UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-Q 

(Mark One)

For the quarterly period ended July 3, 2015

Or

For the transition period from            to

 Commission File Number: 0-27248

 Learning Tree International, Inc.

(Exact name of registrant as specified in its charter)

703-709-9119

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes     ☐  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    ☐  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):

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

 The number of shares of common stock, $.0001 par value, outstanding as of August 4, 2015 was 13,224,349.

 LEARNING TREE INTERNATIONAL, INC.

FORM 10-Q July 3, 2015

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data) 

Unaudited 

The accompanying notes are an integral part of these condensed consolidated financial statements.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Unaudited 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(tables in thousands, except per share data)

Unaudited

Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.  

The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, our unaudited condensed consolidated financial statements and notes included in this Quarterly Report on Form 10-Q (“Report” or “Form 10-Q”) and our consolidated financial statements and notes included in our Annual Report on Form 10-K, for the fiscal year ended October 3, 2014 (our “2014 10-K”). We use the terms “we,” “our,” “us” and “Learning Tree” to refer to Learning Tree International, Inc. and our subsidiaries unless the context indicates otherwise.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may,” or other similar expressions in this Report. Our forward-looking statements relate to future events or our future performance and include, but are not limited to, statements concerning our business strategy, future commercial revenues, future operating expenses, future gross profits, earnings or losses, market growth, capital requirements, new product introductions, expansion plans and the adequacy of our funding. Other statements contained in this Report that are not historical facts are also forward-looking statements.

We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking statements presented in this report, or that we may make orally or in writing from time to time, are based on our beliefs, assumptions made by us, and information currently available to us. Such statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control and ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements, which are based on known results and trends at the time they are made, to anticipate future results or trends.

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include those related to the following: risks associated with the timely development, introduction, and customer acceptance of our courses; efficient delivery and scheduling of our courses; technology development and new technology introduction; competition; international operations, including currency fluctuations; attracting and retaining qualified personnel; intellectual property, including having to defend potential infringement claims; risks associated with cyber security; changing economic and market conditions; and adverse weather conditions, strikes, acts of war or terrorism and other external events. Please refer to the risk factors under “Item 1A. Risk Factors” beginning on page 10 and elsewhere in our 2014 10-K, as well as in our other filings with the SEC.

The risks included in our filings are not exhaustive, and additional factors could adversely affect our business and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We do not undertake and specifically disclaim any obligation to update such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as otherwise required by law.

OVERVIEW

We are a leading worldwide vendor-independent provider to business and government organizations for the training and education of their information technology (“IT”) professionals and managers. In addition to training, we support our customers by providing a suite of skills enhancement services which help business and government organizations assess the skill level of their IT staff and new hires, determine skill gaps and define learning paths to enhance the competences of their IT workforce. Since our founding in 1974, we have provided high-quality training to over 2.4 million IT professionals and managers.

Our objective is to provide our customers with job-focused, hands-on learning experiences that best meet their needs for the development of their professional IT staff and managers. We design our courses to provide participants an unbiased perspective of both the strengths and limitations of software and hardware products and an understanding of how to compare and integrate multiple platforms and technologies from various vendors. Drawing from the expertise of our international team of instructors, each course incorporates multiple points of view concerning IT applications used throughout the world. Our IT courses are designed to be highly interactive, with virtually all of our courses involving “hands-on” training on networked state-of-the-art workstations so that participants can practice and assimilate the skills being taught. Participants spend a significant portion of each hands-on course working on computer-based exercises and participating in group workshops and class interactions. As a result, they return to their jobs with the confidence to immediately apply the new skills and knowledge they have gained. Participants have access to extensive course materials that facilitate learning and serve as a post-course reference tool.

Our management courses, while including core concepts and theory, focus heavily on providing practical skills, tools, and techniques that participants can apply immediately upon returning to their jobs. Participants work extensively in group exercises that provide them with the opportunity to practice applying key concepts in real-world situations. These real-world scenarios are primarily delivered through our performance-based management training platform. Our courses bring the real world to life in the classroom through the use of computer-based and rich-media simulations, supplemented with substantial amounts of hands-on exercises and group activities, facilitated by experts in their respective fields.

