<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1997 Commission File No. 0-16992
------------- -------
CONCORDE CAREER COLLEGES, INC.
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
Delaware 43-1440321
- ----------------------------------- ----------------------------------
(State of other jurisdiction of (I. R. S. Employer Identification
Incorporation or Organization) Number)
4th Floor, City Center Square
12th & Baltimore, P. O. Box 26610
Kansas City, Missouri 64196
- -------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (816) 474-8002
-------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.10 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
As of August 1, 1997 Concorde Career Colleges, Inc. had 6,985,776 shares of
Common Stock outstanding.
===============================================================================
<PAGE>
CONCORDE CAREER COLLEGES, INC.
Form 10-Q
Six Months Ended June 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Notes to Condensed Consolidated Financial Statements
Note 1.................................................... 1
Note 2.................................................... 1
Condensed Consolidated Balance Sheets........................ 2,3
Condensed Consolidated Statements of Operations.............. 4
Condensed Consolidated Statements of Cash Flows.............. 5
Consolidated Statement of Changes in Stockholders' Equity.... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ 13
Item 2. Change in Securities......................................... 13
Item 3. Defaults Upon Senior Securities.............................. 13
Item 4. Submission of Matters to a Vote of Security Holders.......... 13
Item 5. Other Information............................................ 14
Item 6. Exhibits and Reports on Form 8-K............................. 14
Signatures............................................................ 15
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
Overview
The discussion set forth below, as well as other portions of this Form
10-Q, 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-Q. 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
rates; 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.
Note 1:
- ------
The condensed interim consolidated financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission").
Certain information and footnote disclosures normally included in financial
statements prepared according to generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's 1996 Report on Form 10-K that was filed by the
Company with the Commission on March 31, 1997.
The information included in these interim financial statements reflects all
normal recurring adjustments that are, in the opinion of management, necessary
to fairly state the results of the periods presented.
Due to the inherent seasonal nature of the career education business,
annualization of amounts in these interim financial statements may not
necessarily be indicative of the actual operating results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company has litigation pending which arose in the normal course of
business. See further discussion in "Contingencies" and "Legal Proceedings".
The Company sold assets during 1996 and 1997 and has restructured its debt
and preferred stock during 1997. See further discussion in "Liquidity and
Capital Resources".
Note 2:
- ------
Primary earnings per share is computed by deducting accrued and imputed
preferred dividends from net income and adding convertible subordinated debt
interest net of income taxes (if dilutive) in order to determine net income
attributable to common shareholders. This amount is then divided by weighted
average number of common shares outstanding and common stock equivalents (if
dilutive).
Fully diluted earnings per share is computed by deducting accrued and
imputed preferred dividends from net income and adding convertible subordinated
debt interest net of income taxes (if dilutive). This amount is then divided by
the weighted average number of common shares outstanding during the year after
giving effect for common stock equivalents (if dilutive) arising from stock
options and for warrants and preferred stock assumed converted to common stock.
1
<PAGE>
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(unaudited)
ASSETS
<TABLE>
<CAPTION> June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 5,684,000 $ 4,261,000
Net receivables
Accounts receivable.................................. 15,601,000 16,756,000
Notes receivable..................................... 3,025,000 4,392,000
Allowance for uncollectible accounts................. (1,416,000) (1,645,000)
----------- -----------
17,210,000 19,503,000
Deferred income taxes..................................... 916,000 916,000
Supplies and prepaid expenses............................. 998,000 732,000
----------- -----------
Total current assets.............................. 24,808,000 25,412,000
FIXED ASSETS, NET:.......................................... 2,392,000 2,539,000
INTANGIBLE ASSETS, NET
less accumulated amortization of $1,052,000 at June 30, 1997
and $1,820,000 at December 31, 1996, respectively......... 681,000 768,000
OTHER ASSETS:
Long-term notes receivable................................ 2,834,000 3,001,000
Allowance for uncollectible notes......................... (1,058,000) (1,243,000)
Other..................................................... 416,000 390,000
----------- -----------
Total other assets................................... 2,192,000 2,148,000
----------- -----------
$30,073,000 $30,867,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Deferred student tuition............................................... $15,025,000 $16,572,000
Current debt due related party......................................... 400,000
Accrued salaries and wages............................................. 840,000 862,000
Current income taxes payable........................................... 99,000 439,000
Accounts payable and other accrued liabilities......................... 3,192,000 2,731,000
----------- ----------
Total current liabilities............................................ 19,156,000 21,004,000
DEFERRED INCOME TAXES................................................... 331,000 429,000
SUBORDINATED DEBT DUE TO RELATED PARTY, CENCOR.......................... 2,419,000
SUBORDINATED DEBT DUE TO RELATED PARTY, CAHILL-WARNOCK.................. 3,500,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, ($.10 par value, 600,000 shares authorized)
Class A, 260,385 shares issued and outstanding........................ 26,000
Class B, 55,147 shares issued and outstanding......................... 6,000
Common stock, $.10 par value, 19,400,000 shares authorized, 7,012,576
