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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, 2000
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 $29,734,589.
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 23, 2001 was $15,875,148.
The number of shares outstanding of the issuer's class of common equity,
as of February 23, 2001 was 10,685,954.
Documents Incorporated by Reference - Various exhibits from the
Company's Form S-3 Registration Statements and such other documents
contained in Item 14.
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
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 products and services to both commercial and
government clients. Canterbury is comprised of six operating subsidiaries
with offices located in New Jersey, New York, Maryland, Georgia and Texas.
The focus of the Canterbury companies is to become an integral part of our
clients IT solution, designing and applying the best products and services
to help them achieve a competitive advantage and helping their employees to
succeed. Our subsidiaries offer the following technology solutions:
* systems engineering and consulting * technical and desktop applications
* IT contractors and permanent staffing training
* management training programs * records and asset management
* hardware sales and support systems
* software development * distance learning portals
* web development * industry specific portals
The Company is actively seeking acquisitions of consulting, technical
staffing, value added resellers 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 technical services company. In August, 2000 the
Company purchased DataMosaic International, Inc., a management and systems
consulting company that provides technical staffing augmentation solutions
and consulting services. At the same time, the Company formed Canterbury
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
Consulting Group, Inc., a wholly owned subsidiary, to also provide staffing
augmentation solutions and consulting services to Fortune 1000 companies. The
Company now manages the business within four segments as follows: training &
consulting, software development, value added hardware reseller and technical
staffing.
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.
On January 8, 2001 the Board of Directors voted to change the
Company name to Canterbury Consulting Group, Inc. The Company believes that
changing its name to Canterbury Consulting Group, Inc. will better describe
the Company's current and future business activities and allow for a more
synergistic approach to marketing all of its subsidiaries under one umbrella.
Since the name change requires an amendment to the Company's Certificate of
Incorporation it is necessary to have approval by the shareholders. A
Special Meeting of Stockholders is scheduled for April 6, 2000 in order to
gain shareholder approval.
NARRATIVE DESCRIPTION OF BUSINESS - TRAINING & CONSULTING
- ---------------------------------------------------------
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. CALC/Canterbury is a Microsoft Certified Technical Education
Center, Lotus Authorized Education Center and an authorized center for CISCO
certified training as well as 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 and industry specific vortal development. Through CALC Web
University, CALC/Canterbury offers e-commerce enabled, Internet-based training
as well as custom designed web delivered courses and instruction.
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 its
significant customer base established over the past sixteen years of
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
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. At the same time, the Company
is focused on introducing and promoting all of Canterbury's subsidiaries'
products and services to the existing client base of CALC/Canterbury.
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. It also intended
to introduce MSI/Canterbury services into other operating subsidiaries.
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.
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
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 provides a broad range
of information technology services other than hardware procurement and
installation. Other products and services include 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. The Company is also pursuing
possible acquisition candidates in this market as well as introducing other
subsidiary products and services into their existing client base.
NARRATIVE DESCRIPTION OF BUSINESS - TECHNICAL STAFFING
- ------------------------------------------------------
In August, 2000, the Company acquired DataMosaic International, Inc.,
an Atlanta, Georgia based management and systems consulting company, which
provides staffing augmentation solutions and consulting services to the
information technology industry. Short term and long term contracting along
with permanent placement and project management of IT professionals is
provided to mid-sized and Fortune 1000 corporations for: technical leaders
and specialists, senior programming analysts, programmers, systems support
and administration specialists experienced in networking, data
communications, LAN/WAN, SQA/testing and technical writing. After the
acquisition, the Company changed the name of DataMosaic International to
DataMosaic/Canterbury Corp.
In conjunction with the acquisition of DataMosaic, Canterbury formed
Canterbury Consulting Group, Inc. which offers technical recruitment and
contracting on a national basis both over the Internet and in conjunction
with existing Canterbury subsidiaries and affiliates.
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
Future Plans
------------
This division's expansion forecast includes increasing the number of
Business Development Managers in its existing locations and opening offices
within existing Canterbury facilities. To date, this division has begun
operations in Parsippany, New Jersey, Annapolis, Maryland and Houston, Texas.
The Company may also consider opening free-standing offices in other viable
markets in the United States, creating a regional and potentially national
recruiting operation.
MERGER/ACQUISITION PROGRAM
- --------------------------
Canterbury is actively seeking acquisitions of other profitable
technology companies within our core competencies:
* Technical systems design, development, integration and consulting
* Hardware sales and support
* Technical recruitment and staff augmentation
* Internet and intranet consulting, development and implementation
* Technical online training
BUSINESS MODEL - INFORMATION TECHNOLOGY SERVICES
- --------------------------------------------------------------------------------
| | Systems | | Internet and |
| Computer and | Integrators | Network and | Intranet |
| Software | --- | Systems Developers | Consultants, |
| Consulting | Hardware/ | and Installers | Developers and |
| CALC/Canterbury | Software Sales | CALC/Canterbury | Providers |
| USC/Canterbury | CALC/Canterbury | USC/Canterbury | CALC/Canterbury |
| ATM/Canterbury | USC/Canterbury | | USC/Canterbury |
| | ATM/Canterbury | | |
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
| | | Technical Staffing | Business to |
| Technical | Training | and Recruiting | Business Portal |
| Training | Companies | Canterbury Consulting | Global Online |
| Companies | MSI/Canterbury | Group | Training |
| CALC/Canterbury | CALC/Canterbury | DataMosaic/Canterbury | CALC Web |
| | | | University |
- --------------------------------------------------------------------------------
EMPLOYEES
- ---------
As of November 30, 2000, the Company, including all subsidiaries, had 160
employees: 104 full-time employees and 56 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
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
offices, branch locations and sales offices, are leased. The aggregate
annual rental payments under leases will approximate $1,223,000 in
fiscal year 2001.
