-----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, FSE8RXNzxkZotr930J2/b82LYqYkS2jdXasHWsa3l3gmGWpctuMIuMvcE+Pk6jPi p+O2ccdmcy3nFAHcKGqVnw== 0001047469-98-033738.txt : 19980907 0001047469-98-033738.hdr.sgml : 19980907 ACCESSION NUMBER: 0001047469-98-033738 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980731 FILED AS OF DATE: 19980904 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: 98704208 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, 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 6,418,732 shares - ---------------------------- ---------------------------------- Class Outstanding as of August 28, 1998 (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, 1998 and 1997...........................................3 Consolidated Balance Sheets as of July 31, 1998 and October 31, 1997...........................................................4 Consolidated Statements of Cash Flows for the Nine Months Ended July 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.............................................9-13 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, ---------------------- ---------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenues by product line: PLATO-Registered Trademark- Education ..... $10,601 $10,674 $25,035 $21,163 Aviation Training ......................... 1,464 669 3,846 2,867 -------- -------- -------- -------- Total revenues .......................... 12,065 11,343 28,881 24,030 Cost of revenues ............................ 1,415 1,761 4,352 3,892 -------- -------- -------- -------- Gross profit ............................ 10,650 9,582 24,529 20,138 -------- -------- -------- -------- Operating expenses: Selling, general and administrative expense 6,699 8,577 19,059 22,426 Product development and customer support .. 1,900 2,285 5,734 5,758 ------- ------- ------- ------- Total operating expenses ................ 8,599 10,862 24,793 28,184 ------- ------- ------- ------- Operating income (loss) ............... 2,051 (1,280) (264) (8,046) Interest expense ............................ 592 505 1,369 984 Interest income and other expense, net ...... (127) (57) 198 51 ------- ------- ------- ------- Income (loss) before income taxes ..... 1,586 (1,728) (1,831) (9,081) Credit for income taxes ..................... -- (648) -- (3,405) -------- -------- -------- -------- Net income (loss) ..................... $ 1,586 $(1,080) $(1,831) $(5,676) -------- -------- -------- -------- -------- -------- -------- -------- Earnings per share: Basic ................................... $ 0.25 $ (0.17) $ (0.29) $ (0.91) -------- -------- -------- -------- -------- -------- -------- -------- Diluted ................................. $ 0.23 $ (0.17) $ (0.29) $ (0.91) -------- -------- -------- -------- -------- -------- -------- -------- Weighted average common shares outstanding: Basic ................................... 6,417 6,229 6,407 6,212 -------- -------- -------- -------- -------- -------- -------- -------- Diluted ................................. 6,873 6,229 6,407 6,212 -------- -------- -------- -------- -------- -------- -------- --------
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, 1998 1997 --------- ----------- ASSETS Current assets: Cash and cash equivalents ..................................... $ 880 $ 537 Accounts receivable, less allowances of $802 and .............. 18,081 18,305 $7,020, respectively Inventories ................................................... 775 990 Prepaid expenses and other current assets ..................... 628 688 --------- --------- Total current assets ........................................ 20,364 20,520 Equipment and leasehold improvements, less accumulated depreciation of $4,595 and $4,092, respectively ............... 1,240 1,271 Product development costs, less accumulated amortization of $4,164 and $2,562, respectively 6,340 5,989 Other assets .................................................... 1,078 1,308 --------- --------- $ 29,022 $ 29,088 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .............................................. $ 3,349 $ 3,472 Accrued employee salaries and benefits ........................ 2,664 3,199 Accrued liabilities ........................................... 3,562 4,072 Revolving loan ................................................ 14,479 11,908 Deferred revenue .............................................. 2,470 1,949 --------- --------- Total current liabilities ................................... 26,524 24,600 Long-term debt .................................................. 3,050 3,050 Deferred revenue, less current portion .......................... 485 519 Other liabilities ............................................... 103 172 Stockholders' equity: Common stock, $.01 par value, 25,000 shares authorized; 6,539 shares issued and 6,419 shares outstanding in 1998; 6,450 shares issued and 6,405 shares outstanding in 1997 .... 64 64 Paid in capital ............................................... 22,857 22,074 Treasury stock at cost, 120 and 45 shares, respectively ....... (1,176) (469) Accumulated deficit ........................................... (22,491) (20,660) Foreign currency translation adjustment ....................... (394) (262) --------- --------- Total stockholders' equity .................................. (1,140) 747 --------- --------- $ 29,022 $ 29,088 --------- --------- --------- ---------
