As filed with the Securities and Exchange Commission on July 28, 1995
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________
INDUSTRIAL TRAINING CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 7812 52-1078263
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(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code No.)
organization) Number)
13515 Dulles Technology Drive, Herndon, Virginia 22071 (703)713-3335
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(Address, including zip code, and telephone number, including area code,
of principal executive offices)
Anne J. Fletcher, Esq.
Industrial Training Corporation
13515 Dulles Technology Drive
Herndon, VA 22071
(703) 713-3335
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(Name, address, zip code, telephone number, including area code, of agent
for service)
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Copies to:
Alan J. Berkeley, Esq. Melissa Allison Warren, Esq.
Kirkpatrick & Lockhart LLP Shapiro and Olander
1800 M Street, N.W. 36 Charles Street, 20th Floor
Washington, D.C. 20036 Baltimore, MD 21201-3147
Telephone (202)778-9050 Telephone (410)385-4265
Facsimile (202)778-9100 Facsimile (410)539-7611
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Approximate date of commencement of proposed sale to the public:
As soon as practicable following the effective date of this Registration
Statement.
If any of the Securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [X]
CALCULATION OF REGISTRATION FEE
Title of each Amount Proposed Proposed Amount of
class of securities to be maximum maximum registration
to be registered registered(1) offering price aggregate offering fee
per unit(2) price
Common Stock, $.10 par or 1,207,500 $10.375 $12,527,812 $4,320
stated value..........
(1) Includes 157,500 shares that may be issued to the Underwriters to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended, based
upon the closing price of the common stock on the National Association of
Securities Dealers, National Market System on July 26, 1995.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
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INDUSTRIAL TRAINING CORPORATION
CROSS REFERENCE SHEET
Item
Number Designation in Form SB-2 In Prospectus
------ ------------------------ -------------
1. Front of the Registration
Statement and Outside Front
Cover of Prospectus . . . . Outside Front Cover Page
2. Inside Front and Outside Inside Front Cover and Outside
Back Cover Pages of Back Cover Pages; Additional
Prospectus . . . . . . . . Information
3. Summary Information and
Risk Factors . . . . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . Risk Factors; Use of Proceeds
5. Determination of Offering Price Range of Common Stock and
Price . . . . . . . . . . . Dividend Policy; Underwriting
6. Dilution . . . . . . . . . Risk Factors
7. Selling Security Holders . Selling Shareholders
8. Plan of Distribution . . . Underwriting
9. Legal Proceedings . . . . . Business
10. Directors, Executive Management; Principal
Officers, Promoters and Shareholders; Selling
Control Persons . . . . . . Shareholders
11. Security Ownership of Management; Principal
Certain Beneficial Owners Shareholders; Selling
and Management . . . . . . Shareholders
12. Description of Securities . Prospectus Summary; Description
of Securities
13. Interest of Named Experts
and Counsel . . . . . . . . Legal Opinions; Experts
14. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities . . . . . . . . Management
15. Organization Within Last Prospectus Summary; Management;
Five Years . . . . . . . . Certain Relationships and
Related Transactions; Principal
Shareholders; Selling
Shareholders
Item
Number Designation in Form SB-2 In Prospectus
------ ------------------------ -------------
16. Description of Business . . Prospectus Summary; Summary
Consolidated Financial Data;
Risk Factors; Use of Proceeds;
Price Range of Common Stock and
Dividend Policy; Capitalization;
Selected Consolidated Financial
Data; Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business;
Management; Certain
Relationships and Related
Transactions; Principal
Shareholders; Selling
Shareholders; Description of
Securities; Financial Statements
17. Management's Discussion and
Analysis or Plan of Management's Discussion and
Operation . . . . . . . . . Analysis of Financial Condition
and Results of Operations
18. Description of Property . . Prospectus Summary; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Business
19. Certain Relationships and
Related Transactions . . . Certain Relationships and
Related Transactions
20. Market for Common Equity
and Related Stockholder Outside Front Cover Page; Price
Matters . . . . . . . . . . Range of Common Stock and
Dividend Policy; Description of
Securities
21. Executive Compensation . . Management
22. Financial Statements . . . Index to Financial Statements
23. Changes in and
Disagreements with
Accountants on Accounting *
and Financial Disclosure .
* Text is omitted because response is negative or item is inapplicable.
Subject to Completion, Dated July 28, 1995
1,050,000 Shares
INDUSTRIAL TRAINING CORPORATION
Common Stock
___________________________
Of the 1,050,000 shares of Common Stock offered hereby, 850,000 are being
issued and sold by Industrial Training Corporation (the "Company" or
"ITC") and 200,000 are being sold by the Selling Shareholders. The
Company will not receive any of the proceeds from the sale of shares by
the Selling Shareholders. See "Selling Shareholders." The Common Stock
is traded on the NASDAQ National Market System under the Symbol "ITCC."
On July 26, 1995 the closing bid and asked prices of the Company's Common
Stock as reported by NASDAQ were $10 3/8 and $11 1/4, per share,
respectively. See "Price Range of Common Stock and Dividend Policy."
____________________________
Prospective investors should carefully consider the factors set forth on
page 7 under "Risk Factors"
____________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Proceeds to
Discounts and Proceeds to Selling
Price to Public Commissions (1) Company (2) Shareholders
Per share . . . . .
Total (3) . . . . .
(1) See "Underwriting" for a description of indemnification
arrangements with the several Underwriters.
(2) Before deducting expenses estimated at $________ payable
by the Company. See "Underwriting."
(3) The Company and one of the Selling Shareholders have
granted the Underwriters an option, exercisable within 45
days after the date of this Prospectus, to purchase up to
an aggregate of 157,500 additional shares of Common
Stock, solely to cover over-allotments, if any, on the
same terms and conditions as the shares offered hereby.
If the over-allotment option is exercised in full, such
Selling Shareholder may elect to sell up to 47,932
additional shares. If the over-allotment is partially
exercised, then the Company and that Selling Shareholder
may participate proportionately in the over-allotment.
Assuming full exercise of the over-allotment option, the
total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company, and Proceeds to Selling
Shareholders will be $______________, $____________,
$____________, and $______________, respectively. See
"Underwriting."
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
___________________________
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, withdrawal, cancellation or modification of the offer
without notice, delivery to and acceptance by the Underwriters and certain
other conditions. It is expected that delivery of the certificates for
the shares of Common Stock will be made at the offices of Ferris, Baker
Watts, Incorporated, 1720 Eye Street, N.W., Washington, D.C. on or about
________________, 1995.
______________________________
FERRIS, BAKER WATTS
Incorporated
The date of this Prospectus is ___________, 1995.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SHARES OF COMMON STOCK ON THE NASDAQ NATIONAL MARKET SYSTEM OR OTHERWISE
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ADDITIONAL INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange
Commission (the "Commission"). These reports, proxy statements, and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and at its New York Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048 and its Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at
prescribed rates.
A Registration Statement on Form SB-2 relating to the Common Stock offered
hereby has been filed by the Company with the Commission. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in
this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference. Further information with respect to the
Company and the Common Stock offered hereby is included or incorporated by
reference in the Registration Statement and exhibits. A copy of the
Registration Statement may be inspected by anyone without charge and may
be obtained at rates prescribed by the Commission at the Public Reference
Section of the Commission located at 450 Fifth Street, N.W., Washington,
D.C. 20549, the New York Regional Office located at 7 World Trade Center,
New York, New York 10048, and the Chicago Regional Office located at 500
West Madison Street, Chicago, Illinois 60661-2511.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere
in this Prospectus. Each investor is encouraged to read this Prospectus
in its entirety. Unless otherwise indicated, all information in this
Prospectus assumes that the Underwriter's over-allotment option will not
be exercised. Investors should carefully consider the information set
forth under the heading "Risk Factors."
The Company
ITC develops, produces, markets and distributes interactive multimedia
training solutions that improve productivity and reduce training time and
costs. ITC's broad array of multimedia training "courseware" combines
full-motion video, audio, animation, graphics and text into a single
training presentation. By packaging its courseware together with standard
multimedia personal computer systems and offering reliable customer
assurance and consultative support, ITC provides its customers with a
complete training solution that can command a premium price relative to
other technology based training programs. While all of the Company's
products are available in analog laser videodisc format, ITC recently
converted and released many of its "PC Skills" and all of its "Regulatory
Training" products to a digital CD-ROM format. ITC's five courseware
libraries, all marketed under the Activ(REGISTERED TRADEMARK) trademark,
include over 200 individual multimedia products to train users in "PC
Skills," "Regulatory Training," "Technical Skills," "Instrumentation
Training" and "Basic Skills." ITC's multimedia products provide an
alternative to traditional stand-up training. The Company's courseware is
highly interactive and is self-paced, allowing employees to adjust the
rate of training to their individual needs, competency level and work
schedules.
ITC offers its courseware to customers in many markets, including the
industrial processing and manufacturing industries, government,
educational organizations, utilities and the service sector. The
acquisition of the "PC Skills" Learning Library in September of 1993
enabled the Company to expand its sales into service based industries,
such as telecommunications and personnel services. The domestic market
for all training and employee education in 1994 was estimated by Training
Magazine to represent a $50.6 billion industry, of which approximately
$7.0 billion was estimated to be off-the-shelf products and hardware. See
"Risk Factors -- Developing Market, -- Dependence on Product Development."
In aggregate, ITC's Activ(REGISTERED TRADEMARK) courseware is used in over
5,000 companies, including many Fortune 1,000 companies, and other major
organizations. Among the better-known purchasers of ITC Activ(REGISTERED
TRADEMARK) courseware are the following companies or their affiliates: The
Southern Companies, General Electric Company, NYNEX Corporation, Talent
Tree Professional Services, Cargill, Ford Motor Company and Illinois Power
Company.
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The Company's objective is to accelerate its growth and profitability by
further penetrating the market for off-the-shelf multimedia training and
educational courseware. ITC's strategy for achieving this objective is to
expand product platforms and development efforts; increase distribution
capabilities; and pursue strategic acquisitions and marketing alliances.
See "Business -- Corporate Strategy."
ITC was incorporated in 1977 under the laws of the state of Maryland. The
Company's principal executive office address is 13515 Dulles Technology
Drive, Herndon, Virginia 22071. ITC's telephone number is (703) 713-3335.
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The Offering
Securities Offered . . . . . . . . . . . . . . . . 1,050,000 shares of Common Stock, $.10 par value.
Securities Offered by the Company . . . . . . . 850,000 shares of Common Stock, $.10 par value
Securities Offered by Selling Shareholders . . . 200,000 shares of Common Stock, $.10 par value
Common Stock Outstanding After the Offering . . . . 3,305,624(1)
Estimated Use of Proceeds . . . . . . . . . . . . . To reduce indebtedness; to finance product expansion
through internal development and acquisitions of
compatible businesses, products or technologies; to
increase marketing efforts; and, for working capital
and general corporate purposes. See "Use of
Proceeds"
NASDAQ National Market Symbol . . . . . . . . . . . ITCC
(1) Excluding 306,572 shares issuable upon the exercise of options and
warrants.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data set forth below should be read in
conjunction with, and are qualified by reference to, the Consolidated
Financial Statements of the Company and the Notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Prospectus.
Six Months Ended
June 30,
Statement of Income Data: Years Ended December 31, (Unaudited)
(Amounts in thousands, except per share data)
1990 1991 1992 1993 (1) 1994 1994 1995
Net Revenues $9,229 $11,011 $11,135 $13,812 $22,337 $9,364 $11,256
Income before provision for
income taxes (1) $853 $918 $1,114 $36 $1,965 $670 $1,231
Net income $514 $550 $701 $21 $1,160 $402 $726
Net income per share (2) $0.33 $0.35 $0.42 $0.01 $0.48 $0.17 $0.28
Weighted average shares
outstanding (2) 1,555 1,590 1,680 1,959 2,428 2,378 2,588
(Amounts in thousands) June 30, 1995
December 31, (Unaudited)
Balance Sheet Data: 1994 Actual As Adjusted (3)
Cash $440 $1,179 $7,278
Working capital $4,095 $4,620 $11,163
Total assets $17,130 $19,085 $25,184
Long-term debt, net of current portion $773 $1,614 $189
Total stockholders' equity $10,054 $10,851 $18,819
(1) The decline in 1993 earnings before provision for income taxes
resulted from several factors including: lower overall gross margins,
increased selling, general and administrative costs as a result of
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increased marketing, sales, and promotional efforts, and resources
dedicated toward expanding the Company through acquisition. Effective
September 30, 1993, the Company acquired CI Acquisition Corporation,
and its two wholly-owned subsidiaries, Comsell Training, Inc. and
ComSkill Learning Centers, Inc.
(2) 1990 and 1991 adjusted to reflect 2 for 1 stock split, which occurred
in January of 1992.
(3) Gives effect to the sale by the Company of 850,000 shares of Common
Stock at an assumed offering price of $10 3/8 per share and after
deducting estimated underwriting fees and offering expenses and the
applicable filing and registration fees. See "Use of Proceeds."
RISK FACTORS
Investors should carefully consider the following risk factors, in
addition to all of the other information contained in this Prospectus,
including the financial statements and notes to financial statements,
before purchasing the Common Stock offered hereby.
Developing Market
The market for training and employee education is characterized by a high
degree of fragmentation and competition. Competitors include publishers
of text and videotape training products, providers of instructor-led
training, and developers and publishers of other multimedia products.
Technology-based training products represent a small portion of the
overall market for training. As a result, the Company's future success
and realization of the Company s strategic plan will depend, in part, on
the extent to which companies continue to adopt technology-based training
as a fundamental part of their employee education and development
programs. There can be no assurance that such adoption will continue or
that the Company will significantly increase or sustain current
distribution levels for its products.
Dependence on Product Development
Several of the Company's products, including the Company s "PC Skills
Learning Library" and, to a lesser degree, the Company s "Regulatory
Training Learning Library", are influenced by changes in the content of
the subject matter. Changes in the subject matter of any of the Company's
products could render such products obsolete. Therefore, the Company's
future success may depend upon the Company s ability to adapt, modify and
update its products, to develop and introduce, in a timely manner, new and
competitive products, or to acquire new products. There can be no
assurance that the Company will be successful in these endeavors.
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Acquisitions
The Company's continued growth depends, in part, on its ability to
successfully acquire complementary businesses or product lines. There can
be no assurance that any such acquisitions will be consummated, or if
consummated, that such acquisitions will be successful. The Company has
no commitments, understandings or arrangements with respect to any
specific transaction. See "Business -- Corporate Strategy."
Distribution
Part of the Company's strategy is to expand distribution channels for its
courseware. Although the Company intends to hire additional salespersons,
to add dealers, franchises, and distributors and to explore relationships
with other resellers, no assurance can be given that such expanded
distribution will occur, or have a positive effect on the Company's
business operations.
Changing Technologies
The Company utilizes several different personal computer based hardware
platforms to deliver its products. These platforms range from standard
analog format, using laser videodisc, to any of the several CD-ROM-based
digital platforms, such as "MPEG" (the Motion Pictures Experts Group
standard), "DVI" (Digital Video Interactive) and INDEO(REGISTERED
TRADEMARK). The Company also operates in an environment where networking
and portability are issues faced by the Company s customers. Delivery
platforms are constantly evolving as new and different technologies
emerge. Changes in technologies or the means through which the Company's
products are delivered could render the Company's products obsolete.
There can be no assurance that the Company will be able to anticipate and
respond adequately to technological changes that may affect the delivery
of the Company s products or that costs to develop such responses will not
adversely affect the financial condition of the Company.
Intellectual Property
The Company considers all of its products to be proprietary and relies
primarily on a combination of statutory and common law copyright,
trademark and trade secret laws, customer licensing agreements, employee
and third-party nondisclosure agreements and other methods to protect its
proprietary rights. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's courseware
or technology without authorization, or to develop similar courseware or
technology independently. The Company includes in its courseware
packaging an end-user agreement that restricts unauthorized use. If
unauthorized copying or misuse of the Company's products were to occur to
any substantial degree, the Company's business and results of operations
could be materially adversely affected. There can be no assurance that
the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
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technology. There can likewise be no assurance that third parties will
not claim the Company's current or future products infringe the
proprietary rights of others. Any such claim, with or without merit,
could result in costly litigation or might require the Company to enter
into royalty or licensing agreements. Such royalty or license agreements,
if required, may not be available on terms acceptable to the Company or at
all. See "Business -- Intellectual Property."
