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EX-21 - EX-21 - AMERICAN LEARNING Corp | y03627exv21.htm |
EX-23 - EX-23 - AMERICAN LEARNING Corp | y03627exv23.htm |
EX-32.1 - EX-32.1 - AMERICAN LEARNING Corp | y03627exv32w1.htm |
EX-32.2 - EX-32.2 - AMERICAN LEARNING Corp | y03627exv32w2.htm |
EX-31.2 - EX-31.2 - AMERICAN LEARNING Corp | y03627exv31w2.htm |
EX-31.1 - EX-31.1 - AMERICAN LEARNING Corp | y03627exv31w1.htm |
EX-10.18 - EX-10.18 - AMERICAN LEARNING Corp | y03627exv10w18.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 0-14807
AMERICAN LEARNING CORPORATION
(Exact name of registrant as specified in its charter)
New York | 11-2601199 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
One Jericho Plaza, Jericho, NY | 11753 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (516) 938-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Stock, par value $.01 | NASDAQ Capital Market |
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 registrants 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):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of the registrants common stock held by non-affiliates was $735,784,
based on the price at which the common stock was last sold on the NASDAQ Capital Market as of
September 30, 2009.
The number of shares outstanding of the registrants common stock as of June 18, 2010 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 registrants Proxy Statement for its 2010 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission within 120 days after the end of the registrants
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. (ITG) and Signature Learning Resources, Inc. (SLR).
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. Through March 31, 2008, we provided a
full range of vocational rehabilitation and disability management services designed to maximize
injured workers abilities in order to reintegrate them into their respective communities through
our wholly owned subsidiary, RPM Rehabilitation & Associates, Inc. (RPM).
During the year ended March 31, 2008, we had entered into a non-binding letter of intent to sell
all of the outstanding shares of stock of RPM. Accordingly, the results of RPMs operations were
classified as discontinued operations and except where specific discussions of RPM are made, all
financial information presented in this Annual Report excludes RPM for all periods presented.
Subsequently, on September 12, 2008, we sold RPM for a purchase price of $150,000 in cash, plus an
additional purchase price of up to $150,000 in cash contingent upon the future net earnings of RPM
calculated over the five-year period after the closing of the transaction. Through March 31, 2010,
additional consideration totaling $2,928 has been earned.
On September 12, 2008, we acquired all of the issued and outstanding shares of ITG for an adjusted
purchase price of $174,632. We had been seeking an acquisition to transition into a new line of
business and ITG possesses an opportunity to grow organically in its industry and through the
potential for add-on acquisitions.
On February 17, 2010, we mailed an Information Statement to all of the holders of record of the
common stock of the Company as of the close of business on February 12, 2010. The purpose of the
Information Statement was to notify shareholders of our intent to change the corporate name of
American Claims Evaluation, Inc. to American Learning Corporation. The corporate name change
became effective on March 18, 2010, twenty (20) days after the Information Statement was mailed to
shareholders. American Learning Corporation more accurately reflects our business and current line
of operations.
ITG provides a comprehensive range of services to children with developmental delays and
disabilities in New York State and has developed a reputation for providing well-rounded
therapeutic solutions. We work in individual or group settings, in home environments or in centers
(such as day care or schools). With this acquisition, we now operate 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 the ages of three to five years of age. | ||
| School Staffing services to school-age children. |
2
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 for services are eligible for any or all of the following: 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 childs Individualized Family
Service Plan (IFSP) are delivered by appropriately qualified personnel in the childs 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 childs IFSP are delivered by appropriately
qualified personnel in the childs natural environment.
Family Training: Parents and caregivers are taught about the childs condition and assisted in
embedding the childs goals into everyday routines. Services are based on a childs 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 states
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 (MDEs) 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
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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 childs IEP are delivered by appropriately qualified
personnel in a home or preschool setting. Services may include speech-language therapy,
occupational therapy and/or physical therapy.
SEIT: An appropriately qualified special education teacher will supplement related 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 psychologists. 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 coordination, compliance, and professional
development services.
In February 2010, we formed SLR as a new wholly owned subsidiary. During the next fiscal year, we
will transition all of the school staffing programs from ITG into SLR. Since these programs have
shown the largest growth of each of our lines of clinical services, SLR will be committed to
focusing specifically on school staffing services seeking to expand within our existing service
areas as well as additional markets.
We will evaluate whether our school staffing services meet the criteria of a separate reportable
operating segment in the future as we transition contracts to SLR.
We had two customers that represented 17% and 11% of revenues for the year ended March 31, 2010.
We had four customers that represented 19%, 15%, 14% and 11% of revenue for the years ended March
31, 2009.
Sales and Marketing
The Presidents of ITG and SLR, our regional directors and our regional 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.
4
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 room 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 ITGs 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. Revenues derived from services performed by these
licensed professionals approximate 24% and 23% of total revenues for the years ended March 31, 2010
and 2009, respectively.
In addition, our financial reporting, corporate governance , public disclosure and compliance
practices are governed by laws, such as the Sarbanes-Oxley Act of 2002 (SOX) and rules and
regulations issued by the Securities and Exchange Commission (SEC).
Employees
As of March 31, 2010, we had 169 employees of which 82 were full-time and 87 were per diem. Of
these full-time employees, we have two employees at our executive office in Jericho, New York and
four employees at ITGs headquarters in East Syracuse, New York. ITG employs 17 people in East
Syracuse, New York, 22 in New York, New York, 19 in Rochester, New York, 15 in Amherst, New York,
two in Poughkeepsie, New York and one 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.
5
We may not be able to comply with all applicable government regulations.
Currently, most EI providers in New York State, including our Company, are not in compliance with
the existing laws governing the practice of these licensed professions. In the past, legislation
has been introduced in the New York State Senate to amend the New York Education Law in relation to
the practice of licensed professionals by EI companies and their employees and to repeal certain
provisions of such related law thereto which currently prohibit corporate practice of certain
licensed professions. Such legislation attempted to reconcile conflicting provisions of the New
York Education Law and New York Public Health Law which contemplates that EI companies be organized
to provide a full range of EI program services. We cannot assure that any future legislation will
be enacted into law to resolve this matter and that we will be in substantial compliance with
current laws and regulations.
