<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- -----
Commission File Number 0-20842
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TRO LEARNING, INC.
------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3660532
- -------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1721 Moon Lake Boulevard, Suite 555, Hoffman Estates, IL 60194
- -------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 781-7800
--------------
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.01 par value 6,154,829
- ---------------------------- -----------------------------------
Class Outstanding as of September 1, 1996
(This document contains 14 pages)
1
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Statements of Income for the
Three and Nine Months Ended July 31, 1996 and 1995. . . . 3
Consolidated Balance Sheets as of
July 31, 1996 and October 31, 1995. . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Nine Months Ended July 31, 1996 and 1995. . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 8-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 13
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . 13
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders. . . . 13
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
TRO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues by product line:
PLATO-Registered Trademark- Education. . . . . . . . . . . $ 10,917 $ 7,742 $ 21,483 $ 16,299
Aviation Training. . . . . . . . . . . . . . . . . . . . . 484 1,169 3,068 4,276
-------- -------- -------- --------
Total revenues . . . . . . . . . . . . . . . . . . . . . 11,401 8,911 24,551 20,575
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . 1,979 1,837 3,825 4,791
-------- -------- -------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 9,422 7,074 20,726 15,784
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative expense. . . . . . . . 6,721 4,767 18,419 13,124
Product development and customer support . . . . . . . . . 1,404 1,235 3,841 3,481
-------- -------- -------- --------
Total operating expenses . . . . . . . . . . . . . . . . 8,125 6,002 22,260 16,605
-------- -------- -------- --------
Operating income (loss). . . . . . . . . . . . . . . . 1,297 1,072 (1,534) (821)
Interest expense . . . . . . . . . . . . . . . . . . . . . . (154) (191) (550) (300)
Interest income and other expense, net . . . . . . . . . . . 30 (7) (15) 8
-------- -------- -------- --------
Income (loss) before income taxes. . . . . . . . . . . 1,173 874 (2,099) (1,113)
Provision (credit) for income taxes. . . . . . . . . . . . . 448 328 (787) (417)
-------- -------- -------- --------
Net income (loss). . . . . . . . . . . . . . . . . . . $ 725 $ 546 $ (1,312) $ (696)
-------- -------- -------- --------
-------- -------- -------- --------
Income (loss) per common and common equivalent share:
Primary -
Net income (loss). . . . . . . . . . . . . . . . . . . . $ 0.11 $ 0.09 $ (0.21) $ (0.11)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . 6,713 6,276 6,106 6,065
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 89 $ 231
Accounts receivable, less allowances
of $1,040 and $584, respectively . . . . . . . . . . . . 18,672 17,603
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 1,292 1,045
Prepaid expenses and other current assets. . . . . . . . . 1,608 934
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . 21,661 19,813
Equipment and leasehold improvements, less
accumulated depreciation of $3,060 and $2,479,
respectively . . . . . . . . . . . . . . . . . . . . . . . 1,437 1,341
Product development costs, less accumulated
amortization of $402 and $84, respectively . . . . . . . . 4,788 2,767
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . 6,362 5,575
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 3,713 4,164
----------- -----------
$ 37,961 $ 33,660
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 1,996 $ 2,247
Accrued employee salaries and benefits . . . . . . . . . . 2,684 2,469
Accrued liabilities. . . . . . . . . . . . . . . . . . . . 4,095 3,281
Revolving loan . . . . . . . . . . . . . . . . . . . . . . 8,233 3,448
Deferred tax liability . . . . . . . . . . . . . . . . . . 950 950
Deferred revenue . . . . . . . . . . . . . . . . . . . . . 901 1,066
----------- -----------
Total current liabilities. . . . . . . . . . . . . . . . 18,859 13,461
Deferred revenue, less current portion . . . . . . . . . . . 265 152
Other liabilities. . . . . . . . . . . . . . . . . . . . . . 508 545
Stockholders' equity:
Common stock, $.01 par value; 25,000 shares
authorized; 6,174 shares issued and 6,154
shares outstanding in 1996; 6,100 shares
issued and 6,072 shares outstanding in 1995. . . . . . . 62 61
Paid in capital. . . . . . . . . . . . . . . . . . . . . . 21,535 21,345
Accumulated deficit. . . . . . . . . . . . . . . . . . . . (2,737) (1,425)
Treasury stock at cost, 20 shares in 1996
and 28 shares in 1995. . . . . . . . . . . . . . . . . . (133) (183)
Foreign currency translation adjustment. . . . . . . . . . (398) (296)
----------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . 18,329 19,502
----------- -----------
$ 37,961 $ 33,660
