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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
Commission file number 0-16992
CONCORDE CAREER COLLEGES, INC.
(Exact name of registrant as specified in its charter)
12th & 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
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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 outstanding shares of the Registrant's Common Stock, as
of March 25, 1997:
6,966,576 Shares of Common Stock, $.10 par value
The aggregate market value of Voting Securities (including Common Stock and
Class B Voting Convertible Preferred Stock), held by non-affiliates of the
Registrant was approximately $6,050,000 as of March 25, 1997. Part III
incorporates information by reference to the Registrant's definitive proxy
statement for Annual Meeting of Stockholders to be held May 22, 1997.
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CONCORDE CAREER COLLEGES, INC.
FIRST AMENDED AND RESTATED
FORM 10-K/A
YEAR ENDED DECEMBER 31, 1996
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-10
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-12
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................. II-33
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-5
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PART I
Item 1. Business
Overview
The discussion set forth below, as well as other portions of this Form
10-K/A, 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/A. 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, potential adverse effects of regulations;
impairment of federal funding; adverse legislative action; student loan default;
changes in federal or state authorization; or accreditation; changes in market
needs and technology; changes in competition and the effects of such changes;
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.
Restatement of 1996
The financial statements for the third and fourth quarters and year ended
December 31, 1996 have been restated to defer and recognize income from a non-
compete agreement associated with the August 1996 sale of assets of
Parson/Wolinsky Associates, Inc. over the ten-year term of the non-compete
agreement. The effect of this restatement was to reduce net income and earnings
per share in the third quarter and year ended December 31, 1996 by $257,000 and
$243,000 and $.04 and $.03, respectively and to increase net income and earnings
per share in the fourth quarter by $14,000 and $.01, respectively. During the
third quarter of 1996, the Company originally reported in income, as a one-time
benefit under the caption Gain on Sales of Assets, $407,000 representing the
pre-tax net present value of the non-compete agreement. The Company accounted
for the agreement in accordance with what it believed was its substance - ten
year seller financing. In the third quarter of 1997, the United States
Securities and Exchange Commission ("the SEC") notified the Company that it
would require the legal form of the agreement to prevail and that income from
the non-compete agreement should be deferred and recorded in income over the
term of the agreement. The Company accepted the SEC's determination. Payments
under the agreement are due in ten equal annual installments of $75,000 each,
commencing on December 15, 1996. The 1996 payment was received as scheduled.
Accretion of the present value amount to the cash amount due under the agreement
is being made on the interest method. See Part II Note 12 for additional
information.
The Company
The Company owns and operates proprietary, postsecondary schools which
offer career vocational training programs primarily in the allied health field.
As of December 31, 1996, the Company owned and operated resident training
schools at 12 locations in six states (the "Schools"). Prior to August 2, 1996,
the Company also offered Review Courses for the CPA Examination. 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
On August 2, 1996 the Company sold the assets of Person/Wolinsky
Associates, a subsidiary which offered review courses for the CPA exam. As a
result of the sale the Company received cash proceeds of $879,000 (the
"Person/Wolinsky Sale"). On August 30, 1996, the Company sold the assets of the
San Jose, California School for $350,000. The Company realized a net loss of
$217,000 before income taxes, as a result of the sales. CenCor, Inc.
("CenCor"), which agreed to release its security interest in these assets and
consent to both sales, received approximately $378,000 for redemption of 33,000
shares of Class A Redeemable Preferred Stock (the "Class A Preferred Stock") and
$46,000 of accumulated dividends on the Class A Preferred Stock..
On January 31, 1997 the Company sold its Warren, Michigan building for
approximately $725,000 (the "Warren Sale"). Proceeds of $310,000 were paid to
CenCor for redemption of approximately 27,000 shares of Class A Preferred Stock
it then held and $45,000 of accumulated dividends on the Class A Preferred
Stock. The Company realized a gain of $313,000 before income taxes in 1997 as a
result of the Warren Sale.
On December 30, 1996 CenCor and the Company amended the Restructuring,
Security, and Guaranty Agreement (the "Fourth Amendment"). The Fourth Amendment
extended the due date of the $2.4 million junior secured debenture held by
CenCor (the "Old Debenture") and approximately $245,000 of unsecured obligations
held by CenCor (the "Unsecured Debt") to January 1, 1998, increased quarterly
principal payments on the Old Debenture approximately $30,000 to $100,000 and
waived the Old Debenture's capital expenditures limitations with respect to the
Company's North Hollywood, California lease. In addition, the Company agreed
to pay CenCor $1,333 per day for the number of days the refinancing closing date
extended beyond December 20, 1996.
On February 25, 1997, the Company entered into agreements, which soon
thereafter closed, with Cahill, Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P., affiliated Baltimore-based venture capital funds
("Cahill-Warnock"), for the issuance by the Company and purchase by Cahill-
Warnock of (i) 55,147 shares of the Company's new Class B Voting Convertible
Preferred Stock ("Voting Preferred Stock") for $1.5 million and (ii) 5%
Debentures due 2003 ("New Debentures") for $3.5 million (collectively, the
"Cahill Transaction"). Cahill-Warnock subsequently assigned (with the Company's
consent)
Part I - Page 1
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its rights and obligations to acquire 1,838 shares of Voting Preferred Stock to
James Seward, a Director of the Company, and Mr. Seward purchased such shares
for their purchase price of approximately $50,000. The New Debentures have
nondetachable warrants ("Warrants") for approximately 2,573,529 shares of Common
Stock, exercisable beginning August 25, 1998 at an exercise price of $1.36 per
share of Common Stock.
The Voting Preferred Stock has the right to vote as a class with the Common
Stock (with each share of Voting Preferred Stock having the equivalent voting
power of 20 shares of Common Stock), on all matters presented to holders of
Common Stock. Each share of Voting Preferred Stock is convertible into 20 shares
of Common Stock at the election of the holder for no additional consideration.
The Voting Preferred Stock is entitled to a 12% annual dividend beginning
February 25, 2001 and a 15% annual dividend beginning February 25, 2003. The
Voting Preferred Stock is mandatorily convertible into Common Stock upon the
successful completion by the Company of a common equity offering greater than
$20 million at a price greater than $4 per share of Common Stock. Cahill-
Warnock also has certain preemptive rights in future issuances of stock by the
Company.
The New Debentures bear an interest rate of 5% per annum, payable
quarterly, with principal due in February 2003, when the attached Warrants
expire. The Warrants are not exercisable until August 25, 1998, subject to
earlier conversion (at the holder's election) in the event of the successful
completion by the Company of a common equity offering greater than $20 million
at a price greater than $4 per share of Common Stock.
The Voting Preferred Stock and the Warrants are also entitled to certain
registration rights (with respect to the underlying Common Stock).
As part of the Cahill Transaction, the Board of Directors of the Company
was increased from three to six members, with Cahill-Warnock having the right to
nominate two Directors. The sixth Director is Dr. Robert Roehrich, the
Company's new President and Chief Executive Officer effective April 7, 1997.
Pursuant to a Stockholders' Agreement among Cahill-Warnock, Messrs. Brozman
and Seward, the Robert F. Brozman Trust (who, together, hold an aggregate of
52.8% of the outstanding voting securities of the Company and options to
purchase 1,000,000 shares of Common Stock) and the Company, such holders have
agreed to certain restrictions on the transfer and voting of voting securities
held by them.
Pursuant to the Fourth Amendment with CenCor, the Company used
approximately $4.4 million of the funds from the Cahill Transaction to redeem
the 260,385 outstanding shares of its Class A Preferred Stock, the Old Debenture
and Unsecured Debt which were held by CenCor (the "CenCor Repayment"). As part
of the CenCor Repayment, CenCor waived its right to a payment from the Company
equal to 25% of the amount by which the Company's market capitalization exceeds
$3.5 million on August 31, 1997. At September 30, 1996, the Company had accrued
$457,000 for this purpose. After the CenCor Repayment, the only outstanding
obligation of the Company to CenCor is to continue to replace written-off
receivables of the Company which had been conveyed to CenCor to discharge
interest that had accrued but was unpaid on the Old Debenture until such time as
CenCor recovers all discharged interest. At December 31, 1996, the amount
remaining to be recovered by CenCor was approximately $382,000. Jack L.
Brozman, the Chairman of the Board of the Company, is the Chairman of the Board,
President, and Treasurer of CenCor.
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, 1996, the Company operated schools located in the
following cities: North Hollywood, Anaheim, San Bernardino, and San Diego,
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.
In order to increase name recognition of its Schools, the Company has
designated each of the Schools as a "Concorde Career Institute."
Part I - Page 2
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Allied Health Curriculum
The Company's Schools' allied health programs of study are:
Vocational/Practical Nursing, Respiratory Therapy Technician, Surgical
Technician, Pharmacy Technician, Radiology Technician, Medical Secretary,
Medical Assistant, and Dental Assistant. Not all programs are offered at all
Schools. Some Schools utilize different program titles pursuant to state
regulations. 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 2,985 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 and/or utilizes a data base maintained by the
United States Department of Education ("ED") before applicant 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>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Applicants Interviewed.............. 22,377 23,158 23,175
Student Enrollments................. 6,855 7,121 6,701
Admissions.......................... 30.6% 30.7% 28.9%
</TABLE>
At December 31, 1996, the Company had approximately 4,000 students in
attendance at the Schools, including approximately 600 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 3
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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 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 Senior Vice President of Operations is responsible for the overall
performance of the Schools. Reporting to him are: the Vice President of
Compliance/Financial Aid, the Vice President of Education, the Vice President of
Operations, 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 Vice President of Operations. The Vice President of
Operations 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 Director of Business Services, 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 ED. 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."
Additionally, certain Schools have received accreditation or approval for
specific programs from certain of the following accrediting agencies: The
American Society of Health Systems Pharmacists, American Association of Medical
Assistants Endowment Commission, 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 or Practical 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.
Part I - Page 4
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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.
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 $5,925 to $12,975.
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 1996, 82% of 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. The Company currently participates only
in the Colorado State Grant Program.
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 Subsidized and Unsubsidized 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 1996-97 award year is $2,470, with the
amount a student actually receives being based on a federal regulatory formula
devised by the ED.
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. On
subsidized loans, the student pays no interest on the Subsidized Stafford Loan
while in school and for a grace period (up to six months) thereafter; on
unsubsidized loans, interest accrues but is capitalized and added to the
principal. For both subsidized and unsubsidized loans, students do not need to
begin payment until expiration of a six month grace period following last day of
attendance. After such time, repayment is required in monthly installments,
including a variable interest rate with a cap at 9%. The lenders making
subsidized 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, all 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.
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 Schools began financing a larger
portion of the tuition for most students with promissory notes. Beginning in
1996, promissory notes issued to the students by the Schools are generally due
over 24 months, bearing interest of seven percent, with payments beginning when
the student starts class.
Part I - Page 5
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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 to materially comply with such regulations at any of the
Schools, such failure could have serious consequences, including limitation,
suspension, or termination of the eligibility of that School 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."
One of the ED's principal criteria for assessing a School's eligibility to
participate in student loan programs is the cohort default rate threshold
percentage requirements (the "Cohort Default Rate") enacted in the Student Loan
Default Prevention Initiative Act of 1990. Due to concerns about default rates,
the ED 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, the fiscal year of the federal government -- October 1 to September 30,
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 1992 Cohort Default Rates were published in August 1994.
The final 1993 Cohort Default Rates were published in February 1996 and the
final 1994 Cohort Default Rates were published in January 1997.
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 Family Education Loan Program ("FFELP")
eligibility.
