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 29, 2000 0-15588
CANTERBURY INFORMATION TECHNOLOGY, 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 9,524,287 shares.
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CANTERBURY INFORMATION TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
- ------
February 29,
2000 November 30,
(Unaudited) 1999
----------- -----------
Current Assets:
Cash and cash equivalents $ 909,713 $1,060,434
Accounts receivable, net 2,898,548 2,676,889
Notes receivable - current portion 371,028 363,805
Prepaid expenses and
other assets 864,960 849,107
Inventory, principally finished goods,
at cost 38,073 101,533
Deferred income tax benefit 99,448 99,448
----------- ----------
Total Current Assets 5,181,770 5,151,216
Property and equipment
at cost, net of accumulated
depreciation and amortization
of $4,737,000 and $4,593,000 2,313,603 2,383,829
Goodwill net of accumulated amortization
of $2,461,000 and $2,348,000 8,771,853 8,885,170
Deferred income tax benefit 2,538,997 2,706,888
Notes receivable 7,599,236 7,630,836
Other assets 1,113,229 1,054,033
------------ ------------
Total Assets $27,518,688 $27,811,972
=========== ============
See Accompanying Notes
<PAGE>
FORM 10-Q
CANTERBURY INFORMATION TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
February 29,
2000 November 30,
(Unaudited) 1999
----------- -----------
Current Liabilities:
Accounts payable - trade $ 1,131,279 $ 1,144,922
Accrued expenses 374,193 387,660
Unearned revenue 1,135,978 1,111,330
Current portion, long-term
debt 1,047,751 1,246,997
----------- -----------
Total Current Liabilities 3,689,201 3,890,909
Long-term debt 1,950,531 1,989,031
Deferred income tax liability 2,991,422 3,059,219
Stockholders' Equity:
Common stock, $.001 par value, 50,000,000
shares authorized; 9,508,000 issued 9,508 9,508
Additional paid in capital 19,896,847 19,946,848
Accumulated other comprehensive income (564,094) (472,215)
Retained earnings 341,269 184,668
Notes receivable for capital stock (388,696) (388,696)
Less treasury shares, at cost (407,300) (407,300)
---------- ----------
Total Shareholders' Equity 18,887,534 18,872,813
------------ ----------
Total Liabilities and
Shareholders' Equity $ 27,518,688 $ 27,811,972
============ ============
See Accompanying Notes
<PAGE>
FORM 10-Q
CANTERBURY INFORMATION TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three-Months Ended
February 29 and February 28,
(Unaudited)
2000 1999
---- ----
Service revenue $2,692,402 $ 2,575,702
Product revenue 3,261,189 226,428
----------- ------------
Total net revenue 5,953,591 2,802,130
Service costs and expenses 1,604,731 1,420,398
Product costs and expenses 2,711,778 99,914
----------- ------------
Total costs and expenses 4,316,509 1,520,312
Gross profit 1,637,082 1,281,818
Selling 548,867 417,886
General and administrative 942,928 907,771
----------- ------------
Total operating expenses 1,491,795 1,325,657
Other income/(expenses)
Interest income 166,153 170,949
Interest expense (74,980) (90,628)
Other 16,141 17,116
----------- -----------
Total other income 107,314 97,437
Income before income taxes 252,601 53,598
Provision for income taxes 96,000 10,720
----------- ------------
Net income $ 156,601 $ 42,878
=========== ============
Net income per share and
common share equivalents:
Basic net income per share $ .02 $ .01
=========== ============
Diluted net income per share $ .02 $ .01
=========== ============
Weighted average number of common
shares - basic 9,508,100 6,420,900
=========== ============
Weighted average number of common
shares - diluted 10,295,800 6,420,900
=========== ============
See Accompanying Notes
<PAGE>
FORM 10-Q
CANTERBURY INFORMATION TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
February 29, February 28,
2000 1999
---------- -----------
Operating activities:
Net income $ 156,601 $ 42,878
Adjustments to reconcile net income
to net cash provided
by/(used in) operating activities:
Depreciation and amortization 257,682 260,200
Provision for losses
on accounts receivable 13,824 2,058
Deferred income taxes 100,094 (70,160)
Other assets (120,236) (199,750)
Changes in operating assets,
net of acquisitions
Accounts receivable (235,483) (110,970)
Inventory 63,460 -
Prepaid expenses and other assets (46,692) 204,274
Income taxes - (41,788)
Accounts payable (13,643) (43,028)
Accrued expenses (13,467) (51,881)
Unearned revenue 24,648 31,970
-------- ---------
Net cash provided by
operating activities 186,788 23,803
-------- ---------
Investing activities:
Capital expenditures, net (74,139) (101,724)
--------- ----------
Net cash used in
investing activities (74,139) (101,724)
---------- -----------
Financing activities:
Principal payments on
long term debt (237,746) (72,701)
Other (50,001) -
Proceeds from payments
on notes receivable 24,377 81,602
--------- ----------
Net cash provided by
financing activities (263,370) 8,901
--------- -----------
Net decrease in cash (150,721) (69,020)
Cash, beginning of period 1,060,434 287,274
---------- -----------
Cash, end of period $ 909,713 $ 218,254
========== ===========
See Accompanying Notes
<PAGE>
CANTERBURY INFORMATION TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Operations and Summary of Significant Accounting Policies
Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
those rules and regulations. It is suggested that these unaudited cosolidated
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's Form 10-K for the year ended
November 30, 1999. In the opinion of management, all adjustments (which
consist only of normal recurring accruals) necessary to present fairly
the financial position, results of operations and cash flows of all periods
presented have been made. Quarterly results are not necessarily indicative
of results for the full year.