The following table sets forth the locations of the Company
including square footage:
Square
Location Footage
- -------- -------
Canterbury Information Technology, Inc. 4,200
1600 Medford Plaza
Medford, New Jersey 08055
ATM/Canterbury Corp. 3,400
16840 Barker Springs, Suite C300
Houston, TX 77084
DataMosaic/Canterbury Corp. 600
2 Sun Court, Suite 300
Norcross, GA 30092
Canterbury Consulting Group, Inc. 500
500 Lanid Drive
Parsippany, New Jersey 07054
Canterbury Consulting Group, Inc. 300
16840 Barker Springs, Suite C300
Houston, TX 77084
Canterbury Consulting Group, Inc. 300
801 Compass Way, Suite 205
Annapolis, MD 21401
CALC/Canterbury Corp. 23,000
500 Lanid Drive
Parsippany, New Jersey 07054
CALC/Canterbury Corp. 4,200
780 Third Avenue, Concourse Level One
New York, New York 10017
CALC/Canterbury Corp. 6,000
Woodbridge Place, Gill Lane at Route 1
Iselin, New Jersey 08830
CALC/Canterbury Corp. 7,000
55 Broadway
New York, New York 10006
MSI/Canterbury Corp. 1,800
400 Lanid Drive
Parsippany, New Jersey 07054
USC/Canterbury Corp. 2,200
801 Compass Way, Suite 205
Annapolis, MD 21401
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
ITEM 3. LEGAL PROCEEDINGS
As previously disclosed in prior filings, the Company was a
defendant in litigation instituted by Mr. Thomas Arnold, a former
employee of CALC. The suit alleged breach of contract, various tort
claims and requested punitive damages of over $8 million. The Company
and its attorney had contended that Mr. Arnold's claim 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 counterclaim. Mr. Arnold has filed an appeal. The Company
and its attorney contend that the appeal is without merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
The Company's Annual Meeting was held on October 5, 2000, 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.
At September 5, 2000, the shareholder of record date, the number of
shares outstanding was 10,457,768 and by October 5, 2000 7,512,156 votes
were cast. The proposal for the slate of directors was approved with 97%
of the votes. The proposal for the appointment of Ernst & Young LLP was
approved by 99.8% of the votes.
PART II
ITEM 5. MARKET FOR EQUITY AND RELATED STOCKHOLDER MATTERS
The Company trades on the Nasdaq National Market. 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, 1998 through February 23, 2001
were as follows:
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
MARKET FOR EQUITY AND RELATED STOCKHOLDER MATTERS
- -------------------------------------------------------------------------
1998 | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter
| ----------- | ----------- | ----------- | -----------
| High Low | High Low | High Low | High Low
Common | ---- --- | ---- --- | ---- --- | ---- ---
Stock | 3 3/8 1 25/32| 2 17/32 1 1/8|1 11/16 25/32 | 1 1/2
- -------|----------------|----------------|---------------|----------------
1999 | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter
| ----------- | ----------- | ----------- | -----------
| High Low | High Low | High Low | High Low
Common | ---- --- | ---- --- | ---- --- | ---- ---
Stock | 1 1/2 1/2 | 2 3/16 7/8 | 2 1/4 1 1/32|4 3/16 1 1/2
- -------|----------------|----------------|---------------|----------------
2000 | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter
| ----------- | ----------- | ----------- | -----------
| High Low | High Low | High Low | High Low
Common | ---- --- | ---- --- | ---- --- | ---- ---
Stock |5 11/16 2 13/16| 4 7/8 2 1/2| 4 1/6 1 15/16| 4 5/8 2 21/32
- -------|----------------|----------------|---------------|----------------
2001 | 1st Quarter |
| ----------- |
| High Low |
Common | ---- --- |
Stock |4 7/16 1 1/2 |
- -------------------------
The approximate number of record holders of the Company's common stock as
of November 30, 2001 as determined from the Company's transfer agent's list of
record holders was 353. 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.
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
ITEM 6. SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating data:
Net revenues $29,734,589 $14,209,526 $12,112,879 $12,423,452 $12,717,692
Income (loss)
from
continuing
operations 1,058,215 620,768 581,503 (931,870) 423,157
Income (loss)
from and gain
on sale of
discontinued
operations - - - (1,536,047) 1,243,411
Basic per share data:
Income (loss)
from
continuing
operations $.11 $.08 $.10 $(.22) $.08
Discontinued
Operations - - - (.29) .26
----------- ----------- ----------- ----------- -----------
Net income
(loss) $.11 $.08 $.10 $(.51) $.34
=========== =========== =========== =========== ===========
Balance sheet data:
Total assets $31,184,412 $27,811,971 $25,700,415 $25,787,101 $27,400,539
Long-term debt 678,303 1,989,031 2,640,075 3,856,956 4,718,793
(1) 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 and 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
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
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, 2000, was $1,820,000. This was an
increase of $560,000 over the previous year. This increase is explained by
the following reasons: Accounts receivable increased by $2,187,000, due
primarily to an increase in revenues, while accounts payable increased only
by $1,132,000. Most of these increases were the result of increased sales
volume from USC/Canterbury, which was acquired in October, 1999. Also
contributing to the increase was the acquisition of DataMosaic/Canterbury
which occurred in August, 2000. Revenues attributable to this acquisition
totaled $729,000 in fiscal 2000.
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 $620,000 is due and payable. Projected payments for fiscal 2001
total $1,240,000.
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, 2000 the Company has paid a total of $340,000
to reduce the total bank debt from $1,859,620 to $1,519,620. The outstanding
debt will accrue interest at prime plus 2.0% per annum.
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 $1,471,222. 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 2001. There was no material commitment for capital
expenditures as of November 30, 2000. Inflation was not a significant factor
in the Company's financial statements.
Cash flow from continuing operations for the year ended November 30, 2000
was $875,000. This represents an increase of $216,000 over the prior year.
Fiscal 2000 was the sixth consecutive year of positive cash from continuing
operations. During the year, the Company reduced its long term bank debt
excluding capital leases by $915,000. For the past five years, this reduction
in long term debt totals $7,567,000.
The Company was also helped by an increase in its investment in
e*machinery.net, inc., which added $1,294,000 to its equity (comprehensive
income) during 2000.
