-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LfSAEEdQjvm7wqdo56KRpqfOpmwpUhpcewajLVxUyX+KaOR6xR47/OfRHj1vAyO2 S7qdlP8aa2Wzmxz4wT+gQw== 0001058809-00-000007.txt : 20000315 0001058809-00-000007.hdr.sgml : 20000315 ACCESSION NUMBER: 0001058809-00-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANTERBURY INFORMATION TECHNOLOGY INC CENTRAL INDEX KEY: 0000794927 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 232170505 STATE OF INCORPORATION: PA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15588 FILM NUMBER: 569385 BUSINESS ADDRESS: STREET 1: 1600 MEDFORD PLZ STREET 2: RTE 70 & HARTFORD RD CITY: MEDFORD STATE: NJ ZIP: 08055 BUSINESS PHONE: 6099530044 MAIL ADDRESS: STREET 1: 1600 MEDFORD PLZ CITY: MEDFORD STATE: NJ ZIP: 08055 FORMER COMPANY: FORMER CONFORMED NAME: CANTERBURY CORPORATE SERVICES INC DATE OF NAME CHANGE: 19940323 FORMER COMPANY: FORMER CONFORMED NAME: CANTERBURY EDUCATIONAL SERVICES INC /PA/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CANTERBURY PRESS INC DATE OF NAME CHANGE: 19870615 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------------------ FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934: For the fiscal year ended: November 30, 1999 Commission File Number: 0-15588 CANTERBURY INFORMATION TECHNOLOGY, INC. --------------------------------------- Pennsylvania 23-2170505 - - --------------------------------------------- ------------ State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 1600 Medford Plaza, Rt. 70 & Hartford Road Medford, New Jersey 08055 - -------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number (609) 953-0044 Securities registered under Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $.001 par value ----------------------------- (Title of Class) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this 10-K. X --- Revenues for the most recent fiscal year were $14,209,526. The aggregate market value of the voting stock held by non-affiliates computed by reference to the closing price of such stock on National Market NASDAQ for February 25, 2000 was $36,239,000. The number of shares outstanding of the issuer's class of common equity, as of February 25, 2000 was 9,508,000. Documents Incorporated by Reference - Various exhibits from the Company's Form S-3 Registration Statements and such other documents contained in Item 14. PART I ITEM 1. DESCRIPTION OF BUSINESS INTRODUCTION Canterbury Information Technology, Inc. (hereinafter referred to as "the Registrant" or "the Company") is engaged in the business of providing information technology services which includes operating computer software training companies, a management training company and developing and selling software to individuals and corporations. The Company is seeking acquisitions of computer software consulting, technical staffing, Internet and other information technology companies. The Company was incorporated in the Commonwealth of Pennsylvania on March 19, 1981 and later qualified to do business in the State of New Jersey in April, 1985. The Company became a Registrant by filing and registering with the Securities and Exchange Commission under Form S-18 which became effective on August 20, 1986. Prior to 1988 the Company was comprised of two segments: the vocational school segment and the seminar segment. In November, 1988 the Company sold its seminar segment, which represented less than 2% of the Company's revenues. The Company was then solely a vocational school company. In November, 1992 the Company acquired Star Label Products, Inc., a specialty printing company. In September, 1993 the Company purchased Motivational Systems, Inc., a management training company. In November of 1993, the Company acquired Landscape Maintenance Services, Inc., a landscape maintenance and construction company. In June of 1994, the Company acquired Computer Applications Learning Center (CALC), a computer software training company. In July, 1996, the Company acquired ProSoft Training, LLC., a computer software training company. In November, 1995, the Company sold Star Label Products, Inc. In November, 1996, the Company sold Landscape Maintenance Services, Inc. In May, 1997, the Company purchased ATM Technologies, Inc., a software development company. In November, 1997, the Company closed its last two vocational schools. In February of 1999, the Company closed Prosoft, incorporating its technical staffing operations into CALC/Canterbury. In October, 1999 the Company purchased U.S. Communications, a hardware reseller, training, and techical services company. In conjunction with the Board's resolution to concentrate future growth within the information technology sector, the Board and Shareholders voted to change the Company's name to Canterbury Information Technology, Inc. effective June 12, 1997. Effective April 14, 1998 the Board of Directors declared a one for three reverse stock split of the Registrant's common stock. In addition, and as a result of the one for three reverse stock split, the Board of Directors changed the trading symbol of the Registrant's common stock from "XCEL" to "CITI". All share and per share information has been restated for the one for three reverse stock split. NARRATIVE DESCRIPTION OF BUSINESS - COMPUTER SOFTWARE TRAINING/SERVICES In June, 1994, the Company acquired Computer Applications Learning Center (CALC), a New Jersey based computer software training company. Since 1983 CALC has trained corporate workers and managers at its five training centers in New York and New Jersey and on site at Fortune 1000 corporations. During 1995, the Company changed the name of CALC to CALC/Canterbury Corp. to more appropriately reflect Canterbury's role in the corporate training industry. In January 2000, CALC/Canterbury became the first Linuxcare authorized Mentoring Center with the exclusive territory of the eastern seaboard. CALC/Canterbury is a Microsoft Certified Technical Education Center, Lotus Authorized Education Center and an authorized center for both CAT and VUE testing. CALC/Canterbury is authorized to provide continuing education units (CEU's) and is an approved sponsor of Continuing Professional Education (CPE) for CPA's in New York, New Jersey and Pennsylvania. CALC/Canterbury's technical services division offers technology project management, software development, hardware and software installations, web development and technical staffing. Through CALC Web University, CALC/ Canterbury offers e-commerce enabled, Internet-based training as well as custom designed web delivered courses. Future Plans Canterbury expects to expand this line of the business by: making acquisitions in the information technology market of companies that provide complementary products and services (such as technical recruiting, technical services and Web- based training) to the significant customer base established over the past sixteen years of operations; and by entering into strategic business partnerships to allow the existing sales force to offer multiple information technology related services and products. Over time, as the Company's market penetration increases, the services that were subcontracted in the past, will be developed and expanded internally. NARRATIVE DESCRIPTION OF BUSINESS - MANAGEMENT TRAINING In September of 1993, the Company acquired Motivational Systems, Inc., a New Jersey-based management and sales training company. Motivational Systems, since 1970, has trained managers and sales professionals from many Fortune 1000 companies, on a national and international basis. Motivational Systems conducts a wide variety of seminars in management and team development, selling and negotiating, interpersonal communication, executive development, organizational problem solving and project management. During 1995, the Company changed the name of Motivational Systems, Inc. to MSI/Canterbury Corp. to more appropriately reflect Canterbury's presence and role in the corporate training industry. Future Plans This division's planned expansion is projected to occur by extending its current sales effort into contiguous markets around its corporate headquarters in Northern New Jersey. The other major expansionary plan is to develop, internally, new product offerings, both consulting and on-line, for existing and potential customers, based on their specific needs. With several consultants who are exceptional course developers on staff, this process has already resulted in additional product revenue streams. NARRATIVE DESCRIPTION OF BUSINESS - SOFTWARE DEVELOPMENT In May of 1997, the Company acquired ATM Technologies, Inc. (ATM), a Texas-based software consulting and development company, serving clients in national and international markets. ATM has been in business since 1984, specializing in PC-based tracking systems. The Company changed the name of ATM Technologies, Inc. to ATM/Canterbury Corp. to more appropriately reflect Canterbury's presence and role in the information technology industry. Future Plans ATM/Canterbury plans to expand by introducing a newly developed document imaging and PC-based retrieval program integrated into its MasterTrak document tracking program using barcoding. The total program has just recently been packaged with a streamlined touch-screen PC. This major product enhancement of imaging and PC-based retrieval will allow clients with large file rooms to utilize this hardware/software solution to reduce labor costs and increase efficiencies. ATM/Canterbury is also working to expand its base of national and international dealers and to facilitate increased awareness of the tracking system's new imaging software developed by the company. Current clients have begun using the MasterTrak software for asset tracking. Based upon current client requests, the company may move toward the development of a software programming enhancement to enable clients to scan and link asset descriptions within the existing tracking system. NARRATIVE DESCRIPTION OF BUSINESS - VALUE ADDED HARDWARE RESELLER In October, 1999, the Company acquired U.S. Communications, Inc., an Annapolis, Maryland based reseller of desktop and server computer systems to state and local governments as well as commercial private sector companies in the mid-Atlantic market. USC proviees a broad range of information technology services other than hardware procurement and installation. Other products and services include training, software, consulting and network design and management. After the acquisition, the Company changed the name of U.S. Communications to USC/Canterbury Corp. (USC). The Company predominately resells Hewlett-Packard personal computers and servers as stand alone desktops, workstations and complete networks. Virtually no inventory is maintained as most equipment is drop shipped to the customer location. The consulting and network design services are becoming a more important value added product to the customer base, as they look for a complete solution to their information technology needs. Future Plans This division's expansion forecast includes additional penetration into existing governmental installations, increasing its technical training efforts for both Microsoft and Linuxcare certified training and adding additional techical services to new and existing client bases. MERGER/ACQUISITION PROGRAM The Company is seeking the acquisition of profitable companies in the information technology industry to complement and expand the core subsidiaries. This will allow the Company to offer a wide range of products and services on a national basis. Since corporations accessing computer applications training also need computer and software consulting, network and systems development, systems integration, Internet development and application as well as Intranet conversions, the Company plans to be able to provide a fully integrated, comprehensive approach to information technology. [CAPTION] BUSINESS MODEL - INFORMATION TECHNOLOGY SERVICES Technical Training Computer and Technical Training Companies Software Consulting Staffing and Recruiting Companies CALC/Canterbury ATM/Canterbury CALC/Canterbury CALC/Canterbury MSI/Canterbury CALC/Canterbury USC/Canterbury USC/Canterbury USC/Canterbury Network and Systems Integrators Internet and Intranet Systems Developers = Consultants and Installers Hardware/Software Sales Developers and Providers CALC/Canterbury USC/Canterbury CALC/Canterbury USC/Canterbury Business to Business Portal Global Online Training CALC Web University
