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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 ended April 30, 2000
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. [X] Yes [ ] No
The number of shares of the registrant's common stock, $.001 par value,
outstanding as of June 6, 2000, was 19,122,381 shares.
1
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ProsoftTraining.com and Subsidiaries
Consolidated Balance Sheets
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
April 30, 2000 July 31, 1999
-------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 4,506,044 $ 1,152,715
Accounts receivable, less allowances of $230,898
and $199,362 at April 30, 2000 and July 31, 1999,
respectively............................................ 4,535,043 1,993,827
Notes receivable.......................................... 16,800 29,900
Prepaid expenses and other current assets................. 504,793 319,943
-------------- -------------
Total current assets............................ 9,562,680 3,496,385
Property and equipment, net.................................. 522,602 334,001
Goodwill, net of accumulated amortization of $840,869
and $548,638 at April 30, 2000 and July 31, 1999,
respectively.............................................. 1,884,223 2,176,453
License agreements, net of accumulated amortization of
$476,396 and $283,891 at April 30, 2000 and July 31,
1999, respectively........................................ 1,320,314 1,512,819
Other assets................................................. - 114,718
-------------- -------------
Total assets.................................... $ 13,289,819 $ 7,634,376
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,644,958 $ 1,415,331
Accrued payroll and related expenses...................... 569,186 565,322
Current portion of capital lease obligations.............. 875,355 918,680
Accrued restructuring costs............................... 553,781 1,230,025
-------------- -------------
Total current liabilities....................... 3,643,280 4,129,358
Capital lease obligations, net of current portion............ 249,743 847,978
Convertible debentures....................................... - 1,992,080
Other........................................................ 289,575 136,040
-------------- -------------
Total liabilities............................... 4,182,598 7,105,456
-------------- -------------
Common stock subject to redemption........................... 56,649 56,649
Stockholders' equity:
Common shares, par value $.001 per share: shares
authorized 50,000,000; outstanding 18,987,246
and 14,297,133 at April 30, 2000 and July 31,
1999, respectively...................................... 18,987 14,297
Additional paid-in capital................................ 60,357,848 52,380,454
Accumulated deficit....................................... (51,262,895) (51,857,454)
Accumulated other comprehensive income.................... 11,380 9,722
Less common stock in treasury, at cost: 11,912 shares..... (74,748) (74,748)
-------------- -------------
Total stockholders' equity...................... 9,050,572 472,271
-------------- -------------
Total liabilities and stockholders' equity...... $ 13,289,819 $ 7,634,376
============== =============
</TABLE>
See Accompanying Notes
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ProsoftTraining.com and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30, Nine Months Ended April 30,
---------------------------- ------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Services.......................... $ 2,980,051 $ 1,593,726 $ 7,759,803 $ 4,459,593
Courseware........................ 1,250,552 440,575 3,482,133 1,019,209
Certification..................... 915,490 141,949 1,686,570 212,499
----------- ----------- ------------ ------------
Total revenue.............. 5,146,093 2,176,250 12,928,506 5,691,301
----------- ----------- ------------ ------------
Costs and expenses:
Costs of revenue.................. 2,852,768 2,003,279 7,436,341 7,194,718
Sales and marketing............... 519,375 257,238 1,177,115 1,320,859
General and administrative........ 1,273,586 1,256,550 3,415,138 4,368,459
Restructuring charge.............. - 3,723,148 - 3,723,148
----------- ----------- ------------ ------------
Total costs and expenses.... 4,645,729 7,240,215 12,028,594 16,607,184
----------- ----------- ------------ ------------
Income (loss) from operations....... 500,364 (5,063,965) 899,912 (10,915,883)
Interest income..................... 44,601 15,155 78,370 70,452
Interest expense.................... (31,338) (186,214) (383,723) (286,425)
----------- ----------- ------------ ------------
Net income (loss)................... $ 513,627 $(5,235,024) $ 594,559 $(11,131,856)
=========== =========== ============ ============
Net income (loss) per share:
Basic............................. $ 0.03 $ (0.39) $ 0.04 $ (0.89)
=========== =========== ============ ============
