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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934:
For the fiscal year ended: November 30, 1999
Commission File Number: 0-15588
CANTERBURY INFORMATION TECHNOLOGY, INC.
---------------------------------------
Pennsylvania 23-2170505
- - --------------------------------------------- ------------
State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1600 Medford Plaza, Rt. 70 & Hartford Road Medford, New Jersey 08055
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (609) 953-0044
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
-----------------------------
(Title of Class)
Indicate by check mark 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 registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this 10-K. X
---
Revenues for the most recent fiscal year were $14,209,526.
The aggregate market value of the voting stock held by
non-affiliates computed by reference to the closing price of
such stock on National Market NASDAQ for February 25, 2000
was $36,239,000.
The number of shares outstanding of the issuer's class of
common equity, as of February 25, 2000 was 9,508,000.
Documents Incorporated by Reference - Various exhibits from
the Company's Form S-3 Registration Statements and such
other documents contained in Item 14.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Canterbury Information Technology, Inc. (hereinafter
referred to as "the Registrant" or "the Company") is engaged
in the business of providing information technology services
which includes operating computer software training
companies, a management training company and developing and
selling software to individuals and corporations. The
Company is seeking acquisitions of computer software
consulting, technical staffing, Internet and other
information technology companies.
The Company was incorporated in the Commonwealth of
Pennsylvania on March 19, 1981 and later qualified to do
business in the State of New Jersey in April, 1985.
The Company became a Registrant by filing and
registering with the Securities and Exchange Commission
under Form S-18 which became effective on August 20, 1986.
Prior to 1988 the Company was comprised of two
segments: the vocational school segment and the seminar
segment. In November, 1988 the Company sold its seminar
segment, which represented less than 2% of the Company's
revenues. The Company was then solely a vocational school
company. In November, 1992 the Company acquired Star Label
Products, Inc., a specialty printing company. In September,
1993 the Company purchased Motivational Systems, Inc., a
management training company. In November of 1993, the
Company acquired Landscape Maintenance Services, Inc., a
landscape maintenance and construction company. In June of
1994, the Company acquired Computer Applications Learning
Center (CALC), a computer software training company. In
July, 1996, the Company acquired ProSoft Training, LLC., a
computer software training company. In November, 1995, the
Company sold Star Label Products, Inc. In November, 1996,
the Company sold Landscape Maintenance Services, Inc. In
May, 1997, the Company purchased ATM Technologies, Inc., a
software development company. In November, 1997, the Company
closed its last two vocational schools. In February of 1999,
the Company closed Prosoft, incorporating its technical staffing
operations into CALC/Canterbury. In October, 1999 the Company
purchased U.S. Communications, a hardware reseller, training, and
techical services company.
In conjunction with the Board's resolution to
concentrate future growth within the information technology
sector, the Board and Shareholders voted to change the
Company's name to Canterbury Information Technology, Inc.
effective June 12, 1997.
Effective April 14, 1998 the Board of Directors
declared a one for three reverse stock split of the
Registrant's common stock. In addition, and as a result of
the one for three reverse stock split, the Board of
Directors changed the trading symbol of the Registrant's
common stock from "XCEL" to "CITI". All share and per share
information has been restated for the one for three reverse
stock split.
NARRATIVE DESCRIPTION OF BUSINESS - COMPUTER SOFTWARE
TRAINING/SERVICES
In June, 1994, the Company acquired Computer Applications
Learning Center (CALC), a New Jersey based computer software
training company. Since 1983 CALC has trained corporate workers and
managers at its five training centers in New York and New Jersey and
on site at Fortune 1000 corporations. During 1995, the Company changed
the name of CALC to CALC/Canterbury Corp. to more appropriately reflect
Canterbury's role in the corporate training industry. In January 2000,
CALC/Canterbury became the first Linuxcare authorized Mentoring Center
with the exclusive territory of the eastern seaboard. CALC/Canterbury
is a Microsoft Certified Technical Education Center, Lotus Authorized
Education Center and an authorized center for both CAT and VUE testing.
CALC/Canterbury is authorized to provide continuing education units (CEU's)
and is an approved sponsor of Continuing Professional Education (CPE) for
CPA's in New York, New Jersey and Pennsylvania. CALC/Canterbury's
technical services division offers technology project management,
software development, hardware and software installations, web
development and technical staffing. Through CALC Web University, CALC/
Canterbury offers e-commerce enabled, Internet-based training as well
as custom designed web delivered courses.
Future Plans
Canterbury expects to expand this line of the business
by: making acquisitions in the information technology
market of companies that provide complementary products and
services (such as technical recruiting, technical services and Web-
based training) to the significant customer base established over
the past sixteen years of operations; and by entering into
strategic business partnerships to allow the existing sales
force to offer multiple information technology related
services and products. Over time, as the Company's market
penetration increases, the services that were subcontracted
in the past, will be developed and expanded internally.
NARRATIVE DESCRIPTION OF BUSINESS - MANAGEMENT TRAINING
In September of 1993, the Company acquired Motivational
Systems, Inc., a New Jersey-based management and sales
training company. Motivational Systems, since 1970, has
trained managers and sales professionals from many Fortune
1000 companies, on a national and international basis.
Motivational Systems conducts a wide variety of seminars in
management and team development, selling and negotiating,
interpersonal communication, executive development,
organizational problem solving and project management.
During 1995, the Company changed the name of Motivational
Systems, Inc. to MSI/Canterbury Corp. to more appropriately
reflect Canterbury's presence and role in the corporate
training industry.
Future Plans
This division's planned expansion is projected to occur
by extending its current sales effort into contiguous
markets around its corporate headquarters in Northern New Jersey.
The other major expansionary plan is to develop, internally,
new product offerings, both consulting and on-line, for existing and
potential customers, based on their specific needs. With several
consultants who are exceptional course developers on staff,
this process has already resulted in additional product
revenue streams.
NARRATIVE DESCRIPTION OF BUSINESS - SOFTWARE DEVELOPMENT
In May of 1997, the Company acquired ATM Technologies,
Inc. (ATM), a Texas-based software consulting and
development company, serving clients in national and
international markets. ATM has been in business since 1984,
specializing in PC-based tracking systems. The Company
changed the name of ATM Technologies, Inc. to ATM/Canterbury
Corp. to more appropriately reflect Canterbury's presence
and role in the information technology industry.
Future Plans
ATM/Canterbury plans to expand by introducing a newly
developed document imaging and PC-based retrieval program
integrated into its MasterTrak document tracking program
using barcoding. The total program has just recently been
packaged with a streamlined touch-screen PC. This major
product enhancement of imaging and PC-based retrieval will
allow clients with large file rooms to utilize this
hardware/software solution to reduce labor costs and
increase efficiencies. ATM/Canterbury is also working to
expand its base of national and international dealers and to
facilitate increased awareness of the tracking system's new
imaging software developed by the company.
Current clients have begun using the MasterTrak
software for asset tracking. Based upon current client
requests, the company may move toward the development of a
software programming enhancement to enable clients to scan
and link asset descriptions within the existing tracking
system.
NARRATIVE DESCRIPTION OF BUSINESS - VALUE ADDED HARDWARE RESELLER
In October, 1999, the Company acquired U.S. Communications, Inc.,
an Annapolis, Maryland based reseller of desktop and server computer
systems to state and local governments as well as commercial private
sector companies in the mid-Atlantic market. USC proviees a broad range
of information technology services other than hardware procurement and
installation. Other products and services include training, software,
consulting and network design and management. After the acquisition, the
Company changed the name of U.S. Communications to USC/Canterbury Corp. (USC).
The Company predominately resells Hewlett-Packard personal computers
and servers as stand alone desktops, workstations and complete networks.
Virtually no inventory is maintained as most equipment is drop shipped to
the customer location. The consulting and network design services are
becoming a more important value added product to the customer base, as they
look for a complete solution to their information technology needs.
Future Plans
This division's expansion forecast includes additional penetration into
existing governmental installations, increasing its technical training
efforts for both Microsoft and Linuxcare certified training and adding
additional techical services to new and existing client bases.
MERGER/ACQUISITION PROGRAM
The Company is seeking the acquisition of profitable
companies in the information technology industry to
complement and expand the core subsidiaries. This will
allow the Company to offer a wide range of products and
services on a national basis. Since corporations accessing
computer applications training also need computer and
software consulting, network and systems development,
systems integration, Internet development and application as
well as Intranet conversions, the Company plans to be able
to provide a fully integrated, comprehensive approach to
information technology.
[CAPTION]
BUSINESS MODEL - INFORMATION TECHNOLOGY SERVICES
Technical Training Computer and Technical
Training Companies Software Consulting Staffing and Recruiting
Companies CALC/Canterbury ATM/Canterbury CALC/Canterbury
CALC/Canterbury MSI/Canterbury CALC/Canterbury
USC/Canterbury USC/Canterbury USC/Canterbury
Network and Systems Integrators Internet and Intranet
Systems Developers = Consultants
and Installers Hardware/Software Sales Developers and Providers
CALC/Canterbury USC/Canterbury CALC/Canterbury
USC/Canterbury
Business to Business Portal
Global Online Training
CALC Web University
EMPLOYEES
As of November 30, 1999, the Company, including all
subsidiaries, had 159 employees: 99 full-time employees and
60 part-time employees. The Company believes that the
relationship with its employees is satisfactory.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company owns non-operational land and a building in
Bedminster, New Jersey which was acquired as part of the
Landscape Maintenance acquisition. All other facilities,
including its administrative offices, branch locations and
sales offices, are leased. The aggregate annual rental
payments under leases will approximate $1,254,000 in fiscal
year 2000.
