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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal quarter ended October 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File Number 000-21535
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ProsoftTraining.com
(Exact name of Registrant as specified in its charter)
NEVADA 87-0448639
State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3001 Bee Caves Road, Suite 300, Austin, TX 78746
(Address of principal executive offices) (Zip Code)
(512) 328-6140
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.001 Per Share
(Title of class)
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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 (12) months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days. YES (X) NO ( )
The number of shares of the registrants' common stock, $.001 par value,
outstanding as of December 11, 2000 was 22,764,987 shares.
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PROSOFTTRAINING.COM
INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I
Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations
Three months ended October 31, 2000 and October 31, 1999............................................. 3
Consolidated Balance Sheets
October 31, 2000 and July 31, 2000................................................................... 4
Consolidated Statements of Cash Flows
Three months ended October 31, 2000 and October 31, 1999............................................. 5
Notes to Consolidated Financial Statements.............................................................. 6
Item 2. Management's Discussion and Analysis of the Results of Operations and Financial Condition............... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders..................................................... 10
PART II
Other Information
Item 6. Exhibits and Reports on Form 8-K........................................................................ 10
Signatures............................................................................................................ 12
</TABLE>
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PROSOFTTRAINING.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 31,
-------------------------------
<S> <C> <C>
2000 1999
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Revenue:
Services $ 2,089 $ 2,657
Courseware 6,672 804
Certification 703 320
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Total revenue 9,464 3,781
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Costs and expenses:
Costs of revenue 3,835 2,083
Content development 472 270
Sales and marketing 1,666 336
General and adminstrative 1,929 819
Depreciation and amortization 770 193
Restructuring credit - (150)
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Total costs and expenses 8,672 3,551
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Income from operations 792 230
Interest income 161 4
Interest expense (14) (174)
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Income before income taxes 939 60
Deferred income tax benefit 200 -
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Net income $ 1,139 $ 60
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Net income per share:
Basic $ 0.05 $ -
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Diluted $ 0.05 $ -
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Weighted average shares outstanding:
Basic 22,683 14,330
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Diluted 25,024 14,330
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</TABLE>
See accompanying notes.
3
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PROSOFTTRAINING.COM AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
October 31, 2000 July 31, 2000
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<S> <C> <C>
A S S E T S
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Current assets:
Cash and cash equivalents $ 12,926 $ 13,044
Note Receivable 300
Accounts receivable, less allowances of $328 in October and $251
in July 5,781 4,894
Deferred income taxes 675 425
Prepaid expenses and other current assets 579 195
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Total current assets 20,261 18,558
Property and equipment, net 1,183 1,068
Goodwill, net of accumulated amortization of $1,636 in October and $1,088 in
July 37,188 37,637
License agreements, net of accumulated amortization of $633 in October and
$540 in July 2,164 1,256
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Total assets $ 60,796 $ 58,519
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L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
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Current liabilities:
Accounts payable $ 5,485 $ 5,147
Accrued expenses 2,487 2,188
Current portion of capital lease obligations 90 85
Accrued restructure costs 129 133
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Total current liabilities 8,191 7,553
Obligations under capital leases, net of current portion 223 246
Other 766 291
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Total liabilities 9,180 8,090
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Common stock subject to redemption 57 57
Stockholders' equity:
Common shares, par value $.001 per share: authorized shares: 50,000,000;
issued: 22,742,775 shares in October and 22,645,462 shares in July 23 23
Additional paid-in capital 100,697 100,562
Accumulated deficit (49,088) (50,227)
Accumulated other comprehensive income 2 89
Less common stock in treasury, at cost: 11,912 shares (75) (75)
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Total stockholders' equity 51,559 50,372
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Total liabilities and stockholders' equity $ 60,796 $ 58,519
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</TABLE>
See accompanying notes.
4
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PROSOFTTRAINING.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended October 31,
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2000 1999
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<S> <C> <C>
Operating activities:
Net income $ 1,139 $ 60
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 769 193
Restructure benefit - (150)
Accretion of debt discount - 64
Deferred income taxes (200) -
Changes in operating assets and liabilities:
Accounts receivable (969) (405)
Prepaid expenses and other current assets (408) 158
Accounts payable (195) 498
Accrued expenses 368 (186)
Accrued restructure costs (4) (204)
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Net cash provided by operating activities 500 28
Investing activities:
Purchases of property and equipment (261) (25)
Note receivable (300) 1
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Net cash used in investing activities (561) (24)
Financing activities:
Issuance of common stock 137 94
Principal payments on debt and capital leases (19) (250)
Other (150) (2)
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Net cash used in financing activities (32) (158)
Effects of exchange rates on cash (25) 1
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Net decrease in cash and cash equivalents (118) (153)
Cash and cash equivalents at beginning of period 13,044 1,153
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Cash and cash equivalents at end of period $12,926 $1,000
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Supplementary disclosure of cash paid during the year for:
Interest $ 11 $ 77
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Income taxes $ - $ -
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</TABLE>
See accompanying notes.
