UNITED STATES
SECURITIES AND EXCHANGE COMMISSSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended March 31, 2011
or
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ______ to ______
Commission file number: 0-14807
AMERICAN LEARNING CORPORATION
(Exact name of registrant as specified in its charter)
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New York
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11-2601199
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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One Jericho Plaza, Jericho, NY
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11753
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number, including area code: (516) 938-8000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $.01
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NASDAQ Capital Market
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Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
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 o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
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):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The aggregate market value of the registrant’s common stock held by non-affiliates was $871,622, based on the price at which the common stock was last sold on the NASDAQ Capital Market on September 30, 2010.
The number of shares outstanding of the registrant’s common stock as of June 28, 2011 was 4,754,900.
DOCUMENTS INCORPORATED BY REFERENCE
The information required for Part III of this Annual Report on Form 10-K is incorporated by reference from the registrant’s Proxy Statement for its 2011 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year.
PART I
Note: As used in this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “our Company” or any derivative thereof, shall mean American Learning Corporation and its subsidiaries, Interactive Therapy Group Consultants, Inc. and Signature Learning Resources, Inc.
Item 1. Business.
Overview
American Learning Corporation (formerly American Claims Evaluation, Inc.) was incorporated in the State of New York and commenced operations in April 1982. We provide a comprehensive range of services to children with developmental delays and disabilities and have developed a reputation for providing well-rounded therapeutic solutions through our wholly owned subsidiaries, Interactive Therapy Group Consultants, Inc. (“ITG”) and Signature Learning Resources, Inc. ("SLR”).
On March 31, 2011, we completed the disposition of certain assets of ITG, pursuant to an Asset Purchase Agreement (the “Agreement”) among the Company, ITG, Liberty Resources POST, LLC and John Torrens. In consideration of the purchase price provided for in the Agreement, the Company sold certain assets related to ITG’s business in the upstate region of New York State (the “Upstate Region”). We received total compensation of $650,000, consisting of $200,000 in cash and a thirty-month note receivable for $450,000. In addition, the Company released John Torrens, ITG’s former President, from his non-competition agreement for a cash payment of $100,000. ITG will continue to operate in the downstate area of New York State (New York City and Long Island). Accordingly, the results of operations from ITG’s Upstate Region were classified as discontinued operations and except where specific discussions of ITG’s Upstate Region are made, all financial information presented in this Annual Report excludes the Upstate Region for all periods presented.
We provide services in individual or group settings, in home environments or in centers (such as day care or schools) in the following three main areas of clinical services and program development:
• Early Intervention Programs – services to children from birth through two years of age.
• Preschool Programs – services to children from three to five years of age.
• School Staffing - services to school-age children.
Description of Services
Early Intervention (“EI”) Programs
Children with disabilities from birth to two years old are eligible for services under Part C of the Federal Individuals with Disabilities Education Act (“Part C”). Each state administers its Part C program as they see fit. Children in the EI program may be referred into the program by a parent, physician, day care worker or other qualified individual and receive a level of services appropriate to their disability or developmental delay. All resident children are entitled to a comprehensive evaluation that assesses their developmental levels. Children who meet the qualifying criteria are eligible for any or all of the following services: speech-language pathology, physical therapy, occupational therapy, special instruction, vision therapy, social work and counseling. We contract with county governments throughout New York to evaluate and treat children in the EI system.
We offer the following EI services under contracts to various counties based on New York State Health Department approval:
• Core Evaluations: A team of providers evaluates a child in the following five developmental areas: physical, cognitive, communication, social-emotional, and adaptive behavior. If the child meets the qualifying criteria, then he/she is referred for direct services.
• Supplemental Evaluations: A specialized provider evaluates a child for a particular area of developmental need based on a referral. If the child meets the qualifying criteria, then he/she is referred for direct services.
• Home/Community Based Services: Direct EI services based on a child’s Individualized Family Service Plan (“IFSP”) are delivered by appropriately qualified personnel in the child’s natural environment. Services may include speech-language therapy, occupational therapy, physical therapy, special instruction and/or psychology services.