Diluted........................... $ 0.02 $ (0.39) $ 0.03 $ (0.89)
=========== =========== ============ ============
Weighted average shares outstanding:
Basic............................. 18,729,098 13,419,306 16,311,680 12,555,270
=========== =========== ============ ============
Diluted........................... 21,619,981 13,419,306 19,725,800 12,555,270
=========== =========== ============ ============
</TABLE>
See Accompanying Notes
3
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ProsoftTraining.com and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended April 30,
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
Operating activities:
Net income (loss)................................................. $ 594,559 $ (11,131,856)
Adjustments to reconcile net income (loss) to cash used in
operating activities:
Depreciation and amortization................................ 572,240 2,185,299
Write-down of property and equipment......................... - 911,215
Accretion of debt discount................................... 99,270 -
Restructuring credit......................................... (150,000) -
Changes in operating assets and liabilities:
Accounts receivable...................................... (2,599,137) 731,710
Prepaid expenses and other current assets................ (185,569) 249,158
Other assets............................................. - (127,743)
Accounts payable......................................... 226,499 (860,894)
Accrued liabilities...................................... 170,205 (70,397)
Deferred revenue......................................... - (23,105)
Accrued restructuring costs.............................. (505,804) 2,043,673
------------ -------------
Net cash used in operating activities................ (1,777,737) (6,092,940)
------------ -------------
Investing activities:
Acquisitions of businesses, net of cash acquired............. - (30,000)
Purchase of property and equipment........................... (306,681) -
Proceeds from sales of property and equipment................ - 44,253
Notes receivable ............................................ 13,100 93,450
------------ -------------
Net cash provided by (used in) investing activities. (293,581) 107,703
------------ -------------
Financing activities:
Issuance of convertible debentures and warrants.............. - 3,060,000
Issuance of common stock..................................... 5,909,741 957,403
Increases (decreases) in capital lease obligations........... (639,809) 131,437
Other........................................................ 191,523 -
------------ -------------
Net cash provided by financing activities............ 5,461,455 4,148,840
------------ -------------
Effects of exchange rate changes on cash.......................... (36,808) -
------------ -------------
Net increase (decrease) in cash and cash equivalents.............. 3,353,329 (1,836,397)
Cash and cash equivalents at the beginning of period.............. 1,152,715 3,311,014
------------ -------------
Cash and cash equivalents at the end of period.................... $ 4,506,044 $ 1,474,617
============ =============
</TABLE>
See Accompanying Notes
4
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ProsoftTraining.com and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
These 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. The results of operations for the three and nine month
periods ended April 30, 2000, are not necessarily indicative of results that
can be expected for the fiscal year ending July 31, 2000. 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 and nine month periods ended April 30, 2000 and 1999.
2. Comprehensive income
The components of comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
Three months ended April 30, Nine months ended April 30,
---------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $513,627 $(5,235,024) $594,559 $(11,131,856)
Other comprehensive income (loss):
Foreign currency translation
adjustments (401) - 1,658 -
-------- ------------ -------- -------------
Comprehensive income (loss) $513,226 $(5,235,024) $596,217 $(11,131,856)
======== ============ ======== =============
</TABLE>
3. Restructuring
In the quarter ended April 30, 1999, the Company recorded a $3,723,148
charge for restructure and other unusual items associated with the Company's
decision to exit the retail training business. The restructuring charge
included $258,621 for the Dallas leased facility. In the first quarter of
fiscal 2000, the Company negotiated a lease termination agreement with the
Dallas landlord that resulted in a restructuring credit of $150,000 that was
included in costs of revenue. With the exception of the $150,000 reversal, all
other changes in accrued restructuring costs from July 31, 1999, have been
payments.
Accrued restructuring costs at April 30,2000, represent accrued lease
expense on closed facilities, equipment and other termination costs.
