<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 March 31, 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 22071
------------------------------------------------------
(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 April 19, 1996, 3,556,684 shares of Common Stock were outstanding.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PART I PAGE
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<S> <C> <C>
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1996 and 1995 1
Condensed Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 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
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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 Three Months Ended March 31,
1996 1995
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<S> <C> <C>
Net revenues $ 3,715,723 $ 4,969,744
Cost of sales 2,642,176 2,792,797
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Gross margin 1,073,547 2,176,947
Selling, general and administrative expense 1,933,680 1,749,805
Equity in earnings of affiliates (63,086) (42,058)
----------- -----------
Income (loss) before interest and income taxes (797,047) 469,200
Interest expense (income), net (134,855) 20,450
----------- -----------
Income (loss) before income taxes (662,192) 448,750
Income tax expense (benefit) (265,000) 184,000
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Net income (loss) $ (397,192) $ 264,750
=========== ===========
Income (loss) per common share $(.11) $.10
=========== ===========
Weighted average number of
common shares outstanding 3,614,474 2,595,661
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
10QSB-1
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INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,105,249 $ 10,348,762
Accounts receivable, net (Note 2) 3,632,639 4,802,054
Due from affiliates (Note 3) 15,141 18,842
Inventories 611,000 871,072
Prepaid expenses 501,580 253,061
Income tax receivable 512,000 --
------------ ------------
Total current assets 15,377,609 16,293,791
Property and equipment:
Video and computer equipment 3,354,859 3,221,982
Furniture and fixtures 1,043,318 1,037,404
Leasehold improvements 95,422 93,106
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4,493,599 4,352,492
Less accumulated depreciation and amortization (3,198,994) (3,036,918)
------------ ------------
Net property and equipment 1,294,605 1,315,574
Deferred program development costs, net 6,782,866 5,941,079
Goodwill, net 1,920,049 1,961,299
Investment in affiliates (Note 3) 215,630 231,315
Other 24,484 31,089
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$25,615,243 $ 25,774,147
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
10QSB-2
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INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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(Unaudited)
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 117,175 $ 117,175
Accounts payable 1,644,626 1,621,543
Due to affiliates (Note 3) 332,512 261,230
Accrued compensation and benefits 569,336 594,796
Other accrued expenses 403,391 319,798
Income taxes payable -- 105,000
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Total current liabilities 3,067,040 3,019,542
Deferred lease obligations 99,886 102,964
Deferred income taxes 1,785,322 1,608,522
Long-term debt, excluding current installments 101,750 130,745
------------ ------------
Total liabilities 5,053,998 4,861,773
Stockholders' equity:
Common stock, $.10 par value, 4,000,000 shares
authorized; 3,562,424 and 3,556,424 issued
and outstanding in 1996 and 1995, respectively 356,242 355,643
Additional paid-in capital 14,789,317 14,770,853
Note receivable from ESOP (223,177) (250,177)
Retained earnings 5,638,863 6,036,055
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Total stockholders' equity 20,561,245 20,912,374
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$ 25,615,243 $ 25,774,147
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
10QSB-3
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INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For Three Months Ended March 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (397,192) $ 264,750
Reconciling items:
Provision for deferred taxes 176,800 131,540
Depreciation and amortization 876,918 608,726
Increase in reserve for doubtful accounts 8,816 15,000
Changes in assets and liabilities:
Decrease in accounts receivable 1,160,599 1,744,116
Decrease in inventories 260,072 142,592
Increase in prepaid expenses (248,519) (182,827)
Increase in income tax receivable (512,000) --
Increase (decrease) in due to affiliates, net 74,983 (57,075)
Decrease (increase) in other assets 6,605 (1,998)
Increase (decrease) in accounts payable 23,083 (975,740)
Increase (decrease) in accrued expenses 58,133 (659,181)
Decrease in income taxes payable (105,000) --
Decrease in deferred lease obligations (3,078) (3,674)
------------ ------------
Net cash provided by operating activities 1,380,220 1,026,229
Cash flows from investing activities:
Deferred program development costs (1,499,694) (1,835,973)
Capital expenditures (141,107) (173,409)
------------ ------------
Net cash used in investing activities (1,640,801) (2,009,382)
Cash flows from financing activities:
Repayments under line-of-credit -- (80,000)
Principal payments under term loans (28,995) (71,825)
Payments under capital lease
obligations, net of deferred interest -- (8,208)
Proceeds from other long-term debt -- 1,320,000
Issuance of common stock 19,063 --
Employee stock option note collections 27,000 27,000
------------ ------------
Net cash provided by financing activities 17,068 1,186,967
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Net increase (decrease) in cash (243,513) 203,814
Cash and cash equivalents at beginning of period 10,348,762 439,923
------------ ------------
Cash and cash equivalents at end of period $ 10,105,249 $ 643,737
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
10QSB-4
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INDUSTRIAL TRAINING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
1) 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.