The following table sets forth the 1992, 1993, and 1994 Cohort Default
Rates for each of the Schools that were in operation at the time the Cohort
Default Rates were published. Publication of the Cohort Default Rates for 1990
and 1991 has been suspended due to two injunctions obtained by the Company to
preclude the ED from using 1990 and 1991 Cohort Default Rates as grounds to
limit, suspend, or terminate the School's eligibility for Federal Loan Programs.
See Item 3, "Legal Proceedings."
<TABLE>
<CAPTION>
Cohort Default Cohort Default
Rates Rates
School 1992 1993 1994(3) 1992 1993 1994(3)
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Anaheim, CA 33.1 25.7 25.7 North Hollywood, CA 22.1 23.7 19.9
Denver, CO 33.5 20.4 18.7 Portland, OR 33.0 28.8 20.2
Jacksonville, FL 38.0 31.1 17.6 San Bernardino, CA 27.6 31.2 (2)
Kansas City, MO 15.4 20.0 14.7 San Diego, CA 27.0 32.3 28.9
Lauderdale Lakes, FL 35.2 18.2 21.4 Tampa, FL 33.8 24.5 14.8
Miami, FL (1) 33.8 24.5 14.8
Memphis, TN 24.1 16.2 22.1
</TABLE>
(1) The Miami campus is an additional location of the Tampa School.
(2) Final 1994 rate has not yet been received. The preliminary rate was 26.8.
(3) Pre-appeal rates.
The Company had previously appealed certain of the 1993 default rates, and
the above rates reflect any adjustments made by the ED. The ED decided to not
review some of the appeals. The Company may decide to request the ED to review
these appeals.
Part I - Page 6
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The Company is challenging the ED's authority to enforce the 1992 Cohort
Default Rates applicable to the Company in light of the ED'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 had requested the
court to officially suspend the 1992 Cohort Default Rates, but the court has
declined to enter a temporary restraining order or a preliminary injunction
prohibiting publication of the 1992 Cohort Default Rates. The Company,
however, intends to pursue its claims for declaratory and injunctive relief
concerning 1992 rate correction regulations and the Schools' recent default
rates.
The Company is also pursuing administrative appeals seeking a reduction of
its recently published 1994 rates. These appeals are being pursued under a rate
correction appeal process established by Congress in late 1993 for the
correction of Cohort Default Rates for demonstrated occurrences of improper loan
servicing and collections. The Company's appeals were commenced early in 1997,
and no ruling has yet been issued. See Item 3, "Legal Proceedings."
Two Schools, Anaheim and San Diego, California, have official published
Cohort Default Rates which exceed 25% for three consecutive years. In addition,
the San Bernardino, California School has official published Cohort Default
Rates for two consecutive years which exceed 25% and a preliminary 1994 rate
which exceeds 25%. Currently San Bernardino has not received a final 1994
Cohort Default Rate, however the Company believes it will exceed 25%. The
Company believes that the 1994 Cohort Default Rates for the three Schools should
be lowered below 25% through appeals, but it is possible that the ED will not
agree. All three Schools could be in jeopardy of loss of loan eligibility if the
Cohort Default Rates for one of the three consecutive years is not lowered, but
in that event the Company may challenge the ED's rate determinations in the
pending litigation filed in late 1992.
The Company intends to vigorously defend the Schools against any proceeding
by the ED to limit, suspend, or terminate FFELP eligibility. If any of the
Schools loses its eligibility to participate in Federal Loan Programs, the
continuing operation of that School may be in doubt. The Company intends to
closely monitor this situation and mitigate the effect on any School of the loss
of its eligibility to participate in loan programs. One option would be to
restructure the School to use grant funding and alternative third party
financing. This action is expected to result in a short-term decline in
enrollment and profitability during the period of transition.
Currently students at all of the 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, ED established a policy of recertifying all schools participating
in Title IV programs every five years. The Company recently completed the
process of recertifying the Schools. Full certification has been approved for
Anaheim, North Hollywood, San Bernardino and San Diego, California, Kansas City,
Missouri, Portland, Oregon, Memphis, Tennessee, Tampa, and Miami, Florida (Miami
is an additional location of the Tampa School). Denver, Colorado, Jacksonville
and Lauderdale Lakes, Florida 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 ED guidelines. The provisional certifications expire in 1998,
at which time the Schools will again go through the process of recertification.
The Company does not believe provisional certification will have a material
impact on its liquidity, results of operations or financial position.
ED also has 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, offered 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 assets of the CPA Review Courses were sold
August 2, 1996 to a group of educators and editorial writers associated with
Person/Wolinsky. Samuel Person, who started the business in 1967 and created
the study materials retired in 1996.
Part I - Page 7
<PAGE>
Competition
The Schools are subject to intense competition from public educational
institutions in addition to a large number of other 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 educational programs 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.
Employees
As of February 21, 1997, the Company had approximately 699 full and part-
time employees, of which approximately 397 were faculty members at its Schools.
There are 236 management and administrative staff members, of which 202 are
employed at the Schools, and 34 are employed at corporate headquarters. The
remaining 66 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.
Item 2. Properties
The Company's corporate headquarters is located in Kansas City, Missouri.
All the Schools' facilities are leased. The Company owned a building in Warren,
Michigan, which was sold January 31, 1997. See "Business -- Recent
Developments."
The following table sets forth the location, approximate square footage and
expiration of lease terms for each of the Schools as of December 31, 1996:
<TABLE>
<CAPTION>
Square
Locations Footage Expiration (1)
--------- ------- -------------
<S> <C> <C>
Anaheim, CA......................... 17,989 1-31-98
North Hollywood, CA................. 12,269 5-31-97
North Hollywood, CA (new location).. 35,155 12-31-11
San Bernardino, CA.................. 16,950 9-30-98
San Diego, CA....................... 12,244 11-21-98
Denver, CO.......................... 14,860 1-31-98
Lauderdale Lakes, FL................ 10,905 5-31-00
Jacksonville, FL.................... 12,305 7-31-98
Miami, FL........................... 8,000 4-30-99
Tampa, FL........................... 14,200 12-31-00
Kansas City, MO..................... 16,000 3-01-01
Kansas City, MO (Home Office) (2).. 7,227 10-31-98
Portland, OR........................ 15,246 11-01-06
</TABLE>
Part I - Page 8
<PAGE>
<TABLE>
<S> <C> <C>
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.
The Company also rents various equipment under leases which are generally
cancelable within 30 days.
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 ED 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 ED 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 ED to discontinue publication of those rates. The order also
requires that no substitute Cohort Default Rates for 1990 can be published by
the ED without prior approval of the court. This order remains in effect and
the ED 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 ED
suspending publication of the Company's 1991 Cohort Default Rates. This order
remains in effect by agreement of the ED. Although the ED 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 ED 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 ED challenging
the 1992, 1993, and 1994 Cohort Default Rates and the rate correction
regulations which the ED adopted in 1994. The ED'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 ED's rate correction regulations are upheld,
the Company's Schools, along with many other postsecondary institutions,
probably will 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 1997. For more information on these regulations see
Item 1, "Business -- Regulation."
The Company intends to vigorously defend the Schools against any proceeding
by the ED to limit, suspend, or terminate FFELP eligibility. If any of the
Schools loses its eligibility to participate in Federal Loan Programs, the
continuing operation of that School may be in doubt. The Company intends to
closely monitor this situation and will evaluate alternatives to mitigate the
effect on any School of the loss of its eligibility to participate in loan
programs. Among the options available to the Company, one option would be to
restructure the School to use grant funding and alternative third party
financing. This action, if necessary, would be expected to result in a short-
term decline in enrollment and profitability during the period of transition.
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
Part I - Page 9
<PAGE>
to comprise 69 plaintiffs. Concorde Careers-Florida, Inc. doing business as
ConCorde Career Institute in Jacksonville, Florida ("the Jacksonville School") a
wholly owned subsidiary of 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. 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 Jacksonville School 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 Jacksonville School 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 Jacksonville School has answered the complaint, and filed numerous
affirmative defenses. Discovery restricted to class certification issues was
completed in late Fall 1996. A two-day hearing to determine whether or not the
class should be certified was conducted during mid-January 1997. A decision by
the Court is expected in the near future. In the meantime, all activity and
progress in the other suits have been stayed. The Company believes these suits
are without merit, and will continue to strongly oppose class certification, and
to defend against them vigorously.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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Part I - Page 10
<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 "OTCBB"). The
following table sets forth the high and low bid information, for the periods
indicated as reported by the OTCBB.
<TABLE>
<CAPTION>
1995 High Low
---- ----- -----
<S> <C> <C>
First Quarter..................................... $0.38 $0.25
Second Quarter.................................... $0.56 $0.38
Third Quarter..................................... $0.41 $0.38
Fourth Quarter.................................... $0.63 $0.30
1996
----
First Quarter..................................... $0.94 $0.44
Second Quarter.................................... $1.06 $0.88
Third Quarter..................................... $1.06 $0.55
Fourth Quarter.................................... $1.06 $0.88
</TABLE>
At December 31, 1996, there were 298 holders of record of the Common Stock.
On March 20, 1997, the bid and asked prices of the Company's Common Stock
on the OTCBB were $1.625 and $1.625 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. Class
A Preferred Stock dividends of $56,349 were paid in 1996 pursuant to the
Restructuring, Security and Guaranty Agreement, as amended with CenCor. See
Item 7, "Liquidity and Capital Resources -- CenCor Agreement."
Item 6. Selected Financial Data
The following data should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
Item 8, "Financial Statements and Supplementary Data."
The following selected financial data has been derived from the Company's
Audited Financial Statements for the years ended 1996 through 1992. The amounts
for the year ended December 31, 1996 have been restated as discussed in Note 12
of the Notes to the Consolidated Financial Statements.
(The remainder of this page left intentionally blank.)
Part II - Page 1
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data: (Restated) (In thousands, except for per share data)
Revenues........................................... $40,119 $39,274 $35,032 $34,781 $ 42,648
Operating expenses................................. 39,254 36,835 34,173 33,066 54,036
Operating income (loss)............................ 865 2,439 859 1,715 (11,388)
Interest expense................................... 371 659 1,065 1,152 1,619
Loss on sale of assets............................. (217)
Net income (loss).................................. 549 1,599 (6) 413 (9,626)
Earnings (loss) per share (1)...................... $.04 $.18 $(.00) $.06 $(1.38)
Balance Sheet Data:
Total assets....................................... $30,867 $30,820 $30,477 $30,173 $ 36,664
Long-term debt (2)................................. 2,419 4,066 3,954 10,385 12,281
Stockholders' equity............................... 6,772 6,674 5,075 2,081 1,668
December 31
--------------------------------------------------------------------
Other Data: 1996 1995 1994 1993 1992
------- ------- ------- ------- --------
Number of locations (3):
Health Vocation.................................. 12 13 13 15 15
Travel Service................................... 1 1 1
----- ----- ------- ------- --------
Total........................................... 12 13 13 16 16
Net enrollments (4)................................ 6,855 7,121 6,701 6,532 10,400
</TABLE>
(1) See Note 9 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 7 of
Notes to Consolidated Financial Statements.
(3) Includes only Schools open at December 31.
(4) "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. The table does include net enrollments for Schools sold or
closed during the year.