The unsettled amounts may change when final payments are made. The
Company anticipates that the remaining restructuring actions will be
substantially completed by the end of fiscal 2000.
5
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4. Supplemental disclosure of cash flow information
2000 1999
---- ----
Cash paid in the nine months
ended April 30 for:
Interest $204,680 $149,050
Income taxes - -
5. Earnings Per Share of Common Stock
Basic earnings per common share is calculated using the weighted
average number of common shares outstanding during the period. Diluted earnings
per common share is computed on the weighted average number of common shares
outstanding plus all additional common shares that would have been
outstanding if potentially dilutive securities or common stock equivalents
had been issued.
The following table is a reconcilitation of the weighted average common
shares used in the computation of basic and diluted EPS for the income statement
periods ended April 30, 2000. In the fiscal year 1999, all potential common
shares were anti-dilutive.
April 30,2000
-------------------------------------
Three Months Ended Nine Months Ended
------------------ -----------------
Weighted average shares outstanding
Basic 18,729,098 16,311,680
Assumed exercises of stock options 1,698,901 1,512,591
Convertible debentures and other 1,191,982 1,899,529
---------- ----------
Diluted 21,619,981 19,723,800
========== ==========
6. Convertible debentures
During the second quarter of fiscal 2000, the Company exercised its right to
force conversion of all unconverted debentures of $2,490,000 into the
Company's common stock. The debentures were converted into 1,556,250 shares
of common stock. As a result of this conversion, the convertible debenture
principal and related debt discount have been reclassified to stockholders'
equity.
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 contain 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
these forward-looking statements. For the purposes of this Form 10-Q, "we"
and "our" refers to the Company.
OVERVIEW
6
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We are a leading provider of professional Internet skills content, training
and certification. We sell and license our courseware, offer instruction
services and provide Internet skills certification through our brand,
Certified Internet Webmaster, or CIW, to training companies, internal
corporate training departments and academic institutions around the world.
Our products allow individuals to develop, upgrade and certify their
Internet skills.
Prior to fiscal 1999, our strategy was to deliver training in vocational and
advanced technical subjects directly to students through a nationwide
network of training centers. However, the costs associated with this
"bricks and mortar" network significantly outpaced our ability to grow our
revenue. In fiscal 1999, we closed our training center network and
re-focused our efforts on selling our education and certification programs
through training centers with whom we have established relationships and
directly to companies that wish to provide internal training to employees.
Given this significant shift in strategy in fiscal 1999, our historical
financial condition and results of operations prior to fiscal 1999 do not
reflect our business as it is currently being conducted and, accordingly,
comparisons of results for fiscal 1999 and for the nine month period ending
April 30, 2000 to periods prior to fiscal 1999 are not necessarily
meaningful.
Revenue. We derive our revenue primarily from three sources:
Services Revenue
Services revenue includes fees received for:
o training the instructors of our training center providers and of
the companies that plan to conduct our courses internally;
o providing instructors to our training center providers or other
companies to teach our courseware; and
o e-business consulting services where we assist our clients in
implementing e-business technologies;
We recognize services revenue when instruction or consulting services
are provided.
Courseware Revenue
Courseware revenue includes fees received from the sale of textbooks and
licensing of our training materials. We recognize courseware revenue
from the sale of textbooks when shipped. We also recognize courseware
revenue from courseware licenses, either reproduction licenses or
Original Equipment Manufacturer, or OEM, licenses. Under a reproduction
license, a customer purchases the right to print a textbook using that
customer's own cover page and introduction, while our content remains
unchanged. Under an OEM license, we agree to make modifications to a
course so that it conforms to standards and appearances required by a
third party, who then sells the course under its own brand. Courseware
licenses are either purchased on a fee per use basis or for a one-time
fee. Revenue is recognized over the period in which we have a commitment
for continuing involvement or obligation to provide services to the
customer. In some cases, no such commitment exists, and revenue is
recognized when courseware is shipped. In other cases, we may be
continually involved with the customer for a year or longer, and revenue
is recognized on a straight-line basis over this period of involvement.
