business

Is College Bound For Real? The Sec Wants To Know

College Bound Inc. looks like a perfect hot-growth company. Launched in 1985 to prep students for college exams, the company's founders, former teacher Janet Ronkin and her husband, George, took it public in 1988. Since then, the Ronkins say they've opened 140 centers. Rosy financials, including sales of $22 million in 1991, have made College Bound's stock a hot ticket: Shares now trade around 18, up from just 5 5/8 a year ago (chart).

But like its Boca Raton (Fla.) neighbor, Cascade International Inc., College Bound may be a little too hot for some, including the Securities & Exchange Commission. Cascade folded late in 1991 after Chairman Victor G. Incendy disappeared and the cosmetics and clothing company admitted it had inflated financial results and the number of outlets it owned. George Ronkin says the Cascade debacle has unfairly hurt College Bound. "The worst thing we could have done is move to Boca Raton," he says. "We're always defending ourselves."

SHAREHOLDER SUITS. But it's more than the company's address that has drawn the SEC. It is conducting two probes into College Bound's activities. Last month, a company director, Roland van der Haegen, testified before the SEC about a shell company that College Bound merged with when it went public. The Ronkins say the SEC is probing that company, not College Bound. But another SEC probe is squarely focused on College Bound. For nearly a year, the agency has been looking into College Bound's skyrocketing stock price. The Ronkins say there's nothing to find. The SEC won't comment on either case.

There also are the two lawsuits filed by shareholders last October in U.S. District Court in Fort Lauderdale, Fla. They charge that the Ronkins have exaggerated the number of centers they own, and that the company's stock has been manipulated. The Ronkins also deny those claims.

But it's the short-sellers who have been College Bound's loudest doubters. These investors, who bet that a stock will sink, naturally have the most to gain by criticizing the company. One short-seller, Steve Carlson, president of Denver-based Aspen Capital, says he visited six College Bound centers last summer and fall and that all had lackluster business. Carlson also enrolled employees in classes. They found just one or two others enrolled, vs. the 12 to 30 students in classes run by competitors such as Princeton Review and the Stanley H. Kaplan Educational Centers. The Ronkins say Carlson may have visited new centers, drawing fewer students. Still, "there's nothing to justify the numbers they are putting out to the public," Carlson says. When BUSINESS WEEK scheduled a Friday afternoon visit to a Coral Gables (Fla.) center, it was packed. On other, unannounced afternoon visits, the center was nearly empty.

To prove their company is for real, the Ronkins showed BW photographs of College Bound centers. Some of the questions about their company, the Ronkins say, result from its relationship with that shell company. But mostly, the Ronkins contend, they are the victims of shorts who are trying to knock down the stock's price by spreading false rumors.

SUSPECT ACCOUNTING. The bears, however, aren't alone in raising an eyebrow over College Bound. American University accounting professor Howard M. Schilit has criticized some of its accounting methods, including having a sole practitioner handle its books instead of an accounting firm. That accountant stands by his audit, while the Ronkins say they'll soon hire a larger firm.

Schilit attributes some of College Bound's fast growth to an accounting treatment that blends the revenues and profits of acquired companies with its own. College Bound doubled its revenues last June, for instance, with the purchase of a $10 million testing company. The Ronkins say they follow accepted accounting procedures.

Even supporters of College Bound aren't comfortable with all of its accounting practices. Richard Lilly, an analyst with Boca Raton-based brokerage house J.W. Charles, has recommended College Bound stock. But he says he believes the company's earnings are overstated by as much as 40%, and that the $17 million in net worth College Bound reported as of Nov. 30 consists of $15 million in intangible assets. "I think it's a real company," he says. "But the company presents itself a little better than the reality."

For investors, the basic question is simple: Why does a company with no patents and just $22 million in sales command a market value of $169 million? The lofty stock price, George Ronkin says, "offers us an opportunity to make the company worth it." If the Ronkins can't, it will be a long way down for investors in this hot-growth stock.

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