• Parent/Child Groups: Group EI services based on a child’s IFSP are delivered by appropriately qualified personnel in the child’s natural environment.
• Family Training: Parents and caregivers are taught about the child’s condition and assisted in embedding the child’s goals into everyday routines. Services are based on a child’s IFSP and are delivered by appropriately qualified personnel.
Preschool Programs
Children with disabilities from three to five years old are eligible for services under the state’s education law. ITG is approved as a special education school under Section 4410 of the New York State Education Law (“NYSED”) to provide special education and related services. We contract with county governments to provide comprehensive Multi-Disciplinary Evaluations (“MDE”) for school districts. Children who meet the qualifying criteria may receive on-going services including those provided by Special Education Itinerant Teachers (“SEIT”), speech-language pathologists, physical therapists, occupational therapists, and psychologists.
We offer the following preschool services under contracts with various counties based on NYSED approval:
• MDEs: A team of providers evaluates a child for any identified areas of concern upon referral from a school district. Every evaluation must include a psychological battery as well as a social history and may include any or all of the following: gross motor, fine motor, cognitive, communication, social-emotional, audiological, and adaptive behavior. If the child meets any of the qualifying criteria, then he/she is referred for direct services, which are decided at an Individualized Education Plan (“IEP”) meeting.
• Supplemental Evaluations: A specialized provider evaluates a child in a particular area of need based on a referral. If the child meets the qualifying criteria, then he/she is referred for direct services.
• Related Services: Direct services based on a child’s IEP are delivered by appropriately qualified personnel in a home or preschool setting. Services may include speech-language therapy, occupational therapy, counseling and/or physical therapy.
• SEIT: An appropriately qualified special education teacher will provide services in the home or preschool setting. This is the only service that we provide on a tuition basis. All other services are provided on a fee-for-service basis.
School Staffing Programs
School-age children with disabilities or delays may qualify for a host of special education and related services, which are the responsibility of the school district. Because these services are mandated by state law, districts are required to provide them. When a district cannot provide the required service using their own personnel resources, they must contract with vendors to provide them. We contract with districts and individual schools needing to complement their resources to provide speech-language pathologists, physical therapists, occupational therapists, special education teachers, special education coordinators and counselors. Our school staffing services range in scope from a few hours per week of a specific service to the outsourcing of an entire special education department/function, including ongoing therapy, comprehensive evaluations, coordination, compliance, and professional development services.
We had two customers that represented 31% and 12% of revenues for the years ended March 31, 2011 and 2010, respectively. We had an additional customer that represented 23% of revenues for the year ended March 31, 2010.
Sales and Marketing
The President of ITG and SLR and our team leaders establish and maintain relationships with customers. To supplement their efforts, we use targeted marketing programs, including direct mail to our customer contacts and to members of professional organizations; public relations activities; participation in trade shows; newsletters and ongoing customer communication programs.
Competition
The market for our services is large, fragmented and highly competitive. We expect these characteristics to persist for the foreseeable future based on the following factors: the expected growth of this market, the increasing demand for highly skilled licensed professionals and the relatively low barriers to entry. Certain of our competitors are substantially larger, have greater financial resources and increased access to licensed professionals. However, with a relatively low market share in relation to the entire market for our services, we believe there is ample opportunity to grow and capture additional market share.
Regulatory Matters
The services we provide are subject to a variety of local, state and federal governmental regulations. The individuals that we utilize to provide our services are subject to licensing and certification requirements and regulations with respect to their respective professions and their interaction with children.
We are currently exploring alternatives to ITG’s corporate structure concerning non-compliance issues regarding the practice of certain licensed professions in the State of New York. If a change in professional practice structure is deemed necessary, we will take all appropriate measures to assure compliance on a timely basis. However, revenue derived from services performed by these licensed professionals was an immaterial percentage of total revenue during the years ended March 31, 2011 and 2010.
