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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 March 31, 2003 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)
5800 Foxridge, 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 _______
------ -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No _______
-----
As of April 11, 2003 Concorde Career Colleges, Inc. had 5,852,104 shares of
Common Stock outstanding.
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CONCORDE CAREER COLLEGES, INC.
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 2003
INDEX
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Notes to Condensed Consolidated Financial Statements
Note 1, 2, and 3 ........................................ 2
Condensed Consolidated Balance Sheets ............................ 3
Condensed Consolidated Statements of Operations .................. 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
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 12
Item 4. Controls and Procedures........................................... 12
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
CEO Certification ......................................................... 14
CFO Certification ......................................................... 15
Exhibit 11 ................................................................ 16
Exhibit 99-1 .............................................................. 17
Exhibit 99-2 .............................................................. 18
1
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
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 Concorde Career
Colleges, Inc. ("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 Securities and Exchange Commission ("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. The condensed consolidated balance sheet of the Company as of
December 31, 2002 has been derived from the audited consolidated balance sheet
of the Company as of that date. 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 2002 Annual Report on Form 10-K that was filed
by the Company with the Commission on March 6, 2003 (the "2002 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 II, Item 1 - "Legal Proceedings".
Note 2:
Diluted earnings per share is computed by deducting interest from
convertible debt, net of tax and imputed preferred dividends from net income
(loss) 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.
Note 3:
Interest and other non-operating income consist of interest income from
certificates of deposit and money market accounts. Prior year information has
been reclassified for comparative purposes.
2
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
March 31, 2003 December 31, 2002
------------------- -------------------
Current Assets:
Cash and cash equivalents ......................... $ 12,061,000 $ 9,777,000
Short term investments ............................ 2,528,000 2,521,000
Receivables
Accounts receivable ............................. 23,464,000 19,784,000
Notes receivable ................................ 1,842,000 1,733,000
Allowance for uncollectible accounts ............ (1,834,000) (1,909,000)
---------------- ----------------
Net receivables ............................. 23,472,000 19,608,000
Recoverable income taxes .......................... 227,000
Deferred income taxes ............................. 952,000 952,000
Supplies and prepaid expenses ..................... 1,511,000 2,005,000
---------------- ----------------
Total current assets ........................ 40,524,000 35,090,000
Fixed Assets, Net .................................... 4,070,000 3,541,000
---------------- ----------------
Other Assets:
Long-term notes receivable ...................... 256,000 218,000
Allowance for uncollectible notes ............... (24,000) (19,000)
Goodwill ........................................ 954,000 954,000
Intangible, net ................................. 240,000 265,000
Deferred financing cost, net .................... 2,000
---------------- ----------------
Total other assets .......................... 1,426,000 1,420,000
---------------- ----------------
$ 46,020,000 $ 40,051,000
================ ================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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3
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2003 December 31, 2002
-------------- -----------------
Current Liabilities:
Deferred revenues .............................................. $ 24,599,000 $ 20,996,000
Accrued salaries and wages ..................................... 1,606,000 1,363,000
Accounts payable ............................................... 2,918,000 2,599,000
Accrued liabilities ............................................ 1,208,000 1,228,000
Accrued income taxes payable ................................... 506,000
Subordinated debt due to related party ......................... 3,500,000
Dividends payable .............................................. 218,000
-------------- -------------
Total current liabilities .................................. 30,837,000 29,904,000
Deferred Income Taxes ............................................. 157,000 157,000
Common stock, ($.10 par value, 19,400,000 shares
authorized) 6,140,314 shares issued and 5,849,104
shares outstanding at March 31, 2003 and 4,846,699
shares issued and 4,558,289 shares outstanding at
December 31, 2002 .......................................... 615,000 485,000
Capital in excess of par ....................................... 13,237,000 9,831,000
Retained Earnings .............................................. 2,326,000 791,000
Less treasury stock, 291,210 shares in 2003 and 288,410
in 2002, at cost ........................................... (1,152,000) (1,117,000)
-------------- -------------
Total stockholders' equity ................................. 15,026,000 9,990,000
