-----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, O749WcmeqDq2a9w0RTujkXeZgym+ty2L+ahlF+8oaIY1rqpODdw5diPuQzQanhc+ yd/EjQg/0+BPhZtMaa7ZZw== 0001047469-98-009390.txt : 19980312 0001047469-98-009390.hdr.sgml : 19980312 ACCESSION NUMBER: 0001047469-98-009390 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980311 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: 98563368 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 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 JANUARY 31, 1998 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 6,414,085 shares - ---------------------------- ---------------- Class Outstanding as of February 17, 1998 (This document contains 13 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 Months Ended January 31, 1998 and 1997 . . . . . . . . . .3 Consolidated Balance Sheets as of January 31, 1998 and October 31, 1997. . . . . . . . . . . . . .4 Consolidated Statements of Cash Flows for the Three Months Ended January 31, 1998 and 1997 . . . . . . . . . .5 Notes to Consolidated Financial Statements . . . . . . . . . .6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . 9-11 PART II. OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 12 Item 2. Changes 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
2 PART I. FINANCIAL INFORMATION TRO LEARNING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended January 31, ------------------- 1998 1997 ---- ---- Revenues by product line: PLATO-Registered Trademark- Education. . . . . . $ 6,043 $ 4,265 Aviation Training. . . . . . . . . . . . . . . . 1,160 822 -------- -------- Total revenues. . . . . . . . . . . . . . . . 7,203 5,087 Cost of revenues . . . . . . . . . . . . . . . . . 1,590 779 -------- -------- Gross profit. . . . . . . . . . . . . . . . . 5,613 4,308 -------- -------- Operating expenses: Selling, general and administrative expense. . . 5,942 6,116 Product development and customer support . . . . 2,022 1,610 -------- -------- Total operating expenses. . . . . . . . . . . 7,964 7,726 -------- -------- Operating loss . . . . . . . . . . . (2,351) (3,418) Interest expense . . . . . . . . . . . . . . . . . 384 228 Interest income and other expense, net . . . . . . 166 54 -------- -------- Loss before income taxes. . . . . . . . . . . (2,901) (3,700) Credit for income taxes. . . . . . . . . . . . . . --- (1,386) -------- -------- Net loss. . . . . . . . . . . . . . . . . . . $ (2,901) $ (2,314) -------- -------- -------- -------- Basic and diluted earnings per share. . . . . $ (0.45) $ (0.37) -------- -------- -------- -------- Weighted average common shares outstanding. . 6,400 6,182 -------- -------- -------- --------
See Notes to Consolidated Financial Statements 3 TRO LEARNING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
JANUARY 31, OCTOBER 31, 1998 1997 ----------- ----------- ASSETS Current assets: Cash and cash equivalents. . . . . . . . . . . . $ --- $ 537 Accounts receivable, less allowances of $6,709 and $7,020, respectively . . . . . . . . . . . 16,869 18,305 Inventories. . . . . . . . . . . . . . . . . . . 1,040 990 Prepaid expenses and other current assets. . . . 898 688 -------- -------- Total current assets. . . . . . . . . . . . . 18,807 20,520 Equipment and leasehold improvements, less accumulated depreciation of $4,236 and $4,092, respectively . . . . . . . . . . . . . . . . . . 1,238 1,271 Product development costs, less accumulated amortization of $3,084 and $2,562, respectively . . . . . . . . . . . . . . . . . . 6,209 5,989 Other assets . . . . . . . . . . . . . . . . . . . 929 1,308 -------- -------- $ 27,183 $ 29,088 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . $ 4,950 $ 3,472 Accrued employee salaries and benefits . . . . . 2,303 3,199 Accrued liabilities. . . . . . . . . . . . . . . 4,031 4,072 Revolving loan . . . . . . . . . . . . . . . . . 12,449 11,908 Deferred revenue . . . . . . . . . . . . . . . . 1,944 1,949 -------- -------- Total current liabilities . . . . . . . . . . 25,677 24,600 Long term debt . . . . . . . . . . . . . . . . . . 3,050 3,050 Deferred revenue, less current portion . . . . . . 509 519 Other liabilities. . . . . . . . . . . . . . . . . 150 172 Stockholders' equity: Common stock, $.01 par value, 25,000 shares authorized; 6,438 shares issued and 6,393 shares outstanding in 1998; 6,450 shares issued and 6,405 shares outstanding in 1997. . 64 64 Paid in capital. . . . . . . . . . . . . . . . . 22,112 22,074 Treasury stock at cost, 45 shares in 1998 and 1997 . . . . . . . . . . . . . . . . . . . (469) (469) Accumulated deficit. . . . . . . . . . . . . . . (23,561) (20,660) Foreign currency translation adjustment. . . . . (349) (262) -------- -------- Total stockholders' equity. . . . . . . . . . (2,203) 747 -------- -------- $ 27,183 $ 29,088 -------- -------- -------- --------