We also cannot assure that we will be able to comply with any future laws and regulations. To the
extent that new regulations are adopted, we will be required to conform our activities in order to
comply with such regulations. Failure to comply with applicable laws and regulations could subject
us to civil remedies, including fines, injunctions, as well as potential criminal sanctions, which
could have a material adverse effect on our business, operations and/or finances.
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.
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
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expire, we
will lose the benefit of these NOL carryforwards permanently. NOLs, if unutilized, will
expire in fiscal years ending March 31, 2023 through March 31, 2030.
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 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 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, products 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.
Our business is subject to the risk of customer concentration.
Our revenue is concentrated within a limited number of clients 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 clients would likely have a material adverse effect upon our
business.
7
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
revenue 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.
If we fail to maintain an effective system of internal controls, we may not be able to accurately
report our financial results or prevent fraud. As a result, current and potential shareholders
could lose confidence in our financial reporting, which could harm our business and the trading
price of our shares.
As of March 31, 2010, based on current requirements and our public float, we were not required to
comply with the requirements of Section 404 of SOX (SOX 404) which require our independent
auditors to opine on the effectiveness of our internal controls over financial reporting. Under
current law, and our current public float, we expect to be subject to this requirement for our
fiscal year ending March 31, 2011. If we fail to correct any deficiencies in the design or
operating effectiveness of internal controls over financial reporting or fail to prevent fraud,
current and potential shareholders could lose confidence in our financial reporting, which could
harm our business and adversely impact the trading price of our common stock.
Our common stock could be delisted from the NASDAQ Capital Market.
On March 1, 2010, we received a deficiency letter from The Nasdaq Stock Market (Nasdaq)
indicating that for 30 consecutive business days the Companys common stock, par value $.01 (the
Shares), had a closing bid price below the $1.00 minimum closing bid as required for continued
listing set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule
5810(c)(3)(A), we were provided a grace period of 180 calendar days, or until August 30, 2010, to
regain compliance with this requirement. At this time, this notification has no effect on the
listing of our Shares on The Nasdaq Capital Market.
We can regain compliance with the minimum closing bid price rule if the bid price of our Shares
closes at $1.00 or higher for a minimum of 10 consecutive business days during the initial 180
calendar day grace period, although Nasdaq may, in its discretion, require us to maintain a bid
price of at least $1.00 per share for a period in excess of 10 consecutive business days (but
generally no more than 20 consecutive business days) before determining that we have demonstrated
the ability to maintain long-term compliance. If compliance is not achieved by August 30, 2010, we
may be eligible for an additional 180 calendar day grace period if we meet The Nasdaq Capital
Market initial listing criteria as set forth in Nasdaq Listing Rule 5505 other than the minimum
closing bid price requirement. If we are not eligible for such additional grace period, or do not
regain compliance during any additional grace period, Nasdaq will provide written notice to the
Company that its securities will be delisted from The Nasdaq Capital Market. At such time, we would
be able to appeal the delisting determination to the Nasdaq Listing Qualifications Department.
In the event of such delisting, trading, if any, in our Shares may then continue to be conducted in
the non-Nasdaq over-the-counter market in what are commonly referred to as the electronic bulletin
board and the ''pink sheets. As a result, an investor may find it more difficult to dispose of or
obtain accurate quotations as to the market value of our Shares. In addition, we would be subject
to a rule promulgated by the SEC that, if we fail to meet criteria set forth in such rule, imposes
various requirements on broker-
8
dealers who sell securities governed by the rule to persons other than established customers and
accredited investors. For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchasers written consent to
the transactions prior to the sale. Consequently, the rule may have a material adverse effect on
the ability of broker-dealers to sell our securities, which may materially affect the ability of
shareholders to sell our securities in the secondary market.
A delisting from the NASDAQ Capital Market would also make us ineligible to use Form S-3 to
register a future sale of our Shares or to register the resale of our securities with the SEC,
thereby making it more difficult and expensive for us to register our Shares or other securities
and raise additional capital.
The price of our Shares has reflected a great deal of volatility, including a significant decrease
over the past few years. The volatility may mean that, at times, our shareholders may be unable to
resell their Shares at or above the price at which they acquired them.
From April 1, 2008 to March 31, 2010, the price per share of our Shares has ranged from a high of
$1.75 to a low of $0.23. The price of our Shares has been, and may continue to be, highly volatile
and subject to wide fluctuations. The market value of our Shares has declined in the past, in part,
due to our operating performance. In the future, broad market and industry factors may decrease the
market price of our Shares, regardless of our actual operating performance. Recent declines in the
market price of our Shares and in broad capital markets could affect our access to capital. As a
result of any such declines, many shareholders have been or may become unable to resell their
Shares at or above the price at which they acquired them.
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 Companys 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 buildings landlord.
ITG leases regional operating offices in the following cities in New York: East Syracuse, New York
City, Rochester and Amherst. The terms of these leases range from two to five years.
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).
9
PART II
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
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, 2008 through March 31, 2010:
High | Low | |||||||
Fiscal 2009: |
||||||||
Quarter ended June 30, 2008 |
$ | 1.69 | $ | 0.77 | ||||
Quarter ended September 30, 2008 |
$ | 1.35 | $ | 0.65 | ||||
Quarter ended December 31, 2008 |
$ | 1.00 | $ | 0.29 | ||||
Quarter ended March 31, 2009 |
$ | 1.00 | $ | 0.23 | ||||
Fiscal 2010: |
||||||||
Quarter ended June 30, 2009 |
$ | 1.40 | $ | 0.50 | ||||
Quarter ended September 30, 2009 |
$ | 0.99 | $ | 0.34 | ||||
Quarter ended December 31, 2009 |
$ | 1.75 | $ | 0.46 | ||||
Quarter ended March 31, 2010 |
$ | 1.17 | $ | 0.65 |
The number of holders of our Shares was approximately 416 on June 18, 2010, 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. | Managements Discussion and Analysis of Financial Condition and Results of Operation. |
Recent Developments Name Change
On March 18, 2010, we changed our name from American Claims Evaluation, Inc. to American Learning
Corporation. On February 17, 2010, we filed an information statement on Schedule 14C with the SEC
to furnish shareholders with notification of the corporate name change to American Learning
Corporation.