-------------- -------------
$ 46,020,000 $ 40,051,000
============== =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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4
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended March 31,
-------------------------------
2003 2002
---- ----
Net Revenues ......................................... $ 17,359,000 $ 14,353,000
Costs and Expenses:
Instruction costs and services .................... 5,258,000 4,679,000
Selling and promotional ........................... 2,122,000 1,933,000
General and administrative ........................ 6,984,000 5,530,000
Provision for uncollectible accounts .............. 515,000 802,000
-------------- --------------
Total Expenses .................................... 14,879,000 12,944,000
-------------- --------------
Operating Income ..................................... 2,480,000 1,409,000
Interest and Other Non-Operating Income .............. 44,000 55,000
Interest Expense ..................................... 24,000 44,000
-------------- --------------
Income Before Provision from Income Taxes ............ 2,500,000 1,420,000
Provision From Income Taxes .......................... 965,000 582,000
-------------- --------------
Net Income ........................................... 1,535,000 838,000
Class B Preferred Stock Accretion .................... 52,000
-------------- --------------
Net Income Available to Common Shareholders .......... 1,535,000 786,000
============== ==============
Weighted Average Shares Outstanding:
Basic ............................................. 5,846,000 3,987,000
Diluted ........................................... 6,241,000 6,124,000
Net Income Per Share:
Basic ............................................. $ .26 $ .20
Diluted ........................................... $ .25 $ .14
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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5
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31,
--------------------------------
2003 2002
---- ----
Cash Flows - Operating Activities:
Net Income ................................................................ $ 1,535,000 $ 838,000
Adjustment to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization ............................................. 346,000 214,000
Provision for uncollectible accounts ...................................... 515,000 802,000
Change in assets and liabilities --
(Increase) in receivables, net ............................................ (4,412,000) (4,630,000)
Increase in deferred revenue .............................................. 3,603,000 3,394,000
Increase (decrease) in income taxes payable/recoverable ................... 733,000 (86,000)
Increase in accounts payable, accrued expenses and other .................. 1,038,000 1,038,000
--------------- -------------
Total adjustments ..................................................... 1,823,000 732,000
--------------- -------------
Net operating activities .............................................. 3,358,000 1,570,000
--------------- -------------
Cash Flows-Investing Activities:
Purchase of short term investments ............................................. (7, 000) (1,012,000)
Capital expenditures ........................................................... (850,000) (379,000)
--------------- -------------
Net investing activities .............................................. (857,000) (1,391,000)
--------------- -------------
Cash Flows-Financing Activities:
Treasury stock purchased .................................................. (35,000) (19,000)
Dividends paid ............................................................ (218,000) (43,000)
Stock purchase plan ....................................................... 30,000 10,000
Stock options exercised ................................................... 6,000
--------------- -------------
Net financing activities .............................................. (217,000) (52,000)
--------------- -------------
Net Increase in Cash and Cash Equivalents ...................................... 2,284,000 127,000
Cash and Cash Equivalents at Beginning of Period ............................... 9,777,000 7,556,000
--------------- -------------
Cash and Cash Equivalents at End of Period ..................................... $ 12,061,000 $ 7,683,000
=============== =============
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period For:
Interest .................................................................. $ 39,000 $ 88,000
Income taxes .............................................................. 233,000 669,000
Conversion of subordinated debt to common stock through exercise of warrants ... 3,500,000
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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6
CONCORDE CAREER COLLEGES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(unaudited)
Common Capital in Retained Treasury
Stock Excess of Par Earnings Stock Total
-------------- --------------- --------------- ---------------- --------------
BALANCE, December 31, 2002 ............ $ 485,000 $ 9,831,000 $ 791,000 $ (1,117,000) $ 9,990,000
Net Income ......................... 1,535,000 1,535,000
Warrants Exercised ................. 129,000 3,371,000 3,500,000
Stock Options Exercised ............ 1,000 5,000 6,000
Employee Stock Purchase Plan ....... 30,000 30,000
Treasury Stock Purchased ........... (35,000) (35,000)
------------ -------------- ------------- ------------- -------------
BALANCE, March 31, 2003 ............... $ 615,000 $ 13,237,000 $ 2,326,000 $ (1,152,000) $ 15,026,000
============ ============== ============= ============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table presents certain consolidated statement of operations
items as a percentage of total revenue for periods indicated.
