<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, 1997
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
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 6,234,211
- ---------------------------- -----------------------------------
Class Outstanding as of September 2, 1997
(This document contains 15 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, 1997 and 1996 . . . 3
Consolidated Balance Sheets as of
July 31, 1997 and October 31, 1996 . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Nine Months Ended July 31, 1997 and 1996 . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . 9-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 14
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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,
------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues by product line:
PLATO-Registered Trademark- Education. . . . . . . $ 10,674 $ 10,917 $ 21,163 $ 21,483
Aviation Training. . . . . . . . . . . . . . . . . 669 484 2,867 3,068
-------- -------- -------- ---------
Total revenues. . . . . . . . . . . . . . . . . 11,343 11,401 24,030 24,551
Cost of revenues. . . . . . . . . . . . . . . . . . 1,761 1,979 3,892 3,825
-------- -------- -------- ---------
Gross profit. . . . . . . . . . . . . . . . . . 9,582 9,422 20,138 20,726
-------- -------- -------- ---------
Operating expenses:
Selling, general and administrative expense . . . 8,577 6,721 22,426 18,419
Product development and customer support. . . . . 2,285 1,404 5,758 3,841
-------- -------- -------- ---------
Total operating expenses. . . . . . . . . . . . 10,862 8,125 28,184 22,260
-------- -------- -------- ---------
Operating income (loss) . . . . . . . . . . . (1,280) 1,297 (8,046) (1,534)
Interest expense . . . . . . . . . . . . . . . . . . (388) (154) (867) (550)
Interest income and other expense, net . . . . . . . (60) 30 (168) (15)
-------- -------- -------- ---------
Income (loss) before income taxes . . . . . . (1,728) 1,173 (9,081) (2,099)
Provision (credit) for income taxes. . . . . . . . . (648) 448 (3,405) (787)
-------- -------- -------- ---------
Net income (loss) . . . . . . . . . . . . . . $ (1,080) $725 $ (5,676) $ (1,312)
-------- -------- -------- ---------
-------- -------- -------- ---------
Income (loss) per common and common equivalent share:
Primary -
Net income (loss). . . . . . . . . . . . . . . . $ (0.17) $ 0.11 $ (0.91) $ (0.21)
-------- -------- -------- ---------
-------- -------- -------- ---------
Weighted average common and common equivalent
shares outstanding. . . . . . . . . . . . . . 6,229 6,713 6,212 6,106
-------- -------- -------- ---------
-------- -------- -------- ---------
</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,
1997 1996
--------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 731 $ 475
Accounts receivable, less allowances of $1,508 and $510, respectively . 20,723 24,163
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,174 1,097
Prepaid expenses and other current assets . . . . . . . . . . . . . . . 1,956 1,051
--------- -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . 24,584 26,786
Equipment and leasehold improvements, less accumulated depreciation
of $3,865 and $3,250, respectively. . . . . . . . . . . . . . . . . . . 1,373 1,368
Product development cost, less accumulated amortization of $1,879
and $680, respectively. . . . . . . . . . . . . . . . . . . . . . . . . 5,932 5,528
Deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,311 5,906
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,062 2,739
--------- ----------
$ 43,262 $ 42,327
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,513 $ 2,588
Accrued employee salaries and benefits. . . . . . . . . . . . . . . . . 2,709 3,079
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 3,776 3,705
Revolving loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,964 8,612
Deferred tax liability. . . . . . . . . . . . . . . . . . . . . . . . . 1,845 1,845
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,798 1,137
--------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 21,605 20,966
Long term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,050 ---
Deferred revenue, less current portion. . . . . . . . . . . . . . . . . . 462 296
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 253
Stockholders' equity:
Common stock, $.01 par value; 25,000 shares authorized;
6,279 shares issued and 6,234 shares outstanding in 1997;
6,190 shares issued and 6,167 shares outstanding in 1996. . . . . . . 62 62
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,778 21,634
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (6,119) (443)
Treasury stock at cost, 45 and 23 shares, respectively. . . . . . . . . (469) (208)
Foreign currency translation adjustment . . . . . . . . . . . . . . . . (300) (233)
--------- -----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . 14,952 20,812
--------- -----------
$ 43,262 $ 42,327
--------- -----------
--------- -----------
</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,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,676) $ (1,312)
--------- ---------
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,405) (787)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,872 964