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JULY 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,312) $ (696)
---------- ----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Deferred income taxes. . . . . . . . . . . . . . . . . . (787) (417)
Depreciation and amortization. . . . . . . . . . . . . . 964 545
Amortization of deferred revenue . . . . . . . . . . . . --- (245)
Disposal of fixed assets . . . . . . . . . . . . . . . . 11 26
Changes in assets and liabilities:
Increase in accounts receivable. . . . . . . . . . . . (1,069) (1,352)
Increase in inventories. . . . . . . . . . . . . . . . (247) (40)
Increase in prepaid expenses and
other current and noncurrent assets. . . . . . . . . (262) (60)
Increase in product development costs. . . . . . . . . (2,339) (1,918)
Increase (decrease) in accounts payable. . . . . . . . (251) 155
Increase (decrease) in accrued liabilities,
accrued employee salaries and benefits
and other liabilities. . . . . . . . . . . . . . . . 992 (518)
Increase (decrease) in deferred revenue. . . . . . . . (52) (443)
---------- ----------
Total adjustments. . . . . . . . . . . . . . . . . . (3,040) (4,267)
---------- ----------
Net cash used in operating activities. . . . . . . (4,352) (4,963)
---------- ----------
Cash flows from investing activities:
Decrease in marketable securities. . . . . . . . . . . . . --- 2,225
Capital expenditures . . . . . . . . . . . . . . . . . . . (720) (546)
---------- ----------
Net cash provided by (used in)
investing activities . . . . . . . . . . . . . . . . . (720) 1,679
---------- ----------
Cash flows from financing activities:
Net proceeds from short term borrowings. . . . . . . . . . 4,785 4,500
Issuance (purchase) of treasury stock. . . . . . . . . . . 50 (183)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 191 42
---------- ----------
Net cash provided by financing activities. . . . . . . . 5,026 4,359
---------- ----------
Effect of foreign currency on cash . . . . . . . . . . . . . (96) (55)
---------- ----------
Net increase in cash and cash equivalents. . . . . . . . . . (142) 1,020
Cash and cash equivalents at beginning of period . . . . . . 231 200
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . $ 89 $ 1,220
---------- ----------
---------- ----------
Cash paid for interest expense . . . . . . . . . . . . . . . $ 598 $ 189
</TABLE>
5
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
TRO Learning, Inc. and its subsidiaries (the Company) develops and markets
microcomputer-based, interactive, self-paced instructional and educational
systems. The Company markets such systems primarily to educational institutions
and private industry. The Company performs evaluations of its customers' credit
worthiness and generally requires no collateral from its customers. Although
many of the Company's educational customers are dependent upon various
government funding sources, the Company does not believe there is a
concentration of risk associated with any specific governmental program or
funding source.
BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Accordingly, these
quarterly consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Company's Form
10-K for the fiscal year ended October 31, 1995.
The financial information furnished reflects, in the opinion of the Company, all
adjustments of a normal, recurring nature necessary for a fair statement of the
results for the interim periods presented. Because of cyclical and other
factors, the results for the interim periods presented are not necessarily
indicative of the results to be expected for the full fiscal year.
REVENUE RECOGNITION:
Revenue from the sale of education and training courseware licenses, support
services, and related computer hardware is recognized when courseware, hardware,
and related services are delivered at which time future service costs, if any,
are accrued. Future service costs represent the Company's problem resolution
and support "hotline" service for a one year period. Deferred revenue
represents the portion of billings made or payments received in advance of
services being performed or products being delivered.
PRODUCT DEVELOPMENT, ENHANCEMENT, AND MAINTENANCE COSTS:
The Company develops education and training products, referred to hereafter as
courseware products.
Costs incurred in the development of the Company's current generation courseware
products and related enhancements and routine maintenance thereof are expensed
as incurred. All costs incurred by the Company in establishing the
marketability of its new courseware products to be sold, leased,
6
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
PRODUCT DEVELOPMENT, ENHANCEMENT, AND MAINTENANCE COSTS, Continued
or otherwise marketed are expensed as incurred. Once marketability has been
established, costs incurred in the development of new generation courseware
products are capitalized.
Amortization is provided over the estimated useful life of the new courseware
products, generally three years, using the straight-line method. Amortization
begins when the product is available for general release to customers.
Unamortized capitalized costs determined to be in excess of the net realizable
value of the product are expensed at the date of such determination.