EMPLOYEES As of November 30, 1999, the Company, including all subsidiaries, had 159 employees: 99 full-time employees and 60 part-time employees. The Company believes that the relationship with its employees is satisfactory. ITEM 2. DESCRIPTION OF PROPERTIES The Company owns non-operational land and a building in Bedminster, New Jersey which was acquired as part of the Landscape Maintenance acquisition. All other facilities, including its administrative offices, branch locations and sales offices, are leased. The aggregate annual rental payments under leases will approximate $1,254,000 in fiscal year 2000. The following table sets forth the locations of the Company including square footage: Location Square Footage Canterbury Information Technology, Inc. 1600 Medford Plaza Medford, New Jersey 08055 4,200 ATM/Canterbury Corp. 16840 Barker Springs, Suite C300 Houston, TX 77084 3,700 MSI/Canterbury 400 Lanid Drive Parsippany, New Jersey 07054 1,800 USC/Canterbury Corp. 801 Campass Way, Suite 205 Annapolis, MD. 21401 2,500 CALC/Canterbury 500 Lanid Drive Parsippany, New Jersey 07054 23,500 CALC/Canterbury 780 Third Avenue, Concourse Level One New York, New York 10017 4,200 CALC/Canterbury Woodbridge Place, Gill Lane at Route 1 Iselin, New Jersey 08830 6,000 CALC/Canterbury Park 80 West Plaza Saddlebrook, New Jersey 07663 5,926 CALC/Canterbury 55 Broadway New York, New York 10006 7,000 ITEM 3. LEGAL PROCEEDINGS As previously disclosed in previous filings, the Company was a defendant in litigation instituted by Mr. Thomas Arnold, a former employee of CALC. The suit alleged a breach of contract, various tort claims and requested punitve damages of over $8 million. The Company and its attorney had contended that Mr. Arnold's claims was without merit. The trial was held, and in January, 2000, the Court found in favor of the Company on all counts and the Court did not find in favor of the Company in its counterlciam. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS The Company's Annual Meeting was held on October 7, 1999, at which time two matters were submitted to the Company's stockholders for a vote. The majority of the stockholders voted for the appointment of Ernst & Young LLP as the Company's independent auditors and the election of the following Directors: Stanton M. Pikus, Kevin J. McAndrew, Alan Manin, Jean Zwerlein Pikus, Stephen M. Vineberg, Paul L. Shapiro and Frank A. Cappiello. PART II ITEM 5. MARKET FOR EQUITY AND RELATED STOCKHOLDER MATTERS The Company commenced trading in the Over-The-Counter (O-T-C) market subsequent to the closing of its initial public offering on August 29, 1986. Commencing on January 8, 1993, the Company's shares of common stock began trading on NASDAQ's National Market under the stock symbol of SKIL. In March, 1994, the Company's stock symbol was changed to XCEL. As a result of the one for three reverse stock split effective April 14, 1998, the Board of Directors changed the trading symbol stock from XCEL to CITI. The high and low bid prices (adjusted to reflect the 1 for 3 reverse stock split) of the Company's common stock from December 1, 1996 through February 25, 2000 were as follows: [CAPTION] MARKET FOR EQUITY AND RELATED STOCKHOLDER MATTERS - ----------------------------------------------------------------------------- 1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low Common Stock 5.0625 2.0625 4.4063 2.7188 4.875 2.8125 4.3125 3.0938 - - --------------------------------------------------------------------------- 1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low Common Stock 3.375 1.7813 2.5313 1.125 1.6875 .7813 1 .5 - ----------------------------------------------------------------------------- 1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low Common Stock 1.469 .5 1.938 .9063 1.8125 1.125 3.938 1.5313 - ----------------------------------------------------------------------------- 2000 1st Quarter High Low Common Stock 4.75 3 - -----------------------------------------------------------------------------
The approximate number of record holders of the Company's common stock as of November 30, 1999 as determined from the Company's transfer agent's list of record holders was 342. Such list does not include beneficial owners of securities whose shares are held in the names of various dealers and clearing agencies. The Company believes that there are in excess of 5,000 beneficial holders. The Company has never declared a dividend on its common stock and does not plan to do so in the near future. ITEM 6. SELECTED FINANCIAL DATA 1999 1998 1997 1996 1995 Operating data: Net revenues $14,209,526 $12,112,879 $12,423,452 $12,717,692 $13,005,642 Income (loss) from continuing operations 620,768 581,503 (931,870) 423,157 723,184 Income (loss) from and gain on sale of discontinued operations (1) - - (1,536,047) 1,243,411 990,656 Basic per share data: Income (loss) from continuing operations $.08 $.10 $(.22) $.08 $.17 Discontinued operations - - (.29) .26 .23 ----------- ---------- --------- -------- ---------- Net income (loss) $.08 $.10 $(.51) $.34 $.40 =========== ========== ========= ======== ========== Balance sheet data: Total assets $27,811,971 $25,700,415 $25,787,101 $27,400,539 $25,670,332 Long-term debt 1,989,031 2,640,075 3,856,956 4,718,793 6,572,701
(1) In November, 1995 the Company sold Star Label Products, Inc., a specialty printing company. In November, 1996, the Company sold Landscape Maintenance Services, Inc., a landscape maintenance and construction company. In November, 1997, the Company closed its last two vocational schools. Prior year financial statements have been restated to reflect the discontinuation of the segments. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement When used in this Report on Form 10-K and in other public statements, both oral and written, by the Company and Company officers, the word "estimates," "project," "intend," "believe," "anticipate," and similar expressions, are intended to identify forward-looking statements regarding events and financial trends that may affect the Company's future operating results and financial position. Such statements are subject to risks and uncertainties that could cause the Company's actual results and financial position to differ materially. Such factors include, among others: (1) the Company's success in attracting new business and success of its mergers & acquisitions program; (2) the competition in the industry in which the Company competes; (3) the Company's ability to obtain financing on satisfactory terms; (4) the sensitivity of the Company's business to general economic conditions; and (5) other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices. The Company undertakes no obligations to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. LIQUIDITY AND CAPITAL RESOURCES Working capital at November 30, 1999, was $1,260,000. This was an increase of $1,878,000 over the previous year. This increase is explained by the following reasons: Accounts receivable increased by $1,536,000, while accounts payable increased only by $788,000. Most of these increases were caused by the acquisition of USC/Canterbury in October, 1999. Secondly, cash increased $773,000 during the year, due to positive cash flow from operating activities. The Company's outstanding amounts owed under the term loan and credit line with Chase Bank were refinanced in December, 1999. Under the new agreement, the Company paid off the remaining term debt of $200,436 and agreed to term out the $2,774,620 credit line. Monthly payments began in March of 2000, and continue until December of 2001. when the final balloon payment of $640,000 is due and payable. Scheduled payments for fiscal 2000 total $915,000. The long term debt is secured by substantially all of the assets of the Company and requires compliance with covenants which include: limits on capital expenditures, certain prepayments from excess cash flow as defined and the maintenance of certain financial ratios and amounts. The Company is restricted by its primary lender from paying cash dividends on its common stock. Subsequent to November 30, 1999 the Company has paid a total of $285,000 to reduce the total bank debt from $2,975,000 to $2,690,000. The outstanding debt will accrue interest at prime plus 2.0% per annnum. During 1999, the Company successfully completed a series of private placements with non-affiliates. From March, 1999 to October, 1999, a total of four private placements occurred. A total of 2,320,589 restricted common shares of stock were issued. The net proceeds totaled $1,471,220. The Company also issued a total of 397,059 shares of restricted common stock as finder fees associated with these placements. All private placements had registration rights. The Company used the proceeds to repay amounts under the term loan for general corporate purposes and for working capital. Management believes that positive cash flow contributions from the Company's operating subsidiaries will be sufficient to cover cash flow requirements for fiscal 2000. There was no material commitment for capital expenditures as of November 30, 1999. Inflation was not a significant factor in the Company's financial statements. Cash flow from continuing operations for the year ended November 30, 1999 was $659,000. This represents an increase of $253,000 over the prior year. 1999 was the fifth consecutive year of positive