FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: Commission File Number:
February 28, 1997 0-15588
CANTERBURY CORPORATE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2170505
(State of Incorporation) (I.R.S. Employer Identification No.)
1600 Medford Plaza
Route 70 & Hartford Road
Medford, New Jersey 08055
(Address of principal executive office)
Telephone Number: (609) 953-0044
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes No
--- ---
The number of shares outstanding of the registrant's common stock as of
the date of the filing of this report: 15,588,791 shares.
<PAGE>
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CANTERBURY CORPORATE SERVICES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
February 28,
1997 November 30,
(Unaudited) 1996
----------- ------------
<S> <C> <C>
Current Assets:
Cash $ 1,244,547 $ 440,178
Accounts receivable net of
allowance for doubtful accounts
of $1,763,000 and $1,685,000 3,076,330 3,142,024
Notes receivable 575,582 978,582
Prepaid expenses and
other assets 786,182 641,645
Deferred income tax benefit 1,228,000 1,228,000
----------- ----------
Total Current Assets 6,910,641 6,430,429
Property and equipment
at cost, net of accumulated
depreciation and amortization
of $3,453,000 and $3,305,000 2,631,662 2,752,430
Goodwill net of accumulated amortization
of $1,278,000 and $1,178,000 8,814,141 8,914,086
Notes receivable 9,063,573 9,092,943
Other assets 329,974 275,131
----------- -----------
Total Assets $27,749,991 $27,465,019
=========== ===========
</TABLE>
See Accompanying Notes
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
February 28,
1997 November 30,
(Unaudited) 1996
----------- ------------
<S> <C> <C>
Current Liabilities:
Accounts payable - Trade $ 236,949 $ 230,000
Accrued expenses 318,155 374,859
Income taxes payable 395,635 424,845
Unearned tuition income 1,074,186 1,198,991
Current portion, long-term
debt 2,159,118 2,230,715
----------- -----------
Total Current Liabilities 4,184,043 4,459,410
Long-term debt 4,721,906 4,718,793
Deferred income tax liability 1,928,000 2,028,000
Shareholders' Equity:
Common stock, $.001 par value,
50,000,000 shares authorized;
15,589,000 and 15,054,000
issued outstanding 15,589 15,054
Additional paid in capital 15,400,141 14,840,642
Retained earnings 1,834,347 1,728,155
Treasury stock (325,035) (325,035)
------------ ------------
Total Shareholders' Equity 16,925,042 16,258,816
------------ ------------
Total Liabilities and
Shareholders' Equity $ 27,749,991 $ 27,465,019
============ ============
</TABLE>
See Accompanying Notes
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income for the three-month periods
ended February 28, 1997, and February 29, 1996, are unaudited, but the Company
believes that all adjustments (which consist only of normal recurring
accruals) necessary for a fair presentation of the results of operations for
the respective periods have been included. Quarterly results of operations
are not necessarily indicative of results for the full year.
<TABLE>
<CAPTION>
Three-Months Ended
February 28, and February 29
----------------------------
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Net revenues $3,174,279 $3,229,136
Costs and expenses 1,546,136 1,173,169
---------- ----------
Gross profit 1,628,143 2,055,967
Selling 469,482 420,137
General and administrative 938,481 828,390
Provision for doubtful accounts 77,830 75,786
---------- ----------
Total operating expenses 1,485,793 1,324,313
Other (income)/expenses
Interest income (160,608) (74,044)
Interest expense 121,182 196,225
Other 10,584 (12,182)
---------- -----------
Income before provision for
income taxes and
discontinued operation 171,192 621,655
Provision for income taxes 65,000 242,000
---------- ----------
Income from continuing operations 106,192 379,655
Discontinued operation
Income from discontinued operation
net of income taxes of $207,000 - 353,455
---------- ----------
Net income $ 106,192 $ 733,110
========== ==========
Net income per common share
and common share equivalents:
Primary:
Income from continuing
operations .01 $ .03
Discontinued operation - .03
---------- ----------
Net income per share $ .01 $ .06
========== ==========
Common and common share
equivalents (weighted
average):
Primary 15,131,000 13,221,200
========== ==========
</TABLE>
See Accompanying Notes
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from
customers $ 3,310,338 $ 2,717,101
Cash paid to suppliers and
employees (3,233,203) (2,243,820)
Interest received 160,608 74,044
Interest paid (121,182) (196,225)
-------- --------
Net cash provided by
operating activities $ 116,561 $ 351,100
Cash flows from investing activities:
Capital expenditures (27,112) (121,363)
Collection on notes receivable 432,370 431,230
-------- --------
Net cash provided by
investing activities 405,258 309,867
Cash flows from financing activities:
Principal payments on long-term debt (77,484) (103,242)
Repayment of revolving
credit facility - (375,000)
Proceeds from exercise of stock
options and warrants - 3,400
Proceeds from issuance of common stock 360,034 -
Repayment on term loan - (518,750)
Payment of dividends on
preferred stock - (7,376)
Purchase of treasury stock - (13,000)
--------- ---------
Net cash provided by/(used in)
financing activities 282,550 (1,013,968)
Net cash used in
discontinued operation - (382)
Net increase/(decrease) in cash 804,369 (353,001)
Cash at beginning of period 440,178 1,471,702
------------ -----------
Cash at end of period $ 1,244,547 $ 1,118,319
============ ===========
</TABLE>
See Accompanying Notes
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------ ------------