COMPUTATION OF INCOME (LOSS) PER SHARE:
Primary income (loss) per share is based upon the weighted average number of
shares of common stock outstanding and, where dilutive, common equivalent shares
from stock options (using the treasury stock method). Fully diluted income
(loss) per share is not presented since the results are equivalent to primary
income (loss) per share.
2. ACCOUNTS RECEIVABLE:
Accounts receivable include installment receivables of $8,299,000 and $7,987,000
at July 31, 1996 and October 31, 1995, respectively. Installment receivables
with terms greater than one year were $2,866,000 and $3,024,000 at July 31, 1996
and October 31,1995, respectively, and are included in other assets on the
consolidated balance sheets.
During the quarter ended April 30, 1996, the Company sold certain installment
receivables on a non-recourse basis to financial institutions. The receivables
were sold at their discounted present value of approximately $599,000 at an
effective rate of approximately 8.6%. The difference between the gross
receivable amount of approximately $735,000 and the proceeds received has been
recorded as interest expense in the consolidated statement of income.
3. DEBT:
In July 1996, the Company amended its revolving loan agreement to provide for a
maximum $11,500,000 line of credit from August 1, 1996 through October 31, 1996
to meet its cyclical working capital need. Effective November 1, 1996, the
maximum line of credit is $10,000,000. Borrowings under the line bear interest
at the prime rate plus 1.5% or the LIBOR rate plus 3.25% as determined by the
Company. At July 31, 1996, there were borrowings of $8,233,000 outstanding at a
weighted average interest rate of 9.2% and the Company was in compliance with
all financial covenants.
7
<PAGE>
PART I. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THIRD QUARTER FISCAL 1996 COMPARED TO THIRD QUARTER FISCAL 1995
REVENUES:
Total revenues for the third quarter of fiscal 1996 of $11,401,000 increased by
$2,490,000 or 28% as compared to $8,911,000 in the third quarter of fiscal 1995.
The following highlights the significant growth in PLATO Education courseware
revenues (in 000's):
<TABLE>
<CAPTION>
PLATO
EDUCATION THIRD AVIATION TRAINING TOTAL THIRD
QUARTER THIRD QUARTER QUARTER
----------------- ----------------- -----------------
1996 1995 1996 1995 1996 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Courseware license and support $ 9,559 $ 6,510 $ 395 $ 682 $ 9,954 $ 7,192
Hardware, third party courseware and other 1,358 1,232 89 487 1,447 1,719
------- ------- ------- ------- ------- -------
Total revenues $10,917 $ 7,742 $ 484 $ 1,169 $11,401 $ 8,911
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
As summarized in the above table, PLATO Education revenues of $10,917,000 for
the third quarter of fiscal 1996 increased by $3,175,000 or 41% as compared to
the third quarter of 1995. PLATO Education courseware license and support
revenues for the third quarter of 1996 increased 47% over the comparable period
in fiscal 1995. This increase can be attributed to increased market penetration
resulting from the expansion of the PLATO Education sales force and new
products.
Aviation Training revenues for the third quarter of fiscal 1996 were impacted by
the deferral of training purchase decisions by various airlines. A significant
portion of the decrease in third quarter revenues can be attributed to a decline
in low margin hardware sales.
GROSS PROFIT:
Gross profit for the third quarter of fiscal 1996 increased by $2,348,000 or 33%
to $9,422,000 as compared to $7,074,000 for the third quarter of fiscal 1995.
This increase was due principally to PLATO Education revenue growth and a
favorable mix of courseware revenues. The Company's gross margin was 83% for
the third quarter of fiscal 1996 as compared to 79% for the third quarter of
fiscal 1995. Increased courseware revenues and declining low margin hardware
revenues resulted in an improvement in gross margins for the third quarter of
1996.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS, CONTINUED
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE:
Selling, general, and administrative expense for the third quarter of fiscal
1996 increased by $1,954,000 or 41% to $6,721,000 as compared to $4,767,000 for
the third quarter of fiscal 1995. This increase was due primarily to higher
PLATO Education sales and marketing expenses resulting from the growth in sales
volume and the planned expansion of the sales and service organization.
PRODUCT DEVELOPMENT AND CUSTOMER SUPPORT:
Product development and customer support expense for the third quarter of fiscal
1996 increased by $169,000 or 14% to $1,404,000 as compared to $1,235,000 for
the third quarter of fiscal 1995. This increase was due principally to
increased PLATO Education customer support expense as a result of increased
revenue levels and the broadening customer base.
OPERATING INCOME:
Operating income was $1,297,000 for the third quarter of fiscal 1996 as compared
to $1,072,000 for the third quarter of fiscal 1995.
