-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fi2guZjREuvNjAmmaVv0ppn979XIcnUvDFAj+oLlU6bSAsM5KZeWVU9eQ4aWle27 qvrsZeuS6+yeX0pHehtGVg== 0000950133-00-002111.txt : 20000517 0000950133-00-002111.hdr.sgml : 20000517 ACCESSION NUMBER: 0000950133-00-002111 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ITC LEARNING CORP CENTRAL INDEX KEY: 0000764867 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 521078263 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13741 FILM NUMBER: 636613 BUSINESS ADDRESS: STREET 1: 13515 DULLES TECHNOLOGY DR CITY: HERNDON STATE: VA ZIP: 22071 BUSINESS PHONE: 7037130065 MAIL ADDRESS: STREET 1: 13515 DULLES TECHNOLOGY DRIVE CITY: HERNDON STATE: VA ZIP: 22071 FORMER COMPANY: FORMER CONFORMED NAME: INDUSTRIAL TRAINING CORP DATE OF NAME CHANGE: 19920703 10QSB 1 FORM 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------------- FORM 10-QSB (MARK ONE) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF EXCHANGE ACT For the transition period from ________ to _________ COMMISSION FILE NUMBER 0-13741 ITC LEARNING CORPORATION ------------------------ (Name of small business issuer as specified in its charter) MARYLAND 52-1078263 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 13515 DULLES TECHNOLOGY DRIVE HERNDON, VIRGINIA 20171 ----------------------- (Address of principal executive offices) (703) 713-3335 -------------- (Issuer's telephone number) -------------------------- Check whether the issuer (1) 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No As of March 31, 2000, 3,964,078 shares of Common Stock were outstanding. Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No 2 ITC LEARNING CORPORATION FORM 10-QSB INDEX
PART I - FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999...........................................1 Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999...............................................2-3 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999...........................................4 Notes to Condensed Consolidated Financial Statements.................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................................................11 PART II - OTHER INFORMATION Item 1. Legal Proceedings...................................................................14 Item 2. Changes in Securities and Use of Proceeds...........................................14 Item 3. Defaults Upon Senior Securities.....................................................14 Item 4. Submission of Matters to a Vote of Security Holders.................................14 Item 5. Other Information...................................................................14 Item 6. Exhibits and Reports on Form 8-K....................................................14
3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ITC LEARNING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended March 31, 2000 1999 ---- ---- Net revenues......................................................... $ 1,822,385 $ 5,702,384 Cost of sales........................................................ 1,126,775 2,557,228 ------------- ------------- Gross margin.................................................... 695,610 3,145,156 Selling, general and administrative expense.......................... 2,195,986 2,875,389 Equity in earnings of affiliates..................................... (62,256) (65,147) ------------- ------------- Total costs and expenses........................................ 2,133,730 2,810,242 Income (loss) before interest and income taxes....................... (1,438,120) 334,914 Interest income...................................................... 3,550 5,505 Interest expense..................................................... (200,616) (63,572) ------------- ------------- Income (loss) before income taxes.................................... (1,635,186) 276,847 Income tax expense................................................... -- -- ------------- ------------- Net income (loss).................................................... $ (1,635,186) $ 276,847 ============= ============= Income (loss) per common share: Basic........................................................... $ (0.42) $ 0.07 ============= ============= Diluted......................................................... $ (0.42) $ 0.07 ============= =============
See accompanying notes to condensed consolidated financial statements. 1 4 ITC LEARNING CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (UNAUDITED)
March 31, December 31, 2000 1999 ---- ---- Current assets: Cash and cash equivalents....................................... $ 407,260 $ 535,178 Accounts receivable, net (note 2)............................... 2,816,452 4,482,511 Due from affiliates............................................. 115,901 175,533 Inventories, net of reserve of $22,500 at March 31, 2000 and December 31, 1999..................... 285,784 338,900 Prepaid expenses................................................ 35,949 153,724 Income taxes receivable......................................... 69,446 70,258 Deferred financing costs, net................................... 56,136 65,000 ------------- ------------- Total current assets........................................ 3,786,928 5,821,104 Note receivable (note 3)............................................. 537,628 537,628 Property and equipment: Video and computer equipment.................................... 2,658,851 2,666,316 Furniture and fixtures.......................................... 