(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. Amounts for 1996 in this
discussion and analysis have been restated as discussed in Note 12 of the Notes
to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
(In thousands)
1996 1995 1994
------- ------- -------
(Restated)
<S> <C> <C> <C>
Health Vocational and Computer Programs................................ $38,819 $36,360 $31,169
CPA Review Courses..................................................... 1,300 2,914 3,572
Travel Service Program................................................. 291
------- ------- -------
Total.................................................................. $40,119 $39,274 $35,032
======= ======= =======
</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 operations items as a percentage of total revenues for the periods
indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Health Vocational and Computer Programs................................ 96.8% 92.6% 89.0%
CPA Review Courses..................................................... 3.2 7.4 10.2
Travel Service Program................................................. 0.8
----- ----- -----
Total........................................................ 100.0 100.0 100.0
Operating expenses:
Payroll........................................................... 45.1 45.1 45.0
Occupancy......................................................... 12.3 13.2 15.5
Material and supplies............................................. 8.8 9.3 9.4
Advertising....................................................... 7.6 7.2 7.4
Other general and administrative.................................. 16.0 15.0 15.0
Provision for uncollectable accounts.............................. 8.1 4.0 5.2
----- ----- -----
Total........................................................ 97.9 93.8 97.5
Operating income....................................................... 2.1 6.2 2.5
Interest expense....................................................... .9 1.7 3.1
----- ----- -----
Income (loss) before income taxes and loss on sales.................... 1.2 4.5 (0.6)
Loss on sale of assets................................................. (.5)
----- ----- -----
Income (loss) before income tax........................................ .7 4.5 (0.6)
Provision (benefit) for income tax..................................... (.6) 0.5 (0.6)
----- ----- -----
Net income (loss)...................................................... 1.3% 4.0% (0.0)%
===== ===== =====
</TABLE>
(The remainder of this page was left blank intentionally.)
Part II - Page 3
<PAGE>
Current Trends and Recent Events
On August 2, 1996 the Company sold the assets of Person/Wolinsky
Associates, which offered review courses for the CPA exam. In addition, the
Company sold the assets of the San Jose California School on August 30, 1996.
The Company realized a net loss of $217,000 before income taxes as a result of
the sales.
On January 31, 1997 the Company sold its Warren, Michigan building for
approximately $725,000 (the "Warren Sale"). Proceeds of $310,000 were paid to
CenCor for redemption of approximately 27,000 shares of Class A Preferred Stock
then held by CenCor and $45,000 of accumulated preferred dividends on the Class
A Preferred Stock. The Company realized a gain of $313,000 before income taxes
in 1997 as a result of the Warren Sale.
On February 25, 1997 the Company entered into the Cahill Transaction
whereby it issued Voting Preferred Stock, New Debentures, and Warrants to
Cahill-Warnock, a new investor, for an aggregate purchase price of $5,000,000.
Proceeds of $4,409,000 from the Cahill Transaction were used to redeem from
CenCor the principal and accrued interest of the Old Debenture, principal and
accrued interest of the Unsecured Debt, the Class A Preferred Stock, and the
related accumulated preferred dividends. See "Liquidity and Capital Resources."
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.
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. During 1996 the Company sold its School in
San Jose, California. Although the various Schools show an individual increase
or decrease in population, total population, excluding the San Jose School, was
down approximately one percent. 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 that 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."
Operating Results
1996 compared to 1995
Net income of the Company decreased $1,050,000 to $549,000 for the twelve
months ended December 31, 1996 compared to $1,599,000 for the same period in
1995. Net income available to common shareholders, after cumulative preferred
dividends (not declared) was $333,000 in 1996 compared to $1,351,000 in 1995.
Total revenue increased 2.2% or $845,000 to $40,119,000 from $39,274,000 in
1995. The Company did not receive any revenue from the Fall CPA Review Courses.
Revenue from the CPA Review Courses decreased $1,636,000 to $1,278,000 in 1996
compared to revenue of $2,914,000 in 1995. Revenue for the San Jose School
decreased $809,000 to $1,111,000 in 1996 from $1,920,000 in 1995. The assets of
the CPA Review Courses and the San Jose School were sold in 1996 (the "Asset
Sales"). Revenue from the twelve remaining schools increased $3,268,000 or 9.5%
as a result of price increases in May 1995 and January 1996.
Total operating expenses increased $2,419,000 or 6.6% to $39,254,000
compared to $36,835,000 in 1995. The Asset Sales resulted in a decrease of
$1,914,000 in operating expenses.
Part II - Page 4
<PAGE>
Payroll - increased $355,000 or 2.0% to $18,080,000 compared to $17,725,000
in 1995. Payroll decreased $984,000 as a result of the Asset Sales. The Schools'
payroll increased $1,339,000 or 8.5% from the prior year due to increased wages
and increased staff and faculty.
Occupancy - decreased $249,000 or 4.8% to $4,948,000 from $5,197,000 in
1995. Occupancy decreased $350,000 due to the Asset Sales. The offsetting
increase of $101,000 is due primarily to increased rent expense.
Material and Supplies - decreased $106,000 or 2.9% to $3,531,000 compared
to $3,637,000 in 1995. Material and supplies decreased $350,000 due to the Asset
Sales while the Schools increased $244,000 or 8.4%. The Schools' increase is
primarily due to increased textbook expense.
Advertising - increased $217,000 or 7.7% to $3,037,000 from $2,820,000 in
1995. The Asset Sales resulted in an advertising decrease of $98,000. The
Schools advertising increased $315,000 or 12.6%. Television and newspaper
advertising have both increased in 1996.
Other General and Administrative Expenses - increased $546,000 or 9.3% to
$6,425,000 from $5,879,000 in 1995. The Asset Sales accounted for a $251,000
decrease. The resulting increase is due to increased group health insurance,
scholarships, office expense, local printing and seminar expense. In 1995 a one-
time charge of $282,000 was incurred at the Lauderdale Lakes, Florida School for
Title IV Refund liabilities.
Provision For Uncollectable Accounts - increased $1,656,000 or 105.0% to
$3,233,000 from $1,577,000 in 1995. 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 ED brought by other plaintiffs in this industry. The
remaining increase is due to additional financing provided by the Company's
Schools for their students since the fourth quarter of 1995. As a result, the
gross value of notes receivable increased $1,043,000 from the same period in
1995. The provision for bad debts also includes an increase of approximately
$559,000 due to a greater number of student promissory notes being collected by
the Schools instead of a professional note servicing agency. The Company's
recently adopted policy that all new student notes will be serviced by a
professional agency is expected to reduce future risk and required reserve
ratios. See discussion in "Liquidity and Resources".
Interest Expense - decreased $288,000 to $371,000 from $659,000 in 1995.
Reductions in debt and the related expense were responsible for the decrease.
Loss from Sale - The loss from the Person/Wolinsky sale was $124,000. The
loss from the sale of the San Jose School was $93,000 resulting in a net loss of
$217,000 from both sales. Both transactions were accounted for as sales of
assets.
Provision for Income Taxes - The Company recorded a tax benefit of $272,000
in 1996 compared to a provision of $181,000 in 1995. During 1996 the Company
reduced its valuation allowance related to deferred tax assets by $667,000 as it
became more likely than not the Company would realize the benefit of these
deferred tax assets.
Weighted Common Shares - Weighted average common and common share
equivalents outstanding increased to 7,839,000 at December 31, 1996 from
7,642,000 in 1995. This increase is due to the dilutive effect of the Company's
incentive stock option plan. Earnings per weighted average common and common
share equivalent (EPS) was $.04 in 1996 compared to $.18 in 1995. EPS is shown
net of preferred stock dividends (not declared) of $216,000 in 1996 and $248,000
in 1995. Cumulative dividends in arrears on the preferred stock were $438,000 as
of December 31, 1996.
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
Part II - Page 5
<PAGE>
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.
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, 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 Uncollectable 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 ED brought by other plaintiffs in this industry. These
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. 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.
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.
Part II - Page 6
<PAGE>
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 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 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 Uncollectable 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 schools 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.
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.
(The remainder of this page was left blank intentionally.)
Part II - Page 7
<PAGE>
Liquidity and Capital Resources
Asset Sales
On August 2, 1996 the assets of Person/Wolinsky Associates, a wholly owned
subsidiary of the Company, were sold. As a result of the sale the Company
received proceeds of $879,000. In addition, a $750,000 non-compete agreement is
payable to the Company in ten equal annual installments commencing December 15,
1996. On December 17, 1996 the Company received the first $75,000 non-compete
payment in connection with the sale of Person/Wolinsky assets.
On August 30, 1996 the Company sold the assets of its Allied Health School
located in San Jose, California. The Company received proceeds of $50,000 and a
$300,000 promissory note due and paid on February 28, 1997 for the School's
assets.
CenCor, which agreed to release its security interest in the
Person/Wolinsky and San Jose assets and consented to such sales, received
approximately $378,000 from the sales and $75,000 from the non-compete payment
in the form of redemption of approximately 40,000 shares of Class A Preferred
Stock and $56,000 of accumulated dividends as a result of these transactions.
On January 31, 1997 the Company sold its Michigan building and land for
$725,000. Proceeds of $310,000 from the sale were used to redeem 26,568 shares
of Class A Preferred Stock held by CenCor and $45,000 of accumulated dividends.
CenCor, Inc. Agreement
The Restructuring Agreement discussed below was effective for the period
between October 30, 1992 and February 25, 1997.
Effective October 30, 1992, the Company and CenCor, Inc. ("CenCor") entered
into a Restructuring, Security and Guaranty Agreement ("Restructuring
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 the Old Debenture in the original
principal amount of $5,422,307, representing the full principal amount of the
assumed subordinated debt and accrued interest through October 30, 1992.
Interest on the Old Debenture accrued from October 30, 1992. The first principal
and interest payment was made June 30, 1996. In addition to compounded quarterly
interest, initially at 1% over the effective rate charged by the Company's bank
lender, at August 31, 1997 CenCor was entitled to an amount equal to 25% of the
amount by which the "market capitalization" of the Company exceeds $3,500,000
("Additional Payment").
In December 1993, the Restructuring Agreement was amended to provide for
the assignment by the Company to CenCor of approximately $8,400,000 of accounts
and notes receivable written-off by the Company in the normal course of business
and thereby discharged $559,000 of interest that had accrued on the Old
Debenture through December 31, 1993.
In November 1994, CenCor exchanged $3,000,000 face value of the Debenture
for 300,000 shares of Class A Preferred Stock of the Company (the "Class A
Preferred Stock"). The Class A Preferred Stock, had a share liquidation
preference of $10.00 per share. Cumulative quarterly dividends accrued at a
rate equal to 73% of the then current interest rate on the Old Debenture. The
exchange reduced the long-term debt and increased the equity of the Company by
$3,000,000. The Company also assigned to CenCor additional accounts and notes
receivable with a face value of approximately $15,000,000 that had been written-
off by the Company in the normal course of business and included the discharge
of approximately $495,000 of interest representing interest accrued on the Old
Debenture through December 31, 1994. Management believed at that time that the
amount of receivables assigned to CenCor in 1994 and 1993 were reflective of the
estimated collectability of the related receivables.
Part II - Page 8
<PAGE>
On December 30, 1996 CenCor, Inc. and the Company amended the Restructuring
Agreement (the "Fourth Amendment"). The Fourth Amendment extended the due date
of the Old Debenture and Unsecured Debt to January 1, 1998, increased quarterly
principal payments approximately $30,000 to $100,000 and waived the capital
expenditures limitations with respect to the Company's North Hollywood,
California lease. Contingent upon the successful closing of refinancing
agreements, the Fourth Amendment also reduced the Additional Payment to $10 and
provided for terms and allocation of the CenCor Repayment. In addition, the
Company agreed to pay CenCor $1,333 per day for the number of days the closing
date extends beyond December 20, 1996.
