 331,000 $ 423,000 $ 585,000
Income tax refunds..................................................... 434,000 5,076,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Part II - Page 15
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1995
<TABLE>
<CAPTION>
CAPITAL
PREFERRED COMMON IN EXCESS ACCUMULATED TREASURY
STOCK STOCK OF PAR DEFICIT STOCK
--------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE December 31, 1992............................... $ $698,000 $5,158,000 $(4,127,000) $(61,000)
Net income........................................... 413,000
------- -------- ---------- ----------- --------
BALANCE, December 31, 1993.............................. 698,000 5,158,000 (3,714,000) (61,000)
Preferred stock issued............................... 30,000 2,970,000
Net loss............................................. (6,000)
------- -------- ---------- ----------- --------
BALANCE, December 31, 1994.............................. 30,000 698,000 8,128,000 (3,720,000) (61,000)
Net income........................................... 1,599,000
------- -------- ---------- ----------- --------
BALANCE, December 31, 1995.............................. $30,000 $698,000 $8,128,000 $(2,121,000) $(61,000)
======= ======== ========== =========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(The remainder of this page was left blank intentionally.)
Part II - Page 16
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
1. BASIS OF PRESENTATION AND TRANSACTIONS WITH CENCOR, INC.:
Basis of Presentation
Concorde Career Colleges, Inc. ("Concorde"), and Subsidiaries (the
"Company") owns and operates proprietary, post-secondary schools which offer
career training designed to provide primarily entry-level skills readily needed
in certain of the major service industries. The Company's schools offer
vocational training programs primarily in the allied health field in six states,
California, Colorado, Florida, Missouri, Oregon, and Tennessee. The Company also
offers review courses for the Certified Public Accountants ("CPA") Examination
which accounted for 7.4% of the Company's revenues for the year ended December
31, 1995. Prior to March 31, 1988, the Company was a division of CenCor, Inc.
(CenCor). Assets acquired from CenCor and liabilities assumed were reflected at
the predecessor division's historical cost.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Concorde and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Use of Estimates
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.
Transactions with CenCor, Inc.
The Chairman of the Company is also the Chairman of CenCor. Prior to July
1992 certain corporate, general and administrative expenses were allocated from
CenCor to the Company. These allocations were made in accordance with an
agreement between CenCor and Concorde based upon the estimated amount
attributable to Concorde. Balances due under the agreement were settled monthly.
Management believes the allocations were reasonable and approximate the costs of
services had they been obtained from unaffiliated parties. As reflected in Note
6, during 1993 the Company agreed to settle balances owed CenCor through
issuance of a note payable of $189,000.
As part of the capitalization of Concorde, CenCor allocated $6,500,000 of
its subordinated notes to Concorde. On October 30, 1992, the Company issued
CenCor a junior subordinated debenture (the "Debenture") in the principal
amount of $5,422,000 in consideration for the Company's release from all
obligations under the subordinated notes, representing the principal amount of
the assumed notes plus accrued interest. 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"). Pursuant to 1993 and 1994
amendments to the Debenture, Concorde has agreed to pay accrued interest on the
note through December 31, 1994, by conveying certain receivables to CenCor (Note
6).
The Company under an agreement effective October 1995 subleases space to
CenCor. The agreement expires October 1998. The Company and CenCor do not
allocate charges to each other, otherwise share expenses, or have balances owing
to each other except as stated in Note 6.
Person/Wolinsky Associates, Inc., Concorde's subsidiary which offers CPA
review courses, financed a portion of its student tuition through Century
Acceptance Corporation ("Century"), which was a wholly owned subsidiary of
CenCor. Person/Wolinsky guaranteed repayment of the loans in the event of
default. During 1995, 1994, and 1993 Person/Wolinsky paid approximately $14,000,
$17,500, and $18,000, respectively, on such guarantees. As of December 31, 1994,
and 1993, Century had approximately $296,000, and $354,000, respectively, of
installment receivables from students of the CPA review courses. This agreement
was terminated in June 1995, when CenCor sold Century.
Part II - Page 17
<PAGE>
Non Cash Investment and Financing
Pursuant to a December 1993 amendment to the CenCor note indenture, the
Company assigned to CenCor approximately $8,400,000 of accounts and notes
receivable, all of which had been charged off by the Company in the normal
course of business, and thereby discharged all interest accrued of approximately
$559,000 on the CenCor debentures through December 31, 1993.
Effective November 15, 1994 CenCor exchanged $3,000,000 face value of the
Debenture for 300,000 shares of the Preferred Stock. In addition, the Company
assigned to CenCor additional accounts and notes receivable with a face value of
approximately $15,000,000 that had been charged-off by the Company in the normal
course of business. This assignment was on terms and conditions similar to those
set forth in the December 31, 1993 amendment, and discharged approximately
$495,000 of interest, which represented the amount of interest accrued through
December 31, 1994. (Note 6)
2. SUMMARY OF ACCOUNTING POLICIES:
Recognition of Revenue
Most students enrolled at schools, subject to curriculum accreditation,
utilize state and federal government grants and/or guaranteed student loan
programs to finance their tuition. Management estimates that 83 percent of its
cash receipts were derived from funds obtained by students through Title IV
programs and 17 percent were derived from state sponsored student financial aid
programs and cash received from students and other sources.
A portion of tuition income of the career training schools is recognized in
the month a student begins attending classes, in order to offset the costs
incurred in obtaining new students. The remaining tuition income is deferred and
recognized over the term of the program.
The Company charges earnings for the amount of estimated uncollectible
accounts based upon current collection trends. However, unpaid balances are
charged off no later than 180 days after the student withdraws or graduates from
the School and/or ceases to make payments. Efforts to collect such accounts do
not cease at the time when the amount is charged off. Internal collection
efforts, as well as outside professional services, are used to pursue collection
of delinquent accounts. Most accounts that are charged off are conveyed to
CenCor as substitutes for accounts previously assigned under terms of Agreement
dated December 1993 and November 1994 (see Note 6).
All student recruitment costs are expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents are those items with a maturity of three months
or less. Generally cash equivalents are represented by money market funds or
treasury bills which are carried at cost which approximates fair value, on the
Company's balance sheet.
Receivables and Notes Receivables
During 1992 and 1991, as a result of many lending institutions
discontinuing student loan lending for vocational training schools, the Company
financed certain students' tuition, generally under terms comparable to federal
loan programs previously available to students. During and since 1993 the
Company had lending institutions or lenders of last resort access at all of its
Schools. The Company continues to finance a portion of certain students' tuition
not covered by student financial aid programs. Promissory notes issued by the
Company's Schools for student tuition are generally due over 60 months, most
bearing interest of 7 to 12 percent. Payments are generally scheduled to
commence 30 days after program completion.
Notes receivable are promissory notes due the Company from current and
former students. The notes are not secured by collateral and have differing
interest rates. It is not practicable to determine the fair value of notes
receivable without incurring excessive costs. The Company has no quoted market
prices or dealer quotes to compare similar loans made to borrowers with similar
credit ratings. In addition, the Company cannot readily establish a pattern of
future cash flows to estimate fair value. However, management believes that the
carrying amounts (net of allowance for doubtful accounts) recorded at December
31, 1995 are not impaired and are not materially different from their
corresponding fair values.
Part II - Page 18
<PAGE>
Beginning with the fourth quarter of 1995 the Company instituted a plan to
decrease its reliance on Title IV funding. In addition to seeking alternative
sources of financing for its students, the Company's Schools began financing a
portion of the tuition for most students with promissory notes, with terms
similar to those listed above, except that payments are generally scheduled to
commence 30 days after students start their program of study.
Depreciation and Amortization
Furniture and equipment, and buildings are depreciated over the estimated
useful lives of the assets (3 to 10 years for furniture and equipment and 30
years for buildings) using the straight-line method. Leasehold improvements are
amortized over the terms of the related leases.
Maintenance and repairs are charged to expense as incurred. The costs of
additions and improvements are capitalized and depreciated over the remaining
useful lives of the assets. The costs and accumulated depreciation of assets
sold or retired are removed from the accounts and any gain or loss is recognized
in the year of disposal.