Dependence On and Need for Key Personnel
At the present time, the Company depends to a great extent upon the
efforts of each of its executive officers to administer the Company's
business. In addition, the Company's ability to accelerate growth and
profitability will depend, in part, on its ability to attract and retain
additional qualified personnel. There is significant competition for
qualified personnel, and there can be no assurance that the Company will
be successful in recruiting or training a sufficient number of employees
of the requisite caliber to enable the Company to operate its business and
implement its strategy as planned. See "Management."
Competition
The training and employee education industry is highly competitive, and
competition is increasing among providers of technology-based training.
Competitors include providers of traditional instructor-led training,
multimedia developers and sellers, textbook publishers and manufacturers
and producers of videotape training materials, and other products. These
competitors range from small to large firms, some of which have
substantially greater financial, personnel, and marketing resources than
the Company. No assurance can be given that the Company will be able to
effectively compete with existing or future competitors in the training
industry. The inability to remain competitive could result in a reduction
of the Company's revenue and could have a material adverse effect on the
Company's overall financial condition. See "Business -- Competition."
Dilution
Purchasers of the shares of Common Stock offered hereby will suffer
immediate and substantial dilution (i.e., the difference between the
offering price of a share of Common Stock and the net tangible book value
thereof after giving effect to this Offering) of $5.32 per share in the
net tangible book value of their shares of Common Stock, assuming that all
the shares offered by the Company are sold. At June 30, 1995, the net
tangible book value of the Company was approximately $8,748,084, or $3.56
per share based on 2,455,624 shares of Common Stock outstanding. Net
tangible book value per share of Common Stock represents the amount of the
Company's total assets less the amount of its intangible assets (goodwill)
and liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of 850,000
shares (at an assumed offering price of $10 3/8 per share) offered hereby
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and the application of the estimated net proceeds therefrom, the pro forma
net tangible book value at June 30, 1995, would have been approximately
$16,716,000 or $5.06 per share of Common Stock. In the event that the
Underwriters exercise the over-allotment option in full, the pro forma net
tangible book value after this Offering (after deducting underwriting
discounts and estimated offering expenses to be paid by the Company) would
be $5.20 per share, and the public investors would experience dilution of
$5.18 per share.
Use of Proceeds
The net proceeds of this Offering are subject to reallocation by the
Company. See "Use of Proceeds".
USE OF PROCEEDS
The net proceeds from the sale by the Company of 850,000 shares of Common
Stock in this Offering will be approximately $8 million ($9 million if the
Underwriters' over-allotment option is exercised in full) based upon an
assumed offering price per share of $10 3/8 (the Closing price on July 26,
1995). The Company will not receive any of the proceeds from the sale of
Common Stock by the Selling Shareholders. The Company anticipates that
the net proceeds will be used over the next twelve to eighteen months for
the purposes described below.
The Company expects to use approximately $1.9 million of the net proceeds
received by the Company to reduce the long-term borrowings of the Company.
The long-term debt consists of two term loans. The first term loan, the
balance of which was $615,000 as of June 30, 1995, was incurred for the
Company's acquisition of CI Acquisition Corp. ("CI") and its related
subsidiaries in September, 1993. This loan bears interest at a rate of
prime plus 1% (10% as of June 30, 1995) and matures in November, 1998.
The second term loan, the balance of which was $1,254,000 at June 30,
1995, was incurred in connection with the February 17, 1995 acquisition of
the "INVOLVE(REGISTERED TRADEMARK) Instrumentation Learning Library" from
the Instrument Society of America ("ISA"). The second loan bears interest
at a rate of prime plus 1/2% (9.5% as of June 30, 1995) and matures in
March, 2000.
The Company intends to use up to $3 million of the net proceeds to fund
development of additional courseware products and to convert the Company's
existing analog courseware libraries of "Technical Skills" and
"Instrumentation Training" to a digital-based CD-ROM format.
The $3.1 million balance of net proceeds and any net proceeds realized by
ITC if the Underwriters exercise the over-allotment option (up to $4.1
million if the option is exercised in full), will be used primarily for
future acquisitions, working capital and other general corporate purposes.
With respect to future acquisitions, the Company is regularly reviewing
potential acquisitions although it has no current agreements,
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understandings or commitments with respect to any material transactions.
Amounts allocated to working capital may be used, in part, to finance
expanded distribution efforts.
The foregoing represents the Company's estimate of the allocation of the
net proceeds of this Offering based upon the current status of its
business operations, its current plans and current economic conditions.
Future events as well as changes in competitive conditions affecting the
Company's business, and the success or lack thereof of the Company's
marketing efforts, may make shifts in the allocation of funds necessary or
desirable. A change in the use of proceeds or timing of such use will be
at the Company's discretion. Pending application of the net proceeds from
this Offering, the net proceeds will be invested in short-term,
investment-grade, interest bearing securities. See "Risk Factors -- Use
of Proceeds."
The Company may incur additional borrowings in the next twelve to eighteen
months to support its development plans and to effect acquisitions.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), National Market
System under the symbol ITCC. The following table states the high and low
closing sale prices by quarter for the Company's Common Stock based on
actual trading, as reported by NASDAQ.
1993 High Low
1st Quarter 7 1/4 6 1/4
2nd Quarter 7 7/8 6 3/8
3rd Quarter 7 1/2 5 1/4
4th Quarter 6 4 3/4
1994
1st Quarter 5 1/4 4
2nd Quarter 4 1/2 3 5/8
3rd Quarter 8 1/2 3 5/8
4th Quarter 8 1/2 7 1/4
1995
1st Quarter 10 1/2 6 1/4
2nd Quarter 10 1/2 8
3rd Quarter (through July 26, 1995) 11 10
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The last reported sales price on the NASDAQ National Market System on July
26, 1995 was $10 3/8.
As of June 30, 1995, there were 2,455,624 shares of the Company's Common
Stock outstanding, held by 1,037 holders of record.
Shareholders of the Company's Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds
legally available. No cash dividends have been declared since 1984.
Future cash dividends, if any, will be determined by the Company's Board
of Directors, and will be based upon the Company's earnings, capital
requirements, financial condition, and other factors deemed relevant by
the Board of Directors.
The transfer agent and registrar for ITC's Common Stock is American
Securities Transfer, 938 Quail Street, Suite 101, Lakewood, Colorado
80215.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1995, and as adjusted, to reflect the sale of 850,000 shares of
Common Stock offered by the Company hereby at an assumed public offering
price of $10 3/8 per share and the application of estimated net proceeds
therefrom. See "Use of Proceeds." This table should be read in
conjunction with the detailed information included in the Consolidated
Financial Statements and the Notes thereto contained elsewhere in this
Prospectus.
As of June 30, 1995
Actual As Adjusted
Current portion of long-term debt $ 580,726 $ 136,726
Long-term debt, net of current portion 1,614,198 189,198
Stockholders' equity:
Common stock, $.10 par value, 4,000,000 shares authorized;
2,455,624 shares outstanding; 3,305,624 shares outstanding,
as adjusted 1/ 245,562 330,562
Additional paid-in capital 5,654,864 13,537,932
Note receivable from ESOP (304,177) (304,177)
Retained earnings 5,254,461 5,254,461
Total stockholders' equity 10,850,710 18,818,778
- 13 -
Total capitalization $13,045,634 $19,144,702
1/ The number of shares of the Company's Common Stock outstanding, the
value of Common Stock and the value of Additional Paid-in Capital have
been reduced by 17,704 shares, $1,771 and $59,538, respectively, to
reflect treasury stock that the Company repurchased prior to June 30,
1995.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for, and as of the end
of, each of the years in the five year period ended December 31, 1994 are
derived from the audited consolidated financial statements of the Company.
The following selected interim consolidated data for, and as of the end
of, the six month periods ended June 30, 1994 and 1995 have been derived
from unaudited financial statements of the Company, which, in the opinion
of management, have been prepared on the same basis as the audited
Consolidated Financial Statements included herein, and reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of such data. The results of the interim periods are not
indicative of the results of a full year. The selected consolidated
financial data set forth below should be read in conjunction with, and are
qualified by reference to, the Consolidated Financial Statements of the
Company and the Notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
- 14 -
(Amounts in thousands, except per share data)
Six Months Ended June
Years Ended December 31, 30,
Statement of Income Data: 1990 1991 1992 1993 1994 1994 1995
Revenues $9,229 $11,011 $11,135 $13,812 $22,337 $ 9,364 $11,256
Cost of sales 5,007 6,024 5,681 8,215 13,629 5,585 6,453
Gross margin 4,222 4,987 5,454 5,597 8,708 3,779 4,803
Selling, general &
administrative 3,157 3,914 4,327 5,554 6,693 3,091 3,596
Equity in earnings of affiliates -- -- (135) (124) (136) (70) (78)
Income before interest and
provision for income taxes (1) 1,066 1,074 1,262 167 2,151 758 1,285
Interest expense, net 213 156 148 131 186 88 54
Income before provision for
income taxes 853 918 1,114 36 1,965 670 1,231
Income tax expense 339 368 413 15 805 268 505
Net income $ 514 $ 550 $ 701 $ 21 $ 1,160 $ 402 $ 726
Net income per share (2) $0.33 $ 0.35 $ 0.42 $ 0.01 $ 0.48 $ 0.17 $ 0.28
Weighted average shares
outstanding (2) 1,555 1,590 1,680 1,959 2,428 2,378 2,588
Years Ended December 31, June 30,
Balance Sheet Data: 1990 1991 1992 1993 1994 1995
------------------------------------------------ --------
Cash $ 144 $ 114 $ 168 $ 126 $ 440 $ 1,179
Working capital 2,118 1,686 2,643 2,139 4,095 4,620
Total assets 6,840 7,656 8,358 14,642 17,130 19,085
Long-term debt, net of current
portion 1,043 1,328 963 1,101 773 1,614
Total stockholders' equity 3,795 3,715 5,001 8,418 10,054 10,851
- 15 -
(1) The decline in 1993 earnings before provision for income taxes
resulted from several factors including: lower overall gross margins,
increased selling, general and administrative costs as a result of
increased marketing, sales, and promotional efforts, and resources
dedicated toward expanding the Company through acquisition. Effective
September 30, 1993, the Company acquired CI Acquisition Corporation,
and its two wholly-owned subsidiaries, Comsell Training, Inc. and
ComSkill Learning Centers, Inc.
(2) 1990 and 1991 adjusted to reflect 2 for 1 stock split, which occurred
in January of 1992.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Since ITC was formed in 1977, the focus of the Company's business has
evolved from linear-based videotape training products to interactive
multimedia programs, delivered in analog laserdisc and digital CD-ROM
platforms. Until 1993, the Company derived the majority of its revenues
from the distribution and sale of its "Technical Skills Learning Library"
and "Basic Skills Learning Library" to companies in the industrial
processing and manufacturing markets.
With the development of its "Regulatory Training Learning Library" and the
addition of the "PC Skills Learning Library" with the acquisition of CI
and its subsidiaries, Comsell Training, Inc. ("Comsell") and ComSkill
Learning Centers, Inc. ("ComSkill"), in September 1993, the Company was
able to enter new markets and increase revenues significantly. In
February 1995, the Company acquired the "INVOLVE(REGISTERED TRADEMARK)
Instrumentation Learning Library", which it had developed for ISA. As a
result of this acquisition, the Company is no longer required to pay
royalties upon the sale of INVOLVE products. For additional information
regarding the CI acquisition and purchase of the INVOLVE programs, see
Notes 2 and 13, respectively, to the Company's Consolidated Financial
Statements included herein.
Percentage of Revenues
Years Ended Six Months Ended
December 31, June 30,
1993 1994 1994 1995
- 16 -
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 59.5 61.0 59.6 57.3
Gross margin 40.5 39.0 40.4 42.7
Selling, general & administrative 40.2 30.0 33.0 31.9
Equity in earnings of affiliates (0.9) (0.6) (0.7) (0.6)
Income before interest and
provision for income taxes 1.2 9.6 8.1 11.4
Interest expense, net 0.9 0.8 0.9 0.4
Income before provision for
income taxes 0.3 8.8 7.2 11.0
Income tax expense 0.1 3.6 2.9 4.5
Net Income 0.2% 5.2% 4.3% 6.5%
Results of Operations
Six Months Ended June 30, 1995 Compared with Six Months Ended June 30,
1994
Total revenues for the six months ended June 30, 1995 were $11,256,000,
compared to $9,364,000 for the comparable six months of 1994, an increase
of approximately 20%. The strong growth in revenues for the six months
ended June 30, 1995 is due primarily to expansion of distribution channels
and product development efforts during 1994, which resulted in a record
performance for the Company's core multimedia training products.
Total revenues for the six months ended June 30, 1995 were positively
impacted by the increase in sales of multimedia hardware systems.
Hardware revenues for the six months ended June 30, 1995 aggregated
$2,400,000 which represents a $710,000 or 42% increase relative to 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.
Franchise related revenues (fees and royalties) achieved for the six
months ended June 30, 1995 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 17
territories sold to date.
Sales of the Company's linear products (primarily videotape and text-based
products), marketed under the label USA Training, amounted to $461,000 for
the six months ended June 30, 1995. This represents a decrease of
$155,000 or 25% for the comparable period in 1994. The decline in sales
- 17 -
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.
Cost of sales represented 57.3% and 59.6% of total revenues for the six
months ended June 30, 1995 and June 30, 1994, respectively. The relative
decrease in cost of sales on a comparative basis is attributable to an
increase in the sale of higher margin Company-owned courseware.
Selling, general and administrative expenses aggregated $3,596,000 for the
six months ended June 30, 1995. This compares to $3,091,000 for the same
period in 1994. The increase of $505,000, is due primarily 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 relative
to the same period in 1994.
For the six months ended June 30, 1995, income before provision for income
taxes totaled $1,231,000, as compared to $670,000 for 1994, an increase
over the prior year of $561,000 or 84%. The significant improvement in
income before provision for income taxes over 1994, was a result of
several factors, including the Company's improved revenue performance, the
reduction in royalty expense due to the Company's purchase of the
INVOLVE(REGISTERED TRADEMARK) products in February 1995, and the Company's
ability to control costs.
Net income for the six months ended 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 income during 1995
was a result of the same factors that contributed to the increases in
income before provision for income taxes.
As a result of the Company's available tax loss carryforwards (as
described in Note 9 to the Consolidated Financial Statements included
elsewhere herein), 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 the
net operating losses acquired with CI, the Company began to pay a larger
amount of income taxes beginning in the second quarter of 1995. These
increased levels of tax payments are expected to continue, provided the
Company continues to improve its level of profitability.
Fiscal Year 1994 Compared to Fiscal Year 1993
Total revenues for 1994 were $22,337,000, representing a 62% increase over
the prior year's revenue of $13,812,000. The Company continued to be
positively impacted by the September 30,1993 acquisition of CI, and its
subsidiaries, Comsell and ComSkill, and the related PC Skills Learning
Library. Revenues for 1994 included a full year of CI's results of
operations while 1993 consolidated results of operations included only
three months of CI's revenues and expenses. The dramatic improvement in
- 18 -
revenues also resulted from increases in demand for nearly all of the
Company's products and services. Sales of the Company's off-the-shelf
multimedia products, hardware systems, linear training products and
ComSkill franchises all increased substantially, while the only area that
experienced a decline was the Company's custom services business.
Revenues from off-the-shelf courseware increased 84% to $15,597,000 in
1994, as compared to revenues of $8,473,000, during 1993. Several factors
that contributed to the increase include additional resources and channels
being focused on sales and distribution of off-the-shelf courseware, an
aggressive product development schedule that resulted in the release of 32
new courses in 1994 and a product marketing strategy that positioned all
of the Company's four "Learning Libraries" as a single product family.
The Company anticipates that revenues will continue to grow due to the
Company's broadened product lines, additional sales and distribution
channels, and continued investments in new products and technologies.
During 1994, sales of hardware systems aggregated $4,353,000, representing
a 103% increase from the revenue level achieved in 1993 of $2,149,000.
Similar to 1993, in 1994 increases in hardware sales resulted from
competitive pricing strategies and the increase in off-the-shelf
courseware sales.
Revenues from custom courseware and consulting services amounted to
$2,387,000 in 1994, a decrease of $802,000 or 25% over the corresponding
period in 1993. The decline in custom and consulting revenues was the
result of the Company's decision to de-emphasize the custom business as an
independent endeavor, while focusing only on those custom opportunities
that satisfy the needs of the Company's existing customer base.