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, ------------------------------ 1998 1997 ------------ -------------- Cash flows from operating activities: Net loss .................................................................. $(1,831) $(5,676) ------- ------- Adjustments to reconcile net loss to net cash used in operating activities: Deferred income taxes ................................................... -- (3,405) Depreciation and amortization ........................................... 2,166 1,872 Provision for doubtful accounts ......................................... 561 1,712 Disposal of fixed assets ................................................ 2 2 Changes in assets and liabilities: Increase (decrease) in accounts receivable ............................ (337) 1,728 (Increase) decrease in inventories .................................... 215 (77) (Increase) decrease in prepaid expenses and other current and noncurrent assets ............................................... 290 (267) Increase in product development costs ................................. (1,953) (1,603) Decrease in accounts payable .......................................... (123) (75) Decrease in accrued liabilities, accrued employee salaries and benefits and other liabilities ...................................... (1,147) (555) Increase in deferred revenue .......................................... 487 827 ------- ------- Total adjustments ................................................... 161 159 ------- ------- Net cash used in operating activities ............................. (1,670) (5,517) ------- ------- Cash flows from investing activities: Capital expenditures ...................................................... (536) (648) ------- ------- Net cash used in investing activities ................................. (536) (648) ------- ------- Cash flows from financing activities: Net proceeds from short term borrowings ................................... 2,971 352 Proceeds from issuance of long term debt .................................. -- 6,050 Repayment of long term debt ............................................... (400) -- Net proceeds from issuance of common stock ................................ 110 79 ------- ------- Net cash provided by financing activities ............................... 2,681 6,481 ------- ------- Effect of foreign currency on cash ........................................... (132) (60) ------- ------- Net increase in cash and cash equivalents .................................... 343 256 Cash and cash equivalents at beginning of period ............................. 537 475 ------- ------- Cash and cash equivalents at end of period ................................... $ 880 $ 731 ------- ------- ------- ------- Cash paid for interest expense ............................................... $ 1,400 $ 862 ------- ------- ------- -------
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 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 feasibility has been established, costs incurred in the development of new generation courseware products are capitalized. 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. EARNINGS 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 in the consolidated financial statements to conform to the current year presentation. 2. ACCOUNTS RECEIVABLE: Accounts receivable include net installment receivables of $8,876,000 and $6,264,000 at July 31, 1998 and October 31, 1997, respectively. Installment receivables with terms greater than one year were $352,000 and $565,000 at July 31, 1998 and October 31,1997, respectively, and are included in other assets on the consolidated balance sheets. 7 TRO LEARNING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 3. DEBT: The Company's revolving loan agreement as amended provides for a maximum $18 million line of credit and $3 million term loan through February 28, 1999. Effective April 16, 1998, the agreement also provides for additional line of credit borrowings up to a maximum $4,500,000 (increased from $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%. Effective August 20, 1998, the term loan is subject to a mandatory prepayment of $1,000,000 on or before November 30, 1998. At July 31, 1998, borrowings of $11,879,000 under the line were outstanding at an interest rate of 10% and the term loan balance was $2,600,000. 