Acquisitions
All acquisitions have been accounted for by the purchase method, under
which a portion of the purchase price is assigned to net tangible assets
acquired to the extent of their estimated values. The Company periodically
reviews goodwill to assess recoverability, and impairments would be recognized
in operating results if a permanent diminution in value were to occur. The
excess of the purchase price over net tangible assets acquired is being charged
to income over 5 to 40 years. The average amortization period remaining at
December 31, 1995, was eight years. The total amount of amortization charged to
income was $352,000 in 1995, $323,000 in 1994, and $845,000 in 1993.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
COSTS IN EXCESS OF NET TANGIBLE ASSETS OF BUSINESS ACQUIRED:
Goodwill....................................................................... $ 1,656,000 $ 1,656,000
Intangible Assets.............................................................. 2,782,000 3,703,000
----------- -----------
Total Intangible Assets...................................................... 4,438,000 5,359,000
Less Accumulated Amortization.................................................. 2,591,000 3,160,000
----------- -----------
Net Intangibles.............................................................. $ 1,847,000 $ 2,199,000
=========== ===========
</TABLE>
3. RECEIVABLES, NOTES RECEIVABLES, AND OTHER ASSETS:
<TABLE>
<CAPTION>
Receivables consist of the following at December 31: 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Student............................................................. $17,055,000 $20,412,000 $15,986,000
Notes Receivable.................................................... 3,188,000 2,117,000 1,471,000
Allowance for Uncollectible Accounts................................ (1,394,000) (2,491,000) (1,272,000)
----------- ----------- -----------
Receivables......................................................... $18,849,000 $20,038,000 $16,185,000
=========== =========== ===========
Changes in the allowance for uncollectible accounts were as follows for the year ended December 31:
Beginning Balance................................................... $ 2,491,000 $ 1,272,000 $ 937,000
Provision for Uncollectible Accounts................................ 158,000 994,000 2,936,000
Recoveries.......................................................... 469,000 99,000
Charge offs......................................................... (1,255,000) (244,000) (2,700,000)
----------- ----------- -----------
$ 1,394,000 $ 2,491,000 $ 1,272,000
=========== =========== ===========
</TABLE>
Part II - Page 19
<PAGE>
Notes Receivable and other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Long Term Notes Receivable.......................................... $ 3,204,000 $ 2,318,000 $ 4,817,000
Allowance for Uncollectable Notes................................... (709,000) (383,000) (1,057,000)
----------- ----------- -----------
Net Long Term Notes Receivable...................................... 2,495,000 1,935,000 3,760,000
Other............................................................... 30,000 108,000 147,000
----------- ----------- -----------
Net Notes Receivable and Other Assets............................... $ 2,525,000 $ 2,043,000 $ 3,907,000
=========== =========== ===========
Changes during the year in allowance for uncollectible notes were as follows for the year ended December 31:
Beginning Balance................................................... $ 383,000 $ 1,057,000 $ 2,129,000
Provision for Uncollectible Notes................................... 1,419,000 814,000 518,000
Recoveries.......................................................... 495,000 559,000
Charge offs......................................................... (1,093,000) (1,983,000) (2,149,000)
----------- ----------- -----------
$ 709,000 $ 383,000 $ 1,057,000
=========== =========== ===========
</TABLE>
4. FIXED ASSETS:
<TABLE>
<CAPTION>
Fixed Assets consist of the following at December 31: 1995 1994
----------- -----------
<S> <C> <C>
Furniture and Equipment.......................................................... $ 9,437,000 $ 9,013,000
Leasehold Improvements........................................................... 2,438,000 2,305,000
Buildings and Land............................................................... 490,000 488,000
----------- -----------
Gross Fixed Assets............................................................. 12,365,000 11,806,000
Less Accumulated Depreciation and Amortization................................... 9,145,000 8,136,000
----------- -----------
Net Fixed Assets............................................................... $ 3,220,000 $ 3,670,000
=========== ===========
</TABLE>
Concorde rents office space and buildings under operating leases generally
ranging in terms from 3 to 10 years. The leases provide renewal options and
require the Company to pay utilities, maintenance, insurance and property taxes.
Concorde also rents various equipment under operating leases which are generally
cancelable within 30 days. Rental expense for these leases was $2,743,000 in
1995, $2,736,000 in 1994, and $2,480,000 in 1993.
Aggregate minimum future rentals payable under the operating leases at
December 31, 1995, were:
<TABLE>
<CAPTION>
<S> <C>
1996................. $2,167,000
1997................. 1,596,000
1998................. 1,133,000
1999................. 507,000
2000 and thereafter.. 122,000
</TABLE>
(The remainder of this page was left blank intentionally.)
Part II - Page 20
<PAGE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts Payable and Accrued Liabilities consist of the following at
December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Accounts Payable............................ $ 522,000 $ 717,000
Other Accrued Liabilities................... 1,891,000 886,000
Accrued Salaries and Wages.................. 951,000 600,000
Accrued Interest............................ 12,000 526,000
Accrued Income Taxes........................ 471,000
Current Deferred Income Taxes............... 424,000
---------- ----------
Accounts Payable and Accrued Liabilities.... $3,847,000 $3,153,000
========== ==========
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Secured term note, prime plus 1.5 percent,
due in 1997............................... $1,343,000 $4,493,000
Junior secured debenture, variable
interest rate not to exceed 12 percent,
due 1996 through 1997..................... 2,709,000 2,422,000
Note payable to CenCor, 7%, due in 1997..... 229,000 189,000
---------- ----------
Total..................................... 4,281,000 7,104,000
Less--Current maturities.................... 215,000 3,150,000
---------- ----------
Total long-term debt...................... $4,066,000 $3,954,000
========== ==========
Scheduled maturities of long-term debt at December 31, 1995 were:
1996......................................................... $ 215,000
1997 ........................................................ 4,066,000
----------
$4,281,000
==========
</TABLE>
On April 30, 1993, the Company converted its existing secured bank line
of credit to a term loan in the amount of $8,872,000, payable in installments
through January 3, 1996. All cash, accounts receivable, furniture and equipment,
as well as capital stock of subsidiaries of the Company continue to be pledged
under this secured loan agreement. At December 31, 1995 and 1994, $1,343,000 and
$4,493,000, respectively, were outstanding under these agreements. The loan
bears interest at prime plus 1.5 percent (10.0 percent at December 31, 1995 and
December 31, 1994). In addition, effective November 1, 1995 the Company
negotiated a restructuring of the maturity of its secured bank debt. The
remaining $1,343,000 balance is due January 3, 1997, but may be prepaid without
penalty in 1996. Covenants of the agreement severely restrict the Company's
ability to make nonoperating disbursements, including, but not limited to,
dividends, capital expenditures and certain debt repayments without the advance
written consent of the banks. Also, the Company is required to maintain certain
financial ratios. Additionally, the Company is required to maintain a
compensating balance of $800,000, which can be used intermittently with the
consent of the bank. The Company is in compliance with these covenants and the
required financial ratios.
As discussed in Note 1, prior to October 30, 1992, the Company was
guarantor on subordinated notes from CenCor. Effective as of that date, the
Company issued a junior secured debenture in the principal amount of $5,422,000
to CenCor, and was released from its guaranty of the subordinated notes.
Interest on the Debenture compounds and accrues quarterly at a variable rate not
to exceed 12 percent. The interest rate (11.0 percent at December 31, 1995 and
December 31, 1994) is variable based upon both the Company's cost of funds and
amount of debt outstanding under the agreement. In addition to interest on 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 30
Part II - Page 21
<PAGE>
consecutive trading days between January 1, 1997 and June 30, 1997.
Substantially all assets are pledged as collateral for the Debenture, subject to
the senior collateral position of the bank term loan referred to above.
Covenants of the Debenture restrict nonoperating disbursements, including, but
not limited to, dividends and capital expenditures. Key financial ratios are
also required to be maintained. The Company is in compliance with these
covenants and the required financial ratios.
Pursuant to a December 1993 amendment to the CenCor agreement, the
Company assigned to CenCor approximately $8,400,000 of accounts and notes
receivable, all of which had been charged off by the Company in the normal
course of business, and thereby discharged all interest accrued (approximately
$559,000) on the Debenture through December 31, 1993. Any amounts of such
receivables collected by CenCor in excess of the accrued interest discharged
shall be applied first to certain expenses of the Company, next to future
interest accruing upon the Debenture, and then to principal of the Debenture.
Alternatively, if collections exceed the amount of such accrued interest, CenCor
may cease collection efforts on the remaining accounts and reassign them to the
Company. CenCor also has the right to make limited substitutions of additional
accounts in the event collections on the accounts initially conveyed to CenCor
are not equal to the accrued interest as of December 31, 1993, but may only
require the Company to convey accounts which have been charged off in the normal
course of business.
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,
$.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 accumulate 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. In addition, the Company
assigned to CenCor additional accounts and notes receivable with a face value of
approximately $15,000,000 that had been charged-off by the Company in the normal
course of business. This assignment was on terms and conditions similar to those
set forth in the December 31, 1993 amendment, and discharged approximately
$495,000 of interest, which represents the amount of interest that accrued on
the Debenture through December 31, 1994.
Based on the terms of the Company's debt, management estimates that the
carrying values of debt at December 31, 1995 are not materially different from
their corresponding fair value.
The Company has a letter of credit outstanding for $140,000. This letter
of credit is used to facilitate the placement of various bonds required at the
Schools in the normal course of business. The letter of credit is secured by a
Certificate of Deposit in the amount of $140,000.
In addition, the Company has a second letter of credit outstanding in the
amount of $492,000. The second letter of credit is to comply with DOE
Regulations and is secured by a certificate of deposit in the amount of
$492,000.
(The remainder of this page was left blank intentionally.)
Part II - Page 22
<PAGE>
7. INCOME TAXES:
In the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The
impact of adoption of SFAS 109 did not have a material effect on the results of
operations.