2) ACCOUNTS RECEIVABLE
Accounts receivable include the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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<S> <C> <C>
Trade accounts receivable $ 3,407,112 $ 4,619,145
Unbilled contract receivables 357,792 291,311
Less allowance for doubtful accounts (198,863) (190,047)
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Trade accounts receivable, net 3,566,041 4,720,409
Other receivables 66,598 81,645
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$ 3,632,639 $ 4,802,054
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</TABLE>
3) 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 all 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 $655,000 and $618,000 for the first
quarter of 1996 and 1995 respectively. Additionally, during the fourth quarter
of 1995 and the first quarter 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 March 31, 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 quarter of 1996.
10QSB-5
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4) NOTE PAYABLE TO BANK
At March 31, 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 March 31, 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
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For the quarter ended March 31, 1996, revenues aggregated $3,716,000 as compared
to $4,970,000 for the quarter ended March 31, 1995, a decrease of $1,254,000 or
25%. As a result of the lower overall revenues, the Company recorded a net loss
of $397,000 or 11 cents per share. This compares to net income of $265,000 or 10
cents per share recorded during the first quarter of 1995.
The decrease in the Company's revenues was primarily due to lower sales of the
Company's off-the-shelf multimedia training courseware and multimedia hardware
systems. For the quarter ended March 31, 1996, sales of multimedia training
courseware totaled $2,531,000, a decrease of $786,000 or 24% from the first
quarter of 1995. Sales of hardware systems for the quarter ended March 31, 1996
totaled $449,000 as compared to $888,000 achieved during the comparable period
in 1995, representing a decrease of $439,000 or 49%. The decrease in revenues
was due to many of the same factors that impacted the Company's fourth quarter
1995 performance, including: continued slow sales of multimedia products through
third party channels; lower than expected sales of multimedia hardware; and, the
conversion of its courseware libraries to CD-ROM technologies. Management
believes that this latter factor has caused many of its traditional customers to
delay purchasing decisions until the libraries have been fully converted to
CD-ROM, which is anticipated in the second quarter of 1996.
Revenues from custom courseware and consulting services amounted to $594,000 for
the first quarter of 1996, an increase of $318,000 as compared to the first
quarter of 1995. The sizable increase is due to the completion of existing
contract backlog from fiscal 1995, principally for the development of training
products for the Company's affiliates. During the first quarter of 1996, the
Company reorganized a new multimedia services division and expects to emphasize
service related activities such as implementation support, hardware and network
integration and instructional design. The Company believes this newly created
division will create opportunities to develop future multimedia courseware and
hardware sales.