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 July 31, 1998 for the current year to date loss. 5. NONCASH FINANCING ACTIVITIES: Pursuant to the Company's various stock incentive and stock option plans, participants may elect to exercise stock options through a noncash transaction. Upon exercise, the Company immediately repurchases shares, at the current market price, equal to the participants aggregate exercise price and tax liability. The acquired shares are recorded as treasury stock at cost. During the nine months ended July 31, 1998 the Company acquired 75,000 shares totaling $707,000 through noncash exercise transactions. During the nine months ended July 31, 1997, the Company acquired 21,000 shares totaling $261,000 through noncash exercise transactions. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS THIRD QUARTER FISCAL 1998 COMPARED TO THIRD QUARTER FISCAL 1997 REVENUES: Total revenues for the third quarter of fiscal 1998 of $12,065,000 increased 6% or $722,000 as compared to $11,343,000 for the third 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 $ 9,617 $ 8,828 $1,464 $648 $11,081 $ 9,476 Hardware, third party courseware and other 984 1,846 -- 21 984 1,867 ------- -------- ------- ---- ------- ------- Total revenues $10,601 $10,674 $1,464 669 $12,065 $11,343 ------- -------- ------- ---- ------- ------- ------- -------- ------- ---- ------- -------
PLATO Education revenues were comparable to the prior year. Increased courseware license and support revenues of $789,000 were offset by decreased hardware and third party courseware revenues of $862,000. Aviation Training revenues increased $795,000 or 119% due to increased courseware revenues in the third quarter of fiscal 1998. GROSS PROFIT: Gross profit for the third quarter of fiscal 1998 increased $1,068,000 or 11% to $10,650,000 as compared to $9,582,000 for the third quarter of fiscal 1997. The Company's gross margin was 88% for the third quarter of fiscal 1998 as compared to 84% for the third quarter of fiscal 1997. Increased courseware revenues contributed to the increase in gross profit and gross margin for the third quarter of fiscal 1998. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE: Selling, general, and administrative expense for the third quarter of fiscal 1998 decreased $1,878,000 or 22% to $6,699,000 as compared to $8,577,000 for the third quarter of fiscal 1997. This decrease was principally due to the reduction in PLATO Education selling expenses of $1,018,000, resulting primarily from the restructuring of operations initiated in late fiscal 1997, and the decrease in the provision for doubtful accounts of $624,000. 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 1998 decreased $385,000 or 17% to $1,900,000 as compared to $2,285,000 for the third quarter of fiscal 1997. PLATO Education product development expense decreased $275,000 due primarily to reduced spending and increased capitalization of costs as compared to the same period of the prior year. OPERATING INCOME (LOSS): Operating income was $2,051,000 for the third quarter of fiscal 1998 as compared to an operating loss of $1,280,000 for the third quarter of fiscal 1997. The improvement in operating results is due principally to the increased mix of courseware revenues and the positive impact of the restructuring of operations initiated in late fiscal 1997. INCOME TAXES: In line with the Company's decision to fully reserve its deferred tax asset at the end of fiscal 1997, no income taxes have been recorded in fiscal 1998. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS FIRST NINE MONTHS FISCAL 1998 COMPARED TO FIRST NINE MONTHS FISCAL 1997 REVENUES: Total revenues for the first nine months of fiscal 1998 of $28,881,000 increased $4,851,000 or 20% as compared to $24,030,000 for the first nine months 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 $21,719 $17,170 $3,793 $2,695 $25,512 $19,865 Hardware, third party courseware and other 3,316 3,993 53 172 3,369 4,165 ------- ------- ------ ------ ------- ------- Total revenues $25,035 $21,163 $3,846 $2,867 $28,881 $24,030 ------- ------- ------ ------ ------- ------- ------- ------- ------ ------ ------- -------
PLATO Education revenues for the first nine months of fiscal 1998 increased $3,872,000 or 18% as compared to the first nine months of fiscal 1997. This increase was due primarily to the growth in courseware license and support revenues, slightly offset by decreased hardware and third party courseware revenues. Aviation Training revenues for the first nine months of fiscal 1998 increased $979,000 or 34% over the first nine months of fiscal 1997 primarily due to increased courseware revenues. GROSS PROFIT: Gross profit for the first nine months of fiscal 1998 increased $4,391,000 or 22% to $24,529,000 as compared to $20,138,000 for the first nine months of fiscal 1997. This increase was due principally to the growth in courseware revenues. The Company's gross margin was 85% for the first nine months of fiscal 1998 compared to 84% for the first nine months of fiscal 1997. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE: Selling, general, and administrative expense for the first nine months of fiscal 1998 decreased $3,367,000 or 15% to $19,059,000 as compared to $22,426,000 for the first nine months of fiscal 1997. This decrease was principally due to the reduction in PLATO Education selling expenses of $2,387,000, resulting primarily from the restructuring of operations initiated in late fiscal 1997, and the decrease in the provision for doubtful accounts of $1,151,000, offset by increased PLATO Education commissions of $601,000 resulting from the growth in revenues. 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 1998 was comparable to the first nine months of fiscal 1997. Increased Aviation Training product development expense of $306,000 was offset by a decrease in PLATO Education product development expense of $231,000. OPERATING LOSS: The operating loss was $264,000 for the first nine months of fiscal 1998 as compared to $8,046,000 for the first nine months of fiscal 1997. The improvement in operating results is due principally to the increase in courseware revenues and the positive impact of the restructuring of operations initiated in late fiscal 1997. INTEREST EXPENSE: Interest expense for the first nine months of fiscal 1998 was $1,369,000 as compared to $984,000 for the first nine months of fiscal 1997. Interest expense increased due principally to the Company's long term debt incurred in the second quarter of fiscal 1997. INCOME TAXES: In line with the Company's decision to fully reserve its deferred tax asset at the end of fiscal 1997, no income taxes have been recorded in fiscal 1998. LIQUIDITY AND CAPITAL RESOURCES As of July 31, 1998, the Company's principal sources of liquidity included cash and cash equivalents of $880,000, net accounts receivable of $18,081,000, and its line of credit which expires February 28, 1999 unless extended, renegotiated or replaced. The Company has net installment receivables of $9,228,000 at July 31, 1998, of which $8,876,000 are due within one year and are included in net accounts receivable. Net cash used in the Company's operating activities was $1,670,000 in the first nine months of fiscal 1998 as compared to $5,517,000 in the first nine months 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 July 31, 1998, borrowings of $11,879,000 were outstanding under the line of credit at an interest rate of 10%. Net cash used in investing activities was $536,000 in the first nine months of fiscal 1998 for capital expenditures. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED - ------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES, CONTINUED Net cash provided by financing activities in the first nine months of fiscal 1998 was $2,681,000 which primarily represents borrowings under the Company's line of credit offset by principal payments on the term loan (see Note 3 of Notes to Consolidated Financial Statements). 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. In September 1998, the Company announced the sale of its Aviation Training business. YEAR 2000 The Company has taken action to understand the nature and extent of the work required to make its systems and infrastructure Year 2000 compliant. In addition, the Company is communicating with its major suppliers and service providers to determine whether they are actively involved in projects to ensure that their products and business systems will be Year 2000 compliant. The Company anticipates that its Year 2000 issues will be addressed on a timely basis and at a cost that will not be material to the Company's operations or financial condition. 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
Number Description ------ ----------- 10.22 Fourth Amendment to Amended and Restated Revolving Loan and Security Agreement between Sanwa Business Credit Corporation and The Roach Organization, Inc. and TRO Learning (Canada), Inc. dated August 20, 1998. 27 Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K were filed for the quarter ended July 31, 1998. 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 4, 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) 15 EX-10.22 2 EXHIBIT 10.22 FOURTH AMENDMENT TO AMENDED AND RESTATED REVOLVING LOAN AND SECURITY AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED REVOLVING LOAN AND SECURITY AGREEMENT (together with all appendices, exhibits, schedules and attachments hereto, collectively this "AMENDMENT") is made and entered into as of August 20, 1998, by and between THE ROACH ORGANIZATION, INC., a Delaware corporation and TRO LEARNING (CANADA), INC., a corporation organized under the laws of Canada (collectively, the "BORROWER") and SANWA BUSINESS CREDIT CORPORATION, a Delaware corporation with its principal place of business at One South Wacker Drive, Chicago, Illinois 60606 ("LENDER"). WHEREAS, Borrower and Lender entered into that certain Amended and Restated Revolving Loan and Security Agreement dated as of March 5, 1997 by and between Borrower and Lenders, as amended by that certain First Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of