Description of Business
-----------------------
Canterbury Information Technology, Inc. ("the Company") is engaged in
the business of providing information technology services which includes
operating computer software training companies, a management training
company and developing and selling software to individuals and corporations
in the United States.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All material intercompany
transactions have been eliminated.
Stock Based Compensation
------------------------
The Company accounts for stock options under Accounting Principles Board
(APB) Opinion No. 25- Accounting for Stock Issued to Employees. The
Company discloses the pro forma net income and earnings per share effect as
if the Company had used the fair value method prescribed under SFAS No.123-
Accounting for Stock Based Compensation.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. The ultimate outcome and actual results could
differ from the estimates and assumptions used.
Revenue Recognition
-------------------
The Company records revenue at the time services are performed or
product is shipped.
Statement of Cash Flows
-----------------------
For purposes of the Statement of Cash Flows, cash refers solely to
demand deposits with banks and cash on hand.
Depreciation and Amortization
-----------------------------
The Company depreciates and amortizes its property and equipment for
financial statement purposes using the straight-line method over the
estimated useful lives of the property and equipment (useful lives of
leases or lives of leasehold improvements and leased property under capital
leases, whichever is shorter). For income tax purposes, the Company uses
accelerated methods of depreciation.
The following estimated useful lives are used:
Building and improvements 7 years
Equipment 5 years
Furniture and fixture 5 to 7 years
Intangible Assets
-----------------
Goodwill is being amortized over periods ranging from twenty to
twenty-five years using the straight-line method.
The Company periodically evaluates whether the remaining estimated
useful life of intangibles may warrant revision or the remaining balance of
intangibles may require adjustment generally based upon expectations of
nondiscounted cash flows and operating income.
Inventories
-----------
Inventories are stated at the lower of cost or market utilizing a first-
in, first-out method of determining cost.
Earnings Per Share
------------------
Basic earnings per share is computed using the weighted average common
shares outstanding during the year. Diluted earnings per share considers
the dilutive effect, if any, of common stock equivalents (options).
Recent Accounting Pronouncements
--------------------------------
The Company plans to adopt Statement of Financial Accounting Standards
"(SFAS)" No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, effective at the beginning of fiscal 2001. This
statement will require derivative positions to be recognized in the balance
sheet at fair value. The Company believes that there will be no impact upon
adoption on results of operations or financial position.
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.
Comprehenisve Income
--------------------
During the three months ended February 29, 2000 and February 28, 1999,
total comprehensive income (loss) amounted to $64,722 and ($156,872),
respectively. Comprehensive income consisting of net income and unrealized
gains and losses on available for sale securities.
2. Acquisitions
On October 20, 1999, the Company acquired certain assets and assumed
certain liabilities of U.S. Communications, Inc. (USC) from Condor
Technology Solutions, Inc. for 292,000 shares of Canterbury restricted
common stock valued at $850,000. USC, based in Maryland, is a reseller of
desktop and server computer systems to state and local governments, as well
as commercial private sector companies in the Mid-Atlantic market. USC
provides a wide range of information technology services as well. They
include training, software, consulting and network design. After the
acquisition, the Company changed the name of U.S. Communications to
USC/Canterbury Corp. The acquisition was accounted for using the purchase
method of accounting. The purchase price was allocated as follows:
receivables - $308,000; inventory - $209,000; other current assets -
$21,000; non-current assets - $49,000; and current liabilities - $66,000.
