<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarter ended September 30, 1995
Commission File Number 0-13741
INDUSTRIAL TRAINING CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1078263
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
13515 Dulles Technology Drive, Herndon, Virginia 22071
------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number (703)713-3335
(including area code)
COMMON STOCK
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ____
--------
As of October 25, 1995, 3,355,088 shares of Common Stock were outstanding.
<PAGE>
Table of Contents
Part I Page
------ ----
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months
Ended September 30, 1995 and 1994 1
Condensed Consolidated Balance Sheets as of
September 30, 1995 and December 31, 1994 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1995 and 1994 4
Notes to Condensed Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis or
Plan of Operation 7
Part II
-------
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
10-QSB 2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $ 6,038,329 $ 5,428,468 $ 17,293,961 $ 14,792,110
Cost of sales 3,505,498 3,487,607 9,957,906 9,072,561
--------- --------- ---------- ----------
Gross profit 2,532,831 1,940,861 7,336,055 5,719,549
Selling, general, and
administrative expenses 1,786,161 1,527,418 5,380,882 4,617,964
Equity earnings of affiliates (65,644) (68,372) (143,605) (138,529)
Interest expense, net 26,661 46,437 80,961 134,263
--------- --------- --------- ---------
1,747,178 1,505,483 5,318,238 4,613,698
--------- --------- --------- ---------
Earnings before income taxes 785,653 435,378 2,017,817 1,105,851
Income taxes 322,000 173,136 827,000 441,978
--------- --------- --------- ---------
Net earnings $ 463,653 $ 262,242 $ 1,190,817 $ 663,873
========= ========= ========= =========
Earnings per
common share $ 0.18 $ 0.11 $ 0.46 $ 0.28
==== ==== ==== ====
Weighted average number
of shares outstanding 2,641,228 2,403,587 2,597,335 2,413,207
========= ========= ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
10-QSB 3
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,779,359 $ 439,923
Accounts receivable, net (Note 2) 5,621,919 7,293,477
Stock proceeds receivable (Note 6) 7,934,063
Due from affiliates 47,492 86,111
Inventories, net 732,352 1,203,876
Prepaid expenses 278,360 118,446
--------- ---------
Total current assets 16,393,545 9,141,833
Property and equipment:
Video and computer equipment 2,807,535 2,366,661
Furniture and fixtures 1,037,204 1,032,563
Leasehold improvements 93,106 89,106
Videotape masters 144,180 144,180
--------- ---------
4,082,025 3,632,510
Less accumulated depreciation and amortization (2,942,703) (2,507,393)
----------- -----------
Net property and equipment 1,139,322 1,125,117
Deferred program development costs, net (Note 5) 5,536,859 4,358,315
Goodwill 2,061,376 2,185,126
Investments in affiliates 187,152 245,887
Other 73,306 73,769
---------- ----------
$ 25,391,560 $ 17,130,047
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
10-QSB 4
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Current liabilities:
Note payable to bank (Note 3) $ $ 80,000
Current installments of long-term debt (Note 6) 561,175 328,637
Accounts payable 1,125,415 2,112,271
Due to affiliates 197,900 419,895
Accrued expenses:
Compensation and benefits payable 533,122 942,215
Deferred revenue 232,798 77,648
Other accrued expenses payable 520,889 1,086,571
Income taxes payable 340,000
--------- ---------
Total current liabilities 3,511,299 5,047,237
Deferred lease obligations 108,295 119,316
Deferred income taxes (Note 4) 1,233,340 1,136,522
Long-term debt, excluding current installments (Note 6) 1,473,098 772,826
--------- ---------
Total liabilities 6,326,032 7,075,901
Stockholders' equity:
Common stock, $0.10 par value, 4,000,000 shares
authorized; 3,378,828 and 2,466,828 issued in
1995 and 1994, respectively (Note 6) 337,883 246,683
Additional paid-in capital (Note 6) 13,346,222 5,698,147
Note receivable from ESOP (277,177) (358,177)
Retained earnings 5,719,764 4,528,947
---------- ----------
19,126,692 10,115,600
Treasury stock, at cost, 17,404 and 18,004 shares
at September 30, 1995 and
December 31, 1994, respectively (61,164) (61,454)
---------- ----------
Total stockholders' equity 19,065,528 10,054,146
---------- ----------
$ 25,391,560 $ 17,130,047
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
10-QSB 5
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30,
1995 1994
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 1,190,817 $ 663,873
Reconciling items:
Provision for deferred taxes 96,818 430,596
Depreciation and amortization 2,174,441 1,328,716
Increase in reserve for doubtful accounts 75,000
Salesperson award of treasury shares 1,650
Loss on disposal of fixed asset 35,726
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 1,596,558 (202,407)
Decrease (increase) in inventories 471,524 (109,341)
Increase in prepaid expenses (159,914) (49,709)
Decrease (increase) in other assets 463 (29,389)
(Decrease) increase in accounts payable (986,856) 144,070
Decrease in due to affiliates, net (183,376) (5,071)
Decrease in accrued other expenses (819,625) (32,767)
Increase in income taxes payable 340,000
Decrease in deferred lease liability (11,021) (17,956)
---------- ----------
Net cash provided by operating activities 3,822,205 2,120,615
