UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-Q 

(Mark One)

For the quarterly period ended April 1, 2016

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 May 4, 2015 was 13,224,349.

 LEARNING TREE INTERNATIONAL, INC.

FORM 10-Q April 1, 2016

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.           FINANCIAL STATEMENTS.  

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 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 2, 2015 (our “2015 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 Securities Exchange Act of 1934, as amended (“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, including the Future Outlook section contained herein, relate to future events or our future performance and include, but are not limited to, statements concerning our business strategy, future commercial revenues, 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 and 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 or 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 2015 10-K, as well as in our other filings with the Securities and Exchange Commission (“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. 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 receive extensive printed 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 the opportunity for them to practice applying the 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, and with the sale of our French subsidiary in March 2015, through a licensee arrangement in France. We currently generate approximately 40% 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 those of 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™ product, our clients anywhere in the world can participate in any 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. Worldwide, we currently have a total of 34 stand-alone AnyWare™ Learning Centers which provide our customers convenient access to our courses via our AnyWare™ platform in a setting optimized for learning and training. In addition, we have created AnyWare™ Learning Centers within eight of our Education Centers.

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 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 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 nine courses per year on an “as needed” basis.

The Company has been experiencing a decline in course attendance. To address this decline, the Company has been executing upon new strategies to increase the number of attendees in our courses and expand our overall customer base. One of the strategies implemented worldwide is to Guarantee To Run (GTR) a higher percentage of our courses than in the past, which makes these courses more attractive to potential attendees that schedule their training in advance of the scheduled course date and want the certainty of the course being delivered on that date. While increasing the number of GTR courses will continue to increase our direct costs, we believe that the certainty of a course being delivered along with the number of pricing promotions we are now offering will generate additional revenues to offset this increase in direct costs with the goal of increasing profitability. The number of pricing promotions to attract more attendees and the increase in one-day courses, has the impact of lowering our overall average revenue per participant. Our overall objective is to stabilize the training offered via our Education Centers, and reverse the year-over-year declines in revenue.

An additional core strategy is to grow our position as a leading worldwide provider of training and workforce development to IT professionals and managers and to become the provider of choice for large national and multinational companies, medium-size companies and government organizations. Over the past few years, we have started working with clients to address the life cycle of organizational performance challenges. To that end, we introduced IT Workforce Optimization Solutions, a comprehensive suite of services to support IT organizations in: defining organizational structure, processes, and job roles; assessing current staff skills and abilities; and implementing performance improvements by enhancing the skills and abilities of staff and helping to implement process improvements. Workforce Optimization Solutions augments and enhances our core training capabilities enabling Learning Tree to partner with our customers in helping them develop a high-performing organization through workforce development and process improvement.

As part of Workforce Optimization Solutions, we recently released a skills assessment solution that ultimately will be aligned with the competencies as defined by the non-profit organization, Skills Assessment for the Information Age (SFIA) Foundation. Our current skills assessment library contains more than 9,000 questions that cover 67 different roles across many IT disciplines. We have developed an automated, online tool for individuals to complete assessments, and we are working with several companies that are using our skills assessment solution for helping them assess current competencies of their staff as input to developing individual learning plans.

Through Workforce Optimization Solutions, we have been successfully providing Project Acceleration Workshops for organizations. These workshops combine a training component for an organization, while leveraging that training to support work on a specific customer project. A Project Acceleration Workshop might be focused on creating a Work Break Down (WBS) structure for a project, and as such our instructor would provide training to a customer project team on that subject. But the Workshop would then focus on the creation of a WBS for a specific customer project, so that at the end of the Workshop, the customer project team has a tangible product that can be used to help manage that project. We have received very positive feedback on the value of these workshops by both attendees and the customer organizations.

While we do believe Workforce Optimization Solutions is a meaningful strategy for the Company and its future growth, the Company does not expect that this strategy will have a significant impact on the Company’s revenues in the current fiscal year.

KEY METRICS OF OUR SECOND QUARTER AND SIX MONTHS OF FISCAL YEAR 2016

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 second quarter of the current fiscal year ended on April 1, 2016 and encompassed 13 weeks, while our second quarter of the prior fiscal year ended on April 3, 2015 and also encompassed 13 weeks. The six months ended April 1, 2016 and April 3, 2015 also both encompassed 26 weeks

Following the sale of our subsidiary in France (“LTRE(FR)”) in March 2015, we 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 second quarter of fiscal year 2016 which ended April 1, 2016, compared to the same quarter of fiscal year 2015:

The following is an overview of our results of continuing operations, discontinued operations, and net losses for the six months ended April 1, 2016, compared to the equivalent period of fiscal year 2015:

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 SIX MONTHS ENDED APRIL 1, 2016 COMPARED WITH THE THREE MONTHS AND SIX MONTHS ENDED APRIL 3, 2015

