UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 AND 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending January 31, 1999
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 000-21535
_______________
ProsoftTraining.com
(Exact Name of Registrant as Specified in its Charter)
NEVADA 87-0448639
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3001 Bee Caves Road, Suite 100 Austin, Texas 78746
(Address of Principal Executive Offices) (Zip Code)
(512) 328-6140
Registrant's Telephone Number, Including Area Code
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 [_]
The number of shares of the registrant's common stock, $.001 par value,
outstanding as of March 1, 1999, was 13,552,893 shares.
ProsoftTraining.com and Subsidiaries
Consolidated Balance Sheets
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
January 31, 1999 July 31, 1998
---------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 2,286,596 $ 3,311,014
Accounts receivable, less allowances of $118,232 and $329,802,
respectively 1,582,808 2,224,638
Notes receivable............................................................ 184,250 422,750
Prepaid expenses and other current assets................................... 571,576 567,596
------------ ------------
Total current assets.......................................................... 4,625,230 6,525,998
------------ ------------
Property and equipment:
Computer equipment and software............................................. 6,396,703 5,744,480
Office equipment, furniture and fixtures.................................... 1,299,418 1,939,270
------------ ------------
7,696,121 7,683,750
Less accumulated depreciation............................................... 6,268,031 4,584,566
------------ ------------
1,428,090 3,099,184
Goodwill, net of accumulated amortization of $387,276 and $249,043,
respectively............................................................... 2,322,717 2,898,839
License agreements, net of accumulated amortization of $121,026............... 103,093 0
Other assets.................................................................. 1,675,684 0
------------ ------------
Total assets.................................................................. $ 10,154,814 $ 12,524,021
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ 982,305 1,054,866
Accrued payroll and related expenses........................................ 401,388 648,802
Deferred revenue............................................................ 0 23,105
Bank Line of Credit......................................................... 0 0
Current portion of capital lease obligations................................ 1,157,827 1,465,159
------------ ------------
Total current liabilities..................................................... 2,541,520 3,191,932
Obligations under capital leases, net of current portion...................... 283,789 559,205
Convertible debentures........................................................ 2,086,000 0
------------ ------------
Total liabilities............................................................. 4,911,309 3,751,137
------------ ------------
Common stock subject to redemption............................................ 56,666 2,056,520
Stockholders' equity:
Common stock, $.001 par value:
Authorized - 50,000,000
Issued and outstanding 13,154,910 and 11,502,079 shares, respectively....... 13,155 11,502
Additional paid-in capital.................................................... 51,395,783 47,030,129
Accumulated deficit........................................................... (46,147,351) (40,250,519)
Less common stock in treasury, at cost; 11,912 Shares......................... 74,748 74,748
------------ ------------
Total stockholder's equity.................................................... 5,186,839 6,716,364
------------ ------------
Total liabilities and stockholders' equity.................................... $ 10,154,814 12,524,021
============ ============
See Accompanying Notes
ProsoftTraining.com and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended January 31, Six Months Ended January 31,
1999 1998 1999 1998
--------------- ------------- --------------- -------------
Revenue:
Training $ 1,169,853 $ 1,525,062 $ 2,865,866 $ 2,726,790
Courseware 265,619 150,000 578,634 176,921
Certification 70,550 -- 70,550 --
----------- ----------- ----------- -----------
Total revenue 1,506,022 1,675,062 3,515,050 2,903,711
----------- ----------- ----------- -----------
Costs and expenses:
Costs of services 2,564,930 3,057,886 5,191,439 6,628,777
Sales and marketing 336,631 671,633 1,063,621 1,369,273
General and administrative 1,504,969 1,521,901 3,111,909 3,382,051
----------- ----------- ----------- -----------
Total costs and expenses 4,406,530 5,251,420 9,366,969 11,380,101
----------- ----------- ----------- -----------
Loss from operations (2,900,508) (3,576,358) (5,851,919) (8,476,390)
Interest income (expense), net (34,634) 47,088 (44,913) 88,788
----------- ----------- ----------- -----------
Net loss $(2,935,142) $(3,529,270) $(5,896,832) $(8,387,602)
----------- ----------- ----------- -----------
Net loss per share $ (0.23) $ (0.32) $ (0.48) $ (0.78)
----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding 12,620,343 11,072,690 12,330,995 10,756,972
----------- ----------- ----------- -----------
See Accompanying Notes
ProsoftTraining.com and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)
Six Months Ended January 31,
----------------------------
1999 1998
------------- ------------
Operating activities