shares issued and 6,985,776 shares outstanding at June 30, 1997,
6,993,376 shares issued and 6,966,576 shares outstanding at
December 31, 1996..................................................... 702,000 699,000
Capital in excess of par............................................... 7,935,000 7,736,000
Accumulated deficit.................................................... (1,496,000) (1,385,000)
Less-treasury stock, 26,800 shares, at cost............................ (61,000) (61,000)
---------- ----------
Total stockholders' equity............................................ 7,086,000 7,015,000
---------- ----------
$30,073,000 $30,867,000
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
------------------ ---------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
STUDENT TUITION AND
OTHER REVENUE.................................... $18,563,000 $20,302,000 $9,132,000 $9,270,000
----------- ----------- ---------- ----------
OPERATING EXPENSES:
Payroll costs.................................... 9,033,000 9,414,000 4,568,000 4,490,000
Occupancy........................................ 2,427,000 2,532,000 1,224,000 1,183,000
Instructional materials and supplies............. 1,351,000 1,862,000 712,000 791,000
Advertising...................................... 1,548,000 1,425,000 801,000 714,000
Other general and administrative................. 2,950,000 2,729,000 1,573,000 1,275,000
Provision for uncollectible accounts............. 835,000 1,089,000 359,000 567,000
----------- ----------- ---------- ----------
Total operating expenses..................... 18,144,000 19,051,000 9,237,000 9,020,000
----------- ----------- ---------- ----------
OPERATING INCOME (LOSS)............................ 419,000 1,251,000 (105,000) 250,000
INTEREST EXPENSE................................... 182,000 1,087,000 46,000 817,000
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
AND GAIN ON SALE................................... 237,000 164,000 (151,000) (567,000)
GAIN ON SALE OF ASSETS............................. 313,000
----------- ------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.................. 550,000 164,000 (151,000) (567,000)
PROVISION (BENEFIT) FOR INCOME TAXES............... 154,000 41,000 (42,000) (142,000)
----------- ----------- ---------- ----------
NET INCOME (LOSS).................................. $ 396,000 $ 123,000 $ (109,000) $ (425,000)
=========== =========== ========== ==========
WEIGHTED AVERAGE COMMON AND COMMON
SHARE EQUIVALENTS OUTSTANDING
Primary...................................... 9,664,000 7,712,000 6,997,000 7,752,000
========= ========= ========= =========
EARNINGS PER WEIGHTED AVERAGE
COMMON AND COMMON SHARE
EQUIVALENTS OUTSTANDING
Primary...................................... $0.04 $0.00 $(0.02) $(0.06)
==== ==== ==== ====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
CASH FLOWS--OPERATING ACTIVITIES: 1997 1996
---- ----
<S> <C> <C>
Net income......................................... $ 396,000 $ 123,000
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities -
Gain on sale of assets......................... (313,000)
Depreciation and amortization.................. 461,000 547,000
Provision for losses on receivables............ 835,000 1,089,000
Change in assets and liabilities, net -
Change in receivables........................ 1,440,000 (915,000)
Change in deferred student tuition........... (1,547,000) 234,000
Change in deferred income taxes.............. (98,000) (251,000)
Change in accrued income taxes............... (340,000) (371,000)
Other changes in assets and liabilities, net. (267,000) 14,000
----------- -----------
Total adjustments.......................... 171,000 347,000
----------- -----------
Net operating activities................... 567,000 470,000
----------- -----------
CASH FLOWS--INVESTING ACTIVITIES:
Proceeds from asset sales.......................... 1,025,000
Capital expenditures............................... (584,000) (188,000)
----------- -----------
Net investing activities................... 441,000 (188,000)
----------- -----------
CASH FLOWS--FINANCING ACTIVITIES:
Class A Preferred stock redemption................. (1,302,000)
Class A Preferred stock dividend payments.......... (467,000)
Principal payments on debt due CenCor.............. (2,819,000) (1,422,000)
Class B Preferred stock issued..................... 1,500,000
Subordinated debt issued to Cahill-Warnock......... 3,500,000
Stock options exercised............................ 3,000
----------- -----------
Net financing activities................... 415,000 (1,422,000)
----------- -----------
Net...................................... 1,423,000 (1,140,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD............................. 4,261,000 3,295,000
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD................................... $ 5,684,000 $ 2,155,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest......................................... $ 177,000 $ 102,000
Income taxes..................................... 581,000 663,000
Cash received during the period for:
Interest......................................... 218,000 201,000
See accompanying notes to condensed consolidated financial statements.
5
</TABLE>
<PAGE>
CONCORDE CAREER COLLEGES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Capital
Preferred Common in Excess Accumulated Treasury
Stock Stock of Par Deficit Stock
--------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996............. $ 26,000 $699,000 $ 7,736,000 $(1,385,000) $(61,000)
Class A Preferred Stock Redemption... (26,000) (1,276,000)
Class B Preferred Stock Issuance..... 6,000 1,435,000
Stock Options Exercised.............. 3,000
Class A Preferred Dividend Payments.. (467,000)
Class B Preferred Stock Accretion.... 40,000 (40,000)
Net Income........................... 396,000
-------- -------- ----------- ----------- --------
BALANCE, June 30, 1997................. $ 6,000 $702,000 $ 7,935,000 $(1,496,000) $(61,000)
======== ======== =========== =========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(The remainder of this page was left intentionally blank.)
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company owns and operates proprietary postsecondary schools which
offer career education, primarily in the allied health field (the twelve
Schools.) The Company previously owned Person/Wolinsky Associates which offered
review courses for the CPA exam. The assets of Person/Wolinsky Associates were
sold on August 2, 1996. In addition the Company sold the assets of its San
Jose, California School in August 1996. The following table presents the
revenue for the Schools and the CPA Review Courses for the periods indicated.
Amounts are in thousands.