Revenues. Revenues from continuing operations of $18.7 million in our second quarter of fiscal year 2016 were 15.6% lower than revenues of $22.2 million in the same quarter of fiscal year 2015. The decrease in revenues primarily resulted from a 10.0% decrease in average revenue per participant and a 6.3% decrease in the number of course participants. The decrease in the average revenue per participant was caused primarily by the lower average revenue per participant from one-day courses which we began introducing in the second quarter of fiscal year 2015, lower average revenue from implementation of periodic pricing promotions to attract new course attendees, and changes in foreign exchange rates, which negatively impacted revenues by approximately 2.1% quarter over quarter. 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 $1.2 million lower for the second quarter of fiscal year 2016 compared to the second quarter of fiscal year 2015.

During our second quarter of fiscal year 2016, we trained 12,567 course participants from continuing operations, a 6.3% decrease from the 13,411 course participants we trained in our second quarter of fiscal year 2015.

During our second quarter of fiscal year 2016, we provided 39,766 attendee-days of training, 15.4% fewer than the 46,996 attendee-days of training we provided in the same quarter in fiscal year 2015. In our IT courses, we provided 26,559 attendee-days of training during our second quarter of fiscal year 2016, a 9.5% decrease from the 29,348 attendee-days in the corresponding period in fiscal year 2015. In our management courses, we provided 13,207 attendee-days of training, during our second quarter of fiscal year 2016, a 25.2% decrease from the 17,648 attendee-days in the corresponding period in fiscal year 2015.   

Our revenues from continuing operations of $38.8 million during our first six months of fiscal year 2016 were 16.6% lower than revenues of $46.6 million in the same period of fiscal year 2015. The decrease in revenues primarily resulted from a 7.4% decrease in the number of course participants and a 9.9% decrease in average revenue per participant. The decrease in the number of course participants compared to the same six month period of our prior year is primarily due to the continued decline in enrollments in the United Kingdom and Sweden. The 9.9% decrease in average revenue per participant was caused primarily by the lower average revenue per participant from one-day courses which we began introducing in the second quarter of fiscal year 2015, lower average revenue from the use of periodic pricing promotions to attract new course attendees, and changes in foreign exchange rates. Revenues were negatively impacted by approximately 2.5% period over period as a result of changes in foreign exchange rates.

During our first six months of fiscal year 2016, we trained 25,468 course participants, a 7.4% decrease from the 27,516 course participants we trained in our first six months of fiscal year 2015. 

During our first six months of fiscal year 2016, we provided 80,176 attendee-days of training, 17.3% fewer than the 96,978 attendee-days in the same period in fiscal year 2015. In our IT courses during our first six months of fiscal year 2016, we provided 51,058 attendee-days of training, a 12.8% decrease from the 58,568 attendee-days in the corresponding period in fiscal year 2015. In our management courses during our first six months of fiscal year 2016, we provided 29,118 attendee-days of training, a 24.2% decrease from the 38,410 attendee-days in the corresponding period in fiscal year 2015.

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 second quarter of fiscal year 2016, we presented 1,251 events, a 7.4% increase from 1,165 events during the same period in fiscal year 2015. The increase was primarily due to the addition of one day course events in the second quarter of fiscal year 2016. Our cost of revenues for our second quarter of fiscal year 2016 was $12.7 million, or 67.7% of revenues, compared to $14.0 million, or 63.0% of revenues, in the same period in fiscal year 2015. Accordingly, our gross profit percentage for our second quarter of fiscal year 2016 was 32.3% compared to 37.0% in the same period of the prior fiscal year.

The change in cost of revenues as a percentage of revenues in our second quarter of fiscal year 2016 primarily reflects the 10.0% decrease in revenue per participant that was partially offset by a 3.2% decrease in cost per participant. The decrease in cost per participant is primarily the result of a 9.3% decrease in the cost of revenues partially offset by the 6.3% decrease in participants and the positive impact on expenses from changes in foreign exchange rates. 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 six months of fiscal year 2016, we presented from continuing operations 2,342 events, a 6.6% increase from 2,197 events during the same period in fiscal year 2015. The increase was primarily due to the addition of one day courses during the first six months of fiscal year 2016. Our cost of revenues for our first six months of fiscal year 2016 was $24.5 million, or 63.1% of revenues, compared to $27.7 million, or 59.5% of revenues, in the same period in fiscal year 2015. Accordingly, our gross profit percentage for our first six months of fiscal year 2016 was 36.9% compared to 40.5% in the same period of the prior fiscal year.

The change in cost of revenues as a percentage of revenues during our first six months of fiscal year 2016 primarily reflects the 9.9% decrease in revenue per participant partially offset by a 4.3% decrease in the cost per participant. The decrease in cost per participant is primarily the result of an 11.5% decrease in the cost of revenues partially offset by the 7.4% decrease in participants and the positive impact on expenses from changes in foreign exchange rates.