March 18, 1997, by that certain Second Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of December 8, 1997 and by that certain Third Amendment to Amended and Restated Revolving Loan and Security Agreement dated as of April 15, 1998 (as so amended the "LOAN AGREEMENT") together with documents ancillary thereto, including, without limitation that certain Amended and Restated Guaranty of Payment and Performance dated as of March 5, 1997 made by TRO Learning Inc. ("GUARANTOR") in favor of Lender; and WHEREAS, Borrower has requested that Lender extend the Supplemental Over Advance Facility, extend the term of the Loan Agreement and further amend the Loan Agreement as provided herein and Guarantor has consented to such amendment. NOW THEREFORE, for and in consideration of the premises, the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, the parties hereby agree as follows: ARTICLE 1. RECITALS AND DEFINITIONS 1.1. Borrower represents and warrants that the foregoing recitals are true and correct and constitute an integral part of this Amendment and Borrower and Lender hereby agree that all of the recitals of this Amendment are hereby incorporated herein and made a part hereof. 1.2. Unless otherwise defined herein or the context otherwise requires, all capitalized terms used herein shall have the same meanings as ascribed to them in the Loan Agreement. ARTICLE 2. AMENDMENT OF THE LOAN AGREEMENT 2.1. Subsection 2.2(C) to the Loan Agreement is deleted in its entirety and the following is substituted therefor: (C) Subject to the provisions of Section 2.2(A) and in addition to the Over Advance Facility, Lender shall make available to Borrower a supplemental over advance facility (the "Supplemental Over Advance Facility," each supplemental over advance being a "Supplemental Over Advance") as follows:
---------------------------------------------- Aggregate Month Over Advance Available ---------------------------------------------- December, 1997 $1,000,000 ---------------------------------------------- January, 1998 $1,500,000 ---------------------------------------------- February, 1998 $2,500,000 ---------------------------------------------- March, 1998 $3,500,000 ---------------------------------------------- April, 1998 $4,500,000 ---------------------------------------------- May, 1998 $4,500,000 ---------------------------------------------- June, 1998 $4,500,000 ---------------------------------------------- July, 1998 $4,500,000 ---------------------------------------------- August, 1998 $4,500,000 ---------------------------------------------- September, 1998 $4,500,000 ---------------------------------------------- October, 1998 $3,500,000 ---------------------------------------------- November, 1998 $3,500,000 ---------------------------------------------- December, 1998 0 ---------------------------------------------- January, 1998 0 ---------------------------------------------- February, 1998 0 ----------------------------------------------
Borrower agrees that the aggregate amount of Supplemental Over Advances made by Lender shall never be greater than the dollar amount set forth in the above table during each respective month. There shall occur an immediate Event of Default in the event that the aggregate amount of Supplemental Over Advances ever exceeds the respective dollar amount set forth in the above table. In no event shall the aggregate amount of Supplemental Over Advances ever exceed $4,500,000. 2 2.2. Section 2.7 of the Agreement is hereby deleted in its entirety and the following is substituted therefor: 2.7 TERM OF AGREEMENT. This Agreement shall be in effect from the Origination Date, through and including February 28, 1999 (the "Term"), subject to earlier termination by Lender upon the occurrence of a Default as provided in Section 11.1. Upon the effective date of termination, all of the Liabilities shall become immediately due and payable without presentment, notice or demand, except as otherwise provided herein. Notwithstanding any termination, until all of the Liabilities shall have been fully paid and satisfied, Lender shall be entitled to retain its security interest in the Collateral. Borrower shall continue to remit collections of Accounts and proceeds of Collateral as provided in this Agreement, and Lender shall retain all of its rights and remedies under this Agreement. 2.3. The following subsection shall be added as a new subsection 2.8(D) to the Loan Agreement: (C) On or before November 30, 1998, Borrower shall make a mandatory prepayment on the Term Loan of $1,000,000. Such mandatory prepayment shall not be subject to a prepayment penalty or premium and shall be applied to the scheduled installments of principal on the Term Loan in the inverse order of maturity. 2.4. Subsection 10.1(B) is hereby deleted in its entirety and the following is substituted therefor: (D) Borrower shall maintain Operating Profit, measured quarterly on the last day of each fiscal quarter of Borrower, as follows: ---------------------------------------------- First Quarter: 1998 ($2,900,000) ---------------------------------------------- Second Quarter: 1998 ($450,000) ---------------------------------------------- Third Quarter: 1998 $2,000,000 ---------------------------------------------- Fourth Quarter: 1998 $4,850,000 ---------------------------------------------- First Quarter: 1999 ($2,900,000) ----------------------------------------------
