##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 30, 2007
 Commission File Number 0-20842
 PLATO LEARNING, INC.
 (Exact name of Registrant as specified in its charter)
 Delaware
    
    36-3660532(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification Number)
 10801 Nesbitt Avenue South, Bloomington, MN 55437  (Address of principal executive offices)
 (952) 832-1000  (Registrants telephone number, including area code)
 Not Applicable  (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o þ o
 o þ




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##### Table of Contents



PLATO LEARNING, INC.
Form 10-Q
Quarterly Period Ended April 30, 2007
 TABLE OF CONTENTS
 PagePART I.FINANCIAL INFORMATIONITEM 1. Financial Statements:Condensed Consolidated Statements of Operations for the
Three and Six Months Ended April 30, 2007 and 2006 (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of
April 30, 2007 and October 31, 2006 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the
Six Months Ended April 30, 2007 and 2006 (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    13ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21ITEM 4. Controls and Procedures
    
    
    21PART II. OTHER INFORMATIONITEM 1A. Risk Factors
    
    
    22ITEM 4. Submission of Matters to A Vote of Security Holders
    
    
    22ITEM 6. Exhibits
    
    
    22SIGNATURES
    
    
    23Employee Restricted Stock Agreement302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
 2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PLATO Learning, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Operations (Unaudited)
 (In thousands, except per share amounts)
 Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUESSubscriptions
    
    $
    5,360
    
    
    $
    4,054
    
    
    $
    10,513
    
    
    $
    8,410License fees
    
    
    3,070
    
    
    
    6,920
    
    
    
    7,712
    
    
    
    15,969Services
    
    
    6,783
    
    
    
    9,001
    
    
    
    14,014
    
    
    
    19,082Total revenues
    
    
    15,213
    
    
    
    19,975
    
    
    
    32,239
    
    
    
    43,461COST OF REVENUESSubscriptions
    
    
    3,737
    
    
    
    2,656
    
    
    
    6,935
    
    
    
    4,897License fees
    
    
    1,864
    
    
    
    2,681
    
    
    
    4,146
    
    
    
    5,654Services
    
    
    3,159
    
    
    
    4,480
    
    
    
    6,341
    
    
    
    9,262Total cost of revenues
    
    
    8,760
    
    
    
    9,817
    
    
    
    17,422
    
    
    
    19,813GROSS PROFIT
    
    
    6,453
    
    
    
    10,158
    
    
    
    14,817
    
    
    
    23,648OPERATING EXPENSESSales and marketing
    
    
    7,382
    
    
    
    9,576
    
    
    
    15,103
    
    
    
    19,310General and administrative
    
    
    2,904
    
    
    
    4,314
    
    
    
    6,118
    
    
    
    8,962Product maintenance and development
    
    
    1,145
    
    
    
    1,225
    
    
    
    2,913
    
    
    
    2,764Amortization of intangibles
    
    
    457
    
    
    
    933
    
    
    
    914
    
    
    
    1,902Restructuring and other charges
    
    
    
    
    
    
    259
    
    
    
    
    
    
    
    339Total operating expenses
    
    
    11,888
    
    
    
    16,307
    
    
    
    25,048
    
    
    
    33,277OPERATING LOSS
    
    
    (5,435
    )
    
    
    (6,149
    )
    
    
    (10,231
    )
    
    
    (9,629
    )Other income, net
    
    
    279
    
    
    
    400
    
    
    
    699
    
    
    
    833LOSS BEFORE INCOME TAXES
    
    
    (5,156
    )
    
    
    (5,749
    )
    
    
    (9,532
    )
    
    
    (8,796
    )Income tax expense
    
    
    150
    
    
    
    150
    
    
    
    300
    
    
    
    300NET LOSS
    
    $
    (5,306
    )
    
    $
    (5,899
    )
    
    $
    (9,832
    )
    
    $
    (9,096
    )LOSS PER SHAREBasic and diluted
    
    $
    (0.22
    )
    
    $
    (0.25
    )
    
    $
    (0.41
    )
    
    $
    (0.38
    )WEIGHTED AVERAGE COMMON
SHARES OUTSTANDINGBasic and diluted
    
    
    23,747
    
    
    
    23,674
    
    
    
    23,739
    
    
    
    23,652
 See Notes to Condensed Consolidated Financial Statements.
 3




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PLATO Learning, Inc. and Subsidiaries
 
