<PAGE>
UNITED STATES
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, 1996
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 20171
------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number (703)713-3335
(including area code)
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 July 19, 1996, 3,586,224 shares of Common Stock were outstanding.
<PAGE>
Table of Contents
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<TABLE>
<CAPTION>
Part I Page
- -------- ----
<S> <C> <C>
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended
June 30, 1996 and 1995 1
Condensed Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995 4
Notes to Condensed Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 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
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the 3 Months Ended June 30 For the 6 Months Ended June 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $7,605,160 $6,285,888 $11,320,881 $11,255,632
Cost of sales 4,771,966 3,659,611 7,417,404 6,452,408
---------- ---------- ----------- -----------
Gross margin 2,833,194 2,626,277 3,903,477 4,803,224
Selling, general, and
administrative expense 2,409,555 1,846,566 4,339,969 3,596,371
Equity in earnings of affiliates (49,275) (35,903) (112,357) (77,961)
Interest expense (income), net (107,665) 33,850 (242,521) 54,300
---------- ---------- ----------- -----------
2,252,615 1,844,513 3,985,091 3,572,710
---------- ---------- ----------- -----------
Income (loss)
before income taxes 580,579 781,764 (81,614) 1,230,514
Income taxes (benefit) 232,000 321,000 (33,000) 505,000
---------- ---------- ----------- -----------
Net income (loss) $ 348,579 $ 460,764 $ (48,614) $ 725,514
========== ========== =========== ===========
Net income (loss)
per common share $.10 $.18 $(.01) $.28
========== ========== =========== ===========
Weighted average number
of shares outstanding 3,635,322 2,593,942 3,608,086 2,588,176
========== ========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
10QSB-1
<PAGE>
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,278,309 $10,348,762
Accounts receivable, net (Note 2) 5,060,684 4,802,054
Due from affiliates (Note 4) 16,620 18,842
Inventories 704,607 871,072
Prepaid expenses 352,493 253,061
Income taxes receivable 70,200 --
----------- -----------
Total current assets 15,482,913 16,293,791
Long-term receivable (Note 3) 1,537,831 --
Property and equipment:
Video and computer equipment 3,444,270 3,221,982
Furniture and fixtures 1,043,318 1,037,404
Leasehold improvements 95,422 93,106
----------- -----------
4,583,010 4,352,492
Less accumulated depreciation and amortization (3,380,519) (3,036,918)
----------- -----------
Net property and equipment 1,202,491 1,315,574
Deferred program development costs, net 7,356,177 5,941,079
Goodwill, net 1,878,799 1,961,299
Investment in affiliates (Note 4) 199,650 231,315
Other 31,096 31,089
----------- -----------
$27,688,957 $25,774,147
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
10QSB-2
<PAGE>
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 117,175 $ 117,175
Accounts payable 2,183,402 1,621,543
Due to affiliates (Note 4) 465,407 261,230
Accrued compensation and benefits 618,133 594,796
Deferred revenues 996,406 100,769
Other accrued expenses 558,200 219,029
Income taxes payable -- 105,000
----------- -----------
Total current liabilities 4,938,723 3,019,542
Deferred lease obligations 94,646 102,964
Deferred income taxes 1,575,522 1,608,522
Long-term debt, excluding current installments 72,170 130,745
----------- -----------
Total liabilities 6,681,061 4,861,773
Stockholders' equity:
Common stock, $.10 par value, 12,000,000 shares
authorized; 3,586,224 and 3,556,424 issued
and outstanding in 1996 and 1995, respectively 358,622 355,643
Additional paid-in capital 14,858,510 14,770,853
Note receivable from ESOP (196,677) (250,177)
Retained earnings 5,987,441 6,036,055
----------- -----------
Total stockholders' equity 21,007,896 20,912,374
----------- -----------
$27,688,957 $25,774,147
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
10QSB-3
<PAGE>
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For 6 Months Ended June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (48,614) $ 725,514
Reconciling items:
Provision for deferred taxes (33,000) 102,540
Depreciation and amortization 1,958,984 1,307,661
Sales awards of treasury shares -- 1,650
Increase in allowance for doubtful accounts 76,816 45,000
Changes in operating assets and liabilities:
Increase in accounts receivable (335,446) (9,233)
Decrease in inventories 166,465 103,839
Increase in prepaid expenses (99,432) (187,400)
Increase in income taxes receivable (70,200) --
Increase in long term receivable (1,537,831) --