cash from continuing operations. During the year, the Company reduced its long term bank debt by $1,257,000. For the past four years, the reduction in long term debt totals $6,652,000. Impact of Year 2000 In prior years, the Company discussed the nature of and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $50,000 during 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to insure that any latent year 2000 matters that may arise are addressed promptly. RESULTS OF OPERATIONS Fiscal 1999 Compared to Fiscal 1998 Revenues -------- Revenues increased by $2,086,000 (17%) in fiscal 1999 over fiscal 1998. The majority ($1,990,000) of this increase in attributable to the revenues generated by USC/Canterbury, which was acquired in October, 1999. The revenues for the other existing subsidiaries remained fairly constant. The Company continues to develop alternative revenue streams such as on-line learning, technical staffing services and web development. It is believed that these additional revenue streams will become more significant in Fiscal 2000 and beyond. Costs and Expenses ------------------ Costs and expenses increased by $1,773,000 (26%) in fiscal 1999 over the previous year. Again, the most significant portion of this increase ($1,592,000) is attributable to costs associated with USC/Canterbury for the fourth quarter of the year. The remaining increase of $181,000 is due to increased labor and personnel costs in the training segment. Selling expense decreased by $176,000 (9%). There was a planned reduction in marketing expense for CALC/Canterbury of $106,000. During the year the Company continued to downsize the catalog and the mailing list. More and more of the public registrations are coming through the CALC/ Canterbury web site, which has allowed for the reduction in printing and postage expenses. The balance of the reduction is primarily due to reduced costs associated with sales personnel. General and administrative expense decreased by $153,000 (4%) in fiscal 1999 over fiscal 1998. This reduction is due to reduced personnel costs throughout the organization. As technology continues to improve, the Company has been able to downsize several support functions, relying more on information generated and processed by in-house computer applications. Interest income for fiscal 1999 decreased by $155,000 (18%) over fiscal 1998. This was due to the fact that in 1998 the Company recognized interest income on the portion of the Company's revolving credit facility with Chase Bank that was assumed by the owners of Landscape Maintenance Services for both 1998 and 1997. Fiscal 1998 Compared to Fiscal 1997 Revenues -------- Revenues decreased by $300,000 (2%) in fiscal 1998 over fiscal 1997. As previously discussed, new information technology goods and services are being introduced to our customers. This strategy of becoming a more complete provider of information technology services required the restructuring of the existing sales force. This has caused, in the short term, some revenue stagnation due to the recruiting, hiring and training process of the sales staff. The Company believes that this current investment will provide long-term benefits to the customers and hence, revenues. Costs and Expenses ------------------ Costs and expenses decreased by $409,000 (6%) in fiscal 1998 over the previous year. This most significant cause of this decrease was the reduction in rent expense of $476,000 in 1998 versus 1997. The reduction was due primarily to the Company recognizing in 1997 costs associated with terminating certain leases for its management training company's facilities. During 1998, the Company mitigated these costs, in part, through subleasing of the facility which resulted in a change in estimate of the previously recognized costs. Selling expense decreased by $48,000 (2%) in fiscal 1998 over fiscal 1997 due to reduced marketing expenses related to CALC/Canterbury. During the year, the Company reduced the size and frequency of the catalog schedule mailing. This was accomplished by eliminating non-critical information contained in the publication due to the increased use of the Web site to research both class descriptions and dates. General and administrative expense decreased by $520,000 (12%) in fiscal 1998 over fiscal 1997. Decreased legal expenses of $145,000, consulting fees of $194,000 and general public company/corporate expenses of $42,000 comprise the bulk of the reduction. The Company believes that the reduced level of these expenses will continue into fiscal 1999. Interest income for fiscal 1998 increased by $254,000 (42%) over the prior year due to recognition of interest income on the portion of the Company's revolving credit facility with Chase Bank that was assumed by the owners of Landscape Maintenance Services. This income was not recognized in fiscal 1997. Interest expense decreased by $96,000 (19%) in fiscal 1998 versus fiscal 1997. The reduction in outstanding borrowings on the term loan is the major cause for this reduction. ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA The financial statements and supplementary data are as set forth in the Index on page 14. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with the Company's independent auditors on matters of accounting or financial disclosure. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT The directors, executive officers and control persons of the Company as of November 30, 1999 were as follows: Name Age Position Held with Company(1) - ---- --- ----------------------------- Stanton M. Pikus 59 President, Chief Executive Officer, Chairman of the Board of Directors Kevin J. McAndrew, CPA 41 Chief Operating Officer, Executive Vice President, Chief Financial Officer, Treasurer, Director Jean Zwerlein Pikus 46 Vice President - Operations, Secretary, Director Alan Manin 62 Director Stephen M. Vineberg 58 Director Paul L. Shapiro 48 Director Frank A. Cappiello 74 Director (1) All directors hold office until the next annual meeting of stockholders of the Company and thereafter until their successors are chosen and qualified. All officers hold office at the selection and choice of the Board of Directors of the Company. STANTON M. PIKUS, President and Chairman of the Board of Directors was a founder of the Company (1981). He graduated from the Wharton School of the University of Pennsylvania (B.S., Economics and Accounting) in 1962. From 1968 until 1981 he had been President and majority stockholder of Brown, Bailey and Pikus, Inc., a mergers and acquisitions consulting firm that completed more than twenty transactions. In addition, Mr. Pikus has been retained in the past by various small to medium-sized public companies in the capacity of an independent financial consultant. KEVIN J. McANDREW, CPA, Chief Operating Officer since December, 1993; Executive Vice President since November, 1992; Vice President and Chief Financial Officer of the Company since June, 1987; Treasurer since January, 1988 and Director since August, 1990. He is a graduate of the University of Delaware (B.S. Accounting, 1980) and has been a Certified Public Accountant since 1982. From 1980 to 1983, he was an Auditor with the public accounting firm of Coopers & Lybrand in Philadelphia. From 1984 to 1986, Mr. McAndrew was employed as a Controller for a New Jersey-based division of Allied Signal, Inc. JEAN ZWERLEIN PIKUS, Vice President of Operations since November, 1993; Vice President of Human Resources and School Operations, Secretary and Director since December 1, 1984. She was employed by J. B. Lippincott Company, a publishing company, from 1974 to 1983 as Assistant Personnel Manager, where she established its word processing center and was responsible for the day-to-day control of word processing and graphic services. In 1984, Ms. Pikus graduated from the Wharton School of the University of Pennsylvania (B.S., Accounting and Management, cum laude). Ms. Pikus is the wife of the President, Stanton M. Pikus. ALAN MANIN, Director and Founder of the Company (1981). He is a graduate of Temple University (B.S., 1960, M.Ed., 1966); a former teacher and department chairman in the Philadelphia School System (1960-1966); a former Vice President and Director of Education for Evelyn Wood Reading Dynamics (1966-1972); a former Director of Northeast Preparatory School (1973); President, Chief Operating Officer and founder of Health Careers Academy, a federally accredited (National Association of Trade and Technical Schools) vocational school (1974-1979) and a founder of the Company (1981). He is currently the President of Atlantis, a company which provides motivational training to employees of Fortune 1000 companies. STEPHEN M. VINEBERG, a Director since 1988, is currently the President and Chief Executive Officer of CMQ, Inc. Previously, he was a Vice President of Fidelity Bank, Philadelphia, where he was Chief Operating Officer of the Data Processing and Systems and Programming Divisions. Mr. Vineberg also directed a wholly-owned subsidiary of the bank that developed and marketed computer software, operated a service bureau and coordinated all electronic funds transfer activities. PAUL L. SHAPIRO, a Director since December, 1992 has worked for McKesson Drug Company for the past 15 years. From 1973 through 1975 he was Director of the Pennsylvania Security Officers' Training Academy. In 1973 he graduated from York College of Pennsylvania with a B.S. Degree in Police Administration. FRANK A. CAPPIELLO, a Director since 1995, is President of an investment counseling firm: McCullough, Andrews & Cappiello, Inc., providing management of more than $1 billion of assets. He is Chairman of three no-load mutual funds; Founder and Principal of Closed-End Fund Advisors, Inc.; publisher of Cappiello's Closed-End Fund Digest; author of several books and a regular panelist on "Wall $treet Week with Louis Rukeyser." For more than 12 years Mr. Cappiello was Chief Investment Officer for an insurance holding company with overall responsibility for managing assets of $800 million. Prior to that, he was the Research Director of a major stock brokerage firm. He is a graduate of the University of Notre Dame and Harvard University's Graduate School of Business Administration. ITEM 11. EXECUTIVE COMPENSATION CASH COMPENSATION The Company had 99 full-time employees as of November 30, 1999. There were no cash directors' fees paid during this period. Summary Compensation Table
Name & Other Restricted Securities LTIP All Principal Annual Stock Underlying Payouts Other Position Year Salary($)Bonus($) Compensation($) Awards($) Options/SAR(#) ($) Compensation($) Stanton M. Pikus 1999 $195,000 $ - $- $- 140,000 $- $- President, 1998 202,500 - - - 150,000 - - Chief 1997 195,000 - - - 33,334 - - Executive Officer Kevin J. McAndrew 1999 $135,000 $ - $- $- 105,000 $- $- Chief 1998 127,788 - - - 110,000 - - Operating 1997 120,000 - - - 25,001 - - Officer, Chief Financial Officer.