As a result of the Cahill Transaction entered into on February 25, 1997,
discussed below, all obligations due CenCor were paid, redeemed, or otherwise
satisfied on that date, except for a continuing obligation to convey written-off
receivables in connection with interest discharged in the 1993 and 1994
agreements. As of December 31, 1996 the remaining commitment was $382,000.
Cahill, Warnock Transactions
On February 25, 1997, the Company entered into agreements, which soon
thereafter closed, with Cahill, Warnock Strategic Partners Fund, LP and
Strategic Associates, LP, affiliated Baltimore-based venture capital funds
("Cahill-Warnock"), for the issuance by the Company and purchase by Cahill-
Warnock of (i) 55,147 shares of the Company's new Class B Voting Convertible
Preferred Stock ("Voting Preferred Stock") for $1.5 million and (ii) 5%
Debentures due 2003 ("New Debentures") for $3.5 million (collectively, the
"Cahill Transaction"). Cahill-Warnock subsequently assigned (with the Company's
consent) its rights and obligations to acquire 1,838 shares of Voting Preferred
Stock to James Seward, a Director of the Company, and Mr. Seward purchased such
shares for their purchase price of approximately $50,000. The New Debentures
have nondetachable warrants ("Warrants") for approximately 2,573,529 shares of
Common Stock, exercisable beginning August 25, 1998 at an exercise price of
$1.36 per share of Common Stock. See "Business -- Recent Developments."
The following presents the capitalization of the Company as it existed at
December 31, 1996 adjusted to reflect the unaudited pro forma effect of the
Refinancing and associated transactions as if these transactions occurred on
December 31, 1996:
<TABLE>
<CAPTION>
DEBT Historical Adjustment Pro Forma
---------- ---------- -----------
(Restated) (unaudited)
<S> <C> <C> <C>
Current debt due related party............................... $ 400,000 $ (400,000)
Subordinated debt due related party.......................... 2,419,000 (2,419,000)
Debentures, 5%, due 2003..................................... 3,500,000 $ 3,500,000
----------- -----------
Total debt............................................... $ 2,819,000 $ 3,500,000
=========== ===========
STOCKHOLDERS' EQUITY
Preferred Stock ($.10 par value, 600,000 shares authorized)
Class A, 260,385 shares issued and outstanding............. $ 26,000 $ (26,000)
Class B, 55,147 shares issued and outstanding.............. 6,000 $ 6,000
Common Stock ($.10 par value, 19,400,000 shares authorized,
6,993,376 shares issued and 6,966,576 shares outstanding).. 699,000 699,000
Capital in excess of par..................................... 7,736,000 134,000 7,870,000
Accumulated deficit.......................................... (1,628,000) (438,000)* (2,066,000)
Less treasury stock, 26,800 shares, at cost.................. (61,000) (61,000)
----------- -----------
Total Stockholder's Equity................................. $ 6,772,000 $ 6,448,000
=========== ===========
</TABLE>
*Accumulated Preferred Stock dividends paid.
Part II - Page 9
<PAGE>
Bank Financing
On April 30, 1993, the Company negotiated a restructuring of its then
existing bank debt in the amount of $8,892,000 which was due on March 1, 1993.
The balance of this debt was $1,343,000 on December 31, 1995. The remaining
balance, due January 3, 1997, was prepaid without penalty June 1, 1996. In
conjunction with the Refinancing, the Company negotiated a $3,000,000 secured
revolving credit facility on March 13, 1997 with Security Bank of Kansas City.
Funds borrowed under this facility will be used for working capital purposes.
This facility has a variable interest rate of prime plus one percent, and no
commitment fee. It is secured by all cash, accounts and notes receivable,
furniture and equipment, and capital stock of the subsidiaries.
Cash Flows and Other
Net cash provided by operating activities decreased to $2,588,000 in 1996
from $5,842,000 in 1995. The decreased cash flow is directly attributed to less
profitable operations and increased receivables. Net receivables before bad
debt charge off increased by $3,150,000 in 1996 compared to an increase of
$948,000 in 1995. Deferred student tuition increased in 1996 by $1,324,000
compared to an increase of $842,000 in 1995.
Capital expenditures in 1996 were $547,000 compared to $558,000 in 1995.
For both years, expenditures were primarily for additional classroom equipment
and leasehold improvements. During 1996 and 1995 the Company obtained waivers
of debt agreement covenants which had limited capital expenditures to $500,000
per year. The Company received approximately $929,000 from the sale of the San
Jose, California School and Person/Wolinsky assets. Financing activities,
consisting of debt payments and preferred stock redemptions consumed $2,004,000
in 1996 compared to $3,171,000 in 1995.
The Company is moving its North Hollywood, California School to a new
location in 1997. A lease agreement has been signed. The new building will
provide better access and additional space for new programs. Leasehold
improvements and new equipment will cost approximately $850,000.
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 the fourth quarter of 1995 the Company instituted a plan to
decrease its reliance on Title IV funding by increasing the number of
promissory notes accepted from students. During 1996 the Company instituted a
policy which results in most students paying a portion of their tuition while
they attend school. As a result the ratio of current to long-term net accounts
and notes receivable increased to 92%. 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. The Company's recently adopted
policy that all new students notes will be services by a professional agency is
expected to help reduce the effects. See "-- Current Trends and Recent Events."
Contingencies
The Company generally relies on the availability of various federal and
state student financial aid programs to provide funding for the students
attending the 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 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.
During 1994 the ED performed a program review at the Company's
Jacksonville, Florida School. As a result of the program review, the ED
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. The program review was closed in June 1996 with no
material liability to the Company.
Part II - Page 10
<PAGE>
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.")
Two of the Company's Schools, Anaheim and San Diego, California, have
official published Cohort Default Rates which exceed 25% for three consecutive
years. In addition, the San Bernardino, California School has official published
Cohort Default Rates for two consecutive years which exceed 25% and a
preliminary 1994 Cohort Default Rate which exceeds 25%. Currently San Bernardino
has not received a final 1994 Cohort Default Rate, however the Company believes
it will exceed 25%. The Company believes that the 1994 Cohort Default Rates for
the three Schools should be lowered below 25% through appeals, but it is
possible that the ED will not agree. All three Schools could be in jeopardy of
loss of loan eligibility if the Cohort Default Rates for one of the three
consecutive years is not lowered, but in that event the Company may challenge
the ED's rate determinations in the pending litigation filed in late 1992.
The Company intends to vigorously defend the Schools against any proceeding
by the ED to limit, suspend, or terminate FFELP eligibility. If any of the
Schools loses its eligibility to participate in Federal Loan Programs, the
continuing operation of that School may be in doubt. The Company intends to
closely monitor this situation and will evaluate alternatives to mitigate the
effect on any School of the loss of its eligibility to participate in loan
programs. Among the options available to the Company, one option would be to
restructure the School to use grant funding and alternative third party
financing. This action, if necessary, would be expected to result in a short-
term decline in enrollment and profitability during the period of transition.
In 1994, ED established a policy of recertifying all schools participating
in Title IV programs every five years. The Company recently completed the
process of recertifying the Schools. Full certification has been approved for
Anaheim, North Hollywood, San Bernardino and San Diego, California, Kansas City,
Missouri, Portland, Oregon, Memphis, Tennessee, Tampa, and Miami, Florida (Miami
is an additional location of the Tampa School). Denver, Colorado, Jacksonville
and Lauderdale Lakes, Florida 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 ED guidelines. The provisional certifications expire in 1998,
at which time the Schools will again go through the process of reaccreditation.
The Company does not believe provisional certification will have a material
impact on its liquidity, results of operations or financial position.
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. ("SCI"), 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.
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 ED alleging that commencing June 1, 1990 SCI was
ineligible to participate in federal student financial assistance programs. The
ED 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 ED's discontinued disbursing student financial assistance
funds. The amount being claimed by ED 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 ED and offered to settle all
claims of ED for the $9,828 on deposit in the SCI bank account. In December
1996, the Company was informed verbally that the matter had been referred to the
ED's General Counsel.
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
ED. 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. In
December 1996, the Company was advised verbally that this matter has been
referred to the ED's General Counsel.
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 ED's claims it is the opinion of management it
will not have a material adverse impact on the Company's financial condition or
its results of operations.
Part II - Page 11
<PAGE>
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121") effective January 1, 1996. 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. The adoption of SFAS 121 did not have a material
impact on the Company's results of operations or financial position.
Statement 123, "Accounting for Stock-Based Compensation" ("SFAS 123") was
issued 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. The Company
elected to retain the current accounting approach under APB 25. The applicable
required pro forma disclosures are presented in the notes to consolidated
financial statements for the years ended December 31, 1996 and December 31,
1995. Had compensation expense been determined for stock options granted in 1996
and 1995 based on the fair value at grant dates consistent with SFAS 123, the
Company's pro forma 1996 net income and earnings per share would have been
$492,000 and $0.03 respectively and 1995 net income and earnings per share would
have been $1,568,000 and $0.17 respectively.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Concorde Career Colleges, Inc. and Subsidiaries:
Report of Independent Accountants......................................................... II-13
Consolidated Balance Sheet--December 31, 1996 and 1995.................................... II-14
Consolidated Statement of Operations--For the Three Years in the Period
Ended December 31, 1996................................................................ II-16
Consolidated Statement of Cash Flows--For the Three Years in the Period
Ended December 31, 1996................................................................ II-17
Consolidated Statement of Changes In Stockholders' Equity--For the Three Years in the Period
Ended December 31, 1996................................................................ II-18
Notes to Consolidated Financial Statements--For the Three Years in the Period
Ended December 31, 1996................................................................ II-19
</TABLE>
(The remainder of this page was left blank intentionally.)
Part II - Page 12
<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,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, 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 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, 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.
As discussed in Note 12, the Company restated its 1996 financial statements to
defer the income associated with a non-compete agreement.
PRICE WATERHOUSE LLP
Kansas City, Missouri
March 13, 1997, except as to
Note 12 which is as of November 12, 1997
(The remainder of this page was left blank intentionally.)
