-----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, RGzruWERlxrNJFwhpV9iS2XslW1W9Oxbsem0iKresTif4Ml8VTOf73Y/JBDTAKvB GqwKFFW28IjXat3MCZ4USg== 0001058809-02-000013.txt : 20020715 0001058809-02-000013.hdr.sgml : 20020715 20020715135931 ACCESSION NUMBER: 0001058809-02-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020531 FILED AS OF DATE: 20020715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANTERBURY CONSULTING GROUP 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15588 FILM NUMBER: 02702739 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 INFORMATION TECHNOLOGY INC DATE OF NAME CHANGE: 19970620 10-Q 1 ccg10q502.txt QUARTERLY REPORT FOR THE PERIOD ENDED MAY 31, 2002 FORM 10-Q --------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 OR 15(d) Of the Securities Exchange Act of 1934 For Quarter Ended: Commission File Number: May 31, 2002 0-15588 CANTERBURY CONSULTING GROUP, INC. --------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-2170505 - ------------------------------- ----------------------- (State of Incorporation) (IRS Employer Identification Number) 1600 Medford Plaza 128 Route 70 Medford, New Jersey 08055 (Address of principal executive office) Telephone Number: (609) 953-0044 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No ---- ---- The number of shares outstanding of the registrant's common stock as of the date of the filing of this report, July 15, 2002, is 12,088,427 shares. FORM 10-Q PART 1 - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements - ----------------------------- CANTERBURY CONSULTING GROUP, INC. CONSOLIDATED BALANCE SHEET -------------------------- ASSETS - ------ May 31, November 30, 2002 2001 ----------- ------------ (Unaudited) Current Assets: Cash and cash equivalents $ 174,273 $ 664,850 Accounts receivable, net of allowance for doubtful accounts of $447,000 and $452,000 6,845,844 5,728,970 Notes receivable - current portion 460,437 459,029 Prepaid expenses and other assets 395,466 239,470 Inventory, principally finished goods, at cost 328,656 826,851 Deferred income tax benefit 149,011 149,011 ----------- ----------- Total Current Assets 8,353,687 8,068,181 Property and equipment at cost, net of accumulated depreciation of $2,300,000 and $2,038,000 1,177,442 1,315,942 Goodwill, net of accumulated amortization of $1,234,000 4,192,104 4,162,604 Deferred income tax benefit 4,048,105 4,323,105 Notes receivable 6,743,840 6,966,743 Other assets 205,749 207,547 ----------- ----------- Total Assets $24,720,927 $25,044,122 =========== =========== See Accompanying Notes 2 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. CONSOLIDATED BALANCE SHEET LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ May 31, 2002 November 30, (Unaudited) 2001 ----------- ------------ Current Liabilities: Accounts payable - trade $ 2,779,726 $ 1,776,326 Accrued expenses 561,502 1,014,302 Unearned revenue 1,021,303 1,943,240 Income taxes payable - 18,540 Current portion, long-term debt 844,578 873,439 ----------- ----------- Total Current Liabilities 5,207,109 5,625,847 Long-term debt 2,070,552 2,145,183 Deferred income tax 2,939,201 2,947,131 ----------- ----------- Total Liabilities 10,216,862 10,718,161 Commitments and contingencies Stockholders' Equity: Common stock, $.001 par value, 50,000,000 shares authorized; 12,088,000 and 12,469,000 issued 12,088 12,469 Additional paid-in capital 23,716,331 24,232,735 Retained earnings (deficit) (5,486,036) (5,916,972) Notes receivable for capital stock - related parties (3,738,318) (4,002,271) ----------- ----------- Total Stockholders' Equity 14,504,065 14,325,961 ----------- ----------- Total Liabilities and Stockholders' Equity $24,720,927 $25,044,122 =========== =========== See Accompanying Notes 3 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME Three-Months Ended May 31, Six-Months Ended May 31, 2002 2001 2002 2001 ---- ---- ---- ---- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Service revenue $4,820,943 $ 2,884,128 $ 8,840,638 $ 5,641,984 Product revenue 4,818,714 3,548,576 7,548,013 6,688,022 ---------- ----------- ----------- ----------- Total net revenue 9,639,657 6,432,704 16,388,651 12,330,006 Service costs and expenses 2,830,852 1,729,545 5,628,294 3,236,452 Product costs and expenses 4,174,234 3,085,470 6,318,896 5,528,001 ---------- ----------- ----------- ----------- Total costs and expenses 7,005,086 4,815,015 11,947,190 8,764,453 Gross profit 2,634,571 1,617,689 4,441,461 3,565,553 Selling 665,379 698,427 1,262,888 1,349,769 General and administrative 1,505,011 2,537,660 2,828,402 3,753,516 ---------- ----------- ----------- ----------- Total operating expenses 2,170,390 3,236,087 4,091,290 5,103,285 Other income/(expenses) Interest income 176,518 216,389 346,262 393,005 Interest expense (57,022) (41,013) (104,703) (92,828) Other 1,028 (412,481) 114,206 (319,622) ---------- ----------- ----------- ----------- Total