U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
Commission File Number 0-13741
INDUSTRIAL TRAINING CORPORATION
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(Exact name of small business issuer as specified in its charter)
Maryland 52-1078263
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
13515 Dulles Technology Drive, Herndon, Virginia 20171
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(Address of principal executive offices)
(703)713-3335
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Issuer's telephone number
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X]; No [_]
As of March 31, 1997, 3,897,074 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format: Yes [_]; No [X]
TABLE OF CONTENTS
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PART I PAGE
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Item 1 Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1997 and 1996 1
Condensed Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II
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Item 1 Legal Proceedings 8
Item 2 Changes in Securities 8
Item 3 Defaults Upon Senior Securities 8
Item 4 Submission of Matters to a Vote of Security Holders 8
Item 5 Other Information 8
Item 6 Exhibits and Reports on Form 8-K 8
PART I
ITEM 1. FINANCIAL STATEMENTS
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For Three Months Ended March 31,
1997 1996
---------------- ----------------
Net revenues $4,721,977 $3,715,723
Cost of sales 2,382,949 2,642,176
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Gross margin 2,339,028 1,073,547
Selling, general and administrative expense 3,105,439 1,933,680
Equity in earnings of affiliates (25,514) (63,086)
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Loss before interest and income taxes (740,897) (797,047)
Interest income, net (39,159) (134,855)
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Loss before income taxes (701,738) (662,192)
Income tax benefit (246,000) (265,000)
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Net loss $ (455,738) $ (397,192)
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Loss per common share $(.12) $(.11)
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Weighted average number of
common shares outstanding 3,897,011 3,614,474
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See accompanying notes to condensed consolidated financial statements.
1
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
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(Unaudited)
Current assets:
Cash and cash equivalents $ 2,810,565 $ 2,697,566
Accounts receivable, net 6,412,874 7,641,066
Due from affiliates 51,569 36,768
Inventories 1,059,976 1,018,383
Prepaid expenses 157,291 190,402
Income tax receivable 935,104 689,104
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Total current assets 11,427,379 12,273,289
Long-term receivable 1,527,872 1,589,916
Property and equipment:
Video and computer equipment 3,572,552 3,361,923
Furniture and fixtures 716,730 747,146
Leasehold improvements 98,350 95,422
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4,387,632 4,204,491
Less accumulated depreciation and amortization (3,150,064) (2,963,197)
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Net property and equipment 1,237,568 1,241,294
Capitalized program development costs, net 4,238,026 4,226,525
Intangible assets 3,886,689 3,975,840
Other 67,781 67,461
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$22,385,315 $23,374,325
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See accompanying notes to condensed consolidated financial statements.
2
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1997 1996
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(Unaudited)
Current liabilities:
Line of credit $ -- $ 515,000
Current installments of long-term debt 99,286 130,745
Accounts payable 1,372,106 1,331,079
Due to affiliates 238,091 335,797
Accrued compensation and benefits 910,022 826,764
Deferred revenues 1,363,207 1,458,945
Other accrued expenses 1,678,759 1,619,326
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Total current liabilities 5,661,471 6,217,656
Deferred lease obligations 110,547 113,020
Deferred income taxes 353,522 353,522
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Total liabilities 6,125,540 6,684,198
Stockholders' equity:
Common stock, $.10 par value, 12,000,000 shares
authorized; 3,897,074 and 3,896,924 issued
and outstanding in 1997 and 1996, respectively 389,708 389,693
Additional paid-in capital 16,068,681 16,067,366
Note receivable from ESOP (119,621) (143,677)
Retained earnings (78,993) 376,745
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Total stockholders' equity 16,259,775 16,690,127
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Total liabilities and stockholders' equity $22,385,315 $23,374,325
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See accompanying notes to condensed consolidated financial statements.