Cost of sales represented 61% and 59% of total revenues for the years
ended 1994 and 1993, respectively. The relative increase in cost of sales
on a comparative basis is attributable to several factors including: the
significant increase in hardware sales that bears extremely low margins
and an increase in sales of third party and partnership courseware that
bears much lower margins than sales of company owned courseware. However,
for the most part, these increases in cost of sales have been offset by
increases in sales of company owned courseware and franchise fees. Sales
from products owned solely by the Company accounted for 72% and 36% of
total multimedia courseware sales in 1994 and 1993, respectively.
Selling, general and administrative expenses totalled $6,693,000 in 1994,
an increase of $1,139,000 or 21% over the corresponding period of 1993.
The overall increase in selling, general and administrative expenses was
due primarily to the acquisition of CI and expanded operational support
for ComSkill. The Company realized substantial savings relative to the
independent operations of ITC and CI, as indicated by the decline in
selling, general and administrative expenses as a percent of revenue from
40% in 1993 to 30% in 1994.
- 19 -
Earnings before income taxes aggregated $1,965,000 in 1994. This
represents an increase of $1,929,000 over the corresponding result of
$36,000 achieved for fiscal 1993. The dramatic increase in earnings
before taxes in 1994 has resulted from several factors including:
substantial savings in general and administrative expenses as a result of
combining the overhead structures of ITC and CI, substantial increases in
sales of off-the-shelf courseware, and sales of new ComSkill franchises.
Net income for 1994 was $1,160,000 compared to $21,000 in 1993, an
increase of $1,139,000. The significant increase in net income for 1994
resulted from the same factors that affected the increase in income before
income taxes.
Due to the Company's available net operating loss carryforwards, the
Company paid minimal taxes during 1994 and 1993. As of December 31, 1994,
the Company had available $1,500,000 of net operating loss carryforwards
of which $1,400,000 is restricted in use to approximately $245,000 per
year, as such net operating loss carryforwards were acquired from Comsell.
Quarterly Results
The following table sets forth certain quarterly financial information.
This information is derived from unaudited consolidated financial
statements which include, in the opinion of Management, all normal and
recurring adjustments which the Company considers necessary for a fair
treatment of the results for such periods. The operating results for any
quarter are not necessarily indicative of results for any future periods.
Net Income
Net Income (Loss) Per
Net Revenue Gross Margin (Loss) Share
(Amounts in thousands, except per share data)
1993 Quarters
First $ 2,734 $ 1,226 $ 45 $ .03
Second 2,498 1,145 (32) (.02)
Third 3,335 1,211 21 .01
Fourth 5,245 2,015 (13) (.01)
Total $ 13,812 $ 5,597 $ 21 $ .01
1994 Quarters
First $ 4,168 $ 1,759 $ 111 $ .05
Second 5,266 2,090 290 .12
Third 5,497 2,009 262 .11
- 20 -
Fourth 7,406 2,850 497 .20
Total $ 22,337 $ 8,708 $ 1,160 $ .48
1995 Quarters
First $ 4,970 $ 2,177 $ 265 $ .10
Second 6,286 2,626 461 .18
Total $ 11,256 $ 4,803 $ 726 $ .28
The Company's net revenues have steadily increased on a comparable quarter
basis with the fourth quarter of each year being the Company's strongest.
Management believes that the fourth quarter will continue to be the
Company's strongest because many of the Company's customers expend a
disproportionate share of their annual training budgets during the last
quarter of the calendar year, thus having a corresponding impact on the
Company's fourth quarter operating performance. Additionally, gross
margin and net earnings on a quarterly basis are affected by the relative
sales mix between courseware and hardware related products.
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% was due
to the strong results of operations of the Company during the first six
months of 1995, as described 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 used primarily 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 for repayment of the Company's revolving line of credit.
Additionally, in February 1995, 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. Subsequent to June
30, 1995, the Company negotiated an increase in the amount available
pursuant to its line of credit from $2,000,000 to $2,500,000. Any
borrowings under this line of credit will bear interest at prime plus one-
half percent.
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,
- 21 -
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.
During 1993, and in order to effectuate the acquisition of CI and its
subsidiaries, Comsell and ComSkill, the Company exchanged 620,000 shares
of its common stock for all of the issued and outstanding equity of CI and
its affiliates. Additionally, the Company borrowed $971,000 from a bank
($900,000 of which was in the form of a then new five-year term loan) in
order to refinance an obligation of CI.
BUSINESS
History
The Company was founded in 1977 to provide videotape-based technical
skills training primarily for the industrial processing and manufacturing
marketplace. During the 1980's, the Company converted its training
programs from linear-based videotape to interactive multimedia laser
videodisc in order to utilize emerging computer technologies and to
enhance the effectiveness and quality of its training products. In
addition to technological enhancements, the Company focused on developing
new training courseware and expanding its customer base. In 1985, the
Company merged with the International Institute of Applied Technology, a
publicly held hardware systems integrator, and began trading on the NASDAQ
under the symbol ITCC.
In September 1993, ITC acquired Comsell and ComSkill, the operating
subsidiaries of CI. The acquisition of CI brought to ITC an additional
product line (the "PC Skills Learning Library") and additional
distribution channels including dealers, distributors and the ComSkill
franchise network opportunity. In February 1995, the Company purchased
INVOLVE(REGISTERED TRADEMARK), an instrumentation learning library, from
ISA. This courseware was originally developed by the Company for ISA.
Management believes that these acquisitions, in addition to the internal
development of the "Technical Skills," "Basic Skills," and "Regulatory
Training" learning libraries, and further expansion of the "PC Skills
- 22 -
Learning Library," have strategically positioned the Company to meet the
evolving and diverse training needs of its customers.
Corporate Strategy
The Company's objective is to accelerate its growth and profitability by
further penetrating the market for interactive, off-the-shelf multimedia
training and educational courseware. ITC's strategy for achieving this
objective is to:
. Expand product platforms and development efforts;
. Increase distribution capabilities; and
. Pursue strategic acquisitions and marketing alliances.
Expand Product Platforms and Development Efforts. The Company must adapt
its products to changing multimedia delivery platforms. The Company
currently delivers its "PC Skills" and "Regulatory Training" products in
both analog and digital formats, while the "Basic Skills," "Technical
Skills," and "Instrumentation Training" programs are offered only in
analog laser disc format. Recently, the Company accelerated its
conversion efforts for release of these products in a digital format,
because the Company regards digital delivery, including the use of CD-ROM,
as the future of the industry, although laser videodisc remains today's
standard of performance and reliability.
As the market for interactive multimedia training expands, customers can
be expected to analyze and demand more performance features and benefits
such as portability and networking. In addition to improving ITC's
current product features (such as customization capabilities,
administration and record keeping), ITC anticipates investing in and
developing new elements of multimedia that further increase performance.
See "Risk Factors -- Changing Technologies, -- Dependence on Product
Development, -- Intellectual Property.
Increase Distribution Capabilities. The Company seeks to expand its
United States and international distribution channels, including direct
sales, dealers, distributors and franchises. Management anticipates
hiring additional persons to support the Company's direct sales efforts
and to continue to expand reseller channels. This effort is intended to
result in a more focused approach to the customer.
As the market for technology-based training continues to develop, ITC
intends to increase its efforts to distinguish itself and its products
from competitive products and services. As a result, the Company intends
to hire additional marketing specialists to further develop the Company's
corporate, library, and product marketing strategies in support of the
Company's sales and distribution efforts. See "Risk Factors -- Developing
Market -- Distribution."
Pursue Strategic Acquisitions and Marketing Alliances. The Company
intends to broaden and expand its range of training products by acquiring
- 23 -
companies or products and, potentially, entering into marketing alliances
with developers of compatible products. The acquisitions of CI and of the
"INVOLVE(REGISTERED TRADEMARK) Instrumentation Learning Library" reflect
the Company's commitment to this strategy. The Company intends to use a
portion of the net proceeds realized from the Offering to fund the
Company's acquisition strategy. There can be no assurance that the
Company will locate suitable acquisition candidates or consummate
acquisitions on terms favorable to the Company. See "Risk Factors --
Acquisitions"
In certain product areas, such as "PC Skills," the Company intends to
enter into development and marketing alliances with key software
applications developers to assist in the production of ITC training
programs. The Company believes that these alliances might provide a
number of competitive advantages, including access to partners' product
development plans, source material and distribution channels. To date,
the Company has not entered into any marketing alliances with key software
applications developers or resellers. There can be no assurance that the
Company will enter into marketing alliances with any software applications
developers.
Industry Overview
The proliferation of personal computers throughout organizations and the
increasing multimedia capabilities of computers are two factors driving
the demand for interactive training and educational courseware. According
to Training Magazine the domestic market for off-the-shelf and custom
training products, outside services and hardware increased from $6.2
billion in 1991 to $7.0 billion in 1994. Training Magazine also estimates
that the total domestic market for corporate training (including training
staff salaries and expenditures for seminars) has increased from $43.2
billion in 1991 to $50.6 billion in 1994. Training Magazine reports that
46% of companies utilized computer based training in 1994.
Management believes that the demand for its products and services is being
driven by (i) an increasingly competitive environment in which businesses
seek to improve efficiency and productivity through a more skilled
workforce; (ii) corporate downsizing, resulting in increased training
requirements for employees who perform multiple job tasks; (iii) the
significant increase in the use of computers throughout all levels of
organizations, increasing the number of employees who need training; and
(iv) the continuous introduction and evolution of computer technologies,
contributing to the need for continuing education and training. Moreover,
International Data Corporation ("IDC") has concluded that technology-based
applications are an extremely effective method of communicating
instructional information to learners. Studies by IDC indicate that not
only is the time required for instruction measurably reduced by using
interactive technologies in a training environment, but comprehension and
retention rates are improved appreciably as well.
- 24 -
The foregoing industry trends indicate potential demand for certain of
ITC's specific product libraries. For example, growth in the "PC Skills"
training market is being fueled by the expanded use of personal computers.
The demand for "Regulatory Training" has already increased due to new
Federal government mandated training for Occupational Safety and Health
Act ("OSHA") regulations and other safety related issues. Demand for the
Company's "Technical Skills" and "Instrumentation Training" programs has
also increased, due to both an increasingly competitive operating
environment and the restructuring and downsizing of corporate America that
together drive the need for more efficient cross-trained employees. ITC's
management believes that the Company is well positioned to capitalize on
both the increases in the overall training market and the transition to
technology-based learning solutions. See "Risk Factors -- Developing
Market, --Changing Technologies, - Competition."
Products and Services
ITC is a full-service training company specializing in the development,
production, marketing and sale of both off-the-shelf and custom
interactive multimedia training courseware for corporate, educational and
governmental organizations. The Company offers in excess of 200 titles in
its Activ(REGISTERED TRADEMARK) Learning Libraries, and 300 videotape
programs. ITC's courseware employs the power of full-screen full-motion
video on a PC platform. These courses combine high quality video and
sound with the PC's capabilities for graphics and automatic recordkeeping.
Although the analog laser disc system remains today's standard for quality
multimedia, the Company recognizes the importance of emerging digital
technologies. ITC has begun the process of converting its courseware to
digital-based CD-ROM platforms. Currently ITC's "Regulatory Training" and
"PC Skills" learning libraries are available in both MPEG and DVI digital
formats, while "Basic Skills," "Technical Skills" and "Instrumentation
Training" are in the process of being converted to MPEG. The Company
expects the conversion to expand the possibilities for portability and
networking.
The vast majority of ITC's products are interactive multimedia programs;
however, the Company does market, sell and distribute certain linear
training products (primarily videotape and text-based) through its USA
Training division.
Along with its products, the Company offers a variety of services to
support the customer's training programs. ITC works with each customer to
determine technological requirements and appropriate courseware. If
desired, certain courses can be customized to meet customer needs. Upon
request, ITC personnel handle the on-site installation of hardware and
courseware. Customer assurance representatives respond promptly to
customer inquiries received during and after business hours. The Company
- 25 -
believes that its training solutions can command a premium price relative
to other technology-based training programs.
Activ(REGISTERED TRADEMARK) Learning Libraries
The Activ(REGISTERED TRADEMARK) "PC Skills Learning Library" provides a
powerful, yet flexible, approach to understanding personal computers while
unlocking the productivity power of today's new software tools. This
Activ(REGISTERED TRADEMARK) Learning Library includes introductory courses
on PCs, Windows(REGISTERED TRADEMARK) software applications, including
Microsoft(REGISTERED TRADEMARK), Lotus(REGISTERED TRADEMARK), and
WordPerfect(REGISTERED TRADEMARK) products, as well as several programs on
DOS-based applications.
The Activ(REGISTERED TRADEMARK) "Regulatory Training Learning Library"
addresses many of the OSHA, Environmental Protection Agency and Department
of Transportation regulations. Titles include "Confined Space Entry,"
"Transport of Hazardous Material," "Lockout/Tagout," "Environmental
Awareness," "Powered Industrial Vehicles," and "Bloodborne Pathogens."
ITC's Activ(REGISTERED TRADEMARK) regulatory courses provide broad
regulatory training coverage and updates for regulatory changes.
The Activ(REGISTERED TRADEMARK) "Technical Skills Learning Library" is
designed to increase technical competency. These uniquely customizable
courses use "real world" workplace situations and terminology, providing a
practical atmosphere for the learner. The Activ(REGISTERED TRADEMARK)
"Technical Skills Learning Library" offers nearly 100 courses that address
specific technical training needs in the areas of fundamentals, quality,
safety, mechanical, and electrical/electronics.
The Activ(REGISTERED TRADEMARK) "INVOLVE(REGISTERED TRADEMARK)
Instrumentation Learning Library" offers "Technical Skills" courses
relating to instrumentation topics. Developed by ITC in association with
ISA, the 51 customizable courses comprising the library communicate
complex instrument, multi-craft and process operations. Lessons are
available on every level from the basic principles of process control to
the hands-on skills necessary to keep a process running. The
Activ(REGISTERED TRADEMARK) "INVOLVE(REGISTERED TRADEMARK) Instrumentation
Learning Library" includes broad training topics from distributed control
to instrument calibration and troubleshooting to industrial measurement.
The Activ(REGISTERED TRADEMARK) "Basic Skills Learning Library" provides
students with a working understanding of math, reading, writing and
interpersonal skills. The courses can be customized to highlight
situations that may be encountered by employees on the job.
Activ(REGISTERED TRADEMARK) Administration System
The Company's proprietary Activ(REGISTERED TRADEMARK) Administration
system offers customers a method of managing, reporting and tracking their
- 26 -
employees' individual and group training data and progress when training
with ITC's traditional Activ(REGISTERED TRADEMARK) programs.
Hardware
The Company sells personal computers and related multimedia hardware
products to customers who require hardware to implement training programs.
In addition to being an authorized IBM Industry Remarketer and a Value
Added Reseller, the Company utilizes the products of Compaq, Gateway and
other computer hardware manufacturers. Such hardware is integrated with
ITC's Activ(REGISTERED TRADEMARK) courseware to provide a full-service
solution to the training needs of ITC's clients.
All materials used in the Company's products are available from numerous
sources of supply. The Company does not foresee any shortage of such
materials. Further, ITC does not believe that the loss of any single
supplier would have a material adverse effect on the Company taken as a
whole.
Product Development
The Company has made substantial investments in product development. ITC
products are developed both internally and with third party contractors.
After a subject has been researched and identified for product
development, the first step in developing a new training program is to
develop a working knowledge of the underlying content by using a
combination of subject matter experts, existing courses, and product
reference materials. The Company then writes a program script, which
covers all of the relevant concepts, tasks to be completed, interactive
features and tests to measure achievement and to reinforce the lesson.
During and after development of a script, the Company's developers,
programmers, video directors, and graphic designers, simultaneously plan
and develop the course's performance characteristics and video graphics.
The final script and graphics are integrated into a single file. Video
and audio are recorded onto a master videotape which is subsequently
mastered as a laser disc and a CD-ROM. The workbook is finalized and
printed and course diskettes are then prepared. The program is then
tested to ensure that each course delivers the desired education and
training. After testing is complete, the product is released for sale.
The Company performs its own research and development activities and
retains control over course development performed by outside developers
and subcontractors. All deliverables produced by outside developers or
subcontractors remain the Company's property.
Expenditures for product development were $1,543,128 in fiscal year 1994,
$969,870 in fiscal year 1993, and $755,576 for the six-month period ending
June 30, 1995 (excluding the INVOLVE(REGISTERED TRADEMARK) product
purchase of $1,398,507). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Risk Factors --
Dependence on Product Development."
