-----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, CSwyE5eESfaoZFKSLO5yO7CdeDupf5pZnexXDzVkDQtftcua0+OZ2Hxvl1v+qgsv DN7NS27OSocKikJu6Mn3JA== 0001058809-99-000011.txt : 19990316 0001058809-99-000011.hdr.sgml : 19990316 ACCESSION NUMBER: 0001058809-99-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990315 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: 99565310 BUSINESS ADDRESS: STREET 1: 1600 MEDFORD PLZ STREET 2: RTE 70 & HARTFORD RD CITY: MEDFORD STATE: NJ ZIP: 08055 BUSINESS PHONE: 6099530044 MAIL ADDRESS: STREET 1: 1600 MEDFORD PLZ CITY: MEDFORD STATE: NJ ZIP: 08055 FORMER COMPANY: FORMER CONFORMED NAME: CANTERBURY CORPORATE SERVICES INC DATE OF NAME CHANGE: 19940323 FORMER COMPANY: FORMER CONFORMED NAME: CANTERBURY EDUCATIONAL SERVICES INC /PA/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CANTERBURY PRESS INC DATE OF NAME CHANGE: 19870615 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------------------ FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934: For the fiscal year ended: November 30, 1998 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 $12,122,879. 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 24, 1999 was $5,083,385. The number of shares outstanding of the issuer's class of common equity, as of February 24, 1999 was 6,420,893. Documents Incorporated by Reference - Various exhibits from the Company's Form S-3 Registration Statements and such other documents contained in Item 14. PART I ITEM 1. DESCRIPTION OF BUSINESS INTRODUCTION Canterbury Information Technology, Inc. (hereinafter referred to as "the Registrant" or "the Company") is engaged in the business of providing information technology services which includes operating computer software training companies, a management training company and developing and selling software to individuals and corporations. The Company is seeking acquisitions of computer software consulting, technical staffing, Internet and other information technology companies. The Company was incorporated in the Commonwealth of Pennsylvania on March 19, 1981 and later qualified to do business in the State of New Jersey in April, 1985. The Company became a Registrant by filing and registering with the Securities and Exchange Commission under Form S-18 which became effective on August 20, 1986. Prior to 1988 the Company was comprised of two segments: the vocational school segment and the seminar segment. In November, 1988 the Company sold its seminar segment, which represented less than 2% of the Company's revenues. The Company was then solely a vocational school company. In November, 1992 the Company acquired Star Label Products, Inc., a specialty printing company. In September, 1993 the Company purchased Motivational Systems, Inc., a management training company. In November of 1993, the Company acquired Landscape Maintenance Services, Inc., a landscape maintenance and construction company. In June of 1994, the Company acquired Computer Applications Learning Center (CALC), a computer software training company. In July, 1996, the Company acquired ProSoft Training, LLC., a computer software training company. In November, 1995, the Company sold Star Label Products, Inc. In November, 1996, the Company sold Landscape Maintenance Services, Inc. In May, 1997, the Company purchased ATM Technologies, Inc., a software development company. In November, 1997, the Company closed its last two vocational schools. In conjunction with the Board's resolution to concentrate future growth within the information technology sector, the Board and Shareholders voted to change the Company's name to Canterbury Information Technology, Inc. effective June 12, 1997. Effective April 14, 1998 the Board of Directors declared a one for three reverse stock split of the Registrant's common stock. In addition, and as a result of the one for three reverse stock split, the Board of Directors changed the trading symbol of the Registrant's common stock from XCEL to CITI. All share and per share information has been restated for the one for three reverse stock split. NARRATIVE DESCRIPTION OF BUSINESS - COMPUTER SOFTWARE TRAINING/SERVICES In June, 1994, the Company acquired Computer Applications Learning Center (CALC), a New Jersey based computer software training company. Since 1983 CALC has trained corporate workers and managers at its five training centers in New York and New Jersey and on site at Fortune 1000 corporations. CALC is an authorized training center for the following major software providers: Microsoft, Lotus, SBT, Borland, WordPerfect, Aldus and Apple. As CALC/Canterbury pursues its business plan to become a technology services provider as well as a corporate trainer for desktop and technical courses, several partnerships and alliances have been formed. Systems integrators, technical staffing companies and CBT courseware providers have all joined forces with CALC/Canterbury to allow the Company to be a more complete technical services vendor to their clients. CALC 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. During 1995, the Company changed the name of CALC to CALC/Canterbury Corp. to more appropriately reflect Canterbury's role in the corporate training industry. In July, 1996 Canterbury purchased ProSoft Training, LLC., a Charlotte, North Carolina based computer software training company. ProSoft is also a Microsoft Solution Provider and is an Authorized Training Center for WordPerfect and Lotus, as well as Microsoft. After the purchase of ProSoft Training, LLC., the company became known as ProSoft/Canterbury. 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 to the significant customer base established over the past fifteen years of operations; and by entering into strategic business partnerships to allow the existing sales force to offer multiple information technology related services and products. Over time, as the Company's market penetration increases, the services that were subcontracted in the past, will be developed and expanded internally. NARRATIVE DESCRIPTION OF BUSINESS - MANAGEMENT TRAINING In September of 1993, the Company acquired Motivational Systems, Inc., a New Jersey-based management and sales training company. Motivational Systems, since 1970, has trained managers and sales professionals from many Fortune 1000 companies, on a national and international basis. Motivational Systems conducts a wide variety of seminars in management and team development, selling and negotiating, interpersonal communication, executive development, organizational problem solving and project management. During 1995, the Company changed the name of Motivational Systems, Inc. to MSI/Canterbury Corp. to more appropriately reflect Canterbury's presence and role in the corporate training industry. Future Plans This division's planned expansion is projected to occur by extending its current sales effort into contiguous markets around its corporate headquarters in Northern New Jersey. To date, a sales executive has been hired to penetrate the Philadelphia, Pennsylvania market. The other major expansionary plan is to develop, internally, new product offerings for existing and potential customers, based on their specific needs. With several consultants who are exceptional course developers on staff, this process has already resulted in additional product revenue streams. NARRATIVE DESCRIPTION OF BUSINESS - SOFTWARE DEVELOPMENT In May of 1997, the Company acquired ATM Technologies, Inc. (ATM), a Texas-based software consulting and development company, serving clients in national and international markets. ATM has been in business since 1984, specializing in PC-based tracking systems. The Company changed the name of ATM Technologies, Inc. to ATM/Canterbury Corp. to more appropriately reflect Canterbury's presence and role in the information technology industry. Future Plans ATM/Canterbury plans to expand by introducing a newly developed document imaging and PC-based retrieval program integrated into its MasterTrak document tracking program using barcoding. The total program has just recently been packaged with a streamlined touch-screen PC. This major product enhancement of imaging and PC-based retrieval will allow clients with large file rooms to utilize this hardware/software solution to reduce labor costs and increase efficiencies. ATM/Canterbury is also working to expand its base of national and international dealers and to facilitate increased awareness of the tracking system's new imaging software developed by the company. Current clients have begun using the MasterTrak software for asset tracking. Based upon current client requests, the company may move toward the development of a software programming enhancement to enable clients to scan and link asset descriptions within the existing tracking system. MERGER/ACQUISITION PROGRAM The Company is seeking the acquisition of profitable companies in the information technology industry to complement and expand the core subsidiaries. This will allow the Company to offer a wide range of products and services on a national basis. Since corporations accessing computer applications training also need computer and software consulting, network and systems development, systems integration, Internet development and application as well as Intranet conversions, the Company plans to be able to provide a fully integrated, comprehensive approach to information technology. [CAPTION] BUSINESS MODEL - INFORMATION TECHNOLOGY SERVICES Computer Technical Computer & Network Systems Internet & Intranet Training Training Software and Integrators Consultants Companies Companies Consultants Systems ----------- Developers & CALC/ CALC/ ATM/ Developers Providers Canterbury Canterbury Canterbury & Help Lines Prosoft/ & Prosoft/ Installers Canterbury Canterbury
