UNITED STATES
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 June 30, 2011
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: 0-14807
AMERICAN LEARNING CORPORATION
(Exact name of registrant as specified in its charter)
| New York | 11-2601199 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| One Jericho Plaza, Jericho, New York | 11753 | |
| (Address of principal executive offices) | (Zip Code) |
(516) 938-8000
(Registrant's telephone number, including area code)
| 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 twelve 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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
| (Do not check if a smaller reporting company) | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares outstanding of the Registrant’s common stock as of August 12, 2011 was 4,919,615.
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
INDEX
| Page No. | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | |
| Condensed Consolidated Balance Sheets as of June 30, 2011 (unaudited) and March 31, 2011 | 3 | |
| Condensed Consolidated Statements of Operations for the Three Months ended June 30, 2011 and 2010 (unaudited) | 4 | |
| Condensed Consolidated Statements of Cash Flows for the Three Months ended June 30, 2011 and 2010 (unaudited) | 5 | |
| Notes to Condensed Consolidated Financial Statements (unaudited) | 6 - 8 | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 9 - 10 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 11 |
| Item 4. | Controls and Procedures | 11 |
| PART II - OTHER INFORMATION | ||
| Item 6. | Exhibits | 12 |
| SIGNATURES | 13 | |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
| June 30, 2011 | March 31, 2011 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 3,276,407 | $ | 2,579,249 | ||||
| Accounts receivable, net | 681,794 | 689,908 | ||||||
| Note receivable | 180,000 | 180,000 | ||||||
| Prepaid expenses and other current assets | 132,056 | 137,531 | ||||||
| Current assets of discontinued operations | — | 872,553 | ||||||
| Total current assets | 4,270,257 | 4,459,241 | ||||||
| Note receivable - net of current portion | 240,000 | 270,000 | ||||||
| Goodwill | 145,000 | 145,000 | ||||||
| Intangible assets, net | 99,294 | 101,328 | ||||||
| Property and equipment, net | 128,641 | 132,810 | ||||||
| Other assets | 15,915 | 15,915 | ||||||
| Total assets | $ | 4,899,107 | $ | 5,124,294 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 266,495 | $ | 247,793 | ||||
| Accrued compensation and related taxes | 234,472 | 283,358 | ||||||
| Capital leases payable - current portion | — | 7,801 | ||||||
| Current liabilities of discontinued operations | — | 342,913 | ||||||
| Total current liabilities | 500,967 | 881,865 | ||||||
| Commitments | ||||||||
| Stockholders' equity: | ||||||||
| Common stock, $.01 par value. Authorized 20,000,000 shares; issued 5,214,715 and 5,050,000 shares and outstanding 4,919,615 and 4,754,900 shares, respectively | 52,147 | 50,500 | ||||||
| Additional paid-in capital | 5,895,706 | 5,599,099 | ||||||
| Accumulated deficit | (1,082,440 | ) | (939,897 | ) | ||||
| 4,865,413 | 4,709,702 | |||||||
| Treasury stock, at cost | (467,273 | ) | (467,273 | ) | ||||
| Total stockholders' equity | 4,398,140 | 4,242,429 | ||||||
| Total liabilities and stockholders' equity | $ | 4,899,107 | $ | 5,124,294 | ||||
See accompanying notes to condensed consolidated financial statements.
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AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
| Three months ended | ||||||||
| June 30, | June 30, | |||||||
| 2011 | 2010 | |||||||
| Revenues | $ | 879,897 | $ | 727,483 | ||||
| Cost of services | 601,016 | 472,442 | ||||||
| Gross profit | 278,881 | 255,041 | ||||||
| Selling, general, and administrative expenses | 457,644 | 487,170 | ||||||
| Operating loss from continuing operations | (178,763 | ) | (232,129 | ) | ||||
| Other income (expense): | ||||||||
| Interest income | 4,553 | 990 | ||||||
| Interest expense | (184 | ) | (672 | ) | ||||
| Loss from continuing operations | (174,394 | ) | (231,811 | ) | ||||
| Discontinued operations | ||||||||
| Gain from discontinued operations, net of tax | 31,851 | 181,841 | ||||||
| Net loss | $ | (142,543 | ) | $ | (49,970 | ) | ||
| Net income (loss) per share: | ||||||||
| From continuing operations – basic and diluted | $ | (0.04 | ) | $ | (0.05 | ) | ||
| From discontinued operations – basic and diluted | 0.01 | 0.04 | ||||||
| $ | (0.03 | ) | $ | (0.01 | ) | |||
| Weighted average shares - basic and diluted | 4,809,805 | 4,754,900 | ||||||
See accompanying notes to condensed consolidated financial statements.