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
MARKET RISK
The Company is subject to market risk principally arising from the
potential change in the value of its investments.
The Company's investments in equity securities at November 30, 2000
of $3,300,000 is subject to changes in value based on changes in equity
prices in United States markets.
RESULTS OF OPERATIONS
Fiscal 2000 Compared to Fiscal 1999
Revenues
--------
Revenues increased by $15,525,000 (109%) in fiscal 2000 over fiscal 1999.
The majority ($15,222,000) of this increase is attributable to the revenues
generated for a full fiscal year by USC/Canterbury, which was acquired in
October, 1999. The revenues for the other existing subsidiaries remained
fairly constant with technical services consulting revenues making up the
difference in revenue increase for fiscal 2000 over the pervious year. The
Company continues to develop alternative revenue streams such as on-line
learning, technical staffing, technical services and web development. It is
believed that these additional revenue streams will become more significant
in Fiscal 2001 and beyond.
Costs and Expenses
------------------
Costs and expenses increased by $13,360,000 (158%) in fiscal 2000 over
the previous year. Again, the most significant portion of this increase
($13,254,000) is attributable to costs associated with USC/Canterbury. While
gross profit increased from $5,741,000 in fiscal 1999 to $7,906,000 (38%),
gross profit percentage declined from 40% in fiscal 1999 to 27% in fiscal 2000.
This was due to the change in product mix from year to year. Product revenue,
as a percent of total revenue, increased from 18% in 1999 to 57% in fiscal
2000. Product revenue had an associated gross profit of 15%, while service
revenue gross profit for fiscal 2000 was 43%. The full year contribution of
USC/Canterbury, a value added reseller, again contributed to this shift.
Selling expense increased by $569,000 (31%). The increase was a result
of the increase in selling expense for a full year of USC/Canterbury activity
($570,000), as compared to only one and a half months in fiscal 1999.
General and administrative expense increased by $841,000 (23%) in fiscal
2000 over fiscal 1999. $391,000 of the increase was due to the additional
expense of USC/Canterbury for a full year. $155,000 related to the expense
for DataMosaic/Canterbury and Canterbury Consulting Group, both of which were
added to the business during the third quarter of fiscal 2000.
Other income for fiscal 2000 increased by $327,000 over fiscal 1999. The
net increase was primarily due to recognized other income of $461,000 related
to the receipt of stock for assisting in raising capital for a related party
offset by a $165,000 charge for loss on impairment of an investment held by
the Company recorded during the fourth quarter of fiscal 2000.
Fiscal 1999 Compared to Fiscal 1998
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
Revenues
--------
Revenues increased by $2,086,000 (17%) in fiscal 1999 over fiscal
1998. The majority ($1,990,000) of this increase is 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, technical 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.
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The financial statements and supplementary data are as set forth in
the Index on page 16.
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, 2000 were as follows:
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
Name Age Position Held with Company(1)
- ---- --- -----------------------------
Stanton M. Pikus 60 President, Chief Executive Officer,
Chairman of the Board of Directors
Kevin J. McAndrew, CPA 42 Chief Operating Officer, Executive Vice
President, Chief Financial Officer,
Treasurer, Director
Jean Zwerlein Pikus 47 Vice President - Operations, Secretary,
Director
Alan Manin 63 Director
Stephen M. Vineberg 59 Director
Paul L. Shapiro 49 Director
Frank A. Cappiello 75 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, Chief Executive Officer and Chairman of the
Board of Directors, was a founder of Canterbury (1981). He graduated from The
Wharton School of the University of Pennsylvania (B.S., Economics and
Accounting) in 1962. Mr. Pikus is also a Director of e*machinery.net, inc.,
a public company traded on the OTC Bulletin Board. From 1968 until 1984 he
had been President and majority stockholder of Brown, Bailey and Pikus, Inc.,
a mergers and acquisitions consulting firm that had 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 and Chief Financial Officer of Canterbury since June
21, 1987; Treasurer since January, 1988; and Director since 1990. Mr.
McAndrew is also a Director, Secretary and Chief Financial Officer of
e*machinery.net, inc., a public company traded on the OTC Bulletin Board.
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
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
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 $800 million. Prior to that, he was the Research
Director of a major stock brokerage firm. He is a graduate of the
University of Notre Dame and Harvard University's Graduate School of
Business Administration.
ITEM 11. EXECUTIVE COMPENSATION
CASH COMPENSATION
The Company had 99 full-time employees as of November 30, 2000.
There were no cash directors' fees paid during this period.
Summary Compensation Table
Other Securities All
Annual Restricted Underlying Other
Name & Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Awards SAR Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- -----------------------------------------------------------------------------
Stanton M. 2000 $210,000 $ - $ - $ - 425,000 $ - $ -
Pikus 1999 $195,000 - - - 140,000 - -
President, 1998 202,500 - - - 150,000 - -
Chief
Executive
Officer
Kevin J. 2000 $149,000 $ - $ - $ - 270,000 $ - $ -
McAndrew 1999 $135,000 - - - 105,000 - -
Chief 1998 127,788 - - - 110,000 - -
Operating
Officer,
Chief
Financial
Officer
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
During fiscal 1999, the President's employment agreement was extended two
additional years, from 2001 to 2003, in exchange for the President waiving his
right to any performance bonus in fiscal 1999. For the years ended November 30,
1998, November 1997 and November 30, 1996, the President also waived his right
to receive any performance bonus earned and his employment agreement was
extended one year on each occurrence. The terms of the agreement was for five
years and provided 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. The President waived his right
to any performance bonus for fiscal 2000. 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.
The Company also amended the employment agreement with its Executive Vice
President and Chief Operating Officer during fiscal 1999 by extending the
agreement two years, from 2001 to 2003, in exchange for the Executive Vice
President waiving his right to any performance bonus in fiscal 1999. For the
years ended November 30, 1998, November 1997 and November 30, 1996, the
Executive Vice President also waived his right to receive any performance bonus
earned and his employment agreement was extended one year on each occurrence.