SFAS 109 requires a liability approach for determining deferred taxes for
all temporary differences. Temporary differences result from differences
between the financial statements and tax basis of the Company's assets and
liabilities. Deferred taxes are provided based upon enacted tax laws and rates
applicable to the periods in which temporary differences reverse. The sources
of these differences and their cumulative tax effect at December 31, 1995, 1994,
and 1993, are estimated as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Credit losses.............. $ 727,000 $ 848,000 $ 443,000
Alternative minimum tax
credit carryover.......... 176,000 341,000
Other expenses currently
deductible for financial
reporting purposes but not
for tax................... 280,000 3,000 14,000
Depreciation and
amortization.............. 37,000
---------- ---------- ----------
Gross assets........... 1,044,000 1,027,000 798,000
---------- ---------- ----------
Valuation allowance........ (667,000) (1,027,000) (798,000)
---------- ---------- ----------
Net assets............. 377,000
---------- ---------- ----------
Depreciation and
amortization.............. $ $ (253,000) $ (569,000)
Other expenses currently
deductible for tax but not
for financial reporting
purposes.................. (897,000) (910,000) (708,000)
---------- ---------- -----------
Gross liabilities.......... (897,000) (1,163,000) (1,277,000)
---------- ---------- -----------
Net.................... $ (520,000) $(1,163,000) $(1,277,000)
========== ========== ===========
</TABLE>
At December 31, 1995 net tax assets included $340,000 short-term assets
and $37,000 long-term assets. Gross liabilities included $170,000 short-term
liabilities and $727,000 long-term liabilities. Current tax assets were combined
with current tax liabilities and long-term tax assets were combined with long-
term tax liabilities for financial statement presentation.
The income tax provision (benefit) for the three years ended December 31,
1995, consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current tax expense
(benefit) --
U. S. federal............ $ 765,000 $ 169,000 $ (403,000)
State.................... 48,000 66,000 400,000
---------- ---------- ----------
Total current provision
(benefit)............ 813,000 235,000 (3,000)
Deferred tax expenses
(benefit) --
U. S. federal............ (596,000) (357,000)
State.................... (36,000) (78,000) 153,000
---------- ---------- ----------
Total deferred provision
(benefit)............ (632,000) (435,000) 153,000
---------- ---------- ----------
Total provision
(benefit)............ $ 181,000 $ (200,000) $ 150,000
========== ========== ==========
</TABLE>
Part II - Page 23
<PAGE>
The effective rate of income tax expense (benefit) was 10.2 percent, (97.1)
percent, and 27 percent for 1995, 1994, and 1993, respectively. The provision
(benefit) for income taxes as reported in the statement of income and the
provision (benefit) computed at the statutory federal rate of 35.0 percent for
the three years ended December 31, 1995 differs as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Provision (benefit) for federal and state taxes
at statutory rates........................................ $ 623,000 $ (72,000) $ 191,000
Provision for contingencies................................. (360,000)
Write-off of book intangibles in excess of tax intangibles.. 27,000 76,000
Non-deductible warrants, state taxes, and other, net........ 31,000 (54,000) (117,000)
Other....................................................... (113,000) (101,000)
--------- --------- ---------
$ 181,000 $(200,000) $ 150,000
========= ========= =========
</TABLE>
During 1995, the Company reduced the valuation allowance related to
deferred tax assets by $360,000. A valuation allowance of $667,000 remains
against the portion of deferred tax assets that, using a more likely than not
criteria, may not be realizable.
8. STOCK OPTION PLANS AND EARNINGS PER SHARE:
The Company has an incentive stock option plan approved in 1988 authorizing
issuance of 600,000 shares of its common stock to certain officers and employees
of the Company. Options are granted at fair market value on the date of grant
for a term of not more than ten years. In addition, in 1994 the Company's
Compensation Committee awarded to an officer of the Company the option to
purchase 750,000 shares pursuant to a stock option plan which was approved at
the 1994 stockholders meeting. Under the option's terms, the officer was granted
the right to immediately exercise a portion of the option to purchase 300,000
shares (granted at 110% of fair market value). Vesting of the right to purchase
the remaining 450,000 shares is based on performance of the Company through
1996. Of the shares subject to annual performance vesting, 150,000 shares failed
to vest and lapsed in 1994 as the Company did not attain required performance
objectives. The Company met the performance criteria during 1995. As a result
150,000 shares were vested and the Company recognized additional compensation
expense of $71,000. The option for the remaining 150,000 shares may lapse if the
performance criteria is not met in 1996. If vesting of the remaining portion of
the options occurs, the Company would recognize additional compensation expense
if the exercise price is less than the fair market value on the vesting date.
The following table reflects activity in options for the three year period
ended.
<TABLE>
<CAPTION>
Stock Options Number of Shares Option Price Per Share
- ------------------------------------- ---------------- ----------------------
<S> <C> <C>
Outstanding - December 31, 1992 87,900 $2.00 to $2.250
Canceled 75,650 $2.00 to $2.250
Issued -- June - October 1993 554,000 $0.10 to $0.130
Outstanding - December 31, 1993 566,250 $0.10 to $2.250
Canceled 318,750 $0.10 to $2.250
Issued -- February - November 1994 810,000 $0.13 to $0.154
Outstanding - December 31, 1994 1,057,500 $0.10 to $0.154
Exercised 3,000 $0.10
Canceled 69,500 $0.10 to $0.280
Issued -- February 1995 73,000 $0.28
Outstanding - December 31, 1995 1,058,000 $0.10 to $0.280
</TABLE>
The Company calculates earnings (loss) per common share by using the
weighted average common shares. The dilutive effect relative to stock options at
December 31, 1994 and 1993 was immaterial and therefore not recognized. The
dilutive effect at December 31, 1995 was 687,000 shares. The diluted weighted
average common shares outstanding was 7,642,000 for the twelve months ended
December 31, 1995, and 6,952,000 for the twelve months ended December 31, 1994.
Effective November 15, 1994
Part II - Page 24
<PAGE>
CenCor exchanged $3,000,000 face value of the Debenture for 300,000 shares of
the Preferred Stock. Earnings per weighted average common and common equivalent
share ("EPS") was $0.18 and $0.00 at December 31, 1995 and 1994 respectively.
EPS is shown net of preferred stock dividends (not declared) of $248,000 in 1995
and $30,000 in 1994. Cumulative dividends in arrears on the Preferred Stock was
$278,000 as of December 31, 1995. (Note 6)
9. SCHOOL CLOSINGS:
During 1992 the Company closed four of its Schools. The provision for
losses upon the closing of these schools, excluding any provision for
uncollectible accounts related to the closings, amounted to $1,051,000. The
obligations pertaining to the closed Schools were discharged during 1993 at less
than that amount.
During 1994 the Company closed two of its Schools and sold a third School.
No material reserves were established or adjusted in 1995 or 1994 for school
closings.
10. CONTINGENCIES AND LITIGATION:
Department of Education Matters
During 1994 the DOE performed a program review at the Company's
Jacksonville, Florida School. As a result of the program review, the DOE
reported a preliminary finding of differences between the academic program of
study as listed in the School's catalog and the programs of study actually
provided to students. No specific liability has been proposed as a result of
this preliminary finding, but the DOE's report stated that the School would be
liable for certain "second and subsequent payments" made to students who did not
complete the program of study. Management believes that the preliminary finding
is in error. The company vigorously contested this preliminary finding and
submitted information supporting its position. The program reviewer is still
considering this issue and has not yet issued a final report. This finding (if
made) also will be applicable to the Company's other Florida Schools.
In April, 1993 the Company received a notice from the DOE claiming that,
"based on financial information of the parent corporation," the Schools owned by
the Company "are in violation of the federal factors of financial responsibility
. . ." included in certain federal regulations. The DOE demanded the Company
post substantial surety in the form of letters of credit, and directed the
Company to submit certain financial records, asserting that failure to comply
could result in termination of the Schools' eligibility to participate in Title
IV programs. In November, 1993 the DOE advised the Company of its intent to
terminate the eligibility of five of the Company's Schools to participate in
federal student financial aid programs. The Company requested a hearing on this
matter, and on April 7, 1994, the matter was dismissed by the DOE based upon
1993 financial information submitted by the Company to DOE.
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 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 March 15, 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.
Part II - Page 25
<PAGE>
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
March 15, 1996, 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.
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 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.
(The remainder of this page was left blank intentionally.)
Part II - Page 26
<PAGE>
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
1995 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Operating revenue................... $9,889,000 $8,457,000 $11,101,000 $9,827,000
========== ========== =========== ==========
Income before income taxes.......... $ 333,000 $ 18,000 $ 1,061,000 $ 368,000
========== ========== =========== ==========
Net income.......................... $ 300,000 $ 16,000 $ 955,000 $ 328,000
========== ========== =========== ==========
Earnings (loss) per share........... $ .03* $ (.01)* $ .12* $ .04
========== ========== =========== ==========
1994
----
Operating revenue................... $8,813,000 $7,989,000 $10,513,000 $7,717,000
========== ========== =========== ==========
Income (loss) before income taxes.. $ 62,000 $ (636,000) $ 1,081,000 $ (713,000)
========== ========== =========== ==========
Net income (loss)................... $ 37,000 $ (486,000) $ 881,000 $ (438,000)
========== ========== =========== ==========
Earnings (loss) per share.......... $ .01 $ (.07) $ .13 $ (.07)
========== ========== =========== ==========
1993
----
Operating revenue................... $9,361,000 $7,319,000 $10,470,000 $7,631,000
========== ========== =========== ==========
Income (loss) before income taxes.. $ 302,000 $ (541,000) $ 1,179,000 $ (377,000)
========== ========== =========== ==========
Net income (loss)................... $ 175,000 $ (414,000) $ 776,000 $ (124,000)
========== ========== =========== ==========
Earnings (loss) per share.......... $ .03 $ (.06) $ .11 $ (.02)
========== ========== =========== ==========
</TABLE>
* Amount reported differs from the amount previously reported on Form 10-Q as
amount has been restated to include the effects of preferred stock dividends
undeclared.