other income 120,524 (237,105) 355,765 (19,445) Income (loss) before income taxes and cumulative effect of change in accounting principle 584,705 (1,855,503) 705,936 (1,557,177) Provision (benefit) for income taxes 229,000 (460,000) 275,000 (333,000) ---------- ----------- ----------- ----------- Income before cumulative effect of change in accounting principle 355,705 (1,395,503) 430,936 (1,224,177) Cumulative effect of change in accounting principle - - - (213,088) ---------- ----------- ----------- ----------- Net income (loss) $ 355,705 $(1,395,503) $ 430,936 $(1,437,265) ========== =========== =========== =========== See Accompanying Notes 4 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME Continued Three-Months Ended May 31, Six-Months Ended May 31, 2002 2001 2002 2001 ---- ---- ---- ---- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net income (loss) per share and common share equivalents Net income (loss) $355,705 $(1,395,503) $ 430,936 $(1,437,265) Basic: Income (loss) before cumulative effect of change in accounting principle $.03 $(.12) $.04 $(.11) Cumulative effect of change in accounting principle - - - (.02) ---- ----- ---- ----- Net income (loss) $.03 $(.12) $.04 $(.13) ==== ===== ==== ===== Diluted: Income (loss) before cumulative effect of change in accounting principle $.03 $(.12) $.04 $(.11) Cumulative effect of change in accounting principle - - - (.02) ---- ----- ---- ----- Net income (loss) $.03 $(.12) $.04 $(.13) ==== ===== ==== ===== Weighted average number of common shares - basic 12,266,000 11,518,600 12,313,300 11,109,000 ========== ========== ========== ========== Weighted average number of common shares - diluted 12,405,600 11,803,500 12,452,900 11,393,800 ========== ========== ========== ========== See Accompanying Notes 5 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MAY 31, 2002 AND May 31, 2001 May 31, 2002 May 31, 2001 ------------ ------------ (Unaudited) (Unaudited) Operating activities: Net income (loss) $ 430,936 $(1,437,265) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 262,161 501,816 Goodwill impairment - 500,000 Provision for losses on accounts receivable 5,755 291,153 Cumulative effect of accounting change - 213,088 Deferred income taxes 267,070 (351,535) 401(k) contribution - 83,362 Receipt of stock for services - (793,240) Other assets 1,798 466,456 Loss on sale of land - 317,204 Changes in operating assets, net of acquisitions Accounts receivable (1,122,629) 557,040 Inventory 498,195 (3,508) Prepaid expenses and other assets (155,996) 288,406 Income taxes (18,540) (129,833) Accounts payable 1,003,400 (137,587) Accrued expenses (470,309) 310,052 Unearned revenue (921,937) 50,367 ---------- ----------- Net cash provided by (used in) operating activities (220,096) 725,976 ---------- ----------- Investing activities: Capital expenditures, net (123,661) (27,943) Other (29,500) 399,734 ---------- ----------- Net cash provided by (used in) investing activities (153,161) 371,791 ---------- ----------- Financing activities: Purchase of treasury shares (250,323) - Proceeds from issuance of common stock 15,000 - Proceeds from revolving line of credit 250,000 - Proceeds from long term debt - 1,500,000 Principal payments on long term debt (353,492) (1,902,977) Proceeds from payments on notes receivable 221,495 192,816 ---------- ----------- Net cash used in financing activities (117,320) (210,161) ---------- ----------- Net increase (decrease) in cash (490,577) 887,606 ---------- ----------- Cash, beginning of period 664,850 885,479 ---------- ----------- Cash, end of period $ 174,273 $ 1,773,085 ========== =========== See Accompanying Notes 6 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. Operations and Summary of Significant Accounting Policies --------------------------------------------------------- Basis of Presentation --------------------- The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations. It is suggested that these unaudited consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's 10-K for the year ended November 30, 2001. In the opinion of management, all adjustments (which consist only of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows of all periods presented have been made. Quarterly results are not necessarily indicative of results for the full year. Description of Business ----------------------- Canterbury Consulting Group, Inc. is engaged in the business of providing broad based information technology and management consulting services and training to both corporate and government clients. Canterbury's mandate is to become an integral part of its clients' management and technical infrastructure, designing and applying the best products and services to help them achieve a competitive advantage. 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 7 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 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. 