Three Months
Ended March 31,
--------------------------
2003 2002
---- ----
Revenue ...................................... 100.0% 100.0%
Operating Expenses:
Instruction costs and services .......... 30.3 32.6
Selling and promotional ................. 12.2 13.5
General and administrative .............. 40.2 38.5
Provision for uncollectible accounts .... 3.0 5.6
------ ------
Total operating expenses ................ 85.7 90.2
Operating income ............................. 14.3 9.8
Interest and other non-operating income ...... 0.3 0.4
Interest expense ............................. 0.1 0.3
------ ------
Income before provision for income taxes ..... 14.5 9.9
Provision for income taxes ................... 5.6 4.1
------ ------
Net income ................................... 8.9% 5.8%
====== ======
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8
Results of Operations
General
The Company owns and operates proprietary, postsecondary institutions
that offer career vocational training programs primarily in the allied health
field. As of March 31, 2003, the Company operated Campuses at 12 locations in
seven states (the "Campuses"). The Company's revenue is derived almost entirely
from tuition, textbook sales, fees and charges paid by, or on behalf of, our
students. A large number of the Company's students paid a substantial portion of
tuition and other fees with funds received through student assistance financial
aid programs under Title IV of the Higher Education Act of 1965, as amended (the
"HEA"). The Company received approximately 82% of cash receipts from such funds
for the year ended December 31, 2002.
The Company's revenue varies based on student enrollment and
population. The number of students that attend our Campuses, the number of new
enrollments during a fiscal period, student retention rates and general economic
conditions impacts student population. The introduction of new programs at
certain campuses, improved advertising effectiveness and student retention have
been significant factors of increased student population in the last three
years.
Each of the Company's Campuses must be authorized by the state in which
it operates, accredited by an accrediting commission that the U.S. Department of
Education ("ED") recognizes, and certified by the ED to participate in Title IV
Programs. Any substantial restrictions on the Campuses ability to participate in
Title IV Programs would adversely affect our ability to enroll students and
expand the number of programs.
The Company establishes an accounts receivable and a corresponding
deferred revenue liability for each student upon commencement of a program of
study. The deferred revenue liability, consisting of tuition and non-refundable
registration fees, is recognized into income ratably over the length of the
program. If a student withdraws from a program, the unearned portion of the
tuition for which the student has paid is refunded on a pro-rata basis. Textbook
and uniform sales are recognized when they occur. Any unpaid balance due when
the student withdraws is generally due directly from the student, not from a
federal or state agency.
Accounts receivable are due from students and are expected to be paid
primarily through the use of federal and state sources of funds. Students are
responsible for amounts not available through federal and state sources and
unpaid amounts due when the student withdraws. The Company realized a lower
level of uncollectible accounts receivable from students during the first
quarter of 2003 as student population in clinical programs increased, student
retention improved, and the Company's collection process became more effective.
The Company expects that non-Title IV accounts and notes receivable due from
students may continue to increase in the future and that the related provision
for uncollectible accounts may also increase dependent upon the Company's
collection effectiveness and student retention.
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO
THREE MONTHS ENDED MARCH 31, 2002
Student enrollments increased 8.4% to 2,483 for the quarter ended March
31, 2003 compared to 2,291 in the first quarter of 2002. Higher enrollments were
the result of an increased demand for the Company's courses compared to 2002.
Student population increased 14.5% to 5,709 at March 31, 2003 compared to 4,985
at March 31, 2002. Average student population in the first quarter of 2003
increased 15.0% to 5,610 compared to 4,877 for the quarter ended March 31, 2002.
Net income of $1,535,000 was recorded for the quarter ended March 31,
2003 compared to $838,000 in 2002. The increased profit was the result of
increased revenue and operating margin compared to 2002.