EMPLOYEES As of November 30, 1998, the Company, including all subsidiaries, had 159 employees: 91 full-time employees and 68 part-time employees. The Company believes that the relationship with its employees is satisfactory. ITEM 2. DESCRIPTION OF PROPERTIES The Company owns non-operational land and a building in Bedminster, New Jersey which was acquired as part of the Landscape Maintenance acquisition. All other facilities, including its administrative offices, branch locations and sales offices, are leased. The aggregate annual rental payments under leases will approximate $1,285,000 in fiscal year 1999. The following table sets forth the locations of the Company including square footage: Location Square Footage Canterbury Information Technology, Inc. 1600 Medford Plaza Medford, New Jersey 08055 4,200 ATM/Canterbury Corp. 16840 Barker Springs, Suite C300 Houston, TX 77084 3,700 Prosoft/Canterbury Corp. 8508 Park Road, #192 Charlotte, NC 28219 2,300 MSI/Canterbury 400 Lanid Drive Parsippany, New Jersey 07054 1,800 CALC/Canterbury 500 Lanid Drive Parsippany, New Jersey 07054 23,500 CALC/Canterbury 780 Third Avenue, Concourse Level One New York, New York 10017 4,200 CALC/Canterbury Woodbridge Place, Gill Lane at Route 1 Iselin, New Jersey 08830 6,000 CALC/Canterbury Park 80 West Plaza Saddlebrook, New Jersey 07663 5,926 CALC/Canterbury 55 Broadway New York, New York 10006 7,000 ITEM 3. LEGAL PROCEEDINGS In September of 1994, CALC and Canterbury Corporate Services, Inc. received a Complaint from Thomas Arnold, a former employee of CALC, who filed an action alleging a breach of contract for his services as sales director as well as the return of a notebook computer. This aspect of Mr. Arnold's claim is somewhat limited in damages. However, he has also alleged in his Complaint that CALC used his photograph and information concerning the Company in a marketing publication after he was terminated and without his permission. In this claim, Mr. Arnold has requested punitive damages in the specific amount of $8 million. It is also the opinion of litigation counsel that this aspect of Mr. Arnold's claim is without merit. To the extent that an award for consequential damages would be made relating to any advertising claim against CALC, the insurance carrier would be responsible to pay for same. It should also be noted that the Company filed a separate action, which was consolidated with this litigation, against Mr. Arnold in that he formed a competitive company after leaving CALC and allegedly has solicited clients and/or former clients of CALC. Canterbury Corporate Services, Inc. is seeking an award in damages as well as restitution against Mr. Arnold from interfering with their relationship with their customers. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS The Company's Annual Meeting was held on September 9, 1998, at which time two matters were submitted to the Company's stockholders for a vote. The majority of the stockholders voted for the appointment of Ernst & Young LLP as the Company's independent auditors and the election of the following Directors: Stanton M. Pikus, Kevin J. McAndrew, Alan Manin, Jean Zwerlein Pikus, Stephen M. Vineberg, Paul L. Shapiro and Frank A. Cappiello. PART II ITEM 5. MARKET FOR EQUITY AND RELATED STOCKHOLDER MATTERS The Company commenced trading in the Over-The-Counter (O-T-C) market subsequent to the closing of its initial public offering on August 29, 1986. Commencing on January 8, 1993, the Company's shares of common stock began trading on NASDAQ's National Market under the stock symbol of SKIL. In March, 1994, the Company's stock symbol was changed to XCEL. As a result of the one for three reverse stock split effective April 14, 1998, the Board of Directors changed the trading symbol stock from XCEL to CITI. The high and low bid prices (adjusted to reflect the 1 for 3 reverse stock split) of the Company's common stock from December 1, 1995 through February 24, 1999 were as follows: [CAPTION] MARKET FOR EQUITY AND RELATED STOCKHOLDER MATTERS - ---------------------------------------------------------------------------- 1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low Common Stock 8.0625 5.8125 7.125 5.0625 6.375 3.375 4.6875 2.4375 - ---------------------------------------------------------------------------- 1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low Common Stock 5.0625 2.0625 4.4063 2.7188 4.875 2.8125 4.3125 3.0938 - --------------------------------------------------------------------------- 1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low Common Stock 3.375 1.7813 2.5313 1.125 1.6875 .7813 1 .5 - ---------------------------------------------------------------------------- 1999 1st Quarter High Low Common Stock 1.5 .5 - ----------------------------------------------------------------------------
The approximate number of record holders of the Company's common stock as of November 30, 1998 as determined from the Company's transfer agent's list of record holders was 342. Such list does not include beneficial owners of securities whose shares are held in the names of various dealers and clearing agencies. The Company believes that there are in excess of 5,000 beneficial holders. The Company has never declared a dividend on its common stock and does not plan to do so in the near future. ITEM 6. SELECTED FINANCIAL DATA 1998 1997 1996 1995 1994(1) Operating data: Net revenues $12,112,879 $12,423,452 $12,717,692 $13,005,642 $ 7,548,392 Income (loss) from continuing operations 581,503 (931,870) 423,157 723,184 186,817 Income (loss) from and gain on sale of discontinued operations (2) - (1,536,047) 1,243,411 990,656 (3,473,610) Basic per share data: Income (loss) from continuing operations $.10 $(.22) $.08 $.17 $.05 Discontinued operations - (.29) .26 .23 (.97) ----------- ---------- --------- -------- ---------- Net income (loss) $.10 $(.51) $.34 $.40 $(.92) =========== ========== ========= ======== ========== Balance sheet data: Total assets $25,700,415 $25,787,101 $27,400,539 $25,670,332 $23,883,498 Long-term debt 3,720,074 3,856,956 4,718,793 6,572,701 9,545,069
(1) Includes CALC/Canterbury which was acquired in June, 1994. (2) In November, 1995 the Company sold Star Label Products, Inc., a specialty printing company. In November, 1996, the Company sold Landscape Maintenance Services, Inc., a landscape maintenance and construction company. In November, 1997, the Company closed its last two vocational schools. Prior year financial statements have been restated to reflect the discontinuation of the segments. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement When used in this Report on Form 10-K and in other public statements, both oral and written, by the Company and Company officers, the word "estimates," "project," "intend," "believe," "anticipate," and similar expressions, are intended to identify forward-looking statements regarding events and financial trends that may affect the Company's future operating results and financial position. Such statements are subject to risks and uncertainties that could cause the Company's actual results and financial position to differ materially. Such factors include, among others: (1) the Company's success in attracting new business and success of its mergers & acquisitions program; (2) the competition in the industry in which the Company competes; (3) the Company's ability to obtain financing on satisfactory terms; (4) the sensitivity of the Company's business to general economic conditions; and (5) other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices. The Company undertakes no obligations to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. LIQUIDITY AND CAPITAL RESOURCES Working capital at November 30, 1998 was $69,000. This was a reduction of $2,569,000 from the previous year. Two significant factors caused this reduction. First, there was a reclassification of $2,700,000 of deferred income tax benefit from current to long term, to properly reflect the future utilization of net operating loss carryforwards. Secondly, based on the restructured loan agreement with Chase Bank, an additional $865,000 of bank debt has been classified as current. The Company's outstanding amounts owed under the term loan and credit line with Chase Bank were due and payable at December 31, 1998. The Company and its lender have agreed to an extension of these agreements through December 1, 1999 subject to satisfactory documentation of the terms and conditions as agreed. The company will continue to use its best efforts to replace its primary lender prior to that time. Subsequent to November 30, 1998 the Company has paid $510,000 to reduce its term loan from $1,221,000 to $711,000 as of March 12, 1999. The Agreement calls for the Company to make additional payments in 1999 totaling $1,015,000 with the remaining balance of $2,470,000 due December 1, 1999. The term debt and the revolving credit line will accrue interest at prime plus 2.5% per annum. On March 10, 1999, the Company completed a Private Placement Offering with non-affiliates for the issuance of 1,000,0000 shares of common stock and the issuance of 200,000 shares of common stock as a finders fee, all with registration rights. The Company has received proceeds of $600,000. The Company used $500,000 in proceeds to repay amounts under the term loan. The remaining amounts are intended to be used for further paydown of debt, 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 1999. There was no material commitment for capital expenditures as of November 30, 1998. Inflation was not a significant factor in the Company's financial statements. Cash flow from continuing operations for the year ended November 30, 1998 was $406,125. This was the fourth consecutive year of positive cash from continuing operations. During the year, the Company reduced its long term bank debt by $549,000. For the past three years, the reduction in long term debt totals $5,395,000. General Description Of The Year 2000 Issue And The Nature And Effects Of The Year 2000 On Information Technology(IT) And Non-IT Systems. The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business practices. The Company began addressing the Year 2000 Issue in 1997 on a decentralized basis at each of its