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,712 420
Disposal of fixed assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 11
Changes in assets and liabilities:
(Increase) decrease in accounts receivable. . . . . . . . . . . . . . . . . . . . 1,728 (1,489)
Increase in inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (77) (247)
Increase in prepaid expenses and other current and noncurrent assets . . . . . . . (267) (262)
Increase in product development costs. . . . . . . . . . . . . . . . . . . . . . . (1,603) (2,339)
Decrease in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (75) (251)
Increase (decrease) in accrued liabilities, accrued employee salaries and benefits and
other liabilities (359) 992
Increase (decrease) in deferred revenue. . . . . . . . . . . . . . . . . . . . . . 827 (52)
--------- ---------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 (3,040)
--------- ---------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . (5,321) (4,352)
--------- ---------
Cash flows from investing activities:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (648) (720)
--------- ---------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . (648) (720)
--------- ---------
Cash flows from financing activities:
Net proceeds from short term borrowings . . . . . . . . . . . . . . . . . . . . . . . . 352 4,785
Proceeds from issuance of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . 6,050 ---
Issuance (purchase) of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . (261) 50
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 191
--------- ---------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . 6,285 5,026
--------- ---------
Effect of foreign currency on cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . (60) (96)
--------- ---------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . 256 (142)
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . . . . . . . . 475 231
--------- ---------
Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . . . . . . . $ 731 $ 89
--------- ---------
--------- ---------
Cash paid for interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 862 $ 598
</TABLE>
5
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS:
TRO Learning, Inc. and its subsidiaries (the Company) develop and market
microcomputer-based, interactive, self-paced instructional and educational
systems. The Company markets such systems primarily to educational institutions
and private industry.
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, 1996.
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, or otherwise
marketed are expensed as incurred. Once marketability has been established,
costs incurred in the development of new generation courseware products are
capitalized.
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
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 $12,180,000 and
$13,023,000 at July 31, 1997 and October 31, 1996, respectively. Installment
receivables with terms greater than one year were $1,287,000 and $1,909,000 at
July 31, 1997 and October 31,1996, respectively, and are included in other
assets on the consolidated balance sheets.
3. DEBT:
In March 1997, the Company expanded its revolving loan agreement to provide for
a maximum $18 million line of credit with substantially the same terms and
conditions. Borrowings under the line are limited by the available borrowing
base, as defined, and bear interest at the prime rate plus 1.5% or the LIBOR
rate plus 3.25% as determined by the Company. At July 31, 1997, there were
borrowings of $8,964,000 outstanding at an interest rate of 10%. The Company did
not comply with a financial covenant requiring a minimum level of operating
profit for the nine months ended July 31, 1997. On August 29, 1997, the Company
obtained a waiver from its lender for such covenant for the period ending July
31, 1997.
In addition, the expanded loan agreement makes available a $3 million term loan,
at an annual interest rate of 15%, during the remaining term of the agreement.
The funds were borrowed in May 1997 and used to reduce the balance of the
outstanding revolving loan.
Also, in March 1997, the Company issued $3,050,000 of 10% subordinated
convertible debentures with a scheduled maturity in 2004. Interest is payable
semiannually. At the option of the holder, the debentures are convertible into
the Company's common stock at $9.60 per share. The Company may redeem the
debentures at 101% of principal, plus interest, subject to certain terms and
conditions.
7
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. DEBT, CONTINUED
In addition, the debentures are subject to mandatory redemption at 25% of
principal annually beginning in 2001.
4. COMMON STOCK:
In March 1997, concurrent with the issuance of the subordinated convertible
debentures (see Note 3), the Company issued approximately 51,000 warrants to
purchase the Company's common stock at $9.60 per share. The warrants expire in
2002.
8
<PAGE>
PART I. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THIRD QUARTER FISCAL 1997 COMPARED TO THIRD QUARTER FISCAL 1996
REVENUES:
Total revenues for the third quarter of fiscal 1997 of $11,343,000 decreased by
$58,000 or 1% as compared to $11,401,000 for the third quarter of fiscal 1996.