Net loss.............................................................................. ($5,896,832) ($8,387,602)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization ...................................................... 1,943,726 1,418,533
Changes in operating assets and liabilities:
Accounts receivable................................................................. 641,830 (223,776)
Prepaid expenses and other current assets........................................... (3,980) 258,551
Other assets (103,093) 0
Accounts payable ................................................................... (407,574) (2,919,184)
Accrued liabilities................................................................. (247,414) (448,546)
Deferred revenue.................................................................... (23,105) 98,190
------------ ------------
Net cash used in operating activities................................................. (4,096,442) (10,203,834)
Investing activities:
Acquisitions of businesses net of Cash.............................................. (30,000) (1,000,000)
Purchase of property and equipment.................................................. 0 (544,894)
Proceeds from sales of property & equipment......................................... 15,786
Notes receivable ................................................................... (61,500) 117,411
------------ ------------
Net cash used in investing activities................................................. (75,714) (1,427,483)
Financing activities:
Issuance of convertible debentures and warrants..................................... 3,060,000 0
Issuance of common stock............................................................ 675,963 9,928,934
Principal payments on debt and capital leases....................................... (588,225) (880,478)
------------ ------------
Net cash provided by financing activities............................................. 3,255,574 9,048,456
------------ ------------
Decrease in cash and cash equivalents................................................. (1,024,418) (2,582,861)
Cash and cash equivalents at the beginning of period.................................. 3,311,014 12,911,684
------------ ------------
Cash and cash equivalents at the end of period........................................ $ 2,286,596 $ 10,328,823
Supplementary disclosure of cash paid during the period for:
Interest.............................................................................. $ 100,210 $ 188,502
Income taxes.......................................................................... $ 0 $ 0
Supplementary disclosure on non-cash financing activities:
Equipment acquired under capital leases............................................. $ 0 $ 173,290
Common Stock used in acquisitions..................................................... $ 567,500 $ 1,699,998
See Accompanying Notes
ProsoftTraining.com and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The consolidated financial statements do not include footnotes and
certain financial information normally presented annually under generally
accepted accounting principles and, therefore, should be read in conjunction
with the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end. The results of operations for
the three month and six month periods ended January 31,1999, are not necessarily
indicative of results that can be expected for the fiscal year ending July 31,
1999. The consolidated financial statements included herein are unaudited;
however, they contain all adjustments (consisting of normal recurring accruals)
which, in the opinion of the Company, are necessary to present fairly its
consolidated financial position, results of operations, and cash flows as of and
for the three month and six month periods ended January 31, 1999.
2. In January 1998, the Company purchased 100% of the outstanding common
stock of Net Guru Technologies, Inc. (Net Guru) in exchange for cash of
$1,000,000 and 152,809 shares of the Company's common stock valued at
$1,700,000. In March 1998, the Company purchased 100% of the outstanding common
stock of The Chapel Hill Group- Technology Consultants, Inc. in exchange for
68,728 shares of the Company's common stock, valued at $500,000. In November
1998, the Company purchased the remaining 51% of the outstanding common stock of
International Certification Internet Institute (ICII) in exchange for 300,000
shares of the Company's common stock valued at $547,500. As part of the January
1998 Net Guru acquisition the Company also received 49% of ICII. However, share
transference was subject to a shareholder agreement. With the purchase of 51% of
ICII the other 49% was also transferred to Prosoft. The operations of the
acquired companies have been reflected in the Company's financial statements
since the dates of the acquisitions. For the quarter and six months ended
January 31, 1999, the operations of the acquired companies were not significant.
Accordingly, a pro forma statement of operations, giving effect to the
acquisitions of the aforementioned companies as if they occurred on August 1,
1997, are not presented.
During the quarter ended January 31, 1999, the Company determined that
$1,005,122 of the purchase price of the Net Guru acquisition should have been
allocated to license agreements and other identifiable intangibles like service
marks, brands, and certification credentials at the date of acquisition. As a
result, a reclassification from goodwill to license agreements has been made.
3. In November of 1998, the Company entered into an Accounts Receivable
Line of Credit whereby up to 80% of the gross receivables can be advanced up to
$3,500,000. As of January 31, 1999, there have been no borrowings on this line.