Certification Revenue
Certification revenue includes fees received from the administration of
our certification tests and annual fees received from our CIW Authorized
Training Partners, or CIW ATPs. We recognize
7
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certification revenue when certification tests are administered, and from
CIW ATPs over the period during which we have a commitment for continuing
involvement or obligation to provide services to the CIW ATP. In some
cases, we have no such commitment to provide services, in which case
revenue is recognized immediately. In other cases, we may have a
commitment to provide marketing and other services for up to one year, in
which case the revenues are amortized on a straight-line basis over the
service period.
Costs of Revenue. Our costs of services include the costs associated with:
- course instructors, instructor management, customer service and
fulfillment personnel;
- content developers;
- travel to teaching venues; and
- course material production and distribution.
We expect that our costs of revenue will increase over time in absolute
dollars due to increased hiring, inflation and wage increases resulting from
the highly competitive labor market.
Sales and Marketing Expenses. Our sales and marketing expenses consist of:
- salaries, commissions and travel-related costs of sales and
marketing personnel; and
- the costs of facilities and information systems to support these
activities.
We expect sales and marketing expenses to increase in absolute dollars as
our business increases to support the anticipated growth in our revenue and
related to our brand building initiatives.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and other related costs for:
- administrative, executive and finance employees;
- legal and accounting services; and
- facilities and information systems to support these activities.
We expect general and administrative expenses to increase over time in
absolute dollars due primarily to increases in administrative staff.
RESULTS OF OPERATIONS
Comparison of Three Months Ended April 30, 2000 and Three Months Ended
April 30, 1999
Revenue
Services revenue for the three months ended April 30, 2000, was $3.0 million
compared to $1.6 million for the three months ended April 30, 1999, an
increase of $1.4 million or 87%. This increase resulted primarily from the
new business strategy that we adopted in March 1999. Services revenue for
the third quarter of fiscal 2000 consisted primarily of fees from providing
instructors.
Courseware revenue increased to $1.3 million in the three months ended April
30, 2000, compared to $441,000 in the three months ended April 30, 1999, an
increase of
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$810,000 or 184%. This increase is the result of an increasing customer base in
connection with the CIW ATP programs and an increase in the number of our
training company providers. As of April 30, 2000, more than 1,700 training
centers, schools and e-learning providers had access to CIW preparatory
courseware, compared to approximately 750 at April 30, 1999. We also continued
to expand the global marketing of our CIW ATP programs, developing new strategic
relationships for distribution of our courseware, including expansion of our
distribution capabilities in Western Europe in the third fiscal quarter of 2000.
Certification revenue increased to $915,000 in the three months ended April
30, 2000, compared to $142,000 in the three months ended April 30, 1999, an
increase of $774,000 or 545%. We began offering certification testing
during the second quarter of fiscal 1999.
Costs of Revenue
Costs of revenue for the three months ended April 30, 2000, were $2.9
million compared to $2.0 million for the three months ended April 30, 1999,
an increase of $849,000 or 42%.
Gross margin (gross margin is calculated by subtracting costs of revenue
from total revenue) for the quarter ended April 30, 2000, was $2.3 million
compared to $173,000 for the quarter ended April 30, 1999, an increase of
$2.2 million. The increase in gross margin in the quarter ended April 30,
2000 was primarily due to adoption of the new business strategy in March
1999.
Sales and Marketing
Sales and marketing expenses for the three months ended April 30, 2000, were
$519,000, compared to $257,000 for the three months ended April 30, 1999, an
increase of $262,000 or 102%. Sales and marketing expenses as a percentage
of revenue were 10% for the three months ended April 30, 2000, compared to
12% for the three months ended April 30, 1999.
General and Administrative
General and administrative expenses for the three months ended April 30,
2000, were $1.3 million, consistent with the three months ended April 30,
1999. General and administrative expenses as a percentage of revenue were 25%
for the three months ended April 30, 2000, compared with 58% for the three
months ended April 30, 1999.