The following table sets forth the locations of the
Company including square footage:
Location Square Footage
Canterbury Information Technology, Inc.
1600 Medford Plaza
Medford, New Jersey 08055 4,200
ATM/Canterbury Corp.
16840 Barker Springs, Suite C300
Houston, TX 77084 3,700
MSI/Canterbury
400 Lanid Drive
Parsippany, New Jersey 07054 1,800
USC/Canterbury Corp.
801 Campass Way, Suite 205
Annapolis, MD. 21401 2,500
CALC/Canterbury
500 Lanid Drive
Parsippany, New Jersey 07054 23,500
CALC/Canterbury
780 Third Avenue, Concourse Level One
New York, New York 10017 4,200
CALC/Canterbury
Woodbridge Place, Gill Lane at Route 1
Iselin, New Jersey 08830 6,000
CALC/Canterbury
Park 80 West Plaza
Saddlebrook, New Jersey 07663 5,926
CALC/Canterbury
55 Broadway
New York, New York 10006 7,000
ITEM 3. LEGAL PROCEEDINGS
As previously disclosed in previous filings, the Company
was a defendant in litigation instituted by Mr. Thomas Arnold, a
former employee of CALC. The suit alleged a breach of contract,
various tort claims and requested punitve damages of over $8 million.
The Company and its attorney had contended that Mr. Arnold's claims was
without merit.
The trial was held, and in January, 2000, the Court found in favor
of the Company on all counts and the Court did not find in favor of the
Company in its counterlciam.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
The Company's Annual Meeting was held on October 7, 1999,
at which time two matters were submitted to the Company's
stockholders for a vote. The majority of the stockholders voted
for the appointment of Ernst & Young LLP as the Company's
independent auditors and the election of the following Directors:
Stanton M. Pikus, Kevin J. McAndrew, Alan Manin, Jean Zwerlein Pikus,
Stephen M. Vineberg, Paul L. Shapiro and Frank A. Cappiello.
PART II
ITEM 5. MARKET FOR EQUITY AND RELATED STOCKHOLDER MATTERS
The Company commenced trading in the Over-The-Counter
(O-T-C) market subsequent to the closing of its initial
public offering on August 29, 1986. Commencing on January
8, 1993, the Company's shares of common stock began trading
on NASDAQ's National Market under the stock symbol of SKIL.
In March, 1994, the Company's stock symbol was changed to
XCEL. As a result of the one for three reverse stock split
effective April 14, 1998, the Board of Directors changed the
trading symbol stock from XCEL to CITI. The high and low
bid prices (adjusted to reflect the 1 for 3 reverse stock
split) of the Company's common stock from December 1, 1996
through February 25, 2000 were as follows:
[CAPTION]
MARKET FOR EQUITY AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------------------
1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
Common Stock 5.0625 2.0625 4.4063 2.7188 4.875 2.8125 4.3125 3.0938
- - ---------------------------------------------------------------------------
1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
Common Stock 3.375 1.7813 2.5313 1.125 1.6875 .7813 1 .5
- -----------------------------------------------------------------------------
1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
Common Stock 1.469 .5 1.938 .9063 1.8125 1.125 3.938 1.5313
- -----------------------------------------------------------------------------
2000 1st Quarter
High Low
Common Stock 4.75 3
- -----------------------------------------------------------------------------
The approximate number of record holders of the
Company's common stock as of November 30, 1999 as determined
from the Company's transfer agent's list of record holders
was 342. Such list does not include beneficial owners of
securities whose shares are held in the names of various
dealers and clearing agencies. The Company believes that
there are in excess of 5,000 beneficial holders.
The Company has never declared a dividend on its common
stock and does not plan to do so in the near future.
ITEM 6. SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995
Operating data:
Net revenues $14,209,526 $12,112,879 $12,423,452 $12,717,692 $13,005,642
Income (loss) from
continuing operations 620,768 581,503 (931,870) 423,157 723,184
Income (loss) from and gain
on sale of discontinued
operations (1) - - (1,536,047) 1,243,411 990,656
Basic per share data:
Income (loss) from
continuing operations $.08 $.10 $(.22) $.08 $.17
Discontinued operations - - (.29) .26 .23
----------- ---------- --------- -------- ----------
Net income (loss) $.08 $.10 $(.51) $.34 $.40
=========== ========== ========= ======== ==========
Balance sheet data:
Total assets $27,811,971 $25,700,415 $25,787,101 $27,400,539 $25,670,332
Long-term debt 1,989,031 2,640,075 3,856,956 4,718,793 6,572,701
(1) In November, 1995 the Company sold Star Label Products, Inc., a specialty
printing company. In November, 1996, the Company sold Landscape Maintenance
Services, Inc., a landscape maintenance and construction company. In
November, 1997, the Company closed its last two vocational schools. Prior
year financial statements have been restated to reflect the discontinuation of
the segments.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement
When used in this Report on Form 10-K and in other
public statements, both oral and written, by the Company and
Company officers, the word "estimates," "project," "intend,"
"believe," "anticipate," and similar expressions, are
intended to identify forward-looking statements regarding
events and financial trends that may affect the Company's
future operating results and financial position. Such
statements are subject to risks and uncertainties that could
cause the Company's actual results and financial position to
differ materially. Such factors include, among others: (1)
the Company's success in attracting new business and success
of its mergers & acquisitions program; (2) the competition
in the industry in which the Company competes; (3) the
Company's ability to obtain financing on satisfactory terms;
(4) the sensitivity of the Company's business to general
economic conditions; and (5) other economic, competitive,
governmental and technological factors affecting the
Company's operations, markets, products, services and
prices. The Company undertakes no obligations to publicly
release the result of any revision of these forward-looking
statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated
events.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at November 30, 1999, was $1,260,000. This was
an increase of $1,878,000 over the previous year. This increase is
explained by the following reasons: Accounts receivable increased
by $1,536,000, while accounts payable increased only by $788,000. Most
of these increases were caused by the acquisition of USC/Canterbury in
October, 1999. Secondly, cash increased $773,000 during the year, due
to positive cash flow from operating activities.
The Company's outstanding amounts owed under the term loan and
credit line with Chase Bank were refinanced in December, 1999. Under
the new agreement, the Company paid off the remaining term debt of
$200,436 and agreed to term out the $2,774,620 credit line. Monthly
payments began in March of 2000, and continue until December of 2001.
when the final balloon payment of $640,000 is due and payable. Scheduled
payments for fiscal 2000 total $915,000.
The long term debt is secured by substantially all of the assets of
the Company and requires compliance with covenants which include: limits
on capital expenditures, certain prepayments from excess cash flow as
defined and the maintenance of certain financial ratios and amounts. The
Company is restricted by its primary lender from paying cash dividends
on its common stock.
Subsequent to November 30, 1999 the Company has paid a total of
$285,000 to reduce the total bank debt from $2,975,000 to $2,690,000.
The outstanding debt will accrue interest at prime plus 2.0% per annnum.
During 1999, the Company successfully completed a series of private
placements with non-affiliates. From March, 1999 to October, 1999, a total
of four private placements occurred. A total of 2,320,589 restricted common
shares of stock were issued. The net proceeds totaled $1,471,220. The
Company also issued a total of 397,059 shares of restricted common stock as
finder fees associated with these placements. All private placements had
registration rights. The Company used the proceeds to repay amounts under
the term loan for general corporate purposes and for working capital.
Management believes that positive cash flow contributions from
the Company's operating subsidiaries will be sufficient to cover cash
flow requirements for fiscal 2000. There was no material commitment
for capital expenditures as of November 30, 1999. Inflation was not
a significant factor in the Company's financial statements.
Cash flow from continuing operations for the year ended
November 30, 1999 was $659,000. This represents an increase of $253,000
over the prior year. 1999 was the fifth consecutive year of positive
cash from continuing operations. During the year, the Company reduced
its long term bank debt by $1,257,000. For the past four years, the
reduction in long term debt totals $6,652,000.
Impact of Year 2000
In prior years, the Company discussed the nature of and progress of
its plans to become Year 2000 ready. In late 1999, the Company completed
its remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions
in mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000
date change. The Company expensed approximately $50,000 during 1999 in
connection with remediating its systems. The Company is not aware of any
material problems resulting from Year 2000 issues, either with its products,
its internal systems, or the products and services of third parties. The
Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the year 2000 to insure
that any latent year 2000 matters that may arise are addressed promptly.
RESULTS OF OPERATIONS
Fiscal 1999 Compared to Fiscal 1998
Revenues
--------
Revenues increased by $2,086,000 (17%) in fiscal 1999 over fiscal 1998.