- 27 -
Sales, Marketing and Customer Support
Distribution of the Company's products is managed through a number of
channels. Primarily, the Company employs a direct sales force that is
responsible for sales of the Company's interactive multimedia products
throughout North America. The Company also markets its products through
dealers, distributors and, in the case of the Activ(REGISTERED TRADEMARK)
"PC Skills Learning Library," its ComSkill franchisees. In foreign
markets, with the exception of Canada, the Company markets its products
through dealers and distributors.
Direct Sales
The Company's direct sales force and support organization is responsible
for the distribution of ITC's interactive multimedia products throughout
North America, with the exception of those territories that have been sold
to ComSkill franchises as exclusive territories for distribution of the
Activ(REGISTERED TRADEMARK) "PC Skills Learning Library." The efforts of
the direct sales and support personnel accounted for approximately 84% of
the Company's multimedia revenues in 1994. At June 30, 1995, ITC employed
fifteen direct sales people responsible for generating new customer sales
and eight customer service representatives providing ongoing support for
the Company's existing customer base. In addition, the Company employs an
internal sales staff to assist the direct sales force and customer service
representatives. With the exception of Canada, the Company does not have
a direct sales employee presence in international markets.
The Company develops direct sales contacts from many sources. The Company
has established a presence at many of the training industry's national and
regional trade shows. Trade shows permit the Company to promote and
enhance its image as a leading publisher and distributor of self-directed
training programs, and to initiate customer contacts, which are followed
by a direct salesperson or customer service representative communication.
The Company also contacts potential clients referred by existing
customers.
Indirect Sales
The Company also distributes its products through a variety of indirect
sales channels, which include dealers, distributors and franchises. The
indirect sales channels generated 16% of the Company's revenues in 1994.
The Company believes that utilizing indirect sales channels offers the
Company additional opportunities to broaden its customer base. By having
the Company's dealers, distributors and franchises establish their own
presence in local markets, ITC accesses customers in some markets that
could not be targeted as cost-effectively by the Company's direct sales
force. The Company currently utilizes approximately twelve dealers and
distributors in foreign markets, excluding Canada.
The franchises sold through ITC's ComSkill subsidiary employ their own
direct sales personnel to market and sell ITC's products throughout their
- 28 -
protected territories. ComSkill franchises have exclusive rights to sell
"PC Skills" products and nonexclusive rights to sell other ITC products.
In connection with the Company's strategy to expand distribution channels,
ITC intends to explore relationships with additional prospective resellers
of its courseware.
ComSkill Franchises
ComSkill offers and sells franchises to independent operators or
franchisees throughout the United States and Canada for the sale and
distribution of ITC "PC Skills" courseware and the operation of personal
computer multimedia learning centers within exclusive territories. Under
the terms of the franchise agreements, the franchisees have the right to
resell and rent "PC Skills" courseware to third parties. Territories are
based on IDC's statistical survey of personal computer distribution in
each of the top 150 Metropolitan Statistical areas in the United States as
of January 1, 1993, and on county and postal zip codes. All franchise
agreements are for a ten-year term, with eligibility for renewal for an
additional ten years, subject to certain terms and conditions.
Franchisees are also granted the right to use the trademark "ComSkill"
with logo, registered with the U.S. Patent and Trademark Office on January
3, 1995, Registration No. 1,871,652. ComSkill currently has seventeen
territories established.
Customer Support
The Company provides customer support in several ways. First, each sale
is based upon an analysis of the customer's training needs. Second, ITC
offers "1-800" telephone support to its customers during normal business
hours. Third, the Company solicits feedback from new and existing
customers regarding service improvements and requests for new products.
Customers
ITC's Activ(REGISTERED TRADEMARK) courseware is used in over 5,000
companies, including many Fortune 1,000 companies, and other major
organizations. These organizations span a wide range of industries
including industrial processing and manufacturing, telecommunications,
utilities, government and education. The following table lists certain of
the Company's customers within each of the identified industries. The
organizations listed below (or their affiliates) purchased in excess of
$100,000 of products from the Company since January 1, 1994.
- 29 -
Process/Mfg. Telecommunications Utilities Government Education Other
Anheuser-Busch BellSouth Carolina Power Administrative DeKalb County CSX
Corporation and Lighting Offices of the (GA) Board of
U.S. Courts Education
Ford Motor NYNEX Corporation Illinois Power Health Canada Excel
Company Corporation
General PEPCO Navy Public First Union
Electric Works National Bank
Company of North
Carolina,
N.A.
Lockheed- The Southern Revenue Canada Talent Tree
Martin Companies Personnel
Services
North Star Statistics
Steel Canada
No customer accounted for more than 7% of revenues in 1994. Less than 10%
of the Company's 1994 revenues was derived from foreign sales.
Intellectual Property
The Company considers its training programs to be proprietary and relies
primarily on a combination of statutory and common law copyright,
trademark and trade secret laws, customer licensing agreements, employee
and third party nondisclosure agreements and other methods to protect its
proprietary rights. Certain of the Company's "Basic Skills" and
"Technical Skills" products are owned by limited partnerships, in which
the Company acts as a general partner and in some cases, the Company also
participates as a limited partner.
The Company is the owner of certain trademarks filed in the United States
Patent and Trademark Office:
-- ACTIV, Reg. No. 1,542,258 expiring June 6, 2009
-- ACTIV (with logo), Reg. No. 1,541,251, expiring May 30, 2009
-- ITC (with logo), Reg. No. 1,456,363, expiring Sept. 8, 2007
-- ITC (with logo), Reg. No. 1,483,827, expiring Apr. 5, 2007
-- ComSkill (with logo), Reg. No. 1,871,652, expiring Jan. 3, 2001
-- INVOLVE, Reg. No. 1,655,283 (originally registered in the name of
Instrument Society of America and assigned to the company by
- 30 -
assignment dated March 13, 1995 and filed in the United States Patent
and Trademark Office) expiring September 1996
The Company's trademarks are eligible for renewal at the time of their
expiration and may be maintained indefinitely by the Company, provided the
Company is still using the trademark and fulfills the United States Patent
and Trademark Office's filing requirements.
Additionally, the Company has filed trademark applications for the
trademarks on "Enginuity" (one for products and another for services) and
"USA Training", which applications are currently pending in the United
States Patent and Trademark Office. See "Risk Factors -- Intellectual
Property."
Competition
There are many companies engaged in the business of providing training and
instructional materials. These companies include providers of traditional
instructor-led training, multimedia developers and sellers, textbook
publishers, manufacturers of videotapes, training films, and others, all
of which compete for available training funds. At present, there are also
several providers of interactive multimedia training products. Management
believes that the number of companies providing multimedia training
products will continue to increase in the future. Some of these companies
are larger and have greater resources than ITC, while others offer only
specialized training materials. Management believes that its five
"Learning Libraries" offer the most broad array of interactive multimedia
training products and services. See "Risk Factors -- Competition."
Employees
At June 30, 1995, the Company and its subsidiaries employed a total of 78
people, all of whom are full-time. The Company utilizes free-lance and
temporary personnel who are familiar with ITC's development and production
process to support increased personnel requirements that arise from time
to time. The Company is not a party to any collective bargaining
agreements, and believes that relations with its employees are good.
Facilities
The Company currently occupies 28,431 square feet of office, warehouse and
production space in a commercial building located at 13515 Dulles
Technology Drive, Herndon, Virginia. The lease expires in June of 1999.
Further, the Company occupies approximately 6,450 square feet of office
space in a commercial building located at One Buckhead Plaza, Suite 1500,
3060 Peachtree Road, Atlanta, Georgia. This lease expires in January of
1996. All facilities are in good condition and are adequate for the
Company's use.
Legal Proceedings
- 31 -
The Company is not a party to, nor is any of its property the subject of,
any material pending legal proceedings.
MANAGEMENT
Directors and Executive Officers
The Directors and Executive Officers of the Company are as follows:
Name Age Title
James H. Walton 62 Chairman of the Board, President and Chief
Executive Officer
Gerald H. Kaiz 56 Vice Chairman of the Board, Executive Vice
President and Secretary
Steven L. Roden 45 Director, Executive Vice President and
Chief Executive Officer of ComSkill
Elaine H. Babcock 38 Senior Vice President of Sales
Philip J. Facchina 33 Vice President, Treasurer and Chief
Financial Officer
Elizabeth E. Tomaszewicz 49 Vice President, President of ComSkill
Robert VanStry 45 Vice President
Thomas M. Balderston 39 Director
Daniel R. Bannister 65 Director
John D. Sanders 56 Director
Richard E. Thomas 68 Director
James H. Walton is Chairman of the Board, President and Chief Executive
Officer of ITC. Mr. Walton has been a Director and officer of ITC since
1977. Prior to the founding of ITC in 1977, he was responsible for
audiovisual production at NUS Corporation, an engineering and consulting
firm, (1973-1977). Mr. Walton holds a B.S. and M.A. from the University
of Nebraska.
Gerald H. Kaiz is Vice Chairman of the Board, Executive Vice President and
Secretary of ITC. Mr. Kaiz has been a Director and officer of ITC since
1977. Prior to the founding of ITC, Mr. Kaiz was Manager of Training
Consulting for NUS Corporation (1967-1977). Mr. Kaiz holds a B.S. degree
- 32 -
in Physics and an M.S. degree in Nuclear Engineering from the
Massachusetts Institute of Technology.
Steven L. Roden, a Director since 1993, is Chief Executive Officer of
ComSkill and Executive Vice President of ITC. Mr. Roden served as
President and Chief Executive Officer of Comsell from 1987 until its
liquidation into ITC in January 1995. Prior to Comsell, he was President
of Digital Controls Video, Inc., Vice President of Coloney, Inc., and Vice
President of First Florida Bank Corp. Mr. Roden holds an M.B.A. in
Finance and Marketing and a B.S. from Florida State University.
Elaine H. Babcock is Senior Vice President of Sales of ITC. In this
capacity, she is responsible for all distribution of off-the-shelf product
sales of the Company and its affiliates in North America, with the
exception of sales through the ComSkill franchise network. Prior to
January 1994, Ms. Babcock used her sales and management expertise to build
ITC's Custom Services Department. Ms. Babcock joined the Company in 1978
as a Video Production Specialist with a Communications degree from the
University of Maryland.
Philip J. Facchina is Vice President, Treasurer and Chief Financial
Officer of ITC. Prior to joining ITC in October 1992, Mr. Facchina served
as Treasurer and Chief Financial Officer of Facchina Construction Company,
Inc. Prior to then, Mr. Facchina served as Vice President of Finance and
Administration for E. C. Ernst, Inc. He is a former audit manager of
Arthur Young & Company (now Ernst & Young LLP). Mr. Facchina holds an
M.B.A. from the University of Pennsylvania's Wharton Business School, a
B.S. in Accounting from the University of Maryland, and is a C.P.A.
Elizabeth E. Tomaszewlcz, is a Vice President of ITC and President of
ComSkill. Prior to joining the Company, Ms. Tomaszewicz served as Senior
Vice President of Sales and Marketing of TRO Learning, Inc. (TRO), 1989 to
1993. Prior to TRO, she served as Executive Vice President, Marketing and
Field Operations of Applied Learning International, Inc. Ms. Tomaszewicz
holds a B.S. from the University of Massachusetts.
Robert F. VanStry is a Vice President of ITC. Mr. VanStry joined the
Company in May 1978 as Senior Training Associate and subsequently
fulfilled the responsibilities of Manager of Engineering Projects, Manager
of Project Development, and Vice President of Training Services.
Thomas M. Balderston, a Director since 1993, has been a partner of TDH, a
venture capital fund group, from 1985 to present. He is also Director of
Actronics, Inc. Prior to TDH, he was Assistant Vice President of Middle
Market Lending for the Bank of Boston. Mr. Balderston holds an M.B.A.
from the Anderson School of Management at UCLA and a B.A. from Williams
College.
Daniel R. Bannister, a Director since 1988, has been President and Chief
Executive Officer of DynCorp, a leading professional and technical
- 33 -
services firm, since 1985. He was Executive Vice President and Senior
Vice President of its Technical Services Group from 1983 to 1984.
John D. Sanders, a Director since 1977, is Chairman and Chief Executive
Officer of Tech News Inc., publishers of Washington Technology newspaper.
He holds a B.E.E. from the University of Louisville, Kentucky, and an M.S.
and Ph.D. in Electrical Engineering from Carnegie Mellon University. Mr.
Sanders is a member of the Boards of Directors of the following public
companies: Daedalus Enterprises, Inc., an electronics specialty
consultant; Information Analysis, Inc., a supplier of computer software
services; and Data Measurement Corporation, a publicly held manufacturer
of specialized measuring equipment.
Richard E. Thomas, a Director since 1982, was Chairman of the Board,
President and Chief Executive Officer of Radiation Systems, Inc., a
communications systems manufacturer, from 1978 until 1994, at which time
Radiation Systems, Inc. was merged into COMSAT Corporation and Mr. Thomas
became the President of COMSAT RSI.
The Company has three classes of directors. Each class serves staggered
terms of three years in duration. The terms of Messrs. Balderston, Roden,
and Walton are due to expire in 1997. The terms of Messrs. Bannister and
Kaiz are due to expire in 1996. The terms of Messrs. Sanders and Thomas
are due to expire in 1998. Directors are elected by a plurality of the
votes cast at the Company's annual meeting of shareholders. Directors who
are employees of the Company receive no extra compensation for serving as
Directors. Non-employee Directors are paid $1,500 per quarter and $250
per meeting.
Committees of the Board of Directors
Compensation Committee - The Board of Directors has a three-member
Compensation Committee, the members of which are outside directors.
Messrs. Thomas, Sanders and Bannister serve on this Committee. The
Committee recommends salaries and other compensation of the executive
officers of the Company for action by the whole Board.
Audit Committee - The Board of Directors has also established an Audit
Committee which is comprised of the same outside directors as the
Compensation Committee. The Audit Committee acts in an oversight capacity
to review quarterly and year-end financial processes, and meets with the
Company's auditors to review their reports and recommendations.
Employment Agreements
The Company has entered into employment agreements with its executive
officers. The agreements are generally subject to termination upon (i)
death (with certain individuals' beneficiaries receiving up to $5,000 in
death benefits); or (ii) disability; (iii) upon 45-60 days notice
(depending upon the individuals) by the Company. The agreements provide
for 34 months of severance pay to Messrs. Walton and Kaiz, 12 months of
- 34 -
severance pay to Messrs. Facchina and Roden and Ms. Tomaszewicz, and 10
months of severance pay to Ms. Babcock and Mr. VanStry (with certain
exceptions for liquidation other than in connection with the transfer of
all Company assets to another entity as in a merger or consolidation).
The agreements with Ms. Babcock, Ms. Tomaszewicz and Mr. Facchina specify
that upon certain changes of control, Ms. Babcock and Ms. Tomaszewicz
would receive 12 months salary as severance pay if they are terminated or
voluntarily leave within one year of the effective date of such an
occurrence and Mr. Facchina would receive 24 months salary as severance
pay upon a change of control.
In addition to basic salary, each officer is eligible to receive salary
increases, bonuses, stock option grants, pension and profit sharing
arrangements and other employee benefits that may from time to time be
awarded or made available. Messrs. Walton and Kaiz are required to give
the Company 12 months notice of resignation, while the other executive
officers must provide from 45-120 days notice. During the notice period,
all officers receive salary. The agreements also provide for certain paid
sick leave or disability and reimbursement of certain other medical
expenses not covered by the Company's group insurance. See "Risk
Factors -- Dependence On and Need for Key Personnel."
Executive Compensation Summary Table
The following information is being furnished with respect to the Company's
compensation of its Chief Executive Officer ("CEO") and its executive
officers whose annual salary and bonus exceeded $100,000 for the most
recent fiscal year, for services rendered to the Company during each of
the last 3 completed fiscal years.