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 ------------------- Product Revenue Product revenue is recognized when there is persuasive evidence of an arrangement, the product has been delivered, the sales price is fixed or determinable, and collectibility is reasonably assured. The product is considered delivered to the customer once it has been shipped, and title and risk of loss have transferred. The Company defers revenue if there is uncertainty about customer acceptance. Product revenue represents sales of computer hardware and software. Generally, the Company is involved in determining the nature, type, and specifications of the products ordered by the customer. Service Revenue Service revenue is recognized when there is persuasive evidence of an arrangement, the sales price is fixed or determinable, and collectibility is reasonably assured. Service revenues represent training, consulting and technical staffing services provided to customers under separate consulting and service contracts. Revenues from these contracts are recognized as services are rendered. Change in Accounting -------------------- The Securities and Exchange Commission (SEC) recently issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements," which provides additional guidance in applying generally accepted accounting principles for revenue recognition. The Company implemented the provisions of SAB 101 in the fourth quarter of fiscal 2001, retroactive to December 1, 2000. The implementation of SAB 101 resulted in a change in accounting for certain product shipments where title did not transfer to the customer until delivery occurred. The cumulative effect of the change for implementation of SAB101 resulted in a charge to the first quarter of fiscal 2001 income of $213,088 (net of income taxes of $109,773). For the first quarter ended February 28, 2001, the Company recognized $1,560,000 of revenue which was included in the cumulative effect adjustment. The effect of that revenue on fiscal 2001 was to increase income by $213,088 (net of income taxes of $109,773) during that period. 8 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Statement of Cash Flows ----------------------- For purposes of the Statement of Cash Flows, cash refers solely to demand deposits with banks and cash on hand. Depreciation and Amortization ----------------------------- The Company depreciates and amortizes its property and equipment for financial statement purposes using the straight-line method over the estimated useful lives of the property and equipment (useful lives of leases or lives of leasehold improvements and leased property under capital leases, whichever is shorter). For income tax purposes, the Company uses accelerated methods of depreciation. The following estimated useful lives are used: Building and improvements 7 years Equipment 5 years Furniture and fixture 5 to 7 years 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). Concentration of Risk --------------------- As previously discussed, the Company is in the business of providing management and 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 customers' 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 a creditworthy bank located in the United States. Accounts at the 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. 9 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Reclassifications ----------------- Certain reclassifications have been made to prior years balances in order to conform to current presentations. Recent Accounting Pronouncement ------------------------------- The Financial Accounting Standards Board ("FASB") recently issued Statement of Financial Accounting Standard No. 141 ("SFAS 141"), "Business Combinations", and Statement of Financial Accounting Standard No. 142 ("SFAS No. 142"), "Goodwill and Intangible Assets". SFAS No. 141 is effective for all business combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 with early adoption permitted for fiscal years beginning after March 15, 2001. However, certain provisions of SFAS 142 apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. Major provisions of these Statements are as follows: 1. All business combinations initiated after June 30, 2001 must use the purchase method of accounting. The pooling of interest method of accounting is prohibited except for transactions initiated before July 1, 2001. 2. Intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented, or exchanged, either individually or as part of a related contract, asset, or liability. 3. Goodwill, as well as intangible assets with indefinite lives, acquired after June 30, 2001, will not be amortized. Effective with the adoption of SFAS 142, all previously recognized goodwill and intangible assets with indefinite lives will no longer be subject to amortization. 