The following table highlights revenues by product line (in 000's):
<TABLE>
<CAPTION>
PLATO
EDUCATION AVIATION TRAINING TOTAL
------------------ ----------------- ------------------
1997 1996 1997 1996 1997 1996
-------- -------- ------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Courseware license and support $ 8,828 $ 8,996 $ 648 $ 395 $ 9,476 $ 9,391
Hardware, third party courseware and other 1,846 1,921 21 89 1,867 2,010
-------- -------- ------- ------ -------- --------
Total revenues $ 10,674 $ 10,917 $ 669 $ 484 $ 11,343 $ 11,401
-------- -------- ------- ------ -------- --------
-------- -------- ------- ------ -------- --------
</TABLE>
As summarized in the above table, PLATO Education courseware license and support
revenues for the third quarter of 1997 decreased 2% from the comparable period
in fiscal 1996 while hardware, third party courseware and other revenues
decreased 4%. PLATO Education total revenues of $10,674,000 for the third
quarter of fiscal 1997 decreased by $243,000 or 2% as compared to the third
quarter of 1996. The Company historically has experienced significantly higher
levels of revenues in its fourth fiscal quarter.
Aviation Training revenues for the third quarter of fiscal 1997 increased
$185,000 or 38% over the comparable period of the prior year.
GROSS PROFIT:
Gross profit for the third quarter of fiscal 1997 increased by $160,000 or 2% to
$9,582,000 as compared to $9,422,000 for the third quarter of fiscal 1996. The
Company's gross margin was 84% for the third quarter of fiscal 1997 as compared
to 83% for the third quarter of fiscal 1996.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE:
Selling, general, and administrative expense for the third quarter of fiscal
1997 increased by $1,856,000 or 28% to $8,577,000 as compared to $6,721,000 for
the third quarter of fiscal 1996. This increase was due primarily to higher
PLATO Education sales and marketing expenses resulting from the planned
expansion of the sales and service organization.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS, CONTINUED
PRODUCT DEVELOPMENT AND CUSTOMER SUPPORT:
Product development and customer support expense for the third quarter of fiscal
1997 increased by $881,000 or 63% to $2,285,000 as compared to $1,404,000 for
the third quarter of fiscal 1996. This increase was due principally to the
continued expansion of PLATO Education products.
OPERATING INCOME (LOSS):
The operating loss was $1,280,000 for the third quarter of fiscal 1997 as
compared to operating income of $1,297,000 for the third quarter of fiscal 1996.
Increased PLATO Education sales, marketing and product development expenses
contributed to the operating loss.
INTEREST EXPENSE:
Interest expense for the third quarter of fiscal 1997 was $388,000 as compared
to $154,000 for the third quarter of fiscal 1996. This increase was principally
due to the Company's long-term debt incurred in fiscal 1997.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS, CONTINUED
FIRST NINE MONTHS FISCAL 1997 COMPARED TO FIRST NINE MONTHS FISCAL 1996
REVENUES:
Total revenues for the first nine months of fiscal 1997 of $24,030,000 decreased
by $521,000 or 2% as compared to $24,551,000 for the comparable period last
year. The following table highlights revenues by product line (in 000's):
<TABLE>
<CAPTION>
PLATO
EDUCATION AVIATION TRAINING TOTAL
----------------- ------------------ ------------------
1997 1996 1997 1996 1997 1996
-------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Courseware license and support $ 17,170 $ 18,043 $ 2,695 $ 2,847 $ 19,865 $ 20,890
Hardware, third party courseware and other 3,993 3,440 172 221 4,165 3,661
-------- -------- ------- ------- -------- --------
Total revenues $ 21,163 $ 21,483 $ 2,867 $ 3,068 $ 24,030 $ 24,551
-------- -------- ------- ------- -------- --------
-------- -------- ------- ------- -------- --------
</TABLE>
Courseware license and support revenues for PLATO Education for the first nine
months of fiscal 1997 decreased 5% from the comparable period last year, while
revenue from hardware, third party courseware and other increased 16%. PLATO
Education total revenues of $21,163,000 for the first nine months of fiscal 1997
decreased by $320,000 or 1% as compared to revenues of $21,483,000 for the first
nine months of fiscal 1996. The Company historically has experienced
significantly higher levels of revenues in its fourth fiscal quarter.
Aviation Training courseware revenues for the first nine months of fiscal 1997
of $2,695,000 decreased 5% over the first nine months of fiscal 1996.
GROSS PROFIT:
Gross profit for the first nine months of fiscal 1997 decreased by $588,000 or
3% to $20,138,000 as compared to $20,726,000 for the first nine months of fiscal
1996. The Company's gross margin was 84% for the first nine months of fiscal
1997 and 1996.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE:
Selling, general, and administrative expense for the first nine months of fiscal
1997 increased by $4,007,000 or 22% to $22,426,000 as compared to $18,419,000
for the first nine months of fiscal 1996. This increase was due primarily to
higher PLATO Education sales and marketing expenses resulting from the planned
expansion of the sales and service organization.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS, CONTINUED
PRODUCT DEVELOPMENT AND CUSTOMER SUPPORT:
Product development and customer support expense for the first nine months of
fiscal 1997 increased by $1,917,000 or 50% to $5,758,000 as compared to
$3,841,000 for the first nine months of fiscal 1996. This increase was due
principally to the continued expansion of PLATO Education products.