Because the CPA examination is administered twice a year, the operations of
the CPA Review courses are seasonal, impacting the results of the Company for
the quarters ended March 31, and September 30.
(The remainder of this page was left blank intentionally.)
Part II - Page 27
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-26093) of Concorde Career Colleges, Inc. of our
report dated March 15, 1996 appearing in Part II Page 11 in this Annual Report
on Form 10-K.
PRICE WATERHOUSE LLP
Kansas City, Missouri
March 27,1996
(The remainder of this page was left blank intentionally.)
Part II - Page 28
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-26093.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
March 27, 1996
(The remainder of this page was left blank intentionally.)
Part II - Page 29
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Arthur Andersen LLP ("Arthur Andersen"), formerly the Company's
independent accountants, resigned effective September 13, 1994. CenCor Inc., a
former client of Arthur Andersen and a former affiliate of the Company, has
informed Arthur Andersen that it may assert certain claims against the firm.
The Chief Executive Officer of the Company is also the Chief Executive Officer
of CenCor. The assertion of claims against Arthur Andersen by CenCor may cause
Arthur Andersen to be deemed not independent with respect to the Company.
The last principal accountant's report made by Arthur Andersen for the
Company was for fiscal year 1993. Such report did not contain an adverse
opinion or a disclaimer of opinion, or a qualification or modification as to
uncertainty, audit scope or accounting principles. The resignation of Arthur
Andersen was accepted and the appointment of Price Waterhouse LLP ("Price
Waterhouse") as the Company's independent accountants effective beginning fiscal
year 1994 was approved by the Audit Committee of the Board of Directors.
During the Company's two most recent fiscal years, there have been no
disagreements with Price Waterhouse on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
(The remainder of this page was left blank intentionally.)
Part II - Page 30
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Directors and Executive Officers is incorporated
herein by reference from the Company's definitive proxy statement. This
information can be found in the proxy statement under the headings: DIRECTORS
and EXECUTIVE OFFICERS.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding Executive Compensation is incorporated herein by
reference from the Company's definitive proxy statement. This information can be
found in the proxy statement under the heading: EXECUTIVE COMPENSATION AND OTHER
INFORMATION (specifically excluding disclosures in such section relating to Item
402(i), (k), and (1) of Regulation S-K).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding Security Ownership of Certain Beneficial Owners and
Management is incorporated herein by reference from the Company's definitive
proxy statement. This information can be found in the proxy statement under the
headings: PROXY STATEMENT and STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding Certain Relationships and Related Transactions is
incorporated herein by reference from the Company's definitive proxy statement.
This information can be found in the proxy statement under the headings:
EXECUTIVE COMPENSATION AND OTHER INFORMATION and OTHER TRANSACTIONS.
(The remainder of this page was left blank intentionally.)
PART III-Page 1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. LIST OF DOCUMENTS FILED AS PART OF THIS REPORT.
DESCRIPTION PAGE
- ----------- ----
1. Financial Statements:
CONCORDE CAREER COLLEGES, INC. AND SUBSIDIARIES
Reports of Independent Accountants............................ II-11-12
Consolidated Balance Sheet.................................... II-13
Consolidated Statement of Operations.......................... II-14
Consolidated Statement of Cash Flows.......................... II-15
Consolidated Statement of Changes In Stockholders' Equity..... II-16
Notes to Consolidated Financial Statements.................... II-17-27
Consent of Independent Accountants............................ II-28-29
2. Financial Statement Schedules:
CONCORDE CAREER COLLEGES, INC. AND SUBSIDIARIES
Schedules have been omitted as not applicable or not required under the
instructions contained in Regulations S-X or the information is included
elsewhere in the financial statements or notes thereto.
3. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
3(a) -- Restated Certificate of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit 3 (a) of
the Annual Report on Form 10-K for the year ended December 31, 1994).
3(b) -- Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit 3(b) of the Annual Report on
Form 10-K for the year ended December 31, 1991).
4(a) -- Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-1
[SEC File No. 33-21654]).
4(b) -- Specimen Class A Redeemable Preferred Stock Certificate (Incorporated by reference to Exhibit 4(b) of the Annual
Report on Form 10-K for the year ended December 31, 1994).
4(c) -- Junior Secured Debenture in principal amount of $5,422,307 made by the Company dated October 30, 1992 to CenCor,
Inc. (Incorporated by reference to Exhibit 4(c) of the Annual Report on Form 10-K for the year ended
December 31, 1992).
4(d) -- Certificate of Designation of the Class A Redeemable Preferred Stock (Incorporated by reference to Exhibit 4(d)
of the Annual Report on Form 10-K for the year ended December 31, 1994).
</TABLE>
Part IV - Page 1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
10(a) -- Amended and Restated Agreement As to Relationship and Services to
be Provided between Registrant and CenCor, dated May 6, 1988.
(Incorporated by reference to Exhibit 10[a] to Pre-effective
Amendment No. 1 to Registration Statement on Form S-1 [SEC File
No. 33-21654]).
10(b) -- Tax Sharing Agreement between Registrant and CenCor, dated May 3,
1988. (Incorporated by reference to Exhibit 10[b] to Registration
Statement on Form S-1 [SEC File No. 33-21654]).
10(c)(i) -- Employment Agreement dated May 1, 1984, and First and Second
Amendments thereto, between Person/Wolinsky Associates, Inc. and
Samuel Person. (Incorporated by reference to Exhibit 10[c] to
Registration Statement on Form S-1 [SEC File No. 33-21654]).*
10(c)(ii) -- Third and Fourth Amendments to Employment Agreement between
Person/Wolinsky and Samuel Person dated as of May 1, 1992 and
November 1, 1992, respectively. (Incorporated by reference to
Exhibit 10(c)(ii) of the Annual Report on Form 10-K for the year
ended December 31, 1992).*
10(c)(iii) -- Fifth Amendment to Employment Agreement between Person/Wolinsky
and Samuel Person dated as of May 1, 1993. (Incorporated by
reference to Exhibit 10(c)(iii) of the Annual Report on Form 10-K
for the year ended December 31, 1993).*
10(c)(iv) -- Sixth Amendment to Employment Agreement between Person/Wolinsky
and Samuel Person dated as of November 1, 1994. (Incorporated by
reference to Exhibit 10(c)(iv) of the Annual Report on Form 10-K
for the year ended December 31, 1994).*
10(d) -- Lease Agreement dated June 21, 1988, among Person/Wolinsky
Associates, Inc. and Daniel and Ruth Wolinsky and Samuel Person.
(Incorporated by reference to Exhibit 10(d) to Registration
Statement on Form S-1 [SEC File No. 33-30002]).
10(e)(i) -- Revolving Credit, Security and Guaranty Agreement between
Registrant and Mark Twain Kansas City Bank dated September 3, 1991
and Amendment No. One thereto (Incorporated by reference to
Exhibit 4(d) of the Annual Report on Form 10-K for the year ended
December 31, 1991).
10(e)(ii) -- Amendment No. Two to Revolving Credit, Security and Guaranty
Agreement dated April 30, 1993. (Incorporated by reference to
Exhibit 10(c)(ii) of the Annual Report on Form 10-K for the year
ended December 31, 1992).
10(e)(iii) -- Amendment No. Three to Revolving Credit, Security and Guaranty
Agreement dated September 1, 1994). (Incorporated by reference to
Exhibit 10(e)(iii) of the Annual Report on Form 10-K for the year
ended December 31, 1994).
10(e)(iv) -- Amendment No. Four to Revolving Credit, Security and
Guaranty Agreement dated November 1, 1995 (filed herewith)
10(f) -- Second Amended and Restated Concorde Career Colleges, Inc.
1988 Incentive Stock Option Plan, dated May 4, 1989 (Incorporated
by reference to Exhibit 10 (f) (iii) to Pre-effective Amendment
No. 1 to Registration Statement on Form S-1 [SEC File No. 33-
30002]).*
10(g) -- Concorde Career Colleges, Inc. 1994 Incentive Stock Option Plan.
(Incorporated by Reference to Exhibit 10(g) of the Annual Report
on Form 10-K for the year ended December 31, 1993).*
10(h)(i) -- Agreement for Transfer of Assets and Assumption of Liabilities
between CenCor and the Company dated as of March 31, 1988.
(Incorporated by Reference to Exhibit 10(d) to Registration
Statement on Form S-1 [SEC File No. 33-21654]).
</TABLE>
Part IV - Page 2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ---------------- -----------
<C> <S>
8 -- Arthur Andersen letters (Incorporated by reference to Exhibits 1 and 2 on Form 8-K
dated September 13, 1994).
10(h)(ii) -- Amendment to Agreement for Transfer of Assets and Assumption of
Liabilities between CenCor and the Company dated October 30, 1992.
(Incorporated by reference to Exhibit 10(g)(ii) of the Annual Report on
Form 10-K for the year ended December 31, 1992).
10(h)(iii) -- Restructuring, Security and Guaranty Agreement between CenCor and the
Company dated October 30, 1992. (Incorporated by reference to
Exhibit 10(g)(iii) of the Annual Report on Form 10-K for the year
ended December 31, 1992).
10(h)(iv) -- First Amendment to the Restructuring, Security and Guaranty Agreement
dated December 30, 1993. (Incorporated by reference to Exhibit 10(h)(iv)
of the Annual Report on Form 10-K for the year ended December 31, 1993).