4. Effective with the adoption of SFAS 142, goodwill and intangible assets with indefinite lives will be tested for impairment annually and whenever there is an impairment indicator. 5. All acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting. The Company has adopted SFAS 142 effective at December 1, 2001. Goodwill has been amortized at approximately $480,000 annually (or $120,000 quarterly) in prior periods. Therefore, no goodwill amortization was recorded in the six months ended May 31, 2002, and none will be recorded in future periods. The Company has completed the transition impairment test in accordance with SFAS 142 and has found no goodwill impairment as of May 31, 2002. 2. Acquisitions ------------ On September 28, 2001, the Company completed the acquisition of User 10 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Technology Services, Inc. ("Usertech") with an effective date of September 1, 2001. The purchase of 100% of the outstanding shares of Usertech common stock was accounted for using the purchase method of accounting. The Company paid $2,350,000 in cash; $1,200,000 in notes payable over three years, plus the assumption of $851,000 in liabilities. Usertech provides e-learning support, Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) planning, implementation and training, as well as post implementation support, for clients who have installed Peoplesoft, SAP and Oracle software. Proprietary software packages are also supported through a national network of skilled consultants. 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, technical staffing and software development. Summarized financial information for the three months and six months ended May 31, 2002 and May 31, 2001, for each segment, is as follows: For the six months ended May 31, Value Training Added and Hardware Technical Software 2002 Consulting Reseller Staffing Development Corporate Total - ---- ---------- -------- -------- ----------- --------- ----- Revenues $8,262,024 $7,438,868 $578,614 $109,145 $ - $16,388,651 Income before taxes 359,071 660,424 72,416 (10,741) (375,234) 705,936 Assets 8,204,649 3,776,729 302,793 94,191 12,342,565 24,720,927 Interest income 460 - - 2,050 343,752 346,262 Interest expense 52,860 23 - 2,071 49,749 104,703 Depreciation and amortization 213,109 21,525 10,555 5,880 11,092 262,161 Value Training Added and Hardware Technical Software 2001 Consulting Reseller Staffing Development Corporate Total - ---- ---------- -------- -------- ----------- --------- ----- Revenues $4,812,088 $6,560,599 $ 829,896 $127,423 $ - $12,330,006 Income before taxes 94,875 576,029 (176,759) 7,212 (2,058,534) (1,557,177) Assets 10,649,985 4,902,356 393,038 122,264 16,021,175 32,088,818 Interest income - - - - 393,005 393,005 Interest expense 11,175 33 - - 81,620 92,828 Depreciation and amortization 221,485 6,962 11,492 12,886 748,991 1,001,816
11 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ For the three months ended May 31, Value Training Added and Hardware Technical Software 2002 Consulting Reseller Staffing Development Corporate Total - ---- ---------- -------- -------- ----------- --------- ----- Revenues $4,566,211 $4,799,819 $254,732 $18,895 $ - $9,639,657 Income before taxes 442,130 385,829 13,645 (23,930) (232,969) 584,705 Assets 8,204,649 3,776,729 302,793 94,191 12,342,565 24,720,927 Interest income - - - 2,050 174,468 176,518 Interest expense 26,258 - - 1,012 29,752 57,022 Depreciation and amortization 94,515 16,444 5,281 1,987 5,564 123,791 Value Training Added and Hardware Technical Software 2001 Consulting Reseller Staffing Development Corporate Total - ---- ---------- -------- -------- ----------- --------- ----- Revenues $ 2,533,820 $3,484,196 $350,308 $ 64,380 $ - $ 6,432,704 Income before taxes (106,737) 182,865 (125,715) 2,463 (1,808,379) (1,855,503) Assets 10,649,985 4,902,356 393,038 122,264 16,021,175 32,088,818 Interest income - - - - 216,389 216,389 Interest expense 11,175 - - - 29,838 41,013 Depreciation and amortization 110,382 2,440 5,810 7,034 620,346 746,012
4. Property and Equipment ---------------------- Property and equipment consists of the following: May 31, November 30, 2002 2001 ------- ----------- Machinery and equipment $2,377,448 $2,253,787 Furniture and fixtures 566,576 566,576 Leased property under capital leases and leasehold improvements 533,834 533,834 ---------- ---------- 3,477,858 3,354,197 Less: Accumulated depreciation (2,300,416) (2,038,255) ---------- ---------- Net property and equipment $1,177,442 $1,315,942 ========== ========== 12 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Depreciation expense for the three months ended May 31, 2002 and May 31, 2001 was $138,000 and $120,000, respectively. 