Part II - Page 13
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
(Restated-
Note 12)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 4,261,000 $ 3,295,000
Net receivables (Note 4)
Accounts receivable................... 16,756,000 17,055,000
Notes receivable...................... 4,392,000 3,188,000
Allowance for uncollectible accounts.. (1,645,000) (1,394,000)
----------- -----------
19,503,000 18,849,000
Deferred income taxes (Note 8).......... 916,000 170,000
Supplies and prepaid expenses........... 732,000 914,000
----------- -----------
Total current assets................ 25,412,000 23,228,000
FIXED ASSETS, NET (Note 5)............... 2,539,000 3,220,000
INTANGIBLE ASSETS, NET (Note 3)........... 768,000 1,847,000
OTHER ASSETS: (Note 4)
Long-term notes receivable............... 3,001,000 3,204,000
Allowance for uncollectible notes........ (1,243,000) (709,000)
Other.................................... 390,000 30,000
----------- -----------
Total other assets................... 2,148,000 2,525,000
----------- -----------
$30,867,000 $30,820,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Part II - Page 14
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
---- ----
(Restated-
Note 12)
<S> <C> <C>
CURRENT LIABILITIES:
Deferred student tuition................................................. $16,572,000 $15,248,000
Current debt due related party (Note 7).................................. 400,000 215,000
Accrued salaries and wages............................................... 862,000 951,000
Accrued interest......................................................... 12,000
Current income taxes payable............................................. 439,000 471,000
Accounts payable and other accrued liabilities (Note 6).................. 2,731,000 2,413,000
------------ -----------
Total current liabilities....................................... 21,004,000 19,310,000
LONG TERM DEBT (Note 7)...................................................... 1,343,000
OTHER LONG-TERM LIABILITIES................................................... 385,000 80,000
DEFERRED INCOME TAXES (Note 8)................................................ 287,000 690,000
SUBORDINATED DEBT DUE TO RELATED PARTY (Note 7)............................... 2,419,000 2,723,000
COMMITMENTS AND CONTINGENCIES (NOTES 5, 7, 9, and 10)
STOCKHOLDERS' EQUITY (Notes 7 and 9):
Class A Preferred stock, $.10 par value, 600,000 shares authorized
260,385 shares issued and outstanding in 1996 (300,000 in 1995)........ 26,000 30,000
Common stock, $.10 par value, 19,400,000 shares authorized,
6,993,376 shares issued and 6,966,576 shares outstanding
in 1996 (6,978,976 shares issued and 6,952,176 shares
outstanding in 1995)................................................... 699,000 698,000
Capital in excess of par.................................................... 7,736,000 8,128,000
Accumulated deficit...................................................... (1,628,000) (2,121,000)
Less-treasury stock, 26,800 shares, at cost.............................. (61,000) (61,000)
------------ -----------
Total stockholders' equity...................................... 6,772,000 6,674,000
------------ -----------
$30,867,000 $30,820,000
============ ===========
</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 OPERATIONS
For the Three Years in the Period Ended December 31, 1996
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
(Restated
Note 12)
<S> <C> <C> <C>
STUDENT TUITION AND OTHER REVENUE (Note 2) $40,119,000 $39,274,000 $35,032,000
----------- ----------- -----------
OPERATING EXPENSES:
Payroll costs.......................... 18,080,000 17,725,000 15,759,000
Occupancy (Note 5)..................... 4,948,000 5,197,000 5,434,000
Instructional materials and supplies... 3,531,000 3,637,000 3,295,000
Advertising............................ 3,037,000 2,820,000 2,618,000
Other general and administrative....... 6,425,000 5,879,000 5,259,000
Provision for uncollectible accounts... 3,233,000 1,577,000 1,808,000
----------- ----------- -----------
39,254,000 36,835,000 34,173,000
----------- ----------- -----------
OPERATING INCOME........................ 865,000 2,439,000 859,000
INTEREST EXPENSE (Note 7)............... 371,000 659,000 1,065,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND
GAIN ON SALES........................ 494,000 1,780,000 (206,000)
LOSS ON SALE OF ASSETS (Note 1)........ (217,000)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES...... 277,000 1,780,000 (206,000)
PROVISION FOR (BENEFIT OF) INCOME TAXES
(Note 8)............................ (272,000) 181,000 (200,000)
----------- ------------ ----------
NET INCOME (LOSS)...................... $ 549,000 $ 1,599,000 $ (6,000)
=========== ============ ==========
EARNINGS (LOSS) PER WEIGHTED AVERAGE
COMMON AND COMMON EQUIVALENT SHARE
AVAILABLE TO COMMON SHAREHOLDERS
(Note 9)............................. $ .04 $ .18 $ (.00)
=========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Part II - Page 16
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Years in the Period Ended December 31, 1996
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1996 1995 1994
--------- ---------- -----------
(Restated)
(Note 12)
<S> <C> <C> <C>
CASH FLOWS -- OPERATING ACTIVITIES:
Net income (loss).......................................... $ 549,000 $ 1,599,000 $ (6,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Loss on sale of assets..................................... 217,000
Depreciation and amortization.............................. 1,306,000 1,410,000 1,299,000
Provision for uncollectible accounts....................... 3,233,000 1,577,000 1,808,000
Deferred income taxes...................................... (1,149,000) (643,000) (114,000)
Change in assets and liabilities, net of effects
from asset sales --
Decrease in refundable income taxes........................ 151,000 252,000
(Increase) in receivables, net............................. (3,150,000) (948,000) (3,838,000)
Increase in deferred student tuition....................... 1,324,000 842,000 2,604,000
Other changes in assets and liabilities, net............... 290,000 1,383,000 (155,000)
Decrease (Increase) in income taxes payable................ (32,000) 471,000
----------- ----------- -----------
Total adjustments...................................... 2,039,000 4,243,000 1,856,000
----------- ----------- -----------
Net operating activities................................... 2,588,000 5,842,000 1,850,000
----------- ----------- -----------
CASH FLOWS -- INVESTING ACTIVITIES:
Proceeds from sale of assets............................... 929,000 59,000
Capital expenditures....................................... (547,000) (558,000) (331,000)
----------- ----------- -----------
Net investing activities............................... 382,000 (558,000) (272,000)
----------- ----------- -----------
CASH FLOWS -- FINANCING ACTIVITIES:
Principal payments on debt................................. (1,552,000) (3,171,000) (2,059,000)
Preferred stock redemption................................. (452,000)
----------- ----------- -----------
Net financing activities............................... (2,004,000) (3,171,000) (2,059,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS.......... 966,000 2,113,000 (481,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 3,295,000 1,182,000 1,663,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 4,261,000 $ 3,295,000 $ 1,182,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Note 1)
CASH PAID DURING THE YEAR FOR:
Interest................................................... $ 230,000 $ 297,000 $ 493,000
Income taxes............................................... 901,000 189,000 337,000
CASH RECEIVED DURING THE YEAR FOR:
Interest................................................... $ 427,000 $ 331,000 $ 423,000
Income tax refunds......................................... 434,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Part II - Page 17
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Years in the Period Ended
December 31, 1996
<TABLE>
<CAPTION>
Capital
Preferred Common in Excess Accumulated Treasury
Stock Stock of Par Deficit Stock
--------- -------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
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 loss........................................... 1,599,000
--------- -------- ---------- ----------- --------
BALANCE, December 31, 1995............................ 30,000 698,000 8,128,000 (2,121,000) (61,000)
Net loss (Restated --Note 12)...................... 549,000
Preferred Stock Redemptions (Note 7)............... (4,000) (392,000) (56,000)
Stock Options Exercised............................ 1,000
--------- -------- ---------- ----------- --------
BALANCE, December 31, 1996............................ $ 26,000 $699,000 $7,736,000 $(1,628,000) $(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 18
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Years in the Period Ended December 31, 1996
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 "Schools").
The Company also offered review courses for the Certified Public Accountants
("CPA") Examination which accounted for 3.2%, 7.4%, and 10.2% of the Company's
revenues for the year ended December 31, 1996, 1995, and 1994, respectively.
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. As a result of
a refinancing on February 25, 1997, the Company paid approximately $4,409,000 to
CenCor. This payment satisfied all debts and obligations owned by the Company
to CenCor except for a continuing obligation to convey "written-off" receivables
(see Note 7.)
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 "Old 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 Old Debenture for 300,000 shares of
Cumulative Preferred Stock (the "Class A Preferred Stock"). Pursuant to 1993
and 1994 amendments to the Old Debenture, Concorde agreed to pay accrued
interest on the note through December 31, 1994, by conveying certain receivables
to CenCor (Note 7).
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 debt balances as stated in Note 7.
Person/Wolinsky Associates, Inc., Concorde's subsidiary which offered 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 and 1994 Person/Wolinsky paid approximately $14,000 and
$17,500, respectively, on such guarantees. No payments were made in 1996. This
agreement was terminated in June 1995, when CenCor sold Century.
Part II - Page 19
<PAGE>
Non Cash Investing 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 Old Debentures through December 31, 1993.
Effective November 15, 1994 CenCor exchanged $3,000,000 face value of the
Old Debenture for 300,000 shares of the Class A 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 7)
Asset Dispositions
During 1994 the Company closed two of its Schools and sold a third School.
On August 2, 1996 the Company sold the assets of Person/Wolinsky
Associates. As a result of the sale the Company received cash proceeds of
$879,000. The loss from the sale was $124,000. Proceeds of $353,000 cash were
paid to CenCor for redemption of 31,000 shares of Class A Preferred Stock and
$43,000 of accumulated Class A Preferred Stock dividends. In addition, a
$750,000 non-compete agreement is payable to the Company in ten equal annual
installments commencing December 15, 1996. The first $75,000 payment was
received in December 1996. The income from the non-compete agreement is being
recognized as the payments are earned over the legally enforceable period.
On August 30, 1996 the Company sold the assets of its San Jose, California
School. The Company received $50,000 cash and a promissory note that was due and
paid on February 28, 1997 for $300,000 which is included in accounts receivable
at December 31, 1996. The loss on the sale was $93,000. Proceeds of $25,000
were paid to CenCor for redemption of 2,000 shares of Class A Preferred Stock
and $3,000 of accumulated dividends on the Class A Preferred Stock.
On January 31, 1997 the Company sold its Warren, Michigan building for
approximately $725,000 (the "Warren Sale"). Proceeds of $310,000 were paid to
CenCor for redemption of approximately 27,000 shares of Class A Preferred Stock
then held by CenCor and $45,000 of accumulated preferred dividends on the Class
A Preferred Stock. The Company realized a gain of $313,000 before income taxes
in 1997 as a result of the Warren Sale.
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. During 1996 management estimates that 82
percent of its cash receipts were derived from funds obtained by students
through Title IV programs and 18 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. 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 7).
All student recruitment and advertising costs are expensed as incurred.
Part II - Page 20
<PAGE>
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 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. Prior to 1996 promissory notes issued by the Schools for student
tuition were generally due over 60 months, most bearing interest of 7 to 12
percent, with payments generally scheduled to commence 30 days after program
completion. Beginning in 1996, promissory notes issued by the Schools are
generally due over 24 months, bearing interest of seven percent, with payments
beginning when the student starts class.
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, 1996 are not impaired and are not materially different from their
corresponding fair values.
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 Schools began financing a larger
portion of the tuition for most students with promissory notes.
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 shorter of their estimated useful life or 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 prior period 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, 1996, was four years. The total amount of amortization
charged to income was $223,000 in 1996, $352,000 in 1995, and $323,000 in 1994.