 Condensed Consolidated Balance Sheets (Unaudited)
 (In thousands, except per share amounts)
 April 30,
    
    
    October 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,048
    
    
    $
    33,094Accounts receivable, net
    
    
    10,502
    
    
    
    18,529Inventories
    
    
    1,376
    
    
    
    1,832Other current assets
    
    
    5,468
    
    
    
    6,346Total current assets
    
    
    38,394
    
    
    
    59,801Equipment and leasehold improvements, net
    
    
    6,326
    
    
    
    6,308Product development costs, net
    
    
    27,777
    
    
    
    25,363Goodwill
    
    
    71,865
    
    
    
    71,865Identified intangible assets, net
    
    
    9,220
    
    
    
    10,545Other long-term assets
    
    
    2,477
    
    
    
    2,348Total assets
    
    $
    156,059
    
    
    $
    176,230LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,736
    
    
    $
    4,685Accrued compensation
    
    
    4,614
    
    
    
    5,990Other accrued liabilities
    
    
    4,823
    
    
    
    6,622Deferred revenue
    
    
    27,139
    
    
    
    33,736Total current liabilities
    
    
    40,312
    
    
    
    51,033Long-term deferred revenue
    
    
    7,773
    
    
    
    8,110Deferred income taxes
    
    
    2,831
    
    
    
    2,531Other long-term liabilities
    
    
    
    
    
    
    106Total liabilities
    
    
    50,916
    
    
    
    61,780Stockholders equity:Common stock, $.01 par value, 50,000 shares authorized;
23,817 shares issued and 23,797 shares outstanding at
at April 30, 2007; 23,761 shares issued and 23,741
shares outstanding at October 31, 2006
    
    
    238
    
    
    
    237Additional paid-in capital
    
    
    169,232
    
    
    
    168,597Treasury stock at cost
    
    
    (205
    )
    
    
    (205
    )Accumulated deficit
    
    
    (62,849
    )
    
    
    (53,017
    )Accumulated other comprehensive loss
    
    
    (1,273
    )
    
    
    (1,162
    )Total stockholders equity
    
    
    105,143
    
    
    
    114,450Total liabilities and stockholders equity
    
    $
    156,059
    
    
    $
    176,230
 See Notes to Condensed Consolidated Financial Statements.
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PLATO Learning, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 (In thousands)
 Six Months EndedApril 30,2007
    
    
    2006OPERATING ACTIVITIES:Net loss
    
    $
    (9,832
    )
    
    $
    (9,096
    )Adjustments to reconcile net loss to net cash used in operating activities:Deferred income taxes
    
    
    300
    
    
    
    300Amortization of capitalized product development costs
    
    
    5,005
    
    
    
    3,526Amortization of identified intangible and other long-term assets
    
    
    1,492
    
    
    
    2,672Depreciation and amortization of equipment and leasehold improvements
    
    
    1,214
    
    
    
    1,288Provision for doubtful accounts
    
    
    (174
    )
    
    
    335Stock-based compensation
    
    
    541
    
    
    
    803Loss on disposal of equipment
    
    
    5
    
    
    
    83Changes in operating assets and liabilities:Accounts receivable
    
    
    8,202
    
    
    
    8,649Inventories
    
    
    456
    
    
    
    696Other current and long-term assets
    
    
    583
    
    
    
    1,529Accounts payable
    
    
    (949
    )
    
    
    (1,439
    )Other current and long-term liabilities
    
    
    (3,286
    )
    
    
    (5,453
    )Deferred revenue
    
    
    (6,934
    )
    
    
    (11,466
    )Total adjustments
    
    
    6,455
    
    
    
    1,523Net cash used in operating activities
    
    
    (3,377
    )
    
    
    (7,573
    )INVESTING ACTIVITIES:Capitalized internal product development costs
    
    
    (7,419
    )
    
    
    (6,160
    )Purchased product development
    
    
    
    
    
    
    (2,000
    )Purchases of equipment and leasehold improvements
    
    
    (1,237
    )
    
    
    (828
    )Net cash used in investing activities
    
    
    (8,656
    )
    
    
    (8,988
    )FINANCING ACTIVITIES:Net proceeds from issuance of common stock
    
    
    116
    
    
    
    587Repayments of capital lease obligations
    
    
    (21
    )
    
    
    (58
    )Net cash provided by financing activities
    
    
    95
    
    
    
    529EFFECT OF CURRENCY EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
    
    
    (108
    )
    