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 second quarter of fiscal year 2016, course development expenses were 7.1% of revenues, compared to 9.5% in our second quarter of fiscal year 2015. Overall spending on course development in our second quarter of fiscal year 2016 was $1.3 million, compared to $2.1 million spent on course development in our second quarter of fiscal year 2015. The $0.8 million decrease in course development expenses quarter over quarter was primarily due to the development of a series of one day courses during the second quarter of fiscal year 2015 that did not occur during the second quarter of fiscal year 2016 and lower personnel expenses during the second quarter of fiscal year 2016.

Course development expense during our first six months of fiscal year 2016 was $2.6 million, a decrease of $1.2 million compared to $3.8 million in the same period of fiscal year 2015.

In our second quarter of fiscal year 2016, we introduced six new multi-day IT course titles and 13 one day course titles. We did not retire any courses during the second quarter of fiscal year 2016. At the end of our second quarter of fiscal year 2016, our library of instructor-led courses numbered 369 titles compared with 216 titles at the end of the same quarter of fiscal year 2015. At the end of our second quarter of this fiscal year, we had 127 multi-day IT titles in our course library, compared with 118 multi-day titles at the end of the same quarter of fiscal year 2015. Our library of multi-day management titles numbered 70 at the end of our second quarter of fiscal year 2016, compared to 64 at the end of the same quarter of fiscal year 2015. Our library of 1-Day Boot Camp courses numbered 172 at the end of our second quarter of fiscal year 2016, compared to 34 at the end of the same quarter of fiscal year 2015. 

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 second quarter of fiscal year 2016 were 26.2 % of revenues, compared to 27.5% in the same quarter of fiscal year 2015. Sales and marketing expenses were $4.9 million in our second quarter of fiscal year 2016, compared to $6.1 million during our second quarter of fiscal year 2015. The decrease is driven primarily by decreases in direct marketing costs and by the favorable impact of foreign exchange rates on the expenses incurred by our foreign subsidiaries when compared to the second quarter of fiscal year 2015.

Sales and marketing expenses from continuing operations during our first six months of fiscal year 2016 were $9.5 million, a decrease of $2.1 million compared to $11.6 million in the same period of fiscal year 2015. The decrease is driven primarily by decreases in direct marketing costs and the favorable impact of foreign exchange rates on the expenses incurred by our foreign subsidiaries when compared to the first six months of fiscal year 2015.

 General and Administrative Expenses. General and administrative expenses in our second quarter of fiscal year 2016 were 27.0% of revenues, compared with 22.5% for the same quarter in fiscal year 2015. General and administrative expenses during our second quarter of fiscal year 2016 were $5.0 million, the same as in our second quarter of fiscal year 2015.

 General and administrative expenses during our first six months of fiscal year 2016 were $9.7 million, a decrease of $0.2 million compared to $9.9 million in the same period of fiscal year 2015. The decrease was due primarily to the favorable impact of foreign exchange rates on the expenses incurred by our foreign subsidiaries.

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

During our second quarter of fiscal year 2016, we had other expense of $0.1 million compared to other income of $0.2 million in the second quarter of fiscal year 2015, both primarily from foreign exchange gains or losses.

During our first six months of fiscal year 2016 other expense totaled less than $0.1 million compared to other income of $0.4 million in our first six months of fiscal year 2015 both primarily from foreign exchange gains or losses.

Income Taxes. Our income tax provision in our second quarter of fiscal year 2016 was $0.1 million, compared to $0.1 million in our second quarter of fiscal year 2015. Our second quarter of fiscal year 2016 and 2015 provisions are primarily related to the income tax expense of the Company's foreign subsidiaries.

Our income tax provision for our first six months of fiscal year 2016 was $0.1 million, compared to $0.2 million for our first six months of fiscal year 2015, and are primarily related to the income tax expense of the Company's foreign subsidiaries.

Loss from Continuing Operations. Our loss from continuing operations for our second quarter of fiscal year 2016 was $5.4 million compared to a loss of $4.9 million for our second quarter of fiscal year 2015.

For the first six months of fiscal year 2016, our loss from continuing operations was $7.7 million compared to a loss of $6.2 million in the first six months of fiscal year 2015.

Loss from Discontinued Operations. We incurred a loss from discontinued operations totaling $3.0 million in our second quarter of fiscal year 2015, which includes the $2.5 million loss from the disposition of our French operating subsidiary.

Net Loss. Our net loss for our second quarter of fiscal year 2016 was $5.4 million compared to net loss of $7.9 million for our second quarter of fiscal year 2015.

Our net loss for our first six months of fiscal year 2016 was $7.6 million compared to net loss of $9.0 million for our first six months of fiscal year 2015.