Part II - Page 21
<PAGE>
3. Intangible Assets:
<TABLE>
<CAPTION>
Intangible assets consist of the following at December 31: 1996 1995
----------- -----------
<S> <C> <C>
Goodwill...................................................... $ 1,511,000 $ 1,656,000
Intangible Assets............................................. 1,077,000 2,782,000
----------- -----------
Total Intangible Assets....................................... 2,588,000 4,438,000
Less Accumulated Amortization.................................... 1,820,000 2,591,000
----------- -----------
Net Intangibles............................................ $ 768,000 $ 1,847,000
=========== ===========
</TABLE>
4. Receivables:
<TABLE>
<CAPTION>
Current receivables consist of the following at December 31: 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Accounts receivable.............................................. $16,756,000 $17,055,000 $20,412,000
Notes receivable................................................. 4,392,000 3,188,000 2,117,000
Allowance for uncollectible accounts............................. (1,645,000) (1,394,000) (2,491,000)
----------- ----------- -----------
Receivables................................................... $19,503,000 $18,849,000 $20,038,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Changes in the allowance for uncollectible accounts were as follows for the year ended December 31:
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Beginning balance................................................ $1,394,000 $ 2,491,000 $1,272,000
Provision for uncollectible accounts............................. 952,000 158,000 994,000
Recoveries....................................................... 469,000
Charge offs...................................................... (701,000) (1,255,000) (244,000)
---------- ----------- ----------
$1,645,000 $ 1,394,000 $2,491,000
========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Long term notes receivable and other assets consist of the following at December 31:
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Notes receivable................................................. $ 3,001,000 $3,204,000 $2,318,000
Allowance for uncollectible notes................................ (1,243,000) (709,000) (383,000)
----------- ---------- ----------
Net Long Term Notes Receivable................................ $ 1,758,000 $2,495,000 $1,935,000
=========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Changes in the allowance for uncollectible notes were as follows for the year ended December 31:
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Beginning balance................................................ $ 709,000 $ 383,000 $ 1,057,000
Provision for uncollectible notes................................ 2,281,000 1,419,000 814,000
Recoveries....................................................... 495,000
Charge offs...................................................... (1,747,000) (1,093,000) (1,983,000)
----------- ----------- -----------
$ 1,243,000 $ 709,000 $ 383,000
=========== =========== ===========
</TABLE>
Part II - Page 22
<PAGE>
5. Fixed Assets:
<TABLE>
<CAPTION>
Fixed Assets consist of the following at December 31: 1996 1995
----------- -----------
<S> <C> <C>
Furniture and Equipment....................... $ 8,785,000 $ 9,437,000
Leasehold Improvements 2,534,000 2,438,000
Buildings and Land............................ 490,000 490,000
----------- -----------
Gross Fixed Assets....................... 11,809,000 12,365,000
Less Accumulated Depreciation
and Amortization............................ 9,270,000 9,145,000
----------- -----------
Net Fixed Assets......................... $ 2,539,000 $ 3,220,000
=========== ===========
</TABLE>
Concorde rents office space and buildings under operating leases generally
ranging in terms from 5 to 15 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 $2,640,000 in
1996, $2,743,000 in 1995, and $2,736,000 in 1994.
Aggregate minimum future rentals payable under the operating leases at
December 31, 1996, were:
<TABLE>
<S> <C>
1997.................................... $2,312,000
1998.................................... 1,803,000
1999.................................... 1,277,000
2000.................................... 858,000
2001 and thereafter..................... 5,100,000
</TABLE>
6. Accounts Payable and Other Accrued Liabilities:
Accounts Payable and Other Accrued Liabilities consist of the following at
December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accounts Payable...................................... $ 951,000 $ 522,000
Accrued Vacation...................................... 440,000 424,000
Other Accrued Liabilities............................. 589,000 1,028,000
Accrued Compensation (other than salaries and wages).. 183,000 71,000
Accrued Other Taxes................................... 484,000 216,000
Accrued Health Expense................................ 84,000 152,000
---------- ----------
Accounts Payable and Accrued Liabilities.............. $2,731,000 $2,413,000
========== ==========
</TABLE>
(The remainder of this page left intentionally blank.)
Part II - Page 23
<PAGE>
7. Long-Term Debt and Refinancing:
<TABLE>
<CAPTION>
Long-term debt consists of the following at December 31: 1996 1995
---- ----
<S> <C> <C>
Secured term note, prime plus 1.5 percent,
due in 1997 (balance paid June 1996)................................. $1,343,000
Junior secured debenture, variable
interest rate not to exceed 12 percent, due 1996 through 1998........ $2,574,000 2,709,000
Unsecured note payable to CenCor, 7%, due in 1998....................... 245,000 229,000
---------- ----------
Total................................................................. 2,819,000 4,281,000
Less--Current maturities................................................ 400,000 215,000
---------- ----------
Total long-term debt due in 1998...................................... $2,419,000 $4,066,000
========== ==========
</TABLE>
CenCor, Inc. Agreements
The Restructuring Agreement discussed below was effective for the period
between October 30, 1992 and February 25, 1997.
Effective October 30, 1992, the Company and CenCor, Inc. ("CenCor") entered
into a Restructuring, Security and Guaranty Agreement ("Restructuring
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 the Old Debenture in the original
principal amount of $5,422,307, representing the full principal amount of the
assumed subordinated debt and accrued interest through October 30, 1992.
Interest on the Old Debenture accrued from October 30, 1992. The first principal
and interest payment was made June 30, 1996. 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 was entitled to an amount equal to 25% of the
amount by which the "market capitalization" of the Company exceeds $3,500,000
("Additional Payment").
In December 1993, the Restructuring Agreement was amended to provide for
the assignment by the Company to CenCor of approximately $8,400,000 of accounts
and notes receivable written-off by the Company in the normal course of business
and thereby discharged $559,000 of interest that had accrued on the Old
Debenture through December 31, 1993.
In November 1994, CenCor exchanged $3,000,000 face value of the Debenture
for 300,000 shares of Class A Preferred Stock of the Company (the "Class A
Preferred Stock"). The Class A Preferred Stock, had a share liquidation
preference of $10.00 per share. Cumulative quarterly dividends accrued at a rate
equal to 73% of the then current interest rate on the Old Debenture. The
exchange reduced the long-term debt and increased the equity of the Company by
$3,000,000. The Company also assigned to CenCor additional accounts and notes
receivable with a face value of approximately $15,000,000 that had been written-
off by the Company in the normal course of business and included the discharge
of approximately $495,000 of interest representing interest accrued on the Old
Debenture through December 31, 1994. Management believed at that time that the
amount of receivables assigned to CenCor in 1994 and 1993 were reflective of the
estimated collectibility of the related receivables.
On December 30, 1996 CenCor, Inc. and the Company amended the Restructuring
Agreement (the "Fourth Amendment"). The Fourth Amendment extended the due date
of the Debenture and Unsecured Debt to January 1, 1998, increased quarterly
principal payments approximately $30,000 to $100,000 and waived the capital
expenditures limitations with respect to the Company's North Hollywood,
California lease. Contingent upon the successful closing of refinancing
agreements, the Fourth Amendment also reduced the Additional Payment to $10 and
provided for terms and allocation of the CenCor Repayment. In addition, the
Company agreed to pay CenCor $1,333 per day for the number of days the closing
date extends beyond December 20, 1996.
Part II - Page 24
<PAGE>
As a result of the Cahill Transaction entered into on February 25, 1997,
discussed below, all obligations due CenCor were paid, redeemed, or otherwise
satisfied on that date, except for a continuing obligation to convey written-off
receivables in connection with interest discharged in the 1993 and 1994
agreements. As of December 31, 1996 the remaining commitment was $382,000.
Cahill, Warnock Transactions
On February 25, 1997, the Company entered into agreements, which soon
thereafter closed, with Cahill, Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P., affiliated Baltimore-based venture capital funds
("Cahill-Warnock"), for the issuance by the Company and purchase by Cahill-
Warnock of (i) 55,147 shares of Voting Preferred Stock for $1.5 million and (ii)
5% Debentures due 2003 ("New Debentures") for $3.5 million (collectively, the
"Cahill Transaction"). Cahill-Warnock subsequently assigned (with the Company's
consent) its rights and obligations to acquire 1,838 shares of Voting Preferred
Stock to James Seward, a Director of the Company, and Mr. Seward purchased such
shares for their purchase price of approximately $50,000. The New Debentures
have nondetachable warrants ("Warrants") for approximately 2,573,529 shares of
Common Stock, exercisable beginning August 25, 1998 at an exercise price of
$1.36 per share of Common Stock.
The Voting Preferred Stock has the right to vote, as a class with the
Common Stock (with each share of Voting Preferred Stock having the equivalent
voting power of 20 shares of Common Stock), on all matters presented to holders
of Common Stock. Each share of Voting Preferred Stock is convertible into 20
shares of Common Stock at the election of the holder for no additional
consideration. The Voting Preferred Stock is entitled to a 12% annual dividend
beginning February 25, 2001 and a 15% annual dividend beginning February 25,
2003. The Voting Preferred Stock is mandatorily convertible into Common Stock
upon the successful completion by the Company of a common equity offering
greater than $20 million at a price greater than $4 per share of Common Stock.
Cahill-Warnock also has certain preemptive rights in future issuances of stock
by the Company.
The New Debentures bear an interest rate of 5% per annum, payable
quarterly, with principal due in February 2003, when the attached Warrants
expire. The Warrants are not exercisable until August 25, 1998, subject to
earlier conversion (at the holder's election) in the event of the successful
completion by the Company of a common equity offering greater than $20 million
at a price greater than $4 per share of Common Stock.
The Voting Preferred Stock held by Cahill-Warnock and New Debenture are
also entitled to certain registration rights (for the underlying Common Stock).
As part of the Cahill Transaction, the Board of Directors of the Company
was increased from three to six members, with Cahill-Warnock having the right to
nominate two Directors. The sixth Director is Dr. Robert Roehrich, the Company's
new President and Chief Executive Officer effective April 7, 1997.
Pursuant to a Stockholders' Agreement among Cahill-Warnock, Messrs. Brozman
and Seward, the Robert F. Brozman Trust (who, together, hold an aggregate of
52.8% of the outstanding Voting Securities and options to purchase 1,000,000
shares of Common Stock) and the Company, such holders have agreed to certain
restrictions on the transfer of Voting Securities held by them.
Pursuant to the Fourth Amendment with CenCor, the Company used
approximately $4.4 million of the funds from the Cahill Transaction to redeem
the 260,385 outstanding shares of its Class A Preferred Stock and $438,000 of
accumulated dividends and its $2.4 million debenture principal, accrued
interest, and certain unsecured obligations which were held by CenCor (the
"CenCor Repayment"). As part of the CenCor Repayment, CenCor waived its right to
a payment from the Company equal to 25% of the amount by which the Company's
market capitalization exceeds $3.5 million on August 31, 1997. At September 30,
1996, the Company had accrued $457,000 for this purpose which was reversed at
December 31, 1996. Jack L. Brozman, the Chairman of the Board of the Company, is
the Chairman of the Board, President, and Treasurer of CenCor.
The following presents the capitalization of the Company as it existed at
December 31, 1996 adjusted to reflect the unaudited pro forma effect of the
Refinancing and associated transactions as if these transactions occurred on
December 31, 1996:
Part II - Page 25
<PAGE>
<TABLE>
<CAPTION>
DEBT
Historical Adjustment Pro Forma
---------- ---------- ------------
(Restated) (unaudited)
<S> <C> <C> <C>
Current debt due related party.................................. $ 400,000 $ (400,000)
Subordinated debt due related party............................. 2,419,000 2,419,000
Debentures, 5%, due 2003........................................ 3,500,000 $ 3,500,000
----------- -----------
Total debt............................................. $ 2,819,000 $ 3,500,000
=========== ===========
STOCKHOLDERS' EQUITY
Preferred Stock ($.10 par value, 600,000 shares authorized)
Class A, 260,385 shares issued and outstanding............. $ 26,000 $ (26,000)
Class B, 55,147 shares issued and outstanding.............. 6,000 $ 6,000
Common Stock ($.10 par value, 19,400,000 shares authorized,
6,993,376 shares issued and 6,966,576 shares outstanding). 699,000 699,000
Capital in excess of par........................................ 7,736,000 134,000 7,870,000
Accumulated deficit............................................. (1,628,000) (438,000) (2,066,000)
Less treasury stock, 26,800 shares, at cost..................... (61,000) (61,000)
----------- -----------
Total Stockholder's Equity................................. $ 6,772,000 $ 6,448,000
=========== ===========
</TABLE>
Other
On April 30, 1993, the Company negotiated a restructuring of its then
existing bank debt which was due on March 1, 1993 in the amount of $8,892,000.