    
    (75
    )Net decrease in cash and cash equivalents
    
    
    (12,046
    )
    
    
    (16,107
    )Cash and cash equivalents at beginning of period
    
    
    33,094
    
    
    
    46,901CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    21,048
    
    
    $
    30,794
 See Notes to Condensed Consolidated Financial Statements.
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PLATO LEARNING, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 Note 1. General
 Basis of Presentation
  Consolidation
  Fiscal Periods
  Note 2. Summary of Significant Accounting Policies
 General
  
    
    Revenue recognition
    
    Capitalized product development costs
    
    Valuation of our deferred income taxes
    
    Valuation and impairment analysis of goodwill and identified intangible assets
  6




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License Agreements
  Loss Per Share
  Three Months Ended April 30,
    
    
    Six Months Ended April 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (5,306
    )
    
    $
    (5,899
    )
    
    $
    (9,832
    )
    
    $
    (9,096
    )Basic and diluted weighted average common
shares outstanding
    
    
    23,747
    
    
    
    23,674
    
    
    
    23,739
    
    
    
    23,652Basic and diluted loss per share
    
    $
    (0.22
    )
    
    $
    (0.25
    )
    
    $
    (0.41
    )
    
    $
    (0.38
    )
  New Accounting Pronouncements
 The Fair Value Option for Financial Assets
and Financial Liabilities  Including an amendment of FASB Statement No. 115
 Fair Value Measurements
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109. Accounting for Income Taxes.
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Note 3. Stock-Based Compensation
 Share-Based Payment
 Options OutstandingOptions outstanding at October 31, 2006
    
    
    2,876Options granted
    
    
    184Options exercised
    
    
    Options forfeited or cancelled
    
    
    (315
    )Options outstanding at April 30, 2007
    
    
    2,745Options exercisable at April 30, 2007
    
    
    2,149
  2007
    
    2006Three months ended
    
    $
    439
    
    
    $
    481Six months ended
    
    $
    541
    
    
    $
    803
  Note 4. Accounts Receivable
  April 30,
    
    
    October 31,2007
    
    
    2006Trade accounts receivable
    
    $
    10,722
    
    
    $
    18,450Installment accounts receivable
    
    
    480
    
    
    
    1,007Allowance for doubtful accounts
    
    
    (700
    )
    
    
    (928
    )$
    10,502
    
    
    $
    18,529
  8




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2007
    
    
    2006Balance, beginning of fiscal year
    
    $
    928
    
    
    $
    1,647Provision for doubtful accounts, net of other
reserve adjustments
    
    
    (174
    )
    
    
    335Write-offs net of recoveries
    
    
    (54
    )
    
    
    128Balance, April 30
    
    $
    700
    
    
    $
    2,110
  Note 5. Inventories
  April 30,
    
    
    October 31,2007
    
    
    2006Third-party hardware
    
    $
    745
    
    
    $
    1,027Media, documentation, and packaging materials
    
    
    631
    
    
    
    805$
    1,376
    
    
    $
    1,832
 Note 6. Product Development Costs
  Carrying
    
    
    Accumulated
    
    
    Net CarryingValue
    
    
    Amortization
    
    
    ValueBalance, October 31, 2006
    
    $
    40,577
    
    
    $
    (15,214
    )
    
    $
    25,363Capitalized product development costs
    
    
    7,419
    
    
    
    
    
    
    
    7,419Write-off of fully amortized costs
    
    
    (4,843
    )
    
    
    4,843
    
    
    
    Amortization of product development costs
    
    
    
    
    
    
    (5,005
    )
    
    
    (5,005
    )Balance, April 30, 2007
    
    $
    43,153
    
    
    $
    (15,376
    )
    
    $
    27,777
 9




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##### Table of Contents



Note 7. Goodwill and Identified Intangible Assets
   April 30, 2007
    
    
    October 31, 2006Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    Net CarryingValue
    
    
    Amortzation
    
    
    Value
    
    
    Value
    
    
    Amortzation
    
    
    ValueAcquired technology
    
    $
    13,563
    
    
    $
    (9,884
    )
    
    $
    3,679
    
    
    $
    21,940
    
    
    $
    (17,850
    )
    
    $
    4,090Trademarks and
tradenames
    
    
    1,380
    
    
    
    (1,331
    )
    
    
    49
    
    
    
    2,892
    
    
    
    (2,744
    )
    