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Schools........................ $18,559 $19,079 $9,128 $9,229
CPA Review Courses............. 4 1,223 4 41
------- ------- ------ ------
Total..................... $18,563 $20,302 $9,132 $9,270
======= ======= ====== ======
</TABLE>
The following table presents the relative percentage of revenues
derived from the Resident Schools and the CPA Review Courses and certain
consolidated statement of operations items as a percentage of total revenue for
periods indicated.
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Schools................................. 100.0% 94.0% 100.0% 99.6%
CPA Review Courses...................... 6.0 0.4
----- ----- ----- -----
Total................................... 100.0 100.0 100.0 100.0
===== ===== ===== =====
Operating expenses:
Payroll costs......................... 48.6 46.4 50.0 48.4
Occupancy............................. 13.1 12.5 13.4 12.8
Instructional materials and supplies.. 7.3 9.2 7.8 8.5
Advertising........................... 8.3 7.0 8.8 7.7
Other general & administrative........ 15.9 13.4 17.2 13.8
Provision for uncollectible accounts.. 4.5 5.3 3.9 6.1
----- ----- ----- -----
Total................................. 97.7 93.8 101.1 97.3
Operating income (loss)................. 2.3 6.2 (1.1) 2.7
Interest expense........................ 1.0 5.4 0.5 8.8
----- ----- ----- -----
Income (loss) before income taxes and
gain on sale.......................... 1.3 0.8 (1.6) (6.1)
Gain on sale of assets.................. 1.7
----- ----- ----- -----
Income (loss) before income taxes....... 3.0 0.8 (1.6) (6.1)
Provision (benefit) for income taxes.... 0.9 0.2 (0.4) (1.5)
----- ----- ----- -----
Net income (loss)....................... 2.1% 0.6% (1.2)% (4.6)%
===== ===== ===== =====
</TABLE>
(The remainder of this page was left intentionally blank.)
7
<PAGE>
Results of Operations
QUARTER ENDED JUNE 30, 1997 COMPARED TO
QUARTER ENDED JUNE 30, 1996
The Company incurred a net loss of $109,000 for the three months ended June
1997 compared to a net loss of $425,000 for the same period in 1996.
Total revenue decreased 1.5% or $138,000 to $9,132,000 for the three months
ended June 30, 1997 compared to $9,270,000 for the same period in 1996. During
August 1996 the Company sold the assets of the San Jose, California school. In
addition the Company sold the assets of Person/Wolinsky Associates, which
offered review courses for the CPA exam. These sales, (collectively the "Asset
Sales"), accounted for a reduction of $441,000 in revenue for the three months
ended June 30, 1997 compared to the same period in 1996. Revenue from the twelve
operating schools increased slightly from a modest price increase in 1996.
Student population at the twelve schools remained flat compared to 1996.
Total operating expenses increased $217,000 or 2.4% to $9,237,000 compared
to $9,020,000 for the three months ending June 30, 1996. Operating expenses for
remaining operations increased 9.8% or $826,000 to $9,237,000 compared to
$8,411,000 in 1996.
Payroll increased $78,000 to $4,568,000 compared to $4,490,000 for the
three months ending June 30, 1996. Payroll decreased $344,000 due to the Asset
Sales. The resulting increase of $422,000 is due to the Company adding
additional staff and continuing to upgrade the quality of staff and faculty.
Occupancy increased $41,000 or 3.5% to $1,224,000 from $1,183,000 in 1996.
Occupancy decreased $94,000 due to the Asset Sales. The offsetting increase of
$135,000 is primarily due to increased rent as the Company added additional
space at several locations and incurred rent for both the old and new North
Hollywood locations.
Material and supplies decreased $79,000 or 10.0% to $712,000 compared to
$791,000 in 1996. The decrease is primarily due to the Asset Sales.
Advertising increased $87,000 or 12.2% to $801,000 from $714,000 in 1996.
The Asset Sales resulted in a decrease of $77,000. The resulting increase of
$164,000 is due to additional newspaper, television, and direct mail
advertising.
General and administrative expenses increased $298,000 or 23.4% to
$1,573,000 from $1,275,000 in 1996. The Asset Sales accounted for a decrease of
$82,000. The resulting increase of $380,000 is primarily due to increased
professional fees.
Provision for uncollectible accounts decreased $208,000 or 36.7% to
$359,000 from $567,000 in 1996. The decrease is due to the decrease of the
Company's accounts and notes receivable balance in 1997 compared to 1996.
Interest expense decreased $771,000 to $46,000 from $817,000 in 1996. The
Company accrued $721,000 in the second quarter of 1996 for an additional payment
due CenCor, Inc. ("CenCor") under the Company's Junior Secured Debenture held by
CenCor ("the Old Debenture"). This accrual was eliminated in December 1996 to
reflect the satisfaction of the old Debenture as part of the Refinancing
discussed below. The remaining decrease is due to reduction of debt and the
related expense.
In 1997, a tax benefit of $42,000 or 27.8% was recorded compared to
$142,000 or 25.0% in 1996. This provision is based on an assessment of the
Company's expected annual effective tax rate.
Primary earnings per weighted average common and common share equivalent
(EPS) was $(0.02) at June 30, 1997 and $(0.06) at June 30, 1996. Primary EPS is
shown after a reduction for preferred stock dividends of $31,000 in 1997 and a
reduction of $59,000 for preferred stock dividends in 1996.
(The remainder of this page was left intentionally blank.)