Reconciliation of income from continuing operations
to net cash provided by operating activities:
<S> <C> <C> <C> <C>
Income from continuing operations $ 106,192 $ 379,655
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 247,825 $221,877
Provision for doubtful accounts 77,830 75,786
Change in operating assets
and liabilities:
Increase in accounts receivable (12,136) (441,711)
Increase in prepaid expenses (144,537) (348,988)
(Increase)/decrease in other assets (54,843) 170,201
Increase in
accounts payable 6,949 84,887
Decrease in accrued expenses (56,704) (139,283)
Decrease in unearned
tuition income (124,805) (67,324)
Increase/(decrease) in income
taxes payable (29,210) 249,000
Increase in
deferred income taxes 100,000 167,000
-------- --------
Total adjustments 10,369 (28,555)
--------- ----------
Net cash provided by
operating activities $ 116,561 $ 351,100
========= ==========
</TABLE>
See Accompanying Notes
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
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.
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 reported amounts of assets and liabilities at
February 28, 1997, and revenues and expenses for the three months ended
February 28, 1997. The ultimate outcome and actual results could differ from
the estimates and assumptions used.
Revenue Recognition
The Company's computer software training segment records revenue at the
time an individual attends the training class.
The Company's management training segment records revenue based on
performance of seminars to its clients.
The Company's vocational training segment records tuition revenues ratably
over the term of the courses which run for approximately two to eight weeks.
Receivables for students' tuition are recorded as of the students' first day
of class attendance. Unearned tuition income represents revenue to be
recognized over the term of the courses.
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.
Amortization of Intangible Assets
Goodwill is being amortized over twenty-five years using the straight-line
method.
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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
Earnings per share is computed using the weighted average common shares
outstanding during the year and includes the dilutive effect of common stock
equivalents (options).
Accounting Changes
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 123, "Accounting for
Stock-Based Compensation." SFAS 123 is effective for fiscal years beginning
after December 15, 1995. SFAS 123 provides companies with a choice to follow
the provisions of SFAS 123 in determining stock based compensation expense or
to continue with the provisions of APB 25, "Accounting for Stock Issued to
Employees." The Company will continue APB 25 and will provide the pro forma
disclosures as required by SFAS 123 in the November 30, 1997 notes to the
consolidated financial statements. The Company does not expect that adoption
of SFAS 123 will have a material effect on its consolidated financial
statements.
2. Segment Reporting
The Company is organized into three operating segments: computer software
training, management training and vocational training.
The computer software training segment trains corporate workers and
managers as an authorized training center for Microsoft, Lotus, Borland,
WordPerfect, Aldus and Apple on DOS, Windows and Macintosh platforms.
The management training segment conducts corporate seminars in management
and team development, selling and negotiating, interpersonal communication,
executive development and organizational problem solving.
The Company's vocational training segment develops, markets and teaches
courses that focus upon job-related skills in vocations such as word processing
specialist, computer operator, tractor trailer driver, bartender, phlebotomy
technician and electrocardiography technician. Its clients are individuals
who wish to seek employment, corporations who need to hire these individuals,
as well as other corporations that hire Canterbury on a direct basis to train
its existing employees.
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Selected financial information for each segment, which includes an
allocation of corporate expenses, is as follows:
<TABLE>
<CAPTION>
Income Capital Depreciation &
Three Months Ended 2/28/97 Revenues Before Taxes Assets Expenditures Amortization
- -------------------------- -------- -------------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Computer Software Training $2,466,530 $ 127,120 $3,010,941 $ 27,112 $123,139
Management Training 355,745 18,599 182,256 - 289
Vocational Training 352,004 25,473 24,556,794 - 124,397
---------- --------- ---------- -------- --------
$3,174,279 $ 171,192 $27,749,991 $ 27,112 $247,825
========== ========= =========== ======== ========
Income Capital Depreciation &
Three Months Ended 2/29/96 Revenues Before Taxes Assets Expenditures Amortization
- -------------------------- -------- -------------- -------- ------------ --------------
Computer Software Training $2,359,404 $295,792 $ 2,858,056 $121,363 $ 98,921
Management Training 466,384 225,921 225,112 - 289
Vocational Training 403,348 99,942 20,032,383 - 122,667
---------- ---------- ----------- -------- ---------
$3,229,136 $621,655 $23,115,551 $121,363 $221,877
========== ========== =========== ======== =========
</TABLE>
3. Discontinued Operation
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 notes totalling $4,500,000. The note
bears interest at 8% per annum and is secured by substantially all assets and
business of the buyer.