Employees
As of March 31, 2011, we had 53 employees of which 16 were full-time and 37 were per diem. Of these full-time employees, we have two employees at our executive office in Jericho, New York and three employees at ITG’s headquarters in East Syracuse, New York. ITG employs 11 full-time individuals in New York, New York and two in the Washington D.C. area.
To maintain good employee relations and to minimize employee turnover, we offer competitive pay and provide a full range of employee benefits. We believe that our relationship with all of our employees is generally good.
Item 1A. Risk Factors.
Forward-Looking Statements
This Form 10-K contains “forward-looking statements” including statements concerning the future of our industry, business strategy, continued acceptance of our services, market growth, and dependence on significant customers. These statements can be identified by the use of forward-looking terminology such as “may,” “expect,” “anticipate,” “estimate,” “continue,” or other similar words. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Form 10-K. We are a “smaller reporting” company as defined by Regulation S-K and, as such, we are not required to provide the information contained in this Item pursuant to Regulation S-K. Accordingly, the risks described in this Form 10-K are not intended to be all-inclusive and are not the only risks that we face. Additional risks and uncertainties, not currently known to us or that do not currently appear to be material, may also materially adversely affect our business, financial condition and/or operating results in the future. The risk factors noted below and other factors noted throughout this Form 10-K could cause our actual financial condition or results to differ significantly from those contained in any forward-looking statement.
We may not be able to achieve or maintain profitability.
We have incurred continuing operating losses and may not be able to achieve or maintain profitability on a quarterly or annual basis. In order for us to achieve and maintain consistent profitability from our operations, we must achieve revenue above current levels. Operating expenses may increase as we attempt to expand our services and to the extent that we acquire other businesses and services. As a result, we may need to increase our revenue significantly to achieve sustainable profitability. We cannot assure you that we will be able to achieve sustainable profitability.
Our growth strategy assumes that we will make targeted strategic acquisitions.
A key feature of our growth strategy is strategic acquisitions. We may not be able to maintain our current rate of growth. If we fail to execute on this strategy, our revenues may not increase and our ability to achieve and sustain profitability will be impaired.
An acquisition strategy is inherently risky. Some of the risks we may face in connection with acquisitions include: identifying appropriate targets; obtaining necessary financing in an efficient and timely fashion; negotiating terms that we believe are reasonable; integrating the operations, technologies, services and personnel of the acquired entities; and maintaining our focus on our existing business.
We may not be able to identify any appropriate targets or acquire them on reasonable terms. Even if we make strategic acquisitions, we cannot assure investors that our future acquisitions will be successful and will not adversely affect our business, results of operations or financial condition.
Reductions in funding for governmental programs could substantially reduce our ability to be profitable.
Substantially all of the services we offer are through government-sponsored programs. As a result, our ability to earn a profit is dependent, in large part, on continued funding for government programs at or above current levels. Future reimbursement rate levels for our services may be affected by continued government efforts to contain costs and/or federal and state budgetary restraints.
Our efforts to expand our school staffing services may be impacted by opposition to the charter school movement.
We view the expansion of our school staffing programs as an opportunity for growth in the upcoming year. However, educators, teachers unions and activist groups have raised opposition to various education initiatives designed to help charter schools expand in number and secure additional funding. If the creation of new charter schools or enrollment in charter schools is hindered, our ability to achieve growth in our programs may be affected.
We may not be able to realize the benefits of our operating loss (“NOL”) carryforwards.
NOLs may be carried forward to offset federal and state taxable income in future years and eliminate income taxes otherwise payable on such taxable income. Based on current federal corporate income tax rates, our NOLs could provide a benefit to us, if fully utilized, of significant future tax savings. However, our ability to use these tax benefits in future years will depend upon the amount of our otherwise taxable income. If we do not have sufficient taxable income in future years to use the tax benefits before they expire, we will lose the benefit of these NOL carryfowards permanently. NOLs, if unutilized, will expire in fiscal years ending March 31, 2023 through March 31, 2031.
