The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Nature of the Business
Learning Tree International, Inc. and subsidiaries (“the Company,” “we,” “us,” or “our”) develop, market, and deliver a broad, predominately proprietary, library of instructor-led classroom courses that are designed to meet the professional development needs of information technology (“IT”) professionals and managers worldwide. These courses are delivered primarily at our leased education centers located in the United States, the United Kingdom, Canada, Sweden and Japan. Such course events are also conducted from specially equipped facilities, in hotel and conference facilities, and at customer sites throughout the world. Almost all of our course titles are also available to individuals located worldwide through Learning Tree AnyWare™, our patent-pending live online learning interface that allows individuals at any location to attend a live instructor-led Learning Tree class via the Internet. Our courses provide both breadth and depth of education across a wide range of technical and management disciplines, including operating systems, databases, computer networks, computer and network security, web development, programming languages, software engineering, open source applications, project management, business skills, and leadership and professional development.
We follow a 52- or 53-week fiscal year, with our quarter-end dates on the Friday nearest the end of the calendar quarter and our year-end dates on the Friday nearest the end of September. Accordingly, our fiscal year
2017 ended on September 29, 2017, and our fiscal year 2016 ended on September 30, 2016. Thus, these consolidated financial statements report our consolidated financial position as of September 29, 2017, and September 30, 2016, and the related consolidated statements of operations and comprehensive loss, stockholders’ (deficit) equity and cash flows for the fiscal years ended September 29, 2017 and September 30, 2016. Both fiscal years 2017 and 2016 were 52-week years.
Certain items in the fiscal year
2016 consolidated financial statements have been reclassified to conform with current presentations, as related to the balance sheet reclassification of certain assets in the consolidated balance sheets.
b.
Basis of Presentation
As of and for the fiscal year ended September
29, 2017, we have reported an accumulated stockholders' deficit of $11.8 million and we have also reported negative cash flow from continuing operations in fiscal year 2017 and for the previous five years as revenues have declined each year during this period. At September 29, 2017, our capital resources consisted of cash and cash equivalents of $5.1 million. While we continue taking steps to stabilize and grow revenues and decrease costs on a year over year basis in 2018, unless we are able to improve our liquidity in the future, there is substantial doubt about the Company’s ability to continue as a going concern.
To address the decline in revenue, we continue to execute upon strategies to increase the number of attendees in our public courses and expand our overall customer base. Many of these strategies relate to pricing promotions to attract new customers or to
re-engage old customers that have not used our services recently. Another strategy is to grow our position as a leading worldwide provider of training and workforce development to IT professionals and managers through the continued growth of our Workforce Optimization Solutions. Workforce Optimization Solutions augments and enhances our core training capabilities enabling Learning Tree to partner with our customers in helping them develop a high-performing organization through workforce development and process improvement.
We accelerated our
comprehensive cost reduction program in fiscal year 2017 and exceeded our goal of reducing our fiscal year 2017 overall expenses by $10.0 million to $12.0 million when compared to expenses for fiscal year 2016. In total, fiscal year 2017 overall expenses (including costs of revenues) were $22.1 million lower than fiscal year 2016. This includes a reduction in the restructuring charge of $1.5 million. These targeted cost reductions were in addition to approximately $6.8 million in operating cost reductions achieved during fiscal year 2016 when compared to the Company’s expenses for fiscal year 2015. These reductions have allowed us to right-size the Company’s operations, modernize our business operations, and preserve capital.
To further address our liquidity needs in the near term, on January 12, 2017, we entered into
a Financing Agreement with Action Capital, which provides the Company with access to borrow through advances of funds up to a maximum aggregate principal amount of $3.0 million. We did not draw on the Financing Agreement during fiscal year 2017. See Notes 12 and 14 of these consolidated financial statements for more information about this Financing Agreement.
We are also continuing to
evaluate additional sources of capital and financing. However, there is no assurance that additional capital and/or financing will be available to the Company, and even if available, whether it will be on terms acceptable to us or in amounts required.
The stabilization of revenues and
continued reduction in costs are integral to our goal of achieving a break even operating income line and a positive cash flow from operations for fiscal year 2018. We cannot provide assurances that our plans will not change, that changes in circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate, or that we will be successful in securing additional liquidity. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, but due to the Company’s future liquidity needs, history of net losses, and negative cash flows from continuing operations, there is substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
c. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Learning Tree International, Inc. and our subsidiaries. All intercompany accounts and transactions have been eliminated. The following is a list of our subsidiaries as of September
29, 2017:
Learning Tree International USA, Inc. (U.S.)
Learning Tree International, K.K. (Japan)
Learning Tree International Ltd. (United Kingdom)
Learning Tree International AB (Sweden)
Learning Tree International Inc. (Canada)
Advanced Technology Marketing, Inc. (U.S.)
AnyWare Live, Inc. (U.S.)
d. Revenue Recognition and Accounts Receivable
Our revenues are
primarily received from business entities and government agencies for the professional training of their employees. Course events range in length from one to five days, and average approximately three and a half days. As stated above, we follow a 52- or 53-week fiscal year. This method is used in order to better align our external financial reporting with the way we operate our business. Since all courses have a duration of five days or less, and all courses begin and end within the same calendar week, under the 52- or 53-week fiscal year method all revenues and related direct costs for each course event are recognized in the week and the fiscal quarter in which the event takes place.
We offer our customers a multiple-course sales discount referred to as a Learning Tree Training Passport. A Learning Tree Training Passport allows an individual Passport holder to attend up to a specified number of courses over a one- to two-year period f
or a fixed price. For Training Passports, revenue is recognized as courses are attended with the amount of revenue recognized based upon the selling price of the Training Passport, the list price of the course taken, the weighted average list price of all courses taken and the estimated average number of courses all Passport holders will actually attend. Upon expiration of each individual Training Passport, we record the difference, if any, between the revenues previously recognized and that specific Training Passport’s total invoiced price. The estimated attendance rate is based upon the historical experience of the average number of course events that Training Passport holders have attended. The actual Training Passport attendance rate is reviewed at least semi-annually, and if the Training Passport attendance rates change, the revenue recognition rate for active Training Passports and for Training Passports sold thereafter is adjusted prospectively.
We believe it is appropriate to recognize revenues on this basis in order to most closely match revenue and related costs, as a substantial number of Passport holders do not attend the maximum number of course eve
nts permitted by their Training Passports. We believe the use of recent historical data is reasonable and appropriate because of the relative stability of the average actual number of course events attended by Passport holders.
The average actual attend
ance rate for all expired Training Passports has closely approximated the estimated rate we utilize. Although we have seen no material changes in the historical rates as the number of course titles has changed, we monitor such potential effects. In general, determining the estimated average number of course events that will be attended by a Training Passport holder is based on historical trends that may not continue in the future. These estimates could differ in the near term from amounts used in arriving at the reported revenue. If the estimates are wrong, we would record the difference between the revenues previously recognized for that Training Passport and the Training Passport selling price upon expiration of that Training Passport. Thus, the timing of revenue recognition may be affected by an inaccurate estimation, but the inaccuracy would have no effect on the aggregate revenue recognized over the one- to two-year life of each Training Passport.
For Passport products for which historical utilization data is not available, we assume the estimated average number of courses to be attended is the number of courses available on the Passport. For the Unlimited Passport program, we utilized historical d
ata to estimate the expected number of courses that will be attended. Assumed utilization rates for products for which historical utilization data is not available may be revised in future periods after sufficient time has passed and historical trends can be analyzed.