We market and deliver our courses through locally staffed operations in the United States, the United Kingdom, Canada, Sweden and Japan. Concurrent with the sale of our French subsidiary in March 2015, we now operate in France through a license agreement with Educinvest. For the third quarter of fiscal year 2015, we generated approximately 33% of our revenues internationally. Our sophisticated infrastructure and logistics capabilities allow us to coordinate, plan and deliver Learning Tree courses at our Education Centers and external hotel and conference facilities worldwide. We also present standard or customized courses at customer facilities whenever and wherever desired, with quality standards that are identical to the courses presented in our Learning Tree Education Centers.

We also offer courses through Learning Tree AnyWare™ — our web-based attendance platform. With the use of our AnyWare™ platform, our clients anywhere in the world can participate in any live course event being taught at any of our Education Centers, without the need to travel or commute to the actual course site. Our clients can take our courses at work, home, or at one of our AnyWare™ Learning Centers. Including our licensee in France, we currently have a total of 62 AnyWare™ Learning Centers worldwide which provide our customers convenient access to our courses via our AnyWare™ platform in a setting optimized for learning and training.  

We use a well-defined systematic approach to develop and update the Learning Tree course library so as to provide training that is immediately applicable by course participants to their work in a broad range of applications and industries. After assessing market need, courses may be translated into French, Swedish and Japanese. Our proprietary course development process also allows us to efficiently and effectively customize our courses to specific customer requirements for delivery at their sites. Select Learning Tree courses are recommended for one to two semester hours of college credit by the American Council on Education. In the United Kingdom, our courses can be used to gain a Master’s degree in Professional Computing at Staffordshire University under a program administered by the Faculty of Computing, Engineering and Technology. We are a trusted continuing professional education (“CPE”) provider of the International Information Systems Security Certification Consortium. In addition, we are on the National Association of State Boards of Accountancy National Registry of CPE sponsors; a Registered Education Provider of the Project Management Institute; an APMG International Accredited Training Organization; an Axelos Strategic Accredited Training Partner; an International Institute of Business Analysis (“IIBA”) Endorsed Education Provider; and a SFIA Foundation Accredited Training Partner.

Our instructors are not full-time employees of Learning Tree; rather, they are practicing professionals who apply the same IT and management skills they teach in our classrooms while working on development and management projects as independent consultants or full-time employees elsewhere when they are not teaching. This ensures that our instructors stay at the forefront of their respective disciplines, and also enables us to structure our business so over half of our course delivery costs are variable. On average, each of our expert instructors teaches about 10 courses per year on an “as needed” basis.

We continue our tradition of excellence by always seeking to improve our core strengths: expert instructors, proprietary content library, extensive skills enhancement services, state-of-the-art classrooms and worldwide course delivery systems. We believe that quality and customer satisfaction remain the underlying driving forces for our long-term success.  

KEY METRICS OF OUR THIRD QUARTER AND FIRST NINE MONTHS OF FISCAL YEAR 2015

We use the 52/53-week fiscal year method to better align our external financial reporting with the manner in which we operate our business. Under this method, each fiscal quarter ends on the Friday closest to the end of the calendar quarter. Accordingly, our third quarter of the current fiscal year ended on July 3, 2015 and encompassed 13 weeks, while our third quarter of the prior fiscal year ended on June 27, 2014 and also encompassed 13 weeks. The nine months ended July 3, 2015 and June 27, 2014 each encompassed 37 weeks. 

Following the sale of LTRE (FR) in March 2015, we have reclassified the historical operating results, including operating statistics of LTRE(FR) to discontinued operations. The following discussions reflect comparisons of our continuing operations excluding LTRE(FR).