The results of operations has been reported as a discontinued operation and
the financial statements for the quarter ended February 29, 1996 have been
restated to reflect the discontinuation of the business maintenance services
segment.
The following is a summary of the results of operations of the Company's
business maintenance services segment.
<TABLE>
<CAPTION>
Three Months ended
February 28, 1996
------------------
<S> <C>
Revenue $ 3,123,475
Income from operations
(net of taxes of $207,000) 353,455
</TABLE>
Cost and expenses for this discontinued segment include approximately
$275,000 representing allocated costs from corporate for the three-months
ended February 28, 1996.
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The net assets of discontinued operation were as follows:
<TABLE>
<CAPTION>
February 28, 1996
<S> <C>
Current Assets $1,712,311
Current liabilities (1,019,418)
Property, plant and equipment, net 922,144
Other, net 294,936
----------
Total $1,909,973
==========
</TABLE>
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
February 28, November 30,
1997 1996
------------ ------------
<S> <C> <C>
Land, buildings and improvements $ 725,910 $ 725,910
Equipment 3,288,231 3,262,009
Furniture and fixtures 1,185,631 1,184,741
Leased property under capital
leases and leasehold
improvements 884,756 884,756
----------- ----------
6,084,528 6,057,416
Less: accumulated depreciation
and amortization (3,452,866) (3,304,986)
----------- ----------
Net property and equipment $ 2,631,662 $2,752,430
=========== ==========
5. Long-Term Debt
February 28, November 30,
1997 1996
------------- ------------
Long-term obligations consist of:
Term loan 3,631,250 3,631,250
Revolving credit line 2,774,620 2,774,620
Capital lease obligations 466,154 543,638
----------- ----------
6,872,024 6,949,508
Less: Current maturities (2,159,118) (2,230,715)
----------- ----------
$ 4,712,906 $4,718,793
=========== ==========
</TABLE>
During 1996 the Company and its primary lender, Chase Manhattan Bank,
instituted litigation, each claiming that the other party violated the terms
of the credit agreement. As a result, the debt was declared in default. In
February, 1997, the litigation was settled and all outstandings with Chase
were restructured and become due on December 31, 1997. The Company and Chase
agreed that all alleged defaults under the previous agreements were
permanently waived and the Company would use its best efforts to replace Chase
during 1997. The Company is in the process of replacing Chase as its primary
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
lender and is confident that this refinancing should be completed before
December, 1997. Based on this assumption, the Company is continuing to
classify a significant portion of the bank debt as long term. The projected
maturities of the debt beyond December, 1997 cannot be readily determined at
this time.
The Company agreed to make principal payments against the term loan
throughout 1997. The first payment of $919,000 will be made in April, 1997;
$518,750 is to be paid in June and $518,750 is to be paid during September,
1997. The revolving credit facility will remain at $2,774,600 until December
31, 1997, with no additional borrowings or repayments scheduled during Fiscal
1997. The capital leases will be paid as usual on a monthly basis, with any
remaining balance due on December 31, 1997.
Interest rates on all outstanding debt will remain at the same rate as
before the restructuring. The term loan interest rate is LIBOR plus 3% or the
Bank's prime rate plus 1/2%. The revolving credit facility carries an interest
rate of LIBOR plus 2 1/2% or the Bank's prime rate of interest. The Company has
the right to choose which rate is to be utilized on a periodic basis. The 30
day LIBOR rate at February 28, 1997 was 5.44%. As of February 28, 1997, the
Company was in compliance with or has received a waiver on all of the debt
covenants relating to both the term loan and the revolving credit facility.
The long-term debt is secured by substantially all of the assets of the
Company.
Aggregate maturities on long-term debt for the next five years, exclusive
of obligations under capital leases, are approximately $6,405,870, $0, $0, $0
and $0 respectively.
The carrying value of the long-term debt approximates its fair value.