8
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1996
Net income increased $273,000 to $396,000 for the six months ended June 30,
1997 compared to $123,000 for the same period in 1996. The Company benefited
from a $313,000 pre-tax gain from the sale of its Warren, Michigan building in
January 1997. Net income available to common shareholders, after preferred
dividends, was $365,000 in 1997 compared to $4,000 in 1996.
Total revenue decreased 8.6% or $1,739,000 to $18,563,000 for the six
months ended June 30, 1997 compared to $20,302,000 for the same period in 1996.
The Asset Sales accounted for a reduction of $2,042,000 in revenue compared to
1996. Revenue from the twelve operating schools increased slightly from a modest
price increase in 1996. Student population at the Schools remained flat compared
to 1996.
Total operating expenses decreased $907,000 or 4.8% to $18,144,000 compared
to $19,051,000 for the six months ending June 30, 1996. Operating expenses for
remaining operations increased $1,252,000 or 7.4% to $18,144,000 from
$16,892,000 in 1996.
Payroll decreased $381,000 or 4.0% to $9,033,000 compared to $9,414,000 in
1996. Payroll decreased $1,006,000 as a result of the Asset Sales. The $625,000
offsetting increase is due to additional salary expense and increased staff.
Occupancy decreased $105,000 or 4.1% to $2,427,000 from $2,532,000 in 1996.
Occupancy decreased $429,000 due to the Asset Sales. Rent expense increased
$234,000 compared to 1996 as the Company increased space at several locations
and incurred additional rent for the North Hollywood location. The remaining
increase of $90,000 is due to telephone and insurance expense.
Material and supplies decreased $511,000 or 27.4% to $1,351,000 compared to
$1,862,000 in 1996. The Asset Sales accounted for $352,000 of the decrease. This
remaining decrease of $159,000 was due to the timing of textbook expense.
Advertising increased $123,000 or 8.6% to $1,548,000 from $1,425,000 in
1996. The Asset Sales resulted in an advertising decrease of $169,000. The
resulting increase of $292,000 is due to increases in newspaper, television, and
direct mail advertising.
General and administrative expenses increased $221,000 or 8.1% to
$2,950,000 from $2,729,000 in 1996. The Asset Sales accounted for a decrease of
$180,000. The resulting increase of $401,000 is primarily due to increased
professional fees, group health insurance, and costs related to the collection
of the Company's notes due from students.
Bad debt expense decreased $254,000 or 23.3% to $835,000 from $1,089,000 in
1996. The Company's accounts and notes receivable balance has decreased compared
to June 30, 1996 and December 31, 1996.
Interest expense decreased $905,000 to $182,000 from $1,087,000 in 1996.
The Company accrued $80,000 for the payment due CenCor in 1997. This accrual was
$1,333 for each day closing of the Refinancing extended beyond December 20,
1996. This payment was made February 25, 1997 as part of the Refinancing. The
Company accrued $879,000 in 1996 for the additional payment due CenCor under the
Old Debenture. This accrual was eliminated in December 1996 as part of the
Refinancing. Reductions in debt and the related expense were responsible for the
remaining decrease.
The gain from the sale of the Company's Michigan property sale was $313,000
before any tax effect. See further discussion in "Liquidity and Capital
Resources."
In 1997, a tax provision of $154,000 or 28.0% was recorded compared to
$41,000 or 25.0% in 1996. This provision is based on an assessment of the
Company's expected annual effective tax rate.
Primary EPS was $0.04 at June 30, 1997 and $0.00 at June 30, 1996. Primary
EPS is shown after a reduction for preferred stock dividends of $68,000 and an
addition of $37,000 for convertible debt interest in 1997 and a reduction of
$119,000 for preferred stock dividends in 1996.
9
<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.
On August 30, 1996 the Company sold the assets of its School located in San
Jose, California. The Company received proceeds of $50,000 at closing and a
$300,000 promissory note due and paid on February 28, 1997 for the San Jose
School assets.
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
thereon.
CenCor, Inc. Agreement
The Restructuring Agreement between the Company and CenCor was effective
for the period between October 30, 1992 and February 25, 1997. See the
Company's 1996 Annual Report on Form 10-K for additional information concerning
transactions related to this agreement, which information is incorporated herein
by reference.
As a result of the Refinancing 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 (the "CenCor
Repayment"). At June 30, 1997 the remaining commitment was $178,000.
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. ("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. The proceeds of the Cahill
transaction were primarily applied to the CenCor Repayment. The remainder of
such proceeds were allocated for working capital purposes. The Cahill
Transaction together with the CenCor Repayment is referred to herein as the
"Refinancing."
Bank Financing
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. This facility expires on April 30, 1998. 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. At June 30, 1997 the Company had not
borrowed any funds against the new bank line of credit.
Cash Flows and Other
Net cash provided by operating activities increased to $567,000 for the six
months ended June 30, 1997 from $470,000 during the same period in 1996. Net
receivables before bad debt charge off decreased by $1,440,000 in 1997 compared
to an increase of $915,000 in 1996. Deferred student tuition decreased in 1997
by $1,547,000 compared to an increase of $234,000 in 1996. Decreased deferred
student tuition is a result of reduced enrollments.
