<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 June 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 principle executive offices and zip code)
Registrant's telephone number (703)713-3335
(including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each Class which registered
------------------- ------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
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 June 30, 1995, 2,455,624 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
NONE
<PAGE>
Table of Contents
Part I Page
Item 1 Financial Statements
Condensed Consolidated Statements of
Operations for the Three Months and Six Months
Ended June 30, 1995 and 1994 1
Condensed Consolidated Balance Sheets as of
June 30, 1995 and December 31, 1994 2
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30, 1995
and 1994 4
Notes to Condensed Consolidated Statements 5
Item 2 Management's Discussion and Analysis or Plan
of Operation 7
Part II
Item 1 Legal Proceedings 9
Item 2 Changes in Securities 9
Item 3 Defaults Upon Senior Securities 9
Item 4 Submission of Matters to a Vote of Security
Holders 9
Item 5 Other Information 9
Item 6 Exhibits and Reports on Form 8-K 9
10QSB - 2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDUSTRIAL TRAINING CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the 3 Months Ended June 30 For the 6 Months Ended June 30
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $6,285,888 $5,210,752 $1,255,632 $9,363,645
Cost of sales 3,659,611 3,176,506 6,452,408 5,584,954
--------- --------- --------- ---------
Gross profit 2,626,277 2,034,246 4,803,224 3,778,691
Selling, general, and
administrative expense 1,846,566 1,566,124 3,596,371 3,090,546
Equity in earnings of
affiliates (35,903) (55,528) (77,961) (70,154)
Interest expense, net 33,850 39,492 54,300 87,826
------ ------ ------ ------
1,844,513 1,550,088 3,572,710 3,108,218
--------- --------- --------- ---------
Earnings before income
taxes 781,764 484,158 1,230,514 670,473
Income taxes 321,000 193,664 505,000 268,842
------- ------- ------- -------
Net earnings $460,764 290,494 $725,514 $401,631
======== ======= ======= =======
Earnings per common $ .18 $ .12 $ .28 $ .17
share ========= ========= ========== ==========
Weighted average number 2,593,942 2,371,286 2,588,176 2,377,875
of shares outstanding ========= ========= ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
10QSB - 3
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,178,642 $ 439,923
Accounts receivable, net (Note 2) 7,257,710 7,293,477
Due from affiliates 46,388 86,111
Inventories 1,100,037 1,203,876
Prepaid expenses 305,846 118,446
-------------- --------------
Total current assets 9,888,623 9,141,833
Property and equipment:
Video and computer equipment 2,717,431 2,366,661
Furniture and fixtures 1,037,204 1,032,563
Leasehold improvements 95,111 89,106
Videotape masters 144,180 144,180
-------------- --------------
3,993,926 3,632,510
Less accumulated depreciation and amortization (2,814,069) (2,507,393)
-------------- --------------
Net property and equipment 1,179,857 1,125,117
Deferred program development costs, net (Note 5) 5,618,824 4,358,315
Goodwill 2,102,626 2,185,126
Investment in affiliates 220,976 245,887
Other 73,658 73,769
-------------- --------------
$ 19,084,564 $ 17,130,047
============= =============
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
10QSB - 4
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 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 580,726 328,637
Accounts payable 2,247,594 2,112,271
Due to affiliates 281,529 419,895
Compensation and benefits payable 488,259 942,215
Deferred revenue 712,847 77,648
Other accrued expenses payable 657,671 1,086,571
Income taxes payable 300,000
--------------- ---------------
Total current liabilities 5,268,626 5,047,237
Deferred lease obligations 111,968 119,316
Deferred income taxes (Note 4) 1,239,062 1,136,522
Long-term debt, excluding current installments 1,614,198 772,826
--------------- ---------------
Total liabilities 8,233,854 7,075,901
Commitments and contingencies
Stockholders' equity:
Common stock, $10 par value, 4,000,000 shares
authorized; 2,473,328 and 2,466,828 issued in
1995 and 1994, respectively 247,333 246,683
Additional paid-in capital 5,714,402 5,698,147
Note receivable from ESOP (304,177) (358,177)
Retained earnings 5,254,461 4,528,947
--------------- ---------------
10,912,019 10,115,600
Treasury stock, at cost, 17,704 and 18,004 shares
at June 30, 1995 and
December 31, 1994, respectively (61,309) (61,454)
--------------- ---------------
Total stockholders' equity 10,850,710 10,054,146
--------------- ---------------
$ 19,084,564 $ 17,130,047
=============== ===============
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
10QSB - 5
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For 6 Months Ended June 30,
1995 1994
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 725,514 $ 401,631
Reconciling items:
Provision for deferred taxes 102,540 263,028
Depreciation and amortization 1,307,661 839,695
Sales awards of treasury shares 1,650
Increase in allowance for doubtful accounts 45,000
Changes in assets and other liabilities:
Increase in accounts receivable (9,233) (256,315)
Decrease (increase) in inventory 103,839 (123,525)
Increase in prepaid expenses (187,400) (55,519)
Decrease (increase) in other assets 111 (49,462)
Increase in accounts payable 135,323 442,490
Decrease in due to affiliates, net (98,643) (14,613)