(Increase) decrease in other assets (7) 111
Increase in accounts payable 561,859 135,323
Increase (decrease) in due to affiliates, net 206,399 (98,643)
Increase (decrease) in accrued
compensation and benefits 23,337 (453,956)
Increase in deferred revenues 895,637 635,199
Increase (decrease) in other accrued expenses 339,171 (428,900)
(Decrease) increase in income taxes payable (105,000) 300,000
Decrease in deferred lease obligations (8,318) (7,348)
----------- -----------
Net cash from operating activities 1,990,820 2,171,357
Cash flows from investing activities:
Deferred program development costs (2,916,316) (2,154,083)
Capital expenditures (230,518) (361,416)
----------- -----------
Net cash used in investing activities (3,146,834) (2,515,499)
Cash flows from financing activities:
Repayments under line of credit -- (80,000)
Principal payments of long-term debt (58,575) (212,152)
Payments under capital lease obligations -- (14,387)
Proceeds from long-term debt -- 1,320,000
Issuance of common stock 90,636 15,400
Employee stock option note collections 53,500 54,000
----------- -----------
Net cash provided by financing activities 85,561 1,082,861
----------- -----------
Net (decrease) increase in cash (1,070,453) 738,719
Cash and cash equivalents at beginning of period 10,348,762 439,923
----------- -----------
Cash and cash equivalents at end of period $ 9,278,309 $ 1,178,642
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
10QSB-4
<PAGE>
INDUSTRIAL TRAINING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
1) Significant Accounting Policies
a) Basis of Presentation
---------------------
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries ComSkill Learning Centers, Inc.
("ComSkill") and Activ Training, Ltd. In the opinion of the Company, 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, 1995 and 1994 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
the full fiscal year.
b) Revenues and Cost
-----------------
Revenues include both off-the-shelf and custom courseware sales, courseware
licenses, consulting service revenues and hardware revenues. The Company
recognizes revenues on off-the-shelf product and hardware sales as units are
shipped. The Company permits the customer the right to return the courseware
within 30 days of purchase. In the event that sales returns are material, the
Company adjusts revenue accordingly. Revenues from sales of custom training
programs that are developed and produced under specific contracts with
customers, including contracts with affiliated joint ventures and limited
partnerships, are recognized on the percentage of completion basis as related
costs are incurred during the production period. Gross revenues from sales of
affiliated joint venture and limited partnership copyrighted courseware are
included in the Company's financial statements, as are related production,
selling and distribution costs. Amounts due to co-owners of the affiliated
venture/partnerships related to such courseware sales are reflected as royalties
and included in cost of sales in the financial statements. Revenues from
courseware licenses are recognized upon the delivery of the initial copy of each
product licensed, and related duplication costs are accrued based on estimates.
Revenues from consulting services are recognized as services are performed.
2) Accounts Receivable
<TABLE>
<CAPTION>
Accounts receivable include the following:
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Trade accounts receivable $4,098,471 $4,619,145
Current portion of long-term receivable, net (Note 3) 952,287 --
Unbilled contract receivables 249,959 291,311
Less allowance for doubtful accounts (266,863) (190,047)
---------- ----------
Trade accounts receivable, net 5,033,854 4,720,409
Other receivables 26,830 81,645
---------- ----------
$5,060,684 $4,802,054
========== ==========
</TABLE>
10QSB-5
<PAGE>
3) Long-term Receivable
During the second quarter of 1996, the Company entered into a contract with the
DeKalb County (GA) Board of Education ("DeKalb") for the sale of a district-wide
multicopy courseware license, hardware and certain future services. The total
contract amount of $5,060,000 is payable in four installments, $1,535,000 upon
contract execution, and the remaining $3,525,000 in three equal annual
installments beginning in June, 1997. Total revenues recognized under the
contract during the second quarter for the courseware license and hardware were
$3,838,000, representing 34% of the Company's year to date revenues. Dealer
fees relating to this sale have been charged against the related revenues, and
are only payable when proceeds are received by the Company. The long-term
portion of the net receivable has been discounted assuming a 6% interest rate.
