-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TKIKvVDE8mSgQzF8trp3CiqmIBMUB6Dwi1hQiZ+ojUqAI9ecf+GOA71T6TitxeYF d/mG20V/CQK3tH6INl1+kQ== 0000912057-97-030577.txt : 19970918 0000912057-97-030577.hdr.sgml : 19970918 ACCESSION NUMBER: 0000912057-97-030577 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19970912 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRO LEARNING INC CENTRAL INDEX KEY: 0000893965 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] IRS NUMBER: 363660532 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20842 FILM NUMBER: 97679347 BUSINESS ADDRESS: STREET 1: POPLAR CREEK OFFICE PLAZA STREET 2: 1721 MOON LAKE BOULEVARD CITY: HOFFMAN ESTATES STATE: IL ZIP: 60194 BUSINESS PHONE: 8477817800 MAIL ADDRESS: STREET 1: 1721 MOON LAKE BLVD SUITE 555 CITY: HOOFMAN ESGTATES STATE: IL ZIP: 60194 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JULY 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number 0-20842 TRO LEARNING, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3660532 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1721 MOON LAKE BOULEVARD, SUITE 555, HOFFMAN ESTATES, IL 60194 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 781-7800 NOT APPLICABLE --------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK, $.01 PAR VALUE 6,234,211 - ---------------------------- ----------------------------------- Class Outstanding as of September 2, 1997 (This document contains 15 pages) 1 TRO LEARNING, INC. AND SUBSIDIARIES INDEX PAGE NUMBER PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited): Consolidated Statements of Income for the Three and Nine Months Ended July 31, 1997 and 1996 . . . 3 Consolidated Balance Sheets as of July 31, 1997 and October 31, 1996 . . . . . . . . . . . 4 Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 1997 and 1996 . . . . . . . . 5 Notes to Consolidated Financial Statements. . . . . . . . . 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . 9-13 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 14 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 14 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . 14 Item 4. Submission of Matters to a Vote of Security Holders . . . . 14 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 14 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 14 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2 PART I. FINANCIAL INFORMATION TRO LEARNING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, ------------------- --------------------- 1997 1996 1997 1996 -------- -------- -------- --------- Revenues by product line: PLATO-Registered Trademark- Education. . . . . . . $ 10,674 $ 10,917 $ 21,163 $ 21,483 Aviation Training. . . . . . . . . . . . . . . . . 669 484 2,867 3,068 -------- -------- -------- --------- Total revenues. . . . . . . . . . . . . . . . . 11,343 11,401 24,030 24,551 Cost of revenues. . . . . . . . . . . . . . . . . . 1,761 1,979 3,892 3,825 -------- -------- -------- --------- Gross profit. . . . . . . . . . . . . . . . . . 9,582 9,422 20,138 20,726 -------- -------- -------- --------- Operating expenses: Selling, general and administrative expense . . . 8,577 6,721 22,426 18,419 Product development and customer support. . . . . 2,285 1,404 5,758 3,841 -------- -------- -------- --------- Total operating expenses. . . . . . . . . . . . 10,862 8,125 28,184 22,260 -------- -------- -------- --------- Operating income (loss) . . . . . . . . . . . (1,280) 1,297 (8,046) (1,534) Interest expense . . . . . . . . . . . . . . . . . . (388) (154) (867) (550) Interest income and other expense, net . . . . . . . (60) 30 (168) (15) -------- -------- -------- --------- Income (loss) before income taxes . . . . . . (1,728) 1,173 (9,081) (2,099) Provision (credit) for income taxes. . . . . . . . . (648) 448 (3,405) (787) -------- -------- -------- --------- Net income (loss) . . . . . . . . . . . . . . $ (1,080) $725 $ (5,676) $ (1,312) -------- -------- -------- --------- -------- -------- -------- --------- Income (loss) per common and common equivalent share: Primary - Net income (loss). . . . . . . . . . . . . . . . $ (0.17) $ 0.11 $ (0.91) $ (0.21) -------- -------- -------- --------- -------- -------- -------- --------- Weighted average common and common equivalent shares outstanding. . . . . . . . . . . . . . 6,229 6,713 6,212 6,106 -------- -------- -------- --------- -------- -------- -------- ---------
See Notes to Consolidated Financial Statements 3 TRO LEARNING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