The term of the agreement was 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 year of the contract. The Executive Vice
President waived his right to any performance bonus for fiscal 2000. In
conjunction with this contract, the Executive Vice 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.
COMPENSATION PURSUANT TO PLAN AND OUTSIDE OF PLAN
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 23, 2001.
Date Exercise
Name of Individual Capacity in Which Served Options Granted Price
=============================================================================
Stanton M. Pikus President, Chairman of 16,667 10/29/96 $3.09
the Board of Directors 33,334 01/13/97 $2.25
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
100,000(1) 02/29/00(1) $4.06(1)
25,000 08/02/00 $3.00
75,000(1) 11/28/00(1) $2.78(1)
75,000(2) 11/28/00(2) $2.78(2)
75,000(1) 01/09/01(1) $1.50(1)
75,000(2) 01/09/01(2) $1.50(2)
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 1999
Date Exercise
Name of Individual Capacity in Which Served Options Granted Price
============================================================================
Kevin J. McAndrew, Chief Operating Officer, 16,667 10/29/96 $3.09
CPA Executive Vice President, 16,667 01/13/97 $2.25
Chief Financial Officer, 8,334 10/16/97 $3.56
Treasurer, Director 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
50,000(1) 02/29/00(1) $4.06(1)
20,000 08/02/00 $3.00
50,000(1) 11/28/00(1) $2.78(1)
50,000(2) 11/28/00(2) $2.78(2)
50,000(1) 01/09/01(1) $1.50(1)
50,000(2) 01/09/01(2) $1.50(2)
- ----------------------------------------------------------------------------
Jean Zwerlein Pikus Vice President-Operations, 8,334 10/29/96 $3.09
Secretary, Director 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
25,000(1) 02/29/00(1) $4.06(1)
15,000 08/02/00 $3.00
25,000(1) 11/28/00(1) $2.78(1)
25,000(2) 11/28/00(2) $2.78(2)
25,000(1) 01/09/01(1) $1.50(1)
25,000(2) 01/09/01(2) $1.50(2)
- ----------------------------------------------------------------------------
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
5,000 08/02/00 $3.00
20,000(1) 11/28/00(1) $2.78(1)
20,000(1) 01/09/01(1) $1.50(1)
- ----------------------------------------------------------------------------
Stephen Vineberg Director 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)
5,000 08/02/00 $3.00
20,000(1) 11/28/00(1) $2.78(1)
20,000(1) 01/09/01(1) $1.50(1)
- ----------------------------------------------------------------------------
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 1999
Date Exercise
Name of Individual Capacity in Which Served Options Granted Price
============================================================================
Paul Shapiro Director 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)
5,000 08/02/00 $3.00
20,000(1) 11/28/00(1) $2.78(1)
20,000(1) 01/09/01(1) $1.50(1)
- ----------------------------------------------------------------------------
Frank A. Cappiello 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)
12,500 08/02/00 $3.00
50,000(1) 11/28/00(1) $2.78(1)
50,000(1) 01/09/01(1) $1.50(1)
- ----------------------------------------------------------------------------
(1) These options are not part of the 1995 Stock Option Plan and convert
to restricted common stock. The individual has five years from the
date of grant to exercise these options.
(2) These options are part of the 1995 Stock Option Plan; however they are
incentive stock options. All other options issued as part of the 1995
Stock Option Plan are non-qualified stock 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 (but not consultants) 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.
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
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 23, 2001 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) 611,248 5.71%
Common Kevin J. McAndrew(1)(3) 209,637 1.96%
Common Alan Manin(1)(3)(4) 139,054 1.30%
Common Jean Zwerlein Pikus(1)(2)(3) 136,473 1.27%
Common Stephen M. Vineberg(1)(3) 33,629 .31%
Common Paul L. Shapiro(1)(3) 25,667 .24%
Common Frank A. Cappiello(1)(3) 136,667 1.28%
All Officers, Directors as a group --------- -----
(7 in number) 1,292,375 12.07%
____________________________
(1) All of said individuals have given a Voting Agreement 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.
(4) 73,228 shares owned by Atlantis Family L.C. of which Mr. Manin is the
sole beneficiary, are included in his total.
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
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
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 $1,000,000 CALC/Canterbury Corp.
Patricia Bednarik $1,000,000 USC/Canterbury Corp.
The Company is in the process of securing a key-person life insurance
policy for the Presidents of MSI/Canterbury Corp., DataMosaic/Canterbury
Corp and Canterbury Consulting Group, Inc.
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, 2000 and 1999----------F- 1
Consolidated Statements of Operations - Years ended
November 30, 2000, 1999 and 1998---------------------------------F- 3
Consolidated Statements of Stockholders' Equity - Years ended
November 30, 2000, 1999 and 1998---------------------------------F- 5
Consolidated Statements of Cash Flows - Years ended
November 30, 2000, 1999 and 1998---------------------------------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. ***
21 Subsidiaries of Registrant 17
22 Annual Report and Proxy Statement for 1999 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 1999 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 file on October 29, 1999.
***** Incorporated by reference from the like-numbered exhibit to Form S-3
Registration Statement, SEC. File No. 333-89979 file on December 5, 2000.
Reports on Form 8-K filed during the last quarter of the period covered
by this report are as follows:
None.
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
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: 2/28/01 By /s/ Stanton M. Pikus
-----------------------
Stanton M. Pikus, President; Chief Executive Officer
Dated: 2/28/01 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: 2/28/01 By /s/ Stanton M. Pikus
-----------------------
Stanton M. Pikus, President; Director; Chairman of
the Board of Directors
Dated: 2/28/01 By /s/ Kevin J. McAndrew
------------------------
Kevin J. McAndrew, Chief Operating Officer;
Executive Vice President; Chief Financial Officer;
Director
Dated: 2/28/01 By /s/ Jean Zwerlein Pikus
--------------------------
Jean Zwerlein Pikus, Vice President Operations;
Secretary; Director
Dated: 2/28/01 By /s/ Alan Manin
-----------------
Alan Manin, Director
Dated: 2/28/01 By /s/ Stephen M. Vineberg
--------------------------
Stephen M. Vineberg, Director
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
Dated: 2/28/01 By /s/ Paul L. Shapiro
----------------------
Paul L. Shapiro, Director
Dated: 2/28/01 By /s/ Frank A. Cappiello
-------------------------
Frank A. Cappiello, Director
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
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, 2000 and
1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the
period ended November 30, 2000. 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 provide 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, 2000 and 1999,
and the consolidated results of its operations and its cash flows for
each of the three years in the period ended November 30, 2000, in
conformity with accounting principles generally accepted in the United
States.