10
The name change was effected by filing a Certificate of Amendment of the Certificate of
Incorporation of the Company with the Secretary of State of the State of New York on March 18,
2010. We also changed our stock ticker symbol on The Nasdaq Capital Market from AMCE to ALRN
effective at the commencement of trading on March 22, 2010.
The new name is intended to more accurately reflect the Companys current business model and scope
of its service offerings.
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 (GAAP). 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 and 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, 2010.
11
The Company assesses 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 are being amortized on a
straight-line basis over their estimated useful lives, which vary from five to fifteen years.
Results of Operations
During the year ended March 31, 2008, we entered into a non-binding letter of intent to sell all of
the outstanding shares of stock of RPM. Accordingly, the results of operations of RPM were
classified as discontinued operations and except where specifically discussed, all financial
information presented in this Annual Report excludes RPM for all periods presented.
On September 12, 2008, we closed on the sale of RPM for a sale price of $150,000 in cash, plus
additional proceeds up to $150,000 in cash contingent upon the future net earnings of RPM
calculated over the five-year period after the closing of the transaction. Through March 31, 2009,
additional consideration of $2,928 has been earned. As a result of the sale of RPM, the Company
recorded a gain of $90,513 during the year ended March 31, 2009.
On September 12, 2008, we acquired all of the issued and outstanding shares of ITG for an adjusted
purchase price of $174,632. ITG provides a comprehensive range of services to children with
developmental delays and disabilities. We had been seeking an acquisition to transition into a new
line of business. ITG possesses an opportunity to grow organically in its industry and through the
potential for add-on acquisitions.
During the year ended March 31, 2010 (Fiscal 2010), we recognized revenues of $6,973,752 as
compared to revenues of $3,320,926 for the year ended March 31, 2009 (Fiscal 2009). Results for
Fiscal 2009 only reflect revenues from ITGs services since it was acquired on September 12, 2008.
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 were consistent during
Fiscal 2010 and Fiscal 2009 at approximately 69.9% of revenue.
Selling, general and administrative expenses for Fiscal 2010 and Fiscal 2009 were $2,933,734 and
$1,804,312, respectively. Fiscal 2010 represents a full year of operating expenses for ITG as
opposed to ITGs expenses for the period of September 12, 2008 to March 31, 2009 in Fiscal 2009.
In Fiscal 2010, selling, general and administrative expenses increased over the comparable period
in Fiscal 2009 as a result of amortization expense for intangible assets recognized in the
allocation of ITGs purchase price. In addition, payroll costs have increased in Fiscal 2010 over
Fiscal 2009s comparable period as a result of increases in our administrative staff in ITGs New
York City office. The new hires are responsible for marketing our services in an effort to
stimulate growth.
Interest income was $10,187 and $115,296 during Fiscal 2010 and Fiscal 2009, respectively. The
decrease in interest income was a result of substantial declines in prevailing interest rates
compounded by a reduction in cash balances available for investment due to the cash used to
purchase ITG and subsequent repayment of ITGs bank debt.
Under the terms of the ITG purchase agreement, the purchase price was subject to adjustment based
on the final determination of the tangible net worth of ITG on the closing date of the acquisition
(the Final Calculation). Based on the Final Calculation, the purchase price was reduced by
$374,785. Of this amount, $170,715 was repaid by the former ITG shareholders subsequent to March
31, 2009. Since the collectability of the remaining balance was unlikely, we recorded a reserve of
$204,070 for this
12
uncollectible balance in Other Income/(Expense) in the Consolidated Statements of Operations during
the fourth quarter of Fiscal 2009.
We evaluate the realizability of the deferred tax assets and the need for additional valuation
allowances quarterly. We believe it is more likely than not that the deferred tax assets will not
be realized. As of March 31, 2010, we had net operating loss carryforwards of approximately
$3,799,000 which will be available to reduce future taxable income which expire in various years
from March 31, 2023 through March 31, 2030.
Liquidity and Capital Resources
Our primary source of cash is existing cash resources. At March 31, 2010, we had working capital
of $3,847,444 as compared to working capital of $4,559,015 at March 31, 2009. We believe that we
have sufficient cash resources and working capital to meet our present cash requirements.
During Fiscal 2010, net cash used in operating activities of continuing operations was $845,855,
primarily due to the loss from continuing operations of $823,142 and an increase in accounts
receivable of $390,030, offset by increases in accounts payable and accrued expenses of $94,303,
accrued compensation and related taxes of $118,205 and depreciation and amortization of $173,431.
During Fiscal 2010, our investing activities provided $160,955, which consisted primarily of
$170,715 related to the repayment of a receivable from the former shareholders of ITG and the
return of funds previously held in escrow.
Our financing activities in Fiscal 2010 used a total of $18,052 for payments of our capital lease
obligations.
We are currently exploring alternatives to ITGs 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. Revenues derived from services performed by these
licensed professionals approximate 24% and 23% of total revenues during Fiscal 2010 and 2009,
respectively.
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 clients throughout New York State;
municipalities within New York State provide substantial and significant revenue to us. This
concentration of customers may impact our overall exposure to credit risk, either positively or
negatively, in that our customers may be similarly affected by changes in economic or other
conditions in New York State. During the year ended March 31, 2010, we have started to experience
a delay in payments received from these municipalities as a result of the challenging economic
climate and the delay in funding to the municipalities from New York State. Although the accounts
receivable for our services are still deemed collectible, we will actively monitor this issue when
evaluating the adequacy of our allowance for doubtful accounts.
13
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 February 2010, the Financial Accounting Standards Board issued Accounting Standards Update
(ASU) 2010-09 Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements. The amendments remove the requirement for an SEC registrant to disclose the date
through which subsequent events were evaluated as this requirement would have potentially
conflicted with SEC reporting requirements. Removal of the disclosure requirement is not expected
to affect the nature or timing of subsequent events evaluations preformed by the Company. This ASU
became effective upon issuance.
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 13 on
page 18 of this Annual Report.