The majority ($1,990,000) of this increase in attributable to the revenues
generated by USC/Canterbury, which was acquired in October, 1999. The
revenues for the other existing subsidiaries remained fairly constant. The
Company continues to develop alternative revenue streams such as on-line
learning, technical staffing services and web development. It is believed
that these additional revenue streams will become more significant in Fiscal
2000 and beyond.
Costs and Expenses
------------------
Costs and expenses increased by $1,773,000 (26%) in fiscal 1999 over the
previous year. Again, the most significant portion of this increase
($1,592,000) is attributable to costs associated with USC/Canterbury for
the fourth quarter of the year. The remaining increase of $181,000 is due
to increased labor and personnel costs in the training segment.
Selling expense decreased by $176,000 (9%). There was a planned
reduction in marketing expense for CALC/Canterbury of $106,000. During the
year the Company continued to downsize the catalog and the mailing list.
More and more of the public registrations are coming through the CALC/
Canterbury web site, which has allowed for the reduction in printing and
postage expenses. The balance of the reduction is primarily due to reduced
costs associated with sales personnel.
General and administrative expense decreased by $153,000 (4%) in fiscal
1999 over fiscal 1998. This reduction is due to reduced personnel costs
throughout the organization. As technology continues to improve, the Company
has been able to downsize several support functions, relying more on
information generated and processed by in-house computer applications.
Interest income for fiscal 1999 decreased by $155,000 (18%) over fiscal
1998. This was due to the fact that in 1998 the Company recognized interest
income on the portion of the Company's revolving credit facility with Chase
Bank that was assumed by the owners of Landscape Maintenance Services for
both 1998 and 1997.
Fiscal 1998 Compared to Fiscal 1997
Revenues
--------
Revenues decreased by $300,000 (2%) in fiscal 1998 over
fiscal 1997. As previously discussed, new information
technology goods and services are being introduced to our
customers. This strategy of becoming a more complete
provider of information technology services required the
restructuring of the existing sales force. This has caused,
in the short term, some revenue stagnation due to the
recruiting, hiring and training process of the sales staff.
The Company believes that this current investment will
provide long-term benefits to the customers and hence,
revenues.
Costs and Expenses
------------------
Costs and expenses decreased by $409,000 (6%) in fiscal
1998 over the previous year. This most significant cause of
this decrease was the reduction in rent expense of $476,000
in 1998 versus 1997. The reduction was due primarily to
the Company recognizing in 1997 costs associated with
terminating certain leases for its management training
company's facilities. During 1998, the Company mitigated
these costs, in part, through subleasing of the facility
which resulted in a change in estimate of the previously
recognized costs.
Selling expense decreased by $48,000 (2%) in fiscal
1998 over fiscal 1997 due to reduced marketing expenses
related to CALC/Canterbury. During the year, the Company
reduced the size and frequency of the catalog schedule
mailing. This was accomplished by eliminating non-critical
information contained in the publication due to the
increased use of the Web site to research both class
descriptions and dates.
General and administrative expense decreased by
$520,000 (12%) in fiscal 1998 over fiscal 1997. Decreased
legal expenses of $145,000, consulting fees of $194,000 and
general public company/corporate expenses of $42,000
comprise the bulk of the reduction. The Company believes
that the reduced level of these expenses will continue into
fiscal 1999.
Interest income for fiscal 1998 increased by $254,000
(42%) over the prior year due to recognition of interest
income on the portion of the Company's revolving credit
facility with Chase Bank that was assumed by the owners of
Landscape Maintenance Services. This income was not
recognized in fiscal 1997.
Interest expense decreased by $96,000 (19%) in fiscal
1998 versus fiscal 1997. The reduction in outstanding
borrowings on the term loan is the major cause for this
reduction.
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The financial statements and supplementary data are as
set forth in the Index on page 14.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements with the Company's independent auditors
on matters of accounting or financial disclosure.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
The directors, executive officers and control persons
of the Company as of November 30, 1999 were as follows:
Name Age Position Held with Company(1)
- ---- --- -----------------------------
Stanton M. Pikus 59 President, Chief Executive Officer,
Chairman of the Board of Directors
Kevin J. McAndrew, CPA 41 Chief Operating Officer,
Executive Vice President,
Chief Financial Officer,
Treasurer, Director
Jean Zwerlein Pikus 46 Vice President - Operations,
Secretary, Director
Alan Manin 62 Director
Stephen M. Vineberg 58 Director
Paul L. Shapiro 48 Director
Frank A. Cappiello 74 Director
(1) All directors hold office until the next annual meeting
of stockholders of the Company and thereafter until their
successors are chosen and qualified. All officers hold
office at the selection and choice of the Board of Directors
of the Company.
STANTON M. PIKUS, President and Chairman of the Board
of Directors was a founder of the Company (1981). He
graduated from the Wharton School of the University of
Pennsylvania (B.S., Economics and Accounting) in 1962. From
1968 until 1981 he had been President and majority
stockholder of Brown, Bailey and Pikus, Inc., a mergers and
acquisitions consulting firm that completed more than twenty
transactions. In addition, Mr. Pikus has been retained in
the past by various small to medium-sized public companies
in the capacity of an independent financial consultant.
KEVIN J. McANDREW, CPA, Chief Operating Officer since
December, 1993; Executive Vice President since November,
1992; Vice President and Chief Financial Officer of the
Company since June, 1987; Treasurer since January, 1988 and
Director since August, 1990. He is a graduate of the
University of Delaware (B.S. Accounting, 1980) and has been
a Certified Public Accountant since 1982. From 1980 to
1983, he was an Auditor with the public accounting firm of
Coopers & Lybrand in Philadelphia. From 1984 to 1986, Mr.
McAndrew was employed as a Controller for a New Jersey-based
division of Allied Signal, Inc.
JEAN ZWERLEIN PIKUS, Vice President of Operations since
November, 1993; Vice President of Human Resources and School
Operations, Secretary and Director since December 1, 1984.
She was employed by J. B. Lippincott Company, a publishing
company, from 1974 to 1983 as Assistant Personnel Manager,
where she established its word processing center and was
responsible for the day-to-day control of word processing
and graphic services. In 1984, Ms. Pikus graduated from the
Wharton School of the University of Pennsylvania (B.S.,
Accounting and Management, cum laude). Ms. Pikus is the
wife of the President, Stanton M. Pikus.
ALAN MANIN, Director and Founder of the Company (1981).
He is a graduate of Temple University (B.S., 1960, M.Ed.,
1966); a former teacher and department chairman in the
Philadelphia School System (1960-1966); a former Vice
President and Director of Education for Evelyn Wood Reading
Dynamics (1966-1972); a former Director of Northeast
Preparatory School (1973); President, Chief Operating
Officer and founder of Health Careers Academy, a federally
accredited (National Association of Trade and Technical
Schools) vocational school (1974-1979) and a founder of the
Company (1981). He is currently the President of Atlantis,
a company which provides motivational training to employees
of Fortune 1000 companies.
STEPHEN M. VINEBERG, a Director since 1988, is
currently the President and Chief Executive Officer of CMQ,
Inc. Previously, he was a Vice President of Fidelity Bank,
Philadelphia, where he was Chief Operating Officer of the
Data Processing and Systems and Programming Divisions. Mr.
Vineberg also directed a wholly-owned subsidiary of the bank
that developed and marketed computer software, operated a
service bureau and coordinated all electronic funds transfer
activities.
PAUL L. SHAPIRO, a Director since December, 1992 has
worked for McKesson Drug Company for the past 15 years.
From 1973 through 1975 he was Director of the Pennsylvania
Security Officers' Training Academy. In 1973 he graduated
from York College of Pennsylvania with a B.S. Degree in
Police Administration.
FRANK A. CAPPIELLO, a Director since 1995, is President
of an investment counseling firm: McCullough, Andrews &
Cappiello, Inc., providing management of more than $1
billion of assets. He is Chairman of three no-load mutual
funds; Founder and Principal of Closed-End Fund Advisors,
Inc.; publisher of Cappiello's Closed-End Fund Digest;
author of several books and a regular panelist on "Wall
$treet Week with Louis Rukeyser." For more than 12 years
Mr. Cappiello was Chief Investment Officer for an insurance
holding company with overall responsibility for managing
assets of $800 million. Prior to that, he was the Research
Director of a major stock brokerage firm. He is a graduate
of the University of Notre Dame and Harvard University's
Graduate School of Business Administration.
ITEM 11. EXECUTIVE COMPENSATION
CASH COMPENSATION
The Company had 99 full-time employees as of November 30, 1999.
There were no cash directors' fees paid during this period.
Summary Compensation Table
Name & Other Restricted Securities LTIP All
Principal Annual Stock Underlying Payouts Other
Position Year Salary($)Bonus($) Compensation($) Awards($) Options/SAR(#) ($) Compensation($)
Stanton
M. Pikus 1999 $195,000 $ - $- $- 140,000 $- $-
President, 1998 202,500 - - - 150,000 - -
Chief 1997 195,000 - - - 33,334 - -
Executive
Officer
Kevin J.
McAndrew 1999 $135,000 $ - $- $- 105,000 $- $-
Chief 1998 127,788 - - - 110,000 - -
Operating 1997 120,000 - - - 25,001 - -
Officer,
Chief Financial
Officer.
