Scientific Learning Corp. has a market cap of $96.2 million; its shares were traded at around $5.2525 with a P/E ratio of 16.9 and P/S ratio of 1.7.
Highlight of Business Operations:Federal education funds are a critical resource in helping school districts address the needs of the most challenged learners. We believe that a significant proportion of our sales are funded by federal sources, particularly Title One and IDEA (special education) grants. With the passage of the American Recovery and Reinvestment Act (“ARRA” - the recent stimulus bill), these two federal sources are estimated to have increased from $24.9 billion in the 2008 – 2009 school year to $37 billion in the 2009 – 2010 school year. In most states the ARRA funds have been and are being disbursed to school districts, and we believe that the ARRA funding had a substantial positive impact on our 2009 sales and will continue to do so in 2010.
Booked sales in the K-12 sector increased 33% to $7.3 million during the three months ended March 31, 2010, compared to $5.5 million in the same period in 2009. The flow of federal stimulus funds to individual school districts and the spending requirements linked to these funds put school districts in a better position to execute new purchases during the quarter. The first quarter historically is our lowest booked sales quarter, and may not be predictive of the rest of the year. Booked sales to the K-12 sector for the three months ended March 31, 2010 and 2009 were both 91% of total booked sales. “Other adjustments” consists primarily of sales with FOB destination terms that had not been delivered by the end of the period, and therefore no deferred revenue or receivable was recorded for these transactions.
On February 28, 2010 we amended our existing revolving line of credit agreement with Comerica Bank. The maximum that can be borrowed under the agreement is $7.5 million. The line expires on December 31, 2011. Borrowing under the line of credit bears interest at a “daily adjusting LIBOR rate”. Borrowings under the line are subject to reporting covenants requiring the provision of financial statements to Comerica, and, as amended, financial covenants requiring us to maintain a minimum adjusted quick ratio of 1.15 and positive net worth. The agreement includes a letter of credit sublimit not to exceed $1.0 million. At March 31, 2010, we had an outstanding letter of credit for $206,000. There were no borrowings outstanding on the line of credit at March 31, 2010 and we were in compliance with all our covenants. In February 2009 we borrowed $2.5 million from the line of credit which we repaid in August 2009.
Net cash used in investing activities for the three months ended March 31, 2010 was $8.8 million, of which $8.1 million was used for the purchase of short-term investments. Net cash used in investing activities for the three months ended March 31, 2009 was $622,000, due to capital spending and additions to capitalized software.
Financing activities generated $129,000 for the three months ended March 31, 2010 from proceeds from the exercise of stock options. Net cash provided by financing activities for the three months ended March 31, 2009 was $2.8 million, consisting of bank borrowings of $2.5 million and $258,000 from proceeds from the exercise of stock options.
We have a non-cancelable lease agreement for our corporate office facilities in Oakland, California. The minimum lease payment was approximately $78,000 per month through 2008. From 2009 through the end of the lease, the base lease payment increases at a compound annual rate of approximately 5%. The lease expires in December 2013. We also have lease agreements for our Tucson, Arizona office through May 2013 at an average rent of approximately $11,000 per month, and for our Reading Assistant operations in Waltham, Massachusetts for approximately 6,000 square feet at an average monthly rent of approximately $12,000 that expires in September 2011. Following the closure of the Waltham office in December 2009, we have sublet this property until October 2010 at a monthly rent of approximately $5,000.
Read the The complete Report