XNAS:ALRN Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

 

UNITED STATES

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 June 30, 2012

 

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: 0-14807

 

AMERICAN LEARNING CORPORATION

(Exact name of registrant as specified in its charter)

 

New York   11-2601199
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
One Jericho Plaza, Jericho,  New York   11753
(Address of principal executive offices)   (Zip Code)

 

(516) 938-8000

(Registrant's telephone number, including area code)

 

 


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 twelve 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 þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ
  (Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

 

The number of shares outstanding of the Registrant’s common stock as of August 13, 2012 was 4,919,615.

 

 
 

 

AMERICAN LEARNING CORPORATION AND SUBSIDIARIES

 

INDEX

 

      Page No.
PART I  - FINANCIAL INFORMATION    
       
Item 1.  Financial Statements    
       
  Condensed Consolidated Balance Sheets as of June 30, 2012 (unaudited) and March 31, 2012   3
       
  Condensed Consolidated Statements of Operations for the Three Months ended June 30, 2012 and 2011 (unaudited)   4
       
  Condensed Consolidated Statements of Cash Flows for the Three Months ended June 30, 2012 and 2011 (unaudited)   5
       
  Notes to Condensed Consolidated Financial Statements (unaudited)   6 - 8
       
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations   8 - 10
       
Item 3.  Quantitative and Qualitative Disclosures About Market Risk   10
       
Item 4. Controls and Procedures   10
       
PART II - OTHER INFORMATION    
       
Item 6. Exhibits   11
       
SIGNATURES   12

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

AMERICAN LEARNING CORPORATION AND SUBSIDIARIES

 

Condensed Consolidated Balance Sheets

 

   June 30, 2012   March 31, 2012 
   (Unaudited)     
Assets          
           
Current assets:          
Cash and cash equivalents  $3,173,745   $3,107,253 
Accounts receivable, net   569,833    720,005 
Note receivable   195,000    195,000 
Prepaid expenses and other current assets   83,235    79,284 
Total current assets   4,021,813    4,101,542 
           
Note receivable - net of current portion   45,000    90,000 
Goodwill   75,000    75,000 
Intangible assets, net   91,161    93,194 
Property and equipment, net   123,655    111,500 
Other assets   17,635    17,635 
Total assets  $4,374,264   $4,488,871 
           
Liabilities and Stockholders' Equity          
           
Current liabilities:          
Accounts payable and accrued expenses  $228,801   $228,169 
Accrued compensation and related taxes   294,983    344,665 
Total current liabilities   523,784    572,834 
           
Commitments          
           
Stockholders' equity:          
Common stock, $.01 par value; authorized 20,000,000 shares; issued 5,214,715 shares and outstanding 4,919,615 shares   52,147    52,147 
Additional paid-in capital   6,041,456    5,988,456 
Accumulated deficit   (1,775,850)   (1,657,293)
    4,317,753    4,383,310 
Treasury stock, at cost   (467,273)   (467,273)
Total stockholders' equity   3,850,480    3,916,037 
Total liabilities and stockholders' equity  $4,374,264   $4,488,871 

 

See accompanying notes to condensed consolidated financial statements.

 

3
 

 

AMERICAN LEARNING CORPORATION AND SUBSIDIARIES

 

Condensed Consolidated Statements of Operations

 

(Unaudited)

 

   Three months ended 
   June 30,   June 30, 
   2012   2011 
         
Revenues  $1,105,243   $879,897 
Cost of services   689,191    579,766 
           
Gross profit   416,052    300,131 
           
Selling, general, and administrative expenses   538,762    478,894 
           
Operating loss from continuing operations   (122,710)   (178,763)
           
Other income (expense):          
Interest income   4,153    4,553 
Interest expense       (184)
           
Loss from continuing operations   (118,557)   (174,394)
           
Discontinued operations          
Gain from discontinued operations, net of tax       31,851 
           
Net loss  $(118,557)  $(142,543)
           
Net income (loss) per share:          
From continuing operations – basic and diluted  $(0.02)  $(0.04)
From discontinued operations – basic and diluted   0.00    0.01 
   $(0.02)  $(0.03)
           
Weighted average shares - basic and diluted   4,919,615    4,809,805 

 

See accompanying notes to condensed consolidated financial statements.