The industry in which we operate is highly competitive and has relatively low barriers to entry. Increased competition could result in margin erosion and loss of market share.
Our competitors include professional firms, privately held companies, schools and not-for-profit organizations and associations. Many of our existing competitors have greater financial resources, larger market share, broader and more diverse professional staffs and/or lower cost structures than we do, which may enable them to establish a stronger competitive position than we have. If we fail to address competitive developments quickly and effectively, our ability to maintain our current market share and/or to expand our business may be affected.
We are dependent on our professional staff and we need to hire and retain skilled personnel to sustain and grow our business.
Our success in recruiting and hiring large numbers of highly-skilled, licensed or otherwise authorized individuals to offer the multi-disciplinary services required by our customers is critical to providing high quality services. We cannot assure you we will be able to attract and retain the personnel necessary for the continuing growth of our business. Our inability to attract and retain qualified personnel could materially adversely affect our ability to maintain and grow our business significantly.
Our business is subject to the risk of customer concentration.
Our revenue is concentrated within a limited number of customers throughout New York State; municipalities within New York State provide substantial and significant revenue. The continuation and renewal of our contracts are, among other things, contingent upon the availability of adequate Federal pass-through funding from the U.S. government. The loss or significant reduction in government funding as a result of current constraints on the U.S. budget could result in a material decrease in our revenues, earnings and cash flows. This concentration of customers may also 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.
Additionally, since most of our revenue is generated under our contracts with municipalities within New York State, the non-renewal of any contracts or non-payment or significant delay in payment of invoices by any or all of such customers would likely have a material adverse effect upon our business.
Our operating results are materially impacted by the seasonality of our business.
Our business is impacted by seasonality with respect to the school year. We anticipate that our revenues will be at its lowest in the second quarter of our fiscal year (which include the months of July and August) when schools are traditionally not in session. During this period, we are faced with paying salaries for full-time staff that will be under-utilized. In addition, the timing of family vacations during the summer months also complicates the scheduling of services for EI services and for preschool children. As such, we recognize that the results of operations for the second quarterly period of our fiscal year may not be indicative of the results for any other quarter or for the full year.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our executive offices are located in Jericho, New York where we lease office space under a seven-year non-cancelable operating sublease with American Para Professional Systems, Inc. ("APPS"), an entity under the control of our Company’s Chairman of the Board, which expires on November 30, 2011. Basic rent under the sublease has been established as a pass-through with our cost being fixed at a cost equal to the pro-rated rent payable for the subleased space by APPS to the building’s landlord.
ITG leases a regional operating office in New York, NY under a three year lease. We remain liable under a lease for office space located in East Syracuse, NY which expires in April 2013. Since the Upstate Region has been classified as a discontinued operation, a provision of $57,312, net of matching payments to be made by the purchaser of the Upstate Region under the Agreement, has been recorded in the financial statements at March 31, 2011.
We believe that, in general, our existing facilities are adequate to meet our present needs. We believe that if we were unable to renew a lease on any of our facilities, we could find alternative space at competitive market rates and relocate our operations to such new location without any disruption to our business.
Item 3. Legal Proceedings.
We are not engaged in any litigation.
Item 4. (Removed and Reserved).
PART II
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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Our Shares trade on the NASDAQ Capital Market under the symbol "ALRN".
The following table sets forth the range of high and low sales prices for our Shares for each quarter during the period April 1, 2009 through March 31, 2011:
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High
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Low
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Fiscal 2010:
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Quarter ended June 30, 2009
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$ |
1.40 |
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$ |
0.50 |
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Quarter ended September 30, 2009
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$ |
0.99 |
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$ |
0.34 |
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Quarter ended December 31, 2009
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$ |
1.75 |
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$ |
0.46 |
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Quarter ended March 31, 2010
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$ |
1.17 |
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$ |
0.65 |
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Fiscal 2011:
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Quarter ended June 30, 2010
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$ |
1.75 |
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$ |
0.61 |
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Quarter ended September 30, 2010
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$ |
1.01 |
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$ |
0.58 |
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Quarter ended December 31, 2010
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$ |
2.99 |
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$ |
0.65 |
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Quarter ended March 31, 2011
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$ |
3.49 |
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$ |
1.56 |
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The number of holders of our Shares was approximately 454 on June 20, 2011, computed by the number of record holders, inclusive of holders for whom Shares are being held in the name of brokerage houses and clearing agencies.