In November 1998, the Company issued approximately $700,000 in common stock and
$3,200,000 in the form of 13% convertible promissory notes with detachable
warrants. The convertible debt has a five year maturity with interest payable
quarterly.
4. During the second quarter, the Company issued shares of common stock
in lieu of the waiver of certain put rights issued in conjunction with certain
acquisitions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Management Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. In addition, forward looking
statements include, but are not limited to, statements regarding future
financing needs, changes in business strategy, future profitability, and factors
affecting liquidity. A number of important factors could cause the Company's
actual results to differ materially from those indicated by such forward-looking
statements. These forward-looking statements represent the Company's judgment as
of the date of the filing of this Form 10-Q. The Company disclaims any intent or
obligation to update theses forward-looking statements.
OVERVIEW
ProsoftTraining.com ("Prosoft" or the "Company") is an Internet solutions
company committed to providing comprehensive Internet skills curriculum, vendor-
neutral Internet skills certification programs and instructors to deliver the
curriculum and certification. Prosoft offers more than 50 instructor led
Internet skill courses ranging from one-day end-user workshops to 10-day
certification programs. The Certified Internet Webmaster program offered by the
Company creates the professional skills required to develop and implement e-
business solutions for the Internet age. The certification testing program is
administered worldwide by testing leader Sylvan Prometric. The Company also
sells its courseware to Prosoft Certified Training Center (PCTC) resellers and
courseware licenses. The Company works closely with industry associations,
vendors and its partners to define the job roles and skills essential to deploy
e-business solutions which apply and use Internet technology in business
processes and functions.
Prosoft offers comprehensive training solutions. Company services include
certification in critical Internet skills, instructor-led training (ILT),
instructor-facilitated online learning using the Company's proprietary ProFlex
distance learning program, classroom texts, and e-courseware.
The Company's Certified Internet Webmaster (CIW) certification, currently
in its third generation, is offered globally in partnership with IBM,
ExecuTrain, CompUSA, Computer Prep, among others. The program is based on key
e-business job roles and the skills required to perform them. The CIW curriculum
and examinations develop and prove competency in those important job roles. It
is a standardized method of ensuring that individuals have demonstrated
technical competency in selected areas and is vendor-neutral in that it is not
content specific to any single vendor or any single product associated with any
vendor. CIW is endorsed by the Association of Internet Professionals and the
World Organization of Webmasters.
Historically, Internet instruction had been offered through Company-
operated training centers ("Training Centers"). As of January 31, 1999, the
Company no longer operated any training centers though it still operated 4
offices. This number is significantly reduced from the July 31, 1998, totals of
12 Company owned sites and 16 Training Centers under the old revenue sharing
affiliate agreements. The Company has altered its strategy and decided to exit
the retail training business and sell curriculum and service to the training
industry on a wholesale basis. Prosoft has increased its offerings through
wholesale relationships with other international, national, and regional
training companies. The companies add Prosoft Internet curriculum which provides
them a new or expanded product line to augment their other training product
lines. The Company also provides contract training services at a wholesale cost
of $1,450 to $2,600 per day. This strategy shift to eliminate Company run sites
and increase distribution through Prosoft Certified Training Centers (resellers)
will begin to impact the financial statements in fiscal third and fourth
quarters. The Company is now positioned as a wholesale training services
company, supplying training and curriculum in the Unites States and abroad. This
new wholesale plan leverages instructor resources and adds a product line in
courseware sales. This plan should also allow the Company to significantly
reduce its fixed site expenses as training occurs at resellers sites. The
transition began in the second quarter and should continue over the last two
quarters of fiscal 1999 as the number of sites are reduced, the sales force
transitioned, and sell-through occurs in the new reseller channels. Since
resellers have training schedules published six months in advance, there will be
a lag for the distribution of Prosoft's product from the time of agreement
signing. Distribution agreements entered into in the first and second fiscal
quarters with ExecuTrain, CompUSA, IBM, ComputerPrep, and various PCTCs should
provide a solid foundation to implement the Company's new strategy and remain a
leader in Internet/intranet skills development. However, there can be no
assurances that this strategy will be successful and that such sales will occur
and such margins realized.
RESULTS OF OPERATIONS
Three Months Ended January 31, 1999, Compared to the Three Months Ended
January 31, 1998
RECLASSIFICATIONS
Certain amounts for the three months ended January 31, 1998, and for the
six months ended January 31, 1998, have been reclassified to conform with the
1999 presentation.