Ernst & Young, LLP
Philadelphia, Pennsylvania
February 23, 2001
F
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
CONSOLIDATED BALANCE SHEETS
November 30, 2000 and 1999
ASSETS
- ------
2000 1999
---- ----
Current Assets:
Cash $ 885,479 $ 1,060,434
Accounts receivable, net 4,864,456 2,676,889
Notes receivable - current portion 393,597 363,805
Prepaid expenses and other assets 652,319 751,876
Inventory, principally finished goods,
at cost 202,032 198,764
Deferred income tax benefit 91,412 99,448
----------- -----------
Total Current Assets 7,089,295 5,151,216
Property and equipment at cost, net
of accumulated depreciation of
$5,886,000 and $5,148,000 1,989,650 2,383,829
Goodwill, net of accumulated
amortization of $2,816,000 and
$2,348,000 9,330,435 8,885,170
Deferred income tax benefit 1,508,251 2,706,888
Notes receivable 7,237,239 7,630,836
Investments 3,315,878 204,405
Other assets 713,664 849,628
----------- -----------
Total Assets $31,184,412 $27,811,972
=========== ===========
Continued
See Accompanying Notes
F-1
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 1999
CONSOLIDATED BALANCE SHEETS
November 30, 2000 and 1999
Continued
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
2000 1999
---- ----
Current Liabilities:
Accounts payable - trade $ 2,277,446 $ 1,144,922
Accrued expenses 655,204 387,660
Unearned revenue 860,295 1,111,330
Income taxes payable 129,833 -
Current portion, long-term debt 1,346,112 1,246,997
----------- -----------
Total Current Liabilities 5,268,890 3,890,909
Long-term debt 678,303 1,989,031
Deferred income tax liability 3,157,118 3,059,219
----------- -----------
Total Liabilities 9,104,311 8,939,859
Commitments and contingencies
Stockholders' Equity:
Common stock, $.001 par value,
50,000,000 shares authorized;
10,685,000 and 9,508,000 issued 10,685 9,508
Additional paid-in capital 22,456,731 19,946,848
Accumulated other comprehensive income 779,244 (472,215)
Retained earnings 1,242,883 184,668
Notes receivable for capital stock (2,002,142) (388,696)
Less treasury shares, at cost (407,300) (407,300)
----------- -----------
Total Stockholders' Equity 22,080,101 18,872,813
----------- -----------
Total Liabilities and Stockholders'
Equity $31,184,412 $27,811,972
=========== ===========
See Accompanying Notes
F-2
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended November 30, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Service revenue $12,587,921 $11,665,394 $11,400,199
Product revenue 17,146,668 2,544,132 722,680
----------- ----------- -----------
Total net revenue 29,734,589 14,209,526 12,122,879
Service costs and expenses 7,195,514 6,657,385 6,403,033
Product costs and expenses 14,633,006 1,810,926 292,243
----------- ----------- -----------
Total costs and expenses 21,828,520 8,468,311 6,695,276
Gross profit 7,906,069 5,741,215 5,427,603
Selling 2,377,340 1,808,601 1,984,836
General and administrative 4,486,552 3,645,673 3,798,612
---------- ----------- -----------
Total operating expenses 6,863,892 5,454,274 5,783,448
Other income (expense)
Interest income 715,829 705,959 861,424
Interest expense (346,457) (390,453) (394,925)
Other 345,014 18,321 470,849
---------- ----------- -----------
Total other income (expense) 714,386 333,827 937,348
Income before provision
for income taxes 1,756,563 620,768 581,503
Provision for income taxes 698,348 - -
----------- ----------- -----------
Net income $ 1,058,215 $ 620,768 $ 581,503
=========== =========== ===========
Continued
See Accompanying Notes
F-3
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended November 30, 2000, 1999 and 1998
Continued
2000 1999 1998
---- ---- ----
Net income per share and
common share equivalents $ 1,058,215 $ 620,768 $ 581,503
Basic and diluted:
Basic net income per share $.11 $.08 $.10
==== ==== =====
Diluted net income per share $.10 $.08 $.10
==== ==== =====
Weighted average number of
common shares - basic 10,027,700 8,008,800 6,035,500
========== ========= =========
Weighted average number of
common shares - diluted 11,028,500 8,276,800 6,035,500
========== ========= =========
See Accompanying Notes
F-4
Canterbury Information Technology, Inc. - 10-K 2000
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended November 30, 2000, 1999 and 1998
Class D Accumulated Notes Total
Convertible Common Common Additional Retained Other Receivable Stock-
Preferred Stock Stock Paid-in- Earnings Treasury Comprehensive for Capital holders'
Stock Shares Amount Capital (Deficit) Stock Income Stock Equity
Balance, ----------- --------- ------ ----------- ----------- -------- ------------- ----------- -----------
November 30, 1997 $1,043,841 5,417,156 $5,417 $15,980,044 ($1,017,603)($407,300) $ - ($342,325) $15,262,074
Net income 581,503 581,503
Unrealized loss
on available for sale securities (143,757) (143,757)
-----------
Total comprehensive
income 437,746
Preferred stock
Conversion (1,043,841) 613,912 614 588,000 -
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) (28,193)
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 gain
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
for 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) (472,215) (388,696) 18,872,813
Net income 1,058,215 1,058,215
Unrealized loss
on available for
sale securities 1,251,459 1,251,459
----------
Total comprehensive
Income 2,309,674
401(k) Company
match 16,149 16 59,482 59,498
Additional issuance
of common stock
for acquisitions 411,420 411 899,151 899,562
Issuance of common shares
to employees, directors
and consultants 800,000 800 1,551,200 (1,552,000) -
Contributed common shares (50,000) (50) 50 -
Notes receivable
for capital stock (61,446) (61,446)
Balance, -------- ---------- ------- ----------- ---------- --------- ---------- ---------- -----------
November 30, 2000 - 10,685,707 $10,685 $22,456,731 $1,242,883 $(407,300) $ 779,244 ($2,002,142 $22,080,101
======== ========== ======= =========== ========== ========== ========== ========== ===========
See Accompanying Notes
F-5
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 30, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Operating activities:
Net income $1,058,215 $ 620,768 $ 581,503
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,036,748 1,040,952 1,014,571
Provision for losses on accounts
receivable 75,409 89,773 118,534
Loss on writedown from notes
receivable - - 28,992
Deferred income taxes 588,000 - (95,618)
401(k) contributions issued in
stock 59,498 48,192 62,306
Receipt of stock for services (1,108,250) (240,000) (378,000)
Other assets 140,642 (561,067) (301,489)
Changes in operating assets, net
of acquisitions
Accounts receivable (2,053,971) (1,306,811) 72,440
Inventory (3,268) - -
Prepaid expenses and other
assets 152,965 5,945 (94,672)
Income taxes 129,833 - 63,217
Accounts payable 1,015,021 787,822 (110,755)
Accrued expenses 35,572 53,251 (680,563)
Unearned revenue (251,035) 120,495 125,659
---------- ---------- -----------
Net cash provided by operating
activities of 875,379 659,320 406,125
---------- ---------- -----------
Investing activities:
Capital expenditures (110,969) (431,809) (213,740)
---------- ---------- -----------
Net cash used in investing activities
of continuing operations (110,969) (431,809) (213,740)
---------- ---------- -----------
Financing activities:
Principal payments on long term
debt (1,253,170) (1,256,532) (549,387)
Proceeds from payments on notes
Receivable 363,805 330,961 348,340
Proceeds from issuance of common
stock, net - 1,471,220 -
Deferred finance costs (50,000) - -
---------- ---------- -----------
Net cash provided by/(used in)
financing activities from
continuing operations (939,365) 545,649 (201,047)
---------- ---------- -----------
Net increase/(decrease) in cash (174,955) 773,160 (8,662)
Cash, beginning of year $1,060,434 $ 287,274 $ 295,936
Cash, end of year $ 885,479 $1,060,434 $ 287,274
========== ========== ===========
Continued, See Accompanying Notes
F-6
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended November 30, 2000, 1999 and 1998
Continued
Supplemental schedule of noncash investing and financing activities:
In August, 2000 the Company issued 221,420 shares of its common stock for
the purchase of certain assets of DataMosaic International, Inc.
In July, 2000 the Company issued 800,000 shares of restricted common
stock to Officers, Directors and consultants of the Company for notes
receivable.
In March, 2000 the Company issued 20,000 shares of restricted common stock
as an adjustment to the purchase price of certain assets of USC Communications,
Inc. purchase.
During March, 2000 the Company issued 16,149 shares of restricted common
stock to its defined contribution plan to fulfill its matching contribution
requirement.
During 2000, the unrealized gain on investments increased by $1,251,000.
During 2000, the Company received 660,000 shares of common stock from an
affiliated third party valued at a market value of $1,257,750 for services
provided.
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 $ 41,557 in 2000;
$106,060 in 1999; and $198,455 in 1998 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.
The taxes paid for fiscal 2000, 1999, and 1998 were as follows: $35,700,
$38,900, and $32,400 respectively.
Interest paid during fiscal 2000, 1999, and 1998 were as follows:
$346,457, $390,453, and $394,925 respectively.
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended November 30, 2000, 1999 and 1998
Continued
F-7
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
1. Operations and Summary of Significant Accounting Policies
---------------------------------------------------------
Description of Business
-----------------------
Canterbury Information Technology, Inc. (hereinafter referred to as
"the Registrant" or "the Company") is engaged in the business of providing
information technology products and services to both commercial and government
clients. Canterbury is comprised of six operating subsidiaries with offices
located in New Jersey, New York, Maryland, Georgia and Texas. The focus of
the Canterbury companies is to become an integral part of our clients IT
solution, designing and applying the best products and services to help them
achieve a competitive advantage and helping their employees to succeed. Our
subsidiaries offer the following technology solutions:
* systems engineering and consulting * technical and desktop applications
* IT contractors and permanent staffing training
* management training programs * records and asset management
* hardware sales and support systems
* software development * distance learning portals
* web development * industry specific portals
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 11).
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.
F-8
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
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).
F-9
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
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
------------
On August 1, 2000 the Company purchased all of the outstanding common
stock of DataMosaic International, Inc. ("DataMosaic") for 221,420 restricted
shares of Canterbury common stock valued at $862,000. DataMosaic, an
Atlanta, Georgia company, is a management and systems consulting business
which provides staffing augmentation solutions and consulting services to the
information technology industry. The acquisition was recorded under the
purchase method of accounting. The consolidated results of operations include
DataMosaic since the date of acquisition. Proforma results of operations for
2000 and 1999 are deemed immaterial, and are not presented.
After the acquisition DataMosaic changed its name to DataMosaic/
Canterbury Corp. The purchase price was preliminarily allocated as follows:
Cash - $114,000; receivables - $209,000; other assets - $23,000; liabilities -
$349,000. The excess cost over the fair value of net assets acquired was
approximately $865,000.
3. Segment Reporting
-----------------
The Company is organized into four operating segments and the
corporate office. The operating segments are: training and consulting,
value added hardware reseller, software & development and technical staffing.