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
14
Item 9A(T). | Controls and Procedures. |
a). 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 (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 SECs rules and forms, 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). Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial
reporting is a process designed by, or under the supervision of, the principal executive officer
and principal financial officer, and effected by the board of directors and management to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP including 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 assets, (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP and that receipts and expenditures are being made only in accordance with
authorizations of management and the directors, and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with policies and procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the internal control over financial
reporting based on the framework in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
management concluded that internal control over financial reporting was effective as of March 31,
2010.
Management is aware, however, that there is a lack of segregation of duties due to the small number
of employees dealing with general administrative and financial matters. However, management has
concluded that considering the employees involved and the control procedures in place, the risks
associated with such lack of segregation are insignificant and the potential benefits of adding
employees to clearly segregate duties do not justify the expenses associated with such increases.
This Annual Report does not include an attestation report of our current independent registered
public accounting firm regarding internal control over financial reporting.
15
c). Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the
fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect,
the internal control over financial reporting.
Item 9B. | Other Information. |
None.
PART III
Item 10. | Directors, Executive Officers and Corporate Governance. |
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 2010 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.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
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.
16
PART IV
Item 15. | Exhibits and Financial Statement Schedules. |
Documents filed with this report:
1. | Financial Statements: | ||
Report of Independent Registered Public Accounting Firm | |||
Consolidated Balance Sheets as of March 31, 2010 and 2009 | |||
Consolidated Statements of Operations for the years ended March 31, 2010 and 2009 | |||
Consolidated Statements of Stockholders Equity for the years ended March 31, 2010 and 2009 | |||
Consolidated Statements of Cash Flows for the years ended March 31, 2010 and 2009 | |||
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. | |||
2. | Exhibits |
3.1
|
Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit E to the Companys Proxy Statement, dated September 14, 2007). | |
3.2
|
By-Laws (Incorporated by reference to Exhibit 3.2 to the Companys Annual Report on Form 10-KSB for its year ended March 31, 2008). | |
10.3
|
1997 Stock Incentive Plan (Incorporated by reference to Exhibit 4 to the Companys Registration Statement on Form S-8, File No. 333-39071, dated October 30, 1997). | |
10.4
|
2000 Stock Incentive Plan (Incorporated by reference to Exhibit A to the Companys Proxy Statement dated September 11, 2000). | |
10.5
|
Employment Agreement, dated June 7, 2001, between the Company and Gary Gelman (Incorporated by reference to Exhibit 10.1 to the Companys Annual Report on Form 10-KSB for its year ended March 31, 2001). | |
10.6
|
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 Companys Form 10-QSB for the quarter ended September 30, 2005). | |
10.8
|
2005 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8 to the Companys Annual Report on Form 10-KSB for its year ended March 31, 2005). | |
10.9
|
2007 Stock Incentive Plan (Incorporated by reference to Exhibit F to the Companys Proxy Statement, dated September 14, 2007). |
17
10.10
|
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 Companys Form 8-K dated September 16, 2008). | |
10.11
|
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 Companys Form 8-K dated September 16, 2008). | |
10.12
|
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 Companys Form 8-K dated September 16, 2008). | |
10.13
|
Employment Agreement dated September 12, 2008, between Interactive Therapy Group Consultants, Inc. and John Torrens (Incorporated by reference to Exhibit 10.13 to the Companys Form 10-QSB for the quarter ended September 30, 2008). | |
10.14
|
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 Companys Annual Report on Form 10-K for its year ended March 31, 2009). | |
10.15
|
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 Companys Annual Report on Form 10-K for its year ended March 31, 2009). | |
10.16
|
Lease Agreement, dated February 4, 2009, with respect to the Interactive Therapy Group Consultants, Inc. office located at 331 Alberta Drive, Amherst, NY (Incorporated by reference to Exhibit 10.16 to the Companys Annual Report on Form 10-K for its year ended March 31, 2009). | |
10.17
|
Lease Agreement, dated October 19, 2009, with respect to the Interactive Therapy Group Consultants, Inc. office located at 1870 South Winton Road, Rochester, NY (Incorporated by reference to Exhibit 10.17 to the Companys 10-Q for the quarter ended September 30, 2008). | |
10.18
|
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. | |
14
|
Code of Ethics (Incorporated by reference to Exhibit 14 to the Companys Annual Report on Form 10-KSB for its year ended March 31, 2004). | |
21
|
Subsidiaries of the Registrant | |
23
|
Consent of Independent Registered Public Accounting Firm. | |
31.1
|
Rule 13a-14(a)/15d-14(a) Certification. | |
31.2
|
Rule 13a-14(a)/15d-14(a) Certification. | |
32.1
|
Section 1350 Certification of Chief Executive Officer. | |
32.2
|
Section 1350 Certification of Chief Financial Officer. |
18
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.
AMERICAN LEARNING CORPORATION |
||||
By: | /s/ Gary Gelman | |||
Gary Gelman | ||||
Chairman of the Board, President and Chief Executive Officer | ||||
DATE: June 18, 2010
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:
SIGNATURES | TITLE | DATE | ||
/s/ Gary Gelman
|
Chairman of the Board, President and Chief Executive Officer | June 18, 2010 | ||
Gary Gelman
|
(Principal Executive Officer) | |||
/s/ Gary J. Knauer
|
Chief Financial Officer, Treasurer and Secretary | June 18, 2010 | ||
Gary J. Knauer
|
(Principal Financial and Accounting Officer) | |||
/s/ Edward M. Elkin
|
Director | June 18, 2010 | ||
Edward M. Elkin, M.D. |
||||
/s/ Peter Gutmann
|
Director | June 18, 2010 | ||
Peter Gutmann |
||||
/s/ Joseph Looney
|
Director | June 18, 2010 | ||
Joseph Looney |
19
AMERICAN
LEARNING CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
Table of Contents
Page | ||||
F-1 | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
American Learning Corporation
American Learning Corporation
We have audited the accompanying consolidated balance sheets of American Learning Corporation
(formerly American Claims Evaluation, Inc.) and subsidiaries as of March 31, 2010 and 2009, and the
related consolidated statements of operations, stockholders equity and cash flows for the years
then ended. These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of American Learning Corporation and subsidiaries as of
March 31, 2010 and 2009, and results of their operations and cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United States of America.