- 35 -
Summary Compensation Table
ANNUAL COMPENSATION
Securities
Underlying
Name and Principal Other Annual Options
Position Year Salary ($) Bonus($) (b) Compensation($) (c) Granted (#)
James H. Walton 1994 133,183 80,000 13,470 0
President & CEO 1993 132,088 0 10,455 0
1992 117,808 48,000 11,713 2,000
Gerald H. Kaiz 1994 112,332 30,000 11,858 0
Executive Vice President 1993 117,783 0 9,220 0
& Secretary 1992 109,965 10,000 10,998 0
Steven L. Roden 1994 120,609 45,000 12,930 0
Executive VP - ITC 1993 29,800 (a) 0 2,503 30,000
CEO - ComSkill 1992 0 0 0 0
Elaine H. Babcock Senior 1994 86,770 37,500 9,150 30,000
Vice President 1993 80,233 0 6,688 0
1992 72,106 10,000 7,469 0
Philip J. Facchina Vice 1994 87,366 60,000 23,460 (d) 0
President, Chief 1993 72,852 0 28,906 (d) 15,000
Financial Officer & 1992 11,181 5,000 0 9,000
Treasurer
Robert F. VanStry 1994 90,623 30,000 8,078 0
Vice President 1993 75,670 0 6,166 0
1992 71,595 7,875 7,469 0
a) Mr. Roden was hired by the Company as of September 30, 1993, the date
of the CI acquisition. Salary compensation represents amounts paid by
the Company to Mr. Roden after the acquisition of CI.
b) Bonus compensation represents amounts paid to the executive pursuant
to the Company's Incentive Compensation Plan for the year earned.
c) Represents the fair market value of shares allocated pursuant to the
Company's Employee Stock Ownership Plan.
d) Includes amounts paid by Company for certain education related
expenses.
- 36 -
Options Grants for Fiscal 1994 and Potential Realizable Values
Ms. Babcock received options to purchase 30,000 shares during Fiscal 1994.
Messrs. Walton and Facchina received options to purchase 50,000 shares and
25,000 shares, respectively, during the first quarter of 1995.
Option Exercises and Values for Fiscal 1994
The following table sets forth as to each of the named executive officers
information with respect to option exercises during Fiscal 1994 and the
status of their options on December 31, 1994.
Number of Unexercised Value of Unexercised in-
Options at Fiscal Year the-Money Options at
Shares Value End (#) Exercisable Fiscal Year End ($)
Acquired on Realized (E)/ Exercisable(E)/
Name Exercise (#) ($) Unexercisable (U) Unexercisable (U)
James H. Walton - - 28,000 (E) 74,674 (E)
Gerald H. Kaiz - - 26,000 (E) 63,674 (E)
Steven L. Roden - - 10,000 (E) 55,000 (E)
20,000 (U) 110,000 (U)
Elaine H. Babcock - - 13,000 (E) 33,125 (E)
30,000 (U) 0 (U)
Philip J. Facchina - - 10,000 (E) 57,500 (E)
14,000 (U) 85,000 (U)
Robert F. VanStry - - 13,000 (E) 32,125 (E)
Stock Options and Warrants
At June 30, 1995, the Company had outstanding options to purchase Common
Stock under three separate qualified incentive stock option plans. Two
plans, the 1992 Director Incentive Stock Option Plan and the 1992 Key
Employee Incentive Stock Option Plan, were adopted by the Board of
Directors and approved by the shareholders during 1992. These plans have
effectively replaced the Company's 1982 Incentive Stock Option Plan that
expired in 1992.
Pursuant to the 1982 Incentive Stock Option Plan, at June 30, 1995, there
were 72,000 options outstanding at exercise prices ranging from $2.00 to
$3.16. This plan has no additional options available for grant. Options
exercisable at June 30, 1995 expire as follows: 48,000 in 1995 and 24,000
in 1996.
- 37 -
Pursuant to the 1992 Key Employee Incentive Stock Option Plan, at June 30,
1995, there were 96,000 options outstanding at exercise prices ranging
from $4.13 to $6.75, and 18,500 options were available for additional
grants. Options outstanding at June 30, 1995 expire as follows: 2,000 in
1996 and 94,000 in 1997 through 2002. Options for 34,000 shares are
exercisable at June 30, 1995.
Pursuant to the 1992 Director Incentive Stock Option Plan, at June 30,
1995, there were 4,000 options outstanding at an exercise price of $5.00,
and 31,000 options are available for additional grants. All 4,000 of
these options were exercisable at June 30, 1995 and expire in 1999. All
options granted pursuant to this plan are nonqualified.
From time to time, the Company has granted other nonqualified options to
certain individuals. At June 30, 1995, there were 120,000 of these
options outstanding at exercise prices ranging from $2.13 to $7.50.
Options outstanding at June 30, 1995 expire as follows: 9,000 in 1995 and
6,000 in 1996, and 105,000 in 1999 through 2001. Options for 90,000
shares were exercisable at June 30, 1995.
In connection with a 1987 $1,275,000 debenture financing, the Company
entered into warrant agreements with certain investment advisors.
Pursuant to the warrant agreements, these advisors may purchase up to
7,286 shares (14,572 shares adjusted for the 1992 stock split) of the
Company's Common Stock at an original purchase price of $7.00 per share
($3.50 per share as adjusted for the 1992 stock split). Such purchase
must occur in increments of 1,000 shares or more. The warrant agreements
expire July 31, 1998 and are transferrable only once. The warrant
agreement grants the holder certain "piggyback" registration rights only
if the Company registers shares represented by other outstanding warrants
or options. The Company has no current plans to register for sale any
outstanding warrants or options.
Incentive Compensation Plan
Historically, the Company has adopted an Incentive Compensation Plan
("ICP") for each fiscal year, designed to provide additional incentive to
the Company's officers to achieve the growth and profitability goals of
the Company. The maximum compensation payable under the ICP is determined
by the Board of Directors at the beginning of each fiscal year and no
payments are made under the ICP in the event that the targeted revenues
and net income for ITC as set forth in the ICP are not achieved. Payments
to the participants in the ICP are based upon the participant achieving
targeted revenues, or in the case of those officers with both revenue and
net income responsibilities, achieving both targeted revenues and targeted
net income. Payments made under the ICP are calculated at the end of each
fiscal year and are paid to the eligible participants within 15 days after
completion of the annual audit of the Company's financial statements and
the Company's filing of its Annual Report on Form 10-KSB with the
Commission.
- 38 -
Employee Stock Ownership Plan
Effective January 1, 1992, the Company established an Employee Stock
Ownership Plan ("ESOP") for the benefit of substantially all employees.
The purpose of the ESOP is to enable participating employees to share in
the growth of the Company. The ESOP requires that the greater of 33,334
shares or the amount of shares equal to five percent of total compensation
of eligible employees be allocated to employee accounts annually. Each
participating employee is allocated shares based upon his or her relative
annual compensation. The shares vest over time and are fully vested when
an employee has six years of service with the Company. The ESOP does not
require any monetary contribution from the participating employee, but has
a minimum eligibility requirement of 1,000 hours of service in any plan
year.
The ESOP is administered by three Trustees who are subject to the terms
and conditions of a separate trust agreement which specifies their duties.
Each ESOP participant is eligible for distribution of benefits no later
than the sixtieth (60th) day after the close of the plan year in which the
following events occurs: (i) the participant attains the age of 65;
(ii) the occurrence of the tenth anniversary in which the participant
commenced participation in the plan; or (iii) the Participant terminates
his service with the Company.
Limitation of Liability of Directors and Indemnification of Directors and
Officers
The Company's Restated Bylaws provide that in the absence of fraud or bad
faith the Company will indemnify its directors and officers to the full
extent authorized by Maryland law against all liability and expenses
actually and reasonably incurred in connection with or resulting from any
action, suit, or proceeding in which such person becomes involved by
reason of having been an officer or director of the Company. Insofar as
indemnification for liabilities arising under the Securities Act of 1933,
as amended ("Securities Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions,
or otherwise, the Company has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act, and is therefore unenforceable.
There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is
the Company aware of any pending or threatened litigation that may result
in claims for indemnification by any director or officer.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of the Company's 1993 acquisition of CI and its subsidiaries,
Comsell and ComSkill, all of the issued and outstanding equity securities
- 39 -
of CI were converted into the Company's Common Stock (the "Conversion").
In connection with the Conversion, a total of 610,000 shares of ITC Common
Stock ("Conversion Shares") were issued to 15 persons, including the
Selling Shareholders. Mr. Roden received 63,811 shares of ITC Common
Stock. TDH II Limited ("TDH"), of which Mr. Balderston is a partner,
received 432,911 shares of ITC Common Stock in exchange for its equity
interest in CI, and an additional 10,000 shares of ITC Common Stock for
certain consulting services related to the transaction. 113,278 shares of
ITC Common Stock were issued to CI's other shareholders in the CI
acquisition. The Conversion Shares are subject to certain resale
restrictions under Rule 144 promulgated under the Securities Act. To the
extent that the Conversion Shares are not sold in this Offering, they will
begin to become eligible for future sale subject to the limitations of
Rule 144 commencing in October 1995.
Piggyback Registration Rights
As part of the acquisition of CI, the Company granted certain "piggyback"
registration rights to the holders of Conversion Shares. Under the
Agreement and Plan of Merger, dated September 30, 1993 between CI and ITC
(the "Merger Agreement"), ITC must, upon request, include former CI
shareholders' Conversion Shares in any registration statement that ITC
files with the Commission relating to a public offering of ITC common
stock. Such "piggyback" rights are conditioned upon inclusion of
Conversion Shares in the offering by the managing underwriter for the
offering. Notwithstanding such "piggyback" rights, the Company retains
control over all actions regarding a registration statement. The holders
of Conversion Shares bear a proportionate amount of any underwriting
discounts for their participation in the "piggyback" offering, and any
expenses incurred by legal counsel retained by holders of Conversion
Shares. The "piggyback" rights of holders of Conversion Shares expire on
September 30, 1996.
Demand Registration Rights
Under the terms of the Merger Agreement, the Company granted to the
holders of Conversion Shares a one-time demand registration right to
register the Conversion Shares for sale. This one-time demand
registration right may only be exercised upon request by a "Forty Percent
Holder," defined as any holder of forty percent of the Conversion Shares,
or a group of persons acting together to hold forty percent of the
Conversion Shares. Given the distribution of stock in the Conversion, the
registration rights may be exercised only if TDH elects to make such a
demand. The demand rights expire in October, 1997. TDH has agreed not to
exercise the demand registration right for a period of 360 days after the
Offering and will not offer, sell, or otherwise dispose of the Company's
Common Stock for 180 days after the Offering. See "Underwriting."
- 40 -
PRINCIPAL SHAREHOLDERS
Stock Ownership of Certain Beneficial Owners
The following table sets forth information as to the beneficial ownership
of each person known to the Company to own more than 5% of the outstanding
Common Stock, directors, named executive officers, and directors and
officers as a group as of July 26, 1995.
Shares Beneficially Shares Beneficially Owned
Owned Prior to the After the
Offering Offering(1)
Name of Beneficial Owner Number Percent Number Percent
Thomas M. Balderston (2) 442,911 16.9% 290,843(3) 8.4%
One Rosemont Business
Campus, Suite 301
919 Conestoga Road
Rosemont, PA 19010
Gruber & McBaine Capital 175,450 6.7% 175,450 5.1%
Management, Inc. (4)
50 Osgood Place
San Francisco, CA 94133
James H. Walton (5) 267,299 10.2% 267,299 7.7%
5213 N. 23rd Rd., Arlington, VA
22207
Gerald H. Kaiz (6) 175,714 6.7% 150,714(8) 4.3%
14406 Nadine Dr., Rockville, MD 20853
Steven L. Roden (7) 76,062 2.9% 63,300(9) 1.8%
305 Glenn Lake Drive
Atlanta, GA 30327
John D. Sanders 31,550 1.2% 31,550 .9%
4600 N. 26th St.,
Arlington, VA 22207
Richard E. Thomas 18,870 .7% 18,870 .5%
8207 Light Horse Ct.,
Annandale, VA 22003
Daniel R. Bannister 9,000 .3% 9,000 .3%
8414 Brookwood Ct.,
McLean, VA 22102-1749
- 41 -
Shares Beneficially Shares Beneficially Owned
Owned Prior to the After the
Offering Offering(1)
Name of Beneficial Owner Number Percent Number Percent
Elaine H. Babcock 17,977 .7% 17,977 .5%
16 Bogastow Circle
Millis, MA 02054
Philip J. Facchina 37,489 1.5% 37,489 1.1%
8428 Boss Street
Vienna, VA 22182
Robert VanStry 3,644 .2% 3,644 .1%
3157 Kirkwell Place
Herndon, VA 22071
Directors and Executive 1,193,516 45.5% 1,166,448 33.6%
Officers as a group
(11 persons)
(1) Assumes all 850,000 shares of Common Stock offered by the Company are
sold and 3,305,624 shares outstanding after the Offering. Unless
otherwise indicated, each person has sole voting and investment rights
with respect to the shares specified opposite his name.
(2) Mr. Balderston's shares are held by TDH II Limited, with which Mr.
Balderston is affiliated. Mr. Balderston does not have sole voting
power for the shares.
(3) Assumes the sale of 152,068 shares in the Offering. See "Selling
Shareholders."
(4) Includes 23,600 shares held by Jon D. Gruber and 13,300 shares held by
J. Patterson McBaine, the sole directors and executive officers of
Gruber & McBaine Capital Management ("GMCM"). Also includes 71,000
shares held by Laquintas Partners, L.P., a California limited
partnership in which GMCM and Messrs. Gruber and McBaine are general
partners, and 1,500 shares held by CMJ Investments, L.P., a California
limited partnership in which GMCM and Messrs. Gruber and McBaine are
general partners. GMCM and Messrs. Gruber and McBaine disclaim
beneficial ownership of the shares held by Laquintas Partners, L.P.
and CMJ Investments, L.P. Does not include 54,100 shares held by
Laquintas Partners, L.P., a California limited partnership in which
Messrs. Gruber and McBaine are general partners and for which they
disclaim beneficial ownership.
- 42 -
(5) Includes 1,000 shares owned by spouse and 5,799 shares held by the
Company's Employee Stock Ownership Plan. Includes 72,000 shares which
Mr. Walton is entitled to acquire pursuant to stock options.
(6) Includes 1,000 shares owned by spouse and 5,214 shares held by the
Company's Employee Stock Ownership Plan. Includes 6,000 shares which
Mr. Kaiz is entitled to acquire pursuant to stock options.
(7) Includes 2,251 shares held by Employee Stock Ownership Plan. Includes
10,000 shares which Mr. Roden is entitled to acquire pursuant to stock
options.
(8) Assumes the sale of 25,000 shares in the Offering. See "Selling
Shareholders."
(9) Assumes the sale of 12,762 shares in the Offering. See "Selling
Shareholders."
SELLING SHAREHOLDERS
The following shareholders are selling Common Stock in the Offering.
Shares Beneficially Number of Shares Beneficially
Owned Prior to the Shares Owned After the
Offering Offered Offering
Name of Beneficial Owner Number Percent Number Percent
TDH II Limited 442,911 16.9% 152,068 290,843 8.4%
Gerald H. Kaiz 175,714 6.7% 25,000 150,714 4.3%
Steven L. Roden 76,062 2.9% 12,762 63,300 1.8%
Harvey Shuster 29,734 1.0% 5,947 23,787 0.7%
Glenn Crews 12,849 * 2,510 10,339 *
Phyllis Fobes 8,567 * 1,713 6,854 *
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 4,000,000 shares
of Common Stock, $.10 par value, of which 2,455,624 shares are issued and
outstanding. Upon completion of the Offering, the issued and outstanding
- 43 -
capital stock of the Company will consist of 3,305,624 shares of Common
Stock (3,413,124 shares if the over-allotment option is exercised).
The Common Stock has voting rights and is entitled to dividends from
sources available therefor when, as and if declared by the Board of
Directors. See "Price Range of Common Stock and Dividend Policy."
Shareholders have no preemptive rights and no rights to convert their
Common Stock into any other securities. The holders of Common Stock are
entitled to one vote for each share held of record on all matters
submitted to a vote of the shareholders. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding
preferred stock. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares are, and all
shares to be sold and issued as contemplated hereby will be, fully paid
and nonassessable and legally issued.
The Company has three classes of Directors, which may tend to delay,
defer, or prevent a change of control of the Company. In addition, the
following statutes may have a similar effect.
Business Combination Statute. The Maryland General Corporation Law
establishes special requirements with respect to "business combinations"
between Maryland corporations and "interested stockholders" unless
exemptions are applicable. Among other things, the law prohibits for a
period of five years a merger and other specific or similar transactions
between a company and an interested stockholder and requires a
supermajority vote for such transactions after the end of such five year
period.