Capital expenditures for the six months ended June 30, 1997 were $584,000
compared to $188,000 in 1996. For both periods, expenditures were primarily for
additional classroom equipment and leasehold improvements. The Company received
approximately $725,000 from the sale of the Michigan land and building. In
addition, the Company received $300,000 for payment of a promissory note due
from the sale of the San Jose, California assets. Financing activities
increased cash $415,000 in 1997 as the Company retired the outstanding debt and
preferred stock in the CenCor Repayment and received cash from the issuance of
new debentures and preferred stock in the Cahill Transaction.
The Company moved its North Hollywood, California School to a new location
on July 28, 1997. The new building will provide a much improved facility with
better access, additional space for new programs, and additional parking.
Leasehold improvements and new equipment will cost approximately $850,000. At
July 31, 1997 the Company had paid approximately $519,000 toward those
improvements.
10
<PAGE>
During 1996 the Company instituted a policy which results in most students
paying a portion of their tuition while they attend school. 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 adopted a policy in the Fall of 1996 that all new student notes will
be serviced by a professional agency. This policy is expected to help reduce
bad debt expense but the service has initially resulted in additional servicing
costs.
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 all of 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 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 and after the appeal process,
two additional suits making essentially the same claims were filed on behalf of
a total of 26 additional plaintiffs. 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 September 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. The plaintiffs motion for class certification was denied on
April 18, 1997. The Company received a Notice of Appeal on May 19, 1997, which
appeals the order denying certification of class. The plaintiffs seek
unspecified monetary damages. The Company believes these suits are without
merit, and will continue to defend against them vigorously.
The San Bernardino, California School received from the Department of
Education ("ED") its official published 1994 Cohort Default Rate ("CDR") in
April 1997. The Company's other Schools received their official published 1994
Cohort Default Rates in January 1997. Three of the Company's Schools, Anaheim,
San Bernardino, and San Diego, California, have official published Cohort
Default Rates which exceed 25% for three consecutive years. The 1994 published
Cohort Default Rates have been appealed for all three Schools. On April 25,
1997 the San Diego School received notification that its 1994 CDR erroneous
data appeal was processed. The 1994 CDR was lowered but still remains above
25%. The School continues to have a servicing appeal for its 1994 CDR pending.
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 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 student population at the three
Schools was approximately 1,250 or 31% of the Company's total student population
at June 30, 1997.
The Company intends to vigorously defend the Schools against any proceeding
by the ED to limit, suspend, or terminate eligibility in Federal Loan Programs.
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. During 1997 the Company 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 certification.
The Company does not believe provisional certification will have a material
impact on its liquidity, results of operations or financial position.
11
<PAGE>
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.
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. As of
August 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 or
its results of operations.
New Accounting Standards
Statement of Financial Accounting Standards No. 128 "Earnings per Share"
(SFAS 128") was issued in February 1997, effective for financial statements for
interim and annual periods ending after December 15, 1997. The statement
specifies the computation, presentation, and disclosure requirements for
earnings per share. The statement requires the computation of earnings per
share is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed giving effect to all dilutive potential common
shares that were outstanding during the period (i.e., the denominator used in
the basic calculation is increased to include the number of additional common
shares that would have been outstanding if the dilutive potential common shares
had been issued). SFAS 128 requires the Company to present basic and diluted
per share amounts for income from continuing operations and for net income on
the face of the income statement.
Although early adoption of SFAS 128 is not permitted, pro forma earnings
per share amounts may be disclosed. Accordingly, if the Company's earnings per
share had been computed in accordance with SFAS 128 for the three and six months
ended June 30, 1997 and 1996, pro forma earnings per share would have been as
follows:
<TABLE>
<CAPTION>
Three Months
Ended June 30,
--------------------
1997 1996
---- ----
<S> <C> <C>
Pro Forma Earnings Per Share:
Basic..................... $(0.02) $(0.07)
Diluted................... $(0.02) $(0.07)
Six Months
Ended June 30,
--------------------
1997 1996
---- ----
Pro Forma Earnings Per Share:
Basic..................... $ 0.05 $ 0.00
Diluted................... $ 0.04 $ 0.00
</TABLE>
12
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
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.
See "Contingencies" for additional discussion.
The Company is not aware of any material violation by the Company of
applicable local, state and federal laws.
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 cases were
dismissed by the plaintiffs; however, over time, three others were filed seeking
similar relief on behalf of a total of 95 plaintiffs. Conversion of one of the
three cases to a class action has been attempted; however, the plaintiffs'
motion for class certification was denied on April 18, 1997. On May 19, 1997,
the purported class representative appealed the order denying certification of
the class. During the attempted certification, action on the other two cases has
been stayed. The plaintiffs seek unspecified monetary damages. The Company
believes these suits are without merit, and will continue to strongly defend
against them vigorously. See "Contingencies" above for additional discussion.
The Company has other litigation pending which arose in the ordinary course
of business. Litigation is subject to many uncertainties and the outcome of the
individual matters is not presently determinable. It is management's opinion
that this litigation will not result in liabilities that would have a material
adverse effect on the Company's financial position or results of operations.