Components of long-term receivable include the following:
<TABLE>
<CAPTION>
June 30,
1996
----
<S> <C>
Receivable from DeKalb County (GA) Board of Education $ 3,525,000
Related dealer fees payable (797,083)
Less amounts classified as current, net of related dealer fees (952,287)
Less amount representing interest (237,799)
-----------
$ 1,537,831
===========
</TABLE>
4) Investments in and Due to Affiliates
The Company is a participant in five separate limited partnerships with
Industrial Training Partners, Ltd. (the ITP partnerships) and a joint venture
with DynCorp. In each of the ITP partnerships, the Company is a 5% general
partner and in certain partnerships the Company has acquired limited partnership
interest as well. In the joint venture with DynCorp, the Company has a 50%
ownership interest. The ITP partnerships and the DynCorp joint venture were
formed to develop and produce various series of training programs. Under the
contracts to market the programs for the partnerships and joint venture, ITC
receives 50%-70% of the sales price for the costs of reproducing and marketing
the training materials. In the case of the joint venture agreement, the Company
also receives an additional 25% for its share of joint venture profits. Sales
of programs related to these activities were $1,243,000 and $1,200,000 for the
first six months of 1996 and 1995 respectively. Additionally, during the fourth
quarter of 1995 and the first six months of 1996, the Company developed new
training products for certain partnerships. In order to finance the product
development activities for these partnerships, the Company has guaranteed two
bank loans for two of the partnerships. At June 30, 1996, the outstanding
balance of these loans totaled $565,000. Revenues recognized by the Company for
the development of these training programs were $532,000 for the first six
months of 1996.
5) Note Payable to Bank
At June 30, 1996, the Company had no amounts outstanding relating to its
$2,500,000 revolving bank line of credit, which bears interest at prime plus
1/2% (8.75% at June 30, 1996). Borrowings under the line are collateralized by
the Company's accounts receivable and inventory.
The loan agreement includes certain covenants which limit borrowings and the
ability to merge or dispose of assets, and requires the maintenance of minimum
working capital and tangible net worth ratios.
10QSB-6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
a) Operations
----------
For the quarter ended June 30, 1996, the Company achieved record quarterly
revenues and returned to profitability after experiencing a loss in the first
quarter of 1996. Total revenues for the second quarter aggregated $7,605,000 as
compared to revenues of $6,286,000 for the same period in 1995. This represented
an increase of $1,319,000 or 21%. Net earnings for the second quarter totaled
$349,000 or 10 cents per share as compared to $461,000 or 18 cents per share for
the corresponding quarter in 1995, representing a decrease of $112,000 and 8
cents per share, respectively. The substantial increase in revenues for the
quarter was the result of strong sales of the Company's off-the-shelf multimedia
training products. Overall courseware sales increased to $5,833,000,
representing a $1,566,000 or 37% increase over the second quarter of 1995. The
increased courseware sales was primarily due to the sale of a district-wide
multicopy courseware license to the DeKalb County (GA) Board of Education under
an agreement valued at $5,060,000, which included courseware, hardware, and
certain future services. This sale generated net courseware and hardware
revenues of $3,838,000 during the quarter.
Total revenues for the six months ended June 30, 1996 were $11,321,000 with year
to date net loss of $49,000 or 1 cent per share as compared to revenues of
$11,256,000, net earnings of $461,000 and 28 cents per share for the comparable
period of 1995. During 1996, the Company has faced many factors that have
impacted sales performance and profitability of the Company. These factors
include the slower than anticipated growth of sales generated by third party
distribution channels, and delayed sales due to the Company's conversion of its
courseware libraries to CD-ROM, which was substantially completed during the
second quarter.
Hardware revenues for the three months ended June 30, 1996 aggregated $1,388,000
representing a decrease of $123,000 or 8% as compared to the same period in
1995. For the six month period, hardware revenues totaled $1,837,000,
representing a decrease of $563,000 or 23% as compared to the corresponding
period in 1995. The decreases in the sales of hardware systems can be
attributed to the standardization and availability of CD-ROM hardware systems.
The resulting impact has been a reduction in unit prices and increased
availability through multiple distribution channels, resulting in increased
competition to the Company.
b) Income (Loss) Before Provision for Taxes
Earnings before income taxes for the second quarter of 1996 aggregated $581,000
as compared to $782,000 for the same period in 1995, a decrease of $201,000. For
the six months ended June 30, 1996, the Company experienced a loss before income
taxes totaling $82,000 as compared to income before taxes of $1,231,000 achieved
during the comparable period in 1995. The decrease in earnings for the three
months and six months ended June 30, 1996 was primarily due to increased product
amortization associated with the Company's program development activities and
increased dealers fees associated with certain third party product sales,
principally the sale to DeKalb noted above. Selling, general and administrative
expenses totaled $2,410,000 for the second quarter and $4,340,000 for the six
months ended June 30, 1996. This compares to $1,847,000 and $3,596,000 for the
same periods in 1995. The increases in selling, general and administrative
expenses over second quarter 1995 of $563,000 and over the six months ended June
30, 1994 of $744,000 is primarily due to increased marketing activities and an
increase in the allowance for doubtful accounts recorded during the second
quarter of 1996.
c) Net Income (Loss)
Net income for the quarter ended June 30, 1996 totaled $349,000 or 10 cents per
share while year to date results accumulated a net loss of $49,000. This
represents decreases of $122,000 or 8 cents per share and 774,000 or 29 cents
per share as compared to the corresponding periods in 1995.