"Interested stockholders" are all persons owning beneficially, directly or
indirectly, more than 10% of the outstanding voting stock of a Maryland
corporation. "Business combinations" include any merger or similar
transaction subject to a statutory vote and additional transactions
involving transfers of assets or securities in specified amounts to
interested stockholders or their affiliates. Unless an exemption is
available, transactions of these types may not be consummated between a
Maryland corporation and an interested stockholder or its affiliates for a
period of five years after the date on which the stockholder first became
an interested stockholder and thereafter may not be consummated unless
recommended by the board of directors of the Maryland corporation and
approved by the affirmative vote of at least 80% of the votes entitled to
be cast by all holders of outstanding shares of voting stock and 66 % of
the votes entitled to be cast by all holders of outstanding shares of
voting stock other than the interested stockholder. A business
combination with an interested stockholder which is approved by the board
of directors of a Maryland corporation at any time before an interested
stockholder first becomes an interested stockholder is not subject to the
special voting requirements.
- 44 -
An amendment to a Maryland corporation's charter electing not to be
subject to the foregoing requirements must be approved by the affirmative
vote of at least 80% of the votes entitled to be cast by all holders of
outstanding shares of voting stock and 66 % of the votes entitled to be
cast by holders of outstanding shares of voting stock who are not
interested stockholders. Any such amendment is not effective until 18
months after the vote of stockholders and does not apply to any business
combination of a corporation with a stockholder who was an interested
stockholder on the date of the stockholder vote. The Company has not
adopted any such amendment to its Charter.
Control Share Acquisition Statute. The Maryland General Corporation Law
imposes limitations on the voting rights of shares of capital stock
acquired in a "control share acquisition." The Maryland statute defines a
"control share acquisition" at the 20%, 33 % and 50% acquisition levels
and requires a two-thirds stockholder vote (excluding shares owned by the
acquiring person and certain members of management) to accord voting
rights to stock acquired in a control share acquisition. The statute also
requires Maryland corporations to hold a special meeting at the request of
an actual or proposed control share acquiror generally within 50 days
after a request is made with the submission of an "acquiring person
statement," but only if the acquiring person (a) posts a bond for the cost
of the meeting and (b) submits a definitive financing agreement to the
extent that financing is not provided by the acquiring person. In
addition, unless the charter or bylaws provide otherwise, the statute
gives the Maryland corporation, within certain time limitations, various
redemption rights if there is a stockholder vote on the issue and the
grant of voting rights is not approved, or if an "acquiring person
statement" is not delivered to the target within 10 days following a
control share acquisition. Moreover, unless the charter or bylaws provide
otherwise, the statute provides that if, before a control share
acquisition occurs, voting rights are accorded to control shares which
results in the acquiring person having majority voting power, then
minority stockholders have appraisal rights. An acquisition of shares may
be exempted from the control share statute provided that a charter or
bylaw provision is adopted for such purpose prior to the control share
acquisition. There are no such provisions in the charter or bylaws of the
Company.
Reference is made to the full text of the foregoing statutes for their
entire terms, and the summary contained in this Prospectus is not intended
to be complete. The summary is qualified in its entirety by the statutes,
copies of which have been filed as exhibits to the Registration Statement
of which this Prospectus is a part.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Selling Shareholders have agreed to sell to
each of the Underwriters named below, and each of the Underwriters, for
whom Ferris, Baker Watts, Incorporated is acting as Representative, has
- 45 -
severally agreed to purchase the number of shares of Common Stock set
forth opposite its name below.
Underwriters Number of Shares
to be Purchased
Ferris, Baker Watts, Incorporated
Total 1,050,000
The nature of the Underwriters' obligations under the Underwriting
Agreement is such that all shares of Common Stock offered, excluding
shares covered by the over-allotment option granted to the Underwriters,
must be purchased if any are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters thereunder are
subject to the approval of certain legal matters by legal counsel and to
certain other conditions.
The Company and the Selling Shareholders have been advised by the
Representative that the several Underwriters propose to offer the shares
of Common Stock to the public initially at the price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per
share to other dealers. The public offering price and concessions and
reallowances to dealers may be changed by the Representative.
The Company and TDH, one of the Selling Shareholders, have granted the
Underwriters an option, exercisable within 45 days after the date of this
Prospectus, to purchase up to an additional 157,500 shares of Common Stock
to cover over-allotments at the same price per share to be paid by the
Underwriters for the other shares offered hereby. If the Underwriters
purchase any such additional shares pursuant to this option, each of the
Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments, if
any, in connection with the Offering made hereby. If the over-allotment
option is exercised in full, TDH may elect to sell up to 47,932
additional shares in the over-allotment. If the over-allotment is
partially exercised, and TDH elects, then the Company and TDH will
participate pro-rata in the over-allotment.
The Company and its executive officers and directors and certain
shareholders have agreed that for a period of 180 days after the date of
this Prospectus, they will not offer, sell or otherwise dispose of any
shares of the Company's Common Stock, in the open market or otherwise,
- 46 -
without the prior written consent of the Representative, except to effect
exercises of options.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including certain
liabilities under the Securities Act.
The Company has agreed to reimburse the Representative for expenses
incurred by the Representative in an amount not to exceed $27,500.
The Representative has informed the Company that it does not expect the
Underwriters to confirm sales of Common Stock offered by this Prospectus
to any accounts over which it exercises discretionary authority.
LEGAL OPINIONS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Kirkpatrick & Lockhart LLP, Washington, D.C. Shapiro and
Olander, Baltimore, Maryland, has acted as counsel to the Underwriters.
EXPERTS
The consolidated financial statements of Industrial Training Corporation
at December 31, 1994 and 1993, and for each of the two years in the period
ended December 31, 1994 appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and
auditing.
- 47 -
Index to Consolidated Financial Statements
of
Industrial Training Corporation
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . F-2
Financial Statements
Consolidated Balance Sheets - December 31, 1993 and 1994 and
June 30, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income - Years Ended December 31, 1993
and 1994 and for the Six Months Ended June 30, 1994 and 1995
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1993 and 1994 and for the Six Months Ended
June 30, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows - Years Ended
December 31, 1993 and 1994 and for the Six Months Ended
June 30, 1994 and 1995 (Unaudited) . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . F-8
F-1
Report of Independent Auditors
------------------------------
The Board of Directors and Stockholders
Industrial Training Corporation
We have audited the accompanying consolidated balance sheets of Industrial
Training Corporation as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Industrial Training Corporation at December 31, 1994 and 1993
and the consolidated results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting
principles.
Vienna, Virginia
February 24, 1995
ERNST & YOUNG LLP
F-2
INDUSTRIAL TRAINING CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31, June 30,
1993 1994 1995
---- ---- ----
(unaudited)
Current assets:
Cash and cash equivalents (note 6) $ $
126,136 439,923 $ 1,178,642
Accounts receivable, net (notes 3, 6, and 7) 4,930,087 7,293,477 7,257,710
Due from affiliates (note 4) 159,734 86,111 46,388
Inventories, net of reserve of $83,400 at
December 31, 1993 and $93,400 at
December 31, 1994 and $93,400 at
June 30, 1995, respectively 1,287,937 1,203,876 1,100,037
Prepaid expenses
182,378 118,446 305,846
----------- ----------- -----------
Total current assets 6,686,272 9,141,833 9,888,623
Property and equipment (notes 5, 6, and 7):
Video and computer equipment 1,977,119 2,366,661 2,717,431
Furniture and fixtures 1,011,482 1,032,563 1,037,204
Leasehold improvements 79,254 89,106 95,111
Videotape masters
144,180 144,180 144,180
---------- ----------- -----------
3,212,035 3,632,510 3,993,926
Less accumulated depreciation
and amortization (2,141,487) (2,507,393) (2,814,069)
------------ ---------- ----------
Net property and equipment 1,070,548 1,125,117 1,179,857
Deferred program development costs,
net of accumulated amortization of
$1,682,017 at December 31, 1993;
$3,006,689 at December 31, 1994; and
$3,900,263 at June 30, 1995 4,139,859 4,358,315 5,618,824
Goodwill, net of accumulated amortization of
$40,299 at December 31, 1993;
$206,284 at December 31, 1994; and
$288,784 at June 30, 1995 2,377,642 2,185,126 2,102,626
Investments in affiliates (note 4) 269,180 245,887 220,976
F-3
Other
98,615 73,769 73,658
-------------- -------------- --------------
Total assets $14,642,116 $17,130,047 $19,084,564
=========== =========== ===========
See accompanying notes.
F-4
INDUSTRIAL TRAINING CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31, June 30,
1993 1994 1995
---- ---- ----
(unaudited)
Current liabilities:
Line of credit (note 6) $
$ $
650,000 80,000 --
Current installments of
long-term debt (note 7) 770,593 328,637 580,726
Accounts payable 1,555,659 2,112,271 2,247,594
Due to affiliates (note 4) 431,787 419,895 281,529
Accrued expenses
Compensation and benefits 591,216 942,215 488,259
Royalties 155,518 291,905 20,461
Deferred revenues 212,682 77,648 712,847
Income tax payable -- -- 300,000
Other
179,757 794,666 637,210
----------- ----------- -----------
Total current liabilities 4,547,212 5,047,237 5,268,626
Deferred lease obligations 111,730 119,316 111,968
Deferred income taxes (note 9) 463,498 1,136,522 1,239,062
Long-term debt (note 7)
1,101,462 772,826 1,614,198
---------- ----------- ----------
Total liabilities 6,223,902 7,075,901 8,233,854
Commitments (notes 4, 5 and 10)
Stockholders' equity (notes 8 and 11):
Common stock, $.10 par value,
4,000,000 shares authorized;
2,361,128 outstanding at December 31, 1993;
2,466,828 outstanding at December 31, 1994; and
2,473,328 outstanding at June 30, 1995 236,113 246,683 247,333
Additional paid-in capital 5,275,685 5,698,147 5,714,402
F-5
Note receivable from ESOP (460,827) (358,177) (304,177)
Retained earnings
3,368,890 4,528,947 5,254,461
----------- ----------- -----------
8,419,861 10,115,600 10,912,019
Treasury stock, at cost
(3,404 shares in 1993;
18,004 shares in 1994; and (1,647) (61,454) (61,309)
17,704 shares in June 30, 1995) -------------- --------------- --------------
Total stockholders' equity
8,418,214 10,054,146 10,850,710
------------- ------------ ------------
Total liabilities and $14,642,116 $17,130,047 $19,084,564
stockholders' equity =========== =========== ===========
See accompanying notes.
F-6
INDUSTRIAL TRAINING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended
Year Ended December 31, June 30,
1993 1994 1994 1995
---- ---- ---- ----
(unaudited)
Revenues, net:
Courseware $11,662,493 $17,983,796 $7,673,944 $8,855,846
Hardware 2,149,482 4,353,219 1,689,701 2,399,786
----------- ------------- ----------- ------------
Total revenues, net (note 4) 13,811,975 22,337,015 9,363,645 11,255,632
Cost of sales:
Courseware 6,136,043 9,440,595 3,926,673 4,003,156
Hardware 2,078,649 4,187,960 1,655,281 2,449,252
----------- ------------- ----------- ------------
Total cost of sales 8,214,692 13,628,555 5,584,954 6,452,408
----------- ------------ ----------- ------------
Gross margin 5,597,283 8,708,460 3,778,691 4,803,224
Selling, general and administrative expenses 5,553,840 6,693,221 3,090,546 3,596,371
Equity in earnings of affiliates (123,657) (136,012) (70,154) (77,961)
------------ ------------- ------------ -------------
Income before interest and provision 167,100 2,151,251 758,299 1,284,814
for income taxes
Interest expense, net 131,298 186,194 87,826 54,300
------------ -------------- ------------- --------------
Income before provision for income taxes 35,802 1,965,057 670,473 1,230,514
Income tax expense (note 9) 15,000 805,000 268,842 505,000
------------- -------------- ------------ -------------
Net income $ 20,802 $1,160,057 $ 401,631 $ 725,514
============ =========== =========== =============
Net earnings per common share (note 1) $ .01 $ .48 $ .17 $ .28
============= ============= ============ =============
Weighted average number of 1,959,206 2,427,707 2,377,875 2,588,176
shares outstanding ============= ============= =========== =============
See accompanying notes.
F-7
INDUSTRIAL TRAINING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
------------
Additional Note
Paid-in Receivable Retained Treasury
Shares Par Value Capital From ESOP Earnings Stock Total
---------------------------------------------------------------------------------------------------
Balance at 1,720,928 $172,093 $2,036,180 $(553,084) $3,348,088 $(1,791) $5,001,486
January 1, 1993
Treasury stock issued -- -- 3,236 -- -- 264 3,500
Treasury stock -- -- (1,692) -- -- (120) (1,812)
acquired
Note payments -- -- -- 92,257 -- -- 92,257
New shares issued:
Stock options 20,200 2,020 44,961 -- -- -- 46,981
exercised 620,000 62,000 3,193,000 -- -- -- 3,255,000
Comsell acquisition
Net income -- -- -- -- 20,802 -- 20,802
---------------------------------------------------------------------------------------------------
Balance at
December 31, 1993 2,361,128 236,113 5,275,685 (460,827) 3,368,890 (1,647) 8,418,214
Treasury stock issued -- -- 2,007 -- -- 193 2,200
Treasury stock -- -- -- -- -- (60,000) (60,000)
acquired
Note payments -- -- -- 102,650 -- -- 102,650
New shares issued:
Stock issuance 100,000 10,000 402,500 -- -- -- 412,500
Stock options 5,700 570 17,955 -- -- -- 18,525
exercised
Net income -- -- -- -- 1,160,057 -- 1,160,057
---------------------------------------------------------------------------------------------------
Balance at
December 31, 1994 2,466,828 246,683 5,698,147 (358,177) 4,528,947 (61,454) 10,054,146
Treasury stock issued -- -- 1,505 -- -- 145 1,650
Note payments -- -- -- 54,000 -- -- 54,000
New shares issued:
Stock options 6,500 650 14,750 -- -- -- 15,400
exercised
Net income -- -- -- -- 725,514 -- 725,514
---------------------------------------------------------------------------------------------------
Balance at
June 30, 1995 2,473,328 $247,333 $5,714,402 $(304,177) $5,254,461 $(61,309) $10,850,710
(unaudited) ========= ======== ========== ========== ========== ======== ===========
F-8
See accompanying notes.
INDUSTRIAL TRAINING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Six Months Ended
December 31, June 30,
1993 1994 1994 1995
---- ---- ---- ----
(unaudited)
Cash flows from operating activities:
Net income $ 20,802 $ 1,160,057 $401,631 $ 725,514
Reconciling items:
Provision for deferred taxes 15,000 765,000 263,028 102,540
Depreciation and amortization 1,041,091 1,918,123 839,695 1,307,661
Salespeople awards of treasury shares 1,688 2,200 -- 1,650
Increase in reserve for doubtful accounts 50,963 78,000 -- 45,000
Increase in reserve for inventory obsolescence 20,000 10,000 -- --
Loss on sale of property and equipment 36,021 -- -- --
Changes in operating assets and liabilities:
Increase in accounts receivable (71,327) (2,441,390) (256,315) (9,233)
(Increase) decrease in inventory (85,993) 74,061 (123,525) 103,839
(Increase) decrease in prepaid expenses (47,044) 63,932 (55,519) (187,400)
Decrease in due from affiliates, net 69,324 61,731 (14,613) (98,643)
Decrease in other assets 910 24,846 (49,462) 111
Increase in accounts payable 381,772 556,612 442,490 135,323
(Decrease) increase in other accrued expenses (123,401) 959,286 (60,896) (247,657)
Increase in income taxes payable -- -- -- 300,000
Increase (decrease) in deferred lease obligation 45,403 7,586 (11,971) (7,348)
----------- ------------ ----------- ------------
Net cash provided by operating activities 1,355,209 3,240,044 1,374,543 2,171,357
Cash flows from investing activities:
Deferred program development costs (969,870) (1,543,128) (712,935) (2,154,083)
Capital expenditures (457,915) (420,475) (47,679) (361,416)
Acquisition of Comsell (85,072) (57,469) -- --
Investment in affiliates (28,007) (38,268) (34,593) --
----------- ------------ ----------- ------------
Net cash used in investing activities (1,540,864) (2,059,340) (795,207) (2,515,499)
Cash flows from financing activities:
Borrowings (repayments) under line of credit 550,000 (570,000) (240,000) (80,000)
Principal payments under long-term debt (521,474) (742,204) (379,390) (212,152)
Payments under capital lease obligations (23,682) (28,388) (14,195) (14,387)
F-9
Proceeds from long-term debt -- -- -- 1,320,000
Issuance of common stock 46,981 431,025 18,464 15,400
Acquisition of treasury stock -- (60,000) (60,072) --
Employee stock option note collection 92,257 102,650 56,250 54,000
----------- --------- ----------- -----------
Net cash provided by (used in) financing activities 144,082 (866,917) (618,943) 1,082,861
---------- --------- ---------- ---------
Net (decrease) increase in cash (41,573) 313,787 (39,607) 738,719
Cash at beginning of year 167,709 126,136 126,136 439,923
---------- --------- ---------- -----------
Cash at end of year $126,136 $439,923 $ 86,529 $1,178,642
========= ======== ========== ==========
See accompanying notes.