Cash Flows From Investing Activities:
Deferred program development costs (Note 5) (2,735,190) (1,125,000)
Capital expenditures (485,241) (212,610)
Investment in affiliates (38,268)
---------- ----------
Net cash used in investing activities (3,220,431) (1,375,878)
Cash Flows From Financing Activities:
Repayments under line of credit (80,000) (200,000)
Principal payments under long-term debt (348,905) (559,673)
Principal payments under capital lease obligation (38,285) (21,070)
Proceeds from long-term debt 1,320,000
Payments related to public offering (306,566)
Issuance of common stock 110,418 18,425
Acquisition of treasury stock (60,072)
Employee stock ownership plan note collection 81,000 83,250
---------- ----------
10-QSB 6
<PAGE>
Net cash provided by (used in) financing activities 737,662 (739,140)
Net Increase in Cash 1,339,436 5,597
Cash at Beginning of Period 439,923 126,136
---------- ----------
Cash at End of Period $ 1,779,359 $ 131,733
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
10-QSB 7
<PAGE>
INDUSTRIAL TRAINING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
1) Basis of Presentation
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, ComSkill Learning Centers,
Inc. In the opinion of management, the interim condensed consolidated
financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results
for the interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
The interim condensed consolidated financial statements should be read in
conjunction with the Company's December 31, 1994 and 1993 audited
financial statements included with the Company's filing on Form 10-KSB.
The interim operating results are not necessarily indicative of the
operating results for a full year.
2) Accounts Receivable
Accounts receivable include the following:
September 30, December 31,
1995 1994
---- ----
Trade accounts receivable $ 5,775,664 $ 7,245,294
Unbilled contract receivables 76,183 242,279
Less allowance for doubtful
accounts (355,714) (280,714)
------------ ------------
Trade accounts receivable, net 5,496,133 7,206,859
Other receivables 125,786 86,618
------------ ------------
$ 5,621,919 $ 7,293,477
============ ============
3) Note Payable to Bank
At September 30, 1995, the Company had available a revolving bank line of
credit bearing interest at prime plus 1/2% in the amount of $2,500,000.
The line is collateralized by all the Company's business assets. At
September 30, 1995, the Company had no outstanding balance under the terms
of the line of credit.
10-QSB 8
<PAGE>
4) Income Taxes
The Company provides for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred
income taxes result primarily from differences between financial statement
and income tax treatment of program development costs and net operating
loss carryforwards.
5) Deferred Program Development Costs
On February 17, 1995, the Company purchased all rights, title and all
other ownership interests in the 51 lessons in the INVOLVE(REGISTERED
TRADEMARK) Series (INVOLVE(REGISTERED TRADEMARK)) from the Instrument
Society of America (ISA). The aggregate purchase price for this
transaction was approximately $1,590,000 of which approximately $1,400,000
represented an addition to deferred program development costs. These
programs are being amortized over a period of five years.
6) Stockholders' Equity
On July 28, 1995, the Company filed a registration statement on form SB-2
with the Securities and Exchange Commission (SEC) for a public offering of
1,050,000 shares of its common stock, including 175,000 shares being sold
by certain current Company shareholders. This registration statement was
declared effective by the SEC on September 28, 1995. The offering was
priced at $9.75 per share and the shares were underwritten on September 29,
1995. On October 4, 1995, the offering was completed and the Company re-
ceived net proceeds from the offering of approximately $7,934,000. Immedi-
ately following, the Company used approximately $1,763,000 of the proceeds
to reduce its borrowings under two separate term loans. The payments
represented approximately $444,000 of current loan installments and
approximately $1,319,000 of long-term loan installments. The Company
intends to use the remaining net proceeds received from the offering to
finance product development efforts, increase marketing efforts, finance
potential acquisitions of compatible businesses, products or technologies,
or for other working capital purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) Operations
----------
For the quarter ending September 30, 1995, the Company achieved strong
revenues and net earnings. Total revenues for the third quarter
aggregated $6,038,000 as compared to revenues of 5,428,000 for the same
period in 1994, an increase of $610,000 or 11%. Net earnings for the
third quarter totaled $464,000 or 18 cents per share as compared to
$262,000 or 11 cents per share for the corresponding quarter in 1994,
representing an increase of $202,000 (77%) and 7 cents per share (64%),
respectively. The increases for the quarter in both revenues and net
earnings continues to be the result of the strong performance of the
Company's core multimedia training products. Overall sales of multimedia
10-QSB 9
<PAGE>
training courseware increased to $4,863,000 from $3,359,000, a $1,504,000
or 45% increase over the third quarter in 1994. Total revenues for the