 The following is an overview of our results of continuing operations and net losses for the third quarter of fiscal year 2015, compared to the same quarter of fiscal year 2014:

The following is an overview of our results of continuing operations, discontinued operations, and net losses for the nine months ended July 3, 2015, compared to the equivalent period of fiscal year 2014:

RESULTS OF OPERATIONS

The following table summarizes our consolidated statements of operations for the periods indicated, expressed as a percentage of our revenues for these periods:

THREE MONTHS AND NINE MONTHS ENDED JULY 3, 2015 COMPARED WITH THE THREE MONTHS AND NINE MONTHS ENDED JUNE 27, 2014 

Revenues. Revenues from continuing operations of $22.7 million in our third quarter of fiscal year 2015 were 11.7% lower than revenues of $25.7 million in the same quarter of fiscal year 2014. The decrease in revenues primarily resulted from a 6.5% decrease in average revenue per participant and a 5.5% decrease in the number of course participants. The decrease in the average revenue per participant was caused primarily by changes in foreign exchange rates, which negatively impacted revenues by approximately 3.9% quarter over quarter, and the lower average revenue per participant from one-day courses which we began introducing in the second quarter of fiscal year 2015. The decrease in the number of course participants compared to the same quarter of our prior year was primarily due to the continued decline in enrollments in the United Kingdom and Sweden. Revenues from customers who purchased courses under our U.S. Government General Service Administration (“GSA”) contract schedules were $1.0 million higher for the third quarter of fiscal year 2015 compared to the third quarter of fiscal year 2014.

During our third quarter of fiscal year 2015, we trained 13,862 course participants from continuing operations, a 5.5% decrease from the 14,676 course participants we trained in our third quarter of fiscal year 2014. We provided 50,003 attendee-days of training during our third quarter of fiscal year 2015, a 6.4% decrease from the 53,401 attendee-days of training we provided in the same quarter in fiscal year 2014. In our IT courses, we provided 29,527 attendee-days of training during our third quarter of fiscal year 2015, a 1.8% decrease from the 30,069 attendee-days in the corresponding period in fiscal year 2014. In our management courses, we provided 20,476 attendee-days of training during our third quarter of fiscal year 2015, a 12.2% decrease from the 23,332 attendee-days in the corresponding period in fiscal year 2014.

Our revenues from continuing operations of $69.3 million during our first nine months of fiscal year 2015 were 10.1% lower than revenues of $77.0 million in the same period of fiscal year 2014. The decrease in revenues primarily resulted from a 5.8% decrease in the number of course participants and a 4.5% decrease in average revenue per participant. The decrease in the number of course participants is primarily due to the weakened demand in Europe. The decrease in average revenue per participant was caused primarily by changes in foreign exchange rates. Revenues were negatively impacted by approximately 4.0% period over period as a result of changes in foreign exchange rates.

During our first nine months of fiscal year 2015, we trained 41,378 course participants from continuing operations, a 5.8% decrease from the 43,928 course participants we trained in our first nine months of fiscal year 2014. We provided 145,371 attendee-days of training during our first nine months of fiscal year 2015, 7.3% fewer than the 156,830 attendee-days in the same period in fiscal year 2014. In our IT courses during our first nine months of fiscal year 2015, we provided 87,731 attendee-days of training, a 4.2% decrease from the 91,577 attendee-days in the corresponding period in fiscal year 2014. In our management courses during our first nine months of fiscal year 2015, we provided 57,640 attendee-days of training, an 11.7% decrease from the 65,253 attendee-days in the corresponding period in fiscal year 2014. 

We continue to strategically review our operations to identify opportunities to increase revenues. We are actively working to leverage our library of course materials to produce incremental revenue generating capabilities. In addition, we continue to collaborate with the IT community to identify the services they need to enhance the skills and knowledge of their workforce in order to accomplish their projects and goals.

 Cost of Revenues. Our cost of revenues from continuing operations primarily includes the costs of course instructors and their travel expenses, course materials, classroom facilities, equipment, freight and refreshments.

 During our third quarter of fiscal year 2015, we presented, from continuing operations, 1,184 events, an 11.4% increase from 1,063 events during the same period in fiscal year 2014 primarily due to the addition of one-day events in the third quarter of fiscal year 2015. Our cost of revenues for our third quarter of fiscal year 2015 was $14.4 million, or 63.3% of revenues, compared to $14.5 million, or 56.5% of revenues, in the same period in fiscal year 2014. Accordingly, our gross profit percentage for our third quarter of fiscal year 2015 was 36.7% compared to 43.5% in the same period of fiscal year 2014.