INTEREST EXPENSE:
Interest expense for the third quarter of fiscal 1996 was $154,000 as compared
to $191,000 for the third quarter of fiscal 1995. Increased interest due to a
higher level of borrowings under the Company's revolving loan agreement during
the third quarter of fiscal 1996, was more than offset by increased capitalized
interest costs related to product development.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS, CONTINUED
FIRST NINE MONTHS FISCAL 1996 COMPARED TO FIRST NINE MONTHS FISCAL 1995
REVENUES:
Total revenues for the nine months ended July 31, 1996 of $24,551,000 increased
by $3,976,000 or 19% as compared to $20,575,000 for the comparable period in
1995.
The following table highlights the significant growth in PLATO Education
courseware revenues (in 000's):
<TABLE>
<CAPTION>
PLATO
EDUCATION AVIATION TRAINING TOTAL NINE
NINE MONTHS NINE MONTHS MONTHS
----------------- ----------------- -----------------
1996 1995 1996 1995 1996 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Courseware license and support $18,607 $13,269 $ 2,847 $ 2,671 $21,454 $15,940
Hardware, third party courseware and other 2,876 3,030 221 1,605 3,097 4,635
------- ------- ------- ------- ------- -------
Total revenues $21,483 $16,299 $ 3,068 $ 4,276 $24,551 $20,575
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
PLATO Education revenues of $21,483,000 for the first nine months of fiscal 1996
increased by $5,184,000 or 32% as compared to revenues of $16,299,000 for the
first nine months of fiscal 1995. PLATO Education courseware license and
support revenues for the first nine months of fiscal 1996 increased 40% over the
comparable period last year. This increase can be attributed to increased
market penetration resulting from the expansion of the PLATO Education sales
force and new products.
Aviation Training courseware revenues for the first nine months of fiscal 1996
of $2,847,000 increased 7% over the first nine months of fiscal 1995. This
increase was offset by a decrease in low margin hardware revenue for Aviation
Training for the first nine months of fiscal 1996 compared to the same period in
fiscal 1995.
GROSS PROFIT:
Gross profit for the first nine months of fiscal 1996 increased by $4,942,000 or
31% to $20,726,000 as compared to $15,784,000 for the first nine months of
fiscal 1995. This increase was due principally to PLATO Education revenue
growth and a favorable mix of courseware revenue. The Company's gross margin
was 84% for the first nine months of fiscal 1996 as compared to 77% for the
first nine months of fiscal 1995. Increased courseware revenues and a decline
in hardware revenues resulted in a significantly improved gross margin for the
first nine months of fiscal 1996.
PLATO Education gross margin for the first nine months of fiscal 1996 was 86%
compared to 83% for the first nine months of fiscal 1995. Aviation Training
gross margin was 75% for the first nine months of fiscal 1996 compared to 53%
for the same period in fiscal 1995.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS, CONTINUED
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE:
Selling, general, and administrative expense for the first nine months of fiscal
1996 increased by $5,295,000 or 40% to $18,419,000 as compared to $13,124,000
for the first nine months of fiscal 1995. This increase was due primarily to
higher PLATO Education sales and marketing expenses resulting from the growth in
sales volume and the planned expansion of the sales and service organization.
PRODUCT DEVELOPMENT AND CUSTOMER SUPPORT:
Product development and customer support expense for the first nine months of
fiscal 1996 increased by $360,000 or 10% to $3,841,000 as compared to $3,481,000
for the first nine months of fiscal 1995. This increase was due principally to
increased PLATO Education customer support expense of $329,000 or 28% due to
increased revenue levels and the broadening customer base.
OPERATING LOSS:
The operating loss was $1,534,000 for the first nine months of fiscal 1996 as
compared to $821,000 for the first nine months of fiscal 1995. The nine month
loss reflects the impact of a traditionally lower level of revenue in the first
nine months of the Company's fiscal year, as well as the absorption of an
increased fixed base of sales and marketing costs related to PLATO Education's
expansion.
INTEREST EXPENSE:
Interest expense for the first nine months of fiscal 1996 was $550,000 as
compared to $300,000 for the first nine months of fiscal 1995. Interest expense
increased due to a higher level of borrowings under the Company's revolving loan
agreement during the first nine months of fiscal 1996. In addition, the sale of
certain installment receivables at a discount resulted in the recognition of
interest expense in the second quarter of fiscal 1996 (see Note 2 of Notes to
Consolidated Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1996, the Company's principal sources of liquidity included cash
and cash equivalents of $89,000, net accounts receivable of $18,672,000, and its
line of credit. The Company has total installment receivables of $11,165,000 at
July 31, 1996, of which $8,299,000 are due within one year and are included in
net accounts receivable. During the quarter ended April 30, 1996, the Company
sold certain installment receivables for net cash proceeds of approximately
$599,000 (see Note 2 of Notes to Consolidated Financial Statements).