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AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three months ended | ||||||||
| June 30, | June 30, | |||||||
| 2011 | 2010 | |||||||
| Cash flows from operating activities: | ||||||||
| Loss from continuing operations | $ | (174,394 | ) | $ | (231,811 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 23,590 | 26,674 | ||||||
| Stock-based compensation expense | 1,767 | 11,100 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 8,114 | (64,648 | ) | |||||
| Prepaid expenses and other current assets | 5,475 | (36,190 | ) | |||||
| Accounts payable and accrued expenses | 18,702 | (15,762 | ) | |||||
| Accrued compensation and related taxes | (48,886 | ) | 63,651 | |||||
| Net cash used in operating activities of continuing operations | (165,632 | ) | (246,986 | ) | ||||
| Operating activities of discontinued operations | 561,491 | 271,423 | ||||||
| Net cash provided by operating activities | 395,859 | 24,437 | ||||||
| Cash flows from investing activities: | ||||||||
| Proceeds from note receivable | 30,000 | — | ||||||
| Capital expenditures | (17,387 | ) | — | |||||
| Net cash provided by investing activities | (12,613 | ) | — | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from stock issuance | 296,487 | — | ||||||
| Payment of capital leases payable | (7,801 | ) | (4,771 | ) | ||||
| Net cash provided by (used in) financing activities | 288,686 | (4,771 | ) | |||||
| Net increase in cash and cash equivalents | 697,158 | 19,666 | ||||||
| Cash and cash equivalents - beginning of period | 2,579,249 | 3,440,493 | ||||||
| Cash and cash equivalents - end of period | $ | 3,276,407 | $ | 3,460,159 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 184 | $ | 672 | ||||
See accompanying notes to condensed consolidated financial statements.
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AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2011
(Unaudited)
Overview
American Learning Corporation (together with its subsidiaries, “we,” “our,” “us,” or the “Company”) provides a comprehensive range of services to children with developmental delays and disabilities in New York State and has developed a reputation for providing well-rounded therapeutic solutions through our wholly owned subsidiaries, Interactive Therapy Group Consultants, Inc. (“ITG”) and Signature Learning Resources, Inc. (“SLR”).
Basis of Presentation
The accompanying unaudited consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). In our opinion, these financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to make the consolidated financial position, results of operations and cash flows for the interim periods presented not misleading. Results for interim periods are not necessarily indicative of results which may be achieved for a full year.
Accordingly, these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011 (the “Annual Report”), as filed with the Securities and Exchange Commission (“SEC”).
Discontinued Operations
On March 31, 2011, we completed the disposition of certain assets of ITG, pursuant to an Asset Purchase Agreement (the “Agreement”) among the Company, ITG, Liberty Resources POST, LLC and John Torrens. In consideration of the purchase price provided for in the Agreement, the Company sold certain assets related to ITG’s business in the upstate region of New York State (the “Upstate Region”). ITG continues to operate in the downstate area of New York State (New York City and Long Island). Accordingly, the results of ITG’s operations from the Upstate Region have been classified as discontinued operations in all periods presented.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Revenue Recognition
We recognize revenue for services rendered when there is evidence of billable time expended. Deferred revenue is recorded for amounts attributable to special education programs when invoiced and recognized over the applicable program periods.
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Credit Risk
Service revenue is concentrated within a limited number of clients throughout New York State; municipalities within New York State provide substantial and significant revenue to us. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that our customers may be similarly affected by changes in economic or other conditions in New York State. Over the past year, we have experienced delays in payments received from these municipalities as a result of the challenging economic climate and delays in funding to the municipalities from New York State. Although the accounts receivable for our services are deemed collectible, we actively monitor this issue when evaluating the adequacy of our allowance for doubtful accounts.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is tested for impairment at least annually for possible impairment. We perform our tests as of March 31, the last day of our fourth fiscal quarter, unless an event occurs that would cause us to believe the value is impaired at an interim date.
The following table presents certain information regarding our intangible assets at June 30, 2011:
| Estimated | Carrying | Accumulated | |||||||||||||
| Useful Lives | Value | Amortization | Net | ||||||||||||
| Customer contracts | 15 years | $ | 122,000 | $ | (22,706 | ) | $ | 99,294 | |||||||
Intangible assets are being amortized on a straight-line basis over their estimated useful lives. For the three months ended June 30, 2011, amortization expense was $2,034. Assuming no changes in our intangible assets, estimated amortization expense for the remainder of the current fiscal year ending March 31, 2012 will be $6,099 and will be $8,133 in each of the four succeeding fiscal years.