subsidiaries. In 1998, the Company began monitoring progress on a corporate level. Based on assessments made since 1997, the Company determined that modifications to or in limited cases replacement of computer software and hardware was necessary to enable those systems to operate properly after December 31, 1999. The Company presently believes that with modifications to and replacement of existing software and hardware, the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not made, or are not completed timely, the Year 2000 Issue may have a material impact on the operations of the Company. The Company's plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing, and implementation. To date, the Company has completed its assessment of all systems that could be significantly affected by the Year 2000. The assessment indicated that most of the Company's significant information technology systems could be affected, particularly the Company's registration/scheduling and accounting systems. The assessment also indicated that software and hardware (embedded chips) used in these applications were also at risk. The software developed and distributed by ATM/Canterbury is Y2K compliant. The Company's other training services are not at risk. Status Of Progress In Becoming Year 2000 Compliant, Including Timetable For Completion Of Each Remaining Phase The following estimates of completion percentages and dates are based on the Company's best estimates. However, there can be no guarantee that these dates can be achieved and actual results may differ. For its information technology exposures, to date the Company is approximately 75% complete on the remediation phase and expects to be completed with its software reprogramming and replacement no later than March 31, 1999. Once software is reprogrammed or replaced for a system, the Company begins testing and implementation. These phases run concurrently for different systems. To date, the Company has completed 50% of its testing and has implemented 55% of its remediated systems. Completion of the testing phase for all significant operating systems is expected by April 30, 1999, with all remediated systems fully tested and implemented by July 31, 1999. Nature And Level Of Importance Of Third Parties And Their Exposure To The Year 2000 The Company is planning to survey its significant vendors as to their Year 2000 compliance in March and April, 1999. Based on the nature of their responses, the Company will develop contingency plans as appropriate. However, the Company has no means of assuring that external vendors will be Year 2000 compliant. The inability of these third parties to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. Costs The Company has utilized and will continue to utilize both internal and external resources to reprogram, or replace, test, and implement the software and operating equipment for Year 2000 modifications. Many of the program fixes were completed in conjunction with other projects and had little incremental cost. The Company estimates that incremental costs relating to Year 2000 projects to date approximate $25,000. These costs have been expensed as incurred. The Company expects to spend less than $50,000 on Year 2000 projects in fiscal 1999. Year 2000 costs are difficult to estimate accurately and the projected cost could change due to unanticipated technical difficulties, project delays, and third party non-compliance, among other things. Risks Management of the Company believes that it has an effective program in place to resolve the Year 2000 Issue in a timely manner. As noted above, the Company has not yet completed all necessary phases of its Year 2000 plan. Because of the range of possible issues and the large number of variables involved, it is impossible to quantify the potential cost of problems should the Company or its trading partners not properly complete their Year 2000 plans and become Year 2000 compliant. Such costs and any failure of compliance efforts could have a material adverse effect on the Company. The Company believes that the most likely risks of serious Year 2000 business disruption are external in nature, including continuity of utility, telecommunication and transportation services, and the potential failure of the Company's customers due to their own non-compliance or the non-compliance of their business partners. In the event the Company does not properly complete its Year 2000 efforts or is affected by the disruption of outside services, the Company could be unable to take orders, distribute goods, invoice customers or collect payments. In addition, disruptions in the economy generally resulting from Year 2000 could have a material adverse effect on the Company. The Company could be subject to litigation for computer systems failure. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans The Company is currently in process of developing contingency plans to address the above Year 2000 risks as necessary. The Company plans to evaluate the status of completion of its Year 2000 efforts by April 30, 1999 and to determine what contingency plans are necessary at that time. In the normal course of business, the Company has contingency plans for disruption of business events and intends to augment those plans with specific Year 2000 considerations. RESULTS OF OPERATIONS Fiscal 1998 Compared to Fiscal 1997 Revenues Revenues decreased by $300,000 (2%) in fiscal 1998 over fiscal 1997. As previously discussed, new information technology goods and services are being introduced to our customers. This strategy of becoming a more complete provider of information technology services required the restructuring of the existing sales force. This has caused, in the short term, some revenue stagnation due to the recruiting, hiring and training process of the sales staff. The Company believes that this current investment will provide long-term benefits to the customers and hence, revenues. Costs and Expenses Costs and expenses decreased by $409,000 (6%) in fiscal 1998 over the previous year. This most significant cause of this decrease was the reduction in rent expense of $476,000 in 1998 versus 1997. The reduction was due primarily to the Company recognizing in 1997 costs associated with terminating certain leases for its management training company's facilities. During 1998, the Company mitigated these costs, in part, through subleasing of the facility which resulted in a change in estimate of the previously recognized costs. Selling expense decreased by $48,000 (2%) in fiscal 1998 over fiscal 1997 due to reduced marketing expenses related to CALC/Canterbury. During the year, the Company reduced the size and frequency of the catalog schedule mailing. This was accomplished by eliminating non-critical information contained in the publication due to the increased use of the Web site to research both class descriptions and dates. General and administrative expense decreased by $520,000 (12%) in fiscal 1998 over fiscal 1997. Decreased legal expenses of $145,000, consulting fees of $194,000 and general public company/corporate expenses of $42,000 comprise the bulk of the reduction. The Company believes that the reduced level of these expenses will continue into fiscal 1999. Interest income for fiscal 1998 increased by $254,000 (42%) over the prior year due to recognition of interest income on the portion of the Company's revolving credit facility with Chase Bank that was assumed by the owners of Landscape Maintenance Services. This income was not recognized in fiscal 1997. Interest expense decreased by $96,000 (19%) in fiscal 1998 versus fiscal 1997. The reduction in outstanding borrowings on the term loan is the major cause for this reduction. Fiscal 1997 Compared to Fiscal 1996 Revenues Revenues decreased by $295,000 (2%) in fiscal 1997 over fiscal 1996. This slight reduction was due to the re-engineering of the sales department in the software training area of the Company. As previously discussed, new information technology goods and services are being introduced to our customers. This strategy of becoming a more complete provider of information technology services required the restructuring of the existing sales force. This has caused, in the short term, some revenue degradation due to the recruiting, hiring and training process of the sales staff. The Company believes that this current investment will provide long-term benefits to the customers and hence, revenues. Costs and Expenses Costs and expenses increased by $1,250,000 (21%) in fiscal 1997 over the previous year. This increase was caused by various factors. Rent expense increased by $423,000 due to the Company establishing lease termination reserves, increasing the number of classrooms for computer training, as well as reserving for the relocation of CALC/Canterbury and MSI/Canterbury into customized office and classroom space in Parsippany, New Jersey. Subcontract labor for CALC/Canterbury increased by $212,000 for two reasons. First, there was a significant increase in technical training classes offered in 1997, which resulted in the need for more consultants to train these high-end courses. Secondly, there was approximately $75,000 spent for programming a new operational accounting system which will allow for both Year 2000 compliance and increased reporting and processing capabilities. Over $300,000 of the increase in 1997 was attributed to the acquisition of ATM/Canterbury in May, 1997, as well as ProSoft/Canterbury operating for a full year in 1997 versus 1996. Selling expense decreased by $117,000 (5%) in fiscal 1997 over fiscal 1996 due to lower commission expense and a reduction in sales personnel through the first nine months of fiscal 1997. General and administrative expense increased by $322,000 (8%) in fiscal 1997 over fiscal 1996. Increased legal fees associated with the settlement and restructuring of the Chase banking relationship as well as higher consulting fees for the corporate office caused this increase. The Company believes that both these expenses are non-recurring. During 1997, the Company allocated $235,000 of corporate expenses to discontinued operations. Interest income for fiscal 1997 increased by $281,000 (86%) over fiscal 1996 due to the payments from the note receivable generated by the sale of Landscape Maintenance Services, Inc. in November, 1996. Interest expense decreased by $192,000 (28%) in fiscal 1997 versus fiscal 1996. The reduction in outstanding borrowings on the term loan is the major cause for this reduction. Other expenses of $518,000 in fiscal 1997 were due primarily to a $450,000 charge representing the difference between the unpaid balance of a note receivable and the estimated current value of the collateral supporting the note. ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA The financial statements and supplementary data are as set forth in the Index on page 15. 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, 1998 were as follows: Name Age Position Held with Company(1) Stanton M. Pikus 58 President, Chief Executive Officer, Chairman of the Board of Directors Kevin J. McAndrew, CPA 40 Chief Operating Officer, Executive Vice President, Chief Financial Officer, Treasurer, Director Jean Zwerlein Pikus 45 Vice President - Operations, Secretary, Director Alan Manin 61 Director Stephen M. Vineberg 57 Director Paul L. Shapiro 47 Director Frank A. Cappiello 73 Director (1) All directors hold office until the next annual meeting of stockholders of the Company and thereafter until their successors are chosen and qualified. All officers hold office at the selection and choice of the Board of Directors of the Company. STANTON M. PIKUS, President and Chairman of the Board of Directors was a founder of the Company (1981). He graduated from the Wharton School of the University of Pennsylvania (B.S., Economics and Accounting) in 1962. From 1968 until 1981 he had been President and majority stockholder of Brown, Bailey and Pikus, Inc., a mergers and acquisitions consulting firm that completed more than twenty transactions. In addition, Mr. Pikus has been retained in the past by various small to medium-sized public companies in the capacity of an independent financial consultant. KEVIN J. McANDREW, CPA, Chief Operating Officer since December, 1993; Executive Vice President since November, 1992; Vice President and Chief Financial Officer of the Company since June, 1987; Treasurer since January, 1988 and Director since August, 1990. He is a graduate of the University of Delaware (B.S. Accounting, 1980) and has been a Certified Public Accountant since 1982. From 1980 to 1983, he was an Auditor with the public accounting firm of Coopers & Lybrand in Philadelphia. From 1984 to 1986, Mr. McAndrew was employed as a Controller for a New Jersey-based division of Allied Signal, Inc. JEAN ZWERLEIN PIKUS, Vice President of Operations since November, 1993; Vice President of Human Resources and School Operations, Secretary and Director since December 1, 1984. She was employed by J. B. Lippincott Company, a publishing company, from 1974 to 1983 as Assistant Personnel Manager, where she established its word processing center and was responsible for the day-to-day control of word processing and graphic services. In 1984, Ms. Pikus graduated from the Wharton School of the University of Pennsylvania (B.S., Accounting and Management, cum laude). Ms. Pikus is the wife of the President, Stanton M. Pikus. ALAN MANIN, Director and Founder of the Company (1981). He is a graduate of Temple University (B.S., 1960, M.Ed., 1966); a former teacher and department chairman in the Philadelphia School System (1960-1966); a former Vice President and Director of Education for Evelyn Wood Reading Dynamics (1966-1972); a former Director of Northeast Preparatory School (1973); President, Chief Operating Officer and founder of Health Careers Academy, a federally accredited (National Association of Trade and Technical Schools) vocational school (1974-1979) and a founder of the Company (1981). He is currently the President of Atlantis, a company which provides motivational training to employees of Fortune 1000 companies. STEPHEN M. VINEBERG, a Director since 1988, is currently the President and Chief Executive Officer of CMQ, Inc. Previously, he was a Vice President of Fidelity Bank, Philadelphia, where he was Chief Operating Officer of the Data Processing and Systems and Programming Divisions. Mr. Vineberg also directed a wholly-owned subsidiary of the bank that developed and marketed computer software, operated a service bureau and coordinated all electronic funds transfer activities. PAUL L. SHAPIRO, a Director since December, 1992 has worked for McKesson Drug Company for the past 15 years. From 1973 through 1975 he was Director of the Pennsylvania Security Officers' Training Academy. In 1973 he graduated from York College of Pennsylvania with a B.S. Degree in Police Administration. FRANK A. CAPPIELLO, Director, 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 $800 million. Prior to that, he was the Research Director of a major stock brokerage firm. He is a graduate of the University of Notre Dame and Harvard University's Graduate School of Business Administration. ITEM 11. EXECUTIVE COMPENSATION CASH COMPENSATION The Company had 91 full-time employees as of November 30, 1998. There were no cash directors' fees paid during this period. Summary Compensation Table
Name & Other Restricted Securities LTIP All Principal Annual Stock Underlying Payouts Other Position Year Salary($)Bonus($) Compensation($) Awards($) Options/SAR(#) ($) Compensation($) Stanton M. Pikus 1998 $202,500 $ - $- $- $- $- $- President, 1997 195,000 - - - - - - 1996 195,000 - - - - - - Kevin J. McAndrew Chief 1998 $127,788 $ - $- $- $- $- $- Operating 1997 120,000 - - - - - - Officer, 1996 120,000 - - - - - -
During fiscal 1997, the Company entered into an amended employment agreement with the President. The term of the agreement is five years and provides for a base salary of $195,000 which began on December 1, 1995 with annual salary increases of $25,000 in the second and third years and to remain at $245,000 for the last two years of the contract. Also included in the agreement are future incentives based on Company performance. There is a bonus opportunity of 5% on the first $500,000 of consolidated income before taxes and bonus and 3% above $500,000. In conjunction with this contract, the President agreed to a covenant not to compete with the Company during his employment and for a period of one year after his employment with the Company has terminated. For the year ended November 30, 1996 the President waived his right to receive any performance bonus earned and in exchange his contract was extended for one year through 2001 at the same terms. For the year ended November 30, 1998, the President waived his right to receive any performance bonus earned. The Company also amended the employment agreement with its Executive Vice President and Chief Operating Officer during fiscal 1997. The term of the agreement is five years and provides for a base salary of $120,000 for fiscal 1997 and increases of $15,000 per year for the next four years. Also included in the agreement are future incentives based on the Company's profitability. A bonus of $30,000 will be earned if the consolidated income before income taxes and bonus of the Company exceeds $1,000,000. The bonus opportunity applies to each of the five years of the contract. For the year ended November 30, 1996, the Executive Vice President waived his right to receive any performance bonus earned and in exchange the contract was extended to 2001 at the same terms. COMPENSATION PURSUANT TO PLANS The following non-qualified options were granted to executive officers and directors of the Company on the following dates (officers, directors, and more than 5% holders of the Company's common stock received stock options at 100% of the market value on date of grant).
Name of Individual Capacity in Options Date Granted Exercise Price Which Served ============================================================================ Stanton M. Pikus President 16,667 10/29/96 $3.09 Chairman of the 33,334 01/13/97 $2.25 Board of Directors 50,000 05/18/98 $1.38 100,000 12/04/98 $.53 - ---------------------------------------------------------------------------- Kevin J. McAndrew, Chief Operating CPA Officer Executive Vice President Chief Financial Officer Treasurer, Director 33,334 07/26/94 $8.25 16,667 10/29/96 $3.69 16,667 01/13/97 $2.25 8,334 10/16/97 $3.56 35,000 05/18/98 $1.38 75,000 12/04/98 $.53 - ---------------------------------------------------------------------------- Jean Zwerlein Vice President-Operations Pikus Secretary, Director 8,334 10/29/96 $3.69 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 - ---------------------------------------------------------------------------- Alan Manin Director 3,334 10/29/96 $3.69 3,334 01/13/97 $2.25 10,000 05/18/98 $1.38 17,500 12/04/98 $.53 - ---------------------------------------------------------------------------- Stephen Vineberg Director 2,500 08/16/94 $8.25 834 05/11/95 $8.25 3,334 07/24/95 $8.43 3,334 10/29/96 $3.09 8,334 01/13/97 $2.25 2,500 10/16/97 $3.56 10,000 05/18/98 $1.38 17,500 12/04/98 $.53 - ---------------------------------------------------------------------------- Paul Shapiro Director 2,500 08/16/94 $8.25 834 05/11/95 $8.25 3,334 07/24/95 $8.43 3,334 10/29/96 $3.09 8,334 01/13/97 $2.25 2,500 10/16/97 $3.56 10,000 05/18/98 $1.38 17,500 12/04/98 $.53 - ----------------------------------------------------------------------------- Frank A. Cappiello Director 33,334(1) 01/30/95(1) $6.00(1) 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