During fiscal 1997, the Company entered into an amended employment agreement with the President. The term of the agreement is five years and provides for a base salary of $195,000 which began on December 1, 1995 with annual salary increases of $25,000 in the second and third years and to remain at $245,000 for the last two years of the contract. Also included in the agreement are future incentives based on Company performance. There is a bonus opportunity of 5% on the first $500,000 of consolidated income before taxes and bonus and 3% above $500,000. In conjunction with this contract, the President agreed to a covenant not to compete with the Company during his employment and for a period of one year after his employment with the Company has terminated. For the year ended November 30, 1996 the President waived his right to receive any performance bonus earned and in exchange his contract was extended for one year through 2001 at the same terms. For the years ended November 30, 1998 and November 30, 1999, the President waived his rights to receive any performance bonus earned. The Company also amended the employment agreement with its Executive Vice President and Chief Operating Officer during fiscal 1997. The term of the agreement is five years and provides for a base salary of $120,000 for fiscal 1997 and increases of $15,000 per year for the next four years. Also included in the agreement are future incentives based on the Company's profitability. A bonus of $30,000 will be earned if the consolidated income before income taxes and bonus of the Company exceeds $1,000,000. The bonus opportunity applies to each of the five years of the contract. For the year ended November 30, 1996, the Executive Vice President waived his right to receive any performance bonus earned and in exchange the contract was extended to 2001 at the same terms. COMPENSATION PURSUANT TO PLANS The following non-qualified options were granted to executive officers and directors of the Company on the following dates (officers, directors, and more than 5% holders of the Company's common stock received stock options at 100% of the market value on date of grant)as of February 25, 2000.
Name of Individual Capacity in Options Date Granted Exercise Price Which Served ============================================================================ Stanton M. Pikus President 16,667 10/29/96 $3.09 Chairman of the 33,334 01/13/97 $2.25 Board of Directors 50,000 05/18/98 $1.38 100,000 12/04/98 $.53 40,000 08/27/99 $1.56 100,000 11/04/99 $2.40 - ----------------------------------------------------------------------------- Kevin J. McAndrew, Chief Operating CPA Officer Executive Vice President Chief Financial Officer Treasurer, Director 16,667 10/29/96 $3.09 16,667 01/13/97 $2.25 8,334 10/16/97 $3.56 35,000 05/18/98 $1.38 75,000 12/04/98 $.53 30,000 08/27/99 $1.56 75,000 11/04/99 $2.40 - ----------------------------------------------------------------------------- Jean Zwerlein Vice President-Operations Pikus Secretary, Director 8,334 10/29/96 $3.09 8,334 01/13/97 $2.25 6,667 10/16/97 $3.56 20,000 05/18/98 $1.38 45,000 12/04/98 $.53 18,000 08/27/99 $1.56 45,000 11/04/99 $2.40 - ----------------------------------------------------------------------------- Alan Manin Director 3,334 10/29/96 $3.09 3,334 01/13/97 $2.25 10,000 05/18/98 $1.38 17,500 12/04/98 $.53 7,000 08/27/99 $1.56 17,500 11/04/99 $2.40 10,000 01/11/00 $3.67 - ----------------------------------------------------------------------------- Stephen Vineberg Director 834 05/11/95 $8.25 3,334 07/24/95 $8.43 3,334 10/29/96 $3.09 8,334 01/13/97 $2.25 2,500 10/16/97 $3.56 10,000 05/18/98 $1.38 17,500 12/04/98 $.53 7,000 08/27/99 $1.56 17,500 11/04/99 $2.40 10,000(1) 01/11/00(1) $3.67(1) - ----------------------------------------------------------------------------- Paul Shapiro Director 834 05/11/95 $8.25 3,334 07/24/95 $8.43 3,334 10/29/96 $3.09 8,334 01/13/97 $2.25 2,500 10/16/97 $3.56 10,000 05/18/98 $1.38 17,500 12/04/98 $.53 7,000 08/27/99 $1.56 17,500 11/04/99 $2.40 10,000(1) 01/11/00(1) $3.67(1) - ------------------------------------------------------------------------------ Frank A. Cappiell Director 3,334 10/29/96 $3.09 33,334 01/13/97 $2.25 20,000 05/18/98 $1.38 35,000 12/04/98 $.53 14,000 08/27/99 $1.56 35,000 11/04/99 $2.40 35,000(1) 01/11/00(1) $3.67(1)
1. These options are not part of the 1995 Employee Stock Incentive Plan, but also convert to restricted common stock. The individual has five years from the date of grant to exercise these options. Employee stock option holders have five years from the date of grant to exercise any or all of their options, and upon leaving the Company the option holders must exercise within 30 days. These options exercise into restricted shares of Company common stock and absent registration, or any exemption from registration, must be held for the applicable Rule 144 holding period before the restriction can be removed. OTHER COMPENSATION No material other compensation. However, see "Certain Relationships and Related Transactions" for key-man life insurance arrangements. COMPENSATION OF DIRECTORS No additional compensation, other than Company stock options issued at 100% of market value to all Directors who are not otherwise salaried employees. TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS Not Applicable. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (A) (B) The following table sets forth as of February 25, 2000 certain information with regard to the record and beneficial ownership of the Company's common stock by (i) each shareholder, owner of record or beneficial owner of 5% or more of the Company's common stock (ii) each Director individually and (iii) all Officers and Directors of the Company as a group:
Class Name of Beneficial Owner Shares Owned Percent of Class Common Stanton M. Pikus (2)(3) 441,582 4.64% Common Kevin J. McAndrew (1)(3) 59,637 .63% Common Alan Manin (1)(3) 114,055 1.20% Common Jean Zwerlein Pikus(1)(2)(3) 36,473 .38% Common Stephen M. Vineberg (1)(3) 8,629 .09% Common Paul L. Shapiro (1)(3) 667 - Common Frank A. Cappiello(1)(3) 61,667 .65% ------- ----- All Officers and Directors as a group (7 in number) 722,710 7.59% ____________________________ ======= =====
(1) All of said individuals have given a Voting Trust and First Right of Refusal to Stanton M. Pikus, President and Board Chairman of the Company. (2) Stanton M. Pikus and Jean Zwerlein Pikus are married to each other and, therefore, are deemed to have beneficial ownership in each other's shares. (3) Does not include option grants as set forth in Item 11. CHANGE IN CONTROL There has been no change in control of the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has secured key-person life insurance policies for its Corporate Officers. The amount and beneficiary of the key-person life insurance policies are as follows: Corporate Officers Amount of Policy Beneficiary Stanton M. Pikus $1,000,000 Company Kevin J. McAndrew $1,000,000 Company Jean Z. Pikus $ 500,000 Company The Company has secured key-person life insurance policies for Officers of its subsidiaries. The amount and beneficiary of the key-person life insurance policies are as follows: Corporate Officers Amount of Policy Beneficiary Alan McGaffin $1,000,000 ATM/Canterbury Corp. Glen Hukins $ 500,000 CALC/Canterbury Corp. The Company is in the process of securing a key-person life insurance policy for the Presidents of MSI/Canterbury Corp. and USC/Canterbury Corp. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following are filed as a part of this Form 10-K on the pages indicated. Consolidated Financial Statements Page No. Report of Independent Auditors F- 0 Consolidated Balance Sheets - November 30, 1999 and 1998 F- 1 Consolidated Statements of Operations - Years ended November 30, 1999, 1998 and 1997 F- 3 Consolidated Statements of Stockholders' Equity - Years ended November 30, 1999, 1998 and 1997 F- 5 Consolidated Statements of Cash Flows - Years ended November 30, 1999, 1998 and 1997 F- 6 Notes to Consolidated Financial Statements F- 8 Exhibits Sequential Page No. 3(a) Articles of Incorporation of Canterbury Press, Inc. * 3(b) By-Laws of the Registrant * 3(c) Certificate of Amendment to Articles of Incorporation changing the name to Canterbury Education Services, Inc. * 3(d) Certificate of Amendment to Articles of Incorporation changing the name to Canterbury Corporate Services, Inc. ** 3(e) Certificate of Amendment to Articles of Incorporation changing the name to Canterbury Information Technology, Inc. *** 4(f) Asset Purchase Agreement between U.S. Communications, Inc., Condor Technology Solutions, Inc., USC/Canterbury Corp. and the Registrant **** 21 Subsidiaries of Registrant 17 22 Annual Report and Proxy Statement for 1998 Annual Shareholders Meeting **** 27 Financial Data Schedule 18 * Incorporated by reference from the like-numbered exhibit to Form S18 Registration Statement, SEC. File No. 33-6381 filed on July 18, 1986. ** Incorporated by reference from the like-numbered exhibit to Form S-3/A Registration Statement, SEC. File No. 33-77066 filed on March 30, 1994. *** Incorporated by reference from the Annual Report and Definitive Proxy Materials for the 1998 Annual Shareholders Meeting for fiscal year ended November 30, 1998 filed with the SEC on October 7, 2000. **** Incorporated by reference from the like-numbered exhibit to Form S-3 Registration Statement, SEC File. No. 333-89979 filed on October 29, 1999. Reports on Form 8-K filed during the last quarter of the period covered by this report are as follows: None. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Canterbury Information Technology, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CANTERBURY INFORMATION TECHNOLOGY, INC. Dated: 3/14/00 By /s/ Stanton M. Pikus Stanton M. Pikus, President; Chief Executive Officer Dated: 3/14/00 By /s/ Kevin J. McAndrew Kevin J. McAndrew, Chief Operating Officer, Executive Vice President, Chief Financial Officer, Treasurer Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, this report has been signed on behalf of Canterbury Information Technology, Inc. and in the capacities and on the dates indicated. Dated: 3/14/00 By /s/ Stanton M. Pikus Stanton M. Pikus, President; Director; Chairman of the Board of Directors Dated: 3/14/00 By /s/ Kevin J. McAndrew Kevin J. McAndrew, Chief Operating Officer; Executive Vice President; Chief Financial Officer; Director Dated: 3/14/00 By /s/ Jean Zwerlein Pikus Jean Zwerlein Pikus, Vice President - Operations, Secretary; Director Dated: 3/14/00 By /s/ Alan Manin Alan Manin, Director Dated: 3/14/00 By /s/ Stephen M. Vineberg Stephen M. Vineberg, Director Dated: 3/14/00 By /s/ Paul L. Shapiro Paul L. Shapiro, Director Dated: 3/14/00 By /s/ Frank A. Cappiello Frank A. Cappiello, Director Report of Independent Auditors The Board of Directors and Stockholders Canterbury Information Technology, Inc. We have audited the accompanying consolidated balance sheets of Canterbury Information Technology, Inc. as of November 30, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended November 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provided a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Canterbury Information Technology, Inc. at November 30, 1999 and 1998, and the consolidated results of its operations and cash flows for each of the three years in the period ended November 30, 1999, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Philadelphia, Pennsylvania February 25, 2000 CONSOLIDATED BALANCE SHEETS November 30, 1999 and 1998 ASSETS 1999 1998 -------------- -------------- Current Assets: Cash $1,060,434 $287,274 Accounts receivable, net 2,676,889 1,141,544 Notes receivable - current portion 363,805 341,268 Prepaid expenses and other assets 849,107 806,233 Inventory, principally finished goods, at cost 101,533 - Deferred income tax benefit 99,448 150,000 --------- ---------- Total Current Assets 5,151,216 2,726,319 Property and equipment at cost, net of accumulated depreciation of $4,593,000 and $3,993,000 2,383,829 2,323,996 Goodwill, net of accumulated amortization of $2,348,000 and $1,910,000 8,885,170 8,993,805 Deferred income tax benefit 2,706,888 2,712,919 Notes receivable 7,630,836 7,994,641 Other assets 1,054,033 578,217 ----------- ----------- Total Assets $27,811,972 25,329,897 =========== =========== Continued See Accompanying Notes CONSOLIDATED BALANCE SHEETS November 30, 1999 and 1998 Continued LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 ---------- ---------- Current Liabilities: Accounts payable - trade $ 1,144,922 $ 357,100 Accrued expenses 387,660 294,960 Unearned revenue 1,111,330 954,128 Current portion, long-term debt 1,246,997 1,738,565 ---------- ---------- Total Current Liabilities 3,890,909 3,344,753 Long-term debt 1,989,031 2,640,075 Deferred income tax liability 3,059,219 3,115,801 Commitments and contingencies Stockholders' Equity: Common stock, $.001 par value, 50,000,000 shares authorized; 9,508,000 and 6,421,000 issued 9508 6,421 Additional paid-in capital 19,946,848 17,580,522 Accumulated other comprehensive income (472,215) (143,757) Retained earnings/(accumulated deficit) 184,669 (436,100) Notes receivable for capital stock (388,696) (370,518) Less treasury shares, at cost (407,300) (407,300) ----------- ---------- Total Stockholders' Equity 18,872,813 16,229,268 ----------- ---------- Total Liabilities and Stockholders' Equity $27,811,972 $25,329,897 =========== =========== See Accompanying Notes CONSOLIDATED STATEMENTS OF OPERATIONS Years ended November 30, 1999, 1998 and 1997 1999 1998 1997 ---------- ---------- ----------- Service revenue $11,665,394 $11,400,199 $12,109,611 Product revenue 2,544,132 722,680 313,841 ------------ ------------ ------------ Total net revenue 14,209,526 12,122,879 12,423,452 Service costs and expenses 6,657,385 6,403,033 7,020,737 Product costs and expenses 1,810,926 292,243 84,066 ----------- ------------ ----------- Total costs and expenses 8,468,311 6,695,276 7,104,803 Gross Profit 5,741,215 5,427,603 5,318,649 Selling 1,808,601 1,984,836 2,032,510 General and administrative 3,645,673 3,798,612 4,318,455 ------------ ------------ ------------ Total operating expenses 5,454,274 5,783,448 6,350,965 Other income (expenses) Interest income 705,959 861,424 607,178 Interest expense (390,453) (394,925) (490,552) Other 18,321 470,849 (517,956) ------------ ------------ ------------ Total other income (expense) 333,827 937,348 (401,330) Income (loss) before income taxes and discontinued operations 620,768 581,503 (1,433,646) Benefit for income taxes - - (501,776) ------------ ------------ ------------ Income (loss) from continuing operations 620,768 581,503 (931,870) Discontinued operations Loss from discontinued operations (less applicable income tax benefit of $298,224) - - (1,536,047) ------------ ------------ ------------ Net income (loss) $ 620,768 $ 581,503 $(2,467,917) ============= ============ ============ Continued See Accompanying Notes CONSOLIDATED STATEMENTS OF OPERATIONS Years ended November 30, 1999, 1998 and 1997 Continued 1999 1998 1997 Income (loss) from continuing operations $ 620,768 581,503 $(931,870) Preferred stock dividends - - (277,841) ---------- --------- -------- Income (loss) from continuing operations available to common stockholders $620,768 $ 581,503 $(1,209,711) ========= ============ ========== Net income (loss) per share and common share equivalents Basic and diluted: Income (loss) from continuing operations $.08 $.10 $(.22) Discontinued operations - - (.29) ---- ------ ----- Net income (loss) per share $.08 $.10 $(.51) ==== ====== ===== Weighted average number of common shares - basic 8,008,800 6,035,500 5,345,200 ========== ========= ========= Weighted average number of common shares -diluted 8,276,800 6,035,500 5,345,200 See Accompanying Notes [CAPTION] Canterbury Information Technology, Inc. - 10-K 1999 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended November 30, 1999, 1998 and 1997 Class D Common Common Additional Retained Treasury Other Notes Total Convertible Stock Stock Paid-In- Earnings Stock Comprehensive Receivable Stockholders' Preferred Shares Amount Capital (Deficit) Income for Capital Equity Stock Stock ------- -------- ------ ----------- ----------- --------- --------- ---------- ---------- Balance, November 30, 1996 - 5,018,003 $5,018,003$14,850,678 $1,728,155 (325,035) - $(494,518) 15,764,298 Net loss (2,467,917) (2,467,917) Private placement of common stock, net of expenses 211,594 212 544,070 544,282 Issuance of preferred stock 766,000 766,000 Treasury shares acquired at cost (82,265) (82,265) Issuance of common stock for acquisition 152,381 152 499,848 500,000 401(k) Company match 35,178 35 85,448 85,483 Accrued dividends on preferred stock 27,838 (27,838) - Imputed dividends on preferred stock payable in common stock upon conversion 250,003 (250,003) - -------- -------- ------ ----------- ----------- --------- --------- ---------- ---------- Balance, November 30, 1997 1,043,841 5,417,156 $5,417 $15,980,044 ($1,017,603) ($407,300) - (342,325)$15,604,399 Net income 581,503 581,503 Unrealized loss on available for sale securities (143,757) (143,757) Total comprehensive income - Preferred Stock conversion (1,043,841) 613,912 614 1,043,227 - 401(k) Company match 35,201 35 62,271 62,306 Additional issuance of common stock for acquisitions 354,624 355 494,980 495,335 Notes receivable for capital stock (28,193) (29,193) -------- -------- ------ ----------- ----------- --------- --------- ---------- ---------- Balance, November 30, 1998 - 6,420,893 $6,421 $17,580,522 (436,100) ($407,300)(143,757) (370,518)$16,229,268 Net Income 620,768 620,768 Unrealized loss on available for sale securities (328,458) (328,458) Total comprehensive income 292,310 401(k) Company match 77,129 77 48,115 48,192 Additional issuance of common stock of acquisitions 292,468 292 849,707 849,999 Private Placements of common stock, net of expenses 2,717,648 2,718 1,468,504 1,471,222 Notes receivable for capital stock (18,178) (18,178) -------- -------- ------ ----------- ----------- --------- --------- ---------- ---------- Balance, November 30, 1999 - 9,508,138 $9,508 $19,946,848 $184,668 ($407,300) ($427,215) ($388,696)$18,872,813 ========= =========== ====== =========== ========= ========= ========= =========== ========= See Accompanying Notes CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended November 30, 1999, 1998 and 1997 1999 1998 1997 --------- --------- --------- Operating activities: Net income (loss) $ 620,768 $ 581,503 $(2,467,917) Adjustments to reconcile net income (loss) to net cash provided by operating activities from continuing operations: Depreciation and amortization 1,040,952 1,014,571 1,063,392 Provision for losses on accounts receivable 89,773 118,534 63,139 Loss on writedown from notes receivable - 28,992 447,995 Deferred income taxes - (95,618) (451,500) 401(k) contributions 48,192 62,306 86,543 Receipt of stock for services (240,000) (378,000) - Loss from discontinued operations - - 1,536,047 Other assets (561,067) (341,489) 94,241 Changes in operating assets, net of acquisitions Accounts receivable (1,306,811) 72,440 361,444 Prepaid expenses and other assets 5,945 (94,672) (233,337) Income taxes - 63,217 (424,845) Accounts payable 787,822 (110,755) 254,514 Accrued expenses 53,251 (680,563) 557,813 Unearned revenue 120,495 125,659 (343,064) --------- --------- -------- Net cash provided by operating activities of continuing operations 659,320 406,125 544,465 --------- --------- -------- Investing activities: Capital expenditures (431,809) (213,740) (130,497) --------- --------- -------- Net cash used in investing activities of continuing operations (431,809) (213,740) (130,497) --------- --------- -------- Financing activities: Principal payments on long term debt (1,256,532) (549,387) (2,439,469) Proceeds from payments on