    
    148Customer relationships
and lists
    
    
    20,200
    
    
    
    (14,708
    )
    
    
    5,492
    
    
    
    21,100
    
    
    
    (14,793
    )
    
    
    6,307Noncompete agreements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    (1,000
    )
    
    
    $
    35,143
    
    
    $
    (25,923
    )
    
    $
    9,220
    
    
    $
    46,932
    
    
    $
    (36,387
    )
    
    $
    10,545
  Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Amortization of intangible assets included in:Cost of revenues
    
    $
    205
    
    
    $
    302
    
    
    $
    411
    
    
    $
    603Operating expenses
    
    
    457
    
    
    
    933
    
    
    
    914
    
    
    
    1,902$
    662
    
    
    $
    1,235
    
    
    $
    1,325
    
    
    $
    2,505
   Cost of
    
    
    OperatingRevenues
    
    
    Expense
    
    
    TotalRemainder of 2007
    
    $
    411
    
    
    $
    826
    
    
    $
    1,2372008
    
    
    821
    
    
    
    1,550
    
    
    
    2,3712009
    
    
    749
    
    
    
    1,550
    
    
    
    2,2992010
    
    
    647
    
    
    
    1,550
    
    
    
    2,1972011
    
    
    526
    
    
    
    65
    
    
    
    591Thereafter
    
    
    525
    
    
    
    
    
    
    
    525$
    3,679
    
    
    $
    5,541
    
    
    $
    9,220
  10




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Note 8. Deferred Revenue
  April 30,
    
    
    October 31,2007
    
    
    2006Subscriptions
    
    $
    19,951
    
    
    $
    20,192License fees
    
    
    1,469
    
    
    
    2,282Services
    
    
    13,492
    
    
    
    19,372Total
    
    
    34,912
    
    
    
    41,846Less: long-term amounts
    
    
    (7,773
    )
    
    
    (8,110
    )Current portion
    
    $
    27,139
    
    
    $
    33,736
 Note 9. Restructuring and Other Charges
    Severanceand related
    
    
    Facilitycosts
    
    
    closings
    
    
    Other
    
    
    TotalReserve balance at October 31, 2006
    
    $
    1,232
    
    
    $
    1,526
    
    
    $
    316
    
    
    $
    3,074Provision for restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash payments
    
    
    (801
    )
    
    
    (230
    )
    
    
    (15
    )
    
    
    (1,046
    )Reserve balance at April 30, 2007
    
    $
    431
    
    
    $
    1,296
    
    
    $
    301
    
    
    $
    2,028
 11




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Note 10. Comprehensive Loss
  Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net Loss
    
    $
    (5,306
    )
    
    $
    (5,899
    )
    
    $
    (9,832
    )
    
    $
    (9,096
    )Unrealized gains on available for sale securities
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    16Foreign currency translation adjustments
    
    
    (51
    )
    
    
    (39
    )
    
    
    (108
    )
    
    
    (69
    )Total comprehensive loss
    
    $
    (5,357
    )
    
    $
    (5,930
    )
    
    $
    (9,940
    )
    
    $
    (9,149
    )
  Note 11. Subsequent Events
  12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Business Description
    Critical Accounting Policies and Estimates
  
    
    Revenue recognition
    
    Capitalized product development costs
    
    Valuation of our deferred income taxes
    
    Valuation and impairment analysis of goodwill and identified intangible assets
  13




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##### Table of Contents



General Factors Affecting our Financial Results
  Revenue
  Gross Profit
 Operating Expenses
   14




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##### Table of Contents



Overview of Financial Results
    15




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##### Table of Contents



Results of Operations
 Revenues
  U.S. Sales Order Information (in thousands)
 Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,Percent
    
    
    
    
    
    
    
    
    
    
    PercentIncrease
    
    
    
    
    
    
    
    
    
    
    Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    2007
    
    
    2006
    
    
    (Decrease)Order Value:SubscriptionsCourseware
    
    $
    5,016
    
    
    $
    1,953
    
    
    
    156.8
    %
    
    $
    8,574
    
    
    $
    3,315
    
    
    
    158.6
    %Assessment and other
    
    
    903
    
    
    
    1,458
    
    
    
    (38.1
    %)
    
    
    1,621
    
    
    
    2,684
    
    
    
    (39.6
    %)Total subscriptions
    
    
    5,919
    
    
    
    3,411
    
    
    
    73.5
    %
    
    
    10,195
    
    
    