1. Frank Cappiello's options are not part of the 1987 Employee Stock Option Plan, but also convert to restricted common stock. Mr. Cappiello has five years from the date of grant to exercise these options. Employee stock option holders have five years from the date of grant to exercise any or all of their options, and upon leaving the Company the option holders must exercise within 30 days. These options exercise into restricted shares of Company common stock and absent registration, or any exemption from registration, must be held for the applicable Rule 144 holding period before the restriction can be removed. OTHER COMPENSATION No material other compensation. However, see "Certain Relationships and Related Transactions" for key-man life insurance arrangements. COMPENSATION OF DIRECTORS No additional compensation, other than Company stock options issued at 100% of market value to all Directors who are not otherwise salaried employees. TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS Not Applicable. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (A) (B) The following table sets forth as of February 24, 1998 certain information with regard to the record and beneficial ownership of the Company's common stock by (i) each shareholder, owner of record or beneficial owner of 5% or more of the Company's common stock (ii) each Director individually and (iii) all Officers and Directors of the Company as a group:
Class Name of Beneficial Owner Shares Owned Percent of Class Common Stanton M. Pikus (2)(3) 441,582 7.0% Common Kevin J. McAndrew (1)(3) 59,637 .9% Common Alan Manin (1)(3) 101,436 1.6% Common Jean Zwerlein Pikus(1)(2)(3) 36,473 .6% Common Stephen M. Vineberg (1)(3) 8,629 .1% Common Paul L. Shapiro (1)(3) 667 - Common Frank A. Cappiello(1)(3) 61,667 1.0% Common Glen Hukins(4) 0 - Common Gregory Lantz(4) 0 - Common Alan McGaffin(4) 288,524 4.6% ------- ----- All Officers, Directors and 5% Stockholders as a group (7 in number) 998,615 15.8% ____________________________ ======= =====
(1) All of said individuals have given a Voting Trust and First Right of Refusal to Stanton M. Pikus, President and Board Chairman of the Company. (2) Stanton M. Pikus and Jean Zwerlein Pikus are married to each other and, therefore, are deemed to have beneficial ownership in each other's shares. (3) Does not include option grants as set forth in Item 11. (4) Officers of wholly owned subsidiaries. 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 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, 1998 and 1997 F- 1 Consolidated Statements of Operations - Years ended November 30, 1998, 1997 and 1996 F- 3 Consolidated Statements of Stockholders' Equity - Years ended November 30, 1998, 1997 and 1996 F- 5 Consolidated Statements of Cash Flows - Years ended November 30, 1998, 1997 and 1996 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 1998 Annual Shareholders Meeting *** 27 Financial Data Schedule 18 * Incorporated by reference from the like-numbered exhibit to Form S18 Registration Statement, SEC. File No. 33-6381 filed on July 18, 1986. ** Incorporated by reference from the like-numbered exhibit to Form S-3/A Registration Statement, SEC. File No. 33-77066 filed on March 30, 1994. *** Incorporated by reference from the Annual Report and Definitive Proxy Materials for the 1997 Annual Shareholders Meeting for fiscal year ended November 30, 1997 filed with the SEC on September 9, 1998. Reports on Form 8-K filed during the last quarter of the period covered by this report are as follows: One for three reverse stock split of the Registrant 's common stock dated April 14, 1998 Registrant entered into a $4,200,000 refinancing proposal with Finova Capital Corporation dated November 12, 1998. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Canterbury Information Technology, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CANTERBURY INFORMATION TECHNOLOGY, INC. Dated: 3/12/99 By /s/ Stanton M. Pikus Stanton M. Pikus, President; Chief Executive Officer Dated: 3/12/99 By /s/ Kevin J. McAndrew Kevin J. McAndrew, Chief Operating Officer, Executive Vice President, Chief Financial Officer, Treasurer Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, this report has been signed on behalf of Canterbury Information Technology, Inc. and in the capacities and on the dates indicated. Dated: 3/12/99 By /s/ Stanton M. Pikus Stanton M. Pikus, President; Director; Chairman of the Board of Directors Dated: 3/12/99 By /s/ Kevin J. McAndrew Kevin J. McAndrew, Chief Operating Officer; Executive Vice President; Chief Financial Officer; Director Dated: 3/12/99 By /s/ Jean Zwerlein Pikus Jean Zwerlein Pikus, Vice President - Operations, Secretary; Director Dated: 3/12/99 By /s/ Alan Manin Alan Manin, Director Dated: 3/12/99 By /s/ Stephen M. Vineberg Stephen M. Vineberg, Director Dated: 3/12/99 By /s/ Paul L. Shapiro Paul L. Shapiro, Director Dated: 3/12/99 By /s/ Frank A. Cappiello Frank A. Cappiello, Director Report of Independent Auditors The Board of Directors and Stockholders Canterbury Information Technology, Inc. We have audited the accompanying consolidated balance sheets of Canterbury Information Technology, Inc. as of November 30, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended November 30, 1998. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provided a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Canterbury Information Technology, Inc. at November 30, 1998 and 1997, and the consolidated results of its operations and cash flows for each of the three years in the period ended November 30, 1998, in conformity with generally accepted accounting principles. Ernst & Young, LLP Philadelphia, Pennsylvania February 26, 1999 Except for Notes 6 and 16, as to which the date is March 12, 1999 CONSOLIDATED BALANCE SHEETS November 30, 1998 and 1997 ASSETS 1998 1997 -------------- -------------- Current Assets: Cash $287,274 $295,936 Accounts receivable, net 1,141,544 1,332,518 Notes receivable - current portion 341,268 424,700 Prepaid expenses and other assets 1,494,001 770,173 Deferred income tax benefit 150,000 2,896,000 --------- ---------- Total Current Assets 3,414,087 5,719,327 Property and equipment at cost, net of accumulated depreciation of $3,993,000 and $3,396,000 2,323,996 2,503,277 Goodwill, net of accumulated amortization of $1,910,000 and $1,492,000 8,993,805 8,916,221 Deferred income tax benefit 2,712,919 - Notes receivable 7,994,641 8,371,548 Other assets 260,967 276,728 ----------- ----------- Total Assets $25,700,415 $25,787,101 =========== =========== Continued See Accompanying Notes CONSOLIDATED BALANCE SHEETS November 30, 1998 and 1997 Continued LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 ---------- ---------- Current Liabilities: Accounts payable - trade $ 357,100 $ 467,855 Accrued expenses 231,743 912,306 Income taxes payable 63,217 - Unearned tuition income 954,128 828,469 Current portion, long-term debt 1,738,565 872,616 ---------- ---------- Total Current Liabilities 3,344,753 3,081,246 Long-term debt 2,640,075 3,856,956 Deferred income tax liability 3,115,801 3,244,500 Commitments and contingencies Stockholders' Equity: Convertible preferred stock, Series D, no par value, 0 and 1,000,000 shares authorized, issued and outstanding - 1,043,841 Common stock, $.001 par value, 50,000,000 shares authorized; 6,421,000 and 5,417,000 issued 6,421 5,417 Additional paid-in capital 17,580,522 15,980,044 Unrealized loss on securities available for sale (143,757) - Deficit (436,100) (1,017,603) Less treasury shares, at cost (407,300) (407,300) ----------- ---------- Total Stockholders' Equity 16,599,786 15,604,399 ----------- ---------- Total Liabilities and Stockholders' Equity $25,700,415 $25,787,101 =========== =========== See Accompanying Notes CONSOLIDATED STATEMENTS OF OPERATIONS Years ended November 30, 1998, 1997 and 1996 1998 1997 1996 ---------- ---------- ----------- Net revenues $12,122,879 $12,423,452 $12,717,692 Costs and expenses 6,695,276 7,104,803 5,854,993 ------------ ------------ ------------ Gross profit 5,427,603 5,318,649 6,862,699 Selling 1,984,836 2,032,510 2,149,563 General and administrative 3,798,612 4,318,455 3,996,020 ------------ ------------ ------------ Total operating expenses 5,783,448 6,350,965 6,145,583 Other income (expenses) Interest income 861,424 607,178 326,485 Interest expense (394,925) (490,552) (682,251) Other 470,849 (517,956) 374,575 ------------ ------------ ------------ Total other income (expense) 937,348 (401,330) 18,809 Income (loss) before income taxes and discontinued operations 581,503 (1,433,646) 735,925 Provision/(benefit) for income taxes - (501,776) 312,768 ------------ ------------ ------------ Income (loss) from continuing operations 581,503 (931,870) 423,157 Discontinued operations Loss from discontinued operations (less applicable income tax benefit of $298,224 and $762,417) - (1,536,047) (1,031,761) Gain on sale of discontinued operations (less applicable income tax provision of $1,681,649) - - 2,275,172 ------------ ------------ ------------ Net income (loss) $ 581,503 $(2,467,917) $1,666,568 ============= ============ ============ Continued See Accompanying Notes CONSOLIDATED STATEMENTS OF OPERATIONS Years ended November 30, 1998, 1997 and 1996 Continued 1998 1997 1996 Income (loss) from continuing operations $ 581,503 $(931,870) $423,157 Preferred stock dividends - (277,841) (7,376) ---------- --------- -------- Income (loss) from continuing operations available to common stockholders $ 581,503 $(1,209,711) $ 415,781 ========= ============ ========== Net income (loss) per share and common share equivalents Basic and diluted: Income (loss) from continuing operations $.10 $(.22) $ .08 Discontinued operations - (.29) .26 ---- ------ ----- Net income (loss) per share $.10 $(.51) $ .34 ==== ====== ===== Weighted average number of common shares - basic and diluted 6,035,500 5,345,200 4,815,700 ========== ========= ========= See Accompanying Notes [CAPTION] Canterbury Information Technology, Inc. - 10-K 1998 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended November 30, 1998, 1997 and 1996 Class C Class D Common Common Additional Retained Treasury Unrealized Total Convertible Convertible Stock Stock Paid-In- Earnings Stock Loss Stockholder Preferred Preferred Shares Amount Capital (Deficit) Equity Stock Stock