5. Notes Receivable ---------------- The Company holds a note receivable with a remaining balance in the amount of $2,547,436 at May 31, 2002. This note was received in November 1995 as part of the consideration for the sale of a former subsidiary. The Company is scheduled to receive monthly payments of $33,975 inclusive of interest at 7.79% per year through November 2005 and a balloon payment of $1,707,000 in December 2005. In addition, the Company held notes receivable assets from related parties in the aggregate amount of $4,656,841 at May 31, 2002. These notes have interest terms that average 8.5% per year and are scheduled to mature at various dates through December 2006, with a balloon payment of $1,596,000 in December, 2007. 6. Long-Term Debt -------------- May 31, November 30, 2002 2001 ------- ----------- Long-term obligations consist of: Term loan $1,175,000 $1,325,000 Revolving credit line 250,000 100,000 Note payable for acquisition 1,165,795 1,169,656 Capital lease obligations 50,399 81,743 Notes payable - equipment 273,936 342,223 ---------- ---------- 2,915,130 3,018,622 Less: Current maturities (844,578) (873,439) ---------- ---------- $2,070,552 $2,145,183 ========== ========== The Company's outstanding amount owed under the revolving credit line with Chase Bank was refinanced in May, 2001 by establishing a commercial lending relationship with Commerce Bank, N.A. (the Bank). As of the date of the refinancing, approximately $883,000 was paid to Chase in full satisfaction of the Company's outstanding obligations, out of the proceeds of a $1,500,000 five-year term loan from Commerce. As part of the refinancing, the Company also secured a two-year $2,500,000 working capital line of credit with the Bank collateralized by trade accounts receivable and inventory. $1,500,000 was borrowed in conjunction with the acquisition of User Technology Services, Inc. ("Usertech") on September 28, 2001. This $1,500,000 has been repaid in full. Both loans carry an interest rate of the prime rate plus 1%. The credit facility with Commerce Bank is 13 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ structured so that as the original term loan of $1,500,000 is paid down, the borrowing cap on the revolver increases so that the total maximum outstanding debt is $4,000,000, subject to receivable and inventory levels. As of May 31, 2002 the total available revolver line is $2,550,000. During May, 2002 the Bank has extended the term on the revolving line of credit until May 1, 2004. The Bank's long term debt is secured by substantially all of the assets of the Company and requires compliance with covenants which include the maintenance of certain financial ratios and amounts. The Company is restricted by its bank from paying cash dividends on its common stock. The Company remains in full compliance with all of the financial covenants of its loan agreement with the Bank. As part of the purchase price paid for the acquisition of Usertech in September, 2001, the Company agreed to pay $1,200,000 to the seller over the next three years at an annual amount of $400,000 plus accrued interest at 7% per annum on the outstanding balance. Also as part of the purchase agreement, the seller agreed to guarantee the collection of the acquired accounts receivable with a 10% risk sharing threshold by Canterbury. The Company has the right in the first year after the acquisition to offset the guaranteed portion of any uncollectible receivable against the first $400,000 payment scheduled to be made during September, 2002. As of July 15, 2002 the Company has notified the seller and put back $34,205 against the note payment. The Company originally had until March 26, 2002 to put the uncollected accounts receivable back to the seller. The Company and seller mutually agreed to extend the deadline to September, 2002. In conjunction with the purchase of 100% of the stock of Usertech, the Company purchased computer equipment from the seller valued at $364,000 through issuance of a note payable over three years with interest at an annual rate of 3.75%. At May 31, 2002, the note payable had an outstanding balance of $273,936. Aggregate fiscal maturities on long-term debt, exclusive of obligations under capital leases, are approximately $584,000 in 2002; $836,000 in 2003; $1,020,000 in 2004; $300,000 in 2005; and $125,000 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 2004. 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. 