nine months ended September 30, 1995 aggregated $17,294,000, while net
earnings aggregated $1,191,000 or 46 cents per share. These figures
represent increases over the comparable period in 1994 of $2,502,000
(17%), $527,000 (79%) and 18 cents (64%) per share, respectively. The
strong growth in both revenues and net earnings for the year is due
primarily to the performance of the Company's core multimedia training
products and the profitability resulting therefrom. Sales of multimedia
training courseware increased to $12,447,000 from $8,801,000, a $3,646,000
or 41% increase over the same period in 1994. The growth of multimedia
training products during this period was due primarily to the expansion of
distribution channels and product development efforts in 1994. The growth
rate in earnings per share of 64% differs from the growth rate of net
earnings of 79% due to a 184,000 share increase in the weighted average
number of shares outstanding at September 30, 1995 as compared to
September 30,1994. Hardware revenues for the three months ended September
30, 1995 aggregated $914,000; this represents a decrease of $127,000 or
12% as compared to the same period in 1994. As a percentage of total
revenues, hardware sales accounted for 15% of total revenues during the
third quarter of 1995 as compared to 19% for the same period in 1994. The
decrease in the sales of hardware systems during the third quarter of 1995
can be attributed to several factors including lower overall hardware
prices, increased competition for hardware sales, and increased efforts by
the Company to sell multimedia training courseware. The Company views
this decline as temporary and not significant due to revenue levels
achieved during the first nine months of 1995. For the nine month period,
hardware revenues totaled $3,314,000, representing a $583,000 or 21%
increase over the comparable 1994 period. For the nine months ended
September 30, 1995, hardware sales accounted for 19% of total revenues,
consistent with the comparable period in 1994. While hardware sales do
not add significantly to the Company's earnings, management believes that
increased hardware sales are an important factor in developing the demand
for the Company's off-the-shelf courseware.Fees and royalties from the
Company's franchise network, ComSkill Learning Centers, Inc. amounted to
$53,000 for the quarter ended September 30, 1995 as compared to $217,000
for the same period in 1994. During the third quarter of 1995, the
Company did not sell any new franchise territories, compared to five
territories which were sold during the same period in 1994. Overall
revenues achieved from fees and royalties for the nine months ended
September 30, 1995 have amounted to $357,000. This compares to $273,000
achieved during the first nine months of 1994; a $84,000 or 31% increase.
Sales of the Company's linear products, marketed under the label USA
Training, amounted to $117,000 for the third quarter of 1995 and $578,000
for the nine months ended September 30, 1995. This represents decreases
of $149,000 or 56% and $304,000 or 34% for the comparable periods in 1994.
The decline in sales of these products is consistent with industry trends.
Due to the relative size of ITC's linear products division in comparison
to ITC, this decline is not considered significant.
10-QSB 10
<PAGE>
(b) Earnings Before Provision For Income Taxes
------------------------------------------
Earnings before provision for income taxes for the third quarter 1995
aggregated $786,000 as compared to $435,000 in 1994, an increase of
$351,000 or 81%. For the nine months ended September 30, 1995, earnings
before provision for taxes totaled $2,018,000, as compared to $1,106,000
for 1994, an increase over the prior year of $912,000 or 82%. The
significant improvement in earnings before provision for income taxes over
1994, on both a quarter to date and year to date basis, was a result of
several factors. These factors include the Company's improved revenue
performance including strong sales of the Company's core multimedia
products, the reduction in royalty expense due to the Company's purchase
of the INVOLVE(REGISTERED TRADEMARK) Series [Item (d), below], and the
Company's efforts to control costs. Selling, general and administrative
expenses aggregated $1,786,000 during the third quarter and $5,381,000 for
the nine months ended September 30, 1995. This compares to $1,527,000 and
$4,618,000 for the same periods in 1994. The increase in selling, general
and administrative expenses over third quarter of 1994 of $259,000 and
over the nine months ended September 30, 1994 of $763,000 is primarily due
to additional sales and marketing personnel costs, and increased trade
show and other marketing activities. For the nine months ended September
30, 1995, the amount of selling, general and administrative expenses as a
percentage of sales was 31%, consistent with levels achieved during the
same period in 1994.Net earnings for the third quarter of 1995 were
$464,000, or 18 cents per share, as compared to $262,000 or 11 cents per
share achieved in 1994. Year to date net earnings as of September 30,
1995 aggregated $1,191,000 or 46 cents per share as compared to $664,000
or 28 cents during the first nine months of 1994. The substantial
increase in net earnings during 1995 was a result of the same factors that
contributed to the increases in earnings before provision for income
taxes.