Revenues from international operations totaled $707,000 for the three months
ended March 31, 1996 as compared to $442,000 for the same period in 1995. The
significant increase of $265,000 or 60% was due to the late 1995 staffing of
Activ Training, Ltd., the Company's newly created London-based subsidiary. Activ
Training, Ltd. was incorporated during the fourth quarter of 1995 in order to
expand the Company's sales, marketing and distribution activities within the
international marketplace.
b) Loss Before Provision For Income Taxes
--------------------------------------
Loss before provision for income taxes for the quarter ended March 31, 1996
aggregated $662,000 as compared to income before provision for income taxes of
$449,000 achieved for the comparable 1995 period. The decrease of $1,111,000 was
primarily due to the aforementioned shortfall in sales during the first quarter
of 1996. Selling, general and administrative expenses totaled $1,934,000 during
the first quarter of 1996, representing an increase of $184,000 over the
comparable period in 1995. The overall increase in selling, general and
administrative expenses was primarily due to additional operational and sales
support and increased marketing activities. This increase was partially offset
by a $155,000 increase in net interest income from the investment of the
Company's available cash balances.
c) Net Loss
--------
The substantial decrease in earnings before taxes was partially offset by the
recognition of an interim tax benefit, resulting in a net loss for the three
months ended March 31, 1996 was $397,000 or 11
10QSB-7
<PAGE>
cents per share. This represents a decrease of $662,000 or 21 cents per share as
compared to the corresponding 1995 period.
d) Cash Flow, Liquidity and Capital Resources
------------------------------------------
Working capital at March 31, 1996 was $12,311,000 as compared to $13,274,000 at
December 31, 1995. The decrease of $963,000 is primarily due to the significant
investment in program development made by the Company during the first quarter
of 1996. The Company's working capital primarily consists of the cash proceeds
generated from the Company's third quarter 1995 public offering. The proceeds
received from the offering were approximately $9,048,000.
During the first quarter of 1996, the Company experienced strong cash flows from
operations despite the lower overall operating results. For the three months
ended March 31, 1996, cash flow generated by operations was approximately
$1,380,000. The increase in cash flow from operations was primarily due to a
significant decrease in accounts receivable as compared to December 31, 1995.
Additionally, the Company continues to have increases in non-cash operating
charges, resulting principally from amortization of deferred program development
costs. The operating cash flow was offset by the investment of $1,641,000 for
the development and conversion of new and existing programs and the purchase of
certain capital expenditures.
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 for 1996.
10QSB-8
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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
<TABLE>
<CAPTION>
Exhibit No. Description Page Number
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<C> <S> <C>
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 10-KSB on March 15, 1996
(Commission File No. 0-13741)
</TABLE>
(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 April 25, 1996
---------------------------- --------------
James H. Walton
Chairman of the Board and
Chief Executive Officer
BY /s/Philip J. Facchina DATE April 25, 1996
---------------------------- --------------
Philip J. Facchina
President and
Chief Operating Officer
BY /s/Frank A. Carchedi DATE April 25, 1996
---------------------------- --------------
Frank A. Carchedi
Vice President, Treasurer and
Chief Financial Officer
BY /s/Christopher E. Mack DATE April 25, 1996
---------------------------- --------------
Christopher E. Mack
Controller
10QSB-10
<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 MARCH 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,105,249
<SECURITIES> 0
<RECEIVABLES> 3,831,503
<ALLOWANCES> (198,864)
<INVENTORY> 611,000
<CURRENT-ASSETS> 15,377,609
<PP&E> 4,493,599
<DEPRECIATION> (3,198,994)
<TOTAL-ASSETS> 25,615,243
<CURRENT-LIABILITIES> 3,067,040
<BONDS> 101,750
0
0
<COMMON> 356,242
<OTHER-SE> 20,205,003
<TOTAL-LIABILITY-AND-EQUITY> 25,615,243
<SALES> 3,715,723
<TOTAL-REVENUES> 3,715,723
<CGS> 2,642,176
<TOTAL-COSTS> 2,642,176
<OTHER-EXPENSES> 1,726,923
<LOSS-PROVISION> 8,816
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (662,192)
<INCOME-TAX> (265,000)
<INCOME-CONTINUING> (397,192)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (397,192)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
</TABLE>