210,943 210,994 Leasehold improvements.......................................... 61,293 61,340 ------------- ------------- 2,931,087 2,938,650 Less accumulated depreciation and amortization.................. (2,179,199) (2,020,237) ------------- ------------- Net property and equipment.................................. 751,888 918,413 Capitalized program development costs, net of accumulated amortization of $6,939,875 and $6,282,102 at March 31, 2000 and December 31, 1999, respectively................................. 4,654,310 5,097,679 Intangible assets, net of accumulated amortization of $1,764,061 and $1,617,499 at March 31, 2000 and December 31, 1999, respectively............................. 3,358,081 3,504,645 Other ............................................................... 9,679 10,927 ------------- ------------- Total assets.................................................... $ 13,098,514 $ 15,890,396 ============= =============
See accompanying notes to condensed consolidated financial statements. 2 5 ITC LEARNING CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
March 31, December 31, 2000 1999 ---- ---- Current liabilities: Line of credit (note 4)......................................... $ -- $ 663,838 Current installments of long-term debt (note 5)................. 472,090 277,160 Accounts payable................................................ 1,710,117 2,193,676 Due to affiliates............................................... 106,984 187,070 Accrued compensation and benefits............................... 224,759 167,218 Deferred revenues............................................... 242,943 373,144 Other accrued expenses.......................................... 1,596,026 2,260,240 Income taxes payable ........................................... 2,640 6,128 ------------- ------------- Total current liabilities................................... 4,355,559 6,128,474 Deferred lease obligations........................................... 15,497 12,119 Long-term debt (note 5).............................................. 2,756,398 2,313,604 ------------- ------------- Total liabilities........................................... 7,127,454 8,454,197 Stockholders' equity: Common stock, $0.10 par value, 12,000,000 shares authorized; 3,964,078 and 3,964,078 shares issued and outstanding in 2000 and 1999, respectively................................. 396,408 396,408 Additional capital.............................................. 17,083,716 16,975,959 Note receivable from ESOP....................................... (336,252) (359,377) Retained deficit................................................ (11,198,895) (9,563,709) Accumulated other comprehensive loss (note 7)................... 26,083 (13,082) ------------- ------------- Total stockholders' equity.................................. 5,971,060 7,436,199 ------------- ------------- Total liabilities and stockholders' equity........................... $ 13,098,514 $ 15,890,396 ============= =============
See accompanying notes to condensed consolidated financial statements. 3 6 ITC LEARNING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31, 2000 1999 ---- ---- Cash flows from operating activities: Net income (loss).................................................... $ (1,635,186) $ 276,847 Reconciling items: Provision for doubtful accounts................................. 150,000 15,000 Depreciation and amortization................................... 1,057,731 908,497 Foreign currency translation adjustment......................... 39,165 5,741 Changes in operating assets and liabilities: Decrease in accounts receivable............................. 1,516,059 66,948 Decrease (increase) in inventories.......................... 53,116 (8,346) Decrease in income tax receivable........................... 812 -- Decrease in prepaid expenses................................ 117,775 15,164 Increase in due from affiliates, net........................ (20,454) (133,866) Decrease in other assets.................................... 1,248 210,525 Decrease in accounts payable................................ (483,559) (1,186,055) Decrease in accrued expenses................................ (599,110) (380,296) Increase (decrease) in deferred revenues.................... (130,201) 87,606 Increase (decrease) in deferred lease obligations........... 3,378 (10,314) Decrease in income tax payable.............................. (3,488) (2,761) ------------- ------------- Net cash provided by (used for) operating activities................. 67,286 (135,310) Cash flows from investing activities: Capitalized program development costs........................... (214,404) (464,004) Capital expenditures............................................ -- (158,061) ------------- ------------- Net cash used for investing activities............................... (214,404) (622,065) Cash flows from financing activities: Borrowings under line of credit................................. -- 4,076,000 Repayments under line of credit................................. (663,838) (2,995,000) Proceeds from issuance of long-term debt........................ 802,393 -- Principal payments on long-term debt............................ (142,480) (17,186) Employee stock ownership plan note collections.................. 23,125 23,125 ------------- ------------- Net cash provided by financing activities................... 19,200 1,086,939 ------------- ------------- Net increase (decrease) in cash...................................... (127,918) 329,564 Cash and cash equivalents, beginning of period....................... 535,178 267,045 ------------- ------------- Cash and cash equivalents, end of period............................. $ 407,260 $ 596,609 ============= =============