In addition to our Learning Tree Training Passports, we also offer a multiple-course sales discount referred to as Learning Tree Training Vouchers. With Learning Tree Training Vouchers, a customer buys the right to send a specified numb
er of attendees to Learning Tree courses over a six- to twelve-month period for a fixed price. Revenue is recognized on a pro rata basis each time a voucher is used to attend a course. When a voucher expires unused, we record the remaining pro rata value of the expired voucher as revenue. At times, we extend the life of a Training Voucher beyond the typical twelve-month expiration date. Training Vouchers purchased under government rate schedules have no expiration date.
For reseller partner courses, we rec
ord revenue net of the amount we pay the partner for providing the course and do not include the course as an event nor count the customer as a participant in our operating statistics.
Trade accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. We use estimates in determining the allowance for doubtful accounts receivable based on our analysis of various factors, including our historical collection experience, current trends, specific identification of invoices which are considered doubtful, and a percentage of our past due accounts receivable. These estimates could differ from actual collection experience and are subject to adjustment. Our trade accounts receivable are written off when they are deemed uncollectible.
e. Share-Based Compensation
We estimate the fair value of share-based option awards on the date of grant using an option-pricing model. We estimate the fair value of share-based restricted stock units and restricted stock grants using the closing price of our stock on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statements of operations and comprehensive loss. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by assumptions regarding a number of variables, including our expected stock price volatility, expected term, dividend yield and risk-free interest rates.
We analyzed our historical volatility to estimate the expected volatility. The risk-free interest rate assumption is based on the U.S. Treasury rate at the date of
grant that most closely resembles the expected life of our options. The estimated expected life represents the weighted-average period the stock options are expected to remain outstanding and has been determined based on the simplified method under Accounting Standards Codification (ASC) 718,
Compensation-Stock Compensation
. We do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
As share-based compensation expense recognized in the consolidated statements of operations and comprehensive loss is based on awards ultimately expected to vest, it has been reduced for estimated pre-vesting forfeitures. Forfeitures were estimated based on historical experience.
f. Course Development Costs
Course development costs are charged to operations in the period incurred.
g. Advertising
Advertising costs are charged to expense in the period incurred. Advertising costs totaled $
234 and $383 in fiscal years 2017 and 2016, respectively.
h. Cash and Cash Equivalents
and Interest-bearing Investments
We consider highly liquid investments with remaining maturities of ninety days or less when purchased to be cash equivalents.
Restricted interest-bearing investments at September
29, 2017 consisted of cash deposits of $753 (563 British Pounds), $188 (1,535 Swedish Krona) and $536 which were pledged as collateral to secure our obligations under leases for education center facilities located in the United Kingdom, Sweden, and the United States, respectively. This compares to restricted interest-bearing investments of cash deposits of $1,867 (1,439 British Pounds), $179 (1,534 Swedish Krona) and $897 at September 30, 2016. The United Kingdom deposits are held in trust by the landlord with interest accruing to us and paid on an annual basis. The deposits will be released to us at the earlier of the end of the lease period or when certain financial ratios have been met. In the United States, the deposit is in an interest-bearing restricted account held by our bank and serves as collateral for letters of credit issued to our landlords by our bank. Of the restricted interest-bearing investments as of September 30, 2016, $362 and $2,581 are presented as current and non-current assets in the consolidated balance sheet, respectively.
i. Marketing Expenses
Marketing expenses for fiscal year 2017 primarily include the costs of digital marketing campaigns and electronic mail to our proprietary database of IT professionals and internal marketing staff costs.
Marketing expenses for fiscal year 2016 primarily include the external costs associated with the design, printing, postage, list rental and handling of direct mail advertising materials to be mailed in the future as well as internal marketing staff costs. These costs are charged to expense in the month in which the advertising campaign occurs since the benefit period for such costs is short and the amount of future benefit is not practically measurable. Marketing expenses for fiscal years 2017 and 2016 were $1,999 and $5,857 respectively.
j. Equipment, Property and Leasehold Improvements
Equipment, property and leasehold improvements are recorded at cost and depreciated or amortized using the straight-line method over the following estimated useful lives:
Education and office equipment (years)
|
|
3
|
to
|
5
|
Transportation equipment (years)
|
|
|
4
|
|
Accounting software (years)
|
|
|
7
|
|
Leasehold improvements
|
|
20
years or the
life of
the lease, if shorter
|
Depreciation and amortization expense totaled $
1,945 and $2,830 in fiscal years 2017 and 2016, respectively. Costs of normal maintenance and repairs and minor replacements are normally charged to expense as incurred. In those instances where we have determined we are contractually obligated to incur recurring repairs and maintenance costs related to our leased facilities, a provision is made in the consolidated financial statements at the earlier of the date the expense is incurred or the date of the obligation. The costs of assets sold or retired are eliminated from the accounts along with the related accumulated depreciation or amortization, and any resulting gain or loss is included in the consolidated statements of operations and comprehensive loss.
During fiscal year 2017, we financed $0.5 million of leasehold improvements through financing agreements with third party lenders.
During fiscal year 2016, we financed $1.8 million of leasehold improvements and $0.3 million of office equipment purchases through tenant improvement reimbursements with the landlord of our Herndon facility.
The fair value of a liability for an asset retirement obligation (“ARO”) associated with a leased facility is recorded as an asset (leasehold improvements) and a liability when there is a legal obligation associated with the retirement of a long-lived asset and the amount can be reasonably estimated. See also Note 2 relating to AROs.
k. Long-Lived Assets
We periodically review the carrying value of our long-lived assets, such as equipment, property and leasehold improvements for impairment or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In making such evaluations, we compare the expected future cash flows to the carrying amount of the assets. If the total of the expected future cash flows is less than the carrying amount of the assets, we are required to make estimates of the fair value of the long-lived assets in order to calculate the impairment loss equal to the difference between the fair value of the assets and their book value. We make significant assumptions and estimates in this process regarding matters that are inherently uncertain, such as estimating cash flows, remaining useful lives, discount rates and growth rates. The resulting cash flows are computed over an extended period of time, which subjects those assumptions and estimates to an even larger degree of uncertainty. While we believe that our estimates are reasonable, different assumptions regarding such cash flows could materially affect the valuation of long-lived assets.
l. Deferred Revenues
Deferred revenues primarily relate to unearned revenues associated with Training Passports, Training Vouchers and advance payments received from customers for course events to be held in the future.
m. Comprehensive loss
We report comprehensive income (loss) in the consolidated statements of operations and comprehensive loss. Other comprehensive loss represents changes in stockholders
’ equity from non-owner sources and is comprised of foreign currency translation adjustments. At the end of fiscal year 2017, accumulated other comprehensive loss consisted of cumulative foreign currency translation adjustments of $(877) compared to cumulative foreign currency translation adjustments of $(882) at the end of fiscal year 2016.
n. Income Taxes
We provide for income taxes under the provisions of Financial Accounting Standards Board (“FASB”)
ASC 740,
Income Taxes
. Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and the basis reported in our consolidated financial statements. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. Valuation allowances are provided against assets, including net operating losses, if it is anticipated that some or the entire asset may not be realized through future taxable earnings or implementation of tax planning strategies.