JULY 31, OCTOBER 31, 1997 1996 --------- ----------- ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 731 $ 475 Accounts receivable, less allowances of $1,508 and $510, respectively . 20,723 24,163 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,174 1,097 Prepaid expenses and other current assets . . . . . . . . . . . . . . . 1,956 1,051 --------- ----------- Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . 24,584 26,786 Equipment and leasehold improvements, less accumulated depreciation of $3,865 and $3,250, respectively. . . . . . . . . . . . . . . . . . . 1,373 1,368 Product development cost, less accumulated amortization of $1,879 and $680, respectively. . . . . . . . . . . . . . . . . . . . . . . . . 5,932 5,528 Deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,311 5,906 Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,062 2,739 --------- ---------- $ 43,262 $ 42,327 --------- ----------- --------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,513 $ 2,588 Accrued employee salaries and benefits. . . . . . . . . . . . . . . . . 2,709 3,079 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 3,776 3,705 Revolving loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,964 8,612 Deferred tax liability. . . . . . . . . . . . . . . . . . . . . . . . . 1,845 1,845 Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,798 1,137 --------- ----------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 21,605 20,966 Long term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,050 --- Deferred revenue, less current portion. . . . . . . . . . . . . . . . . . 462 296 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 253 Stockholders' equity: Common stock, $.01 par value; 25,000 shares authorized; 6,279 shares issued and 6,234 shares outstanding in 1997; 6,190 shares issued and 6,167 shares outstanding in 1996. . . . . . . 62 62 Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,778 21,634 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (6,119) (443) Treasury stock at cost, 45 and 23 shares, respectively. . . . . . . . . (469) (208) Foreign currency translation adjustment . . . . . . . . . . . . . . . . (300) (233) --------- ----------- Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . 14,952 20,812 --------- ----------- $ 43,262 $ 42,327 --------- ----------- --------- -----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 TRO LEARNING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
NINE MONTHS ENDED JULY 31, --------------------- 1997 1996 --------- --------- Cash flows from operating activities: Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,676) $ (1,312) --------- --------- Adjustments to reconcile net loss to net cash used in operating activities: Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,405) (787) Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,872 964 Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,712 420 Disposal of fixed assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 11 Changes in assets and liabilities: (Increase) decrease in accounts receivable. . . . . . . . . . . . . . . . . . . . 1,728 (1,489) Increase in inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (77) (247) Increase in prepaid expenses and other current and noncurrent assets . . . . . . . (267) (262) Increase in product development costs. . . . . . . . . . . . . . . . . . . . . . . (1,603) (2,339) Decrease in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (75) (251) Increase (decrease) in accrued liabilities, accrued employee salaries and benefits and other liabilities (359) 992 Increase (decrease) in deferred revenue. . . . . . . . . . . . . . . . . . . . . . 827 (52) --------- --------- Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 (3,040) --------- --------- Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . (5,321) (4,352) --------- --------- Cash flows from investing activities: Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (648) (720) --------- --------- Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . (648) (720) --------- --------- Cash flows from financing activities: Net proceeds from short term borrowings . . . . . . . . . . . . . . . . . . . . . . . . 352 4,785 Proceeds from issuance of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . 6,050 --- Issuance (purchase) of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . (261) 50 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 191 --------- --------- Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . 6,285 5,026 --------- --------- Effect of foreign currency on cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . (60) (96) --------- --------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . 256 (142) Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . . . . . . . . 475 231 --------- --------- Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . . . . . . . $ 731 $ 89 --------- --------- --------- --------- Cash paid for interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 862 $ 598