See accompanying notes to condensed consolidated financial statements. 4 7 ITC LEARNING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 (UNAUDITED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements of ITC Learning Corporation ("ITC" or the "Company") include the accounts of its wholly owned subsidiaries Activ Training, Ltd. ("Activ"), ITC Australasia Pty. Ltd. ("ITCA"), Turn-Key Training Technologies, Inc. ("Turn-Key"), ITC Canada Limited, and ComSkill Learning Centers, Inc. ("ComSkill"). The Company is a full-service training company specializing in the development, production, marketing and sale of multimedia and technology-delivered training solutions designed to improve employee skills in business, industry, education and government. The Company operates in four reportable segments: U.S., Canada, Australia and the United Kingdom. Significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of the Company's management, 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. Certain prior year amounts have been reclassified to improve comparability to current year presentations. The interim condensed consolidated financial statements should be read in conjunction with the Company's December 31, 1999 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. The Company's financial statements have been presented on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company experienced a net loss in the three months ended March 31, 2000, and the years ended 1999 and 1998. Although the Company expects operating results to improve, there can be no assurances that the Company will not experience adverse results of operation in the future. The Company believes that its existing cash, the anticipated cash flows from 2000 operations, and additional planned capital fund raising activities should provide sufficient resources to fund its activities in 2000. Anticipated cash flows from 2000 operations are largely dependent upon the Company's ability to achieve its sales and gross profit objectives for its currently existing products and new products to be launched in 2000. Achievement of these objectives is subject to various risk factors related to, among other things: incremental sales resulting from expansion of distribution capabilities; the Company's ability to deploy its courseware over the Internet and corporate intranets; the Company's ability to control costs in relation to future revenues and the Company's ability to raise capital. If the Company is unable to meet these objectives, it will consider expansion of existing or development of alternative sources of bank financing; the curtailment of certain capital expenditures and discretionary expenditures (such as travel, consulting and salaries); and various other courses of action, including the possible sale of the Company. 5 8 ITC LEARNING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2000 (UNAUDITED) Revenues and Costs Revenues include both off-the-shelf and custom courseware sales, courseware licenses, consulting service revenues and hardware revenues. The Company recognizes revenues from 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 a percentage of completion basis as related costs are incurred during the production period. Gross revenues from sales of affiliated joint venture and limited partnership copyrighted courseware are included in the Company's financial statements, as are related production, selling and distribution costs. Amounts due to co-owners of the affiliated venture/partnerships related to such courseware sales are reflected as royalties and included in cost of sales in the financial statements. Revenues from courseware licenses are recognized upon the delivery of the initial copy of each product licensed, and related duplication costs are accrued based on estimates. Revenues from consulting services are recognized as services are performed. Net Income (Loss) Per Common Share Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the year. Diluted earnings per common share is computed based on the weighted average number of common shares outstanding plus the effect of stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on the Company's average stock price. The details of the earnings per share calculation for the quarters ended March 31, 2000 and 1999 follow:
Income Per Share (Loss) Shares Amount ------ ------ ------ QUARTER ENDED MARCH 31, 2000 Loss per share of common stock - basic............ $ (1,635,186) 3,905,756 $ (0.42) Dilutive securities: Stock options................................. -- -- -- ------------- ----------- ------- Loss per share of common stock - diluted.......... $ (1,635,186) 3,905,756 $ (0.42) -------------- ----------- ------- QUARTER ENDED MARCH 31, 1999 Earnings per share of common stock - basic........ $ 276,847 3,879,923 $ 0.07 Dilutive securities: Stock options................................. -- 53,739 -- ------------- ----------- ------- Earnings per share of common stock - diluted...... $ 276,847 3,933,662 $ 0.07 ------------- ----------- -------
6 9 ITC LEARNING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2000 (UNAUDITED) NOTE 2 - ACCOUNTS RECEIVABLE Accounts receivable include the following:
March 31, December 31, 2000 1999 ---- ---- (Unaudited) Trade accounts receivable.................................... $ 3,391,937 $ 4,717,097 Unbilled contract receivables................................ 20,633 200,000 Less allowance for doubtful accounts......................... (652,644) (502,644) ------------ ------------ Trade accounts receivable, net........................... 2,759,926 4,414,453 Other receivables............................................ 56,526 68,058 ------------ ------------ $ 2,816,452 $ 4,482,511 ============ ============
NOTE 3 - NOTE RECEIVABLE On November 20, 1997, the Company entered into a stock purchase agreement with Anderson Holdings Inc., to sell all of the Company's stock in its wholly owned subsidiary Anderson Soft-Teach ("AST"). Pursuant to the transaction, ITC accepted an 8% promissory note in the amount of $950,000. Under the terms of the note, interest payments are due quarterly, with the remaining principal balance due in 2001. Under the terms of the stock purchase agreement, ITC and AST entered into a reciprocal agreement to sell each other's products. Royalties earned by AST for sales of their products under this agreement will be applied to the principal value of the note. NOTE 4 - LINE OF CREDIT On January 21, 2000, the Company satisfied its outstanding debt, and all associated fees and expenses under its line of credit agreement. The Company is currently operating without a short-term credit facility. 7 10 ITC LEARNING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2000 (UNAUDITED) NOTE 5 - LONG-TERM DEBT Long-term debt at March 31, 2000 and December 31, 1999 consists of the following:
March 31, December 31, 2000 1999 ---- ---- Non-related party debt: - ----------------------- 8.0% senior note due 2003............................................ $ 1,035,450 $ 1,177,930 5.5% note due 2001, net of unamortized discount of $176,325.......... 823,675 795,834 9.5% note due 2001, net of unamortized discount of $450,272.......... 749,728 617,000 ------------- ------------- Subtotal - non-related party debt.................................... 2,608,853 2,590,764 Related party debt: - ------------------- 7.0% notes due 2002, net of unamortized discount of $78,607.......... 383,785 -- 8.0% notes due 2000, net of unamortized discount of $29,150.......... 235,850 -- ------------- ------------- Subtotal - related party debt ...................................... 619,635 -- ------------- ------------- Total long-term debt................................................. 3,228,488 2,590,764 Less current maturities.............................................. (472,090) (277,160) ------------- ------------- Long-term debt, net.................................................. $ 2,756,398 $ 2,313,604 ============= =============
The 8.0% note payable is due in monthly interest installments and quarterly principal installments, and matures in June 2003. The note has a subordinated interest position to the Company's principal lender, in the receivables and inventory of ITC Canada Limited. Additionally, the note carries a security interest in the fixed assets and intellectual property of ITC Canada Limited, which ranks pari passu with the Company's principal lender. The 5.5% convertible subordinated note payable is due on April 2, 2001. The note is secured by the assets of the Company and is subordinated to existing and future indebtedness of the Company. Interest and principal are due in full at maturity. The note is convertible into shares of common stock of the Company, up to the maturity date, at a price of $2.00 per share. The note was issued with warrants which grant the holders the right to acquire 291,500 shares of the Company's common stock at a per share price of $2.00. The warrants expire on April 2, 2001. The warrants were determined to have a value of $245,000, which was recorded as additional paid-in capital. The resulting debt discount is being amortized over the holding period of the note. The 9.5% convertible subordinated note payable is due on April 2, 2001. The note is secured by the assets of the Company and is subordinated to existing and future indebtedness of the Company. Interest and principal are due in full at maturity. The note may be converted into shares of common stock of the Company at any time up to maturity date, at a price no lower than $1.75 per share. The note was issued with warrants which grant the holders the right to acquire 349,800 shares of the Company's common stock at a price no lower than $1.75 per share. The warrants expire on April 1, 2002. The warrants were determined to have a value of $508,000, which was recorded as additional capital. The resulting debt discount is being amortized over the holding period of the debenture. The number of warrants can increase to 1,049,400 if certain conditions are not met. During the first quarter of 2000, the Company issued 7.0% convertible subordinated notes payable, to certain Officers and Directors, and various other related parties, in the amount of $462,392, due on June 30, 2002. Interest and 8 11 ITC LEARNING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2000 (UNAUDITED) principal are due in full at maturity. The note may be converted into shares of common stock of the Company at any time up to maturity date, at a price of $2.75 per share. The note was issued with warrants that grant the holders the right to acquire 46,239 shares of the Company's common stock, at a price of $2.75 per share. The warrants expire on June 30, 2001. The warrants were determined to have a value of $78,607, which was recorded as additional capital. The resulting debt discount is being amortized over the holding period of the notes. During the first quarter of 2000, the Company issued 