5
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PROSOFTTRAINING.COM AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
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 Consolidated Financial Statements and the Notes thereto contained in
the Company's 2000 Annual Report on Form 10-K filed with the Securities and
Exchange Commission. The results of operations for the three month period ended
October 31, 2000, are not necessarily indicative of results that can be expected
for the fiscal year ending July 31, 2001. The interim consolidated financial
statements are unaudited but contain all adjustments, consisting of normal
recurring adjustments management considers necessary to present fairly its
consolidated financial position, results of operations, and cash flows as of and
for the interim period. The year-end balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. Comprehensive Income
The components of comprehensive income for the three months ended October
31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Net income $1,139 $ 60
Other comprehensive income (loss):
Foreign currency translation adjustments (87) 1
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Comprehensive income $1,052 $ 61
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</TABLE>
3. Restructuring
In the quarter ended April 30, 1999, the Company recorded a $3,723
charge for restructure and other unusual items associated with the Company's
decision to exit the retail training business. The restructuring charge included
$259 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.
Accrued restructuring costs at October 31, 2000, represent accrued lease
costs on closed facilities and other termination costs.
4. 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 reconciliation of the weighted average common
shares used in the computation of basic and diluted EPS for the income statement
period ended October 31, 2000. In the first quarter of fiscal year 2000, all
potential common shares were anti-dilutive.
<TABLE>
<CAPTION>
Three Months Ended
October 31,
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2000 1999
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<S> <C> <C>
Weighted average shares outstanding
Basic 22,683 14,330
Assumed exercises of stock options 1,404 -
</TABLE>
6
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<TABLE>
<S> <C> <C>
Warrants 937 -
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Diluted 25,024 14,330
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</TABLE>
5. Acquisition
In July 2000, the Company purchased all of the outstanding common stock of
ComputerPREP, Inc. (ComputerPREP), a wholly owned subsidiary of Drake Personnel
(New Zealand) Limited (Drake) in exchange for $15,000 in cash, 1,142 shares of
the Company's common stock and warrants to purchase 600 shares of common stock.
Shares and warrants issued in connection with this purchase have been valued at
$17,800. As a result of the acquisition of ComputerPREP, which was accounted for
as a purchase, goodwill of $36,000 was recorded by the Company.
The following unaudited pro forma information presents summary consolidated
results of operations of the Company and ComputerPREP as if this acquisition had
occurred on August 1, 1999.
<TABLE>
<CAPTION>
Three months Ended
October 31, 1999
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<S> <C>
Revenues $6,281
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Net income $ 285
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Income per share:
Basic $ .02
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Diluted $ .02
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</TABLE>
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
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.
DEVELOPMENT OF BUSINESS
Prosofttraining.com, formerly Prosoft I-Net Solutions, Inc., was founded in
1995 as a proprietorship that delivered training in vocational and advanced
technical subjects. After completing a private placement of stock in March 1997,
the Company embarked on a strategy to build a nationwide network of learning
centers to teach technical skills for the emerging Internet market. Overhead
costs associated with the "bricks-and-mortar" network significantly outpaced
revenues. In fiscal year 1999, the Company closed the learning center network
and focused exclusively on selling its educational programs and instructional
services to the technology training industry.
RESULTS OF OPERATIONS
Comparison of Three Months Ended October 31, 2000 and 1999
Revenue
Services revenue for the three months ended October 31, 2000, was $2.1
million, compared to $2.7 million for the three months ended October 31, 1999, a
decrease of $568,000 or 21%. This decrease resulted primarily from the
Company's success in training CIW-certified instructors of the CIW channel and
some softness in our non-CIW services business.
Courseware revenue increased to $6.7 million in the three months ended
October 31, 2000, compared to $804,000 in the three months ended October 31,
1999, an increase of $5.9 million or 730%. This increase was due to broader
acceptance of the Company's proprietary CIW Internet skills certification
program, an increase in CIW-certified instructors teaching CIW courses with our
courseware, and revenue related to the ComputerPREP acquisition.
Certification revenue for the first quarter of fiscal year 2001 was
$703,000, an increase of 120% when compared to $320,000 for the same quarter
of the previous year.
Costs of Revenue
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Costs of revenue for the three months ended October 31, 2000, were $3.8
million, compared to $2.1 million for the three months ended October 31, 1999,
an increase of $1.7 million or 84%. This increase is due primarily to the
increase in revenue.