We assess the recoverability of the carrying value of the identifiable intangible assets with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Seasonality
Our business is moderately seasonal in nature based on the school year. Accordingly, our second fiscal quarter (the three month period ending September 30), which includes two full months during which schools are not in session (July and August), is the quarter in which we achieve our lowest volume of revenues.
Net Earnings (Loss) Per Share
Basic earnings (loss) per share is based on the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects the maximum dilution from potential common shares issuable pursuant to the exercise of stock options and warrants, if dilutive, outstanding during each period. For the three months ended June 30, 2011 and 2010, the inclusion of common stock equivalents in the calculation of diluted loss per share would be anti-dilutive.
Stock Option Plans
We account for stock-based compensation by recording stock options at their fair value on the measurement date, which is typically the date the services are performed (generally the vesting period of the grant). Stock-based compensation totaling $1,767 and $11,100 was recognized during the three months ended June 30, 2011 and 2010, respectively, based on the fair value of the stock options granted.
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We estimate the fair value of stock options granted using the Black-Scholes option pricing model. Under this method, the average fair value of stock options granted by the Company during the three months ended June 30, 2011 was $1.56 per share. In addition to the exercise price of the awards, certain weighted average assumptions were used to estimate the fair value of stock option grants as follows: expected volatility of 95.8%, expected dividend yield of 0%, risk-free interest rate of 1.55% and an expected option term of 6 years.
At June 30, 2011, outstanding options to purchase 1,257,667 shares of the Company’s common stock are fully vested. In addition, certain option grants contain disposition restrictions which prohibit the sale of 50% of the shares acquired by exercising the awarded options until the first anniversary of the grant date and the remaining 50% of the shares acquired by exercising the awarded options until the second anniversary of the grant date. As of June 30, 2011, the fair value of unamortized stock-based compensation expense related to unvested stock options was approximately $36,033 which is expected to be recognized over a remaining vesting period of three years.
The following table summarizes information about stock option activity for the three months ended June 30, 2011:
| Weighted | |||||||||||||||
| Weighted | Average | ||||||||||||||
| Average | Remaining | Aggregate | |||||||||||||
| Exercise | Contractual | Intrinsic | |||||||||||||
| Shares | Price | Term | Value | ||||||||||||
| Outstanding at March 31, 2011 | 1,296,000 | $ | 2.11 | 6.3 years | |||||||||||
| Granted | 20,000 | $ | 2.14 | 10 years | |||||||||||
| Expired | (25,000 | ) | $ | 2.50 | 7.5 years | ||||||||||
| Outstanding at June 30, 2011 | 1,291,000 | $ | 2.10 | 6.1 years | $ | 95,200 | |||||||||
| Exercisable at June 30, 2011 | 1,257,667 | $ | 2.11 | 6.1 years | $ | 79,200 | |||||||||
Aggregate intrinsic value represents the total pretax intrinsic value, based on options with exercise prices less than the Company’s closing price of $2.00 as of June 30, 2011, which would have been recognized by the option holders had these option holders exercised their options as of that date.
Subsequent Events
We have completed an evaluation of the impact of any subsequent events through the date these financial statements were issued and determined that there were no subsequent events requiring disclosure in or adjustment to these financial statements.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
Except for the historical information contained herein, the matters discussed in this Report on Form 10-Q may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, general economic and market conditions and our ability to successfully identify and thereafter consummate one or more acquisitions.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 of the Notes to Condensed Consolidated Financial Statements included in our Annual Report. A discussion of our critical accounting policies and estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) in our Annual Report. There have been no material changes to the critical accounting policies or estimates reported in the MD&A section of our Annual Report.
Results of Operations – Three Months ended June 30, 2011 and 2010
Revenues for the three months ended June 30, 2011 were $879,897, an increase of approximately 21.0% over the $727,483 reported for the three month period ended June 30, 2010. Revenues generated under our Special Education Itinerant Teacher (“SEIT”) program increased to $331,732 during the three months ended June 30, 2011 from $223,074 in the corresponding period in the prior fiscal year. We also achieved growth in school staffing services to charter schools during the current quarter, recording an increase in charter school revenue of $148,792, representing an increase of approximately 28.2% over the quarter ended June 30, 2010. However, during the three months ended June 30, 2011, revenues from early intervention (“EI”) services decreased $94,334 from EI revenues recorded in the prior fiscal period ended June 30, 2010. New York City will not be granting EI contracts to any new providers in the upcoming request for proposal process and our agreement to subcontract our services to another approved provider will not be renewed.