 

4
 

 

AMERICAN LEARNING CORPORATION AND SUBSIDIARIES

 

Condensed Consolidated Statements of Cash Flows

 

(Unaudited)

 

   Three months ended 
   June 30,   June 30, 
   2012   2011 
Cash flows from operating activities:          
Net loss  $(118,557)  $(142,543)
Earnings from discontinued operations       (31,851)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   14,878    23,590 
Stock-based compensation expense   53,000    1,767 
Changes in assets and liabilities:          
Accounts receivable   150,172    8,114 
Prepaid expenses and other current assets   (3,951)   5,475 
Accounts payable and accrued expenses   632    18,702 
Accrued compensation and related taxes   (49,682)   (48,886)
           
Net cash used in operating activities of continuing operations   46,492    (165,632)
Operating activities of discontinued operations       561,491 
           
Net cash provided by operating activities   46,492    395,859 
           
Cash flows from investing activities:          
Proceeds from note receivable   45,000    30,000 
Capital expenditures   (25,000)   (17,387)
Net cash provided by investing activities   20,000    12,613 
           
Cash flows from financing activities:          
Proceeds from stock issuance       296,487 
Payment of capital leases payable       (7,801)
           
Net cash provided by financing activities       288,686 
           
Net increase in cash and cash equivalents   66,492    697,158 
           
Cash and cash equivalents - beginning of period   3,107,253    2,579,249 
           
Cash and cash equivalents - end of period  $3,173,745   $3,276,407 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for:          
Interest  $   $184 

 

See accompanying notes to condensed consolidated financial statements.

 

5
 

 

AMERICAN LEARNING CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2012

(Unaudited)

 

Overview

 

American Learning Corporation (together with its subsidiaries, “we,” “our,” “us,” or the “Company”) provides a comprehensive range of services to children with developmental delays and disabilities in New York State and has developed a reputation for providing well-rounded therapeutic solutions through our wholly owned subsidiaries, Interactive Therapy Group Consultants, Inc. and Signature Learning Resources, Inc.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). In our opinion, these financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to make the consolidated financial position, results of operations and cash flows for the interim periods presented not misleading. Results for interim periods are not necessarily indicative of results which may be achieved for a full year.

 

Accordingly, these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012 (the “Annual Report”), as filed with the Securities and Exchange Commission (“SEC”).

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Revenue Recognition

 

Revenue is recognized on a fee-for-service basis after services have been provided under contract terms, the service price is fixed or determinable, and collectibility is reasonably assured. In addition, revenue is also recognized monthly for services provided under tuition-based programs for our Special Education Itinerant Teachers (“SEIT”) contracts.

 

Credit Risk

 

Service revenue is concentrated within a limited number of clients throughout New York State; municipalities within New York State provide substantial and significant revenue to us. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that our customers may be similarly affected by changes in economic or other conditions in New York State. Over the past year, we have experienced delays in payments received from these municipalities as a result of the challenging economic climate and delays in funding to the municipalities from New York State. Although the accounts receivable for our services are deemed collectible, we will continue to actively monitor this issue when evaluating the adequacy of our allowance for doubtful accounts.

 

6
 

 

Goodwill and Intangible Assets

 

Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is tested for possible impairment at least annually.  We perform our tests as of March 31, the last day of our fourth fiscal quarter, unless an event occurs that would cause us to believe the value is impaired at an interim date. 

 

The following table presents certain information regarding our intangible assets at June 30, 2012:

 

   Estimated   Carrying   Accumulated     
   Useful Lives   Value   Amortization   Net 
Customer contracts   15 years   $122,000   $(30,839)  $91,161 

 

Intangible assets are being amortized on a straight-line basis over their estimated useful lives. For the three months ended June 30, 2012, amortization expense was $2,033. Assuming no changes in our intangible assets, estimated amortization expense for the remainder of the current fiscal year ending March 31, 2013 will be $6,100 and will be $8,133 in each of the four succeeding fiscal years.