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 2015 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. Accordingly, our second quarter of the current fiscal year ending April 1, 2016 encompassed 13 weeks, while our second quarter of the prior fiscal year ending April 3, 2015 also encompassed 13 weeks.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity at April 1, 2016 included cash and cash equivalents on hand of $10.8 million. During the first six months of fiscal year 2016, our total cash and cash equivalents decreased by $7.1 million, primarily as a result of cash used in operating activities of $6.4 million and cash used for capital expenditures of $0.7 million.

At April 1, 2016, our net working capital deficit (current assets minus current liabilities) was $(7.8) million, a $5.9 million decrease from our working capital balance at October 2, 2015. Current assets from continuing operations decreased $8.2 million during the period, due primarily to decreases in trade accounts receivable and cash. Current liabilities from continuing operations decreased $2.3 million during the period, primarily due to decreases in accounts payable and accrued expenses.

 Cash Flows from Continuing Operations. Our cash and cash equivalents from continuing operations decreased $7.2 million to $10.8 million at April 1, 2016 from $17.9 million at October 2, 2015.

Cash used in continuing operating activities increased $1.5 million in the first six months of fiscal year 2016, compared to the first six months of fiscal year 2015 primarily due to the larger loss from continuing operations for the current period of $7.6 million compared to a loss of $6.2 million for the first six months of fiscal year 2015. Cash used in investing activities decreased by $1.4 million in the first six months of fiscal year 2016 compared to the first six months of fiscal 2015, due to decreased capital spending for equipment and leasehold improvements.     

Liquidity. The continued decline in operating performance has resulted in an increase in net cash used in operating activities, and we expect the net cash usage to continue until the Company returns to profitability. Our ability to access the capital markets is limited. We 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, cash flows from operations, and other lease financing available to us to finance our operation cash needs. We believe that such funds will be sufficient to satisfy our anticipated cash requirements for the foreseeable future.  

Capital Requirements. During the six months ended April 1, 2016, we made capital expenditures of $0.7 million for leasehold improvements and the purchase of network computer and other equipment. Additionally, $1.2 million of leasehold improvement costs were funded directly by the landlord to the contractor. We plan to purchase an additional $0.5 million in equipment and other capital assets during the remainder of fiscal year 2016. Our contractual obligations as of April 1, 2016 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 2015 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 2015 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

Our clients are shortening the average time from initial enrollment in a course to their actual attendance. This shorter buying cycle has reduced our visibility for future enrollments and has made forecasting future financial results more difficult. We have taken this into consideration in developing our forward-looking outlook for our third quarter of fiscal year 2016. In addition, while the third quarter of fiscal year 2015 had 13 weeks, the same as in the third quarter of fiscal year 2016,  the fiscal year 2015 third quarter included the Fourth of July holiday week in the U.S., which falls in the fourth quarter in fiscal year 2016. We typically do not run courses the week of July 4^th in the U.S.

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 as of May 2, 2016 remain constant for the remainder of our third quarter of fiscal year 2016, then we would expect foreign exchange rates to negatively impact third quarter revenues from continuing operations by approximately 1.2% when compared to the third quarter of fiscal year 2015. To the extent that the U.S. dollar rises against the functional currencies of our foreign subsidiaries, we would expect to experience further negative impact to our third quarter 2016 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.

Third Quarter Revenues. We currently expect revenues from continuing operations for our third quarter of fiscal year 2016 of between $21.0 million and $22.0 million, compared to revenues of $22.7 million in our third quarter of fiscal year 2015.

Third Quarter Gross Profit. We expect a gross profit percentage from continuing operations in our third quarter of fiscal year 2016 of between 40.0% and 41.0% compared to 36.6% in our third quarter of fiscal year 2015.

Third Quarter Operating Expenses. We expect overall operating expenses from continuing operations for our third quarter of fiscal year 2016 to be between $10.3 million and $11.3 million, compared to $12.4 million in our third quarter of fiscal year 2015.

Third Quarter Loss from Operations. As a result of the above factors, we expect to incur a third quarter operating loss of between $1.3 million and $2.9 million compared with an operating loss of $4.1 million in our third quarter of fiscal year 2015.

Third Quarter Other Income (Expense), Net. We expect third quarter other expense to be less than $0.1 million.

Third Quarter Pre-Tax Loss. Overall, we expect to report a pre-tax loss for our third quarter of fiscal year 2016 of between $1.3 million and $3.0 million, compared with a pre-tax loss of $4.1 million in our third quarter of fiscal year 2015.

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

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

As of April 1, 2016, 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.

There were no material changes to the risk factors as previously disclosed under Part I, Item 1A of the 2015 10-K. The risks described in the 2015 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.  

None.

None.

Not Applicable.

None.

**      This exhibit is a management contract, compensatory plan or arrangement. 

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.

May 10, 2016 

 **      This exhibit is a management contract, compensatory plan or arrangement.

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