notes receivable 330,961 348,340 827,282 Proceeds from issuance of common stock, net 1,471,220 - 544,282 Proceeds from issuance of preferred stock, net - - 766,000 Net cash provided by/(used in) financing activities from continuing operations 545,649 (201,047) (301,905) --------- --------- -------- Cash used in discontinued operations - - (254,889) --------- --------- -------- Net increase/(decrease) in cash 773,160 (8,662) (142,826) Cash, beginning of year 287,274 295,936 438,762 --------- --------- ---------- Cash, end of year $1,060,434 $ 287,274 $ 295,936 ========== ========== ========== Continued, See Accompanying Notes CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended November 30, 1999, 1998 and 1997 Continued Supplemental schedule of noncash investing and financing activities: In October, 1999, the Company issued 292,468 shares of its common stock for the purchase of certain assets of U.S. Communications, Inc. During March, 1999, the Company issued 77,129 shares of restricted common stock to its defined contribution plan to fulfill its matching contribution requirement. In October, 1998 the Company issued 278,925 shares of its common stock to the previous shareholders of ATM Technologies, Inc. to complete the one year earnout payment as final consideration under the purchase agreement. In July, 1998 the Company issued 75,700 shares of its common stock to the two previous owners of ProSoft, LLC to satisfy a price guarantee associated with the original purchase of the business. In June, 1998 the Company issued 35,201 shares of restricted common stock to its defined contribution plan to fulfill its matching contribution requirement. The Company incurred capital lease obligations of $106,060 in 1999; $198,455 in 1998; and $219,533 in 1997 when the Company entered into leases for equipment. In December, 1997 the Company received 600,000 shares of common stock from an affiliated third party valued at an estimated market value of $378,000 as compensation for services rendered in the overview and start-up of their business. In November, 1997 the Company received 16,667 shares of its common stock which was placed in treasury as settlement of a note receivable, including accrued interest, of $146,801. The Company recorded a writedown of $95,301 for the difference between the fair market value of the stock of $3.09 per share and balance of the note. During August, 1997 the Company issued 66,667 warrants to its investment banking firm, exercisable at $2.94 which expire in 2002 for services as an advisor to the Company. In July, 1997 the Company received 8,204 shares of its common stock at fair market value which was placed in treasury as full settlement of a note receivable of $30,765. In May, 1997 the Company purchased all of the assets of ATM Technologies, Inc. of Houston, Texas. In conjunction with the acquisition, the Company acquired assets with a fair value of $231,000, less liabilities assumed of $38,000 in exchange for 152,381 shares of Canterbury restricted common stock. During March, 1997 the Company issued 35,178 shares of restricted common stock to its defined contribution plan to fulfill its matching contribution requirement. The taxes paid for fiscal 1999, 1998 and 1997 were as follows: $38,900, $32,400, and $40,600 respectively. Interest paid during fiscal 1999, 1998 and 1997 were as follows: $390,453, $394,925, and $490,552 respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS November 30, 1999 1. Operations and Summary of Significant Accounting Policies Description of Business Canterbury Information Technology, Inc. ("the Company") is engaged in the business of providing information technology services which includes operating computer software training companies, a management training company and developing and selling software to individuals and corporations in the United States. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All material intercompany transactions have been eliminated. Stock Based Compensation The Company accounts for stock options under Accounting Principles Board (APB) Opinion No. 25 - Accounting for Stock Issued to Employees. The Company discloses the pro forma net income and earnings per share effect as if the Company had used the fair value method prescribed under SFAS No.123 - Accounting for Stock Based Compensation (see Note 12). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The ultimate outcome and actual results could differ from the estimates and assumptions used. Revenue Recognition The Company records revenue at the time services are performed or product is shipped. Statement of Cash Flows For purposes of the Statement of Cash Flows, cash refers solely to demand deposits with banks and cash on hand. Depreciation and Amortization The Company depreciates and amortizes its property and equipment for financial statement purposes using the straight-line method over the estimated useful lives of the property and equipment (useful lives of leases or lives of leasehold improvements and leased property under capital leases, whichever is shorter). For income tax purposes, the Company uses accelerated methods of depreciation. The following estimated useful lives are used: Building and improvements 7 years Equipment 5 years Furniture and fixture 5 to 7 years Intangible Assets Goodwill is being amortized over periods ranging from twenty to twenty-five years using the straight-line method. The Company periodically evaluates whether the remaining estimated useful life of intangibles may warrant revision or the remaining balance of intangibles may require adjustment generally based upon expectations of nondiscounted cash flows and operating income. Inventories ----------- Inventories are stated at the lower of cost or market utilizing a first-in, first-out method of determining cost. Earnings Per Share Basic earnings per share is computed using the weighted average common shares outstanding during the year. Diluted earnings per share considers the dilutive effect, if any, of common stock equivalents (options). Recent Accounting Pronouncements In fiscal 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130 "Reporting Comprehensive Income," which requires that an enterprise report, by major component and as a single total, the change in its net assets during the period from nonowner sources, the adoption of this statement in fiscal 1999 did not have an impact on the Company's net income or Stockholders' Equity. FASB also issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," which establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas, and major customers. Management has adopted SFAS No. 131 in fiscal 1999. The Company plans to adopt Statement of Financial Accounting Standards "(SFAS)" No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, effective at the beginning of fiscal 2001. This statement will require derivative positions to be recognized in the balance sheet at fair value. The Company is in the process of reviewing the Statement, and has not yet determined the effect of adoption on results of operations or financial position. Reverse Stock Split On April 2, 1998, the Company's Board of Director approved a one-for-three reverse stock split of the Company's common shares. All share and per share information contained in these financial statements gives retroactive effect to the 1-for-3 reverse stock split effected April 14, 1998. Concentration of Risk As previously discussed, the Company is in the business of providing information technology services. These services are provided to a large number of customers in various industries in the United States. The Company's trade accounts receivable are exposed to credit risk, but the risk is limited due to the diversity of the customer base and the customers wide geographic dispersion. The Company performs ongoing credit evaluations of its customer's financial condition. The Company maintains reserves for potential bad debt losses and such bad debt losses have been within the Company's expectations. The Company maintains cash balances at several large creditworthy banks located in the United States. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company does not believe that it has significant credit risk related to its cash balance. Reclassifications Certain reclassifications have been made to prior years balances in order to conform to current presentations. 2. Acquisitions 3. Discontinued Operations On October 20, 1999, the Company acquired certain assets and assumed certain liabilities of U.S. Communications, Inc. (USC) from Condor Technology Solutions, Inc. for 292,000 shares of Canterbury restricted common stock valued at $850,000. USC, based in Maryland, is a reseller of desktop and server computer systems to state and local governments, as well as commercial and private sector companies in the Mid-Atlantic market. USC provides a wide range of information technology services as well. They include training, software, consulting and network design. After the acquisition, the Company changed the name of U.S. Communications to USC/Canterbury Corp. The acquisition was accounted for using the purchase method of accounting. The purchase price was allocated as follows: receivables - $308,000; inventory - $209,000; other current assets - $21,000; non-current assets - $49,000; and current liabilities - $66,000. The excess cost over the fair value of net assets acquired was approximately $329,000. Goodwill is being amortized over 20 years on a straight line basis. The consolidated results of operations for 1999 include USC since the date of the acquisition. Assuming that the acquisition of USC had been consummated on December 1, 1997, the pro forma results of operations are as follows: Unaudited 1999 1998 ---- ---- Revenues $24,803,000 $22,839,000 Net income 803,000 692,000 Earnings per share - basic and diluted $.10 $.11 3. Segment Reporting The Company is organized into three operating segments and