<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1998 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 (I.R.S. Employer Identification
of Incorporation or Organization Number)
5800 Foxridge Drive, Mission Corporate Centre
Suite 500
Mission, Kansas 66202
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (913) 831-9977
--------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.10 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No (2) Yes X No
----- ----- ----- -----
As of November 12, 1998 Concorde Career Colleges, Inc. had 7,226,776 shares of
Common Stock outstanding.
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<PAGE>
CONCORDE CAREER COLLEGES, INC.
Form 10-Q
Nine Months Ended September 30, 1998
INDEX
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Notes to Condensed Consolidated Financial Statements
Note 1 and 2............................................... 1
Condensed Consolidated Balance Sheets......................... 2,3
Condensed Consolidated Statements of Operations............... 4,5
Condensed Consolidated Statements of Cash Flows............... 6
Consolidated Statement of Changes in Stockholders' Equity..... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 8
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings............................................. 12
Item 2. Change in Securities.......................................... 12
Item 3. Defaults Upon Senior Securities............................... 12
Item 4. Submission of Matters to a Vote of Security Holders........... 12
Item 5. Other Information............................................. 12
Item 6. Exhibits and Reports on Form 8-K.............................. 12
Signatures............................................................. 13
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Recent Event
Dr. Robert Roehrich, the Company's President, Chief Executive Officer, and
a member of the Company's Board of Directors, resigned effective November 12,
1998.
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.
Notes to Financial Statements
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 SEC. 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 1997 Annual Report on
Form 10-K that was filed by the Company with the Commission on March 30, 1998
(the "1997 Form 10-K") incorporated herein by reference.
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. 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 Part I, Item 2 - "Contingencies", and Part II, Item 1
- - "Legal Proceedings".
Note 2:
- ------
Basic earnings per share is computed by deducting accrued and imputed
preferred dividends from net income, and for 1997 adding the excess of the
carrying value of the preferred stock retired over the amount of cash paid in
order to determine net income attributable to common shareholders. This amount
is then divided by weighted average number of common shares outstanding.
Diluted earnings per share is computed by deducting accrued and imputed
preferred dividends and adding convertible subordinated debt interest net of
income taxes (if dilutive) and for 1997 adding the excess of the carrying value
of the preferred stock retired over the amount of cash paid. 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., AND SUBSIDIARES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents......................................... $ 3,170,000 $ 5,393,000
----------- -----------
Accounts receivable............................................. 11,387,000 10,523,000
Notes receivable................................................ 3,742,000 3,758,000
Allowance for uncollectible accounts............................ (1,366,000) (1,309,000)
----------- -----------
Net receivables................................................. 13,763,000 12,972,000
Recoverable income taxes........................................... 930,000 340,000
Deferred income taxes.............................................. 718,000 916,000
Supplies and prepaid expenses...................................... 938,000 794,000
----------- -----------
Total current assets............................................. 19,519,000 20,415,000
----------- -----------
FIXED ASSETS, NET:................................................... 2,921,000 2,533,000
----------- -----------
INTANGIBLE ASSETS, NET
Less accumulated amortization of $1,261,000 at September 30, 1998
and $1,139,000 at December 31, 1997, respectively.................. 472,000 594,000
----------- -----------
OTHER ASSETS:
Long-term notes receivable......................................... 1,270,000 1,992,000
Allowance for uncollectible notes.................................. (452,000) (616,000)
Other.............................................................. 375,000 383,000
Deferred income taxes.............................................. 315,000 223,000
----------- -----------
Total other assets.............................................. 1,508,000 1,982,000
----------- -----------
$24,420,000 $25,524,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
2
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Deferred student tuition............................................. $10,945,000 $10,878,000
Accrued salaries and wages........................................... 721,000 821,000