Dividends
We have never paid a cash dividend and do not presently anticipate doing so in the foreseeable future, but expect to retain earnings, if any, for use in our business.
Recent Sales of Unregistered Securities
None.
Company Purchases of its Equity Securities
None.
Item 6. Selected Financial Data.
We are a “smaller reporting company” as defined by Regulation S-K and, as such, we are not required to provide the information contained in this item pursuant to Regulation S-K.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.
Critical Accounting Policies and Estimates
We make estimates and assumptions in the preparation of our consolidated financial statements in conformity with Generally Accepted Accounting Principles. We evaluate these estimates on an ongoing basis. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of our assets and liabilities. Actual results may differ significantly from those estimates under different assumptions and conditions. (See “Forward-Looking Statements” in Item 1A). We considered the following accounting policies to be the most critical due to the estimation process involved in each:
Allowance for Doubtful Accounts
We monitor collections and payments and maintain an allowance for doubtful accounts based upon our historical experience and any specific collection issues that we have identified. While such credit losses have been within our expectations and the allowances established, we cannot guarantee that we will continue to experience the same credit loss rates that were experienced in the past. Measurement of such losses requires consideration of historical loss experience, including the need to adjust for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and the financial health of various governmental entities. Changes to the estimated allowance for doubtful accounts could be material to our results of operations or financial condition.
Accounting for Stock-Based Compensation
We have used and expect to continue to use the Black-Scholes option pricing model to compute the estimated fair value of stock-based awards. The Black-Scholes option pricing model includes assumptions regarding dividend yields, expected volatility, expected option term and risk-free interest rates. The assumptions used in computing the fair value of stock-based awards reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. We estimate expected volatility by considering the historical volatility of our stock and our expectations of volatility for the expected term of stock-based compensation awards. As a result, if other assumptions or estimates had been used for options granted, stock-based compensation expense that was recorded could have been materially different. Furthermore, if different assumptions are used in future periods, stock-based compensation expense could be materially impacted in the future.
Goodwill and Intangible Assets
Goodwill is tested for impairment annually 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. There was no impairment of goodwill and no adjustments were deemed necessary as a result of our impairment testing at March 31, 2011.
The sale of the Upstate Region and the release of ITG’s former President from his non-competition agreement triggered an impairment valuation of our amortizable intangible assets. An evaluation of the undiscounted cash flows determined that $372,089 of the customer contracts intangible assets and $17,208 of non-competition intangible assets had become impaired and, therefore, were recorded as a reduction of the gain on sale of discontinued operations in the Statement of Operations at March 31, 2011.
We assess the recoverability of the carrying value of our 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. Intangible assets, consisting of customer contracts, are being amortized on a straight-line basis over an estimated life of fifteen years.
Results of Operations
On March 31, 2011, we completed the disposition of the Upstate Region of ITG. Accordingly, the results of operations from ITG’s Upstate Region were classified as discontinued operations and except where specific discussions of ITG’s Upstate Region are made, all financial information presented in this Annual Report excludes the Upstate Region for all periods presented.
Total compensation to the Company in the sale of the Upstate Region amounted to $650,000, consisting of $200,000 in cash and a thirty-month note receivable in the amount of $450,000. In addition, the Company released John Torrens, ITG’s former President, from his non-competition agreement for a sum of $100,000 in cash. As a result of the sale of ITG’s Upstate Region and the release of John Torrens from his non-competition agreement, we recognized a gain of $363,792, net of tax, for the year ended March 31, 2011.