14 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Year ending November 30, 2002 $33,255 Year ending November 30, 2003 and thereafter 21,377 ------- Total minimum lease payments 54,632 Less amount representing interest (4,233) ------- Present value of long-term obligations under capital leases $50,399 ======= 8. Related Party Transactions -------------------------- At May 31, 2002 and November 30, 2001, the total notes receivable plus accrued interest for the issuance of Company common stock to corporate officers, corporate counsel and certain consultants totaled $3,738,000 and $4,002,000, respectively. The notes are collateralized by common stock of the Company and are reported as a contra-equity account. Interest rates range from 4% to 6.6%. At May 31, 2002, $1,736,000 of the notes are recourse and $2,002,000 are non- recourse. During Fiscal 2001, certain officers and directors of the Company purchased a 33% ownership interest in a corporation which owns 100% of the stock of a corporation which has notes payable to the Company in the amount of $4,656,841 at May 31, 2002 from an owner group who purchased the business from the Company in 1996. The Company maintained the same level of security interest protection and the same debt amortization schedule. The Company earned $408,000 of interest income from these notes in Fiscal 2001, and $200,000 of interest income in the six months ended May 31, 2002. These notes have interest terms that average 8.5% per year and are scheduled to mature at various dates through December 2006, with a balloon payment of $1,596,000 in December, 2007. 9. Stock Listing ------------- On February 15, 2002 the Company was notified by Nasdaq that it had until May 15, 2002 to come into compliance with their minimum $1.00 per share requirement for continued inclusion on their National Market listing. The Company is in full compliance with the remaining listing requirements of Nasdaq's Maintenance Standard #1. The Company complied with the minimum price requirements by closing at a $1.00 per share for a period of 11 consecutive trading days before May 15, 2002. The minimum requirement was closing at a $1.00 for 10 consecutive days. Even though the Company met the minimum price requirement, Nasdaq considered intra day trading activity below $1.00 during the 11-day period and did not approve the Company's continued listing on their National Market listing. The Company appealed Nasdaq's initial decision and appeared before an appeal panel on June 21, 2002. Nasdaq's final decision is still pending as of the date of this filing. If the Company does not succeed in winning the appeal it will apply to transfer its securities to the Nasdaq Small Cap Market. 15 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Item 2. Management's Discussion of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Liquidity and Capital Resources - ------------------------------- Working capital at May 31, 2002 was $3,147,000, an increase of $705,000 since November 30, 2001. The Company's cash position decreased by $490,000 during the first six months of the year due primarily to reductions in accrued expenses, unearned revenue and an increase in accounts receivables. Receivables increased by approximately $1,122,000 from year-end due to increased revenues during the second quarter. Inventory reduced by $498,000 from year-end due to the fact that several significant hardware orders that were in transit at November 30, 2001 were shipped during December 2001. The amount of inventory related to these shipments totaled $653,000. In conjunction with these transactions, approximately $775,000 in deferred revenue was also recorded. The Company's outstanding amount owed under the revolving credit line with Chase Bank was refinanced in May 2001 by establishing a commercial lending relationship with Commerce Bank, N.A. (the Bank). As of the date of the refinancing, approximately $883,000 was paid to Chase in full satisfaction of the Company's outstanding obligations, out of the proceeds of a $1,500,000 five- year term loan from Commerce. As part of the refinancing, the Company also secured a two-year $2,500,000 working capital line of credit with the Bank collateralized by trade accounts receivable and inventory. $1,500,000 was borrowed in conjunction with the acquisition of User Technology Services, Inc. ("Usertech") on September 28, 2001. This $1,500,000 has been repaid in full. Both loans carry an interest rate of the prime rate plus 1%. The credit facility with Commerce Bank is structured so that as the original term loan of $1,500,000 is paid down, the borrowing cap on the revolver increases so that the total maximum outstanding debt is $4,000,000, subject to receivable and inventory levels. As of the date of this filing the total available revolver line is $2,800,000. During May, 2002 the Bank has extended the term on the revolving line of credit until May 1, 2004. The Bank's long-term debt is secured by substantially all of the assets of the Company and requires compliance with covenants, which include the maintenance of certain financial ratios and amounts. The Company is restricted by its bank from paying cash dividends on its common stock. The Company remains in full compliance with all of the financial covenants of its loan agreement with the Bank. As part of the purchase price paid for the acquisition of Usertech in September 2001, the Company agreed to pay $1,200,000 to the seller over the next three years at an annual amount of $400,000 plus accrued interest at 7% per annum on the outstanding balance. Also as part of the purchase