Interest Income and Interest Expense
Interest income increased $29,000 to $45,000 in the three months ended April
30, 2000 from $15,000 in the three months ended April 30, 1999. The increase in
interest income is attributable to higher cash balances primarily associated
with the private placement of stock in November 1999 and warrant and option
exercises during the period.
Interest expense decreased $155,000 to $31,000 in the three months ended
April 30, 2000 from $186,000 in the three months ended April 30, 1999. The
decrease in interest expense is primarily attibutable to the conversion of the
debentures in January 2000.
Comparison of Nine Months Ended April 30, 2000 and Nine Months Ended April
30, 1999
Revenue
Services revenue for the nine months ended April 30, 2000, was $7.8 million
compared to $4.5 million in the nine months ended April 30, 1999, an
increase of $3.3
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million or 74%. Services revenue for the first nine months
of fiscal 2000 consisted primarily of fees from providing instructors.
Courseware revenue increased to $3.5 million in the nine months ended April
31, 2000, compared to $1.0 million in the nine months ended April 30, 1999,
an increase of $2.5 million or 242%. This increase is the result of an
increasing customer base in connection with the CIW ATP programs and
strategic partner distribution relationships.
Certification revenue increased to $1.7 million in the nine months ended
April 30, 2000, compared to $212,000 in the nine months ended April 30,
1999, an increase of $1.5 million or 694%. We began offering the
certification testing during the second quarter of fiscal 1999.
Costs of Revenue
Costs of revenue for the nine months ended April 30, 2000, were $7.4 million
compared to $7.2 million for the nine months ended April 30, 1999, an
increase of $200,000 or 3%.
Gross margin for the nine months ended April 30, 2000 was $5.5 million
compared to a loss of $1.5 million for the nine months ended April 30, 1999,
an increase of $7.0 million. The increase in gross margin in the nine
months ended April 30, 2000 was due to higher sales volume and the absence
of classroom equipment and facilities cost, a result of the new business
strategy adopted in March 1999.
Sales and Marketing
Sales and marketing expenses for the nine months ended April 30, 2000, were
$1.2 million compared to $1.3 million for the nine months ended April 30,
1999, a decrease of $143,000 or 11%. Sales and marketing expenses as a
percentage of revenue were 9% for the nine months ended April 30, 2000,
compared to 23% for the nine months ended April 30, 1999.
General and Administrative
General and administrative expenses for the nine months ended April 30,
2000, were $3.4 million, compared to $4.4 million for the nine months ended
April 30, 1999, a decrease of $1.0 million or 22%. This decrease is
primarily due to savings from head count reductions and other cost control
initiatives associated with the new business strategy. General and
administrative expenses as a percentage of revenue were 26% for the nine
months ended April 30, 2000, down 51 percentage points compared with 77% for
the nine months ended April 30, 1999.
Interest Income and Interest Expense
Interest income increased $8,000 to $78,000 in the nine months ended April
30, 2000 from $70,000 in the nine months ended April 30,1999. The increase in
interest income is attributable to higher cash balances primarily associated
with the private placement of stock in November 1999 and warrant and option
exercises in fiscal year 2000.
Interest expense increased $97,000 to $384,000 in the nine months ended
April 30, 2000 from $286,000 the nine months ended April 30, 1999. The increase
in interest expense is primarily attibutable to higher debt levels associated
with the convertible debentures and capital lease obligations for the nine
months ended April 30, 2000 compared with the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations and capital expenditure
requirements primarily through private placements of common stock, the sale
of convertible debentures and, to a lesser extent, from cash generated from
operations.