Summarized financial information for each segment is as follows:
F-10
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
Value
Training Added
and Hardware Technical Software &
2000 Consulting Reseller Staffing Development Corporate Total
- ---- ---------- ---------- -------- -------- --------- -----
Revenues $11,635,568 $16,911,400 $ 952,353 $235,268 $ - $29,734,589
Income before
taxes 1,589,818 1,078,438 53,291 (17,342) (947,642) 1,756,563
Assets 9,391,462 4,336,849 1,280,657 393,073 15,572,371 31,184,412
Interest income - - - - 715,829 715,829
Interest expense 45,252 14,651 - - 286,554 346,457
Depreciation and
amortization 487,654 39,661 27,276 22,310 459,847 1,036,748
Value
Training Added
and Hardware Technical Software &
1999 Consulting Reseller Staffing Development Corporate Total
- ---- ---------- ---------- -------- -------- --------- -----
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
Value
Training Added
and Hardware Technical Software &
1998 Consulting Reseller Staffing Development Corporate Total
- ---- ---------- ---------- -------- -------- --------- -----
Revenues $11,400,199 $ 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
F-11
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
4. Property and Equipment
----------------------
Property and equipment, which is recorded at cost, consists of the
following:
2000 1999
---- ----
Land, buildings and improvements $ 725,910 $ 725,910
Machinery and equipment 5,085,176 4,745,362
Furniture and fixtures 1,413,289 1,412,581
Leased property under capital
leases and leasehold improvements 651,089 648,046
---------- ---------
7,875,464 7,531,899
Less: Accumulated depreciation (5,885,814) (5,148,070)
---------- ----------
Net property and equipment $1,989,650 $2,383,829
========== ==========
Accumulated depreciation of leased property under capital leases totaled
$244,000 in 2000. Depreciation expense for 2000, 1999, and 1998 was $565,000,
$603,000, and $ 591,000, respectively.
5. Income Taxes
------------
The provision/(benefit) for income taxes for the years ended
November 30, 2000, 1999 and 1998 is as follows:
2000 1999 1998
---- ---- ----
Current:
Federal $ 26,000 $ - $ -
State 84,000 - 63,000
-------- -------- --------
110,000 - 63,000
Deferred:
Federal 443,000 (59,000) (63,000)
State 145,000 59,000 -
-------- -------- --------
Total $698,000 $ - $ -
======== ======== ========
The reconciliation of the expected provision/(benefit) for the years ended
November 30, 2000, 1999 and 1998 is as follows:
F-12
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
2000 1999 1998
---- ---- ----
Expected tax (benefit) at
statutory rates $597,000 $211,000 $197,000
Effect of state taxes, net 151,000 39,000 38,000
Permanent differences 10,000 2,000 6,000
Increase in valuation allowance - - -
Utilization of net operating
losses (60,000) (252,000) (241,000)
-------- -------- ----------
Total $ 698,000 - $ -
========= ======== ==========
Significant components of the Company's tax liabilities and assets
as of November 30, 2000 and 1999 are as follows:
November 30,
-----------
2000 1999
---- ----
Deferred tax liabilities:
Gain recognized in financial statements
deferred for income tax purposes $1,686,000 $1,814,000
Tax depreciation in excess of book
depreciation 103,000 313,000
Tax amortization in excess of book
amortization 660,000 558,000
Unrealized gain 609,000 -
Other 99,000 374,219
---------- ----------
Total deferred tax liabilities $3,157,000 $3,059,219
========== ==========
November 30,
-----------
2000 1999
---- ----
Deferred tax assets:
Allowance for doubtful accounts $ 78,000 76,000
Expenses deductible for financial
reporting purposes but deferred
for tax reporting purposes 13,000 24,000
Impairment loss on available for
sale security 67,000 -
Net operating loss carryover 1,442,000 2,706,336
---------- ----------
Total deferred tax assets $1,600,000 $2,806,336
========== ==========
At November 30, 2000, the Company had a tax loss carryforward for
federal income tax reporting purposes of $3,093,000 and $3,922,000 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.
F-13
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
6. Long-Term Debt
--------------
November 30,
-----------
2000 1999
---- ----
Long-term obligations consist of:
Term loan $ - $ 200,436
Revolving credit line 1,859,620 2,774,620
Capital lease obligations 164,795 260,973
---------- ----------
2,024,415 3,236,029
Less: Current maturities (1,346,112) (1,246,997)
---------- ----------
$ 678,303 $1,989,032
========== ==========
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
$619,620 is due and payable. Scheduled payments for fiscal 2001 total
$1,240,000.
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, 2000 the Company has paid a total of $340,000
to reduce the total bank debt from $1,859,620 to $1,519,620. 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 $1,240,000 in 2001, $619,620 in 2002, and
$0 thereafter.
The carrying value of the long-term debt approximates its fair value.
7. 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.
F-14
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
Year ending November 30, 2001 101,846
Year ending November 30, 2002 64,630
Year ending November 30, 2003 and thereafter 20,825
--------
Total minimum lease payments 187,301
Less amount representing interest (22,506)
--------
Present value of long-term obligations under
capital leases $164,795
========
8. 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 $1,223,000 in 2001; $1,099,000
in 2002; $1,045,000 in 2003 and $1,014,000 in 2004; $1,002,000 in 2005;
$751,000 in 2006; $462,000 in 2007; $116,000 in 2008. Rent expense for the
years ended November 30, 2000, 1999 and 1998 was $1,276,000, $1,266,000,
and $1,051,000, respectively.
9. Commitments and Contingencies
-----------------------------
During fiscal 1999, the President's employment agreement was extended
two additional years, from 2001 to 2003, in exchange for the President
waiving his right to any performance bonus in fiscal 1999. For the years
ended November 30, 1998, November 30, 1997 and November 30, 1996, the President
also waived his right to receive any performance bonus earned and his
employment agreement was extended one year on each occurrence. The terms of
the agreement was for five years and provided 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.
The President waived his right to any performance bonus for fiscal 2000. 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.
The Company also amended the employment agreement with its Executive
Vice President and Chief Operating Officer during fiscal 1999 by extending
the agreement two years, from 2001 to 2003, in exchange for the Executive
Vice President waiving his right to any performance bonus in fiscal 1999.