the corporate office. The operating segments are: training and consulting, hardware sales and software sales. Summarzied financial information for each segment is as follows: Training and Consulting Hardware Software Corporate Total ------------ -------- -------- --------- ----- 1999 Revenues $11,665,394 $2,058,870 $ 485,262 $ - $14,209,526 Income before taxes 1,404,468 317,843 104,339 (1,205,882) 620,768 Assets 10,703,017 1,754,118 1,047,171 14,307,666 27,811,972 Interest income - - - 705,959 705,959 Interest expense 30,384 - - 360,069 390,453 Depreciation and amortization 555,339 36,845 15,534 432,478 1,040,196 Training and Consulting Hardware Software Corporate Total ------------ -------- -------- --------- ----- 1998 Revenues $11,440,199 $ 376,300 $ 346,380 $ - $12,122,879 Income before taxes 957,095 112,872 103,897 (592,360) 581,503 Assets 11,263,003 171,734 977,985 12,917,175 25,329,897 Interest income 2,145 - - 859,279 861,424 Interest expense 163,820 - - 231,105 394,925 Depreciation and amortization 547,809 10,876 10,011 445,875 1,014,571 Training and Consulting Hardware Software Corporate Total ------------ -------- -------- --------- ----- 1997 Revenues $12,109,611 $ 143,823 $ 170,018 $ - $12,423,452 Income before taxes 627,364 15,472 18,290 (2,094,772) (1,433,646) Assets 11,875,120 64,039 477,618 13,370,324 25,787,101 Interest income 2,157 - - 605,021 607,178 Interest expense 246,265 - - 244,287 490,552 Depreciation and amortization 510,014 3,304 9,916 540,159 1,063,392 4. Discontinued Operations In November, 1997 the Company decided to discontinue its vocational training segment and closed its last two vocational schools in New Jersey and Nevada. The results of operations and the gain on the sale of these segments has been reported as discontinued operations. The following is a summary of the results of operations of the Company's discontinued vocational schools: Year ended November 30, 1997 ---------------------------- Revenue $831,048 Loss from operations net of tax benefit of $298,224 (1,536,047) ----------- Net income (loss) $(1,536,047) =========== Costs and expenses for these discontinued operations include $235,000 representing allocated costs from corporate for 1997. 5. Property and Equipment Property and equipment, which is recorded at cost, consists of the following: 1999 1998 -------- -------- Land, buildings and improvements $725,910 $725,910 Machinery and Equipment 4,116,383 3,185,632 Furniture and fixtures 1,401,696 1,287,067 Leased property under capital leases and leasehold improvement 732,197 1,118,495 --------- ---------- 6,976,186 6,317,104 Less: Accumulated depreciation (4,592,357) (3,993,108) ---------- ---------- Net property and equipment $2,383,829 $ 2,323,996 ========== =========== Accumulated depreciation of leased property under capital leases totaled $262,000 in 1999. Depreciation expense for 1999, 1998, and 1997 was $603,000, $ 591,000, and $568,000, respectively. 6. Income Taxes The provision/(benefit) for income taxes for the years ended November 30, 1999, 1998, and 1997 is as follows: 1999 1998 1997 ---- ---- ---- Current: Federal $ - $ - $ - State - 63,000 - ----------- ---------- ---------- - 63,000 - Deferred: Federal (59,000) (63,000) (800,000) State 59,000 - - ----------- ---------- ---------- $ - $ - $(800,000) ============ ========== ========== The reconciliation of the expected provision/(benefit)at the U.S. Federal Statutory tax rate to the actual provision (benefit) recorded for the years ended November 30, 1999, 1998, and 1997 is as follows: 1999 1998 1997 ---- ---- ---- Expected tax (benefit) at statutory rates $ 211,000 $197,000 $(1,115,000) Effect of state taxes (net) 39,000 38,000 (117,000) Other 2,000 - - Permanent differences 6,000 12,000 Increase in valuation allowance - - 420,000 Utilization of net operating losses (252,000) (241,000) - ---------- ---------- ---------- Total $ - $ - $(800,000) ========== ========== ========== Significant components of the Company's tax liabilities and assets as of November 30, 1999 and 1998 are as follows: November 30, ------------ Deferred tax liabilities: 1999 1998 ---- ---- Gain recognized in financial statements deferred for income tax purposes $1,814,000 $2,118,801 Tax depreciation in excess of book depreciation 313,000 247,000 Tax amortization in excess of book amortization 558,000 498,000 Other 374,219 252,000 ---------- ---------- Total deferred tax liabilities $3,059,219 $3,115,801 ========== ========== November 30, ------------ Deferred tax assets: 1999 1998 ---- ---- Allowance for doubtful accounts $ 76,000 $ 39,000 Expenses deductible for financial reporting purposes but deferred for tax reporting purposes 24,000 13,000 Net operating loss carryover 2,706,336 2,810,919 ----------- --------- Total deferred tax assets $2,806,336 $2,862,919 =========== ========== At November 30, 1999, the Company had a tax loss carryforward for federal income tax reporting purposes of $6,322,000 and $6,179,000 for state income tax purposes. Net operating losses for federal tax purposes will begin to expire in 2010. Net operating losses for state tax purposes will expire at various dates through 2005. 7. Long-Term Debt November 30, Long-term obligations consist of: 1999 1998 ---- ---- Term loan $ 200,436 $1,221,000 Revolving credit line 2,774,620 2,774,620 Capital lease obligations 260,973 383,020 --------- --------- 3,236,029 4,378,640 Less: Current maturities (1,246,997) (1,738,565) --------- ----------- $ 1,989,032 $ 2,640,075 ========== ========== The Company's outstanding amounts owed under the term loan and credit line with Chase Bank were refinanced in December, 1999. Under the new agreement, the Company paid off the remaining term debt of $200,436 and agreed to term out the $2,774,620 credit line. Monthly payments began in March of 2000, and continue until December of 2001 when the final balloon payment of $640,000 is due and payable. Scheduled payments for fiscal 2000 total $915,000. The long term debt is secured by substantially all of the assets of the Company and requires compliance with covenants which include: limits on capital expenditures, certain prepayments from excess cash flow as defined and the maintenance of certain financial ratios and amounts. The Company is restricted by its primary lender from paying cash dividends on its common stock. Subsequent to November 30, 1999, the Company has paid a total of $285,000 to reduce the total bank debt from $2,975,000 to $2,690,000. The outstanding debt will accrue interest at prime plus 2.0% per annum. Aggregate maturities on long-term debt, exclusive of obligations under capital leases, are approximately $1,115,436 in 2000, $1,220,000 in 2001, and $639,620 thereafter. The carrying value of the long-term debt approximates its fair value. 8. Capital Leases Capital lease obligations are for certain equipment leases which expire through fiscal year 2003. Future required payments under capitalized leases together with the present value, calculated at the respective leases' implicit interest rate of approximately 10.5% to 14.3% at their inception: Year ending November 30, 2000 152,499 Year ending November 30, 2001 80,764 Year ending November 30, 2002 44,56 Year ending November 30, 2003 and thereafter 8,934 -------- Total minimum lease payments 286,757 Less amount representing interest (25,784) --------- Present value of long-term obligations under capital leases $260,973 ========= 9. Leases The Company leases office space for training center locations and administration purposes under various noncancelable operating leases at nine different locations. All of the leases have options to renew. Future minimum rental payments under the leases are $1,254,000 in 2000; $1,062,000 in 2001; $973,000 in 2002; $935,000 in 2003; and $935,000 in 2004; $935,000 in 2005; $778,000 in 2006; $488,000 in 2007; $123,000 in 2008. Rent expense for the years ended November 30, 1999, 1998, and 1997 was $1,266,000, $1,051,000 and $1,527,000, respectively. 10. Commitments and Contingencies During fiscal 1997, the Company entered into an amended employment agreement with the President. The term of the agreement is five years and provides for a base salary of $195,000 which began on December 1, 1995 with annual salary increases of $25,000 in the second and third years and to remain at $245,000 for the last two years of the contract. Also included in the agreement are future incentives based on Company performance. There is a bonus opportunity of 5% on the first $500,000 of consolidated income before taxes and bonus and 3% above $500,000. In conjunction with this contract, the President agreed to a covenant not to compete with the Company during his employment and for a period of one year after his employment with the Company has terminated. For the year ended November 30, 1996 the President waived his right to receive any performance bonus earned and in exchange his contract was extended for one year through 2001 at the same terms. For the year ended November 30, 1998 and November 30, 1999, the President waived his rights to receive any performance bonus earned. The Company also amended the employment agreement with its Executive Vice President and Chief Operating Officer during fiscal 1997. The term of the agreement is five years and provides for a base salary of $120,000 for fiscal 1997 and increases of $15,000 per year for the next four years. Also included in the agreement are future incentives based on the Company's profitability. A bonus of $30,000 will be earned if the consolidated income before income taxes and bonus of the Company exceeds $1,000,000. The bonus opportunity applies to each of the five years of the contract. For the year ended November 30, 1996, the Executive Vice President waived his right to receive any performance bonus earned and in exchange the contract was extended to 2001 at the same terms. 