Decrease in compensation and benefits payable (453,956) (82,470)
Increase (decrease) in deferred revenue 635,199 (60,024)
(Decrease) increase in accrued other expenses (428,900) 81,598
Increase in income taxes payable 300,000
Decrease in deferred lease liability (7,348) (11,971)
------------- ------------
Net cash from operating activities 2,171,357 1,374,543
Cash Flows From Investing Activities:
Deferred program development costs (2,154,083) (712,935)
Capital expenditures (361,416) (47,679)
Investment in affiliates (34,593)
------------- ------------
Net cash used in investing activities (2,515,499) (795,207)
Cash Flows From Financing Activities:
Repayments under line of credit (80,000) (240,000)
Principal payments under long-term debt (212,152) (379,390)
Payments under capital lease obligations (14,387) (14,195)
Proceeds from long-term debt 1,320,000
Issuance of common stock 15,400 18,464
Employee stock option note collection 54,000 56,250
Acquisition of treasury stock (60,072)
------------- ------------
10QSB - 6
<PAGE>
Net cash provided by (used in) financing activities 1,082,861 (618,943)
------------- ------------
Net increase (decrease) in Cash 738,719 (39,607)
Cash at Beginning of Period 439,923 126,136
------------- ------------
Cash at End of Period $ 1,178,642 $ 86,529
============= ============
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
10QSB - 7
<PAGE>
INDUSTRIAL TRAINING CORPORATION
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
June 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. ("ComSkill"), see note 6. 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
<TABLE>
<CAPTION>
Accounts receivable include the following:
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Trade accounts receivable $ 7,453,370 $ 7,245,294
Unbilled contract receivables 82,008 242,279
Less allowance for doubtful accounts (325,714) (280,714)
--------------- --------------
7,209,664 7,206,859
Other receivables 48,046 86,618
--------------- --------------
$ 7,257,710 $ 7,293,477
=============== ==============
</TABLE>
3) Note Payable to Bank
At June 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 June
30, 1995, the Company had no outstanding balance under this line of
credit.
10QSB - 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) Other Events
On January 2, 1995, CI Acquisition Corp. ("CI") and its wholly owned
subsidiary, Comsell Training, Inc. ("Comsell"), were merged and liquidated
into the Company. As a result, the Company's only remaining subsidiary is
ComSkill Learning Centers, Inc. The merger and liquidation will have no
effect on the Company's financial reporting.
10QSB - 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) Operations
For the quarter ending June 30, 1995, the Company achieved record second
quarter revenues and net earnings. Total revenues for the second quarter
aggregated $6,286,000 as compared to revenues of 5,211,000 for the same
period in 1994, an increase of $1,075,000 or 21%. Net earnings for the
second quarter totaled $461,000 or 18 cents per share as compared to
$290,000 or 12 cents per share for the corresponding quarter in 1994,
representing an increase of $171,000 (59%) and 6 cents per share (50%),
respectively. The substantial 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 training courseware increased to $4,267,000 from $3,050,000, a
$1,217,000 or 40% increase over the second quarter in 1994.
Total revenues for the six months ended June 30, 1995 were $11,256,000,
while net earnings aggregated $726,000 or 28 cents per share. These
figures represent increases over the comparable period in 1994 of
$1,892,000 (20%), $324,000 (81%) and 11 cents (65%) per share,
respectively. The strong growth in both revenues and net earnings for the
year is due primarily to the aforementioned performance of the Company's
core multimedia training products and the profitability resulting
therefrom. The growth rate in earnings per share of 65% differs from the
growth rate of net earnings of 81% due to a 210,000 share increase in the
weighted average number of shares outstanding at June 30, 1995 as compared
to June 30,1994.
Total revenues for the Company continue to be positively impacted from the
increase in sales of multimedia hardware systems. Hardware revenues for
the three months ended June 30, 1995 aggregated $1,511,000 which
represents a $442,000 or 41% increase relative to 1994. For the six month
period, the same performance trend continued with hardware revenues
totaling $2,400,000, representing a $710,000 or 42% increase over the
comparable 1994 period. 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. (ComSkill) amounted to $135,000 for the quarter ended June
30, 1995 as compared to $53,000 for the same period in 1994, representing
a 155% increase. The Company sold one new franchise territory during the
second quarter of 1995. Overall revenues achieved from fees and royalties
for the six months ended June 30, 1995 have amounted to $304,000. This
compares to $55,000 achieved during the first six months of 1994; a
$249,000 or 453% increase. The Company has sold two franchise territories
in 1995, with cumulative territories sold to date of 17.
Sales of the Company's linear products, marketed under the label USA
Training, amounted to $250,000 for the second quarter of 1995 and $461,000
10QSB - 10
<PAGE>
for the six months ended June 30, 1995. This represents decreases of
$51,000 or 17% and $155,000 or 25% 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.