 

We assess the recoverability of the carrying value of the identifiable intangible assets with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. 

 

Seasonality

 

Our business is moderately seasonal in nature based on the school year. Accordingly, our second fiscal quarter (the three month period ending September 30), which includes two full months during which schools are not in session (July and August), is the quarter in which we achieve our lowest volume of revenues.

 

Net Earnings (Loss) Per Share

 

Basic earnings (loss) per share is based on the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects the maximum dilution from potential common shares issuable pursuant to the exercise of stock options and warrants, if dilutive, outstanding during each period. Potentially dilutive securities consisting of employee and director stock options and warrants to purchase 1,435,000 and 1,391,000 shares of the Company’s common stock as of June 30, 2012 and 2011, respectively, were not included in the diluted net loss per share calculations because their effect would have been anti-dilutive.

 

Stock Option Plans

 

Stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized on a straight-line basis over the vesting period. During the three months ended June 30 2012 and 2011, stock-based compensation totaling $53,000 and $1,767, respectively, was recognized based on the fair value of the stock options granted.

 

We estimate the fair value of stock options granted using the Black-Scholes option pricing model. Under this method, the average fair value of stock options granted by the Company during the three months ended June 30, 2012 was $0.66 per share. In addition to the exercise price of the awards, certain weighted average assumptions were used to estimate the fair value of stock option grants as follows: expected volatility of 97.6%, expected dividend yield of 0%, risk-free interest rate of 0.73% and an expected option term of 5 years.

 

7
 

 

At June 30, 2012, outstanding options to purchase 1,239,999 shares of the Company’s common stock are fully vested. In addition, certain option grants contain disposition restrictions which prohibit the sale of 50% of the shares acquired by exercising the awarded options until the first anniversary of the grant date and the remaining 50% of the shares acquired by exercising the awarded options until the second anniversary of the grant date. As of June 30, 2012, the fair value of unamortized stock-based compensation expense related to unvested stock options was approximately $22,033 which is expected to be recognized over a remaining vesting period of three years.

 

The following table summarizes information about stock option activity for the three months ended June 30, 2012:

 

           Weighted     
       Weighted   Average     
       Average   Remaining   Agregate 
       Exercise   Contractual   Intrinsic 
   Shares   Price   Term   Value 
Outstanding at March 31, 2012   1,291,000   $2.10    5.3 years      
Granted   75,000   $1.20    10 years      
Expired   (106,000)  $1.80    -      
Outstanding at June 30, 2012   1,260,000   $2.09    5.8 years   $11,250 
                     
Exercisable at June 30, 2012   1,239,999   $2.10    5.8 years   $8,917 

 

Aggregate intrinsic value represents the total pretax intrinsic value, based on options with exercise prices less than the Company’s closing price of $1.15 as of June 30, 2012, which would have been recognized by the option holders had these option holders exercised their options as of that date.

 

Subsequent Events

 

We have completed an evaluation of the impact of any subsequent events through the date these financial statements were issued and determined that there were no subsequent events requiring disclosure in or adjustment to these financial statements.

 

Reclassifications

 

Certain prior year balances have been reclassified to conform with current year classification. In the accompanying consolidated statement of operations, $21,250 of salaries were reclassified from cost of services to selling, general and administrative expenses for the three months ended June 30, 2011 to more accurately reflect cost of services. These reclassifications have no effect on the Company’s results of operations.

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward Looking Statements

 

Except for the historical information contained herein, the matters discussed in this Report on Form 10-Q may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, general economic and market conditions and our ability to successfully identify and thereafter consummate one or more acquisitions.

 

Critical Accounting Policies

 

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report. A discussion of our critical accounting policies and estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) in our Annual Report. There have been no material changes to the critical accounting policies or estimates reported in the MD&A section of our Annual Report.