REVENUE
Training revenue for the three months ended January 31, 1999, was
$1,169,853, compared to $1,525,062 in the three months ended January 31, 1998, a
decrease of $355,209. This decrease reflects a change in the distribution
strategy of the company from a retail to a wholesale model and a greater
percentage of revenue derived from content in the current quarter as compared to
previous quarters.
Courseware sales increased to $265,619 in the three months ended January
31, 1999, compared to $150,000 in the three months ended January 31, 1998. This
increase is the result of the increasing customer base in connection with the
new PCTC and strategic partner relationships.
Certification revenue increased to $70,550 in the three months ended
January 31, 1999, compared to $0 in the three months ended January 31, 1998.
Certification revenue is derived from the new PCTC program and in the future
will include revenue derived from certification testing.
COST OF SERVICES
Cost of services is composed of the following:
Three Months Ended January 31,
------------------------------
1999 1998
------------ ------------
Instruction....................... $1,111,033 $1,615,184
Classroom costs................... 1,071,130 1,204,595
Courseware........................ 382,767 238,107
---------- ----------
Total........................... $2,564,930 $3,057,886
========== ==========
The Company's cost of services includes the costs of instructors, course
materials, classroom equipment, and facilities. The majority of course
instructors are employees. Instructor travel varies with, among other things,
the location of class offerings and local instructor availability. The Company
uses instructors, dedicated content development employees, and contractors to
develop course content and materials. The cost of content development varies
with the Company's evaluation of the effectiveness of its existing class
offerings and the anticipated release of new software products. The cost of
courseware this quarter included additional expenses resulting from the
completion of the third generation of the courseware library.
The classroom costs consist of equipment related expenses of $826,260, and
facilities rent of $244,870 in the quarter ended January 31, 1999. Because the
Company reduced the number of classroom sites, we expect net facilities rent for
quarterly periods subsequent to January 31, 1999, to be approximately $120,000.
As discussed in previous filings and press releases, the Company has changed its
distribution strategy and no longer needs the original national training center
infrastructure. The Company is also in the process of reducing its equipment
costs as a result of the reduced number of locations. However, as of January 31,
1999, the Company cannot accurately estimate the going forward costs nor
charges, if any, that will be necessary to remove obligations for equipment
leases.
SALES AND MARKETING
Sales and marketing expenses are composed of:
Three Months Ended January 31,
------------------------------
1999 1998
------------ ------------
Advertising and trade shows........... $ 10,734 $ 83,516
Salaries and wages.................... 296,020 552,605
Travel and entertainment.............. 35,512
-------- --------
Total.............................. $336,631 $671,633
======== ========
Sales and marketing expenses for the three months ended January 31, 1999,
amounted to $336,631, compared to $671,633 for the three months ended January
31, 1998, a decrease of $335,002. These expenses consist of salaries,
commissions and travel-related costs of sales and marketing personnel, the costs
of designing, producing and distributing direct mail marketing and media
advertisements, and the costs of the information systems to support these
activities. This decrease reflects the elimination of the Company's public class
schedule and direct mail and telemarketing staff associated with that
distribution method.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended January
31,1999, were $1,504,969, compared to $1,521,901 for the three months ended
January 31, 1998, a decrease of $16,932. This decrease reflects reduced numbers
of administrative employees. We expect this category to decrease slightly as the
impact of the new strategy results in lower administrative costs. Exclusive of
the G&A costs of ICII which was acquired on November 11, 1998, the G&A costs for
the quarter decreased by $121,824.
NET INTEREST INCOME (EXPENSE)
Net interest expense was $34,634 for the three months ended January 31,
1999, compared to net interest income of $47,088 for the three months ended
January 31, 1998, a decrease of $81,722. Interest expense, which consists
principally of interest paid on capital leases, is offset by interest earned on
cash balances. The increase in net interest expense was a result of smaller cash
balances and the addition of approximately $100,000 of interest expense per
quarter attributable to the convertible debenture issued in the second quarter.
Of this amount only half must be paid in cash.
Six Months Ended January 31, 1999, Compared to the Six Months Ended January
31, 1998
REVENUE
Training revenue for the six months ended January 31, 1999, was $2,865,866,
compared to $2,726,790 in the six months ended January 31, 1998, an increase of
$139,076. This increase reflects greater acceptance of the Company's class
offerings and increased distribution through strategic third party
relationships.