8.0% notes payable to certain Officers and Directors, and various other related parties, in the amount of $265,000, due on the earlier of April 30, 2000 or the Company closing a line of credit of at least $1,000,000. As of March 31, 2000, the Company has not secured a line of credit, and has extended the due date of the notes until the repayment of the notes will not materially and adversely affect the Company's business operations. Interest and principal are due in full at maturity. The note was issued with warrants that grant the holders the right to acquire 15,900 shares of the Company's common stock, at a price of $2.63 per share. The warrants expire January 31, 2002. The warrants were determined to have a value of $29,150, which was recorded as additional capital. The resulting debt discount is being amortized over the holding period of the notes. NOTE 6 - SEGMENT INFORMATION The following tables show revenues and profit or loss by reportable segment for the quarters ended March 31, 2000 and 1999 (amounts in thousands): Quarter ended March 31, 2000
- ---------------------------------------------------------------------------------------------------------- United United States Canada Kingdom Australia Total - ---------------------------------------------------------------------------------------------------------- Revenues from external customers............... $ 768 $ 38 $ 766 $ 250 $ 1,822 Intersegment revenues................. 513 16 - - 529 Segment loss before taxes............. (922) (652) (28) (33) (1,635) - ---------------------------------------------------------------------------------------------------------- Quarter ended March 31, 1999 - ---------------------------------------------------------------------------------------------------------- United United States Canada Kingdom Australia Total - ---------------------------------------------------------------------------------------------------------- Revenues from external customers............... $4,204 $616 $665 $217 $5,702 Intersegment revenues................. 500 - - - 500 Segment income (loss) before taxes.... 557 (227) (47) (6) 277 - ----------------------------------------------------------------------------------------------------------
9 12 ITC LEARNING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2000 (UNAUDITED) NOTE 7 - COMPREHENSIVE INCOME (LOSS) The components of comprehensive income (loss), net of related tax, for the three months ended March 31, 2000 and 1999 are as follows:
March 31, March 31, 2000 1999 ---- ---- Net income (loss)............................................ $ (1,635,186) $ 276,847 Foreign currency translation adjustment...................... 39,165 5,741 ------------ ------------ $ (1,596,021) $ 282,588 ============ ============
The components of accumulated other comprehensive income, net of related tax, for the three months ended March 31, 2000 and December 31, 1999 are as follows:
March 31, December 31, 2000 1999 ---- ---- Cumulative foreign currency translation adjustment........... $ 26,083 $ (13,082) ============ ============
10 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview of Business ITC Learning Corporation ("ITC" or the "Company") is a worldwide provider of education and training software to professionals in business, education and government organizations. Incorporated under the laws of the state of Maryland in 1977 the Company develops, markets and delivers specific libraries of interactive multimedia computer-based training ("CBT") courses designed for CD-ROM, intranet and Internet delivery, thus enabling organizations to effectively and efficiently deliver training to improve individual and organizational performance. FORWARD-LOOKING STATEMENTS AND RISK FACTORS Forward-looking Statements Certain statements made by the Company's management may be considered to be "forward-looking statements" within the meaning of the Private Securities Litigation Act of 1995. Forward-looking statements are based on various factors and assumptions that include known and unknown risks and uncertainties. The words "believe," "expect," "anticipate" and "project," and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Such statements may include, but not be limited to, projections of revenues, income or loss, expenses, plans, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future results could differ materially from those described in forward-looking statements as a result of the risks set forth in the following discussion, among others. Risk Factors The Company's financial statements have been presented on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company experienced a net loss in the three months ended March 31, 2000, and the years ended 1999 and 1998. Although the Company expects operating results to improve, there can be no assurances that the Company will not experience adverse results of operation in the future. The Company believes that its existing cash, anticipated cash flows from 2000 operations, proceeds from sale of non-core Company assets, and planned capital fund raising activities should provide sufficient resources to fund its activities in 2000. However, the timing of aforementioned capital infusion is critical, as the Company is currently receiving pressure from some of its larger suppliers. Anticipated cash flows from 2000 operations are largely dependent upon the Company's ability to achieve its sales and gross profit objectives for its currently existing products and new products to be launched in 2000. Achievement of these objectives is subject to various