For the years ended November 30, 1998, November 30, 1997 and November 30, 1996,
the Executive Vice President also waived his right to receive any performance
bonus earned and his employment agreement was extended one year on each
occurrence. The term of the agreement was five years and provides for a base
salary of $120,000 for fiscal 1997 and increases of $15,000 per year for the
F-15
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
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 year of the contract. The
Executive Vice President waived his right to any performance bonus for fiscal
2000. In conjunction with this contract, the Executive Vice 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.
10. 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 2000, 1999, and 1998 was: $59,498,
$48,192, and $62,306, respectively.
11. Stock Options and Awards
------------------------
The Company has one stock option plan, the 1995 Non-Qualified Stock
Option Plan, covering 1,583,334 shares of common stock ("1995 Plan"). As
of November 30, 2000, the Company had issued 1,688,853 shares under the 1995
Plan. Subsequently, the Board approved an additional 500,000 shares for
issuance. There are 394,481 shares remaining for issuance in connection
with future stock options that may be granted. The Company has also issued
490,000 options that are not part of this plan, which are exercisable at
November 30, 2000. Option 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:
F-16
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
2000 1999 1998
---- ---- ----
Number of shares under stock options:
Outstanding at beginning of year 1,488,721 710,866 539,538
Granted 748,250 927,650 188,266
Exercised - - -
Canceled (58,118) (149,795) (16,940)
Outstanding and exercisable at
end of year 2,178,853 1,488,721 710,866
Weighted average exercise price:
Granted $3.20 $1.50 $ 1.42
Exercised $ - $ - $ -
Canceled $8.87 $9.13 $10.33
Outstanding and exercisable at
end of year $2.27 $2.04 $ 4.25
Information with respect to stock options outstanding and
exercisable at November 30, 2000, is as follows:
Options Outstanding and Exercisable
Range of Number Weighted Average
Exercise Outstanding Remaining Life Weighted Average
Price at 11/30/00 in Years Exercise Price
----- ----------- -------- --------------
$0.53 - $2.90 1,682,091 3.54 $1.88
$3.00 - $5.63 496,762 3.29 $3.58
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:
F-17
CANTERBURY INFORMATION TECHNOLOGY, INC. - FORM 10-K 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2000
2000 1999 1998
---- ---- ----
Estimated fair value of options
Granted $1,094,385 $359,644 $59,433
========= ======= =======
Principal assumptions in applying
the Black-Scholes valuation model:
Expected life, in years 2.50 2.50 2.50
Risk-free interest rate 5.80% 6.50% 4.50%
Expected volatility .693 .647 .476
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):
2000 1999 1998
---- ---- ----
Pro forma net income from
continuing operations $401,584 $261,124 $522,070
Pro forma income per share
from continuing operations basic
and diluted .04 .03 .09
12. Stockholders' Equity
--------------------
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. 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.
13. Related Party Transactions
--------------------------
During 2000, the Company performed consulting and web development
services for the same publicly traded organization. The value of the
services provided during the year totaled $1,108,250. These services
were paid for with stock of the public company. As of November 30, 2000 the
Company owned 1,013,617 shares of this organization. During the first quarter
of fiscal 2001, the Company received an additional 233,962 shares in
satisfaction of a $372,000 receivable at November 30, 2000.
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 accompanying balance sheet. In March, 2000
the company went public through a reverse merger. Settlement of this
receivable was subsequently paid during fiscal 2000 with stock of the public
company.
During fiscal 1998, 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, 2000 and 1999, the total notes receivable plus accrued
interest for corporate officers, corporate counsel and certain consultants
totaled $2,002,000 and $389,000, respectively. The notes are collateralized
by the common stock and are reported as a contra-equity account. Interest
rates range from 6% to 7%.
14. Advertising
-----------
The Company expenses advertising as incurred. Total advertising expenses
included in the results of operations were $301,000, $347,000, and $511,000
for 2000, 1999, and 1998, respectively.
15. Securities Available for Sale
-----------------------------
At November 30, 2000 and 1999, 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
approximately 18%. Management has estimated the fair value of this
investment at November 30, 2000 and 1999 at $3,294,000 and $26,000,
respectively, and cost at November 30, 2000 of $1,745,000. Other equity
securities have a fair value of $22,000 at November 30, 2000, and a cost
basis of $75,000 after impairment writedown. 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 2000 or 1999.
16. Unaudited Quarterly Financial Information
-----------------------------------------
2000
First Second Third Fourth Total
----- ------ ----- ------ -----
Revenues $5,953,591 $6,009,134 $9,512,377 $8,259,487 $29,734,589
Gross profit 1,637,082 1,655,629 2,407,905 1,6127,904 7,906,069
Net income 156,601 371,247 426,100 104,267 1,058,215
Basic net income
per share 0.02 0.04 0.04 0.01 0.11
Diluted net income
per share 0.02 0.04 0.04 0.00 0.00
1999
First Second Third Fourth Total
----- ------ ----- ------ -----
Revenues $2,802,130 $3,518,806 $3,227,030 $4,661,560 $14,209,526
Gross profit 1,281,818 1,620,936 1,467,324 1,371,137 5,741,215
Net income 42,878 226,530 249,171 102,189 620,768
Basic net income
per share 0.01 0.03 0.03 0.01 0.08
Diluted net income
per share 0.01 0.03 0.03 0.01 0.08
CANTERBURY INFORMATION TECHNOLOGY, INC. -- 10K 2000
EXHIBIT
LIST OF SUBSIDIARIES
OF CANTERBURY INFORMATION TECHNOLOGY, INC.
Canterbury Career Schools, Inc. (inactive)
Canterbury Management Group, Inc.
Star Label Products, Inc. (shell)
MSI/Canterbury Corp.
CALC/Canterbury Corp.
Prosoft/Canterbury Corp. (inactive)
ATM/Canterbury Corp.
USC/Canterbury Corp.
DataMosaic/Canterbury Corp.
Canterbury Consulting Group, Inc.