10QSB-7
<PAGE>
d) Cash Flow, Liquidity and Capital Resources
Working capital at June 30, 1996 was $10,544,000 as compared to $13,274,000 at
December 31, 1995, a decrease of $2,730,000. The decrease is primarily due to
the Company's first quarter operating loss and the significant investment in
program development made by the Company during the first six months of 1996.
The Company's working capital primarily consists of the cash proceeds from the
Company's third quarter 1995 public offering. The proceeds received from the
offering were approximately $9,048,000.
For the period ended June 30, 1996, the Company experienced strong cash flow
from operations despite the lower overall operating results. Cash provided by
operations was $1,991,000 for the first six months of 1996. While the Company
has experienced a year to date net loss of $48,614, cash was generated by
operations due to the significant non-cash charges for amortization of product
development and other assets and depreciation. The reduction in cash flow due
to the long term receivable arising from the transaction with DeKalb was offset
by increases in accounts payable, deferred revenues and other accruals,
principally relating to that transaction. The cash provided by operations was
offset by the investment of $3,147,000 for product development and certain
capital expenditures. The most significant investment in product development
was the conversion of the Company's courseware libraries to CD-ROM, which was
substantially completed in the second quarter of 1996.
Due to the decline in profitability during the first six months of 1996, during
June the Company implemented a 10% corporate-wide work force reduction and also
took additional steps to reduce overall costs.
Management believes that the cash generated from operations combined with the
Company's existing resources and available line of credit are adequate to meet
ITC's working capital needs and other financing requirements in 1996.
10QSB-8
<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 Company held its annual meeting of shareholders on May 7, 1996. There
were four agenda items submitted to a vote of security holders, including the
election of two directors to the Company's Board of Directors: (i) Daniel R.
Bannister was elected to serve on the Board for a term of three years. The
number of votes cast in favor of Mr. Bannister's election was 3,206,452; (ii)
Philip J. Facchina was elected to serve on the Board for a term of three years.
The number of votes cast in favor of Mr. Facchina's election was 3,233,592.
(b) The shareholders approved the amendment to the Articles of Incorporation,
increasing the shares of authorized Common Stock from Four Million (4,000,000)
to Twelve Million (12,000,000). The number of votes cast in favor of this
proposal was 3,048,329.
(c) The shareholders approved the First Amendment to the 1992 Key Employee
Incentive Stock Option Plan, increasing the number of shares reserved for the
granting of options thereunder by 200,000. There were 2,468,224 votes cast in
favor of this item.
(d) The shareholders approved the First Amendment to the 1992 Director Stock
Option Plan, increasing the number of shares reserved for the granting of stock
options thereunder by 100,000. There were 2,373,646 votes cast in favor of this
item.
No other matters were submitted to the security holders for a vote.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See attached Exhibit Index.
(b) Reports on Form 8-K
None.
10QSB-9
<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)
BY /s/James H. Walton DATE 7/25/96
------------------------------ -------
James H. Walton
Chairman of the Board and
Chief Executive Officer
BY /s/Philip J. Facchina DATE 7/25/96
--------------------------------- -------
Philip J. Facchina
President and
Chief Operating Officer
BY /s/Frank A. Carchedi DATE 7/25/96
-------------------------------- -------
Frank A. Carchedi
Vice President, Treasurer and
Chief Financial Officer
BY /s/Christopher E. Mack DATE 7/25/96
---------------------------------- -------
Christopher E. Mack
Controller
10QSB-10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS 10-QSB AS FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,278,309
<SECURITIES> 0
<RECEIVABLES> 5,327,547
<ALLOWANCES> (266,863)
<INVENTORY> 704,607
<CURRENT-ASSETS> 15,482,913
<PP&E> 4,583,010
<DEPRECIATION> (3,380,519)
<TOTAL-ASSETS> 27,688,957
<CURRENT-LIABILITIES> 4,938,723
<BONDS> 72,170
0
0
<COMMON> 358,642
<OTHER-SE> 20,649,254
<TOTAL-LIABILITY-AND-EQUITY> 27,688,957
<SALES> 11,320,881
<TOTAL-REVENUES> 11,320,881
<CGS> 7,417,402
<TOTAL-COSTS> 7,417,402
<OTHER-EXPENSES> 3,783,275
<LOSS-PROVISION> 201,816
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (81,612)
<INCOME-TAX> (33,000)
<INCOME-CONTINUING> (48,612)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,612)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