agreement, the seller agreed to guarantee the collection of the acquired accounts receivable with a 10% risk-sharing threshold by Canterbury. The Company has the right in the first year after the acquisition to offset the guaranteed portion of any uncollectible receivable against the first $400,000 payment scheduled to be 16 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ made during September 2002. As of July 15, 2002 the Company has notified the seller and put back $34,205 against the note payment. The Company originally had until March 26, 2002 to put the uncollected accounts receivable back to the seller. The Company and seller mutually agreed to extend the deadline to September 2002. Management believes that continued positive cash flow contributions from the Company's operating subsidiaries will be sufficient to cover cash flow requirements for Fiscal 2002. There was no material commitment for capital expenditures as of May 31, 2002. Inflation was not a significant factor in the Company's financial statements. Cash flow used in operating activities for the six months ended May 31, 2002 was $220,000. This represents a decrease of $946,000 over the same six- month period from the prior year. The reduction in operating cash flow for the six months ended May 31, 2002 is primarily due to the growth in revenues for the second quarter. Consolidated revenue increased by $2,890,000 (42%) in the second quarter over the first quarter of Fiscal 2002. Revenues increased by $4,059,000 (33%) for the first six months of Fiscal 2002 versus the same six- month period in Fiscal 2001. Also, the acquisition of Usertech/Canterbury in September 2001 increased the accounts receivable and revenue levels in 2002 versus 2001. The Company's May 31, 2002 current ratio improved to 1.60 to 1.00 versus 1.43 to 1.00 at November 30, 2001. With its excess cash, the Company completed a $250,000 stock buy back during the second quarter. As of the date of this report, the Company has $2,800,000 availability on its revolving line of credit, subject to its receivable and inventory levels. With anticipated continued strong operating cash results, the Company intends to further reduce long-term bank debt, help fund acquisitions and invest in secure interest bearing investments. Results of Operations - --------------------- Revenues -------- Total revenues for the three months ended May 31, 2002 increased by $3,206,000 (50%) over the comparable three-month period in Fiscal 2001. Service revenue increased by $1,937,000 (67%) in the second quarter of Fiscal 2002 versus Fiscal 2001. The increase is the net result of the additional revenue of Usertech/Canterbury of approximately $2,800,000 recorded in the second quarter of Fiscal 2002 and a reduction of revenues from existing businesses of approximately $863,000. For the six months ended May 31, 2002 total revenues increased by $4,059,000 (33%) over the previous year. This again is the net result of the additional revenue from Usertech/Canterbury for the year of $5,100,000 offset by reduced revenues from existing subsidiaries of $1,041,000. Usertech/Canterbury was acquired in September 2001 and hence no revenue was reflected during the first or second quarter of Fiscal 2001. The reduction in revenue from existing businesses was due 17 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ in part to the continued negative impact that the terrorist attacks of September 11 had on our training business in the Metro New York City area. Many classes were cancelled, and there was reduced sales activity for the first half of the year. Several of our largest customers were located at Ground Zero. Consulting assignments were delayed or cancelled due to the chaos in and around New York City. The Company's business interruption insurance policy provided limited relief to the economic impact of the terrorist attacks. Proceeds from the policy netted the Company approximately $85,000, which was received in the first quarter of Fiscal 2002 and recorded as Other Income. Even prior to September 11, 2001, the economic downturn in the technology sector had softened demand for certain training and consulting products during 2001. Several large clients had reduced their training budgets in the second half of the year in response to their own fiscal situations. New software rollouts were delayed and application and technical training revenues suffered during the year as a result. Also, the acquisition of Usertech/Canterbury provides the Company with even more expertise in distance learning. All of the Company's training subsidiaries are beginning to work together to blend existing course content with e-learning delivery capabilities. For clients in and around New York City, as well as the rest of the world, the Company will have the capacity to provide a distance learning solution to those who may choose not to attend classroom training in the future. Product