Our cost of services consists of payroll and payroll-related costs paid to our staff of salaried and per diem clinicians. As a percentage of revenue, costs of services during the three months ended June 30, 2011 and 2010 were 68.3% and 64.9%, respectively. Each year, we are required to file a standardized fiscal cost report with New York State which is used to calculate reconciliation tuition rates/adjustment factors and prospective tuition rates for our SEIT program. As a result of this rate reconciliation process, the cost of services as a percentage of revenue for the three months ended June 30, 2011 increased due to a 4.0% reduction in fees paid by preschools under the rate reconciliation process. In addition, the cost of services as a percentage of revenue in the current quarter increased due to an increase in our workers compensation premiums.
Selling, general and administrative expenses for the quarterly periods ended June 30, 2011 and 2010 were $457,644 and $487,170, respectively. The decrease in selling, general and administrative expenses in the current quarter reflects decreases in general operating expenses, offset by an increase in professional fees paid to attorneys and consultants of approximately $49,000.
Interest income for the three months ended June 30, 2011 and 2010 was $4,553 and $990, respectively. The increase in interest income was the result of interest earned on the note receivable accepted as consideration in the Agreement for the sale of the Upstate Region coupled with by an increase in cash balances available for investment.
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Liquidity and Capital Resources
At June 30, 2011, we had working capital of $3,769,290 as compared to working capital of $3,577,376 at March 31, 2011. We believe that we have sufficient cash resources and working capital to meet our present cash requirements.
During the three months ended June 30, 2011, net cash provided by operating activities was $395,859, predominately attributable to the operating activities of discontinued operations totaling $561,491, offset by an operating loss of $174,394.
Cash flows from investing activities for the three months ended June 30, 2011 included $30,000 of proceeds received from collections of the note receivable.
On June 30, 2011, we completed a private placement of 164,715 shares of the Company’s common stock to non-affiliated accredited investors at a per share price of $1.80. Total aggregate proceeds of $296,487 were received by the Company.
Future minimum lease payments under non-cancelable operating leases and subleases, exclusive of future escalation charges, for the remainder of the fiscal year ending March 31, 2012 and fiscal years ending thereafter are as follows:
| Operating | ||||
| Leases | ||||
| 2012 | $ | 110,000 | ||
| 2013 | 125,000 | |||
| 2014 | 28,000 | |||
| Total minimum lease payments | $ | 263,000 | ||
The Company remains liable under a lease for office space located in East Syracuse, NY which expires in April 2013. Since the Upstate Region has been classified as a discontinued operation, a provision of $50,435, net of matching payments to be made by the purchaser of the Upstate Region, has been recorded in the accompanying financial statements at June 30, 2011.
While we have not experienced any significant impact on our net revenues and profitability from the general slowdown of the economy or current global credit crisis, the continuing economic deterioration could have a negative impact in future periods.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to interest rate risks that arise from normal business operations. Most of our cash and cash equivalents are invested at variable rates of interest and decreases in market interest rates have caused a related significant reduction in our interest income over prior periods.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure the reliability of the financial statements and other disclosures included in this Report. As of the end of the fiscal quarter ended June 30, 2011, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings.
(b) Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
We are aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial reporting matters. However, we have decided that considering the employees involved and the control procedures in place, risks associated with such lack of segregation are mitigated by active management involvement and the potential benefits of adding employees to clearly segregate duties do not justify the expenses associated with such increases.
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PART II - OTHER INFORMATION
Item 6. Exhibits.
| Exhibit 31.1 | Section 302 Principal Executive Officer Certification |
| Exhibit 31.2 | Section 302 Principal Financial Officer Certification |
| Exhibit 32.1 | Section 1350 Certification |
| Exhibit 32.2 | Section 1350 Certification |
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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.
| AMERICAN LEARNING CORPORATION | ||
| Date: August 12, 2011 | By: | /s/ Gary Gelman |
| Gary Gelman | ||
| Chairman of the Board, | ||
| President and Chief Executive Officer | ||
| Date: August 12, 2011 | By: | /s/ Gary J. Knauer |
| Gary J. Knauer | ||
| Chief Financial Officer, | ||
| Treasurer and Secretary | ||
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