Accrued interest..................................................... 179,000 190,000
Accounts payable and other accrued liabilities....................... 2,571,000 3,040,000
----------- -----------
Total current liabilities....................................... 14,416,000 14,929,000
OTHER LONG-TERM LIABILITIES 339,000 360,000
SUBORDINATED DEBT DUE TO RELATED PARTY, CAHILL-WARNOCK 3,500,000 3,500,000
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, ($.10 par value, 600,000 shares authorized)
Class B, 55,147 shares issued and outstanding..................... 6,000 6,000
Common stock, ($.10 par value, 19,400,000 shares
authorized), 7,218,576 shares issued and 7,191,776 shares outstanding 722,000 713,000
Capital in excess of par............................................. 8,105,000 8,000,000
Accumulated deficit.................................................. (2,607,000) (1,923,000)
Less-treasury stock, 26,800 shares, at cost.......................... (61,000) (61,000)
----------- -----------
Total stockholders' equity........................................ 6,165,000 6,735,000
----------- -----------
$24,420,000 $25,524,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998 and 1997
And the Three Months Ended September 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------- ------------------
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET REVENUES $26,075,000 $27,926,000 $8,642,000 $9,319,000
COSTS AND EXPENSES:
Instruction costs and services........ 10,019,000 10,114,000 3,351,000 3,651,000
Selling and promotional............... 4,172,000 4,144,000 1,584,000 1,486,000
General and administrative............ 11,785,000 12,085,000 3,666,000 3,897,000
Provision for uncollectable accounts.. 908,000 1,139,000 348,000 304,000
----------- ----------- ---------- ----------
Total................................. 26,884,000 27,482,000 8,949,000 9,338,000
----------- ----------- ---------- ----------
OPERATING INCOME (LOSS) (809,000) 444,000 (307,000) (19,000)
INTEREST EXPENSE 142,000 230,000 48,000 48,000
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND GAIN ON SALE (951,000) 214,000 (355,000) (67,000)
GAIN ON SALE OF ASSETS 313,000
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (951,000) 527,000 (355,000) (67,000)
PROVISION (BENEFIT) FOR INCOME TAXES (371,000) (415,000) (139,000) (584,000)
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (580,000) 942,000 (216,000) 517,000
CUMULATIVE EFFECT ON PRIOR YEARS (TO DECEMBER 31,
1996) OF CHANGE IN REVENUE RECOGNITION METHOD,
NET OF TAX (659,000)
----------- ----------- ---------- ----------
NET INCOME (LOSS) $ (580,000) $ 283,000 $ (216,000) $ 517,000
=========== =========== ========== ==========
</TABLE>
(Continued)
The accompanying notes are an integral part of these condensed consolidated
statements.
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4
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998 and 1997
And the Three Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------- ------------------
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic.................................................................. 7,168,000 7,012,000 7,191,000 7,070,000
Diluted ............................................................... 7,168,000 10,829,000 7,191,000 11,725,000
BASIC EARNINGS PER SHARE:
Income (loss) before cumulative effect of change in accounting
principle .......................................................... $(.10) $ .29 $ (.04) $ .07
Cumulative effect on prior years (to December 31, 1996) of
change in revenue recognition method ....................... (.09)
----- ----- ------ -----
NET INCOME (LOSS) PER SHARE $(.10) $ .20 $ (.04) $ .07
===== ===== ====== =====
DILUTED EARNINGS PER SHARE:
Income (loss) before cumulative effect of change in accounting
principle .......................................................... $(.10) $ .20 $ (.04) $ .05
Cumulative effect on prior years (to December 31, 1996) of
change in revenue recognition method ...................... (.06)
----- ----- ------ -----
NET INCOME (LOSS) PER SHARE ....................................... $(.10) $ .14 $ (.04) $ .05
===== ===== ====== =====
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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5
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
CASH FLOWS --OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss)..................................................... $ (580,000) $ 283,000
Adjustments to reconcile net (loss) to net
cash provided by operating activities -
Gain on sale of assets....................................... (313,000)
Depreciation and amortization................................ 686,000 691,000
Provision for losses on accounts receivable.................. 908,000 1,139,000
Cumulative effect of change in accounting principle.......... 659,000
Change in assets and liabilities, net -
Change in receivables..................................... (1,140,000) (1,079,000)
Change in deferred student tuition........................ 68,000 1,663,000
Change in deferred income taxes........................... 106,000 (1,097,000)
Change in recoverable income taxes........................ (591,000) (380,000)
Other changes in assets and liabilities, net.............. (738,000) (1,195,000)