Balance, November 30, 1995 258,488 4,353,338 $4,353 $12,924,437 $ 68,963 $(143,435) $13,112,806 Private placement of common stock, net of expenses 411,111 411 1,467,742 1,468,153 Preferred stock conversion (258,488) 190,731 191 258,297 - Treasury shares acquired at cost (181,600) (181,600) Exercise of stock options 40,000 40 72,660 72,700 Issuance of common stock for services 833 1 4,999 5,000 Issuance of common stock for acquisition 8,333 8 40,617 40,625 401(k) Company match 13,657 14 81,926 81,940 Payment of dividends on preferred stock (7,376) (7,376) Net income 1,666,568 1,666,568 -------- ------- ---------- ------ ----------- ----------- ---------- --------- ---------- Balance, November 30, 1996 - - 5,018,003 $5,018 $14,850,678 $1,728,155 (325,035) - $16,258,816 Private placement of common stock, net of expenses 211,594 212 544,070 544,282 Issuance of preferred stock 766,000 766,000 Treasury shares acquired at cost (82,265) (82,265) Issuance of common stock for acquisition 152,381 152 499,848 500,000 401(k) Company match 35,178 35 85,448 85,483 Accrued dividends on preferred stock 27,838 (27,838) - Imputed dividends on preferred stock payable in common stock upon conversion 250,003 (250,003) - Net loss (2,467,917) (2,467,917) -------- -------- ----------- ------ ----------- ---------- ----------- --------- ---------- Balance, November 30, 1997 - 1,043,841 5,417,156 $5,417 $15,980,044 ($1,017,603) ($407,300) - $15,604,399 Preferred stock conversion (1,043,841) 613,912 614 1,043,227 - 401(k) Company match 35,201 35 62,271 62,306 Additional issuance of common stock for acquisitions 354,624 355 494,980 495,335 Unrealized loss on available for sale securities (143,757) (143,757) Net Income 581,503 581,503 -------- --------- ----------- ----- ---------- ---------- --------- ---------- ---------- Balance, November 30, 1998 - - 6,420,893 $ 6,421 $17,580,522 ($436,100) ($407,300) ($143,757)$16,599,786 ======== ========= =========== ====== =========== ========= ========= ========= =========== See Accompanying Notes CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended November 30, 1998, 1997 and 1996 1998 1997 1996 --------- --------- --------- Operating activities: Net income (loss) $ 581,503 $(2,467,917) $1,666,568 Adjustments to reconcile net income (loss) to net cash provided by operating activities from continuing operations: Depreciation and amortization 1,014,571 1,063,392 939,138 Provision for losses on accounts receivable 118,534 63,139 66,735 Loss on writedown from notes receivable 28,992 447,995 - Deferred income taxes (95,618) (451,500) 308,676 401(k) contributions 62,306 86,543 82,719 Receipt of stock for services (378,000) - - Loss from discontinued operations - 1,536,047 1,031,761 Gain from sale of discontinued operations - - (2,275,172) Other, net 15,761 94,241 (779) Changes in operating assets, net of acquisitions Accounts receivable 72,440 361,444 (535,924) Prepaid expenses and other assets (411,922) (233,337) 6,447 Income taxes 63,217 (424,845) 618,845 Accounts payable (110,755) 254,514 (53,786) Accrued expenses (680,563) 557,813 (288,040) Unearned tuition income 125,659 (343,064) (15,353) --------- --------- -------- Net cash provided by operating activities of continuing operations 406,125 544,465 1,551,835 --------- --------- -------- Investing activities: Capital expenditures (213,740) (130,497) (441,826) --------- --------- -------- Net cash used in investing activities of continuing operations (213,740) (130,497) (441,826) --------- --------- -------- Financing activities: Principal payments on long term debt (549,387) (2,439,469) (2,406,748) Proceeds from notes payable and long term debt - - 291,276 Proceeds from revolving credit facility - - 425,000 Repayment of revolving credit facility - - (770,000) Proceeds from payments on notes receivable 348,340 827,282 519,689 Proceeds from issuance of common stock, net - 544,282 1,489,153 Proceeds from issuance of preferred stock, net - 766,000 - Payment of dividends - - (7,376) Purchase of treasury shares - - (13,000) Proceeds from exercise of stock options and warrants - - 11,150 --------- -------- -------- Net cash provided by/(used in) financing activities from continuing operations (201,047) (301,905) (460,856) --------- --------- -------- Cash used in discontinued operations - (254,889) (1,662,347) --------- --------- -------- Net decrease in cash (8,662) (142,826) (1,013,194) Cash, beginning of year 295,936 438,762 1,451,956 --------- --------- ---------- Cash, end of year $ 287,274 $ 295,936 $ 438,762 ========== ========== ========== Continued, See Accompanying Notes CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended November 30, 1998, 1997 and 1996 Continued Supplemental schedule of noncash investing and financing activities: 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 $198,455 in 1998; $219,533 in 1997 and $291,300 in 1996 when the Company entered into leases for equipment. In December, 1997 the Company received 600,000 shares of common stock from an affiliated third party valued at an estimated market value of $378,000 as compensation for services rendered in the overview and start-up of their business. In November, 1997 the Company received 16,667 shares of its common stock which was placed in treasury as settlement of a note receivable, including accrued interest, of $146,801. The Company recorded a writedown of $95,301 for the difference between the fair market value of the stock of $3.09 per share and balance of the note. During August, 1997 the Company issued 66,667 warrants to its investment banking firm, exercisable at $2.94 which expire in 2002 for services as an advisor to the Company. In July, 1997 the Company received 8,204 shares of its common stock at fair market value which was placed in treasury as full settlement of a note receivable of $30,765. In May, 1997 the Company purchased all of the assets of ATM Technologies, Inc. of Houston, Texas. In conjunction with the acquisition, the Company acquired assets with a fair value of $231,000, less liabilities assumed of $38,000 in exchange for 152,381 shares of Canterbury restricted common stock. During March, 1997 the Company issued 35,178 shares of restricted common stock to its defined contribution plan to fulfill its matching contribution requirement. During March, 1996 the Company issued 13,657 shares of restricted common stock to its defined contribution plan to fulfill its matching contribution requirement. In March, 1996 the Company issued 833 shares to an unrelated party for services. Also during March, 1996 the Company allowed a former officer to exercise 10,000 stock options for a note receivable. During July, 1996 the Company issued 8,333 shares of restricted common stock to the former owners of ProSoft, L.L.C. for the purchase of the business. During November, 1996 the Company allowed corporate counsel to exercise 16,667 stock options for a note receivable. At November 30, 1996 the total notes receivable plus accrued interest for corporate officers and certain consultants totaled $494,500. The notes are collateralized by the common stock of the Company. Interest rates range from 6% to 7%. During November, 1996 the Company received 50,000 shares of its common stock from a shareholder as partial settlement of its lawsuit with him. These shares are included in treasury stock at the then current market price. The taxes paid for fiscal 1998, 1997 and 1996 were as follows: $32,400, $40,600 and $132,000 respectively. Interest paid during fiscal 1998, 1997 and 1996 were as follows: $394,925, $490,552 and $682,251 respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS November 30, 1998 1. Operations and Summary of Significant Accounting Policies Description of Business Canterbury Information Technology, Inc. ("the Company") is engaged in the business of providing information technology services which includes operating computer software training companies, a management training company and developing and selling software to individuals and corporations in the United States. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All material intercompany transactions have been eliminated. Stock Based Compensation The Company has adopted SFAS No. 123- Accounting for Stock Based Compensation. As provided by SFAS No. 123, 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 (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. 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 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. Deferred Income Taxes The Company utilizes the liability method to account for income taxes. This method gives consideration to the future tax consequences associated with the differences between financial accounting and tax bases of assets and liabilities. Earnings Per Share Basic earnings per share is computed using the weighted average common shares outstanding during the year. Diluted earnings per share considers the dilutive effect, if any, of common stock equivalents (options). Recent Accounting Pronouncements In fiscal 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130 "Reporting Comprehensive Income," which requires that an enterprise report, by major component and as a single total, the change in its net assets during the period from nonowner sources, the adoption of this statement in fiscal 1999 is not expected to have an impact on the Company's net income or Stockholders' Equity. This FASB also issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," which establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas, and major customers. Management has not completed its review of SFAS No. 131, but does not anticipate that the adoption of this statement will have a significant effect on the Company's disclosures upon adoption in fiscal 1999. Reverse Stock Split On April 2, 1998, the Company's Board of Director approved a one-for-three reverse stock split of the Company's common shares. All share and per share information contained in these financial statements gives retroactive effect to the 1-for-3 reverse stock split effected April 14, 1998. Concentration of Risk As previously discussed, the Company is in the business of providing information technology services. These services are provided to a large number of customers in various industries in the United States. The Company's trade accounts receivable are exposed to credit risk, but the risk is limited due to the diversity of the customer base and the customers wide geographic dispersion. The Company performs ongoing credit evaluations of its customer's financial condition. The Company maintains reserves for potential bad debt losses and such bad debt losses have been within the Company's expectations. The Company maintains cash balances at several large creditworthy banks located in the United States. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company does not believe that it has significant credit risk related to its cash balance. 2. Acquisitions On May 5, 1997, the Company acquired all of the assets of ATM Technologies, Inc. (ATM) of Houston, Texas for $500,000 of Canterbury restricted common stock and the opportunity to earn an additional $840,000 in Canterbury restricted common stock after the first year based on achievement of certain pretax earnings levels. Based on the market price of Canterbury stock as of the purchase date, 152,381 shares were issued to the previous owners of ATM. The Company recorded goodwill in the amount of $413,000 related to the acquisition. On April 30, 1998, the Company achieved the minimal level of pre-tax income under the purchase agreement and as a result issued an additional 278,924 shares to the former shareholders of ATM and recorded additional goodwill of approximately $436,000. On July 1, 1996, the Company acquired the business of ProSoft, L.L.C. (PS) of Charlotte, North Carolina for 8,333 shares of Canterbury restricted common stock and the opportunity to earn additional restricted common shares over the next three years based on various levels of increasing profitability. The 8,333 shares issued at closing were guaranteed by Canterbury to having a market value of at least $100,000 ($12.00 per share) at the two year anniversary of the acquisition. During 1998, the Company issued 75,700 shares to the former owners of PS and recorded additional goodwill of approximately $59,000 during the fiscal year ended November 30, 1998. 3. Discontinued Operations In November, 1997 the Company decided to discontinue its vocational training segment and closed its last two vocational schools in New Jersey and Nevada. On November 30, 1996 the Company sold Landscape Maintenance Services, Inc. which comprised its business maintenance services segment. The proceeds of the sale consisted of both cash and a note receivable totaling $4,500,000. The note is payable in monthly installments of $38,962 (including interest at 8%) through November, 2006 with a final installment of $1,960,503 due December 31, 2006. The note is secured by substantially all assets and business of the buyer. At November 30, 1998, the principal outstanding on the note was $3,785,000 and is included as a component of notes receivable on the accompanying balance sheet. The results of operations and the gain on the sale of these segments has been reported as discontinued operations. The following is a summary of the results of operations of the Company's discontinued vocational schools and business maintenance services operations: Year ended November 30, 1997 1996 ---- ---- Revenue $831,048 $15,083,515 Loss from operations net of tax benefit of $298,224 and $762,417 (1,536,047) $(1,031,761) Gain on sale, net of tax provision of $0 and $1,681,649 - 2,275,172 ------------ ---------- Net income (loss) $(1,536,047) $1,243,411 =========== ========== Costs and expenses for these discontinued operations include $235,000, and $1,298,000 representing allocated costs from corporate for 1997 and 1996, respectively. 4. Property and Equipment Property and equipment, which is recorded at cost, consists of the following: 1998 1997 -------- ----------- Land, buildings and improvements $725,910 $ 725,910 Equipment 3,185,632 2,961,376 Furniture and fixtures 1,287,067 1,107,993 Leased property under capital leases and leasehold improvement 1,118,495 1,104,289 -------- ----------- 6,317,104 5,899,568 Less: Accumulated depreciation (3,993,108) (3,396,291) -------- ----------- Net property and equipment $ 2,323,996 $ 2,503,277 =========== =========== Accumulated depreciation of leased property under capital leases totaled $923,000 in 1998. Depreciation expense for 1998, 1997, and 1996 was $ 591,000, $568,000, and $524,000, respectively. 5. Income Taxes The provision/(benefit) for income taxes for the years ended November 30, 1998, 1997 and 1996 is as follows: 1998 1997 1996 ---- ---- ---- Current: Federal $ - $ - $ - State 63,000 - 65,000 ----------- ---------- ---------- - - 65,000 Deferred: (63,000) (800,000) 1,167,000 ----------- ---------- ---------- $ - $(800,000) $1,232,000 ============ ========== ========== The reconciliation of the expected provision/(benefit) for the years ended November 30, 1998, 1997 and 1996 is as follows: 1998 1997 1996 ---- ---- ---- Expected tax (benefit) at statutory rates $197,000 $(1,115,000) $ 985,000 Effect of state taxes (net) 38,000 (117,000) 229,000 Other - - 6,000 Permanent differences 6,000 12,000 12,000 Increase in valuation allowance - 420,000 - Benefits of losses not previously recognized (241,000) - - ---------- ---------- ---------- Total $ - $(800,000) $1,232,000 ========== ========== ========== Significant components of the Company's tax liabilities and assets as of November 30, 1998 and 1997 are as follows: November 30, ------------ Deferred tax liabilities: 1998 1997 ---- ---- Gain recognized in financial statements deferred for income tax purposes $2,118,801 $2,234,000 Tax depreciation in excess of book depreciation 247,000 272,000 Tax amortization in excess of book amortization 498,000 389,000 Other 252,000 349,500 ---------- ---------- Total deferred tax liabilities $3,115,801 $3,244,500 ========== ========== November 30, ------------ Deferred tax assets: 1998 1997 ---- ---- Allowance for doubtful accounts $ 39,000 $1,443,000 Expenses deductible for financial reporting purposes but deferred for tax reporting purposes 13,000 275,000 Net operating loss carryover 4,034,919 1,741,000 ----------- --------- Total deferred tax assets 4,086,919 3,265,000 Valuation allowance (1,224,000) (563,000) ---------- -------- Net deferred tax assets $2,862,919 $2,896,000 =========== ========== At November 30, 1998, the Company had a tax loss carryforward for federal income tax reporting purposes of $9,582,000 and $11,534,000 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. 6. Long-Term Debt November 30, Long-term obligations consist of: 1998 1997 ---- ---- Term loan $1,221,000 $1,576,000 Revolving credit line 2,774,620 2,774,620 7% unsecured notes payable, other - 5,057 Capital lease obligations 383,020 373,895 --------- --------- 4,378,640 4,729,572 Less: Current maturities (1,738,565) (872,616) --------- ----------- $ 2,640,075 $ 3,856,956 ========== ========== The Company's outstanding amounts owed under the term loan and credit line with its primary lender were due and payable at December 31, 1998. The Company and its lender have agreed to an extenion of these agreements through December 1, 1999 subject to satisfactory documentation of the terms and conditions as agreed. The Company will continue to use its best efforts to replace its primary lender prior to that time. Subsequent to November 30, 1998, the Company has paid $510,000 to reduce its term loan from $1,221,000 to $711,000 as March 12, 1999. The Agreement calls for the Company to make additional payments in 1999 totaling $1,015,00 with remaining balance of $2,470,000 due December 1, 1999. The term debt and revolving credit line will accrue interest at prime plus 2.5% per annum. The long term debt is secured by substantially all of the assets of the Company and requires continued compliance with previously established 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 dividends on its common stock. Aggregate maturities on long-term debt, exclusive of obligations under capital leases, are approximately $1,525,000 in 1999 and $2,470,000 in 2000. The carrying value of the long-term debt approximates its fair value. 7. 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, as of May 1, 1995 and May 1, 1997 are as follows: Year ending November 30, 1999 $238,012 Year ending November 30, 2000 94,592 Year ending November 30, 2001 49,149 Year ending November 30, 2002 and thereafter 44,670 -------- Total minimum lease payments 426,423 Less amount representing interest (43,403) --------- Present value of long-term obligations under capital leases $383,020 ========= 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 $1,285,000 in 1999; $1,215,000 in 2000; $1,039,000 in 2001; $977,000 in 2002; $971,000 in 2003 and $3,388,000 thereafter. Rent expense for the years ended November 30, 1998, 1997 and 1996 was $1,051,000, $1,527,000 and $1,263,000, respectively. 