Gross profit, defined as total revenue less costs of revenue, for the first
quarter of fiscal year 2001 was $5.6 million, compared to $1.7 million for the
previous year's first quarter, an increase of $3.9 million, or 232%. Gross
profit as a percentage of revenue increased to a record 59% for the first
quarter of fiscal year 2001, compared to 45% for the same quarter of the
previous fiscal year. The improvement in gross profit reflects the increase in
courseware revenue as a percentage of total revenue.
Sales and Marketing
Sales and marketing expenses for the three months ended October 31, 2000,
were $1.7 million, compared to $336,000 for the three months ended October 31,
1999, an increase of $1.3 million. As planned, sales and marketing expenses
increased as a percentage of revenue to 18%, compared to 9% for the previous
year's first quarter.
General and Administrative
General and administrative expenses for the first quarter of fiscal year
2001 were 20% of revenue, down slightly as a percentage of revenue from the
previous year's first quarter, despite increases due to the ComputerPREP
acquisition and additions to the senior management team.
Interest Income and Interest Expense
Interest income increased $157,000 to $161,000 in the three months ended
October 31, 2000 from $4,000 in the three months ended October 31, 1999. The
increase in interest income is attributable to higher cash balances primarily
associated with the private placement of stock in July 2000.
Interest expense decreased $160,000 to $14,000 in the three months ended
October 31, 2000 from $174,000 in the three months ended October 31, 1999. The
decrease in interest expense is primarily attributable to the conversion of the
debentures in January 2000.
LIQUIDITY AND CAPITAL RESOURCES
We had net cash from operating activities of $500,000 for the three months
ended October 31, 2000, compared to $28,000 for the three months ended October
31, 1999. The increase in net cash from operating activities for the first
quarter of fiscal 2001 was primarily due to income from operations, offset by an
increase in accounts receivable, prepaid expenses and other current assets.
Net cash used by us in investing activities was $561,000 for the three
months ended october 31, 2000, which included purchases of property and
equipment and advances on a Note Receivable.
Net cash used by us in financing activities was $32,000 for the first
quarter of fiscal 2001, compared to $158,000 for the prior year's fiscal
quarter. The decrease in net cash used in financing activities is primarily due
to repayment of debt in the first quarter of fiscal 2000.
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 not borrowed under this line of credit.
Management believes that, with respect to its current operations, cash on
hand and funds from operations, together with our credit facility, will be
sufficient to cover reasonably foreseeable working capital and capital
expenditure requirements. Acquisition transactions, if any, are expected to be
financed through a combination of cash on hand and from operations, and
8
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the possible issuance from time to time of long-term debt, equity or other
securities. Depending upon conditions in the capital markets and other factors,
we will from time to time consider the issuance of debt or other securities, or
other possible capital markets transactions, the proceeds of which could be used
for other corporate purposes.
ADDITIONAL FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND MARKET PRICE OF
STOCK
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
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 $52 million from our inception on
December 5, 1995, through July 31, 1999. For the year ended July 31, 2000, we
reported net income of $1.6 million and the three months ended October 31, 2000,
we reported net income of $1.1 million. Our ability to continue to generate
income 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 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 THE 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.
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 affect 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 approximately 7.5 million shares, or
approximately 31% of the shares of Common Stock currently outstanding on a
diluted basis. 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 the shares registered are already saleable under rule
144.
VOLATILITY OF STOCK PRICE
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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
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's Annual Meeting of Stockholders was held on November 28, 2000.
At the Annual Meeting, the following directors were elected to serve as Class I
directors for a three-year term and until their respective successors are
elected and qualified.
<TABLE>
<CAPTION>
Votes For Votes Withheld
---------------------- --------------------------
<S> <C> <C>
Jerrell M. Baird 15,663,599 258,921
J. William Fuller 15,663,599 258,921
</TABLE>
In addition, the following proposals were approved by the stockholders:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
---------------------- ------------------- --------------------
<S> <C> <C> <C>
Approval of the Company's Employee Stock Purchase Plan 14,359,386 282,600 1,450
Approval of the Company's 2000 Stock Incentive Plan 9,163,517 5,476,430 3,489
Approval of an amendment to the Company's Amended and
Restated Articles of Incorporation to increase the total
authorized shares of Common Stock of the Company from
50,000,000 to 75,000,000 16,960,825 1,146,133 3,204
Ratification of the appointment of Grant Thornton LLP as
the Company's independent public accountants for the
fiscal year ending July 31, 2001 18,093,727 13,747 2,688
</TABLE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10
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Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended October
31, 2000.
11
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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: December 13, 2000
/s/ JERRELL M. BAIRD
------------------------------------
Jerrell M. Baird
Chief Executive Officer
and Chairman of the Board
(Duly Authorized Officer)
Dated: December 13, 2000
/s/ ROBERT G. GWIN
------------------------------------
Robert G. Gwin
Chief Financial Officer
(Principal Financial Officer)
12