6. Capital Leases
Capital lease obligations are certain equipment leases which expire in
October, 1998. Future payments under capitalized leases together with the
present value, calculated at the respective leases' implicit interest rate of
approximately 10.5% to 11% at their inception, as of May 1, 1995 and October
1, 1996 are as follows:
Year ending November 30, 1997 $186,753
Year ending November 30, 1998 178,929
Year ending November 30, 1999 119,384
Year ending November 30, 2000 13,183
--------
Total minimum lease payments 498,249
Less amount representing interest (32,095)
--------
Present value of long-term obligations
under capital leases $466,154
========
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Item 2. Management's Discussion of Financial Condition and Results of
Operations
Liquidity and Capital Resources
Working capital at February 28, 1997 was $2,726,000 During 1996 the Company
and its primary lender, Chase Manhattan Bank, instituted litigation, each
claiming that the other party violated the terms of the credit agreement. As
a result, the debt was declared in default. In February, 1997, the litigation
was settled and all outstandings with Chase were restructured and become due
on December 31, 1997. The Company and Chase agreed that all alleged defaults
under the previous agreements were permanently waived and the Company would
use its best efforts to replace Chase during 1997. The Company is in the
process of replacing Chase as its primary lender and is confident that this
refinancing should be completed before December, 1997.
Management believes that positive cash flow contributions from the
Company's operating segments will be sufficient to cover cash flow
requirements for Fiscal 1997. There was no material commitment for capital
expenditures as of February 28, 1997. Inflation was not a significant factor
in the Company's financial statements.
Cash flow from continuing operations for the three months ended February
28, 1997 was $117,000, a decrease of $234,000 over the previous year. This
reduction was attributed to lower net income in 1997.
In February, 1997, the Company raised $434,782, net of applicable costs,
through a Regulation D Private Placement of its common stock to one accredited
investor at a price of $1.00 per share. This equity was used for general
working capital purposes.
Results of Operations
Revenues
Revenues for the three months ended February 28, 1997 decreased by $55,000
(2%) to $3,174,000 from the same period last year. This decrease was
attributable to reductions in both the management training and vocation
training segments.
Costs and Expenses
Costs and expenses for the three months ended February 28, 1997 increased
$49,000 (12%) over the comparable three-month period in Fiscal 1996. The
increase was due to higher costs associated with increased revenue from the
computer software training segment.
General and administrative costs increased by $110,000 (13%) in Fiscal 1997
versus Fiscal 1996. The increase was due to increased personnel costs, as
well as non-recurring professional fees expended in the process of settling
various legal actions. The Company anticipates significant further legal fees
to be expended pursuant to various non-recurring legal matters.
Interest income increased by $86,000 (116%) in Fiscal 1997 versus Fiscal
1996 due to note receivable interest income generated by the sale of the
discontinued operation (business maintenance services).
Interest expense deceased by $75,000 in Fiscal 1997 over the same period in
Fiscal 1996 due to a reduction in principal balances of the Company's term
loan and revolving credit facility.
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
See Footnote 5 to the Financial Statements.
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits: None
Reports on Form 8-K:
Notification of filing an Order to Show Cause, Verified Complaint
and Affidavit of Stanton M. Pikus, President of Canterbury Corporate Services,
Inc. against The Chase Manhattan Bank for breach of the Term Loan and
Revolving Loan Agreements, dated January 6, 1997.
<PAGE>
FORM 10-Q
CANTERBURY CORPORATE SERVICES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANTERBURY CORPORATE SERVICES, INC.
(Registrant)
By/s/ Stanton M. Pikus
------------------------
Stanton M. Pikus
President
(Chief Executive Officer and
duly authorized signer)
By/s/ Kevin J. McAndrew
-------------------------
Kevin J. McAndrew, C.P.A.
Chief Operating Officer, Executive Vice
President
(Chief Financial Officer and
duly authorized signer)
April 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000794927
<NAME> CANTERBURY CORPORATE SERVICES, INC.
<MULTIPLIER> 1
<S> <C>
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<PERIOD-TYPE> 3-MOS
<CASH> 1,244,547
<SECURITIES> 0
<RECEIVABLES> 4,839,330
<ALLOWANCES> 1,763,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,910,641
<PP&E> 6,084,528
<DEPRECIATION> 3,452,866
<TOTAL-ASSETS> 27,749,991
<CURRENT-LIABILITIES> 4,184,043
<BONDS> 0
0
0
<COMMON> 15,589
<OTHER-SE> 16,909,453
<TOTAL-LIABILITY-AND-EQUITY> 27,749,991
<SALES> 3,174,279
<TOTAL-REVENUES> 3,174,279
<CGS> 1,546,136
<TOTAL-COSTS> 1,407,963
<OTHER-EXPENSES> (150,024)
<LOSS-PROVISION> 77,830
<INTEREST-EXPENSE> 121,182
<INCOME-PRETAX> 171,192
<INCOME-TAX> 65,000
<INCOME-CONTINUING> 106,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,192
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