10(h)(v) -- Assignments of Receivable to Concorde from Guarantors, dated as of
December 30, 1993. (Incorporated by reference to Exhibit 10(h)(v) of the
Annual Report on Form 10-K for the year ended December 31, 1993).
10(h)(vi) -- Second Amendment to the Restructuring, Security and Guaranty Agreement
dated November 15, 1994. (Incorporated by Reference to Exhibit 10(h)(vi)
of the Annual Report on Form 10-K for the year ended December 31, 1994).
10(i) -- Expense Sharing Agreement dated as of January 1, 1993, between CenCor,
Century Acceptance Corporation, La Petite Academy, Inc. and the Company.
(Incorporated by reference to Exhibit 10(h) to the Annual Report on Form 10-K
for the year ended December 31, 1992).
10(j) -- Memorandum of Understanding and Intent, dated November 3, 1993, regarding the sale
of assets of the Pacific Travel School. (Incorporated by reference to Exhibit 10(j)
of the Annual Report on Form 10-K for the year ended December 31, 1993).
21 -- Subsidiaries of Registrant (filed herewith)
23(a) -- Consent of Arthur Andersen LLP (filed herewith).
23(b) -- Consent of Price Waterhouse LLP (filed herewith).
</TABLE>
*Management contract or compensation plan.
B. REPORTS ON FORM 8-K
None.
Part IV-Page 3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
By /s/JACK L. BROZMAN
---------------------
Jack L. Brozman
Chairman of the Board
Date: March 27, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF REGISTRANT AND IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE DATE
--------- ----
By /s/ JACK L. BROZMAN March 27, 1996
-------------------------------------------------- --------------------
Jack L. Brozman
(Chief Executive Officer, President,
Treasurer and Director)
By /s/ MICHAEL S. SAVELY March 27, 1996
-------------------------------------------------- --------------------
Michael S. Savely
(Vice President-Operations)
By /s/ GREGG GIMLIN March 27, 1996
-------------------------------------------------- --------------------
M. Gregg Gimlin
(Vice President, Chief Financial Officer, and
Principal Accounting Officer)
By /s/ DAVID A. NICHOLS March 27, 1996
-------------------------------------------------- --------------------
David A. Nichols
(Director)
By /s/ THOMAS K. SIGHT March 27, 1996
-------------------------------------------------- --------------------
Thomas K. Sight
(Director)
Part IV - Page 4
<PAGE>
CONCORDE CAREER COLLEGES, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1995
EXHIBIT INDEX
Exhibit Number Description Page Number
- -------------- ----------- -----------
10(e)(iv) Amendment No. Four to Revolving Credit, Part V--
Security and Guaranty Agreement dated Page 1
November 1, 1995.
21 Subsidiaries of Registrant Part V--
Page 31
23(a) Consent of Arthur Andersen LLP Part II--
Page 29
23(b) Consent of Price Waterhouse LLP Page 28
27 Financial Data Schedule
Certain Exhibits are incorporated by reference, for a description See Item 14.
<PAGE>
EXHIBIT 10(e)(iv)
AMENDMENT NO. FOUR TO REVOLVING CREDIT,
SECURITY AND GUARANTY AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of November,
1995, by and among MARK TWAIN KANSAS CITY BANK, a Missouri banking corporation
("Bank"); CONCORDE CAREER COLLEGES, INC., a Delaware corporation ("Borrower");
MINNESOTA INSTITUTE OF MEDICAL AND DENTAL ASSISTANTS, INC., a Minnesota
corporation ("Minnesota"); TEXAS COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.,
a Texas corporation ("Texas"); UNITED HEALTH CAREERS INSTITUTE, INC., a
California corporation ("United"); SOUTHERN CALIFORNIA COLLEGE OF MEDICAL AND
DENTAL ASSISTANTS, INC., a California corporation ("Southern California");
CONCORDE CAREERS - FLORIDA, INC., a Florida corporation ("Florida"); THE
COLLEGES OF DENTAL AND MEDICAL ASSISTANTS, INC., a California corporation
("Dental"); PERSON/WOLINSKY ASSOCIATES, INC., a New York corporation
("Person/Wolinsky"); COMPUTER CAREER INSTITUTE, INC., an Oregon corporation
("Computer"); CONCORDE CAREER INSTITUTE, INC., a Florida corporation ("Concorde-
Florida"); and CAREER ASSISTANCE, INC., a Missouri corporation ("Career
Assistance") (Minnesota, Texas, United, Southern California, Florida, Dental,
Person/Wolinsky, Computer, Concorde-Florida and Career Assistance being
hereinafter referred to collectively as "Guarantors" and each individually as a
"Guarantor");
WITNESSETH THAT:
WHEREAS, Bank, Borrower and Guarantors (except Career Assistance) are
the initial parties to a Revolving Credit,
Part V - Page 1
<PAGE>
Security and Guaranty Agreement dated as of September 3, 1991 ("Initial Credit
Agreement"), to Amendment No. One thereto ("Amendment No. One") dated April 30,
1992, to Amendment No. Two thereto ("Amendment No. Two") dated as of April 30,
1993, and to Amendment No. Three thereto ("Amendment No. Three") dated as of
September 1, 1994 (said Initial Credit Agreement, as amended by Amendment No.
One, by Amendment No. Two and by Amendment No. Three, being hereinafter referred
to as the "Revolving Credit Agreement");
WHEREAS, the promissory note in the face amount of $5,553,479.36 dated
September 1, 1994 (the "September 1 Note"), matures January 3, 1996), and has a
current principal balance of $1,887,009.36, and the parties desire to modify
the payment schedule of the September 1 Note and to change its final maturity;
WHEREAS, Borrower and Guarantors have proposed certain additional
modifications to the Revolving Credit Agreement; and
WHEREAS, Bank is willing to agree to such modifications, but only upon
the terms and conditions hereinafter set forth, including but not limited to the
inclusion of Career Assistance as one of the Guarantors, among other items;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, Borrower, Bank and Guarantors agree
as follows:
1. Defined Terms. Terms used herein with initial capital letters but not
defined herein shall have the meanings given to them in the Revolving Credit
Agreement or, if not defined in the
-2-
<PAGE>
Revolving Credit Agreement, in the Note. Consistent with the definitions of
"Agreement" in Section 1.01 and "Note" in Section 2.02 of the Revolving Credit
Agreement, references in the Revolving Credit Agreement and herein to "this
Agreement" and the "Loan Documents" shall include Amendment No. One, Amendment
No. Two, Amendment No. Three, and this Amendment No. Four and all future
amendments, modifications, restatements, substitutions and replacements of the
Initial Credit Agreement, and references in this Agreement and in the Loan
Documents to the "Note" shall include the Note as modified herein and as
evidenced by a promissory note of approximate even date herewith attached as
Exhibit A, and all future amendments, extensions, modifications, renewals,
reaffirmations, restatements, replacements and substitutions thereof and
therefor.
2. Modification of Payment Terms of Note. The parties agree to
modify the payment terms of the Promissory Note in the face amount of
$5,553,479.36 dated September 1, 1994, and to extend the maturity thereof, and
to restate it in its entirety so that the Loan will be evidenced by and repaid
in accordance with a single promissory note duly executed on behalf of Borrower,
substantially in the form of Exhibit A, attached hereto, dated as of
approximately even date in the principal amount of $1,887,009.36, and payable to
the order of Bank, which is herein referred to as the "Note".
3. Career Assistance as Guarantor. Career Assistance executes this
Agreement as one of the Guarantors, and agrees to be bound by all of the
provisions of the Revolving Credit
-3-
<PAGE>
Agreement applicable to "Guarantors" as if Career Assistance was an original
party to the Revolving Credit Agreement. Without limiting the generality of the
foregoing, Career Assistance guarantees all Bank Liabilities as provided in
Article III of the Initial Credit Agreement, and grants a security interest in
its assets as provided in Article IV of the Initial Credit Agreement. Borrower
acknowledges and agrees that all provisions of the Revolving Credit Agreement,
including but not limited to all of Borrowers representations, warranties,
agreements and covenants, applicable to a "Guarantor" shall also apply to Career
Assistance. Without limiting the generality of the foregoing, all of the
outstanding shares of capital stock of Career Assistance are herewith delivered
to Bank accompanied by a stock power executed in blank and such capital stock
shall be "Pledged Stock."
4. Investment in Career Assistance. Bank consents to the investment
by Borrower in Career Assistance, and Career Assistance shall also be considered
to be a "Restricted Subsidiary" of Borrower, as well as a "Guarantor."
5. Restructure Fee. Borrower agrees to pay Bank a restructure fee in
an amount equal to five percent (5%) of the projected outstanding principal
balance of the Note on June 3, 1996. The projected outstanding principal
balance of the Note on June 3, 1996 is $1,343,275.36, and five percent (5%) of
such amount is $67,163,77 which shall be payable in six (6) equal installments
of $11,193.96 ("Restructure Installment Payment"). A Restructure Installment
Payment shall be due January 3, 1996,
-4-
<PAGE>
and on the 3rd day of each month thereafter until June 3, 1996, when the final
Restructure Installment Payment shall be due and payable; provided, however,
that in the event Borrower makes a prepayment of principal of at least
$223,880.00 on the first business day of any month for which a Restructure
Installment Payment is due, then the Restructure Installment Payment for such
month shall be waived.