Item 2. Change in Securities -- None
----------------------------
Item 3. Defaults Upon Senior Securities -- None
---------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
a) The Company held its 1997 Annual Meeting of Stockholders ("Annual
Meeting") on May 22, 1997. On the Record Date, the Company had
6,966,576 shares of Common Stock and 55,147 shares of Voting
Preferred Stock (having 1,102,940 votes) issued and outstanding and
entitled to vote at the Annual Meeting.
b) Proxies for the meeting were solicited pursuant to Regulation 14A;
there was no solicitation in opposition to management's nominees for
Directors as listed in such Proxy Statement and all such nominees
were elected. The voting was as follows:
<TABLE>
<CAPTION>
Election of Six Directors: FOR WITHHELD
--- --------
<S> <C> <C>
1. Jack L. Brozman 7,508,643 5,883
2. David A. Nichols 7,510,858 3,668
3. Robert R. Roehrich 7,510,858 3,668
4. James R. Seward 7,510,858 3,668
5. Thomas K. Sight 7,510,858 3,668
6. David L. Warnock 7,510,858 3,668
</TABLE>
13
<PAGE>
c) Approval of the independent auditors for the Company for 1997 was
voted as follows:
FOR AGAINST WITHHELD
--- ------- --------
Price Waterhouse LLP 7,510,787 1,589 2,150
Item 5. Other Information -- None
-------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
10(c)(v) -- Dr. Robert R. Roehrich Employment Agreement
10(g)(i) -- Dr. Robert R. Roehrich Option Agreement
11 -- Computation of per share earnings.
27 -- Financial Data Schedule
No Reports on Form 8-K were filed during the period.
(The remainder of this page was left intentionally blank.)
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONCORDE CAREER COLLEGES, INC.
DATED: August 12, 1997
By: /s/ Robert R. Roehrich
-------------------------------------------
Robert R. Roehrich, Chief Executive Officer
By: /s/ Gregg Gimlin
-------------------------------------------
Gregg Gimlin, Chief Financial Officer
15
<PAGE>
CONCORDE CAREER COLLEGES, INC
Form 10-Q
Six Months Ended June 30, 1997
EXHIBITS INDEX
EXHIBITS
- --------
10(c)(v) Dr. Robert R. Roehrich Employment Agreement
10(g)(i) Dr. Robert R. Roehrich Option Agreement
11 Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE>
Exhibit 10(c)(v)
February 14, 1997
CONFIDENTIAL
Mr. Robert R. Roehrich
454 Carrol Gate
Wheaton, Illinois 60187
Dear Bob:
On behalf of the Board of Directors, I am pleased to offer you the position of
President and Chief Executive Officer of Concorde Career Colleges, Inc. This
contract will set forth the terms and conditions of employment.
Date of Appointment: Approximately - April 1, 1997
Contingent upon the closing of the transaction with
Cahill Warnock.
Base Pay: $200,000 annually, to be adjusted every January 1st
based on achievement of performance-based objectives.
Salary to be paid every two weeks.
Bonus: A bonus based on performance will be awarded annually.
Bonus will be based on mutually agreed-upon annual
performance objectives, with no upper limit.
Year 1: guaranteed bonus for calendar year 1997 in the
amount of $40,000 to be paid on the first anniversary
of this contract.
Years 2-5: bonus of at least $40,000 based on
performance, with no upper limit. Paid on the annual
anniversary of the contract.
Stock Options: Stock option plan for 5% of the Company's fully
diluted common stock as follows:
On commencement of employment - 1% granted and vested
at $1.00 per share. An additional 4% granted at the
time of commencement of employment at the lower of
$2.00 or the closing price of the stock on that day.
1% to be vested at the end of each full year of
employment. Each 1% is equal to 115,000 shares.
<PAGE>
February 14, 1997
CONFIDENTIAL
Mr. Robert R. Roehrich
Benefits: . Medical per Company plan
. Dental per Company plan
. Life Insurance per Company plan
. Vacation: 4 weeks per year
. Leased vehicle comparable to a Volvo, plus insurance
and maintenance on car.
Relocation: Concorde will pay all reasonable and necessary moving
expenses, as well as travel for yourself and members of
your family as needed during the transition period.
Prior to the family moving to Kansas City, Concorde
will pay for Bob Roehrich's accommodations in Kansas
City and travel to Chicago on weekends. Concorde to
pay closing costs on the sale of your home up to a
maximum of $25,000.
Severance: In the unlikely event of termination without cause at
any time, or if you decide to leave after eighteen
months from the signing of the contract, Concorde will
pay you one year of your base salary.
Termination with cause is defined as termination due
to:
. conviction of a felony
. breach of fiduciary duty
. acts of dishonesty
. fraud
. abuse of alcohol or controlled substances
Bob, the Board is unanimous in its support for you and enthusiastic about your
ability to lead Concorde Career Colleges into a wonderful new period in its
history. On a personal note, I am looking forward to working closely with you to
help you achieve our dreams for Concorde.
Sincerely,
/s/ Jack L. Brozman
Jack L. Brozman Accepted: /s/ Robert R. Roehrich
Chairman of the Board ----------------------------
Robert R. Roehrich
Date: April 1, 1997
----------------------------
<PAGE>
EXHIBIT 10(g)(i)
CONCORDE CAREER COLLEGES, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
THIS AGREEMENT is entered into as of this 1st day of April, 1997, between
Concorde Career Colleges, Inc., a Delaware corporation (the "Company"), and
Robert R. Roehrich, an individual (the "Option Holder").
RECITALS
--------
A. Option Holder has accepted employment as the President and Chief
Executive Officer of the Company effective the date hereof, and in connection
with such employment the Company considers it desirable and in its best interest
for Option Holder to be granted an option to purchase shares of the Company's
common stock, $0.10 par value (the "Option Shares"), as provided hereunder.