/s/ Holtz Rubenstein Reminick LLP
Melville, New York
Melville, New York
June 18, 2010
F-1
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2010 and 2009
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 3,440,493 | $ | 4,143,445 | ||||
Accounts receivable (net of allowance for doubtful
accounts of $60,000) |
1,237,540 | 847,510 | ||||||
Receivable from former ITG shareholders |
| 170,715 | ||||||
Prepaid expenses and other current assets |
105,781 | 119,514 | ||||||
Total current assets |
4,783,814 | 5,281,184 | ||||||
Goodwill |
145,000 | 750,000 | ||||||
Intangible assets, net |
535,625 | | ||||||
Property and equipment, net |
171,780 | 235,493 | ||||||
Other assets |
19,787 | 17,415 | ||||||
Total assets |
$ | 5,656,006 | $ | 6,284,092 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 244,495 | $ | 150,192 | ||||
Accrued compensation and related taxes |
672,131 | 553,926 | ||||||
Capital leases payable current portion |
19,744 | 18,051 | ||||||
Total current liabilities |
936,370 | 722,169 | ||||||
Long-term liabilities: |
||||||||
Capital leases payable net of current portion |
7,801 | 27,546 | ||||||
Commitments |
||||||||
Stockholders equity: |
||||||||
Common stock, $0.01 par value. Authorized 20,000,000 shares;
issued 5,050,000 shares; outstanding 4,754,900 shares |
50,500 | 50,500 | ||||||
Additional paid-in capital |
4,952,799 | 4,952,199 | ||||||
Retained earnings |
175,809 | 998,951 | ||||||
5,179,108 | 6,001,650 | |||||||
Treasury stock, at cost |
(467,273 | ) | (467,273 | ) | ||||
Total stockholders equity |
4,711,835 | 5,534,377 | ||||||
Total liabilities and stockholders equity |
$ | 5,656,006 | $ | 6,284,092 | ||||
See accompanying notes to consolidated financial statements.
F-2
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended March 31, 2010 and 2009
2010 | 2009 | |||||||
Revenues |
$ | 6,973,752 | $ | 3,320,926 | ||||
Cost of services |
4,872,632 | 2,321,431 | ||||||
Gross profit |
2,101,120 | 999,495 | ||||||
Selling, general, and administrative expenses |
2,933,734 | 1,804,312 | ||||||
Operating loss from continuing operations |
(832,614 | ) | (804,817 | ) | ||||
Other income (expense): |
||||||||
Interest income |
10,187 | 115,296 | ||||||
Interest expense |
(3,643 | ) | (2,026 | ) | ||||
Other income |
2,928 | | ||||||
Reserve for uncollectible receivable |
| (204,070 | ) | |||||
Loss from continuing operations |
(823,142 | ) | (895,617 | ) | ||||
Discontinued operations (note 2): |
||||||||
Gain on sale of discontinued operations |
| 90,513 | ||||||
Gain (loss) from discontinued operations |
| (1,996 | ) | |||||
Provision for loss on disposal |
| | ||||||
Net loss |
$ | (823,142 | ) | $ | (807,100 | ) | ||
Net income (loss) per share: |
||||||||
From continuing operations basic and diluted |
$ | (0.17 | ) | $ | (0.19 | ) | ||
From discontinued operations basic and diluted |
| 0.02 | ||||||
$ | (0.17 | ) | $ | (0.17 | ) | |||
Weighted average shares basic and diluted |
4,754,900 | 4,760,075 | ||||||
See accompanying notes to consolidated financial statements.
F-3
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
Years ended March 31, 2010 and 2009
Additional | Total | |||||||||||||||||||||||||||
Common stock | paid-in | Retained | Treasury stock | stockholders' | ||||||||||||||||||||||||
Shares | Par value | capital | earnings | Shares | Amount | equity | ||||||||||||||||||||||
Balance at March 31, 2008 |
5,050,000 | $ | 50,500 | $ | 4,931,099 | $ | 1,806,051 | 288,200 | $ | (461,841 | ) | $ | 6,325,809 | |||||||||||||||
Net loss |
| | | (807,100 | ) | | | (807,100 | ) | |||||||||||||||||||
Purchase of treasury shares |
6,900 | (5,432 | ) | (5,432 | ) | |||||||||||||||||||||||
Stock compensation expense |
| | 21,100 | | | | 21,100 | |||||||||||||||||||||
Balance at March 31, 2009 |
5,050,000 | 50,500 | 4,952,199 | 998,951 | 295,100 | (467,273 | ) | 5,534,377 | ||||||||||||||||||||
Net loss |
| | | (823,142 | ) | | | (823,142 | ) | |||||||||||||||||||
Stock compensation expense |
| | 600 | | | | 600 | |||||||||||||||||||||
Balance at March 31, 2010 |
5,050,000 | $ | 50,500 | $ | 4,952,799 | $ | 175,809 | 295,100 | $ | (467,273 | ) | $ | 4,711,835 | |||||||||||||||
See accompanying notes to consolidated financial statements.