F-10
INDUSTRIAL TRAINING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1995 and for the
six months ended June 30, 1994 and 1995 is unaudited)
1) Summary of Significant Accounting Policies
------------------------------------------
a) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, CI Acquisition Corporation ("CI") (see
Note 13). Significant intercompany accounts and transactions have been
eliminated in consolidation. The accompanying interim unaudited
consolidated financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. In the opinion
of the Company, all adjustments, consisting of only normally recurring
adjustments, necessary for a fair presentation of the financial statements
for these interim periods have been made. The results for the interim
period ended June 30, 1995, are not necessarily indicative of the results
to be obtained for a full fiscal year.
b) Revenues and Cost
-----------------
Revenues from courseware include both off-the-shelf and custom courseware
sales and consulting service 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.
The Company recognizes revenues from initial franchise fees when franchise
agreements have been fully executed, the Company has substantially
fulfilled all of its obligations to the franchisee under the agreement,
and the non-refundable franchise fee has been paid. During 1993 and 1994,
the Company recognized $90,000 and $450,000 of revenue from initial
franchise fees. Additionally, during the six months periods ended June
30, 1994 and 1995, the Company recognized $40,000 and $190,000,
respectively, of revenues from initial franchise fees. Such amount has
F-11
been included in courseware revenues in the accompanying consolidated
statements of operations.
Although the Company conducts certain of its business in foreign markets,
the Company mitigates its exposure to foreign currency risk by requiring
payments in U.S. dollars.
c) Deferred Program Development Costs
----------------------------------
Costs of developing and producing off-the-shelf courseware have been
capitalized as deferred program development costs. Capitalized costs
include direct labor, materials, product masters, subcontractors,
consultants, and applicable overhead. These capitalized costs are
amortized on a straight-line basis over the estimated useful lives of the
related programs which range from 3 to 7 years. The net book value of the
Company's deferred program development costs at December 31, 1994 amount
to $1,881,000, $904,000, $210,000, and $1,363,000 for the Activ(REGISTERED
TRADEMARK) "PC Skills Learning Library," the Activ(REGISTERED TRADEMARK)
"Regulatory Training Learning Library," the Activ(REGISTERED TRADEMARK)
"Basic Skills Learning Library" and the Activ(REGISTERED TRADEMARK)
"Technical Skills Learning Library," respectively. The net book value of
the Company's deferred program development costs at June 30, 1995 amount
to $1,741,000, $1,092,000, $192,000, $1,294,000 and $1,294,000 for the
Activ(REGISTERED TRADEMARK) "PC Skills Learning Library," the
Activ(REGISTERED TRADEMARK) "Regulatory Training Learning Library," the
Activ(REGISTERED TRADEMARK) "Basic Skills Learning Library," the
Activ(REGISTERED TRADEMARK) "Technical Skills Learning Library," and the
Activ(REGISTERED TRADEMARK) "Instrumentation Learning Library,"
respectively. Periodically, the Company assesses the net realizable value
of program development costs by reviewing past sales performances, current
and planned future marketing activity, specific sales promotions and
strategic distribution arrangements. Based on this assessment, the
Company determines each product's prospects for future sales, and, if
necessary, adjusts asset values to net realizable value. The related
amortization expense and write downs to net realizable value are included
in the cost of sales and amounts to approximately $617,000 and $1,325,000
in 1993 and 1994, respectively, and $894,000 for the six months ended June
30, 1995.
d) Cash and Cash Equivalents
-------------------------
Cash and cash equivalents includes cash and other highly liquid
investments having original maturities of less than three months.
e) Inventories
-----------
Inventories consist of videodiscs, videotapes, related hardware and
instructional materials. Inventories are stated at the lower of cost or
market. Cost is determined using the average cost method.
F-12
f) Property and Equipment
-----------------------
Property, equipment and leasehold improvements are stated at cost.
Depreciation on property and equipment is computed on a straight-line
basis over estimated useful lives of five to seven years. Leasehold
improvements are amortized on a straight-line basis over the shorter of
the lease term or estimated useful lives of the related assets.
Depreciation and amortization expense amounted to approximately $305,000
and $366,000 for the years ended 1993 and 1994, respectively.
g) Investments in Affiliates
-------------------------
Investments in affiliated joint ventures and limited partnerships are
accounted for using the equity method, and, accordingly the initial cost
of the investments are adjusted for the Company's proportionate share of
joint venture and partnership undistributed earnings or losses.
h) 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.
i) Net Income Per Common Share
---------------------------
Income per common share is based on the weighted average number of common
shares actually outstanding plus the shares that would be outstanding
assuming the exercise of dilutive stock options and warrants, all of which
are considered to be common stock equivalents.
j) Goodwill
--------
The excess of purchase price over the fair value of net assets acquired
related to the acquisition of CI (note 2) has been recorded as goodwill.
Goodwill is being amortized using the straight-line method over an
estimated useful life of fifteen years. Amortization expense for the
years ended 1993 and 1994 amounted to approximately $40,000 and $166,000,
respectively. During 1994, the Company adjusted goodwill to reflect
adjustments to the value of net assets acquired from CI and to reflect
utilization of acquired tax benefits of CI (see Note 9). The net effect
of these two adjustments was to decrease the amount of goodwill originally
recorded by approximately $27,000. As part of its ongoing review,
management takes into consideration any events and circumstances which
might indicate an impairment to the carrying amount of goodwill. Factors
that management uses, among other things, to evaluate the continuing value
of goodwill include sales from the PC Skills product line, development of
F-13
the ComSkill franchise network and the value of contracts and agreements
that were in place at the date CI was acquired.
k) Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2) Acquisition of CI Acquisition Corporation and Subsidiaries
----------------------------------------------------------
On October 8, 1993, Comaq Corporation ("Comaq"), a then newly formed and
wholly owned subsidiary of the Company, merged with CI. By virtue of the
merger, all of the issued and outstanding capital stock of CI was
converted into and exchanged for an aggregate of 610,000 shares of the
Company's common stock, $.10 par value per share. The Company issued an
additional 10,000 shares of its common stock for fees related to the
acquisition. Additionally, the Company borrowed $971,000 from a bank
($900,000 of which is in the form of a new five-year term loan) in order
to refinance an obligation of the acquired company.
The transaction, which was valued at approximately $3,500,000 and was
effective as of September 30, 1993, was accounted for as a purchase
transaction. Accordingly, only 3 months results of operations were
included in the accompanying consolidated statement of earnings for 1993.
As a result of the transaction, the Company recorded goodwill of
approximately $2,418,000 which is being amortized over a fifteen year
period beginning October 1, 1993. By virtue of the merger, the Company
acquired all of the assets of CI and its two wholly owned subsidiaries,
Comsell Training, Inc. ("Comsell"), and ComSkill Learning Centers, Inc.
("ComSkill"). Comsell is engaged in the business of producing and
distributing multimedia based training courseware directed towards
personal computer skills development. ComSkill is a newly incorporated
franchisor of Comsell training products (see Note 13).
The following table sets forth proforma unaudited results of operations of
the Company for the year ending December 31, 1993, as if CI had been
acquired prior to January 1, 1993:
1993
----
Revenue $ 17,986,715
Net income loss
Net loss per share $ (394,888)
$ (.20)
F-14
3) Accounts Receivable
-------------------
Accounts receivable include the following:
December 31, December 31, June 30,
1993 1994 1995
---------------- ---------------- ---------
Trade accounts receivable $4,289,610 $7,245,294 $7,453,370
Unbilled contract receivables 749,199 242,279 82,008
Less allowance for doubtful accounts (202,714) (280,714) (325,714)
------------ ------------ ------------
Trade accounts receivable, net 4,836,095 7,206,859 7,209,664
Other receivables 93,992 86,618 48,046
------------ ------------ ------------
$4,930,087 $7,293,477 $7,257,710
========== ========== ==========
4) Investments in and Due from Affiliates
--------------------------------------
Investments in affiliates consist of the following at December 31:
1993 1994
---- ----
Limited partnerships $ 192,392 $ 189,656
Joint venture with ITSC 67,477 56,231
Joint ventures with DynCorp 9,311 --
------------ ---------------
$ 269,180 $ 245,887
========= =========
The Company is a participant in five separate limited partnerships with
Industrial Training Partners, Ltd. (the ITP Partnerships). In all of the
ITP Partnerships, the Company is a 5% general partner. In certain of the
ITP Partnerships, the Company has acquired limited partnership interests
as well. The ITP Partnerships were formed to develop and produce various
series of training programs.
Under contracts to market the programs for the ITP Partnerships, ITC
receives 50% to 70% of the sales price for the costs of reproducing and
marketing the training materials. Sales of these programs were
approximately $2,289,000 and $2,291,000 in 1993 and 1994, respectively,
and $1,112,000 for the six months ended June 30, 1995. Royalties to the
ITP Partnerships for these sales amounted to $1,057,000 and $1,004,000 in
F-15
1993 and 1994, respectively, and $455,000 for the six months ended June
30, 1995. Additionally, in connection with the development of a new off-
the-shelf partnership program, the Company billed certain of these
partnerships approximately $292,000 and $51,000 in 1993 and 1994,
respectively. Amounts earned, but not billed to these partnerships, which
are included in unbilled receivables at December 31, 1993 and 1994, are
$226,000 and none, respectively. Moreover, to finance this development
the Company has guaranteed a bank loan to one of the limited partnerships.
At December 31, 1994 the outstanding balance of this loan was
approximately $48,000. During the first quarter of 1995, the outstanding
balance on this loan was paid by the partnership.
In prior years, the Company executed two 50-50 joint venture agreements
with DynCorp, and entered into contracts with the joint ventures to
develop and produce additional training programs. The Company has
contracts with the joint ventures to market the programs for them.
Pursuant to the agreements, the Company receives 50% of the sales price,
the costs of reproducing and marketing the training materials, and an
additional 25% as its share of the joint ventures' profits. Revenues from
these programs in 1993 and 1994 approximated $124,000 and $162,000,
respectively.
5) Leases
------
The Company has several noncancelable operating leases, primarily for
office space and transportation equipment, that expire over the next five
years and include purchase or renewal options at fair value at the time of
renewal.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1994 are as follows:
Year ending December 31:
------------------------
1995 $ 509,000
1996 356,000
1997 316,000
1998 318,000
1999 162,000
------------
$1,661,000
==========
Rental expenses for operating leases for the years ended December 31, 1993
and 1994 were approximately $432,000 and $489,000, respectively.
6) Line of Credit
--------------
At December 31, 1994 and June 30, 1995, the Company had available a
revolving bank line of credit bearing interest at prime plus 1/2% in the
amount of $2,000,000 and $2,500,000, respectively. The line is
F-16
collateralized by all the Company's business assets. The interest rate on
these borrowings at December 31, 1994 was 9%. At June 30, 1995, the
Company had no outstanding balance under the terms of the line of credit.
The loan agreement places certain restrictions on the Company including
limitations on borrowings and on the ability to merge or dispose of
assets, and requires the maintenance of minimum working capital and
tangible net worth ratios. Also, the Company is required to maintain an
average compensating balance of $50,000 with the bank, but may apply
balances of the five limited partnerships (see Note 4) to the requirement.
7) Long-term Debt
--------------
Long-term debt consists of the following at December 31: 1993 1994
---- ----
Prime plus 1% (9.5% at December 31, 1994) note payable to financial $ 900,000 $ 705,000
institution due in monthly installments of $15,000 plus interest through
November 1998; collateralized by accounts receivable, contract rights,
inventory, property and equipment and a $500,000 life insurance policy on
the Company's President.
8.0% note payable to financial institution due in monthly principal and 460,827 358,177
interest installments of $11,278 through December 1997, collateralized by
the assignment of interest in 200,000 shares of the Company's common
stock held by the ESOP, all of the Company's assets and a $500,000 life
insurance policy on the Company's President.
8.25% capital lease obligation (Note 5) 66,674 38,286
Prime plus 1% note payable to financial institution due in monthly 300,000 --
principal and interest installments through December 1994.
10.56% note payable to financial institution due in monthly principal and 144,554 --
interest installments of $12,816 through December 1994.
------------------ ----------------
Total long-term debt 1,872,055 1,101,463
Less current installments (770,593) (328,637)
------------- -----------
Long-term debt, excluding current installments $ 1,101,462 $ 772,826
=========== ==========
Interest paid on all debt amounted to approximately $133,000 and $191,000
in 1993 and 1994, respectively.
F-17
Maturities of long-term debt at December 31, 1994, are as follows:
1996 $ 299,587
1997 308,239
1998 165,000
-----------
$ 772,826
==============
8) Stock Options and Stock Warrants
--------------------------------
At December 31, 1994, the Company had outstanding options to purchase
common stock under three separate qualified incentive stock option plans.
Two plans, the 1992 Director Incentive Stock Option Plan and the 1992 Key
Employee Incentive Stock Option Plan, were adopted by the Board of
Directors and approved by the shareholders during 1992. These plans have
effectively replaced the Company's 1982 Incentive Stock Option Plan which
expired in 1992.
Pursuant to the 1982 Incentive Stock Option Plan, at December 31, 1994,
there are 78,000 options outstanding at exercise prices ranging from $2.00
to $3.16. This plan has no additional options available for grant.
Options exercisable at December 31, 1994 expire as follows: 54,000 in
1995 and 24,000 in 1996.
Pursuant to the 1992 Key Employee Incentive Stock Option Plan at
December 31, 1994, there are 98,500 options outstanding at exercise prices
ranging from $4.13 to $6.75, and 16,500 options are available for
additional grants. Options outstanding at December 31, 1994 expire as
follows: 500 in 1995, 3,000 in 1996 and 95,000 in 1997 through 2002.
Options for 25,500 shares are exercisable at December 31, 1994.
Pursuant to the 1992 Director Incentive Stock Option Plan, at December 31,
1994, there are 4,000 options outstanding at an exercise price of $5.00,
and 31,000 options are available for additional grants. Options
exercisable at December 31, 1993 expire in 1999. All options granted
pursuant to this plan are nonqualified.
From time to time, the Company has granted other nonqualified options to
certain individuals. At December 31, 1994, there are 45,000 of these
options outstanding at exercise prices ranging from $2.125 to $7.50.
Options outstanding at December 31, 1994 expire as follows: 9,000 in 1995
and 6,000 in 1996, and 30,000 in 1999 through 2001. Options for 15,000
shares are exercisable at December 31, 1994.
F-18
The following table summarizes option activity:
Nonqualified Options Qualified Options
-------------------- -----------------
1993 1994 1993 1994
---- ---- ---- ----
Outstanding at beginning of year 36,400 29,400 114,200 152,500
Granted -- 30,000 55,500 30,000
Canceled or expired (2,000) (10,400) (2,000) (300)
Exercised (5,000) -- (15,200) (5,700)
-------- ------------ -------- ---------
Outstanding at end of year 29,400 49,000 152,500 176,500
======= ======= ======= =======
The Company also has outstanding 14,572 warrants to purchase common stock.
These warrants are exercisable at $3.50 and expire in 1998.
9) Income Taxes
------------
The components of income tax expense are as follows:
December 31, December 31,
1993 1994
----------------- ----------------
Current:
Federal $ -- $ 30,000
State -- 10,000
------------- -----------
-- 40,000
Deferred:
Federal 12,000 659,300
State 3,000 105,700
---------- ----------
15,000 765,000
--------- ----------
$ 15,000 $ 805,000
======== =========
F-19
The deferred tax provision relates primarily to differences between
financial statement and income tax treatment of program development cost
and net operating loss carryforwards. The Company paid federal and state
income taxes of $23,000 and $8,000 in 1993 and 1994, respectively, and
$142,000 during the six months ended June 30, 1995.