During the year ended March 31, 2011 (“Fiscal 2011”), we recognized revenues of $2,984,412 as compared to revenues of $1,982,943 for the year ended March 31, 2010 (“Fiscal 2010”), an increase of approximately 50.5%. This increase was largely the result of continued increases in services provided to preschool programs under contracts in the New York City region. Revenues generated under the SEIT program contract increased to $934,228 in Fiscal 2011 from $247,859 in Fiscal 2010. We also achieved growth in school staffing services to charter schools during Fiscal 2011, recording an increase of $374,251, representing an increase of approximately 35.4% over Fiscal 2010. However, during the year ended March 31, 2011, revenues from early intervention services decreased $270,698, representing a decrease of approximately 50.8% from early intervention revenues for the year ended March 31, 2010. We have been informed that New York City will not be granting EI contracts to any new providers in the upcoming request for proposal process and our agreement to subcontract our services to another approved provider will not be renewed.
Our cost of services consists of payroll and payroll-related costs paid to our staff of salaried and per diem clinicians. As a percentage of revenue, costs of services during Fiscal 2011 and Fiscal 2010 were 66.3% and 65.0%, respectively. The cost of services as a percentage of revenue in the current fiscal year increased, in part, due to an increase in workers compensation premiums. During the current fiscal year, our clinicians were re-categorized into classifications that are associated with higher premium costs. We are challenging this action in an attempt to reverse this re-categorization. There are no assurances that we will be successful in our efforts.
Selling, general and administrative expenses for Fiscal 2011 and Fiscal 2010 were $2,584,465 and $1,717,334, respectively. During Fiscal 2011, we recorded stock-based compensation expense totaling $646,300 related to the issuance of stock options and warrants as compared to $600 of stock-based compensation recorded in Fiscal 2010. In addition, in Fiscal 2011, we experienced an increase in our professional fees for legal and administrative fees of $59,225 over comparable expenditures in Fiscal 2011. These increases were related to our appeal for an extension of time, as permitted under the Listing Rules of The Nasdaq Stock Market, to comply with the $1.00 per share minimum bid price requirement for continued listing, the sale of ITG’s Upstate Region and fees incurred in our search for acquisition candidates. During the third quarter of Fiscal 2011, we also incurred certain non-recurring expenses related to the temporary relocation of our New York City regional office due to mold issues present in the building we occupied.
Interest income was $5,837 and $10,187 during Fiscal 2011 and Fiscal 2010, respectively. The decrease in interest income was largely the result of a reduction in cash balances available for investment.
Liquidity and Capital Resources
Our primary source of cash is existing cash resources. At March 31, 2011, we had working capital of $3,577,376 as compared to working capital of $3,847,444 at March 31, 2010. We believe that we have sufficient cash resources and working capital to meet our present cash requirements.
During Fiscal 2011, net cash used in operating activities of continuing operations was $945,608, primarily due to the loss from continuing operations of $1,573,874, offset by stock-based compensation expense of $646,300.
During Fiscal 2011, our investing activities used $192,746 which consisted of $245,000 of cash received at the closing of the sale of the Upstate Region offset by capital expenditures of $52,254.
Our financing activities in Fiscal 2011 used a total of $19,744 for payments of our capital lease obligations.
While we have not experienced any significant impact from the general slowdown of the economy or current global credit crisis, continuing economic deterioration could have a negative impact on our net revenues and operating results in future periods.
We continue to review strategic alternatives for maximizing shareholder value. Potential acquisitions will be evaluated based on their respective merits. We believe that we have sufficient cash resources and working capital to meet our capital resource requirements for the foreseeable future.
Credit Risk
Service revenue is concentrated within a limited number of customers 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.
Seasonality
Our business is moderately seasonal in nature based on the timing of the school year. Accordingly, our second fiscal quarter, which includes two full months during which schools are not in session (July and August), is the quarter in which we will achieve our lowest volume of revenues.