The change in cost of revenues as a percentage of revenues in our third quarter of fiscal year 2015 primarily reflects the 6.5% decrease in revenue per participant and a 4.6% increase in cost per participant. The increase in cost per participant is primarily the result of the relatively fixed costs to operate our education centers spread over fewer participants and a 15.2% decrease in the number of participants per event as a result of introducing more one-day events. Changes in foreign exchange rates do not materially affect our gross profit percentage, since fluctuations in exchange rates affect our cost of revenues by approximately the same percentage as they affect our revenues.

During our first nine months of fiscal year 2015, we presented from continuing operations 3,381 events, a 1.8% increase from 3,321 events during the same period in fiscal year 2014. Our cost of revenues for our first nine months of fiscal year 2015 was $42.0 million, or 60.7% of revenues, compared to $44.7 million, or 58.0% of revenues, in the same period in fiscal year 2014. The change in cost of revenues as a percentage of revenues during our first nine months of fiscal year 2015 primarily reflects the 4.5% decrease in revenue per participant. Accordingly, our gross profit percentage for our first nine months of fiscal year 2015 was 39.3% compared to 42.0% in the same period of fiscal year 2014.

Course Development Expenses. Costs incurred to develop new courses and update our existing courses are expensed when incurred and are included in course development expenses. These costs are principally for internal product development staff and for subject matter experts.

During our third quarter of fiscal year 2015, course development expenses were 11.3% of revenues, compared to 7.0% in our third quarter of fiscal year 2014. Overall spending on course development in our third quarter of fiscal year 2015 was $2.6 million, compared to $1.8 million spent on course development in our third quarter of fiscal year 2014. The $0.8 million increase in course development expenses was related primarily to the continued development of a series of 1-Day Boot Camp courses.

Course development expense during our first nine months of fiscal year 2015 was $6.4 million, an increase of $1.0 million compared to $5.4 million in the same period of fiscal year 2014.

In our third quarter of fiscal year 2015, we introduced three new multi-day IT course titles, two new multi-day management course titles, and 52 one day course titles. At the end of our third quarter of fiscal year 2015, our library of instructor-led courses numbered 274 titles compared with 181 titles at the end of the same quarter of fiscal year 2014. At the end of our third quarter of this fiscal year, we had 121 multi-day IT titles in our course library, compared with 117 multi-day titles at the end of the same quarter of fiscal year 2014. Our library of multi-day management titles numbered 67 at the end of our third quarter of fiscal year 2015, compared to 60 at the end of the same quarter of fiscal year 2014. Our library of 1-Day Boot Camp courses numbered 86 at the end of our third quarter of fiscal year 2015, compared to no such courses at the end of the same quarter of fiscal year 2014.  

Sales and Marketing Expenses. Sales and marketing expenses include the costs of: designing, producing and distributing direct mail and media advertisements; distributing marketing e-mails; maintaining and further developing our website; compensation and travel for sales and marketing personnel; and information systems to support these activities.

Sales and marketing expenses from continuing operations in our third quarter of fiscal year 2015 were 23.7% of revenues, compared to 21.9% in the same quarter of fiscal year 2014. Sales and marketing expenses were $5.4 million in our third quarter of fiscal year 2015, compared to $5.6 million during our third quarter of fiscal year 2014. The decrease is primarily due to the favorable impact of foreign exchange rates on the expenses incurred by our foreign subsidiaries when compared to the third quarter of fiscal year 2014.

Sales and marketing expenses from continuing operations during our first nine months of fiscal year 2015 were $17.0 million, an increase of $0.5 million compared to $16.5 million in the same period of fiscal year 2014. The increase is primarily due to increases in direct selling costs, partially offset by the favorable impact of foreign exchange rates on the expenses incurred by our foreign subsidiaries when compared to the first nine months of fiscal year 2014.