Courseware sales increased to $578,634 in the six months ended January 31,
1999, compared to $176,921 in the six months ended January 31, 1998. This
increase is the result of the increasing customer base in connection with the
new PCTC and strategic partner relationships.
Certification revenue increased to $70,550 in the six months ended January
31, 1999, compared to $0 in the six months ended January 31, 1998. Certification
revenue is derived from the new PCTC program and in the future will include
revenue derived from certification testing.
COST OF SERVICES
Cost of services is composed of the following:
Six Months Ended January 31,
----------------------------
1999 1998
----------- -----------
Instruction......................... $2,337,504 $3,680,395
Classroom costs..................... 2,089,536 2,596,659
Courseware.......................... 764,399 351,723
---------- ----------
Total............................. $5,191,439 $6,628,777
========== ==========
The Company's cost of services includes the costs of instructors, course
materials, classroom equipment, and facilities. Most course instructors are
employees. Instructor travel varies with, among other things, the location of
class offerings and local instructor availability. The Company uses instructors,
dedicated content development employees and contractors to develop course
content and materials. The cost of content development varies with the Company's
evaluation of the effectiveness of its existing class offerings and the
anticipated release of new software products. The cost of courseware this
quarter included additional expenses resulting from the completion of the third
generation of the courseware library.
The classroom costs consist of equipment depreciation of $1,648,260, and
facilities rent of $441,276 in the six months ended January 31, 1999. Because
the Company reduced the number of classroom sites, we expect net facilities rent
for quarterly periods subsequent to January 31, 1999, to be approximately
$120,000. As discussed in previous
filings and press releases, the Company has changed its distribution strategy
and no longer needs the original national training center infrastructure. The
Company is also in the process of reducing its equipment costs as a result of
the reduced number of locations. However, as of January 31, 1999, the Company
cannot accurately estimate the going forward costs nor charges, if any, that
will be necessary to remove obligations for equipment leases.
SALES AND MARKETING
Sales and marketing expenses are composed of:
Six Months Ended January 31,
----------------------------
1999 1998
----------- -----------
Advertising and trade shows........... $ 27,204 $ 100,396
Salaries and wages.................... 923,592 1,183,652
Travel and entertainment.............. 112,825 85,225
---------- ----------
Total............................... $1,063,621 $1,369,273
========== ==========
Sales and marketing expenses for the six months ended January 31, 1999,
amounted to $1,063,621, compared to $1,369,273 for the six months ended January
31, 1998, a decrease of $305,652. These expenses consist of salaries,
commissions and travel-related costs of sales and marketing personnel, the costs
of designing, producing and distributing direct mail marketing and media
advertisements, and the costs of the information systems to support these
activities. This decrease reflects the elimination of the Company's public class
schedule and direct mail and telemarketing staff associated with that
distribution method.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the six months ended January
31,1999, were $3,111,909, compared to $3,382,051 for the six months ended
January 31, 1998, a decrease of $270,142. This decrease reflects reduced numbers
of administrative employees. Exclusive of the G&A costs of ICII which was
acquired on November 11th, 1998, the G&A costs for the quarter would have
decreased by $391,966.
NET INTEREST INCOME (EXPENSE)
Net interest expense was $44,913 for the six months ended January 31, 1999,
compared to net interest income of $88,788 for the six months ended January 31,
1998, a decrease of $133,701. Interest expense, which consists principally of
interest paid on capital leases, is offset by interest earned on cash balances.
The increase in net interest expense was a result of smaller cash balances and
the addition of approximately $100,000 of interest expense per quarter
attributable to the convertible debenture issued in the second quarter. Of this
amount only half must be paid in cash.
Liquidity And Capital Resources
From inception, the Company has financed its operations and met
substantially all of its capital expenditure requirements primarily through net
proceeds from private sales of securities. Cash and cash equivalents decreased
from $3,311,014 at July 31, 1998, to $2,286,596 at January 31, 1999. This
decrease was the result of net cash used by operations, primarily due to a net
loss of $5,896,832 for the period, which was partially offset by financing
activities which raised approximately $3,800,000.