    5,999
    
    
    
    69.9
    %License fees
    
    
    2,563
    
    
    
    7,649
    
    
    
    (66.5
    %)
    
    
    6,803
    
    
    
    15,201
    
    
    
    (55.2
    %)Services
    
    
    4,164
    
    
    
    4,974
    
    
    
    (16.3
    %)
    
    
    8,446
    
    
    
    11,137
    
    
    
    (24.2
    %)$
    12,646
    
    
    $
    16,034
    
    
    
    (21.1
    %)
    
    $
    25,444
    
    
    $
    32,337
    
    
    
    (21.3
    %)Percent of Total Order Value:SubscriptionsCourseware
    
    
    39.7
    %
    
    
    12.2
    %
    
    
    
    
    
    
    33.7
    %
    
    
    10.3
    %Assessment and other
    
    
    7.1
    %
    
    
    9.1
    %
    
    
    
    
    
    
    6.4
    %
    
    
    8.3
    %Total subscriptions
    
    
    46.8
    %
    
    
    21.3
    %
    
    
    
    
    
    
    40.1
    %
    
    
    18.6
    %License fees
    
    
    20.3
    %
    
    
    47.7
    %
    
    
    
    
    
    
    26.7
    %
    
    
    47.0
    %Services
    
    
    32.9
    %
    
    
    31.0
    %
    
    
    
    
    
    
    33.2
    %
    
    
    34.4
    %100.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %
 Orders Greater Than $100,000
 Three Months Ended
    
    Six Months EndedApril 30,
    
    April 30,2007
    
    2006
    
    % Change
    
    2007
    
    2006
    
    % ChangeNumber
    
    
    16
    
    
    
    19
    
    
    
    (15.8
    %)
    
    
    33
    
    
    
    45
    
    
    
    (26.7
    %)Value ($000)
    
    $
    3,126
    
    
    $
    4,046
    
    
    
    (22.7
    %)
    
    $
    6,134
    
    
    $
    9,371
    
    
    
    (34.5
    %)Average Value ($000)
    
    $
    195
    
    
    $
    213
    
    
    
    (8.5
    %)
    
    $
    186
    
    
    $
    208
    
    
    
    (10.6
    %)
 16




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##### Table of Contents



Revenue By Category (in thousands):
 Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,2007
    
    
    2006
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % ChangeSubscriptions
    
    $
    5,360
    
    
    $
    4,054
    
    
    
    32.2
    %
    
    $
    10,513
    
    
    $
    8,410
    
    
    
    25.0
    %License fees
    
    
    3,070
    
    
    
    6,920
    
    
    
    (55.6
    %)
    
    
    7,712
    
    
    
    15,969
    
    
    
    (51.7
    %)Services
    
    
    6,783
    
    
    
    9,001
    
    
    
    (24.6
    %)
    
    
    14,014
    
    
    
    19,082
    
    
    
    (26.6
    %)$
    15,213
    
    
    $
    19,975
    
    
    
    (23.8
    %)
    
    $
    32,239
    
    
    $
    43,461
    
    
    
    (25.8
    %)
   Gross Margin
 Percentage of Total Revenue
 Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,Revenue Category
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Subscriptions
    
    
    35.2
    %
    
    
    20.3
    %
    
    
    32.6
    %
    
    
    19.4
    %License fees
    
    
    20.2
    %
    
    
    34.6
    %
    
    
    23.9
    %
    
    
    36.7
    %Services
    
    
    44.6
    %
    
    
    45.1
    %
    
    
    43.5
    %
    
    
    43.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Gross Margin Percentage
 Three Months Ended April 30,
    
    Six Months Ended April 30,Increase
    
    
    
    
    
    
    
    
    
    IncreaseRevenue Category
    
    2007
    
    2006
    
    (Decrease)
    
    2007
    
    2006
    
    (Decrease)Subscriptions
    
    
    30.3
    %
    
    
    34.5
    %
    
    
    (4.2
    %)
    
    
    34.0
    %
    
    
    41.8
    %
    
    
    (7.8
    %)License fees
    
    
    39.3
    %
    
    
    61.3
    %
    
    
    (22.0
    %)
    
    
    46.2
    %
    
    
    64.6
    %
    
    
    (18.4
    %)Services
    
    
    53.4
    %
    
    
    50.2
    %
    
    
    3.2
    %
    
    
    54.7
    %
    
    
    51.5
    %
    
    
    3.2
    %Total
    
    
    42.4
    %
    
    
    50.9
    %
    
    
    (8.5
    %)
    