General and Administrative Expenses. General and administrative expense in our third quarter of fiscal year 2015 was 19.5% of revenues, compared with 25.7% for the same quarter in fiscal year 2014. General and administrative expenses during our third quarter of fiscal year 2015 were $4.4 million, a decrease of $2.2 million compared to $6.6 million in our third quarter of fiscal year 2014. The decrease was due primarily to lower labor and professional service costs in the current quarter and the absence of one-time charges for restructuring and severance costs that were incurred in the third quarter of fiscal year 2014.

General and administrative expense during our first nine months of fiscal year 2015 was $14.3 million, a decrease of $2.5 million compared to $16.8 million in the same period of fiscal year 2014. In addition to the decrease in costs during the quarter explained above, the first nine months of fiscal year 2015 were also favorably impacted by changes in foreign exchange rates on the expenses incurred by our foreign subsidiaries.

During fiscal year 2015, we have implemented company-wide cost reduction strategies that we believe will result in annual cost savings of $5.0 to $8.0 million.

Other Income (Expense), Net. Other income (expense), net consists primarily of interest income and foreign currency transaction gains and losses.

During our third quarter of fiscal year 2015 and fiscal year 2014, we had other expense of less than $0.1 million, both primarily from foreign exchange gains or losses.

During our first nine months of fiscal year 2015 other income totaled $0.3 million compared to other expense of less than $0.1 million in our first nine months of fiscal year 2014, again primarily from foreign exchange gains or losses.

Income Taxes. Our income tax provision in our third quarter of fiscal year 2015 was $0.2 million, compared to less than $0.1 million in our third quarter of fiscal year 2014. Our third quarter of fiscal year 2015 and 2014 income tax provisions are primarily related to true ups of the actual return to provision estimates and the income tax expense of our foreign subsidiaries.

Our income tax provision for our first nine months of fiscal year 2015 was $0.4 million, compared to $0.5 million for our first nine months of fiscal year 2014.

Loss from Continuing Operations. Our loss from continuing operations for our third quarter of fiscal year 2015 was $4.3 million compared to a loss of $2.9 million for our third quarter of fiscal year 2014.

For the first nine months of fiscal year 2015, our loss from continuing operations was $10.5 million compared to a loss of $6.9 million in the first nine months of fiscal year 2014.

Loss from Discontinued Operations. We had no loss from discontinued operations in our third quarter of fiscal year 2015 compared to income of $0.2 million in our third quarter of fiscal year 2014.

For the first nine months of fiscal year 2015, our loss from discontinued operations was $2.8 million compared to income of $0.2 million in the first nine months of fiscal year 2014.

Net Loss. Our net loss for our third quarter of fiscal year 2015 was $4.3 million compared to net loss of $2.7 million for our third quarter of fiscal year 2014.

Our net loss for our first nine months of fiscal year 2015 was $13.3 million compared to net loss of $6.6 million for our first nine months of fiscal year 2014.

Effects of Foreign Exchange Rates. Although our consolidated financial statements are stated in U.S. dollars, all of our subsidiaries outside of the U.S. have functional currencies other than the U.S. dollar. Gains and losses arising from the translation of the balance sheets of our subsidiaries from the functional currencies to U.S. dollars are reported as adjustments to stockholders’ equity. Fluctuations in exchange rates may also have an effect on our results of operations. The strengthening of the U.S. dollar against the functional currencies of our foreign subsidiaries has negatively impacted our results of operations. Since both revenues and expenses are generally denominated in our subsidiaries’ local currency, changes in exchange rates that have an adverse effect on our foreign revenues are partially offset by a favorable effect on our foreign expenses. The impact of future exchange rates on our results of operations cannot be accurately predicted. To date, we have not sought to hedge the risks associated with fluctuations in exchange rates, and therefore we continue to be subject to such risks. Even if we undertake such hedging transactions in the future, there can be no assurance that any hedging techniques we implement would be successful in eliminating or reducing the effects of currency fluctuations. See Item 1A “Risk Factors” in our 2014 10-K.  