During fiscal 1997, the Company entered into an amended
employment agreement with the President. The term of the
agreement is five years and provides for a base salary of
$195,000 which began on December 1, 1995 with annual salary
increases of $25,000 in the second and third years and to
remain at $245,000 for the last two years of the contract.
Also included in the agreement are future incentives based
on Company performance. There is a bonus opportunity of 5%
on the first $500,000 of consolidated income before taxes
and bonus and 3% above $500,000. In conjunction with this
contract, the President agreed to a covenant not to compete
with the Company during his employment and for a period of
one year after his employment with the Company has
terminated. For the year ended November 30, 1996 the
President waived his right to receive any performance bonus
earned and in exchange his contract was extended for one
year through 2001 at the same terms. For the years ended
November 30, 1998 and November 30, 1999, the President waived his
rights to receive any performance bonus earned.
The Company also amended the employment agreement with
its Executive Vice President and Chief Operating Officer
during fiscal 1997. The term of the agreement is five years
and provides for a base salary of $120,000 for fiscal 1997 and
increases of $15,000 per year for the next four years. Also
included in the agreement are future incentives based on the
Company's profitability. A bonus of $30,000 will be earned
if the consolidated income before income taxes and bonus of
the Company exceeds $1,000,000. The bonus opportunity
applies to each of the five years of the contract. For the
year ended November 30, 1996, the Executive Vice President
waived his right to receive any performance bonus earned and
in exchange the contract was extended to 2001 at the same
terms.
COMPENSATION PURSUANT TO PLANS
The following non-qualified options were granted to executive officers
and directors of the Company on the following dates (officers, directors,
and more than 5% holders of the Company's common stock received stock options
at 100% of the market value on date of grant)as of February 25, 2000.
Name of Individual Capacity in Options Date Granted Exercise Price
Which Served
============================================================================
Stanton M. Pikus President 16,667 10/29/96 $3.09
Chairman of the 33,334 01/13/97 $2.25
Board of Directors 50,000 05/18/98 $1.38
100,000 12/04/98 $.53
40,000 08/27/99 $1.56
100,000 11/04/99 $2.40
- -----------------------------------------------------------------------------
Kevin J. McAndrew, Chief Operating
CPA Officer
Executive Vice
President
Chief Financial
Officer
Treasurer, Director 16,667 10/29/96 $3.09
16,667 01/13/97 $2.25
8,334 10/16/97 $3.56
35,000 05/18/98 $1.38
75,000 12/04/98 $.53
30,000 08/27/99 $1.56
75,000 11/04/99 $2.40
- -----------------------------------------------------------------------------
Jean Zwerlein Vice President-Operations
Pikus Secretary, Director 8,334 10/29/96 $3.09
8,334 01/13/97 $2.25
6,667 10/16/97 $3.56
20,000 05/18/98 $1.38
45,000 12/04/98 $.53
18,000 08/27/99 $1.56
45,000 11/04/99 $2.40
- -----------------------------------------------------------------------------
Alan Manin Director 3,334 10/29/96 $3.09
3,334 01/13/97 $2.25
10,000 05/18/98 $1.38
17,500 12/04/98 $.53
7,000 08/27/99 $1.56
17,500 11/04/99 $2.40
10,000 01/11/00 $3.67
- -----------------------------------------------------------------------------
Stephen
Vineberg Director 834 05/11/95 $8.25
3,334 07/24/95 $8.43
3,334 10/29/96 $3.09
8,334 01/13/97 $2.25
2,500 10/16/97 $3.56
10,000 05/18/98 $1.38
17,500 12/04/98 $.53
7,000 08/27/99 $1.56
17,500 11/04/99 $2.40
10,000(1) 01/11/00(1) $3.67(1)
- -----------------------------------------------------------------------------
Paul Shapiro Director 834 05/11/95 $8.25
3,334 07/24/95 $8.43
3,334 10/29/96 $3.09
8,334 01/13/97 $2.25
2,500 10/16/97 $3.56
10,000 05/18/98 $1.38
17,500 12/04/98 $.53
7,000 08/27/99 $1.56
17,500 11/04/99 $2.40
10,000(1) 01/11/00(1) $3.67(1)
- ------------------------------------------------------------------------------
Frank A.
Cappiell Director 3,334 10/29/96 $3.09
33,334 01/13/97 $2.25
20,000 05/18/98 $1.38
35,000 12/04/98 $.53
14,000 08/27/99 $1.56
35,000 11/04/99 $2.40
35,000(1) 01/11/00(1) $3.67(1)
1. These options are not part of the 1995 Employee Stock Incentive Plan,
but also convert to restricted common stock. The individual has five years
from the date of grant to exercise these options.
Employee stock option holders have five years from the date of grant
to exercise any or all of their options, and upon leaving the Company the
option holders must exercise within 30 days. These options exercise into
restricted shares of Company common stock and absent registration, or
any exemption from registration, must be held for the applicable Rule 144
holding period before the restriction can be removed.
OTHER COMPENSATION
No material other compensation. However, see "Certain Relationships and
Related Transactions" for key-man life insurance arrangements.
COMPENSATION OF DIRECTORS
No additional compensation, other than Company stock options issued at
100% of market value to all Directors who are not otherwise salaried
employees.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Not Applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
(A) (B) The following table sets forth as of February 25, 2000 certain
information with regard to the record and beneficial ownership of the
Company's common stock by (i) each shareholder, owner of record or
beneficial owner of 5% or more of the Company's common stock (ii) each
Director individually and (iii) all Officers and Directors of the
Company as a group:
Class Name of Beneficial Owner Shares Owned Percent of Class
Common Stanton M. Pikus (2)(3) 441,582 4.64%
Common Kevin J. McAndrew (1)(3) 59,637 .63%
Common Alan Manin (1)(3) 114,055 1.20%
Common Jean Zwerlein Pikus(1)(2)(3) 36,473 .38%
Common Stephen M. Vineberg (1)(3) 8,629 .09%
Common Paul L. Shapiro (1)(3) 667 -
Common Frank A. Cappiello(1)(3) 61,667 .65%
------- -----
All Officers and Directors as
a group (7 in number) 722,710 7.59%
____________________________ ======= =====
(1) All of said individuals have given a Voting Trust and
First Right of Refusal to Stanton M. Pikus, President and
Board Chairman of the Company.
(2) Stanton M. Pikus and Jean Zwerlein Pikus are married to
each other and, therefore, are deemed to have beneficial
ownership in each other's shares.
(3) Does not include option grants as set forth in Item 11.
CHANGE IN CONTROL
There has been no change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has secured key-person life insurance
policies for its Corporate Officers. The amount and
beneficiary of the key-person life insurance policies are as
follows:
Corporate Officers Amount of Policy Beneficiary
Stanton M. Pikus $1,000,000 Company
Kevin J. McAndrew $1,000,000 Company
Jean Z. Pikus $ 500,000 Company
The Company has secured key-person life insurance policies for Officers
of its subsidiaries. The amount and beneficiary of the key-person life
insurance policies are as follows:
Corporate Officers Amount of Policy Beneficiary
Alan McGaffin $1,000,000 ATM/Canterbury Corp.
Glen Hukins $ 500,000 CALC/Canterbury Corp.
The Company is in the process of securing a key-person life insurance
policy for the Presidents of MSI/Canterbury Corp. and USC/Canterbury Corp.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
The following are filed as a part of this Form 10-K on
the pages indicated.
Consolidated Financial Statements Page No.
Report of Independent Auditors F- 0
Consolidated Balance Sheets - November 30, 1999 and 1998 F- 1
Consolidated Statements of Operations - Years ended November
30, 1999, 1998 and 1997 F- 3
Consolidated Statements of Stockholders' Equity - Years
ended November 30, 1999, 1998 and 1997 F- 5
Consolidated Statements of Cash Flows - Years ended November
30, 1999, 1998 and 1997 F- 6
Notes to Consolidated Financial Statements F- 8
Exhibits Sequential
Page No.
3(a) Articles of Incorporation of Canterbury Press, Inc. *
3(b) By-Laws of the Registrant *
3(c) Certificate of Amendment to Articles of Incorporation
changing the name to Canterbury Education Services, Inc. *
3(d) Certificate of Amendment to Articles of Incorporation
changing the name to Canterbury Corporate Services, Inc. **
3(e) Certificate of Amendment to Articles of Incorporation
changing the name to Canterbury Information Technology, Inc. ***
4(f) Asset Purchase Agreement between U.S. Communications,
Inc., Condor Technology Solutions, Inc., USC/Canterbury
Corp. and the Registrant ****
21 Subsidiaries of Registrant 17
22 Annual Report and Proxy Statement for 1998 Annual
Shareholders Meeting ****
27 Financial Data Schedule 18
* Incorporated by reference from the like-numbered
exhibit to Form S18 Registration Statement, SEC. File
No. 33-6381 filed on July 18, 1986.
** Incorporated by reference from the like-numbered
exhibit to Form S-3/A Registration Statement, SEC. File
No. 33-77066 filed on March 30, 1994.
*** Incorporated by reference from the Annual Report and
Definitive Proxy Materials for the 1998 Annual
Shareholders Meeting for fiscal year ended November 30, 1998
filed with the SEC on October 7, 2000.