F-4
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
Years ended March 31, 2010 and 2009
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Loss from continuing operations: |
$ | (823,142 | ) | $ | (895,617 | ) | ||
Adjustments to reconcile net loss to net cash
used in operating activities: |
||||||||
Provision for uncollectible receivable |
| 204,070 | ||||||
Depreciation and amortization |
173,431 | 73,923 | ||||||
Stock-based compensation expense |
600 | 21,100 | ||||||
Provision for doubtful accounts |
| 60,000 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
(390,030 | ) | (125,350 | ) | ||||
Prepaid expenses and other current assets |
(16,850 | ) | (21,396 | ) | ||||
Other assets |
(2,372 | ) | 1,150 | |||||
Accounts payable and accrued expenses |
94,303 | (90,283 | ) | |||||
Accrued compensation and related taxes |
118,205 | 205,687 | ||||||
Net cash
used in operating activities of continuing operations |
(845,855 | ) | (566,716 | ) | ||||
Operating activities of discontinued operations |
| 34,439 | ||||||
Net cash used in operating activities |
(845,855 | ) | (532,277 | ) | ||||
Cash flows from investing activities: |
||||||||
Acquisition of business, net of cash acquired |
| (568,375 | ) | |||||
Proceeds from acquisition purchase price adjustment |
170,715 | | ||||||
Acquisition escrow refund |
30,583 | | ||||||
Proceeds from sale of subsidiary, net of cash divested |
| 149,391 | ||||||
Capital expenditures |
(40,343 | ) | (13,245 | ) | ||||
Net cash used in investing activities |
160,955 | (432,229 | ) | |||||
Investing activities of discontinued operations |
| (9,452 | ) | |||||
Net cash provided by (used in) investing activities |
160,955 | (441,681 | ) | |||||
Cash flows from financing activities: |
||||||||
Payment of debt |
| (1,105,356 | ) | |||||
Payment of capital lease payable |
(18,052 | ) | (11,251 | ) | ||||
Purchase of treasury shares |
| (5,432 | ) | |||||
Net cash used in financing activities |
(18,052 | ) | (1,122,039 | ) | ||||
Net decrease in cash and cash equivalents |
(702,952 | ) | (2,095,997 | ) | ||||
Cash and cash equivalents beginning of year |
4,143,445 | 6,239,442 | ||||||
Cash and cash equivalents end of year |
$ | 3,440,493 | $ | 4,143,445 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 3,643 | $ | 2,026 | ||||
See accompanying notes to consolidated financial statements.
F-5
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2010 and 2009
(1) | Summary of Significant Accounting Policies |
(a) | Name Change | ||
Effective March 18, 2010, American Claims Evaluation, Inc. changed its name to American Learning Corporation (the Company). | |||
On February 17, 2010, the Company filed an information statement on Schedule 14C with the Securities and Exchange Commission (the SEC) to furnish shareholders with notification of the corporate name change to American Learning Corporation. The name change was effected by filing a Certificate of Amendment of the Certificate of Incorporation of the Company with the Secretary of State of the State of New York on March 18, 2010. | |||
The new name is intended to more accurately reflect the Companys current business model and scope of its service offerings. | |||
(b) | Nature of Business | ||
The Company provides comprehensive services to children with developmental delays and disabilities through its wholly-owned subsidiaries, Interactive Therapy Group Consultants, Inc. (ITG) and Signature Learning Resources, Inc. (SLR). | |||
(c) | Principles of Consolidation | ||
The Companys financial statements are prepared on a consolidated basis and include the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. | |||
(d) | Cash and Cash Equivalents | ||
All highly liquid investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents. From time to time, the Company invests its excess cash in money market accounts that are stated at cost and approximate market value. | |||
(e) | Allowance for Doubtful Accounts | ||
The Company must make estimates of the uncollectability of all accounts receivable. Management specifically analyzes receivables, historical bad debts and changes in circumstances when evaluating the adequacy of the allowance for doubtful accounts. | |||
(f) | Revenue Recognition | ||
The Company recognizes revenue for services when there is evidence of billable time expended. Deferred revenue is recorded for amounts attributable to special education programs when invoiced and recognized over the applicable program periods. | |||
(g) | Property and Equipment | ||
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the shorter of the estimated lives of the improvements or the remaining term of the lease. |
F-6
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2010 and 2009
(h) | Goodwill and Intangible Assets | ||
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is tested for impairment at least annually for possible impairment. The Company performs its tests as of March 31, the last day of its fourth fiscal quarter, unless an event occurs that would cause the Company 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, 2010. | |||
The Company assesses the recoverability of the carrying value of its 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 are being amortized on a straight-line basis over their estimated useful lives, which vary from five to fifteen years. | |||
(i) | Income Taxes | ||
Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting basis and the tax basis of the Companys assets and liabilities. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax laws. Changes in enacted tax rates are reflected in the financial statements in the periods they occur. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. | |||
The Company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis. The Company has no unrecognized tax benefits or liabilities, and no adjustment to its financial position, results of operations or cash flows relating to uncertain tax positions taken on all open tax years. | |||
(j) | Earnings (Loss) per Share | ||
Basic earnings (loss) per share is computed on the weighted average common shares outstanding. Diluted earnings per share reflects the maximum dilution from potential common shares issuable pursuant to the exercise of stock options, if dilutive, outstanding during each period. Employee and director stock options to purchase 1,221,000 and 1,246,000 shares of common stock for the years ended March 31, 2010 and 2009, respectively, were not included in the diluted loss per share calculations because their effect would have been anti-dilutive. | |||
(k) | Fair Value of Financial Instruments | ||
The carrying values of the Companys monetary assets and liabilities approximate fair value as a result of the short-term nature of such assets and liabilities. | |||
(l) | Concentration of Credit Risk | ||
Service revenue is concentrated within a limited number of clients throughout New York State; municipalities within New York State provide substantial and significant revenue to ITG. This concentration of customers may impact ITGs overall exposure to credit risk, either positively or negatively, in that ITGs customers may be similarly affected by changes in economic or other conditions in New York State. |
F-7
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2010 and 2009
The Company had two customers that represented 17% and 11% of revenues for the year ended March 31, 2010. The Company had four customers that represented 19%, 15%, 14% and 11% of revenue for the years ended March 31, 2009. | |||
(m) | Use of Estimates | ||
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. | |||
(n) | Stock-Based Compensation | ||
Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized on a straight-line basis over the vesting period. | |||
(o) | Reclassifications | ||
Certain prior year balances have been reclassified to conform with current year classifications. These reclassifications have no effect on the Companys results of operations. | |||
(p) | Subsequent Events | ||
The Company completed an evaluation of the impact of any subsequent events through the date these financial statements were issued and determined that there were no subsequent events requiring disclosure in or adjustment to these financial statements. | |||
(q) | Recently Issued Accounting Pronouncements | ||
In February 2010, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2010-09 Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. The amendments remove the requirement for an SEC registrant to disclose the date through which subsequent events were evaluated as this requirement would have potentially conflicted with SEC reporting requirements. Removal of the disclosure requirement is not expected to affect the nature or timing of subsequent events evaluations preformed by the Company. This ASU became effective upon issuance. |
(2) | Acquisition | |
On September 12, 2008, the Company acquired all of the issued and outstanding shares of ITG for an adjusted purchase price of $174,632. ITG is a provider of a comprehensive range of services to children with developmental delays and disabilities. The Company had been seeking an acquisition to transition into a new line of business. ITG possesses an opportunity to grow organically in its industry and through the potential for add-on acquisitions. |
F-8
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2010 and 2009
In August 2009, the Company obtained a valuation report from an outside valuation firm and completed the initial accounting for the ITG acquisition. As a result, $605,000 was allocated from goodwill to intangible assets. The allocation of the excess of the purchase price over the fair value of identifiable net assets acquired was classified as follows: |
Customer contracts |
$ | 570,000 | ||
Non-compete convenant |
35,000 | |||
Goodwill |
145,000 | |||
$ | 750,000 | |||
The Company is currently exploring alternatives to ITGs 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, the Company will take all appropriate measures to assure compliance on a timely basis. Revenues derived from services performed by these licensed professionals approximate 24% and 23% of consolidated revenues for the years ended March 31, 2010 and 2009, respectively. |
(3) | Discontinued Operations |
On September 12, 2008, the Company sold RPM Rehabilitation & Associates, Inc. (RPM) for a purchase price of $150,000 in cash, plus an additional purchase price of up to $150,000 in cash contingent upon the future net earnings of RPM calculated over the five year period after the closing of the transaction. Through March 31, 2010, additional consideration of $2,928 has been earned and recorded as other income in the Consolidated Statements of Operations for the year ended March 31, 2010. A gain on the sale of RPM of $90,513 was recorded for the year ended March 31, 2009. | ||
The results of RPMs operations have been classified as discontinued operations in all periods presented. | ||
(4) | Property and Equipment |
Property and equipment consists of the following at March 31, 2010 and 2009: |
Estimated | ||||||||||||
2010 | 2009 | useful life | ||||||||||
Equipment |
$ | 207,936 | $ | 175,998 | 5 years | |||||||
Computer software |
97,552 | 89,147 | 3 - 10 years | |||||||||
Furniture and fixtures |
19,602 | 19,602 | 5 - 10 years | |||||||||
Assets under capital leases |
56,220 | 56,220 | 5 years | |||||||||
Leasehold improvements |
15,556 | 15,556 | Life of lease | |||||||||
396,866 | 356,523 | |||||||||||
Less accumulated depreciation |
225,086 | 121,030 | ||||||||||
$ | 171,780 | $ | 235,493 | |||||||||
Depreciation and amortization expense for the years ended March 31, 2010 and 2009 amounted to $104,056 and $73,923, respectively. |
F-9
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2010 and 2009
(5) Goodwill and Intangible Assets, Net
Our acquisition of all of the outstanding shares of ITG included intangible assets with a fair
value of $605,000 on the date of the acquisition. We recorded $570,000 related to customer
contracts and $35,000 related to a non-compete covenant within intangible assets. The
remaining excess of the purchase price of $145,000 was assigned to goodwill. Customer
contracts are being amortized over a fifteen-year period and the non-compete covenant is being
amortized over a five-year period. The goodwill recorded as a result of the acquisition is
deductible for Federal and New York State income tax purposes over a period of 15 years.
Intangible assets at March 31, 2010 consisted of the following:
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
Customer contracts |
$ | 570,000 | $ | (58,583 | ) | $ | 511,417 | |||||
Non-compete convenant |
35,000 | (10,792 | ) | 24,208 | ||||||||
$ | 605,000 | $ | (69,375 | ) | $ | 535,625 | ||||||
For the year ended March 31, 2010, amortization expense was $69,375. Assuming no changes in
intangible assets, estimated amortization expense for each of the next five fiscal years will
be $45,000, $45,000, $45,000, $41,208 and $38,000.
(6) Capital Leases
The Company has entered into various capital leases for the purchase of office equipment and
furniture and fixtures. These leases require monthly payments totaling $1,794, inclusive of
interest at 9% per annum. These leases expire at various dates through September 2011.
Annual maturities of capital lease obligations at March 31, 2010 are as follows:
2011 |
$ | 21,523 | ||
2012 |
8,004 | |||
Total minumum lease payments |
29,527 | |||
Less: amounts representing interest |
(1,982 | ) | ||
Present value of minimum lease payments |
27,545 | |||
Less: current portion |
(19,744 | ) | ||
Capital leases payable net of current portion |
$ | 7,801 | ||
Included in property and equipment at March 31, 2010 are assets acquired under capital lease
arrangements of $56,220 with related accumulated depreciation of $37,016.
F-10
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2010 and 2009
(7) Income Taxes
No provisions for income tax expense were recorded for the years ended March 31, 2010 and
2009. This differs from that which would have resulted when applying the statutory Federal
income tax rate as a result of the following items:
Year ended March 31, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Expected income tax benefit
at the effective tax rate |
$ | (329,000 | ) | (40 | )% | $ | (323,000 | ) | (40 | )% | ||||||
Increase in valuation allowance |
329,000 | 40 | 323,000 | 40 | ||||||||||||
Actual income tax expense |
$ | | | $ | | | ||||||||||
The tax effects of temporary differences comprising the Companys deferred tax assets at March
31, 2010 and 2009 are as follows:
2010 | 2009 | |||||||
Deferred tax assets: |
||||||||
Net operating loss carryforwards |
$ | 1,495,000 | $ | 1,166,000 | ||||
Stock compensation expense |
107,000 | 107,000 | ||||||
Allowance for doubtful accounts |
24,000 | 24,000 | ||||||
Capital loss carryforwards |
249,000 | 249,000 | ||||||
Valuation allowance |
(1,875,000 | ) | (1,546,000 | ) | ||||
$ | | $ | | |||||
At March 31, 2010, the Company had net operating loss carryforwards of approximately
$3,799,000 for Federal income tax purposes, which will be available to reduce future taxable
income. The Company also has a capital loss carryforward of approximately $732,000 at March
31, 2010 related to the sale of RPM which may be utilized to offset future capital gains.