FLUCTUATIONS IN QUARTERLY RESULTS

Our quarterly results are affected by many factors, including the number of weeks during which courses can be conducted in a quarter, the nature and extent of our marketing, the timing of the introduction of new courses, competitive forces within the markets we serve, the mix of our course events between IT and management and customer site or education center venues, and currency fluctuations.

In addition, we use the 52/53-week fiscal year method to better align our external financial reporting with the manner in which we operate our business. Under this method, each fiscal quarter ends on the Friday closest to the end of the calendar quarter. Both the third quarter of the current fiscal year ending July 3, 2015 and the third quarter of the prior fiscal year ending June 27, 2014 encompassed 13 weeks.  

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity at July 3, 2015 included cash and cash equivalents on hand of $18.7 million. During the first nine months of fiscal year 2015, our total cash and cash equivalents of continuing operations decreased by $11.2 million, primarily as a result of cash used in operating activities of $8.8 million, cash used for capital expenditures of $2.2 million, and effects of exchange rate changes on cash and cash equivalents of $0.2 million.

At July 3, 2015, our net working capital (current assets minus current liabilities) was ($3.1) million, a $10.7 million decrease from our working capital balance at October 3, 2014. Current assets from continuing operations decreased $14.9 million during the period, due primarily to decreases in trade accounts receivable and cash. Current liabilities from continuing operations decreased $4.2 million during the period, primarily due to decreases in deferred revenues and accrued expenses.

 Cash Flows from Continuing Operations. Our cash and cash equivalents from continuing operations decreased $11.2 million to $18.7 million at July 3, 2015 from $29.9 million at October 3, 2014, as follows:

Cash used in continuing operating activities increased $4.9 million in the first nine months of fiscal year 2015, compared to the first nine months of fiscal year 2014 primarily due to the larger loss from continuing operations for the current period of $10.5 million compared to a loss of $6.9 million for the first nine months of fiscal year 2014. Cash used by investing activities of continuing operations increased by $1.1 million in the first nine months of fiscal year 2015 compared to the first nine months of fiscal 2014, due primarily to increased capital spending for equipment and leasehold improvements.

Liquidity. We currently have no outstanding debt or line of credit agreements. We anticipate we will continue to rely primarily on our balance of cash and cash equivalents on hand, and cash flows from operations, to finance our operating cash needs. The decline in our operating performance has resulted in an increase in net cash used in operating activities, and we expect continued net cash usage in operating activities. We believe that our cash and cash equivalents on hand will be sufficient to satisfy our anticipated cash requirements for the foreseeable future.  

Capital Requirements. During the nine months ended July 3, 2015, we made capital expenditures of $2.2 million for the purchase of network computer equipment, classroom computers and other equipment, and leasehold improvements. We have implemented cloud technology which is expected to reduce future purchases of new classroom computer equipment. We currently have no plans to purchase equipment or other capital assets during the remainder of fiscal year 2015. We anticipate any build out requirements of our new headquarters facility lease will be fully reimbursed by the tenant improvement allowance being provided by the landlord. Our contractual obligations as of July 3, 2015 are consistent in all material respects with our fiscal year-end disclosure in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources–Capital Requirements” of our 2014 10-K.

We have a number of operating leases for our administrative offices and education center classroom facilities located worldwide. These leases expire at various dates over the next 11 years. In addition to requiring monthly or quarterly payments for rent, some of the leases contain asset retirement provisions whereby we are required to return the leased facility back to a specified condition at the expiration of the lease.  

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

 Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements. The preparation of these financial statements is based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and notes. We believe some of the more critical estimates and policies that affect our financial condition and results of operations are in the areas of revenue recognition, operating leases, AROs, stock-based compensation and income taxes. For more information regarding our critical accounting estimates and policies, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates and Policies” of our 2014 10-K. We have discussed the application of these critical accounting policies and estimates with the Audit Committee of our Board of Directors.  

FUTURE OUTLOOK

 Due to our use of the 52- or 53- week fiscal year, our fourth quarter of fiscal year 2015 will have 13 weeks, one less than the fourth quarter of fiscal year 2014 which had 14 weeks. As a result, our fiscal year 2015 will have 52 weeks, as compared to 53 weeks for fiscal year 2014.