The tax effects of uncertain tax positions are recognized in the consolidated
financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized. It is our accounting policy to account for ASC 740-10-related penalties and interest as a component of the income tax provision in the consolidated statements of operations and comprehensive loss.
o. Foreign Currency
We translate the financial statements of our foreign subsidiaries from the local (functional) currencies to U.S. dollars. The rates of exchange at each fiscal year end are used for translating the assets and liabilities and the average monthly rates of exchange for each year are used for the consolidated statements of operations and comprehensive loss. Gains or losses arising from the translation of the foreign subsidiaries
’ financial statements are included in the accompanying consolidated balance sheets as a separate component of stockholders’ equity. Gains or losses resulting from foreign currency transactions are included in the consolidated statements of operations and comprehensive loss.
To date, we have not sought to hedge the risk associated with fluctuations in currency exchange rates, and therefore we continue to be subject to such risk.
p. Deferred Facilities Rent
Operating Lease Activities:
We lease education center and administrative office space under various operating lease agreements. Certain lease agreements include provisions that provide for cash incentives, graduated rent payments and other inducements. We recognize rent expense on a straight-line basis over the related terms of such leases. The value of lease incentives and/or inducements, along with the excess of the rent expense recognized over the rentals paid, is recorded as deferred facilities rent in the accompanying consolidated balance sheets.
Lease Termination Activities:
We record liabilities for costs that will be incurred under a contract without economic benefit at estimated fair value. We have vacated space in leased facilities subject to operating leases and recorded the estimated liability associated with future rentals at the cease-use date. The fair value of the liability at the cease-use date was determined based on the remaining cash flows for lease rentals, and minimum lease payments, reduced by estimated sublease rentals and certain subtenant reimbursements that could be reasonably obtained for the property, discounted using a credit-adjusted risk-free rate. The liability is adjusted for changes, if any, resulting from revisions to estimated cash flows after the cease-use date, measured using the original historical credit-adjusted risk-free rate. Changes due to the passage of time are recognized as an increase in the carrying amount of the liability and as accretion expense.
q. Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, restricted interest-bearing investments, accounts receivable, and accounts payable, and current portion of loan payable approximate their fair values because of the short-term nature of these instruments.
The carrying value of the non-current portion of loan payable also approximates fair value since this loan substantially consist of the new financing agreement that was obtained during the current fiscal year as discussed in Note 12 of these consolidated financial statements.
r. Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
s.
Recently Issued Accounting Pronouncements
In May 2014, the
FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “
Revenue from Contracts with Customers (Topic 606)
”
(“ASU 2014-09”), which supercedes most existing revenue recognition models that require revenue guidance under GAAP. The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. ASU 2014-09 defines a five step process to achieve its core principle and, in doing so, more judgement and estimates may be required within the revenue recognition process than required under existing GAAP. In August 2015, the FASB issued ASU No. 2015-14 “
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
”
(“ASU 2015-14”), which defers the effective date of ASU 2014-09 by one year to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2016. Accordingly, the standard is effective for us on September 30, 2018 using either a full retrospective or a modified retrospective approach. We have yet to determine which transition approach to use and have just started to evaluate the impact that the updated standard will have on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15,
“Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”
(“ASU 2014-15”). The standard requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures. ASU 2014-15 is effective for reporting periods ending after December 15, 2016, with early adoption permitted. As such, we have adopted ASU 2014-15 effective with the start of our fiscal year beginning September 30, 2017. We have and will continue to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures.
In November 2015, the FASB issued ASU No. 2015-17, “
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
”
(“ASU 2015-17”). The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted and the standard may be applied retrospectively or on a prospective basis to all deferred tax assets and liabilities. Accordingly, we have adopted ASU 2015-17 with the start of our fiscal year beginning September 30, 2017 and will result in our deferred tax assets and liabilities being classified as non-current on our consolidated balance sheet.
In February 2016, the FASB issued ASU No. 2016-02, “
Leases (Topic 842)
”
(“ASU 2016-02”).
The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize an ROU asset and liabilities on the balance sheet for all leases with terms longer than 12 months.
Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Accordingly, the standard is effective for us on September 28, 2019. Early adoption is permitted. While we are still evaluating the impact of our pending adoption of the new standard on our consolidated financial statements, we expect that upon adoption we will recognize ROU assets and lease liabilities and that the amounts could be material.
In March 2016, the FASB issued ASU No. 2016-09, “
Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
” (“ASU 2016-09”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. Accordingly, we have adopted ASU 2016-09 effective with the start of our fiscal year beginning September 30, 2017. The adoption of ASU No. 2016-09 will not have a material impact on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “
Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments
” (“ASU 2016-15”). The standard clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. Accordingly, the new standard is effective for us on September 30, 2018 using a retrospective approach. We believe that this standard will not have any significant impact on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, “
Statement of Cash Flows (Topic 230): Restricted Cash - a consensus of the FASB Emerging Issues Task Force
” (“ASU 2016-18”). The standard requires restricted cash and cash equivalents to be included with cash and cash equivalents on the statement cash flows. The new standard is expected to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. Accordingly, the new standard would be effective for us on September 30, 2018 using a retrospective approach, and will result in our restricted cash to be included with cash and cash equivalents to reflect total cash on our statement of cash flows. We are evaluating whether we will early adopt the new standard.
Other recent accounting pronouncements issued by the FASB (including the Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not, or management believes will not, have a material impact on our present or future consolidated financial statements.
2. ASSET RETIREMENT OBLIGATIONS
We record a liability equal to the fair value of the estimated cost to retire an asset. The ARO liability is recorded in the period in which the obligation meets the definition of a liability, which is generally when the asset is placed in service and whereby we have contractual commitments to remove leasehold improvements and to return the leased facility back to a specified condition when the lease terminates. For a facility lease, this is typically at the inception of the lease.
When the ARO liability is initially recorded, we increase the carrying amount of the related long-lived asset (leasehold improvements) by an amount equal to the calculated liability. The liability is subsequently accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset, which is the lease term. The ARO liability is recorded at fair value, and accretion expense (included in general and administrative expenses) is recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO liability is measured using the expected future cash outflows related to the lease and calculated by using inflation rates in effect at the time of adoption and incorporating a market-risk premium, and discounted at our credit-adjusted risk-free interest rate at the time of adoption. Any difference between costs incurred upon settlement of an asset retirement obligation and the recorded liability will be recognized as a gain or loss in our earnings.
Each ARO liability is based on a number of assumptions requiring judgment. We cannot predict the type of revisions to these assumptions that will be required in future periods due to the availability of additional information, technology changes, the price of labor costs and other factors.
The following table presents the activity for our ARO liabilities, which primarily consists of the estimated cost to remove leasehold improvements at our Education Centers:
|
|
Year ended
|
|
|
Year ended
|
|
|
|
September 29, 2017
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
ARO balance, beginning of period
|
|
$
|
1,369
|
|
|
$
|
1,669
|
|
Accretion expense
|
|
|
66
|
|
|
|
76
|
|
Liabilities satisfied
|
|
|
0
|
|
|
|
(128
|
)
|
Settlement of ARO liability
|
|
|
(310
|
)
|
|
|
(77
|
)
|
Foreign currency translation
|
|
|
18
|
|
|
|
(171
|
)
|
ARO balance, end of period
|
|
$
|
1,143
|
|
|
$
|
1,369
|
|
3. INCOME TAXES
We file a consolidated United States federal income tax return which includes all of our domestic operations. Our domestic subsidiaries also file income tax returns based on our operations in certain state and local jurisdictions. We file separate tax returns for each of our foreign subsidiaries in the countries in which they operate.