3
INDUSTRIAL TRAINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For Three Months Ended March 31,
1997 1996
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Cash flows from operating activities:
Net loss $ (455,738) $ (397,192)
Reconciling items:
Provision for deferred taxes -- 176,800
Depreciation and amortization 697,661 876,918
Awards of common shares 938 --
Changes in assets and liabilities:
Decrease in accounts receivable 1,290,236 1,169,415
Decrease (increase) in inventories (41,593) 260,072
Decrease (increase) in prepaid expenses 33,111 (248,519)
Increase in income tax receivable (246,000) (512,000)
Increase (decrease) in due to affiliates, net (112,507) 74,983
Decrease (increase) in other assets (2,078) 6,605
Increase in accounts payable 41,027 23,083
Increase in accrued expenses 46,951 58,133
Decrease in income taxes payable -- (105,000)
Decrease in deferred lease obligations (2,473) (3,078)
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Net cash provided by operating activities 1,249,535 1,380,220
Cash flows from investing activities:
Deferred program development costs (439,356) (1,499,694)
Capital expenditures (175,170) (141,107)
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Net cash used in investing activities (614,526) (1,640,801)
Cash flows from financing activities:
Repayments under line-of-credit (515,000) --
Principal payments under term loans (31,459) (28,995)
Issuance of common stock -- 19,063
Employee stock option note collections 24,449 27,000
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Net cash provided by (used in) financing activities (522,010) 17,068
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Net increase (decrease) in cash 112,999 (243,513)
Cash and cash equivalents at beginning of period 2,697,566 10,348,762
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Cash and cash equivalents at end of period $2,810,565 $10,105,249
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See accompanying notes to condensed consolidated financial statements.
4
INDUSTRIAL TRAINING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
1) BASIS OF PRESENTATION
The condensed consolidated financial statements of Industrial Training
Corporation (the "Company") include the accounts of its wholly owned
subsidiaries, Anderson Soft-Teach, Inc. ("AST"), ITC Australasia Pty. Ltd.
("ITCA"), Activ Training, Ltd., and ComSkill Learning Centers, Inc. Significant
intercompany accounts and transactions have been eliminated in consolidation. In
the opinion of management of the Company, the interim condensed consolidated
financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The interim condensed
consolidated financial statements should be read in conjunction with the
Company's December 31, 1996 and 1995 audited financial statements included with
the Company's filing on Form 10-KSB. The interim operating results are not
necessarily indicative of the operating results for the full fiscal year.
2) INVESTMENTS IN AND DUE TO AFFILIATES
The Company is a participant in five separate limited partnerships with
Industrial Training Partners, Ltd. (the ITP partnerships) and a joint venture
with DynCorp. In all of the ITP partnerships, the Company is a 5% general
partner and in certain partnerships the Company has acquired limited partnership
interest as well. In the joint venture with DynCorp, the Company has a 50%
ownership interest. The ITP partnerships and the DynCorp joint venture were
formed to develop and produce various series of training programs. Under the
contracts to market the programs for the partnerships and joint venture, ITC
receives 50%-70% of the sales price for the costs of reproducing and marketing
the training materials. In the case of the joint venture agreement, the Company
also receives an additional 25% for its share of joint venture profits. Sales of
programs related to these affiliates were $371,000 and $655,000 for the first
quarter of 1997 and 1996, respectively. Additionally, during the fourth quarter
of 1995 and the first quarter of 1996, the Company developed new training
products for certain partnerships. Revenues recognized by the Company for the
development of these training programs were $532,000 for the first quarter of
1996. No such revenues were recognized during the first quarter of 1997.
3) LINE OF CREDIT
At March 31, 1997, the Company had no amounts outstanding relating to its
$3,000,000 revolving bank line of credit, which bears interest at the bank's
prime lending rate.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
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For the quarter ended March 31, 1997, net revenues were $4,722,000 as compared
to $3,716,000 for the quarter ended March 31, 1996, an increase of $1,006,000 or
27%. The increase in the Company's revenues was primarily due to the impact of
acquisition activities and the expansion of international operations occurring
during 1996. For the quarter ended March 31, 1997, sales of off-the-shelf
training products totaled $4,142,000, an increase of $1,512,000 or 57% from the
first quarter of 1996. This increase is principally attributable to the December
31, 1996 acquisition of Anderson Soft-Teach. Sales of hardware systems for the
quarter ended March 31, 1997 totaled $230,000 as compared to $449,000 achieved
during the comparable period in 1996, representing a decrease of $219,000 or
49%. Revenues from custom courseware and consulting services amounted to
$275,000 for the first quarter of 1997 as compared to $594,000 for the first
quarter of 1996, a decrease of $319,000.