Based upon the uncertainty of whether the Companys net operating losses (NOLs) or capital
loss carryforwards may ultimately be utilized prior to their respective expirations, valuation
allowances of $329,000 and $323,000 were recorded during the years ended March 31, 2010 and
2009, respectively. Benefits currently considered unrealizable could be adjusted in the future
if estimates of future taxable income during the carryforward period are revised.
The utilization of such NOLs and capital loss carryforwards is subject to certain limitations
under Federal income tax laws. The Companys NOLs and capital loss carryforwards, if
unutilized, will expire in various fiscal years ending March 31, 2023 through March 31, 2030
and March 31, 2014, respectively.
(8) Stock Options
The Company has four stock option plans, the 1997 Incentive Stock Option Plan (1997 Plan),
the 2000 Incentive Stock Option Plan (2000 Plan), the 2005 Incentive Stock Option Plan
(2005 Plan) and the 2007 Incentive Stock Option Plan (2007 Plan). The 1997 Plan has
expired except as to options outstanding. The 2000, 2005 and 2007 Plans provide for incentive
or nonqualified stock options to be granted to key employees, officers, directors, independent
contractors and consultants of the Company.
F-11
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2010 and 2009
Under the 2000, 2005 and 2007 Plans, options may be granted at prices not less than the fair
market value on the date the option is granted. Options become exercisable and vest as
determined at the date of grant by a committee of the Board of Directors. Options expire ten
years after the date of grant unless an earlier expiration date is set at the time of grant.
Changes in the options outstanding during the years ended March 31, 2010 and 2009 are
summarized in the following table:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Shares | Price | Term | Value | |||||||||||||
Outstanding at March 31, 2008 |
1,233,500 | $ | 2.12 | 6 years | ||||||||||||
Granted |
45,000 | 2.11 | 10 years | |||||||||||||
Expired |
(32,500 | ) | 2.19 | | ||||||||||||
Outstanding at March 31, 2009 |
1,246,000 | 2.12 | 5.3 years | |||||||||||||
Granted |
20,000 | 0.80 | 10 years | |||||||||||||
Expired |
(25,000 | ) | 2.50 | | ||||||||||||
Outstanding at March 31, 2010 |
1,241,000 | $ | 2.09 | 4.5 years | $ | | ||||||||||
Exercisable at March 31, 2010 |
1,221,000 | $ | 2.11 | 4.4 years | $ | | ||||||||||
At March 31, 2010, there were options to purchase 1,000,000, 270,000 and 9,000 shares
available for grant under the 2007 Plan, 2005 Plan and 2000 Plan, respectively.
There were no outstanding options which were exercisable and in-the-money as of March
31, 2010 resulting in no aggregate intrinsic value. Aggregate intrinsic value represents
the total pretax intrinsic value, based on options with an exercise price less than the
Companys closing price of $0.80 as of March 31, 2010, which would have been received by
the option holders had these option holders exercised their options as of that date.
The Company recognized stock-based compensation totaling $600 and $21,200 for the years ended
March 31, 2010 and 2009, respectively, based on the fair value of stock options granted. This
expense is included in selling, general and administrative expenses in the Consolidated
Statements of Operations. At March 31, 2010, 1,221,000 outstanding options to purchase shares
are fully vested. In addition, certain option grants contain disposition restrictions which
prohibit the sale of 50% of the shares acquired by exercising the awarded options until the
first anniversary of the grant date and the remaining 50% of the shares acquired by exercising
the awarded options until the second anniversary of the grant date. As of March 31, 2010, the
fair value of unamortized stock-based compensation expense related to unvested stock options
was approximately $10,200 which is expected to be recognized over a remaining vesting period
of three years.
The per share weighted average fair values of stock options granted during the years ended
March 31, 2010 and 2009 were $0.54 and $0.47, respectively. The Companys calculations were
made using the Black-Scholes option pricing model with the following weighted average
assumptions for the years ended March 31, 2010 and 2009: expected volatility, 84.4% and 61.7%,
respectively; risk-free interest rates of 2.38%
F-12
AMERICAN LEARNING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2010 and 2009
and 3.18%, respectively; expected option term, five years following the grant date; and
expected dividend yields of 0%.
The Company estimates expected volatility by considering the historical volatility of the
Companys stock. The risk-free interest rate is based on the United States Treasury constant
maturity interest rate whose term is consistent with the expected life of the award. The
expected option term was calculated using the simplified method prescribed in SEC Staff
Accounting Bulletin No. 107. Under this method, the expected option life is equal to the sum
of the weighted average vesting term plus the original contract term divided by two.
(9) Retirement Plans
The Company sponsors retirement plans pursuant to Section 401(k) of the Internal Revenue Code
of 1986, as amended (the Code), for all employees meeting certain service requirements.
Participants may contribute a percentage of compensation not to exceed the maximum allowed
under the Code. The plans provide for matching contributions by the Company which amounted to
$29,261 and $21,065 for the years ended March 31, 2010 and 2009, respectively.
(10) Commitments
The Company leases office space under non-cancellable operating leases expiring in various
years through July 2013. The future minimum lease payments under these operating leases are
as follows:
2011 |
$ | 185,000 | ||
2012 |
167,000 | |||
2013 |
163,000 | |||
2014 |
28,000 | |||
$ | 543,000 | |||
Operating lease rent expense (including real estate taxes and maintenance costs) was $202,573
and $108,045 for the years ended March 31, 2010 and 2009, respectively.
On August 20, 2004, the Company entered into a seven-year non-cancelable operating sublease,
commencing December 1, 2004, for office space with American Para Professional Systems, Inc.
(APPS), an entity under the control of the Companys Chairman of the Board. Basic rent
under the sublease has been established as a pass-through with the Companys cost being fixed
at a cost equal to the pro-rated rent payable for the subleased space by APPS to the
buildings landlord. Rent expense paid to this related entity under the sublease for the
years ended March 31, 2010 and 2009 was $40,923 and $39,732, respectively.
Minimum lease payments under the related party sublease as of March 31, 2010 are as follows:
2011 |
$ | 42,000 | ||
2012 |
29,000 | |||
$ | 71,000 | |||
F-13