The excess cost over the fair value of net assets acquired was
approximately $329,000. Goodwill is being amortized over 20 years on a
straight line basis. The consolidated results of operations for 1999
include USC since the date of the acquisition.
3. Segment Reporting
-----------------
The Company is organized into three operating segments and the corporate
office. The operating segments are: training and consulting, hardware
sales and software sales. Summarized financial information for the three
months ended February 29, 2000 and February 28, 1999, for each segment, is
as follows:
<TABLE>
<CAPTION>
Training
2000 and Consulting Hardware Software Corporate Total
- ---- -------------- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
Revenues $2,692,402 $2,891,712 $369,477 $ - $ 5,953,591
Income before taxes 200,785 286,330 31,622 (266,136) 252,601
Interest income - - - 166,153 166,153
Interest expense - 19 - 74,961 74,980
Depreciation and
amortization 134,684 8,152 4,500 114,678 262,014
Training
1999 and Consulting Hardware Software Corporate Total
- ---- -------------- -------- -------- --------- -----
Revenues $2,575,702 $ 166,549 $59,879 $ - $ 2,802,130
Income before taxes 308,442 40,375 20,375 (315,594) 53,598
Interest income - - - 170,949 170,949
Interest expense - - - 90,628 90,628
Depreciation and
amortization 141,626 6,532 2,349 109,693 260,200
4. Property and Equipment
----------------------
Property and equipment consists of the following:
February 29, November 30,
2000 1999
----------- -----------
Land, buildings and improvements $ 725,910 $ 725,910
Machinery and equipment 4,190,522 4,116,383
Furniture and fixtures 1,401,696 1,401,696
Leased property under capital
leases and leasehold
improvements 732,197 732,197
----------- -----------
7,050,325 6,976,186
Less: accumulated depreciation (4,736,722) (4,592,357)
------------- ------------
Net property and equipment $ 2,313,603 $ 2,383,829
============= ============
Depreciation expense for 2000 and 1999 was $144,000 and $152,000,
respectively.
5. Long-Term Debt
--------------
February 29, November 30,
2000 1999
----------- ------------
Long-term obligations consist of:
Term loan $ - $ 200,436
Revolving credit line 2,774,620 2,774,620
Capital lease obligations 223,662 260,972
----------- ------------
2,998,282 3,236,028
Less: Current maturities (1,047,751) (1,246,997)
------------ ------------
$ 1,950,531 $1,989,031
=========== ============
The Company's outstanding amounts owed under the term loan and credit
line with Chase Bank were refinanced in December, 1999. Under the new
agreement, the Company paid off the remaining term debt of $200,436 and
agreed to term out the $2,774,620 credit line. Monthly payments began in
March of 2000, and continue until December of 2001 when the final balloon
payment of $640,000 is due and payable. Scheduled payments for fiscal 2000
total $915,000.
The long term debt is secured by substantially all of the assets of the
Company and requires compliance with covenants which include: limits on
capital expenditures, certain prepayments from excess cash flow as defined
and the maintenance of certain financial ratios and amounts. The Company
is restricted by its primary lender from paying cash dividends on its
common stock.
Aggregate maturities on long-term debt, exclusive of obligations under
capital leases, are approximately $915,000 in 2000, $1,220,000 in 2001, and
$639,620 thereafter.
The carrying value of the long-term debt approximates its fair value.
6. Capital Leases
--------------
Capital lease obligations are for certain equipment leases which
expire through fiscal year 2003. Future required payments under
capitalized leases together with the present value, calculated at the
respective leases' implicit interest rate of approximately 10.5% to 14.3%
at their inception.
Year ending November 30, 2000 $ 110,846
Year ending November 30, 2001 80,764
Year ending November 30, 2002 44,560
Year ending November 30, 2003
and thereafter 8,934
--------
Total minimum lease payments 245,104
Less amount representing interest (21,442)
--------
Present value of long-term
obligations under capital leases $223,662
========
7. Securities Available for Sale
-----------------------------
At February 29, 2000 and November 30, 1999, the Company held investment
securities in public companies. For one of the public companies certain
officers and directors of the Company have an ownership interest in the
aggregate of less than 10%. Management has estimated the fair value of
this investment at February 29, 2000 and November 30, 1999 at $89,721 and
$26,437, respectively, based on discounted market values due to the stock
being thinly traded and volatile. Other equity securities have a fair value
of $81,801 and $202,355 at February 29, 2000 and November 30, 1999,
respectively. Management has classified these investments as available for
sale and are included in non-current other assets in the accompanying balance
sheet. The Company did not sell any available for sale securities during
2000 or 1999.