6. Location of Career Assistance. The address of the chief executive
office of Career Assistance is 1100 Main Street, Suite 416, Kansas City,
Missouri, and all Collateral owned by it shall be kept only at such location.
7. Evidence of Authority to Execute Agreement. Contemporaneously with
the execution hereof, each of Borrower and Guarantors shall deliver to Bank a
certificate of the Secretary or an Assistant Secretary of Borrower or such
Guarantor certifying, as of the date hereof, (a) the due adoption by the board
of directors of Borrower or such Guarantor, as the case may be, of resolutions
which are set forth at length in such certificate and which authorize the
execution, delivery and performance of this Agreement, (b) that such resolutions
have not been rescinded or revoked and are in full force and effect, and (c) the
incumbency and signatures of the officers who have signed this Agreement on
behalf of Borrower or such Guarantor, as the case may be.
8. Conditions Precedent. As a condition to the effectiveness and
enforceability of this Agreement, the following events must have occurred:
-5-
<PAGE>
(a) Borrower and CenCor, Inc. shall have executed and delivered to
Bank on the date hereof a Modification to Mortgage and Acknowledgement of
Subordination in form and substance satisfactory to Bank which will provide,
among other provisions, that the Note is secured by the Mortgage and that the
Mortgage remains a first lien in the property encumbered by the Mortgage; and
(b) Borrower will obtain from Chicago Title Insurance Company within
thirty (30) days of the date of the Agreement, an endorsement to Chicago Title
Insurance Company Loan Policy No. 23-0032-92-041229 dated September 11, 1991,
providing that the Mortgage described therein as modified by the Modification to
Mortgage and Acknowledgement of Subordination remains a first and prior lien on
the real estate described therein subject only to Special Exceptions 1, 2, 3 and
4 described in such Loan Policy.
(c) Cencor, Inc. shall have executed a consent to the investment by
Borrower in Career Assistance, specifying that the provisions of Section 7.4 of
the Restructuring, Security and Guaranty Agreement dated as of October 30, 1992,
among Borrower, Cencor, Inc., and other parties are waived with respect to
Career Assistance, and that Borrower is not in default under such Restructuring,
Security and Guaranty Agreement, and such consent shall be delivered to Bank on
the date hereof.
Bank may, at its sole option, waive any of the conditions, or extend
the time for the satisfaction of the same. If any of the conditions are not
either satisfied or waived within the specified time period, as the same may be
extended in writing by
-6-
<PAGE>
the Bank, this Agreement and the documents executed in connection therewith
shall be void ab initio.
9. Representations and Warranties. Borrower and Guarantors hereby
jointly and severally represent and warrant to Bank that:
(a) Each of them has all requisite power and authority to enter into
and perform this Agreement, this Agreement has been duly authorized by all
necessary action of the board of directors of each of them, and this Agreement
constitutes a valid and binding obligation of each of them and will not
contravene the terms of any other agreement or obligation of either of them;
(b) They have determined the terms and conditions of this Agreement to
be satisfactory and in their best interests, and they have, after consultation
with legal counsel, voluntarily decided to execute and deliver this Agreement
and to carry out the actions contemplated herein;
(c) All of the statements, representations and warranties of fact,
status or effect set forth in this Agreement, including without limitation those
set forth in the recitals, are true, correct, complete and accurate in all
respects, and none of such statements, representations and warranties omits to
state any material fact necessary in order to make the statements therein not
misleading;
(d) Each of the Loan Documents (including this Agreement) and all
documents relating to this Agreement are supported by a good, valuable,
adequate, and sufficient consideration;
-7-
<PAGE>
(e) The obligations of Borrower and Guarantors that were created and
are evidenced by the Loan Documents (including this Agreement) and all documents
relating to this Agreement are valid, legally binding, and enforceable by Bank
in accordance with the terms and provisions of the Loan Documents as modified
hereby;
(f) All Loans and other advances heretofore made by Bank were made in
accordance with the terms and provisions of the Loan Documents;
(g) The Loan Documents (including this Agreement) and all documents
relating to this Agreement and all Loans and other advances heretofore made by
Bank conferred direct, substantial, and valuable benefits upon Borrower and
Guarantors;
(h) All Loans and other advances heretofore made by Bank were made in
reliance upon the validity, legally binding effect, and enforceability of the
obligations of Borrower and Guarantors under the Loan Documents;
(i) The Revolving Credit Agreement, this Amendment No. Four, the
Mortgage and the Assignment of Leases and Rents create or created and evidence
first, prior, valid, legally binding and enforceable security interests and
liens, in favor of Bank, in, to, and against all property described in each such
document;
(j) As of the date hereof, the unpaid principal balance of the Loan is
$1,887,009.36;
(k) Borrower and Guarantors are absolutely and unconditionally
liable, jointly and severally, for the payment and performance of the Bank
Liabilities, and neither Borrower nor
-8-
<PAGE>
any Guarantor has, with respect to any of the Bank Liabilities, any meritorious
defenses, set-offs, disputes, claims, arguments, or contentions of any kind
whatsoever;
(l) There is no provision of any existing deed of trust, mortgage,
indenture, contract or agreement binding upon Borrower or Guarantors, any of the
Collateral or the real property subject to the Mortgage and the Assignment of
Leases and Rents which would conflict with or in any way prevent the execution,
delivery or performance of the terms of this Agreement or any other document
relating hereto;
(m) Borrower and Guarantors acknowledge that they are jointly and
severally obligated to pay, or reimburse Bank for, on demand, any and all
reasonable out-of-pocket costs, fees and expenses, including but not limited to
reasonable attorneys' fees and expenses, incurred or paid by Bank in connection
with (i) the negotiation and drafting of this Agreement, including this
Amendment No. Four and related documents and (ii) the interpretation and
enforcement of the Loan Documents; provided, however, that Borrower and
Guarantors shall not be obligated to reimburse more than $7,500.00 to Bank for
attorneys' fees and expenses incurred in connection with the negotiation,
preparation and execution of this Amendment No. Four. Borrower's duty to
reimburse Bank for costs, fees and expenses provided herein shall not apply to
any outside appraiser retained by the Bank for services rendered prior to the
execution hereof. The provisions of this paragraph shall not limit the
generality of Section 12.13 of the Revolving Credit Agreement, as amended
hereby; and
-9-
<PAGE>
(n) Borrower represents that it owns all of the capital stock of
Career Assistance, and that its investment in Career Assistance does not exceed
$500,000.00.
10. Release. Borrower and Guarantors, for themselves and for their
respective heirs, personal representatives, successors, and assigns, hereby
release, acquit, and forever discharge Bank and all of Bank's predecessors,
stockholders, directors, officers, attorneys, representatives, agents,
employees, successors, and assigns of and from any and all causes of action,
claims, debts, and demands of every kind and character (except claims to payment
of the amount of any balances maintained in deposit accounts with Bank, which
claims shall, however, be subject to Bank's right of set-off) whether now or
hereafter existing and whether now known or hereafter discovered, which relate
in any manner whatsoever to, or arise in any manner whatsoever from, Bank's
dealings, prior to the date of this Agreement, with Borrower and Guarantors, or
any of them, including, without limitation, those dealings that are evidenced by
and relate to the Loan Documents.
11. No Waiver. Neither any course of dealing between Borrower and
Bank nor any omission or delay by Bank in exercising any right, power or
privilege under this Agreement or any other Loan Documents shall impair such
right, power or privilege or be construed to be a waiver of or acquiescence in
any Default, and any single or partial exercise of any right, power or privilege
shall not preclude other or further exercise of that or any other
-10-
<PAGE>
right, power or privilege and no waiver shall be valid unless in writing and
signed by Bank and then only to the extent specified.
12. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that neither Borrower nor any
Guarantor may assign or transfer any of its rights or obligations under this
Agreement or any of the Loan Documents or any interest in any moneys due or to
become due under any of the Loan Documents without the prior written consent of
Bank.
13. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
affecting the validity or enforceability of such provision in any other
jurisdiction or invalidating the remaining provisions hereof in any
jurisdiction.
14. Governing Law. This Agreement shall be construed in accordance
with and governed by the laws, statutes and decisions of the State of Missouri
applicable to contracts made and to be performed wholly within such state, to
the non-exclusive jurisdiction of whose courts, state and federal, Borrower and
Guarantors irrevocably agree to submit.
15. Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
16. Entire Agreement; Loan Documents to Remain in Effect as Modified.
This Agreement and the Exhibits attached hereto embody
-11-
<PAGE>
the entire agreement and understanding between the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
relating to such subject matter, except that the Loan Documents, as modified
hereby, shall remain in full force and effect.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
18. No Third Party Beneficiaries. This Agreement is entered into
solely for the benefit of the parties hereto and no person not a party hereto
shall have any rights to object to or recover any damages or loss resulting from
any course of conduct by any of the parties or by reason of any amendment hereto
or the failure of any party to enforce the obligations of any other party
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the day and year
first above written.
Oral agreements or commitments to loan money, extend credit or to
forbear from enforcing repayment of a debt including promises to extend or
renew such debt are not enforceable. To protect you (borrower(s) and us
(creditor) from misunderstanding or disappointment, any agreements we reach
covering such matters are contained in this writing, which is the complete
and exclusive statement of the agreement between us, except as we may later
agree in writing to modify it.