Revenues from international operations included in the training product revenues
mentioned above totaled $930,000 for the three months ended March 31, 1997 as
compared to $556,000 for the same period in 1996. The significant increase of
$374,000 or 67% was primarily due to the acquisition of Acumen People and
Productivity in the third quarter of 1996.
Costs and Expenses
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During the first quarter of 1997, gross margin increased $1,265,000 over the
first quarter of 1996, as margin percentages grew from 29% to 50%. The
substantial growth in margin is due to the overall increase in revenues as well
as the higher proportion of product revenues for the quarter, and lower levels
of amortization from capitalized program development costs compared to last
year.
Selling, general and administrative expenses totaled $3,105,000 during the first
quarter of 1997, representing an increase of $1,172,000 over the comparable
period in 1996. The overall increase in selling, general and administrative
expenses was primarily due to the additional operating expenses associated with
the two acquisitions mentioned above as well as additional expansion of
operations internationally.
Net Loss
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The loss before income taxes was partially offset by the recognition of an
interim tax benefit, resulting in a net loss for the three months ended March
31, 1997 of $456,000 or 12 cents per share. This compares to a net loss of
$397,000 or 11 cents per share recorded during the first quarter of 1996.
Cash Flow, Liquidity and Capital Resources
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Working capital at March 31, 1997 was $5,766,000, remaining relatively unchanged
from $6,056,000 at December 31, 1996.
Cash flows from operations were $1,250,000, as significant non-cash charges for
depreciation and amortization and collections of significant receivables from
fourth quarter sales offset the effect of operating losses. Cash used in
investing activities includes costs for the ongoing development of Office 97
products. Cash used in financing activities includes the repayment of the line
of credit assumed in the acquisition of Anderson Soft-Teach.
6
Management believes that the cash generated from operations combined with the
Company's existing resources and available line of credit are adequate to meet
ITC's working capital needs and other financing requirements for 1997.
7
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See attached Exhibit Index
(b) Reports on Form 8-K
On January 13, 1997, the Company filed a report on Form 8-K relating to the
acquisition of Anderson Soft-Teach.
On February 10, 1997, the Company filed a report on Form 8-K relating to the
resignation of a Director of the Company.
On March 12,1997, the Company filed a report on Form 8-K/A providing the
financial statements and pro forma financial information relating to the
acquisition of Anderson Soft-Teach as reported on Form 8-K on January 13, 1997.
8
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INDUSTRIAL TRAINING CORPORATION
(Registrant)
BY /s/James H. Walton DATE 4/25/97
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James H. Walton
Chief Executive Officer
BY /s/Steven L. Roden DATE 4/25/97
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Steven L. Roden
President
BY /s/Frank A. Carchedi DATE 4/25/97
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Frank A. Carchedi
Vice President, Treasurer and
Chief Financial Officer
BY /s/Christopher E. Mack DATE 4/25/97
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Christopher E. Mack
Vice President and
Chief Operating Officer
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INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
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3.1 Amended Articles of Incorporation of the Company, incorporated by
reference to the Company's Form 10-QSB for the quarter ended June 30,
1996 filed with the Securities and Exchange Commission ("SEC")
(Commission File No. 33-61393).
3.2 Restated By-Laws of the Company, incorporated by reference to the
Company's Form 10-KSB for the fiscal year ended December 31, 1995 filed
March 15, 1996 with the SEC (Commission File No. 0-13741).
4.1 Specimen Certificate for ITC Common Stock, incorporated by reference to
the Company's Registration Statement on Form SB-2 filed July 28, 1995
with the SEC (Commission File No. 33-61393).
4.2 Registration Rights and Shareholders' Agreement, incorporated by
reference to the Company's Form 8-K filed January 13, 1997 with the SEC
(Commission File No. 0-13741).
10.6 Employment Agreements with Management
(i) Carl D. Stevens
10.11 IBM Subcontractor Agreement dated January 13, 1997
27.1 Financial Data Schedule
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