**** Incorporated by reference from the like-numbered exhibit to
Form S-3 Registration Statement, SEC File. No. 333-89979 filed on
October 29, 1999.
Reports on Form 8-K filed during the last quarter of the period covered
by this report are as follows:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of
the Securities Exchange Act of 1934, Canterbury Information
Technology, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CANTERBURY INFORMATION TECHNOLOGY, INC.
Dated: 3/14/00 By /s/ Stanton M. Pikus
Stanton M. Pikus, President; Chief Executive
Officer
Dated: 3/14/00 By /s/ Kevin J. McAndrew
Kevin J. McAndrew, Chief Operating Officer,
Executive Vice President, Chief Financial
Officer, Treasurer
Pursuant to the requirements of Section 13 or 15 (d) of
the Securities Exchange Act of 1934, this report has been
signed on behalf of Canterbury Information Technology, Inc.
and in the capacities and on the dates indicated.
Dated: 3/14/00 By /s/ Stanton M. Pikus
Stanton M. Pikus,
President; Director; Chairman of
the Board of Directors
Dated: 3/14/00 By /s/ Kevin J. McAndrew
Kevin J. McAndrew, Chief Operating Officer;
Executive Vice President; Chief Financial Officer;
Director
Dated: 3/14/00 By /s/ Jean Zwerlein Pikus
Jean Zwerlein Pikus, Vice President - Operations,
Secretary; Director
Dated: 3/14/00 By /s/ Alan Manin
Alan Manin, Director
Dated: 3/14/00 By /s/ Stephen M. Vineberg
Stephen M. Vineberg, Director
Dated: 3/14/00 By /s/ Paul L. Shapiro
Paul L. Shapiro, Director
Dated: 3/14/00 By /s/ Frank A. Cappiello
Frank A. Cappiello, Director
Report of Independent Auditors
The Board of Directors and Stockholders
Canterbury Information Technology, Inc.
We have audited the accompanying consolidated balance sheets
of Canterbury Information Technology, Inc. as of November
30, 1999 and 1998, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each
of the three years in the period ended November 30, 1999.
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 auditing standards
generally accepted in the United States. 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 provided
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Canterbury Information Technology,
Inc. at November 30, 1999 and 1998, and the consolidated
results of its operations and cash flows for each of the
three years in the period ended November 30, 1999, in
conformity with accounting principles generally accepted in the
United States.
Ernst & Young LLP
Philadelphia, Pennsylvania
February 25, 2000
CONSOLIDATED BALANCE SHEETS
November 30, 1999 and 1998
ASSETS
1999 1998
-------------- --------------
Current Assets:
Cash $1,060,434 $287,274
Accounts receivable, net 2,676,889 1,141,544
Notes receivable - current portion 363,805 341,268
Prepaid expenses and other assets 849,107 806,233
Inventory, principally finished
goods, at cost 101,533 -
Deferred income tax benefit 99,448 150,000
--------- ----------
Total Current Assets 5,151,216 2,726,319
Property and equipment at cost,
net of accumulated depreciation
of $4,593,000 and $3,993,000 2,383,829 2,323,996
Goodwill, net of accumulated
amortization of $2,348,000
and $1,910,000 8,885,170 8,993,805
Deferred income tax benefit 2,706,888 2,712,919
Notes receivable 7,630,836 7,994,641
Other assets 1,054,033 578,217
----------- -----------
Total Assets $27,811,972 25,329,897
=========== ===========
Continued
See Accompanying Notes
CONSOLIDATED BALANCE SHEETS
November 30, 1999 and 1998
Continued
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
---------- ----------
Current Liabilities:
Accounts payable - trade $ 1,144,922 $ 357,100
Accrued expenses 387,660 294,960
Unearned revenue 1,111,330 954,128
Current portion, long-term debt 1,246,997 1,738,565
---------- ----------
Total Current Liabilities 3,890,909 3,344,753
Long-term debt 1,989,031 2,640,075
Deferred income tax liability 3,059,219 3,115,801
Commitments and contingencies
Stockholders' Equity:
Common stock, $.001 par value,
50,000,000 shares authorized;
9,508,000 and 6,421,000 issued 9508 6,421
Additional paid-in capital 19,946,848 17,580,522
Accumulated other comprehensive
income (472,215) (143,757)
Retained earnings/(accumulated
deficit) 184,669 (436,100)
Notes receivable for capital stock (388,696) (370,518)
Less treasury shares, at cost (407,300) (407,300)
----------- ----------
Total Stockholders' Equity 18,872,813 16,229,268
----------- ----------
Total Liabilities and
Stockholders' Equity $27,811,972 $25,329,897
=========== ===========
See Accompanying Notes
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended November 30, 1999, 1998 and 1997
1999 1998 1997
---------- ---------- -----------
Service revenue $11,665,394 $11,400,199 $12,109,611
Product revenue 2,544,132 722,680 313,841
------------ ------------ ------------
Total net revenue 14,209,526 12,122,879 12,423,452
Service costs and
expenses 6,657,385 6,403,033 7,020,737
Product costs and
expenses 1,810,926 292,243 84,066
----------- ------------ -----------
Total costs and
expenses 8,468,311 6,695,276 7,104,803
Gross Profit 5,741,215 5,427,603 5,318,649
Selling 1,808,601 1,984,836 2,032,510
General and administrative 3,645,673 3,798,612 4,318,455
------------ ------------ ------------
Total operating expenses 5,454,274 5,783,448 6,350,965
Other income (expenses)
Interest income 705,959 861,424 607,178
Interest expense (390,453) (394,925) (490,552)
Other 18,321 470,849 (517,956)
------------ ------------ ------------
Total other income
(expense) 333,827 937,348 (401,330)
Income (loss) before income
taxes and discontinued
operations 620,768 581,503 (1,433,646)
Benefit for income taxes - - (501,776)
------------ ------------ ------------
Income (loss) from continuing
operations 620,768 581,503 (931,870)
Discontinued operations
Loss from discontinued
operations (less applicable
income tax benefit
of $298,224) - - (1,536,047)
------------ ------------ ------------
Net income (loss) $ 620,768 $ 581,503 $(2,467,917)
============= ============ ============
Continued
See Accompanying Notes
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended November 30, 1999, 1998 and 1997
Continued
1999 1998 1997
Income (loss) from
continuing operations $ 620,768 581,503 $(931,870)
Preferred stock dividends - - (277,841)
---------- --------- --------
Income (loss) from
continuing operations
available to common
stockholders $620,768 $ 581,503 $(1,209,711)
========= ============ ==========
Net income (loss)
per share and common
share equivalents
Basic and diluted:
Income (loss) from
continuing operations $.08 $.10 $(.22)
Discontinued operations - - (.29)
---- ------ -----
Net income (loss) per share $.08 $.10 $(.51)
==== ====== =====
Weighted average number
of common shares - basic 8,008,800 6,035,500 5,345,200
========== ========= =========
Weighted average number
of common shares -diluted 8,276,800 6,035,500 5,345,200
See Accompanying Notes
[CAPTION]
Canterbury Information Technology, Inc. - 10-K 1999
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended November 30, 1999, 1998 and 1997
Class D Common Common Additional Retained Treasury Other Notes Total
Convertible Stock Stock Paid-In- Earnings Stock Comprehensive Receivable Stockholders'
Preferred Shares Amount Capital (Deficit) Income for Capital Equity
Stock Stock
------- -------- ------ ----------- ----------- --------- --------- ---------- ----------
Balance,
November 30, 1996 - 5,018,003 $5,018,003$14,850,678 $1,728,155 (325,035) - $(494,518) 15,764,298
Net loss (2,467,917) (2,467,917)
Private placement
of common stock,
net of expenses 211,594 212 544,070 544,282
Issuance of
preferred stock 766,000 766,000
Treasury shares
acquired at cost (82,265) (82,265)
Issuance of common
stock for acquisition 152,381 152 499,848 500,000
401(k) Company
match 35,178 35 85,448 85,483
Accrued dividends
on preferred stock 27,838 (27,838) -
Imputed dividends
on preferred stock
payable in common
stock upon
conversion 250,003 (250,003) -
-------- -------- ------ ----------- ----------- --------- --------- ---------- ----------
Balance,
November 30, 1997 1,043,841 5,417,156 $5,417 $15,980,044 ($1,017,603) ($407,300) - (342,325)$15,604,399
Net income 581,503 581,503
Unrealized loss on
available for sale
securities (143,757) (143,757)
Total comprehensive
income -
Preferred Stock
conversion (1,043,841) 613,912 614 1,043,227 -
401(k) Company
match 35,201 35 62,271 62,306
Additional issuance
of common stock
for acquisitions 354,624 355 494,980 495,335
Notes receivable
for capital stock (28,193) (29,193)
-------- -------- ------ ----------- ----------- --------- --------- ---------- ----------
Balance, November 30, 1998 - 6,420,893 $6,421 $17,580,522 (436,100) ($407,300)(143,757) (370,518)$16,229,268
Net Income 620,768 620,768
Unrealized loss on
available for sale
securities (328,458) (328,458)
Total comprehensive
income 292,310
401(k) Company match 77,129 77 48,115 48,192
Additional issuance
of common stock of
acquisitions 292,468 292 849,707 849,999
Private Placements of
common stock, net of
expenses 2,717,648 2,718 1,468,504 1,471,222
Notes receivable
for capital stock (18,178) (18,178)
-------- -------- ------ ----------- ----------- --------- --------- ---------- ----------
Balance,
November 30, 1999 - 9,508,138 $9,508 $19,946,848 $184,668 ($407,300) ($427,215) ($388,696)$18,872,813
========= =========== ====== =========== ========= ========= ========= =========== =========
See Accompanying Notes
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 30, 1999, 1998 and 1997
1999 1998 1997
--------- --------- ---------
Operating activities:
Net income (loss) $ 620,768 $ 581,503 $(2,467,917)
Adjustments to reconcile
net income (loss) to net cash
provided by operating activities
from continuing operations:
Depreciation and amortization 1,040,952 1,014,571 1,063,392