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
Net cash used in the Company's operating activities was $4,352,000 in the first
nine months of fiscal 1996 as compared to $4,963,000 in the first nine months of
fiscal 1995. Cash flows from operations were used principally to fund the
Company's working capital requirements as it continues to grow by investing in
new products and expanding its PLATO Education sales and service organization.
In addition to cash flows from operations, the Company has resources available
under its revolving loan agreement to provide borrowings up to a maximum of
$11,500,000 through October 31, 1996 and $10,000,000 thereafter. At July 31,
1996, borrowings of $8,233,000 were outstanding at a weighted average interest
rate of 9.2%.
The Company's net cash used in investing activities in the first nine months of
fiscal 1996 was $720,000 for capital expenditures.
Net cash provided by financing activities in the first nine months of fiscal
1996 was $5,026,000 which primarily represents borrowings under the Company's
line of credit and proceeds from the issuance of common stock.
The Company maintains adequate cash reserves, short-term investments, and credit
facilities to meet its anticipated working capital, capital expenditure, and
business investment requirements.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any litigation that is expected to have
a material adverse effect on the Company or its business.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibits
----------- -----------------------
11 Statement Regarding Computation
of Per Share Income (Loss)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter ended
July 31, 1996.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on September 12, 1996
TRO LEARNING, INC.
By /s/ William R. Roach
------------------------------------------
William R. Roach
Chairman of the Board, President and Chief
Executive Officer
(principal executive officer)
/s/ Sharon Fierro
------------------------------------------
Sharon Fierro
Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
(principal financial officer)
/s/ Mary Jo Murphy
------------------------------------------
Mary Jo Murphy
Vice President, Corporate Controller and
Chief Accounting Officer
(principal accounting officer)
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on September 12, 1996.
TRO LEARNING, INC.
By
------------------------------------------
William R. Roach
Chairman of the Board, President and Chief
Executive Officer
(principal executive officer)
------------------------------------------
Sharon Fierro
Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
(principal financial officer)
------------------------------------------
Mary Jo Murphy
Vice President, Corporate Controller and
Chief Accounting Officer
(principal accounting officer)
14
<PAGE>
EXHIBIT 11
TRO LEARNING, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER SHARE
AND EQUIVALENT SHARE OF COMMON STOCK
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING:
1. Weighted average number of shares of common stock
outstanding during the period . . . . . . . . . . . . 6,138 6,066 6,106 6,065
2. Net additional shares assuming stock
options exercised . . . . . . . . . . . . . . . . . . 575 210 -- --
-------- -------- -------- --------
3. Weighted average number of shares and equivalent
shares of common stock outstanding during
the period. . . . . . . . . . . . . . . . . . . . . . 6,713 6,276 6,106 6,065
-------- -------- -------- --------
-------- -------- -------- --------
INCOME (LOSS):
4. Net loss. . . . . . . . . . . . . . . . . . . . . . . . $ 725 $ 546 $ (1,312) $ (696)
-------- -------- -------- --------
-------- -------- -------- --------
PER SHARE AMOUNTS:
Net loss (line 4/line 3) . . . . . . . . . . . . . . . . . . $ 0.11 $ 0.09 $ (0.21) $ (0.11)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STAEMENTS OF INCOME FOUND ON PAGES
3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE ENDED JULY 31, 1996, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 89
<SECURITIES> 0
<RECEIVABLES> 18672
<ALLOWANCES> 1040
<INVENTORY> 1292
<CURRENT-ASSETS> 21661
<PP&E> 1437
<DEPRECIATION> 3060
<TOTAL-ASSETS> 37961
<CURRENT-LIABILITIES> 18859
<BONDS> 0
0
0
<COMMON> 62
<OTHER-SE> 18267
<TOTAL-LIABILITY-AND-EQUITY> 37961
<SALES> 24551
<TOTAL-REVENUES> 24551
<CGS> 3825
<TOTAL-COSTS> 3825
<OTHER-EXPENSES> 22260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 550
<INCOME-PRETAX> (2099)
<INCOME-TAX> (787)
<INCOME-CONTINUING> (1312)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1312)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