Loss before provision for income taxes consists of the following:
|
|
Fiscal Year Ended
|
|
|
|
September 29,
2017
|
|
|
September 30,
2016
|
|
Domestic
|
|
$
|
(1,335
|
)
|
|
$
|
(11,565
|
)
|
Foreign
|
|
|
(328
|
)
|
|
|
(709
|
)
|
Total
|
|
$
|
(1,663
|
)
|
|
$
|
(12,274
|
)
|
The provision for income taxes consists of the following:
|
|
Fiscal Year Ended
|
|
|
|
September 29,
2017
|
|
|
September 30,
2016
|
|
Current tax provision (benefit):
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
0
|
|
|
$
|
0
|
|
State
|
|
|
113
|
|
|
|
196
|
|
Foreign
|
|
|
414
|
|
|
|
255
|
|
|
|
|
527
|
|
|
|
451
|
|
Deferred tax provision:
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
50
|
|
|
|
14
|
|
Foreign
|
|
|
(103
|
)
|
|
|
(43
|
)
|
|
|
|
(53
|
)
|
|
|
(29
|
)
|
Provision for income taxes
|
|
$
|
474
|
|
|
$
|
422
|
|
The following is a reconciliation of the provision for income taxes to the United States federal statutory tax rate:
|
|
Fiscal Year Ended
|
|
|
|
September 29,
2017
|
|
|
Effective
Tax rate
%
|
|
|
September 30,
2016
|
|
|
Effective
Tax rate
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes at the U.S. statutory rate
|
|
$
|
(582
|
)
|
|
|
35.0
|
%
|
|
$
|
(4,296
|
)
|
|
|
35.0
|
%
|
Equity compensation
|
|
|
16
|
|
|
|
(0.9
|
)
|
|
|
42
|
|
|
|
(0.3
|
)
|
Other permanent differences
|
|
|
497
|
|
|
|
(29.9
|
)
|
|
|
342
|
|
|
|
(2.8
|
)
|
Effects of foreign taxes and tax credits
|
|
|
47
|
|
|
|
(2.9
|
)
|
|
|
2,368
|
|
|
|
(19.3
|
)
|
State income taxes
|
|
|
73
|
|
|
|
(4.4
|
)
|
|
|
(439
|
)
|
|
|
3.6
|
|
Uncertain tax positions
|
|
|
343
|
|
|
|
(20.6
|
)
|
|
|
320
|
|
|
|
(2.6
|
)
|
Change in valuation allowance
|
|
|
349
|
|
|
|
(21.0
|
)
|
|
|
1,911
|
|
|
|
(15.6
|
)
|
Other
|
|
|
(269
|
)
|
|
|
16.2
|
|
|
|
174
|
|
|
|
(1.4
|
)
|
Total provision for income taxes
|
|
$
|
474
|
|
|
|
(28.5
|
%)
|
|
$
|
422
|
|
|
|
(3.4
|
%)
|
Other permanent differences mainly relate to section 956 inclusion, meals and entertainment, and foreign permanent items.
Significant management judgment is required in determining our provision for income taxes and in determining whether any deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred
tax assets such as net operating losses or foreign tax credit carry-forwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that would not be realized. Realization will be based on our ability to generate sufficient future taxable income. In fiscal year 2012, we established a valuation allowance against our deferred tax assets in the United States due to current year and projected future pre-tax book losses. We continued to maintain this valuation allowance throughout fiscal years 2017 and 2016. As of September 29, 2017 and September 30, 2016, we have net operating loss carryforwards to utilize in the U.S. of $20,294 and $18,402, respectively. Additionally, we have $132 foreign tax credit carryforwards for tax return purposes as of September 29, 2017 and September 30, 2016. The U.S. net operating loss and foreign tax credit carryforwards are scheduled to begin to expire in 2035 and 2021 respectively.
Deferred income tax assets and liabilities consist of the following:
|
|
Fiscal Year Ended
|
|
|
|
September 29,
2017
|
|
|
September 30,
2016
|
|
Domestic operations:
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred facilities rent charges
|
|
$
|
2,544
|
|
|
$
|
2,721
|
|
Deferred revenue
|
|
|
579
|
|
|
|
1,772
|
|
Foreign tax credit carryforwards
|
|
|
132
|
|
|
|
132
|
|
Alternative minimum tax credit carryforwards
|
|
|
189
|
|
|
|
189
|
|
Accrued vacation
|
|
|
344
|
|
|
|
360
|
|
Equity compensation
|
|
|
83
|
|
|
|
58
|
|
Depreciation and amortization
|
|
|
1,986
|
|
|
|
2,418
|
|
Net operating loss
|
|
|
8,446
|
|
|
|
6,873
|
|
Capital loss
|
|
|
83
|
|
|
|
78
|
|
Allowance for bad debt
|
|
|
307
|
|
|
|
206
|
|
Related party payables and Subpart F
|
|
|
541
|
|
|
|
193
|
|
Other
|
|
|
140
|
|
|
|
36
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(111
|
)
|
|
|
(158
|
)
|
Undistributed earnings of foreign subsidiaries
|
|
|
(2,378
|
)
|
|
|
(2,287
|
)
|
Domestic net deferred tax assets
|
|
|
12,885
|
|
|
|
12,591
|
|
Foreign operations:
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Depreciation and other
|
|
|
505
|
|
|
|
422
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and other
|
|
|
(52
|
)
|
|
|
(73
|
)
|
Foreign net deferred tax assets
|
|
|
453
|
|
|
|
349
|
|
Domestic and foreign deferred tax assets
|
|
|
13,338
|
|
|
|
12,940
|
|
Valuation allowances
|
|
|
(12,951
|
)
|
|
|
(12,602
|
)
|
Net deferred tax assets
|
|
$
|
387
|
|
|
$
|
338
|
|
We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. For fiscal year 201
7, we recognized an expense of $79 attributable to interest for uncertain tax positions related to transfer pricing and interest accrued. As of September 29, 2017 and September 30, 2016, we had $843 and $762 accrued, respectively, for interest and penalties for uncertain tax positions. As of September 29, 2017, $1,398 of our total unrecognized tax benefits would favorably affect our effective tax rate if recognized. We do not believe it is reasonably possible that the amount of unrecognized tax benefits will significantly change within the next 12 months due to changes in circumstances other than related to these intercompany transactions. We file income tax returns in the United States and various state, local, and foreign jurisdictions, and remain subject to examinations by these jurisdictions for fiscal years 2011 through 2017.
The aggregate change in the balance of gross unrecognized tax benefits, which excludes interest and penalties, is as follows:
|
|
Fiscal Year Ended
|
|
|
|
September 29,
2017
|
|
|
September 30,
2016
|
|
Balance, beginning of year
|
|
$
|
713
|
|
|
$
|
472
|
|
Increases related to tax
positions taken during the current period
|
|
|
296
|
|
|
|
241
|
|
Balance end of year
|
|
$
|
1,009
|
|
|
$
|
713
|
|
Based on future forecasts and budgets, the Company expects to repatriate the unremitted earnings from the foreign subsidiaries to the United States which then become taxable to the Company in the foreseeable future.