risk factors related to, among other things: incremental sales resulting from expansion of distribution capabilities; the Company's ability to deploy its courseware over the Internet and corporate intranets; the Company's ability to control costs in relation to future revenues and the Company's ability to raise capital. If the Company is unable to meet these objectives, it will consider expansion of existing or development of alternative sources of bank financing; the curtailment of certain capital expenditures and discretionary expenditures (such as travel, consulting and salaries); and various other courses of action, including the possible sale of the Company. A number of factors could also contribute to significant fluctuations in operating results, which may result in volatility in the price of the Company's common stock. These include the size and timing of orders and shipments, the mix of ITC-developed products and third party products, the mix of sales from the Company's direct and indirect distribution channels, the introduction and acceptance of new products, and the degree to which the market understands and accepts the Company's role as a provider of training solutions. In addition, the Company faces certain general business risks, which could materially and adversely impact future operating results. These include, but are not limited to, changes in economic conditions, the cost of labor and raw materials, changes in technology and general competitive factors. 11 14 RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 ("FIRST QUARTER OF 2000") COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 1999 ("FIRST QUARTER OF 1999") Revenues Total revenues for the first quarter of 2000 totaled $1,822,000, as compared to $5,702,000 for the first quarter of 1999, representing a decrease of $3,880,000 or 68%. Courseware revenues, which include sales of off-the-shelf CBT products, custom CBT products, consulting services, fees, royalties and videotape training products, totaled $1,792,000 during the first quarter of 2000, as compared to $5,489,000 for the first quarter of 1999. The decrease in revenues was primarily attributable to decreased sales of the Company's core CBT products within its U.S. and Canadian markets, offset by increased CBT product sales in the Company's U.K. and Australian markets. The decrease in revenues within the U.S. and Canadian markets in the first quarter of 2000 was due to several interrelated factors, including the residual effect of many changes that occurred within the Company during the fourth quarter of 1999. First, as a result of financial pressure being brought to bear on the Company by its principal lender, due to the Company's third quarter 1999 negative operating results, the working capital position of the Company did not allow for sufficient levels of sales and marketing expenditures during 2000. Furthermore, in response to working capital shortages, the Company in October of 1999, made a significant reduction in its workforce, including a 60% reduction of sales and marketing personnel, which further hindered sales and marketing efforts during the first quarter of 2000. This reduction was not undertaken only in an effort to reduce costs; but to refocus the Company's U.S. and Canadian operation on its core industrial markets, to better leverage the Company's core assets. The effect of the reduction contributed to reduced revenue levels in the first quarter of 2000, as compared to previous quarters. On March 9, 2000, the Company hired an industry specialized Vice President of Sales and Marketing to lead the effort in rebuilding. During 2000, the Company expects to continue adding industry specialized sales and marketing resources, focused within its core vertical markets. As of March 31, 2000, the Company believes its sales and marketing organization can perform at a level sufficient to generate positive cash flow for the Company, and will continue to leverage its existing, and new sales and marketing resources to increase revenues. These are forward-looking statements. See Forward-Looking Statements and Risk Factors for Further Discussion. Cost of Sales and Gross Margin Cost of sales consists of the amortized costs of developing new course titles and updating the Company's existing libraries, product material costs, fulfillment costs, reseller discount fees, sales commissions, third party product royalties and hardware costs. Cost of sales for the first quarter 2000 totaled $1,127,000 resulting in a gross margin of $696,000 or 38% of total revenues, as compared to cost of sales of $2,557,000 and gross margin of $3,145,000 or 55% of total revenues for the first quarter of 1999. The decrease in cost of sales of $1,430,000 in 2000 as compared to 1999 was the result of decreased revenues and resulting cost of sales. The decrease in gross margin of $2,449,000 and gross margin percentage of 17% was primarily attributable to decreased revenue in relation to fixed product development amortization costs incurred. Selling, General and Administrative Expenses Selling, general and administrative expenses totaled $2,196,000 for the first quarter of 2000, as compared to $2,875,000 for the first quarter of 1999, representing a decrease of $679,000 or 24%. Selling expenses consist primarily of salaries of sales personnel, travel, advertising, marketing and promotional expenses. Selling expenses for the first quarter of 2000 totaled $623,000, as compared to $1,362,000 for the first quarter of 1999. The decrease in selling expenses of $739,000 or 54% during the first 12 