Effect of Exchange Rates. Approximately half of our business annually is conducted in currencies other than U.S. dollars and fluctuations in exchange rates will affect future revenues and expenses when translated into U.S. dollars. If the average exchange rates through August 4, 2015 remain constant for the remainder of our fourth quarter of fiscal year 2015, then we would expect foreign exchange rates to negatively impact third quarter revenues from continuing operations by approximately 3.6% when compared to the fourth quarter of fiscal year 2014. To the extent that the U.S. dollar continues its rise against the functional currencies of our foreign subsidiaries, we would expect to experience further negative impact to our fourth quarter 2015 revenues. As a large percentage of our overhead costs are U.S. dollar based, we would expect the corresponding positive impact to expense to be substantially less.

Fourth Quarter Revenues. We currently expect revenues from continuing operations for our fourth quarter of fiscal year 2015 of between $24.7 million and $25.7 million, compared to revenues of $30.0 million in our fourth quarter of fiscal year 2014.

Fourth Quarter Gross Profit. We expect a gross profit percentage from continuing operations in our fourth quarter of fiscal year 2015 of between 39.9% and 41.3% compared to 46.4% in our fourth quarter of fiscal year 2014.

Fourth Quarter Operating Expenses. We expect overall operating expenses from continuing operations for our fourth quarter of fiscal year 2015 to be between $12.6 million and $13.2 million, compared to $13.7 million in our fourth quarter of fiscal year 2014.

Fourth Quarter (Loss) Income from Operations. As a result of the above factors, we expect to incur a fourth quarter operating loss from continuing operations of between $2.0 million and $3.4 million compared with operating income from continuing operations of $0.3 million in our fourth quarter of fiscal year 2014. The income in the fourth quarter of fiscal year 2014 included a $6.3 million gain from the sale of our headquarters building.

Fourth Quarter Other Income (Expense), Net. We expect fourth quarter other expense to be less than $0.1 million, approximately the same amount as in the fourth quarter of fiscal year 2014.

Fourth Quarter Pre-Tax (Loss) Income. Overall, we expect to report a pre-tax loss from continuing operations for our fourth quarter of fiscal year 2015 of between $2.0 million and $3.5 million, compared with pre-tax income from continuing operations of $6.6 million in our fourth quarter of fiscal year 2014.  

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.  

Disclosure under this item is not required for a Smaller Reporting Company.

Item  4.  CONTROLS AND PROCEDURES.  

Disclosure Controls and Procedures

As of the end of the period covered by this report, management performed an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.

 Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that we believe have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.             LEGAL PROCEEDINGS.  

As of July 3. 2015, other than routine legal proceedings and claims incidental to our business, we are not involved in any legal proceedings that we believe could reasonably be expected to have a material adverse effect on our financial condition or results of operations.

Item  1A.         RISK FACTORS.  

For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors disclosed in the “Risk Factors” section of Part I, Item 1A of the 2014 10-K. The risks described in the 2014 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition, or future results.

We recently moved from the Nasdaq Stock Market (NASDAQ) to the OTCQX US Market (OTCQX).

 As previously disclosed, on May 20, 2015, the Company received a notice from NASDAQ that the Company was not in compliance with the minimum stockholders’ equity requirement of $10.0 million for continued listing on the Global Market under NASDAQ Listing Rule 5450. Based on the Company not being able to meet the continued listing requirements of NASDAQ due to the expected financial performance of the Company in the near term, the Company’s common stock was delisted from NASDAQ and ceased trading on NASDAQ on July 22, 2015. Beginning on July 23, 2015, the Company’s common stock is being quoted on the OTCQX.  As a result, some shareholders have and may continue to sell their shares, and we may not be able to attract institutional investors in future financing transactions.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.  

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES.  

None.

Item 4. MINE SAFETY DISCLOSURES.  

Not Applicable.

Item 5.   OTHER INFORMATION.  

None.    

Item 6.   EXHIBITS.  

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.

August 11, 2015 

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