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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarterly period ended September 30, 1997
Commission File Number 0-13741
ITC LEARNING CORPORATION
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(FORMERLY KNOWN AS INDUSTRIAL TRAINING CORPORATION)
(Exact name of small business issuer 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
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(Address of principal executive offices)
(703) 713-3335
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Issuer's telephone number
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
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As of September 30, 1997, 3,897,034 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format: Yes No X
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This amendment replaces Item 1 as filed November 4, 1997 which contained a
typographical misprint.
PART I
ITEM 1. FINANCIAL STATEMENTS
ITC LEARNING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months, For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $7,088,571 $5,537,255 $16,297,834 $16,858,136
Cost of sales 5,173,711 4,216,647 9,844,537 11,634,049
---------- ---------- ----------- -----------
Gross margin 1,914,860 1,320,608 6,453,297 5,224,087
Selling, general, and
administrative expense 2,420,161 2,332,357 8,953,365 6,672,337
Equity in earnings of affiliates (159,389) (56,163) (198,503) (168,520)
Interest income, net (55,140) (125,553) (138,473) (368,074)
---------- ---------- ----------- -----------
2,205,632 2,150,641 8,616,389 6,135,743
---------- ---------- ----------- -----------
Loss before income taxes (290,772) (830,033) (2,163,092) (911,656)
Income tax benefit (48,000) (332,000) (716,000) (365,000)
---------- ---------- ----------- -----------
Net loss $ (242,772) $ (498,033) $(1,447,092) $ (546,656)
========== ========== =========== ===========
Net loss per common
share (note 2) $ (0.06) $ (0.14) $ (0.37) $ (0.15)
========== ========== =========== ===========
Weighted average number
of shares outstanding 3,897,034 3,632,455 3,897,027 3,595,064
========== ========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
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ITC LEARNING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,406,570 $ 2,697,566
Accounts receivable, net (note 3) 5,326,039 7,641,066
Due from affiliates 100,194 36,768
Inventories (note 6) 4,123,849 1,018,383
Prepaid expenses 364,502 190,402
Income tax receivable 278,595 689,104
Other current assets 7,239 0
----------- -----------
Total current assets 12,606,988 12,273,289
Long-term receivable (note 4) 1,015,978 1,589,916
Property and equipment:
Video and computer equipment 3,790,507 3,361,923
Furniture and fixtures 725,500 747,146
Leasehold improvements 102,215 95,422
----------- -----------
4,618,222 4,204,491
Less accumulated depreciation and amortization (3,557,723) (2,963,197)
----------- -----------
Net property and equipment 1,060,499 1,241,294
Capitalized program development costs, net 4,576,124 4,226,525
Intangible assets 3,653,526 3,975,840
Other 558,715 67,461
----------- -----------
$23,471,830 $23,374,325
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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ITC LEARNING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Line of credit (note 5) $ 0 $ 515,000
Current installments of long-term debt 34,515 130,745
Accounts payable 1,124,244 1,331,079
Due to affiliates 321,580 335,797
Accrued compensation and benefits 745,269 826,764
Deferred revenues (note 6) 4,711,373 1,458,945
Other accrued expenses 1,156,199 1,619,326
----------- -----------
Total current liabilities 8,093,180 6,217,656
Deferred lease obligations 102,829 113,020
Deferred income taxes 0 353,522
----------- -----------
Total liabilities 8,196,009 6,684,198
Stockholders' equity:
Common stock, $.10 par value, 12,000,000 shares
authorized; 3,897,034 and 3,896,924 issued
and outstanding in 1997 and 1996, respectively 389,703 389,693
Additional paid-in capital 16,068,686 16,067,366
Note receivable from ESOP (67,177) (143,677)
Retained earnings (deficit) (1,070,347) 376,745
Foreign currency translation adjustment (45,044) 0
----------- -----------
Total stockholders' equity 15,275,821 16,690,127
----------- -----------
Total liabilities and stockholders' equity $23,471,830 $23,374,325
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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ITC LEARNING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For Nine Months Ended September 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,447,092) $ (546,656)
Reconciling items:
Deferred tax benefit (716,000) --
Depreciation and amortization 2,642,781 3,114,957
Increase (decrease) in reserve for doubtful accounts 106,515 (145,409)
Salespeople awards of common shares 938 --
