-----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, CaSJCAA7a1k5aMDZnlzo9xucMyZG5QHTf5KvA9WMzTJUMJvEvZdgwsaSgFEny/rS wk2dOqLv2edcleyZqqhMQg== 0001058809-01-000007.txt : 20010307 0001058809-01-000007.hdr.sgml : 20010307 ACCESSION NUMBER: 0001058809-01-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010228 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: 1557930 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 0001.txt FORM 10-K FOR YEAR ENDING 11/30/2000 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. -----END PRIVACY-ENHANCED MESSAGE-----