Revenue increased 20.9% or $3,006,000 to $17,359,000 for the quarter
ended March 31, 2003 compared to $14,353,000 for the same period in 2002. The
revenue increased due to higher student enrollments, increased average student
population and an approximate 6% tuition increase compared to 2002.
Instruction Costs and Services - increased 12.4% or $579,000 to
$5,258,000 compared to $4,679,000 in 2002. The increase was primarily a result
of increased salary expense compared to 2002. Salaries increased $602,000 due to
higher wages and a slight increase in the number of staff and was offset by a
decrease in textbook expense.
Selling and Promotional -increased to $2,122,000 compared to $1,933,000
in 2002. The increase is primarily a result of the Company spending more in
television and newspaper advertising compared to 2002.
9
General and Administrative - increased 26.3% or $1,454,000 to
$6,984,000 compared to $5,530,000 in 2002. The largest dollar increase was due
to a payroll increase of $326,000 compared to 2002. Additional employees due to
enrollment increases, higher wages and incentive compensation were factors in
the increase. However, payroll as a percentage of revenue decreased as the
Company was able to leverage this expense. Employee procurement increased
$259,000 as the Company filled several existing open positions at the Campuses.
Rent expense increased $162,000 due to increased rent at the San Bernardino,
California location due to the Campus moving, the addition of the Arlington,
Texas Campus, additional space taken at several Campuses, and normal rent
increases. The Company also experienced increased expenses in several other
categories as revenue increased by 20.9%.
Provision for Uncollectible Accounts - decreased $287,000 to $515,000
compared to $802,000 in 2002. The decrease is a result of increased
reenrollments, increased population in clinical program, improved student
retention, lower delinquencies and a more effective collections process. The
Company anticipates the provision for uncollectible accounts may increase as a
percentage of revenue in future quarters. The allowance for uncollectible
accounts as a percentage of accounts more than 30 days delinquent was 57.9% at
March 31 2003, compared to 55.2% at December 31, 2002.
Interest and Other Non-Operating Income - decreased to $44,000 for the
quarter ended March 31, 2003 compared to $55,000 for the quarter ended March 31,
2002. Interest income decreased due to lower interest rates compared to 2002.
Interest Expense - was $24,000 in the first quarter of 2003 compared to
$44,000 in 2002. The interest decreased as the Company's subordinated debt was
eliminated. See discussion under Liquidity and Capital Resources.
Provision for Income Taxes - a tax provision of $965,000 or 38.6% of
pretax income was recorded for the quarter ended March 31, 2003 compared to
$582,000 or 41% for the quarter ended March 31, 2002.
EPS and Weighted Average Common Shares - Basic weighted average common
shares increased to 5,846,000 in 2003 from 3,987,000 in 2002. The common share
increase is the result of converting $3,500,000 of subordinated debt into
1,286,764 shares of common stock on February 19, 2003. In addition, common
shares increased due to the employee stock purchase plan and stock options
exercised offset by stock repurchases. Basic income per share was $.26 in 2003
compared with $.20 in 2002. Basic income per share is shown after a reduction
for preferred stock dividend accretion of $52,000 in 2002. Diluted weighted
average common shares outstanding increased to 6,241,000 in 2003 from 6,124,000
in 2002. The average common shares increased primarily due to stock options not
yet exercised. Diluted income per share was $.25 for the quarter ended March 31,
2003 compared with $.14 for 2002. Diluted income per share is shown after
interest on convertible debt, net of tax of $27,000 in 2002.
Liquidity and Capital Resources
Bank Financing
The Company negotiated a $3,000,000 secured revolving credit facility
on December 28, 1998, with Security Bank of Kansas City. The amount available
under the facility is offset by the letter of credit discussed below. As a
result $2,764,000 is currently available under the facility. This facility
expires on April 30, 2003 and the Company anticipates that it will be extended.
Funds borrowed under this facility, if any, will be used for general corporate
purposes. This facility has a variable interest rate equal to the prime rate and
no commitment fee. The credit facility is secured by all cash, accounts and
notes receivable, furniture and equipment, and capital stock of the
subsidiaries. The Company is required to maintain a minimum level of
consolidated tangible net worth of not less than $7,600,000 as part of this
agreement. The Company is currently in compliance with this agreement. The
Company has not borrowed any funds under this facility.