-12-
<PAGE>
MARK TWAIN KANSAS CITY BANK
By: /s/ Mark Degner
------------------------------
Printed Name: Mark Degner
-----------------------
Its: Senior Vice President
--------------------------------
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 10th day of November, 1995, before me, the
undersigned, a notary public in and for said state, came Mark Degner and
___________________ of Mark Twain Kansas City Bank, a Missouri banking
corporation, to me personally known to be such officer and the same person who
executed as such officer the foregoing instrument on behalf of said corporation,
and such person duly acknowledged the execution of the same to be the act and
deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Cynthia D. Mendenhall
------------------------------
Notary Public in and for said
County and State
My commission expires:
December 6, 1998 (STAMP) CYNTHIA D. MENDENHALL
----------------------
STATE OF MISSOURI
Notary Public - Notary Seal
Jackson County
My Commission Expires: Dec. 6, 1998
-13-
<PAGE>
CONCORDE CAREER COLLEGES, INC.
ATTEST:
By: /s/ J. L. Brozman
----------------------------
/s/ Lisa M. Henak Jack L. Brozman
- --------------------------- Chairman of the Board and
Secretary Chief Executive Officer
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me,
the undersigned, a notary public in and for said state, came Jack L. Brozman,
Chairman of the Board and Chief Executive Officer of Concorde Career Colleges,
Inc., a Delaware corporation, to me personally known to be such officer and the
same person who executed as such officer the foregoing instrument on behalf of
said corporation, and such person duly acknowledged the execution of the same to
be the act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
_____________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-14-
<PAGE>
MINNESOTA INSTITUTE OF MEDICAL AND DENTAL
ASSISTANTS, INC.
ATTEST:
By: /s/ Asa E. Johnson
------------------------------
Asa E. Johnson, President
/s/ Lisa M. Henak
---------------------
Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me, the
undersigned, a notary public in and for said state, came Asa E. Johnson,
President of Minnesota Institute of Medical and Dental Assistants, Inc., a
Minnesota corporation, to me personally known to be such officer and the same
person who executed as such officer the foregoing instrument on behalf of said
corporation, and such person duly acknowledged the execution of the same to be
the act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
_____________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-15-
<PAGE>
TEXAS COLLEGE OF MEDICAL AND DENTAL
ASSISTANTS, INC.
ATTEST:
By: /s/ Asa E. Johnson
-------------------------------
Asa E. Johnson, President
/s/ Lisa M. Henak
- ----------------------------
Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me,
the undersigned, a notary public in and for said state, came Asa E. Johnson,
President of Texas College of Medical and Dental Assistants, Inc., a Texas
corporation, to me personally known to be such officer and the same person who
executed as such officer the foregoing instrument on behalf of said corporation,
and such person duly acknowledged the execution of the same to be the act and
deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
_____________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-16-
<PAGE>
UNITED HEALTH CAREERS INSTITUTE, INC.
ATTEST:
By: /s/ Asa E. Johnson
-------------------------------
Asa E. Johnson, President
/s/ Lisa M. Henak
-----------------
Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me,
the undersigned, a notary public in and for said state, came Asa E. Johnson,
President of United Health Careers Institute, Inc., a California corporation, to
me personally known to be such officer and the same person who executed as such
officer the foregoing instrument on behalf of said corporation, and such person
duly acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
_____________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-17-
<PAGE>
SOUTHERN CALIFORNIA COLLEGE OF
MEDICAL AND DENTAL ASSISTANTS, INC.
ATTEST:
By: /s/ Asa E. Johnson
----------------------------
Asa E. Johnson, President
/s/ Lisa M. Henak
--------------------------
Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me,
the undersigned, a notary public in and for said state, came Asa E. Johnson,
President of Southern California College of Medical and Dental Assistants, Inc.,
a California corporation, to me personally known to be such officer and the
same person who executed as such officer the foregoing instrument on behalf of
said corporation, and such person duly acknowledged the execution of the same to
be the act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
_____________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-18-
<PAGE>
CONCORDE CAREERS - FLORIDA, INC.
ATTEST:
By: /s/ Asa E. Johnson
----------------------------
Asa E. Johnson, President
/s/ Lisa M. Henak
- ----------------------------
Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me,
the undersigned, a notary public in and for said state, came Asa E. Johnson,
President of Concorde Careers -Florida, Inc., a Florida corporation, to me
personally known to be such officer and the same person who executed as such
officer the foregoing instrument on behalf of said corporation, and such person
duly acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
_____________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-19-
<PAGE>
THE COLLEGES OF DENTAL AND MEDICAL
ASSISTANTS, INC.
ATTEST:
By: /s/ Asa E. Johnson
--------------------------------
Asa E. Johnson, President
/s/ Lisa M. Henak
- -----------------
Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me, the
undersigned, a notary public in and for said state, came Asa E. Johnson,
President of The Colleges of Dental and Medical Assistants, Inc., a California
corporation, to me personally known to be such officer and the same person who
executed as such officer the foregoing instrument on behalf of said corporation,
and such person duly acknowledged the execution of the same to be the act and
deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
__________________________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-20-
<PAGE>
PERSON/WOLINSKY ASSOCIATES, INC.
ATTEST:
By: /s/ Jack L. Brozman
-----------------------------
/s/ Lisa M. Henak Jack L. Brozman
--------------------------
Secretary Chairman of the Board and Chief
Executive Officer
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me, the
undersigned, a notary public in and for said state, came Jack L. Brozman,
Chairman of the Board and Chief Executive Officer of Person/Wolinsky Associates,
Inc., a New York corporation, to me personally known to be such officer and the
same person who executed as such officer the foregoing instrument on behalf of
said corporation, and such person duly acknowledged the execution of the same to
be the act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
__________________________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-21-
<PAGE>
COMPUTER CAREER INSTITUTE, INC.
ATTEST:
By: /s/ Asa E. Johnson
-------------------------------
Asa E. Johnson, President
/s/ Lisa M. Henak
- -----------------
Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me, the
undersigned, a notary public in and for said state, came Asa E. Johnson,
President of Computer Career Institute, Inc., an Oregon corporation, to me
personally known to be such officer and the same person who executed as such
officer the foregoing instrument on behalf of said corporation, and such person
duly acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
___________________________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-22-
<PAGE>
CONCORDE CAREER INSTITUTE, INC.
ATTEST:
By: /s/ Jack L. Brozman
---------------------------
Jack L. Brozman,
/s/ Lisa M. Henak Chairman of the Board
- --------------------
Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me, the
undersigned, a notary public in and for said state, came Jack L. Brozman,
Chairman of the Board of Concorde Career Institute, Inc., a Florida corporation,
to me personally known to be such officer and the same person who executed as
such officer the foregoing instrument on behalf of said corporation, and such
person duly acknowledged the execution of the same to be the act and deed of
said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
__________________________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-23-
<PAGE>
CAREER ASSISTANCE, INC., a Missouri Corporation
ATTEST:
By: /s/ Patrick J. Debold
---------------------------
Patrick J. Debold,
President
/s/ Lisa M. Henak
----------------------------
Secretary
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me, the
undersigned, a notary public in and for said state, came Patrick J. Debold,
President of Career Assistance, Inc., a Missouri corporation, to me personally
known to be such officer and the same person who executed as such officer the
foregoing instrument on behalf of said corporation, and such person duly
acknowledged the execution of the same to be the act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
_____________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-24-
<PAGE>
EXHIBIT "A"
PROMISSORY NOTE
---------------
$1,887,009.36 Kansas City, Missouri
November 1, 1995
FOR VALUE RECEIVED, CONCORDE CAREER COLLEGES, INC., a Delaware
corporation (the "Maker"), hereby promises to pay to the order of MARK TWAIN
KANSAS CITY BANK (the "Bank"), the principal sum of ONE MILLION EIGHT HUNDRED
EIGHTY-SEVEN THOUSAND NINE AND 36/100 DOLLARS ($1,887,009.36), together with
interest on the unpaid principal balance outstanding from time to time, from
date until Maturity (as hereinafter defined), at a variable rate per annum One
and One-Half percentage points (1 1/2%) in excess of the Bank's prime rate, as
determined by the Bank and distributed to its officers and employees from time
to time for their use in setting and adjusting interest rates on loans,
regardless of whether such prime rate is otherwise published or utilized and
irrespective of the rate of interest charged by the Bank on any loan to a person
other than the Maker (the "Prime Rate"). The Maker acknowledges that the Prime
Rate is not necessarily the best nor even a favorable rate. The interest rate
on this Note shall be adjusted on the same day as each change in the Prime Rate
occurs. Interest shall be calculated on the basis of the actual number of days
elapsed over a year of three hundred sixty (360) days.
As used in this Note, the following terms shall have the following
meanings:
(a) "Business Day" means any day other than Saturday, Sunday or any
other day on which commercial banks in the State of Missouri are authorized or
required to close under applicable law or executive order.
(b) "Default Rate" means a rate per annum equal to the Prime Rate plus
Four and One-Half percentage points (4 1/2%), Rate adjusted daily, not to exceed
the highest rate of interest permitted by applicable law.
(c) "Dollars" and "$" mean lawful money of the United States of
America.
(d) "Holder" means the Bank and any other person in possession of this
Note if this Note has been endorsed to such person, to his order, to bearer or
in blank.
(e) "Interest Due Date" means the first day of each calendar month
commencing after the date of this Note and prior to Maturity.