As of September 29, 2017 and September 30, 2016, the Company recorded a deferred tax liability for U.S. federal income of $2,312 and $2,271 and foreign withholding taxes of $66 and $16, respectively. This is related to approximately $6,606 and $6,490 of its international subsidiaries’ undistributed earnings as of September 29, 2017 and September 30, 2016, respectively. This deferred tax liability is offset by existing deferred tax assets in the United States; therefore, the net impact to tax expense for fiscal year 2017 is only the $50 of foreign withholding taxes.
4. COMMITMENTS AND CONTINGENCIES
a. Operating Lease Commitments
As of September
29, 2017, we had various non-cancelable operating leases for facilities that expire at various dates through 2026 and certain leases for office equipment requiring annual payments as follows:
Fiscal Year Ending
|
|
Minimum
Lease
Payments
|
|
|
Less
Sublease
Proceeds
|
|
|
Net Lease
Commitments
|
|
2018
|
|
$
|
5,203
|
|
|
$
|
531
|
|
|
$
|
4,672
|
|
2019
|
|
|
5,538
|
|
|
|
561
|
|
|
|
4,977
|
|
2020
|
|
|
4,976
|
|
|
|
583
|
|
|
|
4,393
|
|
2021
|
|
|
3,559
|
|
|
|
348
|
|
|
|
3,211
|
|
2022
|
|
|
2,283
|
|
|
|
0
|
|
|
|
2,283
|
|
Thereafter
|
|
|
6,090
|
|
|
|
0
|
|
|
|
6,090
|
|
|
|
$
|
27,649
|
|
|
$
|
2,023
|
|
|
$
|
25,626
|
|
Rental expense, excluding sublease income, was $
6,475 and $9,231 for fiscal years 2017 and 2016, respectively. Sublease rental income for fiscal years 2017 and 2016 was $85 and $83, respectively.
On August 15, 2017, Learning Tree International Limited, a company incorporated under the laws of the United Kingdom (“
Learning Tree Limited”) and subsidiary of the Company, entered into an agreement with Laxton Properties Limited (the “Landlord”) to assign two of its lease agreements, with the Company acting as the guarantor for Learning Tree Limited. The two lease agreements were initially effective as of November 14, 2012 and will expire on November 13, 2022. The two leases cover the first and second floors at Learning Tree Limited’s current location in London (“Euston House”) and will be assigned in their entirety to i2 Office Limited. The leases provide for an average annual minimum rent of £365 ($489) for the first floor and £366 ($490) for the second floor. Learning Tree Limited retained its leases for the ground and basement floors at Euston House. On September 28, 2017, the assignment by Learning Tree Limited of its lease agreements to i2 Office Limited became effective. As a result of the assignment of the first and second floors at the Euston House location occurring, Learning Tree Limited will receive a refund of approximately £876 ($1,174) for its deposits from the landlord. In order to continue to offer training courses at this location, Learning Tree International Limited expects to spend approximately £525 ($703) to renovate the ground and basement floors to include sufficient classrooms and support facilities. The Company was able to externally finance the renovation costs. See Notes 12 and 14 of these consolidated audited financial statements.
b. Capital Lease Commitments
During fiscal year
2017, we acquired two printers and their licensed software under capital leases. The following is a summary as of September 29, 2017 of the present value of the net minimum lease payments on capital leases:
Fiscal Year Ending
|
|
Minimum Lease
Payments
|
|
|
|
|
|
|
2018
|
|
$
|
116
|
|
2019
|
|
|
116
|
|
2020
|
|
|
116
|
|
2021
|
|
|
102
|
|
Total minimum payments
|
|
$
|
450
|
|
|
|
|
|
|
Less amount representing interest (imputed weighted average capital lease annual interest rate of
9.1% for Equipment Lease and 7.67% for Software Lease)
|
|
|
(70
|
)
|
Net minimum payments
|
|
|
380
|
|
Less Current Portion
|
|
|
(86
|
)
|
Present Value of Minimum Payments, Less Current Portion
|
|
$
|
294
|
|
Capital lease liability is included in the "Deferred facilities rent and other" line of our consolidated balance sheets.
c. Contingencies
Currently, and from time to time, we are involved in litigation incidental to the conduct of our business. We are not a party to any lawsuit or proceeding that, in the opinion of management, is likely to have a material adverse effect on our consolidated financial position or results of operations.
5. STOCKHOLDERS
’ EQUITY
We did not purchase any shares of our common stock during fiscal years 201
7 and 2016. We may make purchases of common stock in the future, but we have no commitments to do so.
6. SHARE-BASED COMPENSATION
Effective January
23, 2007, our stockholders approved the 2007 Equity Incentive Plan (our “2007 Plan”). Our 2007 Plan is administered by the Compensation and Stock Option Committee of our Board of Directors. Our 2007 Plan permits the granting of nonqualified stock options, incentive stock options, stock appreciation rights (or SARs), restricted stock, restricted stock units, performance units and performance shares to our employees, officers, directors and consultants in an amount up to an aggregate of 1,000,000 shares of common stock. Our 2007 Plan expired at the end of December 2016 with no further grants to be made under this plan. However, options granted under the 2007 Plan prior to the expiration of the 2007 Plan, which equal 350,000 options, will continue to be subject to the terms of the 2007 Plan and their award agreement. Option awards have been granted with an exercise price equal to the market price of our stock at the date of grant and generally vest one fourth per year over four years (in some instances, subject to achieving certain financial targets in the year with respect to which they are granted) and have ten-year contractual terms. The exercise price, vesting schedule and period required for full exercisability of the options is at the discretion of the Compensation and Stock Option Committee of our Board of Directors. In connection with the employment of the Company’s Chief Executive Officer, the Compensation and Stock Option Committee, with the approval of our Board, issued 300,000 non-qualified stock options that were not part of the 2007 Plan or any other equity incentive plan previously approved by Company stockholders. These non-qualified stock options were granted with an exercise price equal to the market price of our stock at the date of grant and have an equal vesting period over a four year period. We recognize compensation cost for all awards on a straight-line basis (or, on a graded basis for those options with performance conditions) over the requisite service period for the entire award, which is equal to the vesting period. We have a policy of issuing new shares of common stock to satisfy share option exercises.
The fair value of each option award was estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatilities were based on the historical volatility of our stock measured over a period commensurate with the expected life of granted stock options. The expected term of options represented the period of time that options granted were expected to be outstanding and was determined based on the simplified method as discussed in ASC 718,
Compensation-Stock Compensation
, as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free interest rate assumption was based on the U.S. Treasury rate at the date of the grant that most closely resembled the expected life of options. The expected dividend yield was 0%.