The balance of this debt, $1,343,000 on December 31, 1995, due January 3, 1997,
was prepaid without penalty June 1, 1996. In conjunction with the Refinancing
the Company negotiated a $3,000,000 secured revolving credit facility on March
13, 1997 with Security Bank of Kansas City. Funds borrowed under this facility
will be used for working capital purposes. This facility has an interest rate of
prime plus one percent and no commitment fee. It is secured by all cash,
accounts and notes receivable, furniture and equipment, and capital stock of
subsidiaries.
Based on the terms of the Company's debt, management estimates that the
carrying values of debt at December 31, 1996 and December 31, 1995 are not
materially different from their corresponding fair value.
The Company has a letter of credit outstanding in the amount of $492,000.
The letter of credit is to comply with United States Department of Education
("ED") Regulations and is secured by a certificate of deposit in the amount of
$492,000.
8. Income Taxes:
Statement of Financial Accounting Standards ("SFAS 109"), "Accounting for
Income Taxes," 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, 1996, 1995, and
1994, are estimated as follows:
Part II - Page 26
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
(Restated)
<S> <C> <C> <C>
Credit losses....................................... $1,175,000 $ 727,000 $ 848,000
Alternative minimum tax credit carryover............ 176,000
Other expenses currently deductible for financial
reporting purposes but not for tax............ 343,000 280,000 3,000
Depreciation and amortization....................... 90,000 37,000
---------- ---------- -----------
Gross assets...................................... 1,608,000 1,044,000 1,027,000
---------- ---------- -----------
Valuation allowance................................ (667,000) (1,027,000)
---------- ---------- -----------
Net assets.................................... 1,608,000 377,000
---------- ---------- -----------
Depreciation and amortization...................... (253,000)
Other expenses currently deductible for tax
but not for financial reporting purposes...... (979,000) (897,000) (910,000)
---------- ---------- -----------
Gross liabilities.................................... (979,000) (897,000) (1,163,000)
---------- ---------- -----------
Net........................................... $ 629,000 $ (520,000) $(1,163,000)
========== ========== ===========
</TABLE>
At December 31, 1996 net tax assets included $916,000 current assets and
$692,000 non-current assets. Gross liabilities included $979,000 non-current
liabilities. Non-current tax assets were combined with non-current tax
liabilities for financial statement presentation.
At December 31, 1995 net tax assets included $340,000 current assets and
$37,000 non-current assets. Gross liabilities included $170,000 current
liabilities and $727,000 non-current liabilities. Current tax assets were
combined with current tax liabilities and non-current assets were combined with
non-current liabilities for financial statement presentation.
The income tax provision (benefit) for the three years ended December 31,
1996, consist of the following:
<TABLE>
<CAPTION>
Current tax expense (benefit) -- 1996 1995 1994
------------ ---------- ----------
(Restated)
<S> <C> <C> <C>
Federal............................. $ 769,000 $ 765,000 $ 169,000
State............................... 108,000 48,000 66,000
----------- --------- ---------
Total current provision (benefit)... 877,000 813,000 235,000
Deferred tax expenses (benefit) --
Federal............................. (1,110,000) (596,000) (357,000)
State............................... (39,000) (36,000) (78,000)
----------- --------- ---------
Total deferred provision (benefit).. (1,149,000) (632,000) (435,000)
----------- --------- ---------
Total provision (benefit)......... $ (272,000) $ 181,000 $(200,000)
=========== ========= =========
</TABLE>
The effective rate of income tax expense (benefit) was (98.2) percent, 10.2
percent, and (97.1) percent for 1996, 1995, and 1994, 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 34.0 percent
for the three years ended December 31, 1996 differs as follows:
Part II - Page 27
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Restated)
<S> <C> <C> <C>
Provision (benefit) for federal taxes at statutory rates.. $ 94,000 $ 605,000 $ (70,000)
Valuation allowance release............................... (667,000) (360,000)
State taxes, net.......................................... 49,000 7,000 (8,000)
Goodwill amortization..................................... 59,000 29,000 26,000
Fixed asset basis adjustment.............................. 176,000
Other, net................................................ 17,000 (100,000) (148,000)
--------- --------- ---------
$(272,000) $ 181,000 $(200,000)
========= ========= =========
</TABLE>
During 1996 and 1995, the Company reduced the valuation allowance related
to deferred tax assets of $667,000 and $360,000, respectively, as it became more
likely than not the Company would realize the benefit of the corresponding
deferred tax assets.
9. Stock Option Plans and Earnings Per Share:
The Company has an incentive stock option plan (the "1988 Option Plan")
approved in 1988 and amended in 1989 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 (the "1994 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 and 1996. As a
result 150,000 shares were vested in each year and the Company recognized
additional compensation expense of $113,000 in 1996 and $71,000 in 1995.
The Company applies Accounting Principles Board (APB) Opinion 25 and
related interpretations in accounting for its stock option plans. Accordingly,
no compensation expense has been recognized for the 1988 Option Plan as the
exercise price equals the stock price on the date of grant. Compensation expense
has been recorded for the 1994 Option Plan performance based options as noted
above. Had compensation expense been determined for stock options granted in
1996 and 1995 based on the fair value at grant dates consistent with SFAS 123
"Accounting for Stock Based Compensation," the Company's pro forma 1996 net
income and earnings per share would have been $492,000 and $0.03 respectively
and 1995 net income and earnings per share would have been $1,568,000 and $0.17
respectively. The pro forma amounts were estimated using the Black-Scholes
option pricing model with the following assumptions for 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Weighted average expected life (years) 6 6
Expected Volatility 87% 87%
Annual Dividend per share -0- -0-
Risk free interest rate 6.25% 6.25%
Weighted average fair value of options granted $0.73 $0.46
</TABLE>
Part II - Page 28
<PAGE>
<TABLE>
<CAPTION>
The following table reflects activity in options for the three year period ended.
Weighted-Average
Stock Options Number of Shares Exercise Price Option Price Per Share
- --------------------------------- ---------------- ----------------- ----------------------
<S> <C> <C> <C> <C>
Outstanding - December 31, 1993 566,250 $0.11 $0.10 to $2.250
Canceled 318,750 $0.16 $0.10 to $2.250
Issued 810,000 $0.15 $0.13 to $0.154
Outstanding - December 31, 1994 1,057,500 $0.13 $0.10 to $0.154
Exercised 3,000 $0.10 $0.10
Canceled 69,500 $0.12 $0.10 to $0.280
Issued 73,000 $0.28 $0.28
Outstanding - December 31, 1995 1,058,000 $0.14 $0.10 to $0.280
Exercised 11,400 $0.10 $0.10
Canceled 50,000 $0.30 $0.10 to $0.590
Issued 84,500 $0.69 $0.55 to $1.060
Outstanding - December 31, 1996 1,081,100 $0.17 $0.10 to $1.060
</TABLE>
(The remainder of this page was left blank intentionally.)
Part II - Page 29
<PAGE>
<TABLE>
<CAPTION>
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
---------------- ------------- ---------------- -------------- ----------- --------------
(Years)
<S> <C> <C> <C> <C> <C>
$0.10 310,600 6.5 $0.10 242,950 $0.10
$0.13 67,500 7.7 $0.13 -0- -0-
$0.15 600,000 7.5 $0.15 600,000 $0.15
$0.28 33,000 8.1 $0.28 -0- -0-
$0.55 12,000 9.6 $0.55 -0- -0-
$0.59 36,500 9.0 $0.59 -0- -0-
$0.88 to $1.06 21,500 9.6 $0.99 -0- -0-
</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, 1996 was 872,000 shares compared to 687,000 at
December 31, 1995. The diluted weighted average common shares outstanding was
7,839,000 for the twelve months ended December 31, 1996, and 7,642,000 for the
twelve months ended December 31, 1995. Earnings per weighted average common and
common equivalent share ("EPS") was $0.04 and $0.18 at December 31, 1996 and
1995 respectively. EPS is shown net of preferred stock dividends (not declared)
of $216,000 in 1996 and $248,000 in 1995. Cumulative dividends in arrears on the
Preferred Stock were $438,000 as of December 31, 1996. (Note 7)
10. Contingencies and Litigation:
Department of Education Matters
The Company is challenging the ED's authority to enforce the 1992 Cohort
Default Rates applicable to the Company in light of the ED'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 had requested the
court to officially suspend the 1992 Cohort Default Rates, but the court has
declined to enter a temporary restraining order or a preliminary injunction
prohibiting publication of the 1992 Cohort Default Rates. The Company, however,
intends to pursue its claims for declaratory and injunctive relief concerning
1992 rate correction regulations and the Schools' recent default rates. The
Company had previously appealed certain of the 1993 default rates. The ED
decided to not review some of the appeals. The Company may decide to request the
ED to review these appeals.
The Company is also pursuing administrative appeals seeking a reduction of
its recently published 1994 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 early in 1997,
and no ruling has yet been issued. (See Item 3, "Legal Proceedings.")
Two of the Company's Schools, Anaheim and San Diego, California, have
official published cohort default rates which exceed 25% for three consecutive
years. In addition, the San Bernardino, California School has official published
rates for two consecutive years which exceed 25% and a preliminary 1994 rate
which exceeds 25%. Currently San Bernardino has not received a final 1994 rate,
however the Company believes it will exceed 25%. The Company believes that the
1994 rates for the three Schools should be lowered below 25% through appeals,
but it is possible that the ED will not agree. All three Schools could be in
jeopardy of loss of loan eligibility if rates for one of the three consecutive
years is not lowered, but in that event the Company may challenge the ED's rate
determinations in the pending litigation filed in late 1992.
The Company intends to vigorously defend the Schools against any proceeding
by the ED to limit, suspend, or terminate FFELP eligibility. If any of the
Schools loses its eligibility to participate in Federal Loan Programs, the
continuing operation of that School may be in doubt. The Company intends to
closely monitor this situation and will evaluate alternatives to mitigate the
effect on any School of the loss of its eligibility to participate in loan
programs. Among the options available to the Company, one option would be to
restructure the School to use grant funding and alternative third party
financing. This action, if necessary, would be expected to result in a short-
term decline in enrollment and profitability during the period of transition.
Part II - Page 30
<PAGE>
Currently 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, ED established a policy of recertifying all schools participating
in Title IV programs every five years. The Company recently completed the
process of recertifying the Schools. Full certification has been approved for
Anaheim, North Hollywood, San Bernardino and San Diego, California, Kansas City,
Missouri, Portland, Oregon, Memphis, Tennessee, Tampa, and Miami, Florida (Miami
is an additional location of the Tampa School). Denver, Colorado, Jacksonville
and Lauderdale Lakes, Florida 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 ED guidelines. The provisional certifications expire in 1998,
at which time the Schools will again go through the process of recertification.
The Company does not believe provisional certification will have a material
impact on its liquidity, results of operations or financial position.
ED also has 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.
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 ED alleging that commencing June 1, 1990 SCI was
ineligible to participate in federal student financial assistance programs. The
ED 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 ED discontinued disbursing student financial assistance
funds. The amount being claimed by ED 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 ED and offered to settle all
claims of ED for the $9,828 on deposit in the SCI bank account. In December
1996, the Company was informed verbally that the matter had been referred to the
ED's General Counsel.
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
ED. 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 6, 1997, 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 ED'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.
Part II - Page 31
<PAGE>
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. Concorde Careers-
Florida, Inc. doing business as ConCorde Career Institute in Jacksonville,
Florida ("the Jacksonville School") a wholly owned subsidiary of 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. 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 Jacksonville School 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 Jacksonville
School 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 Jacksonville School has
answered the complaint, and filed numerous affirmative defenses. Discovery
restricted to class certification issues was completed in late Fall 1996. A two-
day hearing to determine whether or not the class should be certified was
conducted during mid-January 1997. A decision by the Court is expected in the
near future. In the meantime, all activity and progress in the other suits have
been stayed. The Company believes these suits are without merit, and will
continue to strongly oppose class certification, and to defend against them
vigorously.