-25-
<PAGE>
(f) "Maturity" means January 3, 1997, or such earlier date on which
the principal balance of and accrued interest on this Note shall have been
declared immediately due and payable as provided herein.
(g) "Mortgage" means the Mortgage, dated on or about September 3,
1991, encumbering real property owned by the Maker and located in Warren,
Michigan, as may be modified or amended in writing from time to time.
(h) "Revolving Credit Agreement" means the Revolving Credit, Security
and Guaranty Agreement dated September 3, 1991 between the Maker, the Bank and
certain subsidiaries of the Maker, as amended by Amendment No. One thereto dated
April 30, 1992 and by Amendment No. Two thereto dated April 30, 1993, and by
Amendment No. Three thereto dated September 1, 1994, and by Amendment No. Four
of even date herewith.
The unpaid principal balance of this Note shall be payable in
installments in the amounts and on the dates set forth on the Payment Schedule
attached hereto as Exhibit A. Accrued interest shall be due and payable
monthly, on each Interest Due Date, and at Maturity.
The principal of this Note may be prepaid in whole or in part at any
time and from time to time without penalty or fee, subject to the condition that
no prepayment of any part of the principal balance may be made at a time when
any previously scheduled principal or interest payment has not been paid in
full.
After Maturity, whether Maturity occurs by reason of acceleration or
passage of time, this Note shall bear interest at the Default Rate.
The amount of any interest payment may be specified by notice from the
Holder to the Maker prior to the due date of such payment, but the Holder shall
have no obligation to give any such notice. In the event any such notice is not
given, in the event the amount of interest is miscalculated in any such notice,
or in the event of a change in the Prime Rate subsequent to the preparation of
any such notice and prior to the Interest Due Date, then any resultant
underpayment or overpayment of interest shall be added to or deducted from the
next scheduled interest payment. Nothing herein shall relieve the Maker or any
other person liable for the payment of this Note from the obligation to pay the
full amount of interest accruing from time to time on the unpaid principal
balance, and any and all accrued interest not previously paid for any reason
whatsoever shall be due and payable at Maturity.
This Note evidences the unpaid principal balance of a Promissory Note
dated September 3, 1991 in the original face
-26-
<PAGE>
amount of $10,000,000.00, as modified by the Promissory Note dated April 30,
1993, and by the Promissory Note dated September 1, 1994, and is issued pursuant
to the Revolving Credit Agreement and shall be entitled to the full benefit of
and all security provided by the Revolving Credit Agreement, the Mortgage and
the Assignment of Leases and Rents. Reference is made to the Revolving Credit
Agreement and the Mortgage for rights of the Bank to accelerate the maturity of
this Note in certain circumstances, which rights are intended to be cumulative
with each other and with all other rights granted to the Bank herein, in any
other instrument or agreement (including the Revolving Credit Agreement and the
Mortgage), and by applicable law.
All payments of principal and interest on this Note shall be due and
payable at 2:00 P.M., Kansas City, Missouri time, on the scheduled due date at
the principal office of the Bank, 106 West 11th Street, Kansas City, Missouri
64105, or at such other place as the Holder may designate to the Maker in
writing from time to time.
This Note shall be construed and enforced in accordance with the laws
of the State of Missouri, except to the extent such laws are preempted
(expressly or by implication) by laws of the United States. This Note may not
be modified except by a writing signed by Bank and Holder or cancelled except by
a writing signed by the Holder.
All parties who now are or hereafter become liable for the payment of
this Note, whether as maker, principal, surety, guarantor, or endorser, hereby
(a) waive presentment for payment, demand, protest, notice of protest, notice of
dishonor or nonpayment, and all other notices in connection with the delivery,
acceptance, performance, default and enforcement of this Note; (b) waive any
defense based on the failure of the Bank to perfect any security interest or
record any mortgage or deed of trust securing the payment hereof or to exercise
diligence in collecting this Note or enforcing its rights hereunder or under any
related security agreement, mortgage, deed of trust, guaranty or other
instrument or agreement; (c) consent to any number of extensions, postponements
or deferrals of any payment due hereunder, for any length of time and on any
lawful terms (including but not limited to any change in the interest rate or
the method of calculating the interest rate from time to time), to the grant of
any other indulgence to, any release of and any covenant not to sue any party
liable for the payment hereof, and to any substitution, addition, exchange or
release of any real or personal property securing the payment hereof, all
without notice to or express reservation of rights against any of said parties;
and (d) jointly and severally agree (subject to any express limitations
contained in the agreements or instruments by virtue of which they respectively
are liable for the payment hereof) to perform all obligations of the Maker
hereunder (as modified by any such extension, postponement or deferral) when
due, without requiring any prior demand on or action against any other person or
any property securing the payment hereof.
-27-
<PAGE>
In the event (i) any installment of principal or interest is not paid
when due, or (ii) there occurs any event which, under the terms of any loan
agreement, mortgage, deed of trust, security agreement, pledge agreement or
other agreement or instrument relating to this Note or the loan evidenced hereby
or securing the payment hereof (including, but not limited to, the Revolving
Credit Agreement and the Mortgage), permits the obligations referred to therein
or secured thereby to be declared due and payable or causes or permits the
maturity of such obligations to be accelerated, then the Holder shall have the
right and power, at its option, to accelerate the maturity of this Note and to
declare the unpaid principal balance and all accrued interest immediately due
and payable in full.
In the event of any default in the payment of the principal or
interest hereunder, the Maker shall pay all costs and expenses of collection,
including the reasonable fees and expenses of any attorney or firm of attorneys
retained by the Holder in connection with such collection or the repossession or
disposition of, or other realization on, any collateral security, whether or not
suit is commenced and including fees and expenses in connection with any
bankruptcy, insolvency or reorganization proceedings and any proceedings in
appellate courts, all to the extent not prohibited by applicable law.
CONCORDE CAREER COLLEGES, INC.
By: /s/ Jack L. Brozman
------------------------
Jack L. Brozman
Chairman of the Board and
Chief Executive Officer
-28-
<PAGE>
ACKNOWLEDGEMENT
---------------
STATE OF MISSOURI)
) ss.
COUNTY OF JACKSON)
BE IT REMEMBERED, that on this 3rd day of November, 1995, before me,
the undersigned, a notary public in and for said state, came Jack L. Brozman,
Chairman of the Board and Chief Executive Officer of Concorde Career Colleges,
Inc., a Delaware corporation, to me personally known to be such officer and the
same person who executed as such officer the foregoing instrument on behalf of
said corporation, and such person duly acknowledged the execution of the same to
be the act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal at my office in Kansas City, Missouri, the day and year last above
mentioned.
/s/ Lisa M. Henak
-----------------------------
Notary Public in and for said
County and State
My commission expires:
(Stamp and Seal)
_____________________, 19__
LISA M. HENAK
Notary Public - State of Missouri
Commissioned In Clay County
My Commission Expires Sept. 7, 1996
-29-
<PAGE>
EXHIBIT A
PAYMENT SCHEDULE TO PROMISSORY NOTE
DATED NOVEMBER 1, 1995
IN THE ORIGINAL PRINCIPAL AMOUNT OF $1,887,009.36
_________________________________________________________________
<TABLE>
<CAPTION>
<S> <C>
November 3, 1995 271,867.00
December 3, 1995 271,867.00
January 3, 1997 1,343,275.36
-------------
TOTAL PRINCIPAL PAYMENTS $1,887,009.36
</TABLE>
-30-
<PAGE>
EXHIBIT 21
CONCORDE CAREER COLLEGES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Minnesota Institute of Medical and Dental Assistants, Inc.
Texas College of Medical and Dental Assistants, Inc.
Southern California College of Medical and Dental Assistants, Inc.
United Health Careers Institute, Inc.
Person Wolinsky Associates, Inc.
Computer Career Institute, Inc.
College of Dental and Medical Assistants, Inc.
Concorde Careers--Florida, Inc.
Concorde Career Institute, Inc., (Florida Corporation)
Concorde Career Institute, Inc., (Michigan Corporation)
Career Assistance, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Form 10-K of December 31, 1995 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 OCT-01-1995
<PERIOD-END> DEC-31-1995 DEC-31-1995
<CASH> 3,295,000 0
<SECURITIES> 0 0
<RECEIVABLES> 20,243,000 0
<ALLOWANCES> 1,394,000 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 23,228,000 0
<PP&E> 12,365,000 0
<DEPRECIATION> 9,145,000 0
<TOTAL-ASSETS> 30,820,000 0
<CURRENT-LIABILITIES> 19,310,000 0
<BONDS> 4,066,000 0
<COMMON> 698,000 0
0 0
30,000 0
<OTHER-SE> 5,946,000 0
<TOTAL-LIABILITY-AND-EQUITY> 30,820,000 0
<SALES> 39,274,000 9,827,000
<TOTAL-REVENUES> 39,274,000 9,827,000
<CGS> 0 0
<TOTAL-COSTS> 35,258,000 8,990,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,577,000 334,000
<INTEREST-EXPENSE> 659,000 135,000
<INCOME-PRETAX> 1,780,000 368,000
<INCOME-TAX> 181,000 40,000
<INCOME-CONTINUING> 1,599,000 328,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,599,000 328,000
<EPS-PRIMARY> .20 .04
<EPS-DILUTED> .18 .04
</TABLE>
