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ALRN > SEC Filings for ALRN > Form 10-Q on 14-Nov-2012All Recent SEC Filings

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Form 10-Q for AMERICAN LEARNING CORP


14-Nov-2012

Quarterly Report


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

Forward Looking Statements

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

Critical Accounting Policies

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

Results of Operations - Three and Six Months ended September 30, 2012 and 2011

Revenues for the three month period ended September 30, 2012 were $311,659, a decrease of 33.1% from the $465,754 reported for the three month period ended September 30, 2011. This decrease was largely the result of a decrease in revenue from SEIT services provided under contract in the New York City region. Each year, we are required to file a standardized fiscal cost report to New York State which is used to calculate reconciliation tuition rates/adjustment factors and prospective tuition rates for SEIT programs. As a result of this rate reconciliation process, we are required to refund approximately $98,000 to New York City. Approximately $55,000 of additional reserves were recorded in the current fiscal quarter to increase our previously recorded allowance to the appropriate level. Related services provided in New York City based on Individualized Education Plans also decreased from $35,781 in the three months ended September 30, 2011 to $13,840 in the three months ended September 30, 2012.

In addition, revenues generated by our school staffing services decreased approximately 6.2% during the three months ended September 30, 2012 over the comparable three month period in the prior year. The New York City Department of Education created a new system of awarding contracts which creates a hierarchy of approved providers that modifies the method of referring cases to providers. We were awarded a contract under the new system. However, we did not receive a priority designation under such hierarchy system. As the new contract period has begun, we are experiencing a significant decrease in the number of cases referred to us for services. It is unknown whether or not the rate of referrals will increase to former levels and there is a possibility that we will not achieve the same levels of revenue generated in prior periods. Accordingly, there could be a material adverse effect on our revenue, margins and operating results if the rate of referrals to us does not increase to former levels. The Company will monitor revenues generated under the new contract and assess the recoverability of the carrying value of recorded intangible assets related to customer contracts to determine if any portion of the carrying value of the assets may not be recoverable.

Revenues for the six months ended September 30, 2012 were $1,416,902, an increase of approximately 5.3% from the $1,345,651 reported for the six month period ended September 30, 2011. This increase was the result of revenues generated by school staffing services provided to charter schools in the first quarter of the current year over the comparable period in the previous year.

Cost of services as a percentage of revenues for the three and six month periods ended September 30, 2012 were approximately 74.0% and 64.9%, respectively. During the three and six months ended September 30, 2011, cost of services as a percentage of revenues were 59.6% and 62.1%, respectively. The cost of services as a percentage of revenue for the three months ended September 30, 2012 increased significantly due to the previously mentioned reserves recorded related to SEIT services resulting from the rate reconciliation process.

Selling, general and administrative expenses for the quarterly periods ended September 30, 2012 and 2011 were $468,703 and $571,984, respectively. During the three months ended September 30, 2012, the Company recorded stock-based compensation expense totaling $3,500 related to the issuance of stock options and warrants as compared to $87,750 of stock-based compensation recorded in the quarterly period ended September 30, 2011. Selling, general and administrative expenses for the six months ended September 30, 2012 and 2011 were $1,007,465 and $1,072,128, respectively.

Interest income for the three and six month periods ended September 30, 2012 and 2011 was $2,926 and $7,079 and $6,678 and $11,231, respectively. Interest income has decreased in the current fiscal year due to reductions in interest collected on the payment of aged receivables from charter schools and a decrease in interest on the note receivable.

Liquidity and Capital Resources

At September 30, 2012, we had working capital of $3,170,014 as compared to working capital of $3,528,708 at March 31, 2012. We believe that we have sufficient liquidity to meet our needs for beyond the next twelve months.

During the six months ended September 30, 2012, net cash used by operating activities was $16,223, predominately from a decrease in our accounts receivable of $497,208 offset by an operating loss of $503,258.

Cash flows from investing activities for the six months ended September 30, 2012 of $61,913 included $90,000 of proceeds received from collections of the note receivable offset by capital expenditures of $28,087.

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

                               Operating
                                 Leases
2013                           $   85,000
2014                               73,000
2015                               47,000
2016                               51,000
2017                               52,000
Thereafter                         90,000
Total minimum lease payments   $  398,000

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

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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