----------- -----------
Total adjustments..................................... (701,000) 88,000
----------- -----------
Net operating activities.............................. (1,281,000) 371,000
----------- -----------
CASH FLOWS --INVESTING ACTIVITIES:
Proceeds from sales of assets.................................. 1,025,000
Capital expenditures (952,000) (1,232,000)
----------- -----------
Net investing activities.............................. (952,000) (207,000)
----------- -----------
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)
Class B Preferred stock issued................................. 1,500,000
Subordinated debt issued to Cahill-Warnock..................... 3,500,000
Stock options exercised........................................ 10,000 13,000
----------- -----------
Net financing activities.............................. 10,000 425,000
----------- -----------
Net increase (decrease) in cash and cash equivalents.. (2,223,000) 589,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD......................................... 5,393,000 4,261,000
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD............................................... $ 3,170,000 $ 4,850,000
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................... $153,000 $225,000
Income taxes................................................. 244,000 629,000
Cash received during the period for:
Interest..................................................... $246,000 $329,000
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
6
<PAGE>
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(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, 1997........... $6,000 $713,000 $8,000,000 $(1,923,000) $(61,000)
Net Loss........................... (580,000)
Class B Preferred Stock Accretion.. 104,000 (104,000)
Stock Options Exercised............ 9,000 1,000
------ -------- ---------- ----------- --------
BALANCE, September 30, 1998.......... $6,000 $722,000 $8,105,000 $(2,607,000) $(61,000)
====== ======== ========== =========== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
(The remainder of this page left intentionally blank)
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The Company owns and operates twelve proprietary postsecondary campuses
that offer career education, primarily in the allied health field (the
"Campuses").
The following table presents the relative percentage of revenues of certain
consolidated statement of operations items as a percentage of total revenue for
periods indicated.
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30 Ended September 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue................................................ 100% 100% 100% 100%
Operating expenses:
Instruction costs & services......................... 38.4 36.2 38.8 39.2
Selling & Promotional................................ 16.0 14.8 18.3 15.9
General & administrative............................. 45.2 43.4 42.4 41.9
Provision for uncollectible accounts................. 3.5 4.1 4.0 3.3
----- ---- ----- -----
Total operating expenses............................. 103.1% 98.5% 103.5% 100.3%
Operating income (loss)................................ (3.1) 1.5 (3.5) (.3)
Interest expense....................................... .5 .8 .6 .5
----- ---- ----- -----
Income (loss) before income taxes and gain on sale..... (3.6)% .7% (4.1)% (.8)%
Gain on sale of assets................................. 1.1%
---- ----- -----
Income (loss) before income taxes...................... (3.6)% 1.8% (4.1)% (.8)%
Provision (benefit) for income taxes................... (1.4)% (1.6) (1.6)% (6.3)%
----- ---- ----- -----
Income (loss) before cumulative effect of change in
accounting principle........................... (2.2)% 3.4 (2.5)% 5.5
Cumulative effect in prior years of change in revenue
recognition method............................. (2.4)
----- ---- ----- -----
Net loss............................................... (2.2)% 1.0% (2.5)% 5.5%
===== ==== ===== =====
</TABLE>
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8
<PAGE>
Result of Operations
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1997
The net loss was $580,000 for the nine months ended September 30, 1998
compared to net income of $283,000 for the same period in 1997. In 1997, the
Company benefited from a $313,000 gain from the sale of its Michigan building.
The cumulative effect of the revenue recognition change in 1997 was a decrease
of net income by $659,000.
Total revenue decreased 6.6% or $1,851,000 to $26,075,000 for the nine
months ended September 30, 1998 compared to $27,926,000 for the same period in
1997. Total operating expenses decreased $598,000 to $26,884,000 compared to
$27,482,000 for the nine months ended September 30, 1997. The reduction in
revenue was due to declining student population. The Company has taken the
following steps in an effort to increase enrollments: a new advertising program
was implemented including new television commercials and print ads, a new
National Director of Student Recruitment was hired, a new student recruitment
training program was implemented, and a marketing consultant was retained to
focus and improve advertising results. In addition the Company is replacing its
current advertising agency effective December 1, 1998.