11. Defined Contribution Plan In 1993, the Company established a 401(k) Plan for its participating employees to supplement their retirement income. Participation in the plan is open to all employees who have completed one year of service (twelve consecutive months). One thousand hours of service is required during the first year of service. By payroll deduction, employees can contribute to the Plan from 1% to 15% of their total gross compensation. The Company matches 50% of the first 8% of employee salary deferrals. This match is made in restricted Company common stock based upon the value of the stock each December 31st. The employee match is completely discretionary and can be changed by the employer in subsequent years to be higher or lower. The value of the employee match expensed in 1999, 1998, and 1997 was: $48,192, $62,305, $85,483, respectively. 12. Stock Options and Awards The Company has two stock option plans, the 1995 Non-Qualified Stock Option Plan covering 1,583,334 shares of common stock ("1995 Plan") and the 1987 Non-Qualified Stock Option Plan covering 162,603 shares of common stock ("1987 Plan"). As of November 30, 1999, the Company had 100,060 shares under the 1995 Plan available for issuance in connection with the future stock options that may be granted. The 1987 Plan expired in 1995, therefore no additional grants may be made, although outstanding awards may be exercised. Options granted are exercisable immediately and are issued at market price. A summary of Canterbury's stock option activity and related information for the years ended November 30 is as follows: 1999 1998 1997 ---- ---- ---- Number of shares under stock options: Outstanding at beginning of year 710,866 539,538 441,274 Granted 927,650 188,266 192,179 Exercised - - - Canceled (149,795) (16,940) (93,915) Outstanding and exercisable at end of year 1,488,721 710,866 539,538 Weighted average exercise price: Granted $1.50 $1.42 $2.48 Exercised - - - Canceled $9.13 $10.33 $7.07 Outstanding and exercisable at end of year $2.04 $4.25 $5.43 Information with respect to stock options outstanding and exercisable at November 30, 1999, is as follows: Options Outstanding and Exercisable Range of Number Weighted Average Weighted Average Exercise Price Outstanding Remaining Life Exercise Price at 11/30/99 in Years $0.53 - $3.56 1,419,769 3.85 $1.75 $4.31 - $9.00 68,952 0.73 $7.70 FASB Statement No. 123 requires pro forma disclosure under the fair value method of net income and income per share for stock options granted. The fair value for options was estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because Canterbury's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. The fair weighted average value of options granted in each year and assumptions used in estimating fair value under the Black-Scholes model are as follows: 1999 1998 1997 ---- ---- ---- Estimated fair value of options granted $359,644 $59,433 $92,084 ======== ======= ======= Principal assumptions in applying the Black-Scholes valuation model: Expected life, in years 2.50 2.50 2.50 Risk-free interest rate 6.50% 4.50% 6.00% Expected volatility .647 .476 .304 Expected dividend yield 0.00% 0.00% 0.00% For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Had compensation cost been determined based upon the fair value of stock options at grant date consistent with FASB Statement No. 123, Canterbury's net income and income per share would have been reduced to the pro forma amounts indicated below (in thousands, except income per share information): 1999 1998 1997 ---- ---- ----- Pro forma net income (loss) from continuing operations $261,124 $522,070 $(1,301,795) Pro forma income per share from continuing operations basic and diluted .03 .09 (.24) 13. Stockholders' Equity During 1999, the Company successfully completed as series of private placements with non-affiliates. From March, 1999 to October, 1999, a total of four private placements occurred. A total of 2,320,589 restricted common shares of stock were issued. Total net proceeds totaled $1,471,220. The Company also issued a total of 397,059 shares of restricted common stock as finder fees associated with these placements. All private placements had registration rights. The Company used the proceeds to repay amounts under the term loan for general corporate purposes and for working capital. In August, 1997, the Company completed a private placement of 1,000,000 shares of Class D, 8% Convertible Preferred Stock at a price of $1.00 per share. The Preferred Stock was convertible into Common Stock of the Company at a 20% discount from the market price. Imputed dividends were accrued in the amount of $250,000 for the year ended November 30, 1997. The preferred shares were available for conversion in November, 1997. An investment banking firm that arranged this private placement received 300,000 warrants for stock as partial consideration. The warrants are immediately exercisable at $.98 and expire in 2002. None of the warrants have been exercised. The Preferred Shares paid a dividend of 8% per annum, payable in its entirety upon conversion, either in cash or common stock at the Company's option. During fiscal 1998 all preferred stock and accrued dividends, were converted into 613,912 shares of Canterbury common stock. During 1997, the Company received net proceeds of $634,782 from private placements of its common stock sold to investors at prices ranging from $.47 of $1.00 per share. 14. Related Party Transactions During 1999, the Company performed consulting and web development services for a start-up, non-public company in which certain officers are members of the Board of Directors and shareholders. The services billed during the year totaled $521,500. The receivable for these services is included in other assets on the acccompanying balance sheet. Settlement of this receivable may be made in cash and/or stock of the non-public company. Management believes that the collection of the receivable is reasonably assured, hence there is no reserve required as of the balance sheet date. In 1993, the Company sold previously charged off accounts receivable to an unaffiliated third party for $62,000 in cash and a secured, non-recourse, interest bearing note of $560,000. In 1997, the third party maker of the note defaulted and the collateral was not available to satisfy the unpaid balance. The Company, in its collection effort, has received as replacement collateral, common stock in a public company. Certain officers and directors of Canterbury have an ownership interest in this public company. These officers and directors became affiliated with the maker of the note in 1997 as a result of their ownership in the public company that the note maker offered as collateral. Management wrote down the note receivable to the expected realizable value of the collateral at November 30, 1997, and as a result charged $450,000 as other expenses in continuing operations in fiscal 1997. During fiscal 1998, the Company closed on the collateral as full payment for the note receivable. The Company recognized an additional loss of $29,000 as other expense in continuing operations based on the estimated value of collateral upon transfer to the Company. During fiscal 1998, an additional 600,000 shares were received for services rendered by Canterbury to this public company and $375,000 has been reflected in other income in the Statement of Operations representing the estimated fair value of the shares received. See also Note 16 - Securities Available for Sale. At November 30, 1999 and 1998, the total notes receivable plus accrued interest for corporate officers, corporate counsel and certain consultants totaled $389,000 and $371,000, respectively. The notes are collateralized by the common stock and are reported as a contra-equity account. Interest rates range from 6% to 7%. During 1997 the Company paid corporate counsel a $100,000 facilitation fee in connection with the private placement of the Class D, 8% convertible preferred stock. 15. Advertising The Company expenses advertising as incurred. Total advertising expenses included in the results of operations were $347,000, $511,000 and $373,000 for 1999, 1998, and 1997, respectively. 15. Securities Available for Sale At November 30, 1998, the Company held investment securities in public companies. For one of the public companies certain officers and directors of the Company have an ownership interest in the aggregate of less than 10%. Management has estimated the fair value of this investment at November 30, 1999 and 1998 at $26,437 and $317,250, respectively, based on discounted market values due to the stock being thinly traded and volatile. Other equity securities have a fair value of $202,355 at November 30, 1999. Management has classified these investments as available for sale and are included in non-current other assets in the accompanying balance sheet. The Company did not sell any available for sale securities during 1999 or 1998.
EX-21.1 2 SUBSIDIARIES OF THE REGISTRANT LIST OF SUBSIDIARIES OF CANTERBURY INFORMATION TECHNOLOGY, INC. Canterbury Career Schools, Inc. (inactive) Canterbury Career Schools of Sacramento, Inc. (inactive) Canterbury Career Schools of Pittsburgh, Inc. (inactive) Canterbury Management Group, Inc. Star Label Products, Inc. (shell) Clark Training Corp. (inactive) MSI/Canterbury Corp. Empire Career Center, Inc. (inactive) Canterbury Career Schools of Lauderdale (inactive) CALC/Canterbury Corp. Prosoft/Canterbury Corp. (inactive) Nevada Training Corp. (inactive) Vocational Education Corp. d/b/a American Trucking Academy(inactive) ATM/Canterbury Corp. USC/Canterbury Corp. EX-27 3 FINANCIAL DATA SCHEDULE
5 0000794927 CANTERBURY INFORMATION TECHNOLOGY, INC. 1 NOV-30-1999 DEC-01-1998 NOV-30-1999 12-MOS 1,060,434 0 2,865,127 (188,238) 101,533 5,151,216 0 0 27,811,972 3,890,909 0 0 0 9,508 18,863,305 27,811,972 14,209,526 14,209,526 8,468,311 5,454,274 (724,280) 0 390,453 620,768 0 620,768 0 0 0 620,768 0.08 0.08
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