The Company has litigation pending which arose in the ordinary course of
business. Litigation is subject to many uncertainties and the outcome of the
individual matters is not presently determinable. It is management's opinion
that this litigation will not result in liabilities that would have a material
adverse effect on the Company's financial position or results of operations.
11. Quarterly Financial Information (unaudited):
The third quarter 1996 and fourth quarter 1996 have been restated. For the
three months ended September 30, 1996 Income before income taxes decreased to
$742,000 from $1,149,000. Net Income decreased to $605,000 from $862,000 and
earnings per share decreased to $.07 from $.11 for the same period. For the
three months ended December 31, 1996 Operating Revenue increased to $9,499,000
from $9,477,000, Loss before income taxes decreased to ($629,000) from
$(651,000), net loss decreased to $(179,000) from $(193,000), and loss per share
decreased to $(.03) from $(.04). See note 12 for further discussion.
<TABLE>
<CAPTION>
1996 March 31 June 30 September 30 December 31
---- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
(Restated - (Restated -
Note 12) Note 12)
Operating revenue.................. $11,032,000 $9,270,000 $10,318,000 $9,499,000
=========== ========== =========== ==========
Income (loss) before income taxes.. $ 731,000 $ (567,000) $ 742,000 $ (629,000)
=========== ========== =========== ==========
Net income (loss).................. $ 548,000 $ (425,000) $ 605,000 $ (179,000)
=========== ========== =========== ==========
Earnings (loss) per share.......... $ .06 $ (.06) $ .07 $ (.03)
=========== ========== =========== ==========
1995
----
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
=========== ========== =========== ==========
</TABLE>
Part II - Page 32
<PAGE>
<TABLE>
<CAPTION>
1994 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
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)
========== ========== =========== ==========
</TABLE>
Because the CPA examination is administered twice a year, the operations of
the CPA Review courses were seasonal, impacting the results of the Company for
the quarters ended March 31, and September 30.
12. Restatement of 1996
The financial statements for the third and fourth quarters and year ended
December 31, 1996 have been restated to defer and recognize income from a non-
compete agreement associated with the August 1996 sale of assets of
Person/Wolinsky Associates, Inc. over the ten-year term of the non-compete
agreement. The effect of this restatement was to reduce net income and earnings
per share in the third quarter and year ended December 31, 1996 by $257,000 and
$243,000 and $.04 and $.03, respectively and to increase net income and earnings
per share in the fourth quarter by $14,000 and $.01, respectively. During the
third quarter of 1996, the Company originally reported in income, as a one-time
benefit under the caption Gain on Sales of Assets, $407,000 representing the
pre-tax net present value of the non-compete agreement. The Company accounted
for the agreement in accordance with what it believed was its substance - ten
year seller financing. In the third quarter of 1997, the United States
Securities and Exchange Commission ("the SEC") notified the Company that it
would require the legal form of the agreement to prevail and that income from
the non-compete agreement should be deferred and recorded in income over the
term of the agreement. The Company accepted the SEC's determination. Payments
under the agreement are due in ten equal annual installments of $75,000 each,
commencing on December 15, 1996. The 1996 payment was received as scheduled.
Accretion of the present value amount to the cash amount due under the agreement
is being made on the interest method. The effects of the restatement on the
twelve months ended December 31, 1996 are shown below.
<TABLE>
<CAPTION>
December 31, 1996
As
Orginally
BALANCE SHEET Reported Restated
-------- --------
<S> <C> <C>
Other Long-term liabilities $ 385,000
Deferred income taxes $ 429,000 287,000
Accumulated deficit (1,385,000) (1,628,000)
Total stockholder's equity 7,015,000 6,772,000
STATEMENT OF OPERATIONS
Student tuition and other revenue $40,097,000 $40,119,000
Operating income 843,000 865,000
Income before income taxes and gain (loss) 472,000 494,000
Gain (loss) on sale of assets 190,000 (217,000)
Income before income taxes 662,000 277,000
Benefit for income taxes (130,000) (272,000)
Net income 792,000 549,000
Net income per share 0.07 0.04
</TABLE>
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
Part II - Page 33
<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 (l) 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 left intentionally blank.)
<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.
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
1. Financial Statements:
Concorde Career Colleges, Inc. and Subsidiaries
Report of Independent Accountants........................... II-13
Consolidated Balance Sheet.................................. II-14
Consolidated Statement of Operations........................ II-16
Consolidated Statement of Cash Flows........................ II-17
Consolidated Statement of Changes In Stockholders' Equity... II-18
Notes to Consolidated Financial Statements.................. II-19
</TABLE>
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).
** 4(e)-- Certificate of Designation of Class B Convertible Preferred Stock.
</TABLE>
Part IV - Page 1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
** 4(f) -- Specimen Class B Convertible Preferred Stock Certificate.
** 4(g) -- Subordinated Debenture in principal amount of $3,316,250 made
by the Company dated February 25, 1997 to Cahill, Warnock
Strategic Partners Fund, L.P.
** 4(h) -- Subordinated Debenture in principal amount of $183,750 made by
the Company dated February 25, 1997 to Strategic Associates,
L.P.
** 4(i) -- Common Stock Purchase Warrant dated February 25, 1997 issued to
Cahill, Warnock Strategic Partners Fund, L.P., granting the
right to purchase up to 2,483,419 shares of the Company's
Common Stock.
** 4(j) -- Common Stock Purchase Warrant dated February 25, 1997 issued to
Strategic Associates, L.P., granting the right to purchase up
to 135,110 shares of the Company's Common Stock.
** 4(k) -- Registration Rights Agreement dated February 25, 1997 issued
among the Company; Cahill, Warnock Strategic Partners Fund,
L.P.; and Strategic Associates, L.P.
8 -- Arthur Andersen letters (Incorporated by reference to Exhibits
1 and 2 on Form 8-K dated September 13, 1994).
** 9(a) -- Stockholders' Agreement dated February 25, 1997 among the
Company, Cahill, Warnock Strategic Partners Fund, L.P.,
Strategic Associates, L.P., Jack L. Brozman, The Estate of
Robert F. Brozman and the Robert F. Brozman Trust under
Agreement dated December 28, 1989 (the "Stockholders
Agreement Parties").
** 9(b) -- Agreement dated March 21, 1997 among the Stockholders Agreement
Parties and James R. Seward.
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]).
</TABLE>
Part IV - Page 2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
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 reference to
Exhibit 10(e)(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 (Incorporated by Reference to
Exhibit 10(e)(iv) of the Annual Report on Form 10-K for the
year ended December 31, 1995).
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]).
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(h)(vii) -- Third Amendment to the Restructuring, Security and Guaranty
Agreement dated July 30, 1996 (Incorporated by Reference to
Exhibit 2 of the Quarterly Report on Form 10Q dated June
30,1996).
** 10(h)(viii)-- Fourth Amendment to the Restructuring, Security and Guaranty
Agreement dated December 30, 1996.
</TABLE>
Part IV - Page 3
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
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).
10(k) -- Asset Purchase Agreement dated July 10, 1996 regarding the sale of
assets of Person/Wolinsky Associates, Inc. (Incorporated by
reference to Exhibit 1 to the Quarterly Report on Form 10Q dated
June 30, 1996).
10(l) -- Convertible Preferred Stock Purchase Agreement dated February 25,
1997 among Cahill, Warnock Strategic Partners Fund, L.P., Strategic
Associates, L.P., and the Company (the "Purchase Agreement Parties")
** 10(m) -- Amendment No. 1 to the Convertible Preferred Stock Purchase
Agreement dated March 21, 1997 among the Purchase Agreement Parties
and James R. Seward.
** 10(n) -- Subordinated Debenture and Warrant Purchase Agreement dated as of
February 25, 1997 by the Company and Cahill, Warnock Strategic
Partners Fund, L.P.
** 10(o) -- Subordinated Debenture and Warrant Purchase Agreement dated as of
February 25, 1997 by the Company and Strategic Associates, L.P.
** 10(p) -- Revolving Credit, Security and Guaranty Agreement dated March 13,
1997 by and among the Registrant and Security Bank of Kansas City,
attached herewith.
** 21 -- Subsidiaries of Registrant (filed herewith)
23 -- Consent of Price Waterhouse LLP (filed herewith).
</TABLE>
* Management contract or compensation plan.
** Previously filed.
b. Reports on Form 8-K
None.
Part IV - Page 4
<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: November 14, 1997
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.
<TABLE>
<CAPTION>
Signature Date
--------- ----
<S> <C>
By /s/ JACK L. BROZMAN November 14, 1997
-------------------------------------------------- -----------------
Jack L. Brozman
(Chief Executive Officer, President,
Treasurer and Director)
By /s/ MICHAEL S. SAVELY November 14, 1997
------------------------------------------------ -----------------
Michael S. Savely
(Senior Vice President-Operations)
By /s/ GREGG GIMLIN November 14, 1997
------------------------------------------------ -----------------
M. Gregg Gimlin
(Vice President, Chief Financial Officer, and
Principal Accounting Officer)
By /s/ DAVID A. NICHOLS November 14, 1997
------------------------------------------------- -----------------
David A. Nichols
(Director)
By /s/ ROBERT R. ROEHRICH November 14, 1997
-------------------------------------------------- -----------------
Robert R. Roehrich
(Director)
By /s/ JAMES R. SEWARD November 14, 1997
-------------------------------------------------- -----------------
James R. Seward
(Director)
By /s/ THOMAS K. SIGHT November 14, 1997
-------------------------------------------------- -----------------
Thomas K. Sight
(Director)
By /s/ DAVID L. WARNOCK November 14, 1997
-------------------------------------------------- -----------------
David L. Warnock
(Director)
</TABLE>
Part IV - Page 5
<PAGE>
Exhibit 23
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 13, except as to Note 12 which is as of November 12, 1997,
appearing in Part II Page 13 in this Annual Report on Form 10-K/A.
PRICE WATERHOUSE LLP
Kansas City, Missouri
November 12, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 10 K/A 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-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 OCT-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 4,261,000 0
<SECURITIES> 0 0
<RECEIVABLES> 21,148,000 0
<ALLOWANCES> 1,645,000 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 25,412,000 0
<PP&E> 11,809,000 0
<DEPRECIATION> 9,270,000 0
<TOTAL-ASSETS> 30,867,000 0
<CURRENT-LIABILITIES> 21,004,000 0
<BONDS> 2,419,000 0
0 0
26,000 0
<COMMON> 699,000 0
<OTHER-SE> 6,047,000 0
<TOTAL-LIABILITY-AND-EQUITY> 30,867,000 0
<SALES> 40,119,000 9,499,000
<TOTAL-REVENUES> 40,119,000 9,499,000
<CGS> 0 0
<TOTAL-COSTS> 36,021,000 9,498,000
<OTHER-EXPENSES> 217,000 (6,000)
<LOSS-PROVISION> 3,233,000 1,008,000
<INTEREST-EXPENSE> 371,000 (372,000)
<INCOME-PRETAX> 277,000 (629,000)
<INCOME-TAX> (272,000) (450,000)
<INCOME-CONTINUING> 549,000 (179,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 549,000 (179,000)
<EPS-PRIMARY> .04 (.03)
<EPS-DILUTED> 0 0
</TABLE>