Instruction costs and services--decreased $95,000 or .9% to $10,019,000
compared to $10,114,000 in 1997. Instruction wages increased $450,000 compared
to 1997. The offsetting decrease was a result of textbook and supply expenses
directly related to decreased population.
Selling and promotional--increased $28,000 or .7% to $4,172,000 compared to
$4,144,000 in 1997. Advertising expense increased $171,000 compared to 1997 and
was offset by a reduction in wages.
General and administrative--decreased $300,000 to $11,785,000 compared to
$12,085,000 in 1997. Professional fees decreased $273,000 and wages decreased
$235,000 compared to 1997. The offsetting increase was primarily due to
additional outside services, travel, and employee procurement costs compared to
1997.
Provision for uncollectible accounts--decreased $231,000 or 20.3% to
$908,000 compared to $1,139,000 in 1997. The decrease is due to the recovery of
student accounts that were previously written off.
Interest expense--decreased $88,000 or 38.3% to $142,000 compared to
$230,000 in 1997. The decrease is due to the Company satisfying the interest
obligation due CenCor on February 25, 1997 as a result of the Cahill-Warnock
Transaction.
Benefit for income taxes--In 1998, a tax benefit of $371,000 or 39% was
recorded compared to a tax benefit of $415,000 in 1997. During 1997, as a result
of the settlement of outstanding tax issues, the Company released book tax
contingencies totaling $650,000.
EPS and Weighted Average Common Shares--Basic weighted average common
shares increased to 7,168,000 in 1998 from 7,012,000 in 1997 and diluted
weighted average common shares decreased to 7,168,000 in 1998 from 10,829,000 in
1997. The stock options, non-detachable warrants, and preferred stock were anti-
dilutive for the nine months ended September 30, 1998 and accounted for the
decrease in dilutive weighted average common shares compared to 1997. Basic and
diluted loss per share was $.10 for the nine months ended September 30, 1998
after a reduction of $104,000 for preferred stock dividends accretion. Basic
earnings per share before accounting change was $.29 for 1997 after a reduction
for preferred stock dividends of $100,000 and an addition of $1,210,000 for the
Class A preferred stock redemption in 1997. Diluted EPS is shown after an
addition of $64,000 for convertible debt interest, an addition of $1,210,000 for
the Class A preferred stock redemption and a reduction of $28,000 for preferred
stock dividends in 1997.
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO
QUARTER ENDED SEPTEMBER 30, 1997
Net loss was $216,000 for the three months ended September 30, 1998
compared to net income of $517,000 for the same period in 1997.
Total revenue decreased 7.3% or $677,000 to $8,642,000 for the three months
ended September 30, 1998 compared to $9,319,000 for the same period in 1997. The
revenue decrease was a result of decreased student population. Total operating
expenses decreased $389,000 to $8,949,000 compared to $9,338,000 for the three
months ended September 30, 1997.
9
<PAGE>
Instruction costs and services--decreased $300,000 or 8.2% to $3,351,000
compared to $3,651,000 in 1997. The decrease was a result of decreased textbook
and supply expenses compared to 1997.
Selling and promotional--increased $98,000 or 6.6% to $1,584,000 compared
to $1,486,000 in 1997. The increase resulted from increased advertising expense
compared to 1997.
General and administrative--decreased $231,000 or 5.9% to $3,666,000
compared to $3,897,000 in 1997. The decrease was primarily due to decreased
professional fees and wages compared to 1997.
Provision for uncollectible accounts--increased $44,000 or 14.5% to
$348,000 compared to $304,000 in 1997.
Interest expense--was a constant $48,000 for 1998 and 1997.
Benefit for income taxes--In 1998, a tax benefit of $139,000 or 39% was
recorded compared to a benefit of $584,000 in 1997. During 1997, as a result of
the settlement of outstanding tax issues, the Company released book tax
contingencies totaling $550,000 for the three months ended September 30, 1997.