OPERATING LOSS:
The operating loss was $8,046,000 for the first nine months of fiscal 1997 as
compared to $1,534,000 for the first nine months of fiscal 1996. 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, marketing and product development costs related
to PLATO Education's expansion.
INTEREST EXPENSE:
Interest expense for the first nine months of fiscal 1997 was $867,000 as
compared to $550,000 for the first nine months of fiscal 1996. Interest expense
increased principally due to the Company's long-term debt incurred in fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1997, the Company's principal sources of liquidity included cash
and cash equivalents of $731,000, net accounts receivable of $20,723,000, and
its line of credit. The Company has total installment receivables of $13,467,000
at July 31, 1997, of which $12,180,000 are due within one year and are included
in net accounts receivable.
Net cash used in the Company's operating activities was $5,321,000 in the first
nine months of fiscal 1997 as compared to $4,352,000 in the first nine months of
fiscal 1996. Cash flows from operations were used principally to fund the
Company's working capital requirements as it invests in new products and expands
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 $18,000,000. At July 31,
1997, borrowings of $8,964,000 were outstanding at an interest rate of 10%. The
Company did not comply with a financial covenant requiring a minimum level of
operating profit for the nine months ended July 31, 1997. On August 29, 1997,
the Company obtained a waiver from its lender for such covenant for the period
ending July 31, 1997.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
The Company's net cash used in investing activities in the first nine months of
fiscal 1997 was $648,000 for capital expenditures.
Net cash provided by financing activities in the first nine months of fiscal
1997 was $6,285,000 which primarily represents borrowings under the Company's
line of credit and proceeds from the issuance of long-term debt (see Note 3 of
Notes to Consolidated Financial Statements).
The Company maintains adequate cash reserves, short-term investments, and credit
facilities to meet its anticipated working capital, capital expenditure, and
business investment requirements.
13
<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 Page
11 Statement Regarding Computation of Per
Share Income (Loss) 16
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the
quarter ended July 31, 1997.
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 11, 1997
TRO LEARNING, INC.
By /s/William R. Roach
----------------------------------
William R. Roach
Chairman of the Board, President
and Chief Executive Officer
(principal executive officer)
/s/Andrew N. Peterson
----------------------------------
Andrew N. Peterson
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)
15
<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,
------------------------- -------------------------
1997 1996 1997 1996
---------- --------- ---------- ----------
AVERAGE SHARES OUTSTANDING:
<S> <C> <C> <C> <C>
1. Weighted average number of shares of common stock
outstanding during the period. . . . . . . . . . . . . 6,229 6,138 6,212 6,106
2. Net additional shares assuming stock options exercised. --- 575 --- ---
---------- --------- ---------- ----------
3. Weighted average number of shares and equivalent
shares of common stock outstanding during the period 6,229 6,713 6,212 6,106
---------- --------- ---------- ----------
---------- --------- ---------- ----------
INCOME (LOSS):
4. Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ (1,080) $ 725 $ (5,676) $ (1,312)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
PER SHARE AMOUNTS:
Net income (loss) (line 4/line 3). . . . . . . . . . . . . . . . $ (0.17) $ 0.11 $ (0.91) $ (0.21)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JULY 31, 1997, 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-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 731
<SECURITIES> 0
<RECEIVABLES> 20723
<ALLOWANCES> 1508
<INVENTORY> 1174
<CURRENT-ASSETS> 24584
<PP&E> 1373
<DEPRECIATION> 3865
<TOTAL-ASSETS> 43262
<CURRENT-LIABILITIES> 21605
<BONDS> 6050
0
0
<COMMON> 62
<OTHER-SE> 14890
<TOTAL-LIABILITY-AND-EQUITY> 43262
<SALES> 24030
<TOTAL-REVENUES> 24030
<CGS> 3892
<TOTAL-COSTS> 3892
<OTHER-EXPENSES> 28352
<LOSS-PROVISION> 1712
<INTEREST-EXPENSE> 867
<INCOME-PRETAX> (9081)
<INCOME-TAX> (3405)
<INCOME-CONTINUING> (5676)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5676)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