Interest Rate Risk
Interest rate risk represents the potential loss from adverse changes in market interest rates. As we may hold U.S. Treasury securities or money market funds, we may be exposed to interest rate risk arising from changes in the level and volatility of interest rates and in the shape of the yield curve.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Subsequent Events
We have completed an evaluation of the impact of any subsequent events through the date the financial statements contained in this Report and determined that there were no subsequent events requiring disclosure in or adjustment to these financial statements.
Recently Issued Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (“FASB”) issued an amendment to Topic 350 that provides further guidance on when to perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This amendment affects all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. This amendment is effective for years ending after December 15, 2010. The implementation of this amendment did not have a material impact on our consolidated financial statements.
In December 2010, the FASB also issued an amendment to Topic 805, Business Combinations. The amendment describes the requirements for issuing pro-forma information related to business combinations that occurred in the current accounting period. This amendment is effective for periods ending after December 15, 2010. The Company believes that this amendment has no current impact on its consolidated financial statements as no acquisitions were made during the year ended March 31, 2011.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are a “smaller reporting company” as defined by Regulation S-K and, as such, are not required to provide the information contained in this item pursuant to Regulation S-K.
Item 8. Financial Statements and Supplementary Data.
The financial statements required by this Item are set forth at the pages indicated in Item 15 on page 16 of this Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Annual Report, under the supervision and with the participation of our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of that date.
b) Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2011. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on its assessment of internal control over financial reporting, management has concluded that, as of March 31, 2011, our internal control over financial reporting was effective.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report.
c) Changes in Internal Control over Financial Reporting.
There were no changes in our internal controls over financial reporting that occurred during our fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance.
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Certain information concerning our directors and executive officers is incorporated by reference to our Proxy Statement for the Annual Meeting of Stockholders (the “Proxy Statement”) to be held in September 2011 which will be filed with the SEC no more than 120 days after the close of our fiscal year.
Item 11. Executive Compensation.
Information regarding executive compensation is incorporated by reference to the Proxy Statement, which will be filed with the SEC no more than 120 days after the close of our fiscal year.
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
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Information regarding securities authorized for issuance under equity compensation plans and certain information regarding security ownership of certain beneficial owners and management is incorporated by reference to the Proxy Statement, which will be filed with the SEC no more than 120 days after the close of our fiscal year.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding certain relationships and related transactions is incorporated by reference to the Proxy Statement, which will be filed with the SEC no more than 120 days after the close of our fiscal year.
Item 14. Principal Accountant Fees and Services.
Information regarding principal accountant fees and services is incorporated by reference to the Proxy Statement, which will be filed with the SEC no more than 120 days after the close of our fiscal year.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Documents filed with this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2011 and 2010
Consolidated Statements of Operations for the years ended March 31, 2011 and 2010
Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended March 31, 2011 and 2010
Notes to Consolidated Financial Statements
Financial Statement Schedules
Financial statement schedules have been omitted because they are either not required or not applicable or because the required information is presented in the financial statements or related notes.
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3.1
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Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit E to the Company’s Proxy Statement, dated September 14, 2007).
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3.2
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By-Laws (Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-KSB for its year ended March 31, 2008).
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10.3
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1997 Stock Incentive Plan (Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8, File No. 333-39071, dated October 30, 1997).
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10.4
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2000 Stock Incentive Plan (Incorporated by reference to Exhibit A to the Company’s Proxy Statement dated September 11, 2000).
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10.5
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Employment Agreement, dated June 7, 2001, between the Company and Gary Gelman (Incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-KSB for its year ended March 31, 2001).
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10.6
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Sublease Agreement, dated August 20, 2004, between American Para Professional Systems, Inc. and the Company with respect to the premises at One Jericho Plaza, Jericho, NY (Incorporated by reference to Exhibit 10 to the Company’s Form 10-QSB for the quarter ended September 30, 2005).
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10.8
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2005 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-KSB for its year ended March 31, 2005).
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10.9
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2007 Stock Incentive Plan (Incorporated by reference to Exhibit F to the Company’s Proxy Statement, dated September 14, 2007).