15 quarter of 2000, as compared to the first quarter of 1999, is primarily due to the Company's reduction of sales and marketing personnel during the last half of 1999. General and administrative expenses consist of the costs of developing new products and the costs of the Company's executive management and support functions such as customer assurance, product fulfillment, human resources, and finance and administration. General and administrative expense for the first quarter of 2000 totaled $1,573,000, as compared to $1,513,000 for the first quarter of 1999. Income Before Income Taxes and Net Income Operations for the first quarter of 2000 resulted in a pre-tax and net loss of $1,635,000, or $0.42 per share, as compared to pre-tax and net income of $277,000, or $0.07 per share, for the first quarter of 1999. The higher pre-tax and net loss for the first quarter of 2000 was primarily due to decreased courseware sales and resulting gross margin as compared to the first quarter of 1999. CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES Working capital deficit at March 31, 2000 was $569,000 as compared to a deficit of $307,000 at December 31, 1999, representing an increase in the working deficit of $262,000, primarily due to repayment of the Company's line of credit and various other short-term liabilities through the issuance of short and long-term notes payable. Cash provided by operating activities totaled $67,000 for the first quarter of 2000, as compared to cash used by operating activities of $135,000 for the first quarter of 1999, an increase of $202,000. The increase was due to increased turnover of operating assets in relation to operating liabilities during the first quarter of 2000 as compared to the first quarter of 1999. Cash used for investing activities totaled $214,000 for the first quarter of 2000, as compared to cash used for investing activities of $622,000 for the first quarter of 1999, a decrease of $408,000. The decrease was primarily attributable to decreased capital and product development expenditures during the first quarter of 2000 as compared to the first quarter of 1999. Cash provided by financing activities totaled $19,000 for the first quarter of 2000, as compared to cash provided by financing activities of $1,087,000 for the first quarter of 1999, a decrease of $1,068,000. The decrease was primarily attributable to the Company's decreased utilization and subsequent payoff of its line of credit, offset by the issuance of long-term notes payable during the first quarter of 2000. The Company believes that its existing cash, anticipated cash flows from 2000 operations, proceeds from sale of non-core Company assets, and planned capital fund raising activities should provide sufficient resources to fund its activities in 2000. However, the timing of aforementioned capital infusion is critical, as the Company is currently receiving pressure from some of its larger suppliers. Anticipated cash flows from 2000 operations are largely dependent upon the Company's ability to achieve its sales and gross profit objectives for its currently existing products and new products to be launched in 2000. Achievement of these objectives is subject to various risk factors related to, among other things: incremental sales resulting from expansion of distribution capabilities; the Company's ability to deploy its courseware over the Internet and corporate intranets; the Company's ability to control costs in relation to future revenues and the Company's ability to raise capital. If the Company is unable to meet these objectives, it will consider expansion of existing or development of alternative sources of bank financing; the curtailment of certain capital expenditures and discretionary expenditures (such as travel, consulting and salaries); and various other courses of action, including the possible sale of the Company. 13 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 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 EXHIBIT NO. DESCRIPTION - -------------------------------------------------------------------------------- 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 (Commission File No. 0-13741). 3.2 Amended By-Laws of the Company, incorporated by reference to the Company's Form 10-KSB for the fiscal year ended December 31, 1997, filed March 13, 1998 with the SEC (Commission File No. 0-13741). 4.1 Specimen Certificate for ITC Common Stock, incorporated by reference to the Company's 10-QSB for the quarter ended March 31, 1998, filed May 1, 1998 with the SEC (Commission File No. 0-13741). 14 17 27.1 Financial Data Schedule (filed herewith). B. Reports on Form 8-K: None. 15 18 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ITC LEARNING CORPORATION (Registrant) By: /s/Christopher E. Mack DATE May 15, 2000 ---------------------------------------------- ----------------------- Christopher E. Mack, President, Treasurer, and Chief Financial Officer By: /s/Matthew C. Sysak DATE May 15, 2000 ---------------------------------------------- ----------------------- Matthew C. Sysak, Vice President of Finance and Administration, and Secretary
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S 10-QSB AS FOR THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-2000 MAR-31-2000 407,260 0 3,391,937 (652,644) 285,784 3,786,928 2,931,087 (2,179,199) 13,098,514 4,355,559 0 0 0 396,408 5,574,652 13,098,514 1,822,385 1,822,385 1,126,775 3,260,505 0 150,000 (197,066) (1,635,186) 0 (1,635,186) 0 0 0 (1,635,186) (0.42) (0.42)
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