EPS and Weighted Average Common Shares--Basic weighted average common
shares increased to 7,191,000 in 1998 from 7,070,000 in 1997 and diluted
weighted average common shares decreased to 7,191,000 in 1998 from 11,725,000 in
1997. The stock options, non-detachable warrants, and preferred stock were anti-
dilutive for the nine months ended September 30, 1998 and accounted for the
decrease in dilutive weighted average shares compared to 1997. Basic and diluted
loss per share was ($.04) for the three months ended September 30, 1998 after a
reduction of $37,000 for preferred stock dividends. Basic earnings per share was
$.07 in 1997 after a reduction for preferred stock dividends of $32,000. Diluted
earnings per share was $.05 in 1997 and is shown after an addition of $27,000
for convertible debt interest in 1997.
Liquidity and Capital Resources
CenCor, Inc. Agreement
The Restructuring Agreement between the Company and CenCor, Inc. (CenCor)
was effective for the period between October 30, 1992 and February 25, 1997. See
the Company's 1997 Form 10-K for additional information concerning transactions
related to this agreement. In January 1998, all remaining commitments to CenCor
were satisfied.
Bank Financing
On February 25, 1997, the Company entered into agreements described as the
"Cahill-Warnock Transactions" in the Company's 1997 Form 10-K, and referred to
as the "Refinancing".
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 was extended and expires on April 30, 1999. 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. As of November 6, 1998, the Company had not
borrowed any funds against the line of credit.
Cash Flows
Net cash consumed by operating activities was $1,281,000 for the nine
months ended September 30, 1998 compared to cash provided by operating
activities of $371,000 during the same period in 1997. This decrease is
attributable to reduced enrollments. Deferred student tuition decreased in 1998
by $68,000 compared to a decrease of $1,663,000 in 1997.
Capital expenditures for the nine months ended September 30, 1998 were
$952,000 compared to $1,232,000 in 1997. Capital expenditures in 1998 were
primarily for additional computer equipment. In 1997, the Company received
approximately $725,000 from the sale of the Michigan land and building and
$300,000 from the San Jose sale.
Financing activities increased cash $10,000 in 1998. In 1997, financing
activities increased cash $425,000 as the Company retired the outstanding debt
and preferred stock due CenCor, Inc. and received cash from the issuance of new
debentures and preferred stock. The Company believes that existing future
commitments will be paid from cash provided by operating activities, cash on
hand, and if necessary, the existing credit facility.
10
<PAGE>
Miami Closing
On October 20, 1998, the Company announced that its Miami, Florida Campus
will be closed in the second quarter of 1999. The Miami building lease expires
April 30, 1999 and the current landlord is unwilling to renew the lease. The
Company has ceased enrolling new students and will teach the existing students
at the current location. All students are scheduled to graduate before June 30,
1999. The Miami Campus is the Company's smallest campus and accounts for 3.1% of
the Company's total revenue and 3.4% of the student population as of September
30, 1998.
Year 2000
The Company has assessed and continues to assess the impact of the year
2000 issue ("Y2K") on its operations. Many computer systems and applications
currently use two-digit date fields to designate a year. In such systems, the
Y2K issue exists because date sensitive computer systems will recognize the year
2000 as the year 1900 or not at all.
The Company uses personal computers (based on Microsoft operating systems)
for both operational and classroom purposes. In the normal course of business,
the Company has scheduled an upgrade of its operational system through the first
quarter of 1999, including replacing both hardware and software. The Company
believes that after its planned upgrade, its operational system will be
compliant. If the upgrade is not complete by the end of the first quarter of
1999, existing software will require modification. The Company does not believe
that any modification of existing software or conversion to new software as a
direct result of the Y2K will result in a material cost or pose a significant
operational problem for its computer systems.