The Company has incurred losses of approximately $46 million since
inception, primarily due to the startup nature of its business. However, due to
the recent sales reorganization and refocusing efforts, the Company is beginning
to realize increasing revenue and decreasing costs. This shift in the business
strategy should reduce fixed costs over comparable fiscal 1998 periods. If
revenues continue to grow as demonstrated in fiscal 1998 and cost savings are
realized from programs previously discussed as anticipated, the Company hopes to
reach profitability in the last half of fiscal 1999. In addition, in the second
quarter of fiscal 1999, the Company received proceeds of approximately $700,000
in a private placement of common stock to various accredited individual
investors, $3.2 million in a private placement of convertible debt to various
institutional investors, and secured a $3.5 million asset based credit line from
Silicon Valley Bank. The Company anticipates that its existing resources, along
with these
financings, will be sufficient to meet its needs for working capital
expenditures through at least 1999. However, no assurances can be given that the
Company will be successful in realizing its goals. The Company's ability to
continue as a going concern depends upon its ability to obtain necessary
financing, grow revenue, attain operational efficiencies and, ultimately,
sustain a profitable level of operations.
In November 1998, the Company entered into a renewable one year line of
credit with Silicon Valley Bank for a maximum of $3,500,000. The collateral for
the line is the Company's accounts receivables of which the Company can draw
down up to 80% of the balance.
YEAR 2000 ISSUE RISKS
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000. We rely on our systems,
applications and devices, including financial systems, registration systems,
embedded computer chips, networks and telecommunications equipment.
We have completed our Year 2000 assessment and determined our financial
system needed to be updated at an expected cost of less than $3,000. We expect
the update to be completed in fiscal 1999. We have received assurances from our
other software vendors that their systems are Year 2000 compliant. In addition,
we have conducted an inventory, review and assessment of our personal computers,
networks and servers and desktop software applications to determine whether they
support Year 2000 date codes and we believe that all are Year 2000 compliant. In
the event of an unexpected failure in one of our systems, our employees would be
able to continue operations on a manual basis until such systems have been
restored to full operating capacity. We estimate that the total cost of our Year
2000 compliance will not be significant.
We have contacted our key vendors and service suppliers to determine the
extent to which we are vulnerable to their failure to address the Year 2000
problem. We have received verbal assurances from these key suppliers that their
systems are Year 2000 compliant. Although we do not believe our operations will
be significantly disrupted even if third parties with whom we have relationships
are not Year 2000 compliant, we cannot guarantee that any Year 2000 compliance
problems of our suppliers will not negatively affect our financial performance.
If our key suppliers are unable to provide us sufficient quantities of materials
or goods as a result of their failure to be Year 2000 compliant, we believe that
we can obtain adequate supplies of materials and goods at comparable prices from
other sources. Because uncertainty exists concerning the potential costs and
effects associated with any Year 2000 compliance, we intend to continue to make
efforts to ensure that third parties with whom we have relationships are Year
2000 compliant.
The Year 2000 problem could also have an effect on our customers. If
customers delay or forego purchasing our products based upon Year 2000 related
issues, it could affect our operating results. Based upon our evaluation of our
current information, we do not believe such an occurrence is likely. However, we
cannot control the Year 2000 readiness of third parties and such a risk is
possible.
ADDITIONAL FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS OR THE COMPANY
The discussions in this Form 10-Q concerning future financing needs,
changes in business strategy, future profitability, and factors affecting
liquidity contain forward-looking statements. Although management believes that
these statements are reasonable in view of the facts available to it, no
assurance can be given that all of these statements will prove to be accurate.
Numerous factors could have a material effect upon whether these projections
could be realized or whether these trends will continue. Among these factors are
those set forth in the following section, as well as those discussed elsewhere
herein. For purposes of this Form 10-Q, "we" and "our" refer to the Company.
EXPECTATION OF CONTINUING LOSSES
We have a limited operating history, particularly with the new distribution
strategy, which makes it difficult to predict our future operating results. In
addition, we do not expect quarterly profitability until the fiscal fourth
quarter at the earliest. We have incurred net losses of approximately $46
million from our inception in December 5, 1995, through January 31, 1999. For
the quarter ended January 31, 1999, we incurred a net loss of $2,935,142. Our
ability to
generate significant revenues in the future is subject to uncertainty. In order
to achieve profitability, we must increase our revenues. We cannot assure you
that we will be able to increase revenues or achieve profitability.
UNCERTAINTY OF FUTURE CAPITAL REQUIREMENTS
Since our inception, we have been dependent on outside financing to fund
our operations and growth. We have raised approximately $47 million from private
placements since our inception and incurred losses of approximately $46 million.