3 ARTICLE 3. FEES 3.1. EARNED FEE. Borrower shall pay to Lender the non-sales success fee in the amount of Two Hundred Thousand and no/100 Dollars ($200,000.00), which fee was earned pursuant to the terms of the Second Amendment to Amended and Restated Revolving Loan and Security Agreement and shall be paid concurrently with Borrower's execution of this Amendment. 3.2. SUCCESS FEES. Upon the occurrence of a "Sale Event" (defined herein), Borrower shall pay to Lender a sales success fee (a "SALES SUCCESS FEE") in an amount equal to the greater of (i) Three Hundred Thousand and no/100 Dollars ($300,000) and (ii) the product of (x) 100,000 MULTIPLIED BY (y) the excess, if any, of the "Market Price" (defined herein) of a share of Guarantor's common stock as of the date of any Sale Event over the Market Price of a share of common stock of Guarantor as of December 8, 1997. For purposes of this Section, the term "Market Price" day shall mean $6,625 and the term "Sale Event" shall mean: (A) the closing of any sale of securities of Guarantor to a person if, after such sale, such person, other than the persons who were shareholders of Guarantor immediately prior to the effectiveness of such transaction, would own or control securities which possess in the aggregate the ordinary voting power to elect a majority of the directors of Guarantor; or (B) the effectiveness of a merger, consolidation or similar transaction involving Guarantor if, after such transaction, a person in the aggregate, other than the persons who were shareholders of Guarantor immediately prior to the effectiveness of such transaction, would own or control securities which possess in the aggregate the ordinary voting power to elect a majority of the surviving entity's directors; or (C) the sale of all or substantially all of the assets of Guarantor to another entity or person. Borrower shall pay to Lender a non-sales success fee (a "NON-SALES SUCCESS FEE") in an amount equal to Two Hundred Thousand and No/Dollars ($200,000) in the event that a Sales Event has not occurred prior to the earlier of (a) December 31, 1998, or (b) the date on which Lender accelerates the Liabilities pursuant to Section 11.2 of the Loan Agreement which Non-sales Success Fee shall be credited against the Sales Success Fee in the event a Sale Event occurs prior to February 28, 1999. Borrower shall pay to Lender a supplemental non-sales success fee (a "SUPPLEMENTAL NON-SALES SUCCESS FEE") in an amount equal to One Hundred Thousand and No/100 Dollars ($100,000) in the event that a Sales Event has not occurred prior to the earlier of (a) February 28, 1999, or (b) the date on which Lender accelerates the Liabilities pursuant to Section 11.2 of the Loan Agreement. Each of the Sales Success Fee, the Non-sales Success Fee and the Supplemental Non-sales Success Fee shall be a Liability secured by the Collateral and shall be payable within three days of its determination and shall be separate and distinct from the fee identified in Section 3.1. 4 ARTICLE 4. REPRESENTATIONS AND WARRANTIES 4.1. Borrower hereby makes the following representations and warranties to Lender, which representations and warranties shall constitute the continuing covenants of Borrower and shall remain true and correct until all of Borrower's liabilities are paid and performed in full: a. The representations and warranties of Borrower contained in the Loan Agreement are true and correct on and as of the date hereof as though made on and as of such date; b. No Event of Default or event which, but for the Lapse of time or the giving of notice, or both, would constitute an Event of Default under the Loan Agreement has occurred and is continuing or would result from the execution and delivery of this Amendment; c. Borrower is in full compliance with all of the terms, conditions and all provisions of the Loan Agreement and the other agreements; d. This Amendment and all other agreements required hereunder to be executed by Borrower and delivered to Lender, have been duly authorized, executed and delivered on Borrower's behalf pursuant to all requisite corporate authority and this Amendment and each of the other agreements required hereunder to be executed and delivered by Borrower to Lender constitute the legal, valid and binding obligations of Borrower enforceable in accordance with their terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights; and e. Borrower hereby acknowledges and agrees that Borrower has no defense, offset or counterclaim to the payment of said principal, interest, fees or other liabilities and hereby waives and relinquishes any such defense, offset or counterclaim and Borrower hereby releases Lender and its respective officers, directors, agents, affiliates, successors and assigns from any claim, demand or cause of action, known or unknown, contingent or liquidated, which may exist or hereafter be known to exist relating to any matter prior to date hereof. 