 

8
 

 

Results of Operations – Three Months ended June 30, 2012 and 2011

 

Revenues for the three months ended June 30, 2012 were $1,105,243, an increase of approximately 25.6% from the $879,897 reported for the three month period ended June 30, 2011. This increase was the result of revenues generated by school staffing services provided to charter schools which totaled $672,007 during the three months ended June 30, 2012. By comparison, school staffing services totaled $453,474 in the corresponding period of the prior fiscal year. Revenues generated under our SEIT program remained consistent during the three months ended June 30, 2012 with revenues in the corresponding period in the prior fiscal year.

 

Cost of services as a percentage of revenues for the three month periods ended June 30, 2012 and 2011 were approximately 62.4% and 65.9%, respectively. Each year, we are required to file a standardized fiscal cost report with New York State which is used to calculate reconciliation tuition rates/adjustment factors and prospective tuition rates for our SEIT program. As a result of this rate reconciliation process, the cost of services as a percentage of revenue for the three months ended June 30, 2011 increased due to a 4.0% reduction in fees paid by preschools under the rate reconciliation process.

 

Selling, general and administrative expenses for the quarterly periods ended June 30, 2012 and 2011 were $538,762 and $478,894, respectively. During the three months ended June 30, 2012, the Company recorded stock-based compensation expense totaling $53,000 related to the issuance of stock options and warrants as compared to $1,767 of stock-based compensation recorded in the three months ended June 30, 2011.

 

Interest income for the three month periods ended June 30, 2012 and 2011 was relatively consistent at $4,153 and $4,553, respectively.

 

Liquidity and Capital Resources

 

At June 30, 2012, we had working capital of $3,498,029 as compared to working capital of $3,528,708 at March 31, 2012. We believe that we have sufficient liquidity to meet our needs for beyond the next twelve months.

 

During the three months ended June 30, 2012, net cash provided by operating activities was $46,492, predominately from a decrease in our accounts receivable of $150,172 offset by an operating loss of $118,557.

 

Cash flows from investing activities for the three months ended June 30, 2012 of $20,000 included $45,000 of proceeds received from collections of the note receivable offset by capital expenditures of $25,000.

 

Future minimum lease payments under non-cancelable operating leases and subleases, exclusive of future escalation charges, for the remainder of the fiscal year ending March 31, 2013 and fiscal years ending thereafter are as follows:

 

   Operating 
   Leases 
2013  $127,000 
2014   73,000 
2015   47,000 
2016   51,000 
2017   52,000 
Thereafter   90,000 
Total minimum lease payments  $440,000 

 

9
 

 

We are not aware of any pending or threatened legal action arising from the operations of our business that could have a material adverse effect on our consolidated financial condition or results of operations.

 

While we have not experienced any significant impact on our net revenues and profitability from the general slowdown of the economy or current global credit crisis, the continuing economic deterioration could have a negative impact in future periods.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

We are subject to interest rate risks that arise from normal business operations. Most of our cash and cash equivalents are invested at variable rates of interest and decreases in market interest rates have caused a related significant reduction in our interest income over prior periods.

 

Item 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are designed to ensure the reliability of the financial statements and other disclosures included in this Report. As of the end of the fiscal quarter ended June 30, 2012, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings.

 

(b) Changes in Internal Controls over Financial Reporting

 

There were no changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

We are aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial reporting matters. However, we have decided that considering the employees involved and the control procedures in place, risks associated with such lack of segregation are mitigated by active management involvement and the potential benefits of adding employees to clearly segregate duties do not justify the expenses associated with such increases.

 

10
 

 

PART II - OTHER INFORMATION

 

Item 6. Exhibits.

 

Exhibit 31.1 Section 302 Principal Executive Officer Certification
   
Exhibit 31.2 Section 302 Principal Financial Officer Certification
   
Exhibit 32.1 Section 1350 Certification
   
Exhibit 32.2 Section 1350 Certification

 

11
 

 

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.

 

  AMERICAN LEARNING CORPORATION
   
Date: August 13, 2012 By:   /s/ Gary Gelman
    Gary Gelman
    Chairman of the Board,
    President and Chief Executive Officer
     
Date: August 13, 2012 By: /s/ Gary J. Knauer
    Gary J. Knauer
    Chief Financial Officer,
    Treasurer and Secretary

 

12

 

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