A summary of option activity under the 2007 Plan and
the additional Board-authorized non-qualified option grants during fiscal years 2016 and 2017 is presented below:
Options
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at October 2, 2015
|
|
|
250,000
|
|
|
$
|
3.43
|
|
|
|
8.3
|
|
|
$
|
0.00
|
|
Options granted
|
|
|
600,000
|
|
|
$
|
1.24
|
|
|
|
9.6
|
|
|
$
|
0.00
|
|
Options exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Options forfeited, expired and unearned
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2016
|
|
|
850,000
|
|
|
$
|
1.88
|
|
|
|
8.5
|
|
|
$
|
0.00
|
|
Options granted
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Options forfeited, expired and unearned
|
|
|
(200,000
|
)
|
|
$
|
3.85
|
|
|
|
|
|
|
$
|
0.00
|
|
Outstanding at September 29, 2017
|
|
|
650,000
|
|
|
$
|
1.28
|
|
|
|
8.0
|
|
|
$
|
0.00
|
|
Vested and expected to vest at
September 29, 2017
|
|
|
641,305
|
|
|
$
|
1.27
|
|
|
|
8.0
|
|
|
$
|
0.00
|
|
Exercisable at September 29, 2017
|
|
|
175,000
|
|
|
$
|
1.31
|
|
|
|
7.9
|
|
|
$
|
0.00
|
|
During fiscal year 2016, the fair value of each option was estimated on the date of grant using the Black-Scholes model that uses the following weighted-average assumptions. There were no option grants during fiscal year 2017.
|
|
2016
|
|
Expected dividend yield
|
|
$
|
0.00
|
|
Risk-free interest rate
|
|
|
1.14
|
%
|
Expected option term (years)
|
|
|
3.9
|
|
Volatility
|
|
|
63.23
|
%
|
Weighted-average fair value
|
|
$
|
0.60
|
|
Share-based compensation expense related to employee stock options is included in cost of revenues and operating expenses consistent with the respective employee salary costs. These costs totaled $99 and $164 for fiscal years 2017 and 2016, respectively. As share-based compensation expense recognized in the consolidated statements of operations and comprehensive loss is based on awards ultimately expected to vest, it has been reduced for estimated pre-vesting forfeitures.
If the non-vested stock options fully vest, they will result in future expense of $
285 over a weighted-average remaining amortization period of 2 years. The total income tax benefit relating to stock options and recognized in the consolidated statements of operations and comprehensive loss was $0 for both fiscal years 2017 and 2016.
Restricted Stock Units
As noted above, our 2007 Plan permits us to grant restricted stock units (RSUs), which entitle holders to receive shares of common stock upon vesting. During fiscal years
2017 and 2016, we did not grant any RSUs and there were no RSUs outstanding as of the end of fiscal years 2017 or 2016.
7. EMPLOYEE BENEFIT PLANS
We have adopted a defined contribution plan for the benefit of our domestic employees who have met the eligibility requirements. The Learning Tree International 401(k) Plan (our “401(k) Plan”) is a profit-sharing plan qualifying under Section
401(k) of the Internal Revenue Code.
Qualified employees may elect to contribute to our 401(k) Plan on a pre-tax basis. The maximum amount of employee contributions is subject only to statutory limitations. We make contributions at a rate of 30% of the first 6% of employee compensation contributed. We contributed $
177 and $241, net of forfeitures of $49 and $21, to our 401(k) Plan for fiscal years 2017 and 2016, respectively.
We have adopted or participate in country-sponsored defined contribution plans for the benefit of our employees of all of our foreign subsidiaries. Contributions to these plans are subject to tenure and compensation level criteria, as well as certain limitations. For fiscal years
2017 and 2016, our cost for these plans was approximately $361 and $376, respectively.
8.
LOSS PER SHARE
Loss per share
—basic is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Loss per share—diluted includes the dilutive effect, if any, of nonvested restricted stock grants, nonvested restricted stock units and of outstanding options to purchase common stock, using the treasury stock method. For fiscal years 2017 and 2016, 650,000 and 850,000 stock options, respectively, were anti-dilutive and excluded from the loss per share—diluted calculation.
The following table sets forth the calculation of basic and diluted loss per share:
|
|
Fiscal Year Ende
d
|
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,137
|
)
|
|
$
|
(12,696
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,224
|
|
|
|
13,224
|
|
Effect of dilutive securities
|
|
|
0
|
|
|
|
0
|
|
Diluted
|
|
$
|
13,224
|
|
|
$
|
13,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share - basic and diluted:
|
|
$
|
(0.16
|
)
|
|
$
|
(0.96
|
)
|
9. OPERATING SEGMENT INFORMATION
Our worldwide operations involve the design and delivery of instructor-led classroom training courses and related services to business and government organizations. The training and education we offer is presented by our instructors in a virtually identical manner in every country in which we operate, regardless of whether presented in leased classroom space or external facilities, of the content of the class being taught, the language of the presentation or the printed course materials or of the location or method of distribution. We did not have sales to any one commercial customer or government agency that amounted to 10% or more of our revenues in fiscal years 2017 or 2016.
We conduct and manage our business globally, and our management makes financial decisions and allocates resources based on the information we receive from our internal management systems. Our reportable segments are: the United States, Canada, the United Kingdom, Sweden and Japan. As a measure of segment performance, our Chief Operating Decision Maker reviews revenues and gross profit for each segment. Intersegment sales were $
4,523 and $5,101 in fiscal years 2017 and 2016, respectively. Summarized financial information by reportable segment for fiscal years 2017 and 2016, is as follows:
|
|
Fiscal Year Ended
|
|
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
44,246
|
|
|
$
|
51,377
|
|
Canada
|
|
|
6,700
|
|
|
|
7,961
|
|
North America
|
|
|
50,946
|
|
|
|
59,338
|
|
United Kingdom
|
|
|
14,492
|
|
|
|
16,878
|
|
Sweden
|
|
|
2,920
|
|
|
|
3,069
|
|
Japan
|
|
|
2,305
|
|
|
|
2,302
|
|
Total
|
|
$
|
70,663
|
|
|
$
|
81,587
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
20,259
|
|
|
$
|
19,618
|
|
Canada
|
|
|
2,827
|
|
|
|
3,119
|
|
North America
|
|
|
23,086
|
|
|
|
22,737
|
|
United Kingdom
|
|
|
4,172
|
|
|
|
5,414
|
|
Sweden
|
|
|
1,493
|
|
|
|
1,625
|
|
Japan
|
|
|
1,614
|
|
|
|
1,648
|
|
Total
|
|
$
|
30,365
|
|
|
$
|
31,424
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
972
|
|
|
$
|
1,915
|
|
Canada
|
|
|
182
|
|
|
|
236
|
|
North America
|
|
|
1,154
|
|
|
|
2,151
|
|
United Kingdom
|
|
|
746
|
|
|
|
620
|
|
Sweden
|
|
|
42
|
|
|
|
56
|
|
Japan
|
|
|
3
|
|
|
|
3
|
|
Total
|
|
$
|
1,945
|
|
|
$
|
2,830
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Total assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
13,239
|
|
|
$
|
15,578
|
|
Canada
|
|
|
2,349
|
|
|
|
3,395
|
|
North America
|
|
|
15,588
|
|
|
|
18,973
|
|
United Kingdom
|
|
|
6,944
|
|
|
|
8,046
|
|
Sweden
|
|
|
2,169
|
|
|
|
2,688
|
|
Japan
|
|
|
1,562
|
|
|
|
1,900
|
|
Total
|
|
$
|
26,263
|
|
|
$
|
31,607
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,348
|
|
|
$
|
4,211
|
|
Canada
|
|
|
410
|
|
|
|
480
|
|
North America
|
|
|
3,758
|
|
|
|
4,691
|
|
United Kingdom
|
|
|
1,536
|
|
|
|
1,725
|
|
Sweden
|
|
|
80
|
|
|
|
119
|
|
Japan
|
|
|
67
|
|
|
|
76
|
|
Total
|
|
$
|
5,441
|
|
|
$
|
6,611
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
23
|
|
|
$
|
174
|
|
Canada
|
|
|
13
|
|
|
|
11
|
|
North America
|
|
|
36
|
|
|
|
185
|
|
United Kingdom
|
|
|
4
|
|
|
|
200
|
|
Sweden
|
|
|
0
|
|
|
|
0
|
|
Japan
|
|
|
2
|
|
|
|
0
|
|
Total
|
|
$
|
42
|
|
|
$
|
385
|
|
10. DEFERRED FACILITIES RENT AND OTHER
The following tables show details of the following line items in our consolidated balance sheets.