Provision for losses on
accounts receivable 89,773 118,534 63,139
Loss on writedown from
notes receivable - 28,992 447,995
Deferred income taxes - (95,618) (451,500)
401(k) contributions 48,192 62,306 86,543
Receipt of stock for services (240,000) (378,000) -
Loss from discontinued
operations - - 1,536,047
Other assets (561,067) (341,489) 94,241
Changes in operating assets,
net of acquisitions
Accounts receivable (1,306,811) 72,440 361,444
Prepaid expenses and
other assets 5,945 (94,672) (233,337)
Income taxes - 63,217 (424,845)
Accounts payable 787,822 (110,755) 254,514
Accrued expenses 53,251 (680,563) 557,813
Unearned revenue 120,495 125,659 (343,064)
--------- --------- --------
Net cash provided by operating
activities of
continuing operations 659,320 406,125 544,465
--------- --------- --------
Investing activities:
Capital expenditures (431,809) (213,740) (130,497)
--------- --------- --------
Net cash used in investing
activities of continuing
operations (431,809) (213,740) (130,497)
--------- --------- --------
Financing activities:
Principal payments on long
term debt (1,256,532) (549,387) (2,439,469)
Proceeds from payments on
notes receivable 330,961 348,340 827,282
Proceeds from issuance of
common stock, net 1,471,220 - 544,282
Proceeds from issuance of
preferred stock, net - - 766,000
Net cash provided by/(used in)
financing activities from
continuing operations 545,649 (201,047) (301,905)
--------- --------- --------
Cash used in discontinued
operations - - (254,889)
--------- --------- --------
Net increase/(decrease) in cash 773,160 (8,662) (142,826)
Cash, beginning of year 287,274 295,936 438,762
--------- --------- ----------
Cash, end of year $1,060,434 $ 287,274 $ 295,936
========== ========== ==========
Continued, See Accompanying Notes
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended November 30, 1999, 1998 and 1997
Continued
Supplemental schedule of noncash investing and financing
activities:
In October, 1999, the Company issued 292,468 shares of its common stock
for the purchase of certain assets of U.S. Communications, Inc.
During March, 1999, the Company issued 77,129 shares of restricted common
stock to its defined contribution plan to fulfill its matching contribution
requirement.
In October, 1998 the Company issued 278,925 shares of its common stock
to the previous shareholders of ATM Technologies, Inc. to complete the one
year earnout payment as final consideration under the purchase agreement.
In July, 1998 the Company issued 75,700 shares of its common stock to
the two previous owners of ProSoft, LLC to satisfy a price guarantee
associated with the original purchase of the business.
In June, 1998 the Company issued 35,201 shares of restricted common
stock to its defined contribution plan to fulfill its matching contribution
requirement.
The Company incurred capital lease obligations of $106,060 in 1999;
$198,455 in 1998; and $219,533 in 1997 when the Company entered into leases
for equipment.
In December, 1997 the Company received 600,000 shares of common stock
from an affiliated third party valued at an estimated market value of
$378,000 as compensation for services rendered in the overview and start-up
of their business.
In November, 1997 the Company received 16,667 shares of its common stock
which was placed in treasury as settlement of a note receivable, including
accrued interest, of $146,801. The Company recorded a writedown of $95,301 for
the difference between the fair market value of the stock of $3.09 per share
and balance of the note.
During August, 1997 the Company issued 66,667 warrants to its investment
banking firm, exercisable at $2.94 which expire in 2002 for services as an
advisor to the Company.
In July, 1997 the Company received 8,204 shares of its common stock at
fair market value which was placed in treasury as full settlement of a note
receivable of $30,765.
In May, 1997 the Company purchased all of the assets of ATM Technologies,
Inc. of Houston, Texas. In conjunction with the acquisition, the Company
acquired assets with a fair value of $231,000, less liabilities assumed of
$38,000 in exchange for 152,381 shares of Canterbury restricted common stock.
During March, 1997 the Company issued 35,178 shares of restricted common
stock to its defined contribution plan to fulfill its matching contribution
requirement.
The taxes paid for fiscal 1999, 1998 and 1997 were as follows:
$38,900, $32,400, and $40,600 respectively.
Interest paid during fiscal 1999, 1998 and 1997 were as follows:
$390,453, $394,925, and $490,552 respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1999
1. Operations and Summary of Significant Accounting
Policies
Description of Business
Canterbury Information Technology, Inc. ("the Company")
is engaged in the business of providing information
technology services which includes operating computer
software training companies, a management training company
and developing and selling software to individuals and
corporations in the United States.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and all of its subsidiaries. All
material intercompany transactions have been eliminated.
Stock Based Compensation
The Company accounts for stock options under Accounting Principles
Board (APB) Opinion No. 25 - Accounting for Stock Issued to Employees.
The Company discloses the pro forma net income and earnings per share
effect as if the Company had used the fair value method prescribed under
SFAS No.123 - Accounting for Stock Based Compensation (see Note 12).
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and
accompanying notes. The ultimate outcome and actual results
could differ from the estimates and assumptions used.
Revenue Recognition
The Company records revenue at the time services are
performed or product is shipped.
Statement of Cash Flows
For purposes of the Statement of Cash Flows, cash
refers solely to demand deposits with banks and cash on
hand.
Depreciation and Amortization
The Company depreciates and amortizes its property and
equipment for financial statement purposes using the
straight-line method over the estimated useful lives of the
property and equipment (useful lives of leases or lives of
leasehold improvements and leased property under capital
leases, whichever is shorter). For income tax purposes, the
Company uses accelerated methods of depreciation.
The following estimated useful lives are used:
Building and improvements 7 years
Equipment 5 years
Furniture and fixture 5 to 7 years
Intangible Assets
Goodwill is being amortized over periods ranging from twenty to
twenty-five years using the straight-line method.
The Company periodically evaluates whether the
remaining estimated useful life of intangibles may warrant
revision or the remaining balance of intangibles may require
adjustment generally based upon expectations of
nondiscounted cash flows and operating income.
Inventories
-----------
Inventories are stated at the lower of cost or market
utilizing a first-in, first-out method of determining cost.
Earnings Per Share
Basic earnings per share is computed using the weighted
average common shares outstanding during the year. Diluted
earnings per share considers the dilutive effect, if any, of
common stock equivalents (options).
Recent Accounting Pronouncements
In fiscal 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 130 "Reporting Comprehensive
Income," which requires that an enterprise report, by major
component and as a single total, the change in its net
assets during the period from nonowner sources, the adoption
of this statement in fiscal 1999 did not have an impact
on the Company's net income or Stockholders' Equity. FASB
also issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information," which establishes
annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its
products, services, geographic areas, and major customers.
Management has adopted SFAS No. 131 in fiscal 1999.
The Company plans to adopt Statement of Financial Accounting
Standards "(SFAS)" No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended, effective at the beginning of fiscal 2001.
This statement will require derivative positions to be recognized in the
balance sheet at fair value. The Company is in the process of
reviewing the Statement, and has not yet determined the effect of
adoption on results of operations or financial position.
Reverse Stock Split
On April 2, 1998, the Company's Board of Director
approved a one-for-three reverse stock split of the
Company's common shares. All share and per share
information contained in these financial statements gives
retroactive effect to the 1-for-3 reverse stock split
effected April 14, 1998.
Concentration of Risk
As previously discussed, the Company is in the business
of providing information technology services. These
services are provided to a large number of customers in
various industries in the United States. The Company's
trade accounts receivable are exposed to credit risk, but
the risk is limited due to the diversity of the customer
base and the customers wide geographic dispersion. The
Company performs ongoing credit evaluations of its
customer's financial condition. The Company maintains
reserves for potential bad debt losses and such bad debt
losses have been within the Company's expectations.
The Company maintains cash balances at several large
creditworthy banks located in the United States. Accounts
at each institution are insured by the Federal Deposit
Insurance Corporation up to $100,000. The Company does not
believe that it has significant credit risk related to its
cash balance.
Reclassifications
Certain reclassifications have been made to prior years
balances in order to conform to current presentations.