5 TRO LEARNING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: NATURE OF BUSINESS: TRO Learning, Inc. and its subsidiaries (the Company) develop and market microcomputer-based, interactive, self-paced instructional and educational systems. The Company markets such systems primarily to educational institutions and private industry. BASIS OF PRESENTATION: The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Accordingly, these quarterly consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Form 10-K for the fiscal year ended October 31, 1996. The financial information furnished reflects, in the opinion of the Company, all adjustments of a normal, recurring nature necessary for a fair statement of the results for the interim periods presented. Because of cyclical and other factors, the results for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year. REVENUE RECOGNITION: Revenue from the sale of education and training courseware licenses, support services, and related computer hardware is recognized when courseware, hardware, and related services are delivered at which time future service costs, if any, are accrued. Future service costs represent the Company's problem resolution and support "hotline" service for a one year period. Deferred revenue represents the portion of billings made or payments received in advance of services being performed or products being delivered. PRODUCT DEVELOPMENT, ENHANCEMENT, AND MAINTENANCE COSTS: The Company develops education and training products, referred to hereafter as courseware products. Costs incurred in the development of the Company's current generation courseware products and related enhancements and routine maintenance thereof are expensed as incurred. All costs incurred by the Company in establishing the marketability of its new courseware products to be sold, leased, or otherwise marketed are expensed as incurred. Once marketability has been established, costs incurred in the development of new generation courseware products are capitalized. 6 TRO LEARNING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED PRODUCT DEVELOPMENT, ENHANCEMENT, AND MAINTENANCE COSTS, Continued Amortization is provided over the estimated useful life of the new courseware products, generally three years, using the straight-line method. Amortization begins when the product is available for general release to customers. Unamortized capitalized costs determined to be in excess of the net realizable value of the product are expensed at the date of such determination. COMPUTATION OF INCOME (LOSS) PER SHARE: Primary income (loss) per share is based upon the weighted average number of shares of common stock outstanding and, where dilutive, common equivalent shares from stock options (using the treasury stock method). Fully diluted income (loss) per share is not presented since the results are equivalent to primary income (loss) per share. 2. ACCOUNTS RECEIVABLE: Accounts receivable include installment receivables of $12,180,000 and $13,023,000 at July 31, 1997 and October 31, 1996, respectively. Installment receivables with terms greater than one year were $1,287,000 and $1,909,000 at July 31, 1997 and October 31,1996, respectively, and are included in other assets on the consolidated balance sheets. 3. DEBT: In March 1997, the Company expanded its revolving loan agreement to provide for a maximum $18 million line of credit with substantially the same terms and conditions. Borrowings under the line are limited by the available borrowing base, as defined, and bear interest at the prime rate plus 1.5% or the LIBOR rate plus 3.25% as determined by the Company. At July 31, 1997, there were borrowings of $8,964,000 outstanding at an interest rate of 10%. The Company did not comply with a financial covenant requiring a minimum level of operating profit for the nine months ended July 31, 1997. On August 29, 1997, the Company obtained a waiver from its lender for such covenant for the period ending July 31, 1997. In addition, the expanded loan agreement makes available a $3 million term loan, at an annual interest rate of 15%, during the remaining term of the agreement. The funds were borrowed in May 1997 and used to reduce the balance of the outstanding revolving loan. Also, in March 1997, the Company issued $3,050,000 of 10% subordinated convertible debentures with a scheduled maturity in 2004. Interest is payable semiannually. At the option of the holder, the debentures are convertible into the Company's common stock at $9.60 per share. The Company may redeem the debentures at 101% of principal, plus interest, subject to certain terms and conditions. 7 TRO LEARNING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 3. DEBT, CONTINUED In addition, the debentures are subject to mandatory redemption at 25% of principal annually beginning in 2001. 4. COMMON STOCK: In March 1997, concurrent with the issuance of the subordinated convertible debentures (see Note 3), the Company issued approximately 51,000 warrants to purchase the Company's common stock at $9.60 per share. The warrants expire in 2002. 8 PART I. FINANCIAL INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS THIRD QUARTER FISCAL 1997 COMPARED TO THIRD QUARTER FISCAL 1996 REVENUES: Total revenues for the third quarter of fiscal 1997 of $11,343,000 decreased by $58,000 or 1% as compared to $11,401,000 for the third quarter of fiscal 1996. The following table highlights revenues by product line (in 000's):
PLATO EDUCATION AVIATION TRAINING TOTAL ------------------ ----------------- ------------------ 1997 1996 1997 1996 1997 1996 -------- -------- ------- ------ -------- -------- Courseware license and support $ 8,828 $ 8,996 $ 648 $ 395 $ 9,476 $ 9,391 Hardware, third party courseware and other 1,846 1,921 21 89 1,867 2,010 -------- -------- ------- ------ -------- -------- Total revenues $ 10,674 $ 10,917 $ 669 $ 484 $ 11,343 $ 11,401 -------- -------- ------- ------ -------- -------- -------- -------- ------- ------ -------- --------