On December 30, 1998 Security Bank of Kansas City issued a $589,000
letter of credit as security for a lease on the Company's Garden Grove,
California location. The letter of credit will expire October 2, 2003. Each year
as the letter of credit expires it will be replaced by replacement letters of
credit expiring annually through October 2, 2005. The replacement letters of
credit will be issued at amounts decreasing 20% annually from the original issue
amount. The letter of credit was $589,000, $471,000, $354,000, and $236,000 at
December 31, 1999, 2000, 2001, and 2002, respectively. The letter can only be
drawn upon if there is default under the lease agreement. There has been no
default at any time under the lease agreement.
Cash Flows and Other
Net cash flows provided by operating activities was $3,358,000 for the
quarter ended March 31, 2003 compared with $1,570,000 in 2002. Cash flows from
operating activities increased due to the increase in net income of $697,000 and
income taxes payable of $819,000.
Cash used in investing activities was $857,000 for the quarter ended
March 31, 2003 compared to $1,391,000 in 2002. Cash was used in both years to
purchase short-term investments and fixed assets.
10
Cash used by financing activities was $217,000 for the quarter ended
March 31, 2003 compared to $52,000 in 2002. The decrease was primarily a result
of increased dividends paid in 2003. The Company paid to Cahill-Warnock a
dividend equal to $4.08 per share of the Class B Voting Convertible Preferred
Stock on February 7, 2003. This constituted all dividend payments owed to
Cahill-Warnock including the fourth quarter 2002 dividend of $43,500 and a
special dividend to encourage the conversion of the Preferred Stock.
The Company's Board of Directors approved a 500,000 shares repurchase
program in August 2000. As of March 31, 2003 the Company purchased a total of
278,935 shares at an average price of $3.92 pursuant to the buy back plan. The
Company's last purchase was 2,800 shares at $12.52 per share in the first
quarter of 2003. The shares repurchase plan remains in effect.
On February 27, 2003 the Board of Directors unanimously adopted,
subject to stockholder approval, the Concorde Career Colleges, Inc. Restated
Employee Stock Purchase Plan ("Employee Plan"). The Plan is similar to the
current Plan which expires September 30, 2003. An aggregate of 75,000 shares of
Common Stock of the Company are subject to the Employee Plan and are reserved
for issuance under such Plan. Options to purchase 15,000 shares of Common Stock
of the Company are to be offered to participants for purchase in the first year
(commencing October 1, 2003 and ending September 30, 2004) and each of the four
succeeding plan years. The option price of Common Stock purchased with payroll
deductions made during such annual, semi-annual or calendar-quarterly Offering
for participant therein shall be the lower of:
(a) 95% of the closing price of the Common Stock on the Offering
Commencement Date or the nearest prior business day on which trading occurred on
the Nasdaq Stock Market; or
(b) 95% of the closing price of the Common Stock on the Offering
Termination Date or the nearest prior business day on which trading occurred on
the Nasdaq Stock Market.
The Company entered into agreements on February 25, 1997 with Cahill,
Warnock Strategic Partners Fund, LP and Strategic Associates, LP, affiliated
Baltimore-based venture capital funds ("Cahill-Warnock"), for the issuance by
the Company and purchase by Cahill-Warnock of 55,147 shares of the Company's new
Class B Voting Convertible Preferred Stock ("Voting Preferred Stock") for $1.5
million, and 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. Mr. Seward
purchased such shares for their purchase price of approximately $50,000. On
September 30, 2001, Mr. Seward converted his 1,838 shares of Voting Preferred
Stock into 18,380 shares of Common Stock. The New Debentures had nondetachable
warrants ("Warrants") for approximately 1,286,765 shares of Common Stock,
exercisable at $2.72 per share of Common Stock. The following transactions have
occurred with respect to the Voting Preferred Stock and New Debentures since
December 31, 2001:
(1) The Company entered into a Conversion and Exchange Agreement with Cahill,
Warnock Strategic Partners Fund, L.P. and Strategic Association, L.P.