2. Acquisitions
3. Discontinued Operations
On October 20, 1999, the Company acquired certain assets and
assumed certain liabilities of U.S. Communications, Inc. (USC) from
Condor Technology Solutions, Inc. for 292,000 shares of Canterbury
restricted common stock valued at $850,000. USC, based in Maryland,
is a reseller of desktop and server computer systems to state and
local governments, as well as commercial and private sector companies
in the Mid-Atlantic market. USC provides a wide range of information
technology services as well. They include training, software, consulting
and network design. After the acquisition, the Company changed the name
of U.S. Communications to USC/Canterbury Corp. The acquisition was
accounted for using the purchase method of accounting. The purchase
price was allocated as follows: receivables - $308,000; inventory -
$209,000; other current assets - $21,000; non-current assets - $49,000;
and current liabilities - $66,000. The excess cost over the fair value
of net assets acquired was approximately $329,000. Goodwill is being
amortized over 20 years on a straight line basis. The consolidated
results of operations for 1999 include USC since the date of the
acquisition.
Assuming that the acquisition of USC had been consummated on December
1, 1997, the pro forma results of operations are as follows:
Unaudited
1999 1998
---- ----
Revenues $24,803,000 $22,839,000
Net income 803,000 692,000
Earnings per share - basic and diluted $.10 $.11
3. Segment Reporting
The Company is organized into three operating segments and the
corporate office. The operating segments are: training and consulting,
hardware sales and software sales. Summarzied financial information for
each segment is as follows:
Training and
Consulting Hardware Software Corporate Total
------------ -------- -------- --------- -----
1999
Revenues $11,665,394 $2,058,870 $ 485,262 $ - $14,209,526
Income before taxes 1,404,468 317,843 104,339 (1,205,882) 620,768
Assets 10,703,017 1,754,118 1,047,171 14,307,666 27,811,972
Interest income - - - 705,959 705,959
Interest expense 30,384 - - 360,069 390,453
Depreciation and
amortization 555,339 36,845 15,534 432,478 1,040,196
Training and
Consulting Hardware Software Corporate Total
------------ -------- -------- --------- -----
1998
Revenues $11,440,199 $ 376,300 $ 346,380 $ - $12,122,879
Income before taxes 957,095 112,872 103,897 (592,360) 581,503
Assets 11,263,003 171,734 977,985 12,917,175 25,329,897
Interest income 2,145 - - 859,279 861,424
Interest expense 163,820 - - 231,105 394,925
Depreciation and
amortization 547,809 10,876 10,011 445,875 1,014,571
Training and
Consulting Hardware Software Corporate Total
------------ -------- -------- --------- -----
1997
Revenues $12,109,611 $ 143,823 $ 170,018 $ - $12,423,452
Income before taxes 627,364 15,472 18,290 (2,094,772) (1,433,646)
Assets 11,875,120 64,039 477,618 13,370,324 25,787,101
Interest income 2,157 - - 605,021 607,178
Interest expense 246,265 - - 244,287 490,552
Depreciation and
amortization 510,014 3,304 9,916 540,159 1,063,392
4. Discontinued Operations
In November, 1997 the Company decided to discontinue
its vocational training segment and closed its last two
vocational schools in New Jersey and Nevada.
The results of operations and the gain on the sale of
these segments has been reported as discontinued operations.
The following is a summary of the results of operations
of the Company's discontinued vocational schools:
Year ended November 30, 1997
----------------------------
Revenue $831,048
Loss from operations net
of tax benefit of $298,224 (1,536,047)
-----------
Net income (loss) $(1,536,047)
===========
Costs and expenses for these discontinued operations include
$235,000 representing allocated costs from corporate for 1997.
5. Property and Equipment
Property and equipment, which is recorded at cost,
consists of the following:
1999 1998
-------- --------
Land, buildings and improvements $725,910 $725,910
Machinery and Equipment 4,116,383 3,185,632
Furniture and fixtures 1,401,696 1,287,067
Leased property under capital leases
and leasehold improvement 732,197 1,118,495
--------- ----------
6,976,186 6,317,104
Less: Accumulated depreciation (4,592,357) (3,993,108)
---------- ----------
Net property and equipment $2,383,829 $ 2,323,996
========== ===========
Accumulated depreciation of leased property under capital leases
totaled $262,000 in 1999. Depreciation expense for 1999, 1998, and
1997 was $603,000, $ 591,000, and $568,000, respectively.
6. Income Taxes
The provision/(benefit) for income taxes for the years
ended November 30, 1999, 1998, and 1997 is as follows:
1999 1998 1997
---- ---- ----
Current:
Federal $ - $ - $ -
State - 63,000 -
----------- ---------- ----------
- 63,000 -
Deferred:
Federal (59,000) (63,000) (800,000)
State 59,000 - -
----------- ---------- ----------
$ - $ - $(800,000)
============ ========== ==========
The reconciliation of the expected provision/(benefit)at the U.S.
Federal Statutory tax rate to the actual provision (benefit) recorded
for the years ended November 30, 1999, 1998, and 1997 is as
follows:
1999 1998 1997
---- ---- ----
Expected tax (benefit)
at statutory rates $ 211,000 $197,000 $(1,115,000)
Effect of state taxes (net) 39,000 38,000 (117,000)
Other 2,000 - -
Permanent differences 6,000 12,000
Increase in
valuation allowance - - 420,000
Utilization of net
operating losses (252,000) (241,000) -
---------- ---------- ----------
Total $ - $ - $(800,000)
========== ========== ==========
Significant components of the Company's tax liabilities and
assets as of November 30, 1999 and 1998 are as follows:
November 30,
------------
Deferred tax liabilities: 1999 1998
---- ----
Gain recognized in financial
statements deferred for income
tax purposes $1,814,000 $2,118,801
Tax depreciation in excess of
book depreciation 313,000 247,000
Tax amortization in excess of
book amortization 558,000 498,000
Other 374,219 252,000
---------- ----------
Total deferred tax liabilities $3,059,219 $3,115,801
========== ==========
November 30,
------------
Deferred tax assets: 1999 1998
---- ----
Allowance for doubtful accounts $ 76,000 $ 39,000
Expenses deductible for financial
reporting purposes but deferred for
tax reporting purposes 24,000 13,000
Net operating loss carryover 2,706,336 2,810,919
----------- ---------
Total deferred tax assets $2,806,336 $2,862,919
=========== ==========
At November 30, 1999, the Company had a tax loss carryforward
for federal income tax reporting purposes of $6,322,000 and $6,179,000
for state income tax purposes. Net operating losses for federal tax
purposes will begin to expire in 2010. Net operating losses for state
tax purposes will expire at various dates through 2005.
7. Long-Term Debt
November 30,
Long-term obligations consist of: 1999 1998
---- ----
Term loan $ 200,436 $1,221,000
Revolving credit line 2,774,620 2,774,620
Capital lease obligations 260,973 383,020
--------- ---------
3,236,029 4,378,640
Less: Current maturities (1,246,997) (1,738,565)
--------- -----------
$ 1,989,032 $ 2,640,075
========== ==========
The Company's outstanding amounts owed under the term loan and
credit line with Chase Bank were refinanced in December, 1999. Under
the new agreement, the Company paid off the remaining term debt of
$200,436 and agreed to term out the $2,774,620 credit line. Monthly
payments began in March of 2000, and continue until December of 2001
when the final balloon payment of $640,000 is due and payable. Scheduled
payments for fiscal 2000 total $915,000.
The long term debt is secured by substantially all of the assets of
the Company and requires compliance with covenants which include:
limits on capital expenditures, certain prepayments from excess cash
flow as defined and the maintenance of certain financial ratios and
amounts. The Company is restricted by its primary lender from paying
cash dividends on its common stock.
Subsequent to November 30, 1999, the Company has paid a total of
$285,000 to reduce the total bank debt from $2,975,000 to $2,690,000.
The outstanding debt will accrue interest at prime plus 2.0% per annum.
Aggregate maturities on long-term debt, exclusive of obligations
under capital leases, are approximately $1,115,436 in 2000, $1,220,000 in
2001, and $639,620 thereafter.
The carrying value of the long-term debt approximates its fair value.
8. Capital Leases
Capital lease obligations are for certain equipment
leases which expire through fiscal year 2003. Future
required payments under capitalized leases together with the
present value, calculated at the respective leases' implicit
interest rate of approximately 10.5% to 14.3% at their
inception:
Year ending November 30, 2000 152,499
Year ending November 30, 2001 80,764
Year ending November 30, 2002 44,56
Year ending November 30, 2003 and thereafter 8,934
--------
Total minimum lease payments 286,757
Less amount representing interest (25,784)
---------
Present value of long-term obligations
under capital leases $260,973
=========
9. Leases
The Company leases office space for training center
locations and administration purposes under various
noncancelable operating leases at nine different locations.
All of the leases have options to renew. Future minimum
rental payments under the leases are $1,254,000 in 2000;
$1,062,000 in 2001; $973,000 in 2002; $935,000 in 2003; and
$935,000 in 2004; $935,000 in 2005; $778,000 in 2006; $488,000 in
2007; $123,000 in 2008. Rent expense for the years ended November 30,
1999, 1998, and 1997 was $1,266,000, $1,051,000 and $1,527,000,
respectively.
10. Commitments and Contingencies
During fiscal 1997, the Company entered into an amended
employment agreement with the President. The term of the
agreement is five years and provides for a base salary of
$195,000 which began on December 1, 1995 with annual salary
increases of $25,000 in the second and third years and to
remain at $245,000 for the last two years of the contract.