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10.10
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Stock Purchase Agreement by and among the Company, John Torrens, Kyle Palin Torrens and Carlena Palin Torrens, dated September 12, 2008 (Incorporated by reference to Exhibit 10.10 to the Company’s Form 8-K dated September 16, 2008).
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10.11
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Escrow Agreement by and among the Company, John Torrens, Kyle Palin Torrens, Carlena Palin Torrens and Siller Wilk LLP dated September 12, 2008 (Incorporated by reference to Exhibit 10.11 to the Company’s Form 8-K dated September 16, 2008).
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10.12
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Stock Purchase Agreement by and between the Company and Stephen D. Renz, dated September 12, 2008 (Incorporated by reference to Exhibit 10.12 to the Company’s Form 8-K dated September 16, 2008).
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10.14
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Lease Agreement, dated April 13, 2005, with respect to the Interactive Therapy Group Consultants, Inc. office located at 19 West 21st Street, New York, NY (Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for its year ended March 31, 2009).
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10.15
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Lease Agreement, dated January 4, 2008, with respect to the Interactive Therapy Group Consultants, Inc. office located at One Adler Drive, East Syracuse, NY (Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for its year ended March 31, 2009).
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10.17
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Settlement Agreement by and among American Claims Evaluation, Inc., John Torrens, Kyle Palin Torrens and Carlena Palin Torrens, dated July 16, 2009 (Incorporated by reference to Exhibit 10.17 to the Company’s Form 8-K dated July 17, 2009).
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10.18
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Lease Modification and Extension Agreement, dated as of May 12, 2010, with respect to the Interactive Therapy Group Consultants, Inc. office located at 19 West 21st Street, New York, NY (Incorporated by reference to Exhibit 10.18 to the Company’s Form 10-K dated March 31, 2010).
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10.19
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First Amendment to Employment Agreement, dated as of September 9, 2010, between Interactive Therapy Group Consultants, Inc. and John Torrens (Incorporated by reference to Exhibit 10.19 to the Company’s Form 8-K dated September 24, 2010).
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10.20
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First Amendment to Agreement by and among American Learning Corporation, John Torrens, Kyle Palin Torrens and Carlena Palin Torrens, dated as of September 9, 2010 (Incorporated by reference to Exhibit 10.20 to the Company’s Form 8-K dated September 24, 2010).
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10.21
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Asset Purchase Agreement by and among American Learning Corporation, Interactive Therapy Group Consultants, Inc., Liberty Resources POST, LLC and John Torrens dated March 31, 2011 (Incorporated by reference to Exhibit 10.21 to the Company’s Form 8-K dated April 6, 2011).
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14
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Code of Ethics (Incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-KSB for its year ended March 31, 2004).
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21
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Subsidiaries of the Registrant
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23
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Consent of Independent Registered Public Accounting Firm.
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31.1
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Rule 13a-14(a)/15d-14(a) Certification.
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31.2
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Rule 13a-14(a)/15d-14(a) Certification.
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32.1
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Section 1350 Certification of Chief Executive Officer.
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32.2
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Section 1350 Certification of Chief Financial Officer.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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AMERICAN LEARNING CORPORATION
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By:
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/s/ Gary Gelman
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Gary Gelman
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Chairman of the Board, President
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and Chief Executive Officer
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DATE: June 28, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
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SIGNATURES
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TITLE
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DATE
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/s/ Gary Gelman
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Chairman of the Board,
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June 28, 2011
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Gary Gelman
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President and Chief
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Executive Officer
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(Principal Executive Officer)
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/s/ Gary J. Knauer
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Chief Financial Officer,
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June 28, 2011
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Gary J. Knauer
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Treasurer and Secretary
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(Principal Financial
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and Accounting Officer)
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/s/ Edward M. Elkin
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Director
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June 28, 2011
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Edward M. Elkin, M.D.
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/s/ Peter Gutmann
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Director
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June 28, 2011
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Peter Gutmann
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/s/ Joseph Looney
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Director
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June 28, 2011
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Joseph Looney
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