The Company uses major third party vendors for its accounting system and
for its payroll processing. Both vendors notified the Company they are Y2K
compliant. The Company's financial activity is concentrated with the Department
of Education and major banking and other financial institutions located within
the United States. Failure by the Department of Education ("ED") to be Y2K
compliant could result in a temporary reduction of cash available for
operations. ED recently completed a basic Y2K assessment and is now accelerating
its program for compliance. The Company is currently unable to assess ED's
ability to become Y2K compliant.
The Company has not yet obtained assurance from other providers of goods or
services of Y2K compliance. Most goods and services, except for utilities, can
be obtained from alternate sources.
The Company is currently developing a formal program to address Y2K issues.
Although the Company is not aware of any material operational or financial Y2K
related issues, the Company cannot make any assurances that its computer
systems, services or the computer systems and other systems of others upon which
the Company depends will be Y2K ready or that the costs to become Y2K compliant
will not become material.
Contingencies
In September 1997, the Bureau of Consumer Protection of the United States
Federal Trade Commission (the "FTC") notified the Company that it was conducting
an inquiry related to the Company's offering and promotion of vocational or
career training. During June 1998, the FTC presented the Company with a proposed
complaint and consent order concerning the inquiry. The Company met with
representatives of the FTC and is considering various options. Currently, there
is not sufficient information available to determine the financial impact on the
Company, if any.
The Company generally relies on the availability of various federal and
state student financial aid programs to provide funding for the students
attending the Campuses. 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 Campuses 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 cases were
dismissed by the plaintiffs; however, over time three others were filed seeking
similar relief on behalf of a total of 95 plaintiffs. See Part II, Item 1 "Legal
Proceedings".
In 1991, ED notified the Company that the Southern Career Institute (the
"SCI"), a proprietary, post-secondary vocational home study school acquired
through a wholly owned subsidiary in 1990, was ineligible to participate in
federal student financial assistance programs. The Company subsequently received
notices requesting payments to ED of approximately $2.7 million relating to
student financial assistance funds disbursed between June and November 1990. See
the Company's 1997 Form 10-K, Item 7 "Contingencies". In September 1997, ED
again sent notices to the Company requesting payment. The
11
<PAGE>
Company responded by restating its offer to settle for the amount in the SCI
bank account which is currently $30,000 and requested an opportunity to review
documents and for a hearing. In April 1998, the Company was verbally informed
that ED is sending the account to the Department of Treasury ("Treasury"). The
Company has not been contacted by Treasury as of November 6, 1998.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Other
During July 1993, nine former students of the Jacksonville, Florida Campus
filed individual lawsuits against the Campus, alleging deceptive trade
practices, breach of contract, and fraud and misrepresentation. These suits have
since been 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
plaintiff's motion for class certification was denied on April 18, 1997. The
Company received a Notice of Appeal on May 17, 1997, which appealed the order
denying certification of the class. The purported class representative and the
Company filed all appropriate briefs, and oral argument before the appellate
court was held on January 15, 1998. On February 5, 1998, the appellate court
issued a per curium decision without opinion affirming the trial courts denial
of class certification. As no motion concerning the opinion was filed timely by
the class representative, the opinion is now final. Any further attempted
appeal, if filed, should be dismissed. During the appeal, all activity and
progress in the other suits was stayed. On April 20, 1998 the plaintiffs
initiated requests for discovery despite the stay on all activity. The amount of
damages sought is not determinable. The Company believes these suits are without
merit, and will continue to defend against them vigorously.
The Company's Campuses 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, 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 operation.
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 will have a
material adverse effect on the Company's financial position or results of
operation.
The Company is not aware of any material violation by the Company of
applicable local, state and federal laws.
Item 2. Change in Securities -- None
-----------------------------
Item 3. Defaults upon Senior Securities -- None
---------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders -- None
-----------------------------------------------------------
Item 5. Other Information
-----------------
Dr. Robert Roehrich, the Company's President, Chief Executive Officer,
and a member of the Company's Board of Directors, resigned effective
November 12, 1998. The resignation was not due to disagreements with the
Company relating to operations, policies or practices.
Item 6. Exhibits
--------
11 Computation of per share earnings
27 Financial Data Schedule
. No Reports on Form 8-K were filed during the period.