B. This Agreement and the grant of the Option hereunder have been approved
by the Board of Directors of the Company.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties agree as follows:
1. Grant of Option. Subject to all the terms and restrictions hereunder
(including vesting), the Company hereby grants to Option Holder on the 1st day
of April, 1997 (the "Option Grant Date") the right and option (the "Option") to
purchase Five Hundred Seventy Five Thousand (575,000) Option Shares at per share
exercise price equal to (i) One Dollar ($1.00) for the first twenty percent
(20%) (115,000) Option Shares and (ii) the lesser of (A) the market value of a
share of Common Stock on the NASDAQ bulletin board as of Option Grant Date and
(ii) Two Dollars ($2.00) for the remainder eighty percent (80%)(460,000) Option
Shares.
2. Terms of Option. Unless sooner terminated or accelerated under
Sections 4 or 5, respectively, of this Agreement, the Option shall only become
exercisable at the times and in the amounts set forth on Schedule A.
3. Method of Exercise.
(a) No rights under any Option shall be transferable otherwise than by
will or the laws of descent and distribution of the Option Holder's
domicile, and, except as, the rights and benefits of the Option may be
exercised and received, respectively, only by Option Holder. Any exercise
of an Option must be through written notice to the Company's Compensation
Committee in the form attached hereto as Schedule B, hand delivered or
delivered by United States mail, postage prepaid to the Company's principal
1
<PAGE>
executive offices. The exercise price is to be paid in full upon the exercise
of an Option, either (i) in cash or cashier's check, (ii) in the discretion of
the Compensation Committee, by the tender to the Company of shares of Common
Stock owned by the Option Holder and registered in the Option Holder's name
having a fair market value equal to the cash exercise price of the Option
being exercised, or (iii) in the discretion of the Compensation Committee, by
any combination of the payment methods specified in clauses (i) and (ii)
hereof.
(b) The Option will be considered exercised on the United States mail
postmark date of said notice or, if by hand delivery, when actually delivered.
As soon as practicable thereafter, the Company shall deliver to the Option
Holder at the principal executive offices of the Company or at such other place
as may be mutually acceptable, the certificate representing those Option Shares
as to which the Option shall have been exercised.
4. Termination of Option. Unless the Option is sooner terminated, all
unexercised portions of the Option shall terminate upon the first of the
following to occur:
(a) The expiration of three (3) months after the date on which the
Option Holder's employment with the Company terminates for reasons other
than death or disability;
(b) The expiration of twelve (12) months after the termination of
Option Holder's employment by reason of death or disability, as
"disability" is defined under Section 22(e)(3) of the Internal Revenue Code
of 1986;
(c) The tenth (10th) anniversary date of the Option Grant Date; or
(d) Regardless of anything to the contrary in this Agreement, from the
date fraud is committed if there is a final decision by a court of
competent jurisdiction that the Option Holder committed fraud in the
exercise of his duties to the Company.
If, however, the Option Holder's employment with the Company terminates by
reason of death or disability, the Options which have not become exercisable on
or before the date of such termination will immediately become exercisable in
full.
5. Merger or Sale. In the event the Company or the stockholders of the
Company enter into an agreement to dispose of all or substantially all the
assets or stock of the Company by means of a sale, merger, consolidation,
reorganization, liquidation, or otherwise, excluding specifically any
reincorporation under a state's law other than Delaware, the Option granted
hereunder shall immediately become exercisable for the total number of Option
Shares, and shall remain exercisable during the period commencing as of the date
of execution of such agreement and ending as of: (i) the tenth anniversary date
of the Option Grant Date, or (ii) the date on which the disposition of assets or
stock contemplated by the agreement is consummated,
2
<PAGE>
whichever first occurs. In the event that any such agreement shall be terminated
without consummation of its intended purpose, any unexercised portion of the
Option that became exercisable solely by reason of this Section shall again
become unexercisable as of the termination of said agreement. Any exercise of an
Option prior to the termination of such agreement shall remain effective. Upon
the consummation of any such agreement, any unexercised portion of the Option
shall terminate.
6. Restrictions on Disposition. Option Holder hereby agrees that, at the
time the Option is exercised, the Option Shares will be purchased for investment
purposes, and not with a view toward public resale or distribution thereof in
violation of the Securities Act of 1933, as amended, and will be sold only in
accordance with the requirements of all applicable federal and state securities
laws (including, without limitation, Rule 144 of the Securities Act of 1933) as
determined by counsel for the Company, and the Company may, in its sole
discretion, place an appropriate restrictive legend to such effect upon all
certificates representing the Option Shares.
7. Rights Prior to Exercise of Option. Option Holder shall have no rights as
a stockholder of the Company with respect to the Option Shares until the date
that the certificate representing the Option Shares is delivered to him.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
Concorde Career Colleges, Inc.
By: /s/ M. Gregg Gimlin
--------------------------------
M. Gregg Gimlin
Chief Financial Officer
The Option Holder acknowledges receipt of this Agreement and hereby accepts
the Option granted herein pursuant to the terms and conditions of this
Agreement.
/s/ Robert R. Roehrich
---------------------------
Robert R. Roehrich
3
<PAGE>
SCHEDULE A
----------
Subject to the terms of this Agreement, the Option shall become first
exercisable at the times and in the amounts set forth below:
(a) 20% (115,000) Option Shares shall be exercisable by Option Holder
immediately.