revenue increased in the second quarter of Fiscal 2002 by $1,271,000 (36%) as compared to the three months ended May 31, 2001. For the six months ended May 31, 2002 product revenue increased by $860,000 (13%) over the same six-month period in 2001. The Baltimore-Washington, D.C. market is the hub for much of the Company's product sales. Again, like New York, many of our clients delayed scheduled purchases while dealing with other pressing concerns such as security. Future product revenues may be significantly reduced due to a change in accounting caused by the Hewlett Packard merger with Compaq. USC/Canterbury is a significant value added reseller for Hewlett Packard. A portion of future transactions will be accounted for under an agency relationship, with the reseller being paid an agent fee which may approximate the current gross profit margin from each sale. The manufacturer will record the revenue and hold the accounts receivable with the customer. Based on this change there will also be a significant reduction in Company account receivables in future periods. The Company has experienced a significant slow down in revenues for the month of June 2002 and the first week of July. If this trend continues both revenues and net income for the third quarter will be adversely effected. Although there is no assurance, this slow down appears to be the result of short term conditions and delays in the marketplace and is not due to cancellations of business. Costs and Expenses ------------------ Total costs and expenses increased by $2,190,000 (45%) during the three months ended May 31, 2002 as compared to the same period of Fiscal 2001. For the six months ended May 31, 2002 costs and expenses increased by $3,183,000 18 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (36%). The increase is the result of the additional delivery costs associated with the addition of Usertech of $1,541,000 and $3,115,000 for the three and six-month period ending May 31, 2002 coupled with increased products costs of $1,069,000 and $791,000. There were cost reductions in the services segment of approximately $420,000 and $700,000 for the three and six months ended May 31, 2002. Overall gross profit percentage was 27% for the second quarter of Fiscal 2002 as compared to 25% in the second quarter of Fiscal 2001. For the six months ended May 31, 2002 gross profit was 27% as compared to 29% for the same six-month period of Fiscal 2001. Service revenue margins for the three months ended May 31, 2002 were 41% as compared to 40% for the same period in Fiscal 2001. Product margins for the first six months of both Fiscal years were similar (16%). Selling expenses for the six months ended May 31, 2002 decreased by $86,000 (6%). Contributing to this net decrease was cost reductions in existing businesses of $316,000 offset by the additional costs of Usertech/Canterbury for the first quarter of Fiscal 2002 of $402,000. Reduction in sales staff for DMI/Canterbury ($175,000) and CALC/Canterbury ($108,000) represented the largest components of the cost reduction for existing businesses. General and administrative expenses decreased in the three months ended May 31, 2002 by $1,033,000 (41%) in Fiscal 2002 as compared to Fiscal 2001. There was over $1,100,000 in non-recurring expenses in the second quarter of Fiscal 2001. The additional costs of Usertech/Canterbury in Fiscal 2002 of $483,000 offset by cost reductions in the other operating subsidiaries comprised primarily of staff related expenses ($180,000) and reduced amortization expense ($240,000). The six-month decrease in Fiscal 2002 over Fiscal 2001 can be attributed to the same factors as mentioned for the three- month decrease. Other Income ------------ Other expense decreased by approximately $400,000 for the three and six- month period ended May 31, 2002 versus the same period in Fiscal 2001. This decrease is the result of a loss on sale of property ($317,000) and security impairment write down ($75,000) which occurred in the second quarter of Fiscal 2001 and were non recurring in nature. 19 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. PART II - OTHER INFORMATION Item 1 Legal Proceedings - ------ None Item 2 Changes in Securities - ------ None Item 3 Defaults Upon Senior Securities - ------ None Item 4 Submission of Matters to a Vote of Stock Holders - ------ None Item 5 Other Information - ------ None Item 6 Exhibits and Reports on Form 8-K - ------ (a) Exhibits: None (b) Reports on Form 8-K: None 20 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CANTERBURY CONSULTING GROUP, INC. --------------------------------- (Registrant) By:/s/ Kevin J. McAndrew ------------------------------------- Kevin J. McAndrew President and Chief Executive Officer By:/s/ Kevin J. McAndrew ------------------------------------- Kevin J. McAndrew, C.P.A. Chief Financial Officer July 15, 2002 -----END PRIVACY-ENHANCED MESSAGE-----