See Notes to Consolidated Financial Statements 4 TRO LEARNING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED JANUARY 31, ----------------------- 1998 1997 ---------- ----------- Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . . $ (2,901) $ (2,314) -------- -------- Adjustments to reconcile net loss to net cash used in operating activities: Deferred income taxes . . . . . . . . . . . . --- (1,386) Depreciation and amortization . . . . . . . . 661 503 Provision for doubtful accounts . . . . . . . 75 202 Changes in assets and liabilities: Decrease in accounts receivable . . . . . . 1,361 2,320 Increase in inventories . . . . . . . . . . (50) (144) Decrease in prepaid expenses and other current and noncurrent assets . . . . . . 169 456 Increase in product development costs . . . (742) (726) Increase (decrease) in accounts payable . . 1,478 (460) Decrease in accrued liabilities, accrued employee salaries and benefits and other liabilities . . . . . . . . . . . . (1,170) (1,571) Increase (decrease) in deferred revenue . . (15) 246 -------- -------- Total adjustments. . . . . . . . . . . . 1,767 (560) -------- -------- Net cash used in operating activities. . . . . . . . . . . . . . (1,134) (2,874) -------- -------- Cash flows from investing activities: Capital expenditures . . . . . . . . . . . . . . (123) (207) -------- -------- Net cash used in investing activities . . . . (123) (207) -------- -------- Cash flows from financing activities: Net proceeds from short term borrowings. . . . . 641 2,601 Book overdraft . . . . . . . . . . . . . . . . . 211 231 Repayment of long term debt. . . . . . . . . . . (100) --- Purchase of treasury stock . . . . . . . . . . . --- (261) Net proceeds from issuance of common stock . . . 38 95 -------- -------- Net cash provided by financing activities . . 790 2,666 -------- -------- Effect of foreign currency on cash . . . . . . . . (70) (60) -------- -------- Net decrease in cash and cash equivalents. . . . . (537) (475) Cash and cash equivalents at beginning of period . 537 475 -------- -------- Cash and cash equivalents at end of period . . . . $ --- $ --- -------- -------- -------- -------- Cash paid for interest expense . . . . . . . . . . $ 519 $ 227 -------- -------- -------- --------
See Notes to Consolidated Financial Statements 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 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, 1997. 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, computer hardware, and related support services, is recognized when courseware, hardware, and related services are delivered. Upon delivery, 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 technical feasibility of new courseware products to be sold, leased, or otherwise marketed are expensed as incurred. Once technical feasibility 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: The Company has adopted Statement of Financial Accounting Standards 128 (SFAS 128), "Earnings Per Share", as required, effective November 1, 1997. SFAS 128 requires presentation of basic and diluted earnings per share, including a restatement of all prior periods presented. Basic earnings per share is calculated based only upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based upon the weighted average number of common and, where dilutive, potential common shares outstanding during the period. Potential common shares include options, warrants and convertible securities. Since the Company incurred a net loss for all periods presented, potential common shares are antidilutive and excluded from the calculation, and basic and diluted earnings per share are the same. RECLASSIFICATIONS: Certain prior year amounts have been reclassified on the consolidated statements of cash flows to conform to the current year presentation. 2. ACCOUNTS RECEIVABLE: Accounts receivable include net installment receivables of $5,953,000 and $6,264,000 at January 31, 1998 and October 31, 1997, respectively. Installment receivables with terms greater than one year were $195,000 and $565,000 at January 31, 1998 and October 31,1997, respectively, and are included in other assets on the consolidated balance sheets. 