As summarized in the above table, PLATO Education courseware license and support revenues for the third quarter of 1997 decreased 2% from the comparable period in fiscal 1996 while hardware, third party courseware and other revenues decreased 4%. PLATO Education total revenues of $10,674,000 for the third quarter of fiscal 1997 decreased by $243,000 or 2% as compared to the third quarter of 1996. The Company historically has experienced significantly higher levels of revenues in its fourth fiscal quarter. Aviation Training revenues for the third quarter of fiscal 1997 increased $185,000 or 38% over the comparable period of the prior year. GROSS PROFIT: Gross profit for the third quarter of fiscal 1997 increased by $160,000 or 2% to $9,582,000 as compared to $9,422,000 for the third quarter of fiscal 1996. The Company's gross margin was 84% for the third quarter of fiscal 1997 as compared to 83% for the third quarter of fiscal 1996. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE: Selling, general, and administrative expense for the third quarter of fiscal 1997 increased by $1,856,000 or 28% to $8,577,000 as compared to $6,721,000 for the third quarter of fiscal 1996. This increase was due primarily to higher PLATO Education sales and marketing expenses resulting from the planned expansion of the sales and service organization. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS, CONTINUED PRODUCT DEVELOPMENT AND CUSTOMER SUPPORT: Product development and customer support expense for the third quarter of fiscal 1997 increased by $881,000 or 63% to $2,285,000 as compared to $1,404,000 for the third quarter of fiscal 1996. This increase was due principally to the continued expansion of PLATO Education products. OPERATING INCOME (LOSS): The operating loss was $1,280,000 for the third quarter of fiscal 1997 as compared to operating income of $1,297,000 for the third quarter of fiscal 1996. Increased PLATO Education sales, marketing and product development expenses contributed to the operating loss. INTEREST EXPENSE: Interest expense for the third quarter of fiscal 1997 was $388,000 as compared to $154,000 for the third quarter of fiscal 1996. This increase was principally due to the Company's long-term debt incurred in fiscal 1997. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS, CONTINUED FIRST NINE MONTHS FISCAL 1997 COMPARED TO FIRST NINE MONTHS FISCAL 1996 REVENUES: Total revenues for the first nine months of fiscal 1997 of $24,030,000 decreased by $521,000 or 2% as compared to $24,551,000 for the comparable period last year. The following table highlights revenues by product line (in 000's):
PLATO EDUCATION AVIATION TRAINING TOTAL ----------------- ------------------ ------------------ 1997 1996 1997 1996 1997 1996 -------- -------- ------- ------- -------- -------- Courseware license and support $ 17,170 $ 18,043 $ 2,695 $ 2,847 $ 19,865 $ 20,890 Hardware, third party courseware and other 3,993 3,440 172 221 4,165 3,661 -------- -------- ------- ------- -------- -------- Total revenues $ 21,163 $ 21,483 $ 2,867 $ 3,068 $ 24,030 $ 24,551 -------- -------- ------- ------- -------- -------- -------- -------- ------- ------- -------- --------
Courseware license and support revenues for PLATO Education for the first nine months of fiscal 1997 decreased 5% from the comparable period last year, while revenue from hardware, third party courseware and other increased 16%. PLATO Education total revenues of $21,163,000 for the first nine months of fiscal 1997 decreased by $320,000 or 1% as compared to revenues of $21,483,000 for the first nine months of fiscal 1996. The Company historically has experienced significantly higher levels of revenues in its fourth fiscal quarter. Aviation Training courseware revenues for the first nine months of fiscal 1997 of $2,695,000 decreased 5% over the first nine months of fiscal 1996. GROSS PROFIT: Gross profit for the first nine months of fiscal 1997 decreased by $588,000 or 3% to $20,138,000 as compared to $20,726,000 for the first nine months of fiscal 1996. The Company's gross margin was 84% for the first nine months of fiscal 1997 and 1996. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE: Selling, general, and administrative expense for the first nine months of fiscal 1997 increased by $4,007,000 or 22% to $22,426,000 as compared to $18,419,000 for the first nine months of fiscal 1996. This increase was due primarily to higher PLATO Education sales and marketing expenses resulting from the planned expansion of the sales and service organization. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS, CONTINUED PRODUCT DEVELOPMENT AND CUSTOMER SUPPORT: Product development and customer support expense for the first nine months of fiscal 1997 increased by $1,917,000 or 50% to $5,758,000 as compared to $3,841,000 for the first nine months of fiscal 1996. This increase was due principally to the continued expansion of PLATO Education products. OPERATING LOSS: The operating loss was $8,046,000 for the first nine months of fiscal 1997 as compared to $1,534,000 for the first nine months of fiscal 1996. The nine month loss reflects the impact of a traditionally lower level of revenue in the first nine months of the Company's fiscal year, as well as the absorption of an increased fixed base of sales, marketing and product development costs related to PLATO Education's expansion. INTEREST EXPENSE: Interest expense for the first nine months of fiscal 1997 was $867,000 as compared to $550,000 for the first nine months of fiscal 1996. Interest expense increased principally due to the Company's long-term debt incurred in fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES As of July 31, 1997, the Company's principal sources of liquidity included cash and cash equivalents of $731,000, net accounts receivable of $20,723,000, and its line of credit. The Company has total installment receivables of $13,467,000 at July 31, 1997, of which $12,180,000 are due within one year and are included in net accounts receivable. Net cash used in the Company's operating activities was $5,321,000 in the first nine months of fiscal 1997 as compared to $4,352,000 in the first nine months of fiscal 1996. Cash flows from operations were used principally to fund the Company's working capital requirements as it invests in new products and expands its PLATO Education sales and service organization. In addition to cash flows from operations, the Company has resources available under its revolving loan agreement to provide borrowings up to a maximum of $18,000,000. At July 31, 1997, borrowings of $8,964,000 were outstanding at an interest rate of 10%. The Company did not comply with a financial covenant requiring a minimum level of operating profit for the nine months ended July 31, 1997. On August 29, 1997, the Company obtained a waiver from its lender for such covenant for the period ending July 31, 1997. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES, CONTINUED The Company's net cash used in investing activities in the first nine months of fiscal 1997 was $648,000 for capital expenditures. Net cash provided by financing activities in the first nine months of fiscal 1997 was $6,285,000 which primarily represents borrowings under the Company's line of credit and proceeds from the issuance of long-term debt (see Note 3 of Notes to Consolidated Financial Statements). The Company maintains adequate cash reserves, short-term investments, and credit facilities to meet its anticipated working capital, capital expenditure, and business investment requirements. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any litigation that is expected to have a material adverse effect on the Company or its business. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Description of Exhibits Page 11 Statement Regarding Computation of Per Share Income (Loss) 16 (b) Reports on Form 8-K No reports on Form 8-K were filed for the quarter ended July 31, 1997. 14 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 on September 11, 1997 TRO LEARNING, INC. By /s/William R. Roach ---------------------------------- William R. Roach Chairman of the Board, President and Chief Executive Officer (principal executive officer) /s/Andrew N. Peterson ---------------------------------- Andrew N. Peterson Senior Vice President, Chief Financial Officer, Treasurer and Secretary (principal financial officer) /s/ Mary Jo Murphy ---------------------------------- Mary Jo Murphy Vice President, Corporate Controller and Chief Accounting Officer (principal accounting officer) 15 EX-11 2 EXHIBIT 11 EXHIBIT 11 TRO LEARNING, INC. AND SUBSIDIARIES COMPUTATION OF INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE OF COMMON STOCK (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS NINE MONTHS ENDED JULY 31, ENDED JULY 31, ------------------------- ------------------------- 1997 1996 1997 1996 ---------- --------- ---------- ---------- AVERAGE SHARES OUTSTANDING: 1. Weighted average number of shares of common stock outstanding during the period. . . . . . . . . . . . . 6,229 6,138 6,212 6,106 2. Net additional shares assuming stock options exercised. --- 575 --- --- ---------- --------- ---------- ---------- 3. Weighted average number of shares and equivalent shares of common stock outstanding during the period 6,229 6,713 6,212 6,106 ---------- --------- ---------- ---------- ---------- --------- ---------- ---------- INCOME (LOSS): 4. Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ (1,080) $ 725 $ (5,676) $ (1,312) ---------- --------- ---------- ---------- ---------- --------- ---------- ---------- PER SHARE AMOUNTS: Net income (loss) (line 4/line 3). . . . . . . . . . . . . . . . $ (0.17) $ 0.11 $ (0.91) $ (0.21) ---------- --------- ---------- ---------- ---------- --------- ---------- ----------
15 EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JULY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS OCT-31-1997 JUL-31-1997 731 0 20723 1508 1174 24584 1373 3865 43262 21605 6050 0 0 62 14890 43262 24030 24030 3892 3892 28352 1712 867 (9081) (3405) (5676) 0 0 0 (5676) (0.91) (0.91)
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