The difference between income tax expense and the amount determined by
applying the federal statutory rate is as follows:
1993 1994
---- ----
Federal statutory rate $ 12,000 $ 668,000
State income taxes, net of federal benefit 1,000 75,500
Amortization of goodwill 15,000 62,000
Benefit of graduated tax rates (12,000) (12,000)
Other (1,000) 11,500
--------- -----------
$ 15,000 $ 805,000
======== =========
For the years ended December 31, 1993 and 1994, the Company utilized zero
and $1,550,000, respectively, of available net operating loss
carryforwards. At December 31, 1994, the Company had net operating loss
carryforwards for income tax purposes of approximately $100,000 (not
including the prior net operating losses acquired from Comsell, which are
discussed below) which expire at varying dates through 2008. No valuation
allowance has been recognized to offset the deferred tax assets related
to these carryforwards.
The following temporary differences give rise to the provision for
deferred taxes at December 31:
1993 1994
---- ----
Deferred program development costs $ 70,000 $ 74,500
Depreciation 10,400 16,000
Allowance for doubtful accounts (12,100) (29,000)
Inventory reserves (6,800) (9,000)
Net operating loss and tax credits carryforwards (73,200) 630,500
Accrued compensation 30,400 67,500
Other (3,700) 14,500
---------- -----------
$ 15,000 $ 765,000
========= =========
F-20
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, are presented below.
1993 1994
---- ----
Deferred tax assets:
Allowance for doubtful accounts $ 75,500 $ 104,500
Inventory reserves 50,500 41,500
Accrued compensation 95,600 31,500
Net operating loss carryforwards 1,223,500 563,000
Alternative minimum tax and investment 35,000 65,000
tax credit carryforwards
Deferred lease obligation 41,500 44,500
Difference in depreciation 84,150 68,000
Other -- 16,478
----------------- ---------------
Total deferred tax assets 1,605,750 934,478
Less valuation allowance (577,864) (505,000)
------------ --------------
Net deferred tax assets 1,027,886 429,478
----------- --------------
Deferred tax liabilities:
Product development costs, capitalized (1,491,384) (1,566,000)
----------- -------------
Total gross deferred tax liabilities (1,491,384) (1,566,000)
----------- -------------
Net deferred tax liabilities $ (463,498) $ (1,136,522)
=========== ============
As a result of the Company's acquisition of Comsell (see Note 2), the
Company has available approximately $1,400,000 of additional net operating
loss carryforwards that expire at varying dates through 2007. Pursuant to
Section 382 of the Internal Revenue Code (the "Code"), the utilization of
the net operating loss is limited to approximately $245,000 per year.
Additionally, the net operating loss is also subject to the separate
return limitation year (SRLY) rules as prescribed in the Code, which limit
its utilization to the extent Comsell generates income each year. During
1994, the Company utilized an aggregate of $226,000 of the acquired net
operating loss carryforwards of CI to offset taxable income. As a result,
deferred taxes have been reduced by approximately $84,000. Due to the
limitations on uses and other uncertainties relating to the utilization of
the remaining tax benefit of these deductions, a valuation allowance has
been recorded to substantially offset the net deferred tax asset related
to the acquisition of Comsell.
F-21
10) Commitments
-----------
The Company has entered into separate employment agreements with Messrs.
Walton and Kaiz which are subject to termination upon death (with $15,000
death benefit) or disability (as defined) or upon sixty days notice by
the Company (with 34 months of severance pay except where the Company is
liquidating). In addition to basic salary, each of these officers is
eligible to receive salary increases, bonuses, stock option grants,
pension and profit-sharing arrangements, and other employee benefits which
may from time to time be awarded or made available. If these officers
resign, they must give the Company 12 months notice during which they
continue to receive salary. The contracts also provide certain payments
for other benefits.
11) Stockholders' Equity
--------------------
The Company instituted an Employee Stock Ownership Plan (ESOP) and Trust
for the benefit of substantially all employees effective January 1, 1992.
To establish the plan, ITC entered into a loan agreement with a bank and
borrowed $637,500 for the purchase of 200,000 shares of ITC common stock
from DynCorp. ITC pledged this stock to the bank to collateralize the
loan. The provisions of the ESOP require that, on an annual basis, the
greater of 33,334 shares or the amount of shares equal to five percent of
total compensation of eligible employees be allocated to employee
accounts. Each participant then receives shares based on their relative
annual compensation. The loan has a six-year amortization period at an
interest rate of 8.0%. In 1994, the Company entered into an agreement
with the bank whereby the ESOP note was modified and extended. Based upon
this modification, the Company will make monthly installments of principal
and interest through the extension date of December 1997. The Company
recognizes contribution expense which was $106,000 and $108,000 for 1993
and 1994, respectively, based on the cost of shares allocated for the
period and any interest expense incurred. Contributions to the ESOP
amounted to approximately $151,000 and $135,000 in 1993 and 1994,
respectively, including approximately $45,000 and $32,000 of interest in
1993 and 1994, respectively. The fair market value of the 100,000
unearned shares at December 31, 1994 amounted to $750,000.
During 1994, the Company hired a new President of the ComSkill franchise
operation. At the date of hire, this executive executed a subscription
agreement to purchase 100,000 shares of the Company's common stock at
$4.125 per share, the fair market value of the Company's common stock on
the effective date of the subscription agreement. As a result, during
1994, the Company issued 100,000 shares of common stock to the executive
for an aggregate purchase price of $412,500. Additionally, the President
was granted 30,000 stock options under the 1992 Key Employee Stock Option
Plan and received a commitment for up to an additional 60,000 stock
options based on performance.
F-22
12) Employee 401(k) Plan
--------------------
The Company established on January 1, 1991 a 401(k) Plan for the benefit
of substantially all of its employees. Employees can contribute from 1%
to 15% of their salary to the Plan subject to statutory limitations. At
the discretion of the Board of Directors, the Company can elect to make a
contribution to the Plan. No contribution was made by the Company during
1993 or 1994.
13) Subsequent Events
-----------------
On January 2, 1995, CI and Comsell were merged with and liquidated into
the Company. The merger and liquidation will have no effect on the
Company's financial reporting.
On February 17, 1995, ITC purchased all rights, title and all other
ownership interests in the 51 videodiscs in the INVOLVE(REGISTERED
TRADEMARK) Series ("INVOLVE(REGISTERED TRADEMARK)"). INVOLVE(REGISTERED
TRADEMARK) had originally been produced by ITC for the Instrument Society
of America ("ISA") and ITC had acted as the exclusive third party
distributor for INVOLVE(REGISTERED TRADEMARK) in the United States. The
aggregate purchase price for this transaction was approximately
$1,590,000. The purchase price includes the forgiveness of a receivable
from ISA of approximately $90,000 and approximately $180,000 of
INVOLVE(REGISTERED TRADEMARK) inventory. In order to complete the
purchase, ITC borrowed $1,000,000 under its available line of credit and
paid the balance of $500,000 in cash. Management refinanced the line of
credit borrowings to a five-year term loan.
14) Quarterly Financial Data (Unaudited)
------------------------------------
Financial data for the interim periods of 1993, 1994 and 1995 were as
follows (amounts in thousands except per-share amounts):
Net Income
Net Gross Income (Loss)
Revenue Margin (Loss) Per Share
------- ------ -------- ---------
1993 Quarters
First $ 2,734 $ 1,226 $ 45 $ .03
Second 2,498 1,145 (32) (.02)
Third 3,335 1,211 21 .01
Fourth 5,245 2,015 (13) (.01)
--------- --------- ------------ ----------
Total
$ 13,812 $ 5,597 $ 21 $ .01
F-23
Net Income
Net Gross Income (Loss)
Revenue Margin (Loss) Per Share
------- ------ -------- ---------
1994 Quarters
First $ 4,168 $ 1,759 $ 111 $ .05
Second 5,266 2,090 290 .12
Third 5,497 2,009 262 .11
Fourth 7,406 2,850 497 .20
--------- --------- ---------- ----------
Total $ 22,337 $ 8,708 $ 1,160 $ .48
1995 Quarters
First $ 4,970 $ 2,177 $ 265 $ .10
Second 6,286 2,626 461 .18
--------- --------- ---------- ----------
Total
$ 11,256 $ 4,803 $ 726 $ .28
======== ======== ========= =========
F-24
--------------------------------- ---------------------------
--------------------------------- ---------------------------
No dealer, salesperson or other
individual has been authorized to give
any information or to make any represen-
tations other than those contained or
incorporated by reference in this
Prospectus and, if given or made, such
information or representations must not 1,050,000 Shares
be relied upon as having been authorized
by the Company, The Selling Shareholders
or any of the Underwriters. This Industrial Training Corporation
Prospectus does not constitute any offer
to sell or a solicitation of an offer to
buy such securities other than the Common Stock
securities to which it relates or an
offer to sell or the solicitation of an
offer to buy the Common Stock in any
circumstances in which such offer or
solicitation is unlawful. Neither the
delivery or this Prospectus nor any sale
made hereunder shall, under any
circumstances, create an implication
that there has been no change in the
facts set forth in the Prospectus or in
the affairs of the Company since the
date hereof or that the information
herein is correct as of any time
subsequent to the date hereof.
------------------------- ------------------------
TABLE OF CONTENTS PROSPECTUS
-------------------------
Page
----
Additional Information . . . . . . . 3
Prospectus Summary . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . 7
Use of Proceeds . . . . . . . . . . . 10
Price Range of Common Stock . . . . . 11
Capitalization . . . . . . . . . . . 12
Selected Consolidated Financial Data 13
Management's Discussion and Analysis
of Financial Condition and
Results of Operations . . . . . . . 16
Business . . . . . . . . . . . . . . 21 Ferris, Baker Watts,
Management . . . . . . . . . . . . . 29 Incorporated
Certain Relationships . . . . . . . . 35
Principal Shareholders . . . . . . . 36
Selling Shareholders . . . . . . . . 39
Description of Securities . . . . . . 40
Underwriting . . . . . . . . . . . . 42
Legal Opinions . . . . . . . . . . . 43
Experts . . . . . . . . . . . . . . . 43
Index to Financial Statements . . . F-1
__________, 1995
--------------------------------- ---------------------------
--------------------------------- ---------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Company's Restated Bylaws provide that in the absence of fraud or
bad faith the Company will indemnify its officers and directors to the
full extent authorized by Maryland law, against all liability and expenses
actually and reasonably incurred in connection with or resulting from any
action, suit or proceeding in which such person may become involved as a
party or otherwise by reason of having been an officer or director of the
Company. Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers and controlling person of
the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act, and is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection
with the offering contemplated by this Registration Statement:
SEC Registration Fee . . . . . . . $4,320
NASD Filing Fee . . . . . . . . . . $1,753
NASDAQ, National Market System Fee $17,500
Blue Sky Fees and Expenses . . . . $10,000
Printing and Engraving Costs . . . $50,000
Accounting Fees and Expenses . . . $50,000
Legal Fees and Expenses . . . . . . $75,000
Transfer Agent and Registrar's Fees *
Underwriter's Expenses . . . . . . $27,000
Miscellaneous . . . . . . . . . . .
Total . . . . . . . . . . . . $235,573
* To be completed by Amendment
Item 26. Recent Sales of Unregistered Securities.
Not Applicable.
II - 1
Item 27. Exhibits.
Exhibit
No. Description
------- ------------
1.1 Form of Underwriting Agreement.*
3.1 Amended Articles of Incorporation of Industrial Training
Corporation ("ITC").
3.2 Restated Bylaws of ITC.
4.1 Specimen Certificate for ITC Common Stock.
5.1 Opinion on Legality.*
10.1 Agreement and Plan of Merger, each dated September 30, 1993,
among ITC and CI Acquisition Corporation ("CI").(1)
10.2 Asset Purchase Agreement, Assignment, and Bill of Sale, each
dated February 17, 1995, between ITC and the Instrument
Society of America.
10.3 1992 Director Incentive Stock Option Plan.(2)
10.4 1992 Key Employee Incentive Stock Option Plan.(2)
10.5 Employee Stock Ownership Plan.(2)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Kirkpatrick & Lockhart LLP.
24.1 Power of Attorney.
99.1 Maryland Business Combination Statute.*
99.2 Maryland Control Share Acquisition Statute.*
_________________________
* To be filed by Amendment.
(1) This exhibit is incorporated herein by this reference to
the corresponding exhibit in the Company's Form 8-K
(Commission File No. 0-13741) filed with the Securities
and Exchange Commission on October 21, 1993.
II - 2
(2) This exhibit is incorporated herein by this reference to
the corresponding exhibit in the Company's Form 10-KSB
(Commission File No. 0-13741) filed with the Securities
and Exchange Commission on March 19, 1992.
Item 28. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement
to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933; reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information in the registration statement; and include any additional
or changed material information on the plan of distribution;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement of the securities offered,
and the offering of securities at that time shall be deemed to be the
initial bona fide offering; and
(3) To file a post-effective amendment to remove from
registration any of the securities being registered which remain
unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1), or (4), or 497(h) under the
Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time the Commission declared it effective; and
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
II - 3
securities at that time shall be deemed to be the initial bona fide
offering thereof.
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SIGNATURES
Pursuant to the requirements of Securities Act of 1933, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
INDUSTRIAL TRAINING CORPORATION
(Registrant)
BY /s/ James H. Walton DATE July 28, 1995
------------------------------------- --------------------
James H. Walton, Chairman of the Board
President and Chief Executive Officer
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James H. Walton and Philip J.
Facchina, and each of them, his or her true and lawful attorney-in-fact
and agent, for him or her, with full power of substitution and
resubstitution, for him and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission and any other applicable
regulatory authorities, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent or his or her substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Securities Act of 1933, this
Registration Statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
BY /s/ James H. Walton DATE July 28, 1995
-------------------------------------- -------------
James H. Walton, Chairman of the Board
President and Chief Executive Officer
BY /s/ Gerald H. Kaiz DATE July 28, 1995
----------------------------------------- -------------
Gerald H. Kaiz, Vice Chairman of the Board,
Executive Vice President and Secretary
BY /s/ Steven L. Roden DATE July 28, 1995
------------------------------------------ -------------
Steven L. Roden, Executive Vice President
and Director
BY /s/ Philip J. Facchina DATE July 28, 1995
----------------------------------------- -------------
Philip J. Facchina, Vice President, Treasurer
and Chief Financial Officer
BY /s/ Christopher E. Mack DATE July 28, 1995
------------------------------------------ -------------
Christopher E. Mack, Controller
BY /s/ Thomas M. Balderston DATE July 28, 1995
------------------------------------------- -------------
Thomas M. Balderston, Director
II - 6
BY /s/ Dan R. Bannister DATE July 28, 1995
------------------------------------------- -------------
Dan R. Bannister, Director
BY /s/ John D. Sanders DATE July 28, 1995
------------------------------------------- -------------
John D. Sanders, Director
BY /s/ Richard E. Thomas DATE July 28, 1995
-------------------------------------------- -------------
Richard E. Thomas, Director
II - 7
EXHIBIT INDEX
Consecutively
Exhibit Numbered
No. Description Page
---- ----------- ------------
1.1 Form of Underwriting Agreement.*
3.1 Amended Articles of Incorporation of Industrial Training
Corporation ("ITC").
3.2 Restated Bylaws of ITC.
4.1 Specimen Certificate for ITC Common Shares.
5.1 Opinion on Legality.*
10.1 Agreement and Plan of Merger, dated September 30, 1993,
among ITC and CI Acquisition Corporation ("CI").(1)
10.2 Asset Purchase Agreement, Assignment, and Bill of Sale,
each dated February 17, 1995, between ITC and the Instrument
Society of America.
10.3 1992 Director Incentive Stock Option Plan.(2)
10.4 1992 Key Employee Incentive Stock Option Plan.(2)
10.5 Employee Stock Ownership Plan.(2)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Kirkpatrick & Lockhart LLP.
24.1 Power of Attorney.
99.1 Maryland Business Combination Statute.*
99.2 Maryland Control Share Acquisition Statute.*
_________________________
* To be filed by Amendment.
(1) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 8-K (Commission
File No. 0-13741) filed with the Securities and Exchange
Commission on October 21, 1993.
II - 8
(2) This exhibit is incorporated herein by this reference to the
corresponding exhibit in the Company's Form 10-KSB (Commission
File No. 0-13741) filed with the Securities and Exchange
Commission on March 19, 1992.
II - 9