9. Commitments and Contingencies The Company is a defendant to several lawsuits arising out of its normal business activities. In the opinion of management, after consulting with counsel, the Company believes any adverse effect resulting from such actions will not be material to its results of operations or financial position. During fiscal 1997, the Company entered into an amended employment agreement with the President. The term of the agreement is five years and provides for a base salary of $195,000 which began on December 1, 1995 with annual salary increases of $25,000 in the second and third years and to remain at $245,000 for the last two years of the contract. Also included in the agreement are future incentives based on Company performance. There is a bonus opportunity of 5% on the first $500,000 of consolidated income before taxes and bonus and 3% above $500,000. In conjunction with this contract, the President agreed to a covenant not to compete with the Company during his employment and for a period of one year after his employment with the Company has terminated. For the year ended November 30, 1996 the President waived his right to receive any performance bonus earned and in exchange his contract was extended for one year through 2001 at the same terms. For the year ended November 30, 1998, the President waived his rights to receive any performance bonus earned. The Company also amended the employment agreement with its Executive Vice President and Chief Operating Officer during fiscal 1997. The term of the agreement is five years and provides for a base salary of $120,000 for fiscal 1997 and increases of $15,000 per year for the next four years. Also included in the agreement are future incentives based on the Company's profitability. A bonus of $30,000 will be earned if the consolidated income before income taxes and bonus of the Company exceeds $1,000,000. The bonus opportunity applies to each of the five years of the contract. For the year ended November 30, 1996, the Executive Vice President waived his right to receive any performance bonus earned and in exchange the contract was extended to 2001 at the same terms. 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 1998, 1997 and 1996 was: $62,305, $85,483 and $81,940, respectively. 11. Stock Options and Awards The Company has two stock option plans, the 1995 Non-Qualified Stock Option Plan covering 548,263 shares of common stock ("1995 Plan") and the 1987 Non-Qualified Stock Option Plan covering 162,603 shares of common stock ("1987 Plan"). As of November 30, 1998, the Company had 529,706 shares under the 1995 Plan available for issuance in connection with the future stock options that may be granted. The 1987 Plan expired in 1995, therefore no additional grants may be made, although outstanding awards may be exercised. Options granted are exercisable immediately and are issued at market price. A summary of Canterbury's stock option activity and related information for the years ended November 30 is as follows: 1998 1997 1996 ---- ---- ---- Number of shares under stock options: Outstanding at beginning of year 539,538 441,274 359,496 Granted 188,266 192,179 136,514 Exercised - - (40,000) Canceled (16,940) (93,915) (14,736) Outstanding and exercisable at end of year 710,866 539,538 441,274 Weighted average exercise price: Granted 1.42 2.48 3.46 Exercised - - 1.73 Canceled 10.33 7.07 8.96 Outstanding and exercisable at end of year 4.25 5.43 7.07 Information with respect to stock options outstanding and exercisable at November 30, 1998, is as follows: Options Outstanding and Exercisable Range of Number Weighted Average Weighted Average Exercise Price Outstanding Remaining Life Exercise Price at 11/30/98 in Years $5.63 - $10.88 215,911 0.76 $8.89 $1.38 - $4.89 494,955 3.60 $2.23 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: 1998 1997 1996 ---- ---- ---- Estimated fair value of options granted $59,433 $92,084 $62,255 ======= ======= ======= Principal assumptions in applying the Black-Scholes valuation model: Expected life, in years 2.50 2.50 2.50 Risk-free interest rate 4.50% 6.00% 6.00% Expected volatility .476 .304 .304 Expected dividend yield 0.00% 0.00% 0.00% For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Had compensation cost been determined based upon the fair value of stock options at grant date consistent with FASB Statement No. 123, Canterbury's net income and income per share would have been reduced to the pro forma amounts indicated below (in thousands, except income per share information): 1998 1997 1996 ---- ---- ----- Pro forma net income (loss) from continuing operations $522,070 $(1,301,795) $353,526 Pro forma income per share from continuing operations basic and diluted .09 (.24) .07 12. Stockholders' Equity In August, 1997, the Company completed a private placement of 1,000,000 shares of Class D, 8% Convertible Preferred Stock at a price of $1.00 per share. The Preferred Stock is convertible into Common Stock of the Company at a 20% discount from the market price. Imputed dividends have been accrued in the amount of $250,000 for the year ended November 30, 1997. The preferred shares were available for conversion in November, 1997. An investment banking firm that arranged this private placement received 300,000 warrants as partial consideration. The warrants are immediately exercisable at $.98 and expire in 2002. None of the warrants have been exercised. The Preferred Shares pay a dividend of 8% per annum, payable in its entirety upon conversion, either in cash or common stock at the Company's option. During fiscal 1998 all preferred stock and accrued dividends, were converted into 613,912 shares of Canterbury common stock. During 1997, the Company received net proceeds of $634,782 from private placements of its common stock sold to investors at prices ranging from $.47 of $1.00 per share. During 1996, the Company received net proceeds of $1,468,153 from a private placement of its common stock sold to investors at prices ranging from $1.41 to $1.50 per share. Also during the year, all outstanding Class C Convertible preferred stock was converted into 572,000 shares of Company common stock. 13. Related Party Transactions In 1993, the Company sold previously charged off accounts receivable to an unaffiliated third party for $62,000 in cash and a secured, non-recourse, interest bearing note of $560,000. In 1997, the third party maker of the note defaulted and the collateral was not available to satisfy the unpaid balance. The Company, in its collection effort, has received as replacement collateral, common stock in a public company. Certain officers and directors of Canterbury have an ownership interest in this public company. These officers and directors became affiliated with the maker of the note in 1997 as a result of their ownership in the public company that the note maker offered as collateral. Management wrote down the note receivable to the expected realizable value of the collateral at November 30, 1997, and as a result charged $450,000 as other expenses in continuing operations in fiscal 1997. During fiscal 1998, the Company closed on the collateral as full payment for the note receivable. The Company recognized an additional loss of $29,000 as other expense in continuing operations based on the estimated value of collateral upon transfer to the Company. During fiscal 1998, an additional 600,000 shares to have been received for services rendered by Canterbury 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 15 - Securities Available for Sale. In 1996, the Company paid $120,000 and issued 150,000 stock options with an option price of $1.03 per share to a related party for legal and consulting fees provided. During November, 1996 the Company allowed corporate counsel to exercise 50,000 stock options for a note receivable. At November 30, 1997 and 1996, the total notes receivable plus accrued interest for corporate officers, corporate counsel and certain consultants totaled $342,000 and $494,000, respectively. The notes are collateralized by the common stock. Interest rates range from 6% to 7%. During 1997 the Company paid corporate counsel a $100,000 facilitation fee in connection with the private placement of the Class D, 8% convertible preferred stock. 14. Advertising The Company expenses advertising as incurred. Total advertising expenses included in the results of operations were $511,000, $373,000 and $425,000 for 1998, 1997 and 1996, respectively. 15. Securities Available for Sale At November 30, 1998, the Company held investment securities in a public company. Certain officers and directors of the Company have an ownership interest in the public company. Management has estimated the fair value of the investment at November 30, 1998 at $317,250 based on discounted market values due to the stock being thinly traded and volatile and has classified the investment as available for sale. The investment is included in prepaid expenses and other assets in the accompanying balance sheet. The investment has a gross carrying value of $461,007 and an unrealized loss of $143,757 at November 30,1998. The Company did not sell any available for sale securities during 1998. The Company did not maintain any securities during 1997. 16. Subsequent Event On March 10, 1999 the Company completed a Private Placement Offering for the issuance of 1,000,000 shares of common stock. The Company has received proceeds of $600,000. The Company used $500,000 in proceeds to repay amounts under the term loan as discussed in Note 6. The remaining amounts are intended to be used for further paydown of debt, general corporate purposes and for working capital. In connection with the Private Placement Offering described above, an independent third party received 200,000 shares of common stock as a finders fee.
EX-21.1 2 SUBSIDIARIES OF THE REGISTRANT LIST OF SUBSIDIARIES OF CANTERBURY INFORMATION TECHNOLOGY, INC. Canterbury Career Schools, Inc. (inactive) Canterbury Career Schools of Sacramento, Inc. (inactive) Canterbury Career Schools of Pittsburgh, Inc. (inactive) Canterbury Management Group, Inc. Scholastic Partners, Inc. (inactive) Star Label Products, Inc. (shell) Clark Training Corp. (inactive) MSI/Canterbury Corp. Empire Career Center, Inc. (inactive) Canterbury Career Schools of Lauderdale (inactive) CALC/Canterbury Corp. Prosoft/Canterbury Corp. Nevada Training Corp. (inactive) Vocational Education Corp. d/b/a American Trucking Academy (inactive) ATM/Canterbury Corp. EX-27 3 FINANCIAL DATA SCHEDULE
5 0000794927 CANTERBURY INFORMATION TECHNOLOGY, INC. 1 NOV-30-1998 DEC-01-1997 NOV-30-1998 12-MOS 287,274 317,250 1,243,638 (96,094) 0 4,698,188 6,891,595 4,567,599 25,700,415 2,264,754 0 0 0 6,421 16,593,365 25,700,415 12,122,879 12,122,879 6,695,276 5,783,448 (1,332,273) 0 394,925 581,503 0 581,503 0 0 0 581,503 0.10 0
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