Current Portion of Deferred Facilities Rent and Other
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Reston lease liability
|
|
$
|
895
|
|
|
$
|
1,057
|
|
Deferred rent and other
|
|
|
412
|
|
|
|
529
|
|
Current portion of loan payable
|
|
|
167
|
|
|
|
0
|
|
Capital lease obligations
|
|
|
86
|
|
|
|
81
|
|
|
|
$
|
1,560
|
|
|
$
|
1,667
|
|
Noncurrent Portion of Deferred Facilities Rent and Other
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred rent and other
|
|
$
|
3,434
|
|
|
$
|
3,808
|
|
Reston lease liability
|
|
|
1,687
|
|
|
|
2,103
|
|
Capital lease obligations
|
|
|
294
|
|
|
|
386
|
|
|
|
$
|
5,415
|
|
|
$
|
6,297
|
|
11. VALUATION AND QUALIFYING ACCOUNTS
Activity with respect to our provision for doubtful accounts is summarized as follows:
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
$
|
542
|
|
|
$
|
160
|
|
Provision for doubtful accounts
|
|
|
255
|
|
|
|
391
|
|
Charges against allowance
|
|
|
0
|
|
|
|
(10
|
)
|
Other
|
|
|
(2
|
)
|
|
|
1
|
|
Ending balance
|
|
$
|
795
|
|
|
$
|
542
|
|
Activity with respect to our valuation allowance for deferred tax assets is summarized as follows:
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
$
|
12,602
|
|
|
$
|
10,692
|
|
Provisions
|
|
|
349
|
|
|
|
1,910
|
|
Charges against allowance
|
|
|
0
|
|
|
|
0
|
|
Ending balance
|
|
$
|
12,951
|
|
|
$
|
12,602
|
|
Activity with respect to our lease liabilities is summarized as follows:
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
$
|
3,160
|
|
|
$
|
328
|
|
Provisions
|
|
|
386
|
|
|
|
1,940
|
|
Accretion
|
|
|
175
|
|
|
|
23
|
|
Reston Town Center Deferred Rent
|
|
|
0
|
|
|
|
1,220
|
|
Charges against allowance
|
|
|
(1,139
|
)
|
|
|
(351
|
)
|
Ending balance
|
|
$
|
2,582
|
|
|
$
|
3,160
|
|
12.
DEBT
On January 12, 2017, the Company entered into a Financing and Security Agreement (the “Financing Agreement”) with Action Capital Corporation
(“Action Capital”) that provides the Company with access to borrow through advances of funds of up to $3.0 million (the “Maximum Amount”). Pursuant to the Financing Agreement, the amount advanced to the Company will be based upon Action Capital’s agreed advance rate of up to 85% of the net amount of certain customer accounts receivable of the Company that are approved by Action Capital and assigned to it as collateral (the “Acceptable Accounts”). The Financing Agreement will continue to be in full force and effect until such time as either party terminates the Financing Agreement by providing written notice. Following termination the Company will remain liable for all outstanding indebtedness owed to Action Capital under the Financing Agreement.
Under the Financing Agreement, the Company is required to pay Action Capital (i) interest on the outstanding advances at a rate equal to the prime rate of Wells Fargo Bank, N.A. in effect on the last business day of the prior month plus 1.75%, (ii) a monthly fee equal to 0.70% of the outstanding advances as of the last day of the month, and (iii) a fee of 0.25% of the Maximum Amount, which is payable to Action Capital on the date the Financing Agreement is signed and every 90 days thereafter until the Financing Agreement is terminated and all amounts advanced and other obligations to Action Capital have been fully paid and satisfied. The Company
’s obligations under the Financing Agreement are secured by Acceptable Accounts, accounts receivable due from U.S. based account debtors and any contract rights, chattel paper, documents, instruments, general intangibles (excluding general intangibles consisting of intellectual property or intellectual property rights), reserves, reserve accounts, deposit and demand accounts, rebates, and books and records pertaining to any Acceptable Accounts that are assigned to Action Capital and all proceeds of the foregoing property.
During fiscal year 2017, we did not draw on the Financing Agreement.
In connection with the lease agreement assignments by Learning Tree International Limited, a company incorporated under the laws of the United Kingdom (“
Learning Tree Limited”) and subsidiary of the Company, Learning Tree Limited continued to occupy and lease the ground and the basement floors in the Euston House building in London, England. In order to continue to offer training courses at the Euston House location, Learning Tree Limited is renovating these two remaining floors in the Euston House to include sufficient classrooms and support facilities (“Euston House Renovation”). The Euston House Renovation is expected to cost up to approximately £525 ($703), which amount is being financed by Learning Tree Limited by entering into lease financing agreements with third party lenders. As of the date hereof, Learning Tree Limited has entered into three substantially identical lease financing agreements that are titled “Non Regulated Rental Agreements” (“Financing Agreements”) with three lenders for financing in the amounts of £100 ($134) (the “First Financing”), £100 ($134) (the “Second Financing”) and £200 ($268) (the “Third Financing”). The First Financing, the Second Financing and the Third Financing occurred on August 24, 2017, September 12, 2017 and September 22, 2017, respectively. As of September 29, 2017, the outstanding amount of the above financing agreements amount to £125 ($167) and £272 ($365) and are presented on current portion of deferred facilities, rent and loan payable and loan payable, in the consolidated balance sheets, respectively. The company accounted for the renovation costs of these two remaining floors as leasehold improvement and the corresponding liability as capital lease obligation in its consolidated financial statement at September 29, 2017.
The financing provided for the First Financing, the Second Financing and the Third Financing is in each case for a minimum of 36 months (the “
Minimum Period”) with annual interest rates of approximately 7.5%, which resulted in monthly payments of £3 ($4), £3 ($4), and £6 ($8), respectively, plus payment of all applicable value added taxes for each financing. Under the terms of each Financing Agreement, the Minimum Period may be extended beyond the initial 36-month period at the monthly payment rate applicable to such agreement, unless written notice of cancellation is provided by Learning Tree Limited one month prior to the end of the Minimum Period. In addition, the Financing Agreement may be terminated prior to the end of the Minimum Period by providing at least one month’s prior written notice or if there occurs a default of a Financing Agreement. In the event of an early termination or a default of a Financing Agreement, a termination payment will be payable to the lender under the terms of a Financing Agreement that is comprised of (i) payment of all amounts due to the lender prior to the date of termination, plus (ii) the amount of the remaining payments for the Minimum Period less a 3% discount per year on the amount of each monthly payment; plus (iii) all other costs and expenses incurred by the lender to repossess, insure, refurbish and dispose of the equipment and materials; plus (iv) amounts to compensate the lender for losses as a result of the total loss of equipment or if such equipment is not returned in the agreed upon condition resulting in the lender being unable to sell such equipment for the full amount of its unrecovered investment in the residual value of such equipment. A default and termination under the terms of each Financing Agreement may occur if the applicable lender provides written notice to Learning Tree Limited of such matters as: (1) a failure to timely make a monthly payment or payment of any other sum due under the Financing Agreement, (2) an untrue statement, representation, warranty or false statement has been provided to the lender; (3) failure to comply with the terms of the Financing Agreements; (4) equipment or materials are taken to settle a debt or judgment or another event happens that prejudices the lenders interest in the equipment and materials financed; (5) a bankruptcy petition or administration order is presented against Learning Tree Limited or other insolvency proceedings or liquidation occurs; or (6) a change in voting control of Learning Tree Limited or any holding party occurs.