(collectively "Cahill-Warnock") on November 25, 2002. The purpose of the
agreement was to convert the Voting Preferred Stock into Common Stock.
(2) The Company filed a Registration Statement on Form S-3 to register
1,133,090 shares of common stock. The Company received no funds as a result
of the registration or subsequent distribution of common stock. Six hundred
thousand (600,000) shares of the common stock were issued and outstanding
as of the date of the Registration Statement. The Robert F. Brozman Trust
held 350,000 shares, Cahill, Warnock Strategic Partners Fund, and L.P. held
237,000 shares, and Strategic Associates, L.P. held 13,000 shares. The
remaining 533,090 shares related to common shares issued upon conversion of
the preferred stock to common stock.
(3) The Registration Statement became effective February 5, 2003.
(4) Cahill-Warnock exchanged their 53,309 shares of Class B Voting Convertible
Preferred Stock for 533,090 shares of Common Stock on February 7, 2003. The
Company has no remaining Preferred Stock outstanding.
(5) The Company paid to Cahill-Warnock a dividend equal to $4.08 per share of
the Class B Voting Convertible Preferred Stock on February 7, 2003. This
constituted all dividend payments owed to Cahill-Warnock including the
fourth quarter 2002 dividend of $43,500 and a special dividend of $174,000
to encourage the conversion of the Preferred Stock.
(6) Cahill-Warnock exercised the non-detachable Warrants on February 19, 2003
and the Company issued 1,286,764 shares of Common Stock to Cahill-Warnock
pursuant to the exercise of the Warrants.
The Company meets its working capital, capital equipment purchases and
cash requirements with funds generated internally. Management currently expects
its cash on hand, funds from operations and borrowings available under existing
credit facilities to be sufficient to cover both short-term and long-term
operating requirements. However, cash flows are dependent on the Company's
ability to maintain Title IV eligibility, maintain demand for programs and to
minimize uncollectible accounts receivable through effective collections and
improved retention.
11
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's exposure to market risk for changes in interest rates
relate to the increase or decrease in the amount of interest income the Company
can earn on short-term investments in certificate of deposits and cash balances.
Because the Company's investments are in short-term, investment-grade,
interest-bearing securities, the Company is exposed to minimum risk on the
principal of those investments. The Company ensures the safety and preservation
of its invested principal funds by limiting default risks, market risk and
investment risk. The Company does not use derivative financial instruments.
Item 4. Controls and Procedures
We maintain a set of disclosure controls and procedures and internal
controls designed to ensure that information required to be disclosed in our
filings under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. Our principal executive and financial
officers have evaluated our disclosure controls and procedures within 90 days
prior to the filing of this Quarterly Report on Form 10-Q and have determined
that such disclosure controls and procedures are effective. Subsequent to our
evaluation, there were no significant changes in internal controls or other
factors that could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company is 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, resolution of such pending litigation and
disputed findings will not have a material effect on the Company's financial
condition or its 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- None
Item 6. Exhibits
3.1 Restated Certificate of Incorporation of the Corporation, as
amended (Incorporated by reference to Exhibit 3(a) of the Annual
Report on Form 10-K for the year ended December 31, 1994).
3.2 Amended and Restated Bylaws of the Corporation (Incorporated by
reference to Exhibit 3(b) of the Annual Report on Form 10-K for
the year ended December 31, 1991).
11 Computation of per share earnings.
99-1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99-2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
12
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: April 23, 2003
By: /s/ Jack L. Brozman
--------------------
Jack L. Brozman, Chief Executive Officer
By: /s/ Paul R. Gardner
--------------------
Paul R. Gardner, Chief Financial Officer
(The remainder of this page was left intentionally blank.)
13
I, Jack L. Brozman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Concorde Career
Colleges, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I, are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 23, 2003
/s/ Jack L. Brozman
- -------------------
Jack L. Brozman, Chief Executive Officer
14
I, Paul R. Gardner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Concorde Career
Colleges, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I, are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 23, 2003
/s/ Paul R. Gardner
- --------------------
Paul R. Gardner, Chief Financial Officer
15