Foreign currency translation adjustment (45,044) --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 2,208,512 (2,961,499)
Decrease (increase) in inventories (3,105,466) 151,968
Increase in prepaid expenses (174,100) (65,474)
Decrease (increase) in other assets 17,910 (7,651)
Decrease (increase) in income taxes receivable 256,976 (435,200)
Decrease (increase) in long term receivable 573,938 (1,561,129)
Increase (decrease) in accounts payable (206,835) 1,522,842
Increase (decrease) in due to affiliates, net (77,643) 183,952
Increase (decrease) in accrued compensation and benefits (81,495) 181,548
Increase in deferred revenues 3,252,428 683,156
Increase (decrease) in other accrued expenses (463,127) 147,661
Decrease in income taxes payable -- (105,000)
Decrease in deferred lease obligation (10,191) (12,335)
----------- -----------
Net cash from operating activities 2,733,005 145,731
Cash flows from investing activities:
Deferred program development costs (2,075,540) (3,750,374)
Capital expenditures (413,731) (346,597)
----------- -----------
Net cash used in investing activities (2,489,271) (4,096,971)
Cash flows from financing activities:
Repayments under line of credit (515,000) --
Principal payments of long-term debt (96,230) (88,710)
Issuance of common stock -- 129,513
Employee stock ownership plan note collections 76,500 80,500
----------- -----------
Net cash provided by (used in) financing activities (534,730) 121,303
----------- -----------
Net increase (decrease) in cash (290,996) (3,829,937)
Cash and cash equivalents at beginning of period 2,697,566 10,348,762
----------- -----------
Cash and cash equivalents at end of period $ 2,406,570 $ 6,518,825
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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ITC LEARNING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(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 Activ Training, Ltd ("Activ"), ITC
Australasia Pty. Ltd. ("ITCA"), Anderson Soft-Teach ("AST") and ComSkill
Learning Centers, Inc. ("ComSkill"). Significant intercompany accounts and
transactions have been eliminated in consolidation. 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, 1996 and 1995 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) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirement for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement No. 128 on the
calculation of primary and fully diluted earnings per share for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997 is not expected to be
material.
5
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3) ACCOUNTS RECEIVABLE
Accounts receivable include the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Trade accounts receivable $4,877,262 $6,738,762
Current portion of long-term receivable, net (Note 3) 845,934 1,012,287
Unbilled contract receivables 5,321 182,025
Less allowance for doubtful accounts (402,663) (296,148)
---------- ----------
Trade accounts receivable, net 5,325,854 7,636,926
Other receivables 185 4,140
---------- ----------
$5,326,039 $7,641,066
========== ==========
</TABLE>
4) 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. The June 1997 installment was received in
accordance with the provisions of the contract and the effect of the payment is
reflected in the financial statements. The long-term portion of the net
receivable has been discounted assuming a 6% interest rate.
Components of long-term receivable include the following:
September 30,
1997
----
Receivable from DeKalb County (GA) Board of Education $2,350,000
Related dealer fees payable (401,768)
Less amounts classified as current, net of related dealer fees (845,934)
Less amount representing interest (86,320)
----------
$1,015,978
==========
5) NOTE PAYABLE TO BANK
At September 30, 1997, the Company had no amounts outstanding relating to its
$3,000,000 revolving bank line of credit, which bears interest at the bank's
prime lending rate. Borrowings under the line are collateralized by the
Company's accounts receivable and inventory.
6) DEFERRED REVENUES
During the third quarter of 1997, the Company was selected by the DeKalb County
(GA) Board of Education (DeKalb) to furnish 3,120 personal computers to the
schools within the DeKalb School district. The total sale was valued at
$5,749,560. The computers are being installed during the third and fourth
quarters of 1997. As of September 30, 1997, 1,260 computers have been
installed. Accordingly, the Company has remaining balances of $3,122,220 in
hardware computer inventory and $3,457,620 in deferred revenues associated with
this transaction.
6
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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.
ITC LEARNING CORPORATION
(Registrant)
BY /s/ Christopher E. Mack DATE 11/7/97
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Christopher E. Mack
Vice President of Finance and Administration
and Treasurer