    
    46.0
    %
    
    
    54.4
    %
    
    
    (8.4
    %)
 17




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##### Table of Contents



Operating Expenses
  Percentage of
    
    
    
    
    
    Percentage ofTotal Revenue
    
    Percent
    
    Total Revenue
    
    PercentThree Months Ended
    
    Increase
    
    Six Months Ended
    
    IncreaseApril 30,
    
    (Decrease)
    
    April 30,
    
    (Decrease)2007
    
    2006
    
    in Amount
    
    2007
    
    2006
    
    in AmountSales and marketing
    
    
    48.5
    %
    
    
    47.9
    %
    
    
    (22.9
    %)
    
    
    46.8
    %
    
    
    44.4
    %
    
    
    (21.8
    %)General and administrative
    
    
    19.1
    %
    
    
    21.6
    %
    
    
    (32.7
    %)
    
    
    19.0
    %
    
    
    20.6
    %
    
    
    (31.7
    %)Product maintenance and development
    
    
    7.5
    %
    
    
    6.1
    %
    
    
    (6.5
    %)
    
    
    9.0
    %
    
    
    6.4
    %
    
    
    5.4
    %Amortization of intangibles
    
    
    3.0
    %
    
    
    4.7
    %
    
    
    (51.0
    %)
    
    
    2.8
    %
    
    
    4.4
    %
    
    
    (51.9
    %)Subtotal
    
    
    78.1
    %
    
    
    80.3
    %
    
    
    (25.9
    %)
    
    
    77.6
    %
    
    
    75.8
    %
    
    
    (24.0
    %)Restructuring and other charges
    
    
    0.0
    %
    
    
    1.3
    %
    
    
    (100.0
    %)
    
    
    0.0
    %
    
    
    0.8
    %
    
    
    (100.0
    %)Total operating expenses
    
    
    78.1
    %
    
    
    81.6
    %
    
    
    (27.1
    %)
    
    
    77.6
    %
    
    
    76.6
    %
    
    
    (24.7
    %)
   18




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##### Table of Contents



Other Income, Net
  Liquidity and Capital Resources
 Cash and Cash Equivalents
  Working Capital and Liquidity
   19




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##### Table of Contents



Contractual Obligations and Commercial Commitments
   Disclosures about Off-Balance Sheet Arrangements
  Forward-Looking Statements
  Interest Rate Risk
  20




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##### Table of Contents



Foreign Currency Exchange Rate Risk
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk Foreign Currency
Exchange Rate Risk
 
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  21




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##### Table of Contents



PART II.
 
 ITEM 1A. RISK FACTORS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    Election of Director Ruth L. Greenstein: For 21,682,299 and Withheld 949,806.2.
    
    Election of Director Susan E. Knight: For 21,683,392 and Withheld 948,713.3.
    
    Election of Director Warren Simmons: For 20,366,202 and Withheld 2,265,903.4.
    
    Election of Director David W. Smith: For 21,596,782 and Withheld 1,035,323.5.
    
    Approval to an increase of 250,000 authorized shares of Common Stock for the 1993
Employee Stock Purchase Plan: For 19,015,746, Against 1,134,251, Abstain 9,904 and Broker
Non-Vote 2,580,656.6.
    
    Ratification of the appointment of Grant Thornton LLP as the Companys independent
registered public accounting firm for the fiscal year ending October 31, 2007: For
22,642,562, Against 13,239 and Abstain 84,755.
 
 ITEM 6. EXHIBITS
 Exhibit Number and Description
 10.01
    
    PLATO Learning Inc. Employee Restricted Stock Agreement31.01
    
    Certification of Chief Executive Officer under Rule 13a-14(a) adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.02
    
    Certification of Chief Financial Officer under Rule 13a-14(a) adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.01
    
    Certification of Chief Executive Officer under 18 U.S.C. 1350 pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.02
    
    Certification of Chief Financial Officer under 18 U.S.C. 1350 pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
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##### Table of Contents



SIGNATURES
  PLATO LEARNING, INC.

June 11, 2007
    
    By
    
    /s/ MICHAEL A. MORACHE

Michael A. MorachePresident and Chief Executive Officer(principal executive officer)/s/ ROBERT J. RUECKL

Robert J. RuecklVice President and Chief Financial Officer(principal financial officer)
 23