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONCORDE CAREER COLLEGES, INC.
DATED: November 12, 1998
By:___________________________________________
Jack L. Brozman, Chief Executive Officer
By:_____________________________________________
Paul Gardner, Vice President of Finance
13
<PAGE>
(EXHIBIT 11)
CONCORDE CAREER COLLEGES, INC.
COMPUTATION OF PER SHARE EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Basic EPS Diluted EPS
Nine Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding............. 7,168,000 7,012,000 7,168,000 7,012,000
Options (1)..................................... 894,000
Debt/Non Detachable Warrants (1)................ 2,046,000
Class B Preferred Stock (1)..................... 877,000
---------- ---------- ---------- -----------
Adjusted Weighted Average Shares................ 7,168,000 7,012,000 7,168,000 10,829,000
---------- ---------- ---------- -----------
Income (loss) before accounting change.......... $ (580,000) $ 942,000 $ (580,000) $ 942,000
Class A Preferred Stock Redemption (2).......... 1,210,000 1,210,000
Class A Preferred Dividends..................... (28,000) (28,000)
Class B Preferred Dividends-Imputed............. (104,000) (72,000) (104,000)
Interest on Convertible Debt, Net of Tax (1).... 64,000
---------- ---------- ---------- -----------
Income (loss) Available to Common Shareholders.. (684,000) 2,052,000 (684,000) 2,188,000
---------- ---------- ---------- -----------
Earnings (loss) per Weighted Average Shares..... $ (.10) $ .29 $ (.10) $ .20
========== ========== ========== ===========
Basic EPS Diluted EPS
Three Months Three Months
Ended September 30, Ended September 30,
----------------------- ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Weighted Average Shares Outstanding............. 7,191,000 7,070,000 7,191,000 7,070,000
Options (1)..................................... 978,000
Debt/Non Detachable Warrants (1)................ 2,574,000
Class B Preferred Stock (1)..................... 1,103,000
---------- ---------- ---------- ----------
Adjusted Weighted Average Shares................ 7,191,000 7,070,000 7,191,000 11,725,000
---------- ---------- ---------- -----------
Income (loss) before accounting change.......... $ (216,000) $ 517,000 $ (216,000) $ 517,000
Class B Preferred Dividends-Imputed............. (37,000) (32,000) (37,000)
Interest on Convertible Debt, Net of Tax (1).... 27,000
---------- ---------- ---------- -----------
Income Available to Common Shareholders......... (253,000) 485,000 (253,000) 544,000
---------- ---------- ---------- -----------
Income per Weighted Average Shares.............. $ (.04) $ .07 $ (.04) $ .05
========== ========== ========== ===========
</TABLE>
1. Anti-dilutive for 3 months and 9 months ended September 30, 1998.
2. Represents the excess of the carrying value of the preferred stock over the
amount of cash paid to the holder of the preferred stock retired on February
25, 1997.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Form 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JUL-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 3,170,000 0
<SECURITIES> 0 0
<RECEIVABLES> 15,129,000 0
<ALLOWANCES> 1,366,000 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 19,519,000 0
<PP&E> 7,646,000 0
<DEPRECIATION> 4,725,000 0
<TOTAL-ASSETS> 24,420,000 0
<CURRENT-LIABILITIES> 14,416,000 0
<BONDS> 3,500,000 0
0 0
6,000 0
<COMMON> 722,000 0
<OTHER-SE> 5,437,000 0
<TOTAL-LIABILITY-AND-EQUITY> 24,420,000 0
<SALES> 26,075,000 8,642,000
<TOTAL-REVENUES> 26,075,000 8,642,000
<CGS> 0 0
<TOTAL-COSTS> 25,976,000 8,601,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 908,000 348,000
<INTEREST-EXPENSE> 142,000 48,000
<INCOME-PRETAX> (951,000) (355,000)
<INCOME-TAX> (371,000) (139,000)
<INCOME-CONTINUING> (580,000) (216,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (580,000) (216,000)
<EPS-PRIMARY> (.10) (.04)
<EPS-DILUTED> (.10) (.04)
</TABLE>