We began realizing increasing revenues in late fiscal 1998 due to our sales
reorganization and refocusing efforts. This shift in our business strategy
should result in a reduction in overhead expenses and, if revenues continue to
grow as demonstrated in fiscal 1998, we hope to reach profitability in the
second half of fiscal 1999. We believe that our existing resources will be
sufficient to meet our needs for working capital expenditures through at least
fiscal 1999. However, if we do not achieve profitability and generate positive
cash flow as anticipated, our ability to continue as a going concern will be
jeopardized unless additional outside financing can be obtained.
UNCERTAINTY OF FUTURE FUNDING
If we do not achieve profitability and generate positive cash flow as
anticipated, we may need additional outside financing. Even if we do achieve
profitability and positive cash flow, we may need outside financing to fund
further growth of our business. We do not know at this time when we may need
additional funds, and we cannot be certain that if we do need additional funds
in the future that we will be able to obtain them on terms satisfactory to us,
if at all. If we are unable to raise additional funds when necessary, we may
have to reduce planned capital expenditures, scale back our operations or growth
or enter into financing arrangements on terms which we would not otherwise
accept.
INTENSE COMPETITION IN TRAINING MARKET
We face substantial competition in the training market. Competition in the
Internet/intranet training market is intense, rapidly changing and affected by
the rapidly evolving nature of the Internet/intranet industry. A number of other
companies offer products and services similar to ours, and additional new
competitors may emerge in the near future. Many of our existing competitors have
substantially greater capital resources, technical expertise, marketing
experience, research and development status, established customers and
facilities than we do. As a result, there is a risk that we will not be able to
successfully compete with existing and future competitors which would adversely
affect our financial performance.
NEED TO RESPOND TO RAPID TECHNOLOGICAL CHANGES
In our industry, technology advances rapidly and industry standards change
frequently. To remain competitive and achieve profitability, we must continually
enhance our existing products and services and promptly introduce new products,
services, and technologies to meet the changing demands of our customers. Our
failure to respond to technological changes quickly will adversely affect our
financial performance.
EFFECT OF MARKET OVERHANG ON STOCK PRICE
Future sales of our Common Stock could depress the market price of our
Common Stock. In addition, the perception that such sales will occur could also
adversely effect the price. As long as certain registration statements which
have been filed with the SEC remain effective, the selling stockholders under
those registration statements may sell up to 8,348,532 shares (or approximately
47.8% of the shares of Common Stock currently outstanding). These shares were
privately issued and are otherwise subject to restrictions on resale under
securities laws. Any such sales, or even the market perception that such sales
could be made, may depress the price of the Common Stock. The majority of these
shares being registered were already saleable under rule 144.
VOLATILITY OF STOCK PRICE
Our Common Stock has experienced substantial price volatility and such
volatility may continue to occur in the future. Additionally, the stock market
from time to time experiences significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. These broad
market fluctuations may also adversely effect the market price of our Common
Stock. In addition to such broad market fluctuations, factors such as the
following may have a significant effect on the market price of our Common Stock:
. Fluctuations in our operating results.
. The perception by others of our ability to obtain any necessary new
financing.
. Limited trading market for our Common Stock.
. Announcements of new ventures or products and services by us or our
competitors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
a) Exhibits
10.1 Form of Stock Purchase Agreement dated as of November 18, 1998 by and
among the Company and various investors. Filed as Exhibit 10.18 to
Registration Statement No. 333-35249 and incorporated herein by
reference.
10.2 Note and Warrant Purchase Agreement dated as of December 2, 1998 by
and among the Company and various investors. Filed as Exhibit 10.19
to Registration Statement No. 333-35249 and incorporated herein by
reference.
10.3 Registration Rights Agreement dated as of December 2, 1998 among the
Company and various investors. Filed as Exhibit 10.20 to Registration
Statement No. 333-35249 and incorporated herein by reference.
10.4 Accounts Receivable Purchase Agreement dated as of November 6, 1998
by and between the Company and Silicon Valley Financial Services (a
division of Silicon Valley Bank).
21 Subsidiaries of the Company.
Financial Data Schedule.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended January 31,
1999.
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.
ProsoftTraining.com
Dated: March 11, 1999
/s/ JERRELL M. BAIRD
----------------------
Jerrell M. Baird
Chief Executive Officer
and Chairman of the Board
(Duly Authorized Officer)
Dated: March 11, 1999
/s/ KIMBERLY V. JOHNSTON
--------------------------
Kimberly V. Johnston
Chief Financial Officer
(Principal Financial Officer)