5 ARTICLE 5. RATIFICATION Except as expressly amended hereby, the Loan Agreement and all other agreements executed in connection therewith shall remain in full force and effect. The Loan Agreement, as amended hereby, and all rights and powers created thereby and thereunder or under such other agreements, are in all respects ratified and confirmed. From and after the date hereof the Loan Agreement shall be deemed amended and modified as herein provided but, except as so amended and modified, the Loan Agreement shall continue in full force and effect and the Loan Agreement and this Amendment shall be read, taken and construed as one and the same instrument. On and after the date hereof, the term "Agreement" as used in the Loan Agreement and all other references to the Loan Agreement therein, in any other instrument, document or writing executed by Borrower or any guarantor or furnished to Lender by Borrower or any guarantor in connection therewith or herewith shall mean the Loan Agreement as amended by this Amendment. ARTICLE 6. MISCELLANEOUS 6.1. This Amendment may be signed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 6.2. Except as otherwise specified herein, this Amendment embodies the entire agreement and understanding between Lender and Borrower with respect to the subject matter hereof and supersedes all prior agreements, consents and understandings relating to such subject matter. 6.3. The headings in this Amendment have been inserted for convenience only and shall be given no substantive meaning or significance in construing the terms of this Amendment. 6.4. This Amendment shall inure to the benefit of Lender and its successors and assigns and shall be binding upon and inure to the successors and assigns of Borrower, except that Borrower may not assign any of its rights in and to this Amendment. 6 IN WITNESS WHEREOF, Borrower and Lender have caused this Fourth Amendment to Amended and Restated Revolving Loan and Security Agreement to be executed and delivered as of the day and year written above. THE ROACH ORGANIZATION, INC. By: /s/ Andrew N. Peterson ---------------------------- Name: Andrew N. Peterson -------------------------- Title: Chief Financial Officer -------------------------- TRO LEARNING (CANADA), INC. By: /s/ Andrew N. Peterson ---------------------------- Name: Andrew N. Peterson -------------------------- Title: Chief Financial Officer -------------------------- SANWA BUSINESS CREDIT CORPORATION By: ____________________________ Name: __________________________ Title: _________________________ 7 REAFFIRMATION OF AMENDED AND RESTATED GUARANTY OF PAYMENT AND PERFORMANCE THE UNDERSIGNED PARTY, as guarantor ("GUARANTOR") of the above Borrowers pursuant to its Amended and Restated Guaranty of Payment and Performance (the "GUARANTY") identified below, acknowledges the terms and conditions set forth in this Fourth Amendment to Amended and Restated Revolving Loan and Security Agreement and ratifies and reaffirms its guaranty obligations as set forth in the Guaranty, as reaffirmed. To further induce Lender to enter into this Amendment, Guarantor hereby represents and warrants to Lender that it possesses no claims, defenses, offsets, recoupment or counterclaims of any kind or nature against or with respect to the enforcement of the Loan Agreement of any other Ancillary Agreement, each as amended by this Amendment, or to the Guaranty (collectively, the "CLAIMS"), nor does Guarantor have any knowledge of any facts that would or might give rise to any Claims. If facts now exist which would or could give rise to any Claim against or with respect to the enforcement of the Loan Agreement, any Ancillary Agreement, or the Guaranty, Guarantor hereby unconditionally, irrevocably and unequivocally waives and fully releases any and all such Claims as if such Claims where the subject of a lawsuit, adjudicated to final judgment from which no appeal could be taken and therein dismissed with prejudice. DATED: As of the date first above written. TRO LEARNING (CANADA), INC. By: /s/ Andrew N. Peterson ---------------------------- Name: Andrew N. Peterson -------------------------- Its: Chief Financial Officer --------------------------- (Amended and Restated Guaranty of Payment and Performance dated as of March 5, 1997) 8 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 31,1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS OCT-31-1998 JUL-31-1998 880 0 18,081 802 775 20,364 1,240 4,595 29,022 26,524 3,050 0 0 64 (1,204) 29,022 28,881 28,881 4,352 4,352 24,793 561 1,369 (1,831) 0 0 0 0 0 (1,831) (0.29) (0.29)
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