8. Related Party Transactions
--------------------------
During 1999, the Company performed consulting and web development
services for a start-up, non-public company in which certain officers are
members of the Board of Directors and shareholders. The services billed
during the year totaled $521,500. The receivable for these services is
included in other assets on the accompanying balance sheet at November 30,
1999. As a subsequent event, in March, 2000 the Company received
approximately 278,000 shares of restricted common stock in the publicly
traded parent company in satisfaction of the receivable.
Item 2. Management's Discussion of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
Working capital at February 29, 2000 was $1,493,000. This was an
increase of $233,000 over November 30, 1999. The increase was caused by a
decrease in the current portion of long term debt due to the $200,000
payment made to the primary lender in December, 1999.
The Company's outstanding amounts owed under the term loan and credit
line with Chase Bank were refinanced in December, 1999. Under the new
agreement, the Company paid off the remaining term debt of $200,436 and
agreed to term out the $2,774,620 credit line. Monthly payments began in
March of 2000, and continue until December of 2001 when the final balloon
payment of $640,000 is due and payable. Scheduled payments for fiscal 2000
total $915,000.
The long term debt is secured by substantially all of the assets of the
Company and requires compliance with covenants which include: limits on
capital expenditures, certain prepayments from excess cash flow as defined
and the maintenance of certain financial ratios and amounts. The Company
is restricted by its primary lender from paying cash dividends on its
common stock.
During 1999, the Company successfully completed a series of private
placements with non-affiliates. From March, 1999 to October, 1999 a total
of four private placements occurred. A total of 2,320,589 restricted
common shares of stock were issued. The net proceeds totaled $1,471,220.
The Company has also issued 397,059 shares of restricted common stock as
finder fees associated with these placements. All private placements had
registration rights. The Company used the proceeds to repay amounts under
the term loan, for general corporate purposes and for working capital.
Management believes that positive cash flow contributions from the
Company's operating subsidiaries will be sufficient to cover cash flow
requirements for fiscal 2000. There was no material commitment for capital
expenditures as of February 29, 2000. Inflation was not a significant
factor in the Company's financial statements.
Cash flow from continuing operations for the three months ended February
29, 2000 was $187,000. This represents an increase of $163,000 over the
prior year. The increase is mainly attributable to the additional cash
flow provided by the USC/Canterbury acquisition.
Results of Operations
- ---------------------
Revenues
--------
Revenues for the three months ended February 29, 2000 increased by
$3,152,000 (112%) over the comparable three-month period in fiscal 1999, due
primarily to the revenue contribution of USC/Canterbury in fiscal 2000.
Costs and Expenses
------------------
Costs and expenses for the three months ended February 29, 2000 increased
by $2,796,000 (183%) due again to the costs associated with the
USC/Canterbury acquisition in October, 1999.
Selling expenses for the quarter ended February 29, 2000 increased by
$131,000 (31%) over the same quarter in fiscal 1999. The increase was due
primarily to the selling costs associated with USC/Canterbury for the three
months ended February 29, 2000.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
No additional legal proceedings were either initiated or brought
against the Company during the first fiscal quarter.
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
(b) Reports on Form 8-K: None
FORM 10-Q
CANTERBURY INFORMATION TECHNOLOGY, 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 INFORMATION TECHNOLOGY, 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 13, 2000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000794927
<NAME> CANTERBURY INFORMATION TECHNOLOGY, INC.
<MULTIPLIER> 1
<S> <C>
<FISCAL-YEAR-END> NOV-30-2000
<PERIOD-START> DEC-01-1999
<PERIOD-END> FEB-29-2000
<PERIOD-TYPE> 3-MOS
<CASH> 909,713
<SECURITIES> 0
<RECEIVABLES> 2,898,548
<ALLOWANCES> 0
<INVENTORY> 88,073
<CURRENT-ASSETS> 5,181,770
<PP&E> 7,050,325
<DEPRECIATION> (4,736,722)
<TOTAL-ASSETS> 27,518,688
<CURRENT-LIABILITIES> 3,689,201
<BONDS> 0
0
0
<COMMON> 9,508
<OTHER-SE> 18,878,026
<TOTAL-LIABILITY-AND-EQUITY> 27,518,688
<SALES> 5,953,591
<TOTAL-REVENUES> 5,953,591
<CGS> 4,316,509
<TOTAL-COSTS> 1,419,795
<OTHER-EXPENSES> (182,294)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,980
<INCOME-PRETAX> 252,601
<INCOME-TAX> 96,000
<INCOME-CONTINUING> 156,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156,001
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