10
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Cash and cash equivalents increased from $1.2 million at July 31, 1999, to
$4.5 million at April 30, 2000. This increase was primarily from the private
placement of stock in November 1999 and warrant and option exercises
throughout the period, with aggregate net proceeds of $5.8 million, offset
by operating cash outflow of $1.7 million and payments on capital lease
obligations of $640,000. Cash used in operations for the period consisted
primarily of an increase in accounts receivable and a reduction in accrued
restructure costs offset by depreciation and amortization. The increase in
accounts receivable was related to increasing sales volume and slightly
slower collections.
Cash used in operations for the nine months ended April 30, 2000, was $1.7
million compared to $6.1 million for the nine months ended April 30, 1999, a
decrease of $4.4 million. This decrease was primarily the result of
increased revenues and reductions in costs as a result of operating
efficiencies.
In November 1998, we entered into an Accounts Receivable Line of Credit
agreement with a bank whereby up to 80% of the accounts receivable can be
advanced, up to $3.5 million. We have had no borrowings under this line of
credit.
We expect that cash on hand and funds from operations will be sufficient to
meet reasonably foreseeable minimum working capital, capital expenditure and
capital lease requirements for the next 12 months. There is no assurance
that assumed levels of revenues and expenses will prove to be accurate. We
may seek additional funding through public or private financing or other
arrangements prior to such time. If funding is insufficient at any time in
the future, we may be unable to develop or enhance our products or services,
take advantage of business opportunities or respond to competitive
pressures, any of which could have a negative impact on our business,
operating results and financial condition.
YEAR 2000 ISSUE RISKS
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately distinguish pre-2000 from post-2000 dates
due to the two-digit date fields used by many systems. Most indications to
date, however, are that computer systems are functioning normally and the
compliance and remediation work accomplished leading up to 2000 was
effective to prevent any problems. We have not experienced any Year 2000
problems. Computer experts have warned, however, that there may still be
residual consequences of the change in dates. Any of these residual
difficulties could affect our financial position or results of operations
through decreases in sales of our products or services, increases in costs
due to allocation of resources to address year 2000 problems, or litigation
costs relating to losses suffered by our customers due to Year 2000
problems. As of April 30, 2000, costs incurred by us in connection with
Year 2000 compliance were less than $3,000.
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 we believe that these
statements are reasonable in view of the facts available to us, 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.
POSSIBILITY OF CONTINUING LOSSES
11
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We have a limited operating history, particularly with the new distribution
strategy, which makes it difficult to predict our future operating results.
We have incurred net losses of approximately $51 million from our inception
on December 5, 1995, through April 30, 2000. For the nine months ended April
30, 2000, we reported net income of $595,000. Our ability to continue to
generate revenue growth in the future is subject to uncertainty. In order to
maintain profitability, we must continue to increase our revenues. We cannot
assure you that we will be able to continue 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 $50 million from
private placements and incurred losses of approximately $51 million since
our inception through April 30, 2000. We experienced revenue growth in the
last five consecutive quarters as a result of the implementation of the new
business strategy. This shift in our business strategy has resulted in a
reduction in overhead expenses and if we continue to invest in our products
and brands at current levels and revenues continue to grow as in the last
five quarters, we expect to maintain profitability for the balance of fiscal
2000. We currently expect that cash on hand and funds from operations will
be sufficient to meet our minimum foreseeable working capital, capital
expenditure and capital lease requirements for the next 12 months. However,
if we do not maintain 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 maintain profitability and generate positive cash flow as
anticipated, we may need additional outside financing. Even if we do
maintain 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 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 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 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.
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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 affect 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 Employment Agreement dated February 1, 2000 between the Company
and David I. Perl.
10.2 Employment Agreement dated February 1, 2000 between the Company
and Jerrell M. Baird.
Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended April 30,
2000.
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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.
ProsoftTraining.com
Dated: June [10], 2000
/s/ JERRELL M. BAIRD
---------------------------------
Jerrell M. Baird
Chief Executive Officer
and Chairman of the Board
(Duly Authorized Officer)
Dated: June [10], 2000
/s/ WILLIAM J. WERONICK
---------------------------------
William J. Weronick
Vice President, Finance
(Principal Financial Officer)
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