3. DEBT: The Company's revolving loan agreement provides for a maximum $18 million line of credit and $3 million term loan through August 31, 1998. The agreement also provides for additional line of credit borrowings up to a maximum $3,500,000 from time to time during certain periods of the remaining term of the agreement. Borrowings under the line bear interest at the prime rate plus 1.5%. The term loan has an annual interest rate of 15%. At January 31, 1998, borrowings of $9,549,000 under the line were outstanding at an interest rate of 10% and the term loan 7 TRO LEARNING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 3. DEBT, CONTINUED balance was $2,900,000. The Company was in compliance with all financial covenants at January 31, 1998. The Company is currently reviewing alternatives to meet its short and long term financing requirements. 4. INCOME TAXES: In line with the Company's decision to fully reserve its deferred tax asset at the end of fiscal 1997, no tax benefit has been recorded at January 31, 1998 for the first quarter loss. 5. LEGAL PROCEEDINGS: On December 15, 1997, a securities fraud class action was filed in the United States District Court for the Northern District of Illinois against the Company and two of its current and former executive officers. The purported class action was filed on behalf of all persons who purchased common stock of the Company during the period December 7, 1995 through June 10, 1997, seeking damages for alleged violations of the federal securities laws. The complaint in the purported class action alleges that throughout this time period, defendants knowingly participated in a course of conduct involving misrepresentation and concealment of adverse material information about the business and finances of the Company. The complaint alleges that the course of action followed by the defendants caused the plaintiff and other members of the purported class to purchase the Company's securities at artificially inflated prices. The complaint seeks damages suffered as a result of the actions of the defendants, including costs, expenses and fees incurred in the litigation. The Company cannot predict the outcome of this litigation but believes it has meritorious defenses to these allegations and intends to defend itself vigorously. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS FIRST QUARTER FISCAL 1998 COMPARED TO FIRST QUARTER FISCAL 1997 REVENUES: Total revenues for the first quarter of fiscal 1998 of $7,203,000 increased by $2,116,000 or 42% as compared to $5,087,000 for the first quarter of fiscal 1997. The following table highlights revenues by product line (in 000's):
PLATO EDUCATION AVIATION TRAINING TOTAL ------------------ ------------------ ----------------- 1998 1997 1998 1997 1998 1997 -------- -------- --------- ------- -------- ------- Courseware license and support $ 4,622 $ 3,569 $ 1,107 $ 799 $ 5,729 $ 4,368 Hardware, third party courseware and other 1,421 696 53 23 1,474 719 -------- -------- --------- ------- -------- ------- Total revenues $ 6,043 $ 4,265 $ 1,160 $ 822 $ 7,203 $ 5,087 -------- -------- --------- ------- -------- ------- -------- -------- --------- ------- -------- -------
PLATO Education revenues increased $1,778,000 or 42% compared to the prior year. This increase was due principally to increased courseware license and support, hardware and third party courseware revenues. Aviation Training revenues increased $338,000 or 41% compared to the prior year. This increase was principally due to increased courseware revenues. GROSS PROFIT: Gross profit for the first quarter of fiscal 1998 increased $1,305,000 or 30% to $5,613,000 as compared to $4,308,000 for the first quarter of fiscal 1997. This increase was due principally to the growth in courseware revenues slightly offset by decreased margins from third party courseware and other support services. The Company's gross margin was 78% for the first quarter of fiscal 1998 as compared to 85% for the first quarter of fiscal 1997, reflecting the increased mix of lower margin hardware, third party courseware and other revenues. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE: Selling, general, and administrative expense for the first quarter of fiscal 1998 decreased $174,000 or 3% to $5,942,000 as compared to $6,116,000 for the first quarter of fiscal 1997. PLATO Education selling and marketing expenses decreased $437,000 as a result of the restructuring of operations initiated in late fiscal 1997. This decrease was offset by increased PLATO Education commissions of $263,000, resulting from increased revenues. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS, CONTINUED FIRST QUARTER FISCAL 1998 COMPARED TO FIRST QUARTER FISCAL 1997, CONTINUED PRODUCT DEVELOPMENT AND CUSTOMER SUPPORT: Product development and customer support expense for the first quarter of fiscal 1998 increased $412,000 or 26% to $2,022,000 as compared to $1,610,000 for the first quarter of fiscal 1997. While PLATO Education product development spending was comparable to the prior period, an increase in amortization of previously capitalized costs, as well as increased Aviation Training product development spending, resulted in the increased expense for the period. OPERATING LOSS: The operating loss was $2,351,000 for the first quarter of fiscal 1998 as compared to $3,418,000 for the first quarter of fiscal 1997. The first quarter loss reflects the impact of a traditionally lower level of revenue in the first half of the Company's fiscal year. The improvement in operating results is due principally to the increase in revenues and the positive impact of the restructuring of operations initiated in late fiscal 1997. INTEREST EXPENSE: Interest expense for the first quarter of fiscal 1998 was $384,000 as compared to $228,000 for the first quarter of fiscal 1997. Interest expense increased due principally to the Company's long term debt incurred in the second quarter of fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES As of January 31, 1998, the Company's principal sources of liquidity included net accounts receivable of $16,869,000, and its line of credit. The Company has net installment receivables of $5,953,000 at January 31, 1998, of which $5,758,000 are due within one year and are included in net accounts receivable. Net cash used in the Company's operating activities was $1,134,000 in the first quarter of fiscal 1998 as compared to $2,874,000 in the first quarter of fiscal 1997. Cash flows from operations were used principally to fund the Company's working capital requirements. In addition to cash flows from operations, the Company has resources available under its revolving loan agreement (see Note 3 of Notes to Consolidated Financial Statements). At January 31, 1998, borrowings of $9,549,000 were outstanding under the line of credit at an interest rate of 10%. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED - ------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES, CONTINUED Net cash used in the Company's investing activities was $123,000 in the first quarter of fiscal 1998 for capital expenditures. Net cash provided by financing activities was $790,000 in the first quarter of fiscal 1998, primarily from borrowings under the Company's line of credit. In November 1997, the Company announced that it had retained BancAmerica ROBERTSON STEPHENS to advise it regarding strategic alternatives to enhance shareholder value. The Company is currently reviewing financing alternatives to meet its short and long term working capital, capital expenditure, and business investment requirements. 11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 5 of Notes to Consolidated Financial Statements 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 Number Description ------ ------------ 27 Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K were filed for the quarter ended January 31, 1998. 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 on March 5, 1998. TRO LEARNING, INC. By /s/William R. Roach --------------------------------- Chairman of the Board, President and Chief Executive Officer (principal executive officer) /s/Andrew N. Peterson --------------------------------- Senior Vice President, Chief Financial Officer, Treasurer and Secretary (principal financial officer) /s/Mary Jo Murphy --------------------------------- Vice President, Corporate Controller and Chief Accounting Officer (principal accounting officer) 13 EX-27 2 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 JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS OCT-31-1998 JAN-31-1998 0 0 16869 6709 1040 18807 1238 4236 27183 25677 3050 0 0 64 (2267) 27183 7203 7203 1590 1590 8130 75 384 (2901) 0 (2901) 0 0 0 (2901) (0.45) (0.45)
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