Under the terms of each Financing Agreement for the First Financing, Second Financing and Third Financing, the equipment and other materials for the Euston House Renovation are purchased from the equipment and materials suppliers with the financing received by Learning Tree Limited from the lenders with such lenders retaining ownership of the purchased equipment and materials financed. The Financing Agreement for each of the First Financing, Second Financing and Third Financing, requires Learning Tree Limited to: (i) select the equipment and materials and make sure of their suitability for Learning Tree Limited; (ii) maintain and be responsible for such equipment and materials; (iii) keep the equipment and materials in the possession of Learning Tree Limited at the Euston House location; and (iv) insure the financed equipment. In addition, Learning Tree Limited is not permitted to transfer the benefit of any Financing Agreement or otherwise do anything that affects the rights of a lender to the equipment and materials to which their financing relates, including without limitation restricting the use of any equipment or materials as collateral or security for a future debt obligation of Learning Tree Limited or otherwise selling or disposing of such equipment.
Learning Tree Limited provides each lender with indemnification in each Financing Agreement from and against losses, damage, claims and demands that a lender may incur that arises out of the possession or use of the equipment and materials financed or such Financing Agreement, except where such losses arise from death or personal injury caused by the lender’s negligence.
13. RESTRUCTURING ACTIVITY
In September 2016, we determined that 81% of our Reston Town Center facility in Reston, Virginia (RTC) was no longer needed to conduct our business and accordingly, we renewed efforts to sublease the surplus space at this facility. As such, we recorded a restructuring charge of $1.9 million for the estimated liability associated with future rentals of the surplus space due under the property lease as of the cease use date. The fair value of this liability at the cease use date was determined based on the remaining cash flows for lease rentals, and minimum lease payments, reduced by estimated sublease rentals, discounted using a credit adjusted risk free rate.
The Company also made an adjustment for the effects of deferred rent liability and offset the existing deferred rent liability of $1.2 million related to the RTC lease against the present value of future cash outflows. The estimates used to calculate this liability were reviewed during fiscal year 2017 and an additional restructuring charge of $0.4 million was recorded during fiscal year 2017. As of September 29, 2017, we have subleased 50% of the surplus space.
|
|
September 29,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
3,160
|
|
|
$
|
328
|
|
|
|
|
|
|
|
|
|
|
Additions:
|
|
|
|
|
|
|
|
|
RTC cease-use charge
|
|
|
386
|
|
|
|
1,940
|
|
RTC deferred rent liability
|
|
|
0
|
|
|
|
1,220
|
|
Accretion expense
|
|
|
175
|
|
|
|
23
|
|
|
|
|
561
|
|
|
|
3,183
|
|
|
|
|
|
|
|
|
|
|
Reductions:
|
|
|
|
|
|
|
|
|
Rent payments net of deferred rent
|
|
|
(1,139
|
)
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
2,582
|
|
|
|
3,160
|
|
As of September 29, 2017, such restructuring liability is recorded as part of deferred facilities rent and other in the consolidated balance sheet.
14. SUBSEQUENT EVENTS
As a result of the completed assignment of the first and second floors at the Euston House location in London, on October 12, 2017, Learning Tree Limited received a refund of £876 for its deposits from its landlord,
Laxton Properties Limited. See Note 4, of these Consolidated Audited Financial Statements.
On October 13, 2017, Learning Tree International USA, Inc. (“Learning Tree USA”), a subsidiary of the Company and MACH I AREP CARLYLE CENTER LLC fully executed the Third Amendment to Deed of Lease effective back to September 29, 2017 for its Education Center located in Alexandria, Virginia (the “Third Amendment”). A summary of the key provisions of the Third Amendment is as follows:
|
●
|
The amount of square footage leased for the Alexandria Education Center was reduced;
|
|
●
|
The lease term was extended to December 31, 2022, provided, however, that Learning Tree USA has the option to early
terminate the lease as of November 30, 2019 with the payment of one month’s lease cost;
|
|
●
|
The base rental rate was adjusted to $306 per year, which amount will escalate at a rate of 3% per year over the remaining term.
|
|
●
|
A rent abatement of four months
was provided by the landlord to Learning Tree USA, which abatement will be reduced to two months if the early termination option is exercised.
|
With the reduction in square footage, the Alexandria Education center will be reduced from the current seven classrooms to five smaller classrooms with a minimal amount of renovation work.
On October 27, 2017, Learning Tree USA, a subsidiary of the Company, and PRIM 1801 ROCKVILLE PIKE, LLC executed the Third Amendment to Leasing Agreement for its Education Center located in Rockville Maryland, extending the lease term scheduled to expire on October 31, 2017 to February 29, 2020 (the “Third Amendment”). A summary of the key provisions of the Third Amendment is as follows:
|
●
|
The amount of square footage leased for the
Rockville Education Center was reduced;
|
|
●
|
The lease term was extended to February 29, 2020;
|
|
●
|
The base rental rate was adjusted to $228 per year, which amount will escalate at a rate
of 3% per year over the term.
|
|
●
|
A rent abatement of two months was provided by the landlord to Learning Tree USA.
|
With the reduction in square footage, the Rockville Education center will be reduced from the current eleven classrooms to five smaller classrooms with a minimal amount of renovation work.
In connection with the previously announced lease agreement assignments by Learning Tree International Limited, a company incorporated under the laws of the United Kingdom (“Learning Tree Limited”) and subsidiary of the Company, Learning Tree Limited continued to occupy and lease the ground and the basement floors in the Euston House building in London, England. In order to continue to offer instructor-led IT and Management training courses as it has for the past 18 years at the Euston House location, Learning Tree Limited is renovating these two remaining floors in the Euston House to include sufficient classrooms and support facilities (“Euston House Renovation”). The Euston House Renovation is expected to cost approximately £525 ($703), which amount is being financed by Learning Tree Limited by entering into lease financing agreements with separate lenders. Learning Tree previously reported financing £400 ($536) by entering into substantially identical lease financing agreements that are titled “Non Regulated Rental Agreements” (“Financing Agreement(s)”) with three lenders. Learning Tree Limited signed fourth and fifth lease Financing Agreements with two additional lenders for financing that has been funded to Learning Tree Limited in the amounts of £50 ($67) (the “Fourth Financing”) and £73 ($98) (the Fifth Financing”). The terms of the Financing Agreements for the Fourth and Fifth Financings are substantially the same as the previous three financings. See
Note 12, of these consolidated audited financial statements.
The final borrowing of funds to complete the Euston House Renovation project by Learning Tree Limited is £523 ($701) that will result in a total monthly payment of £17 ($23) plus payment of all applicable value added taxes for such financing.
We have determined that there are no other subsequent events that require disclosure.