(c) Taxes
-----
As a result of the Company's available tax loss carryforwards (as
described in Note 9 to the financial statements filed with the Company's
10-KSB for the year ending December 31, 1994), the Company had,
historically, paid a minimal amount of income taxes. However, as a result
of the Company's increasing level of profitability, combined with the
restrictions on the utilization of certain of the Company's net operating
losses, the Company began to pay a larger amount of income taxes beginning
in 1995. These increased levels of payments are expected to continue,
provided the Company continues to operate profitably.
(d) Liquidity, and Capital Resources
--------------------------------
Working capital at September 30, 1995 was $12,882,000 as compared to
$4,095,000 at December 31, 1994. The increase of $8,787,000 was primarily
due to the September 29, 1995 underwriting of 1,050,000 shares of the
Company's common stock, of which 875,000 shares were sold by the Company
and 175,000 were sold by certain Company shareholders. The public
offering generated net proceeds of $7,934,000 (excluding expenses paid
10-QSB 11
<PAGE>
directly by the Company of approximately $307,000) which were received by
the Company on October 4, 1995. In addition to the offering, the Company
experienced an increase in cash provided from operations during the first
nine months of 1995. Operations generated $3,822,000 of cash as compared
to $2,121,000 for the nine months ended September 30, 1995 and 1994,
respectively. Additionally, during the first quarter, the Company
borrowed $1,320,000 of long term debt in order to finance the acquisition
of the INVOLVE(REGISTERED TRADEMARK) Series as described below. This
note was paid in full with a portion of the proceeds from the offering.
The cash flow generated from operations was primarily used as follows:
$1,415,000 to fund the Company's product development efforts (net of
$1,320,000 of financing for purchase of the INVOLVE(REGISTERED TRADEMARK)
Series), $485,000 for certain capital expenditures, $349,000 for principal
payments on the Company's long term debt, and $80,000 repayment of the
Company's revolving line of credit.
The Company's borrowings against its revolving credit line decreased from
$80,000 at December 31, 1994 to zero at September 30, 1995. Trade
accounts receivable at September 30, 1995 aggregated $5,496,000,
representing a decrease of $1,711,000 or 24% from December 31, 1994.
On February 17, 1995, ITC purchased all rights, title and all other
ownership interests in the 51 lessons in the INVOLVE(REGISTERED TRADEMARK)
Series (INVOLVE(REGISTERED TRADEMARK)). These products, which were
developed for the Instrument Society of America (ISA) by ITC, had
previously been sold by the Company under an exclusive third party sales
and marketing agreement. The aggregate purchase price for this
transaction was approximately $1,590,000. The price included the
forgiveness of a receivable from ISA of approximately $90,000, and
purchase of approximately $180,000 of INVOLVE(REGISTERED TRADEMARK)
inventory.
10-QSB 12
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description Page Number
3.1 Amended Articles of Incorporation
Incorporated by reference to Exhibit
3.1 filed with form SB-2 on July 28,
1995
#33-61393
3.2 Restated Bylaws Incorporated by
reference to Exhibit 3.2 filed with
form SB-2 on July 28, 1995
#33-61393
(b) Reports on Form 8-K
None.
10-QSB 13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INDUSTRIAL TRAINING CORPORATION
(Registrant)
/s/ James H. Walton
--------------------- DATE: October 30, 1995
By: James H. Walton
Chairman of the Board, President and
Chief Executive Officer
/s/ Philip J. Facchina
----------------------- DATE: October 30, 1995
By: Philip J. Facchina
Vice President, Treasurer and
Chief Financial Officer
/s/ Christopher E. Mack DATE: October 30, 1995
-------------------------
By: Christopher E. Mack
Controller
10-QSB 14
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's 10-qsb as for the quarter ended September 30, 1995 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,779,359
<SECURITIES> 0
<RECEIVABLES> 5,977,633
<ALLOWANCES> (355,714)
<INVENTORY> 732,352
<CURRENT-ASSETS> 16,393,545
<PP&E> 4,082,025
<DEPRECIATION> (2,942,703)
<TOTAL-ASSETS> 25,391,560
<CURRENT-LIABILITIES> 3,511,299
<BONDS> 1,473,098
<COMMON> 0
0
337,883
<OTHER-SE> 18,727,645
<TOTAL-LIABILITY-AND-EQUITY> 25,391,560
<SALES> 17,293,961
<TOTAL-REVENUES> 17,293,961
<CGS> 9,957,906
<TOTAL-COSTS> 9,957,906
<OTHER-EXPENSES> 5,318,238
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,017,817
<INCOME-TAX> 827,000
<INCOME-CONTINUING> 1,190,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,190,817
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0
</TABLE>