(b) The remaining 80% (460,000) Option Shares shall become exercisable in
equal 20% (115,000) share increments over each of the next 4 years
after the date of this Option Agreement, so that the second 115,000
Option Shares becomes exercisable on April 1, 1998, the third 115,000
Option Shares becomes exercisable on April 1, 1999, the fourth 115,000
Option Shares becomes exercisable on April 1, 2000 and the fifth and
last 115,000 Option Shares becomes exercisable on April 1, 2001.
<PAGE>
SCHEDULE B
----------
(Form of Notice of Exercise)
[Date]
VIA CERTIFIED MAIL
- ------------------
Concorde Career Colleges, Inc.
City Center Square
1100 Main, Suite 416
Kansas City, MO 64105
Attention: Compensation Committee
Re: Non-qualified Stock Option - Notice of Exercise
Gentlemen:
This letter serves as a notice of exercise of the Stock Option granted
to the undersigned under the Concorde Career Colleges, Inc. Non-Qualified Stock
Option Agreement (the "Agreement"). The undersigned hereby exercises [a portion
of his] option to acquire ______________________ (________) shares of Common
Stock of Concorde Career Colleges, Inc. (the "Company"), at a per share exercise
price of _________($_____), for a total exercise price of ($ ).
In accordance with Section 3 of the Agreement, enclosed herewith is
the (i) cash or cashier's check, (ii) certificates representing the Common Stock
of the Company owned by the Undersigned, or (iii) a combination thereof, as
payment for the Common Stock underlying the option, all as agreed to by the
Compensation Committee of the Company. To the extent the undersigned is paying
for all or some of the shares of Common Stock underlying the option with Common
Stock as contemplated in (ii) above, the undersigned represents and warrants to
the Company that he has good and marketable title to such Common Stock free and
clear of any and all liens, encumbrances, charges, equities, claims, security
interests, options or restrictions and has full power to deliver such Common
Stock without obtaining the consent or approval of any person or governmental
authority.
<PAGE>
Concorde Career Colleges, Inc.
[Date]
Page 2
The undersigned requests delivery of the certificate representing the
shares for which the option is being exercised at the following address:
Robert R. Roehrich
____________________
____________________
____________________
____________________
Very truly yours,
Robert R. Roehrich
:sr/6330
<PAGE>
EXHIBIT 11
CONCORDE CAREER COLLEGES, INC.
COMPUTATION OF PER SHARE EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Primary EPS Fully Diluted EPS
Six Months Six Months
Ended June 30, Ended June 30,
--------------------------- ----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding........... 6,982,000 6,958,000 6,982,000 6,958,000
Options....................................... 905,000 754,000 932,000 803,000
Debt/Non Detachable Warrants.................. 1,777,000 1,777,000
Class B Preferred Stock....................... 762,000
--------- --------- ---------- ---------
9,664,000 7,712,000 10,453,000 7,761,000
--------- --------- ---------- ---------
Net Income (Loss)............................. $ 396,000 $ 123,000 $ 396,000 $ 123,000
Class A Preferred Dividends................... (28,000) (119,000) (28,000) (119,000)
Class B Preferred Dividends-Imputed........... (40,000)
Interest on Convertible Debt, Net of Tax...... 37,000 37,000
--------- ----------- ---------- ---------
$ 365,000 $ 4,000 $ 405,000 $ 4,000
--------- --------- ---------- ---------
$ 0.04 $ 0.00 $ 0.04 $ 0.00
========= ========= ========== ==========
Three Months Three Months
Ended June 30, Ended June 30,
--------------------------- ----------------------------
1997 1996 1997 1996
--------- ---- ---- ----
Weighted Average Shares Outstanding........... 6,997,000 6,958,000 6,997,000 6,958,000
Options....................................... 794,000 803,000
Debt/Non Detachable Warrants..................
Class B Preferred Stock....................... --------- --------- --------- ---------
6,997,000 7,752,000 6,997,000 7,761,000
--------- --------- --------- ---------
Net Income (Loss)............................. $ (109,000) $ (425,000) $ (109,000) $ (425,000)
Class A Preferred Dividends................... (59,000) (59,000)
Class B Preferred Dividends-Imputed........... (31,000) (31,000)
Interest on Convertible Debt, Net of Tax...... --------- --------- ---------- ---------
$ (140,000) $ (484,000) $ (140,000) $ (484,000)
--------- --------- ---------- ---------
$ (0.02) $ (0.06) $ (0.02) $ (0.06)
========== ========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Form 10-Q June 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 APR-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 5,684 0
<SECURITIES> 0 0
<RECEIVABLES> 18,626 0
<ALLOWANCES> 1,416 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 24,808 0
<PP&E> 11,889 0
<DEPRECIATION> 9,497 0
<TOTAL-ASSETS> 30,073 0
<CURRENT-LIABILITIES> 19,156 0
<BONDS> 3,500 0
0 0
6 0
<COMMON> 702 0
<OTHER-SE> 6,378 0
<TOTAL-LIABILITY-AND-EQUITY> 30,073 0
<SALES> 18,563 9,132
<TOTAL-REVENUES> 18,563 9,132
<CGS> 0 0
<TOTAL-COSTS> 17,309 8,878
<OTHER-EXPENSES> (313) 0
<LOSS-PROVISION> 835 359
<INTEREST-EXPENSE> 182 46
<INCOME-PRETAX> 550 (151)
<INCOME-TAX> 154 (42)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 396 (109)
<EPS-PRIMARY> .04 (.02)
<EPS-DILUTED> .04 (.02)
</TABLE>