Also included in the agreement are future incentives based
on Company performance. There is a bonus opportunity of 5%
on the first $500,000 of consolidated income before taxes
and bonus and 3% above $500,000. In conjunction with this
contract, the President agreed to a covenant not to compete
with the Company during his employment and for a period of
one year after his employment with the Company has
terminated. For the year ended November 30, 1996 the
President waived his right to receive any performance bonus
earned and in exchange his contract was extended for one
year through 2001 at the same terms. For the year ended
November 30, 1998 and November 30, 1999, the President waived
his rights to receive any performance bonus earned.
The Company also amended the employment agreement with
its Executive Vice President and Chief Operating Officer
during fiscal 1997. The term of the agreement is five years
and provides for a base salary of $120,000 for fiscal 1997 and
increases of $15,000 per year for the next four years. Also
included in the agreement are future incentives based on the
Company's profitability. A bonus of $30,000 will be earned
if the consolidated income before income taxes and bonus of
the Company exceeds $1,000,000. The bonus opportunity
applies to each of the five years of the contract. For the
year ended November 30, 1996, the Executive Vice President
waived his right to receive any performance bonus earned and
in exchange the contract was extended to 2001 at the same
terms.
11. Defined Contribution Plan
In 1993, the Company established a 401(k) Plan for its
participating employees to supplement their retirement
income. Participation in the plan is open to all employees
who have completed one year of service (twelve consecutive
months). One thousand hours of service is required during
the first year of service. By payroll deduction, employees
can contribute to the Plan from 1% to 15% of their total
gross compensation. The Company matches 50% of the first 8%
of employee salary deferrals. This match is made in
restricted Company common stock based upon the value of the
stock each December 31st. The employee match is completely
discretionary and can be changed by the employer in
subsequent years to be higher or lower. The value of the
employee match expensed in 1999, 1998, and 1997 was:
$48,192, $62,305, $85,483, respectively.
12. Stock Options and Awards
The Company has two stock option plans, the 1995
Non-Qualified Stock Option Plan covering 1,583,334 shares of
common stock ("1995 Plan") and the 1987 Non-Qualified Stock
Option Plan covering 162,603 shares of common stock ("1987
Plan"). As of November 30, 1999, the Company had 100,060
shares under the 1995 Plan available for issuance in
connection with the future stock options that may be
granted. The 1987 Plan expired in 1995, therefore no
additional grants may be made, although outstanding awards
may be exercised. Options granted are exercisable
immediately and are issued at market price.
A summary of Canterbury's stock option activity and
related information for the years ended November 30 is as
follows:
1999 1998 1997
---- ---- ----
Number of shares under stock options:
Outstanding at beginning of year 710,866 539,538 441,274
Granted 927,650 188,266 192,179
Exercised - - -
Canceled (149,795) (16,940) (93,915)
Outstanding and exercisable at
end of year 1,488,721 710,866 539,538
Weighted average exercise price:
Granted $1.50 $1.42 $2.48
Exercised - - -
Canceled $9.13 $10.33 $7.07
Outstanding and exercisable
at end of year $2.04 $4.25 $5.43
Information with respect to stock options outstanding
and exercisable at November 30, 1999, is as follows:
Options Outstanding and Exercisable
Range of Number Weighted Average Weighted Average
Exercise Price Outstanding Remaining Life Exercise Price
at 11/30/99 in Years
$0.53 - $3.56 1,419,769 3.85 $1.75
$4.31 - $9.00 68,952 0.73 $7.70
FASB Statement No. 123 requires pro forma disclosure
under the fair value method of net income and income per
share for stock options granted. The fair value for options
was estimated at the date of grant using the Black-Scholes
option pricing model. The Black-Scholes option valuation
model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models
require the input of highly subjective assumptions,
including the expected stock price volatility. Because
Canterbury's stock options have characteristics
significantly different from those of traded options, and
because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock
options. The fair weighted average value of options granted
in each year and assumptions used in estimating fair value
under the Black-Scholes model are as follows:
1999 1998 1997
---- ---- ----
Estimated fair value of
options granted $359,644 $59,433 $92,084
======== ======= =======
Principal assumptions in
applying the Black-Scholes
valuation model:
Expected life, in years 2.50 2.50 2.50
Risk-free interest rate 6.50% 4.50% 6.00%
Expected volatility .647 .476 .304
Expected dividend yield 0.00% 0.00% 0.00%
For purposes of pro forma disclosures, the estimated
fair value of the options is amortized to expense over the
options' vesting period. Had compensation cost been
determined based upon the fair value of stock options at
grant date consistent with FASB Statement No. 123,
Canterbury's net income and income per share would have been
reduced to the pro forma amounts indicated below (in
thousands, except income per share information):
1999 1998 1997
---- ---- -----
Pro forma net income (loss)
from continuing operations $261,124 $522,070 $(1,301,795)
Pro forma income per share
from continuing operations
basic and diluted .03 .09 (.24)
13. Stockholders' Equity
During 1999, the Company successfully completed as series of private
placements with non-affiliates. From March, 1999 to October, 1999, a total
of four private placements occurred. A total of 2,320,589 restricted common
shares of stock were issued. Total net proceeds totaled $1,471,220. The
Company also issued a total of 397,059 shares of restricted common stock
as finder fees associated with these placements. All private placements
had registration rights. The Company used the proceeds to repay amounts
under the term loan for general corporate purposes and for working capital.
In August, 1997, the Company completed a private placement of 1,000,000
shares of Class D, 8% Convertible Preferred Stock at a price of $1.00 per
share. The Preferred Stock was convertible into Common Stock of the
Company at a 20% discount from the market price. Imputed dividends were
accrued in the amount of $250,000 for the year ended November 30, 1997.
The preferred shares were available for conversion in November, 1997. An
investment banking firm that arranged this private placement received
300,000 warrants for stock as partial consideration. The warrants are
immediately exercisable at $.98 and expire in 2002. None of the warrants
have been exercised. The Preferred Shares paid a dividend of 8% per annum,
payable in its entirety upon conversion, either in cash or common stock at the
Company's option. During fiscal 1998 all preferred stock and accrued
dividends, were converted into 613,912 shares of Canterbury common stock.
During 1997, the Company received net proceeds of $634,782 from private
placements of its common stock sold to investors at prices ranging from $.47
of $1.00 per share.
14. Related Party Transactions
During 1999, the Company performed consulting and web development
services for a start-up, non-public company in which certain officers are
members of the Board of Directors and shareholders. The services billed
during the year totaled $521,500. The receivable for these services is
included in other assets on the acccompanying balance sheet. Settlement
of this receivable may be made in cash and/or stock of the non-public
company. Management believes that the collection of the receivable
is reasonably assured, hence there is no reserve required as of the balance
sheet date.
In 1993, the Company sold previously charged off
accounts receivable to an unaffiliated third party for
$62,000 in cash and a secured, non-recourse, interest
bearing note of $560,000. In 1997, the third party maker of
the note defaulted and the collateral was not available to
satisfy the unpaid balance. The Company, in its collection
effort, has received as replacement collateral, common stock
in a public company. Certain officers and directors of
Canterbury have an ownership interest in this public company.
These officers and directors became affiliated with the maker of the
note in 1997 as a result of their ownership in the public company
that the note maker offered as collateral. Management wrote down
the note receivable to the expected realizable value of the
collateral at November 30, 1997, and as a result charged
$450,000 as other expenses in continuing operations in
fiscal 1997. During fiscal 1998, the Company closed on the
collateral as full payment for the note receivable. The
Company recognized an additional loss of $29,000 as other
expense in continuing operations based on the estimated
value of collateral upon transfer to the Company.
During fiscal 1998, an additional 600,000 shares were
received for services rendered by Canterbury to this
public company and $375,000 has been reflected in other
income in the Statement of Operations representing the
estimated fair value of the shares received. See also Note
16 - Securities Available for Sale.
At November 30, 1999 and 1998, the total notes
receivable plus accrued interest for corporate officers,
corporate counsel and certain consultants totaled $389,000
and $371,000, respectively. The notes are collateralized by
the common stock and are reported as a contra-equity account.
Interest rates range from 6% to 7%.
During 1997 the Company paid corporate counsel a
$100,000 facilitation fee in connection with the private
placement of the Class D, 8% convertible preferred stock.
15. Advertising
The Company expenses advertising as incurred. Total
advertising expenses included in the results of operations
were $347,000, $511,000 and $373,000 for 1999, 1998, and 1997,
respectively.
15. Securities Available for Sale
At November 30, 1998, the Company held investment
securities in public companies. For one of the public companies
certain officers and directors of the Company have an ownership
interest in the aggregate of less than 10%. Management has estimated
the fair value of this investment at November 30, 1999 and 1998 at
$26,437 and $317,250, respectively, based on discounted market values due to
the stock being thinly traded and volatile. Other equity securities have
a fair value of $202,355 at November 30, 1999. Management has classified
these investments as available for sale and are included in non-current
other assets in the accompanying balance sheet. The Company did not sell
any available for sale securities during 1999 or 1998.