(b) Earnings Before Provision For Income Taxes
Earnings before provision for income taxes for the second quarter 1995
aggregated $782,000 as compared to $484,000 in 1994, an increase of
$298,000 or 62%. For the six months ended June 30, 1995, earnings before
provision for taxes totaled $1,231,000, as compared to $670,000 for 1994,
an increase over prior year of $561,000 or 84%. 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, the reduction in royalty expense due to the Company's
purchase of the INVOLVE(REGISTERED TRADEMARK) products, and the Company's
ability to control costs. Selling, general and administrative expenses
aggregated $1,847,000 during the second quarter and $3,596,000 for the six
months ended June 30, 1995. This compares to $1,566,000 and $3,091,000
for the same periods in 1994. The increase in selling, general and
administrative expenses over second quarter of 1994 of $281,000 and the
six months ended June 30, 1994 of $505,000 is primarily due to additional
operational, sales and marketing costs. The amount of selling, general
and administrative expenses as a percentage of sales has decreased
slightly, from 33% to 32% for the six months ended June 30, 1995.
Net earnings for the second quarter of 1995 were $461,000, or 18 cents per
share, as compared to $290,000 or 12 cents per share achieved in 1994.
Year to date net earnings as of June 30, 1995 aggregated $726,000 or 28
cents per share as compared to $402,000 or 17 cents during the first six
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 the second quarter of 1995. These increased levels of payments are
expected to continue, provided the Company continues to improve its level
of profitability.
10QSB - 11
<PAGE>
(d) Funds, Flow, Liquidity, and Capital Resources
Net working capital at June 30, 1995 was $4,620,000 as compared with
$4,095,000 at December 31, 1994. The increase of $525,000 or 13% is due
to the strong results of operations of the Company during the first six
months of 1995, as described in detail above. In addition, the Company
experienced an increase in cash provided from operations in the first six
months of 1995. Operations generated approximately $2,171,000 of cash
compared with $1,375,000 for the six month periods ended June 30, 1995 and
1994, respectively. The positive cash flow was primarily used as follows:
$2,154,000 used to fund the Company's product development efforts,
$361,000 for certain capital expenditures, $212,000 for principal payments
on the Company's long-term debt, and $80,000 repayment of the Company's
revolving line of credit. 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) products as described
below.
The Company's borrowings against its revolving credit line decreased from
$80,000 at December 31, 1994 to zero at June 30, 1995. Accounts
receivable at June 30, 1995 aggregated $7,258,000 due primarily to two
factors: the strong revenue performance in the second quarter of 1995 and
a $1,713,000 sale to a customer at the end of the second quarter.
Although the entire order was shipped and billed prior to June 30, 1995,
due to the terms of the contract, only $578,000 was recognized as revenue
in the second quarter of 1995.
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. The purchase was financed by the Company borrowing $1,000,000
under its available line of credit and paying $500,000 in cash.
Subsequently, the Company paid down the line of credit borrowings with the
proceeds from a 5-year term loan in the original amount of $1,320,000.
10QSB - 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
(a) The Annual Meeting of Shareholders was held May 2, 1995 at the
Sheraton Reston Hotel, 11810 Sunrise Valley Drive, Reston Virginia 22091.
During this meeting, two directors were each elected to a three-year term.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 27.1 Financial Data Schedule
(b) Reports on Form 8-K: None.
10QSB - 13
<PAGE>
EXHIBITS
27.1 Financial Data Schedule
10QSB - 14
<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)
<TABLE>
<CAPTION>
<S> <C>
BY /S/ James H. Walton DATE July 25, 1995
------------------------------------------------ -------------------------------
James H. Walton
Chairman of the Board, President and
Chief Executive Officer
BY /S/ Philip J. Facchina DATE July 25, 1995
------------------------------------------------ -------------------------------
Philip J. Facchina
Vice President, Treasurer and
Chief Financial Officer
BY /S/ Christopher E. Mack DATE July 25, 1995
------------------------------------------------ -------------------------------
Christopher E. Mack
Controller
</TABLE>
10QSB - 15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS 10-QSB AS FOR THE QUARTER ENDED JUNE 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-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,178,642
<SECURITIES> 0
<RECEIVABLES> 7,453,370
<ALLOWANCES> (325,714)
<INVENTORY> 1,100,037
<CURRENT-ASSETS> 9,888,623
<PP&E> 3,993,926
<DEPRECIATION> (2,814,069)
<TOTAL-ASSETS> 19,084,564
<CURRENT-LIABILITIES> 5,268,626
<BONDS> 2,194,924
<COMMON> 247,333
0
0
<OTHER-SE> 10,603,377
<TOTAL-LIABILITY-AND-EQUITY> 19,084,564
<SALES> 11,255,632
<TOTAL-REVENUES> 11,255,632
<CGS> 6,452,408
<TOTAL-COSTS> 6,452,408
<OTHER-EXPENSES> 3,527,710
<LOSS-PROVISION> 45,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,230,514
<INCOME-TAX> 505,000
<INCOME-CONTINUING> 725,514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 725,514
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0
</TABLE>
