FORM 10-Q --------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 OR 15(d) Of the Securities Exchange Act of 1934 For Quarter Ended: Commission File Number: May 31, 2001 0-15588 CANTERBURY CONSULTING GROUP, INC. --------------------------------- FORMERLY CANTERBURY INFORMATION TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) Pennsylvania 23-2170505 - ------------------------------- ----------------------- (State of Incorporation) (IRS Employer Identification Number) 1600 Medford Plaza Rt. 70 & Hartford Road Medford, New Jersey 08055 (Address of principal executive offices) 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: 12,430,671 shares. FORM 10-Q PART 1 - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements - ----------------------------- CANTERBURY CONSULTING GROUP, INC. CONSOLIDATED BALANCE SHEET ASSETS - ------ 								 May 31, 								 2001 	November 30, 								(Unaudited)	 2000 ----------- ------------ Current Assets: Cash and cash equivalents				$ 1,773,085		$ 885,479 Accounts receivable, net 				 4,016,263		 4,864,456 Notes receivable - current portion		 423,084		 393,597 Prepaid expenses and 	other assets		 		 	 163,914		 652,319 Inventory, principally finished goods, at cost				 		 205,540		 202,032 Deferred income tax benefit	 	 	 	 91,412	 91,412 	 ---------- 	 ---------- 	Total Current Assets		 	 	 6,673,298		 7,089,295 Property and equipment at cost, net of accumulated depreciation and amortization of $6,131,000 and $5,886,000		 	 1,046,943		 1,989,650 Goodwill net of accumulated amortization of $3,564,000 and $2,816,000 			 8,582,331	 	 9,330,435 Deferred income tax benefit				 2,109,786		 1,508,251 Notes receivable						 7,214,936		 7,237,239 Investments, at market					 6,214,853		 3,315,878 Other assets			 		 246,671	 713,664 								-----------		----------- 	Total Assets					$32,088,818		$31,184,412 								===========		=========== See Accompanying Notes 							2 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. CONSOLIDATED BALANCE SHEET LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ 			 					 May 31, 									2001 	November 30, 								 (Unaudited) 2000 								 -----------	------------ Current Liabilities: Accounts payable - trade				 $ 2,139,859	$ 2,277,446 Accrued expenses					 964,878 	 655,204 Unearned revenue					 910,662 	 860,295 Income taxes payable					 -	 	 129,833 Current portion, long-term debt		 	 343,027 	 1,346,112 								 -----------	----------- 	Total Current Liabilities			 4,358,426 	 5,268,890 Long-term debt						 1,278,411 	 678,303 Deferred income tax liability	 		 4,252,992 	 3,157,118 								 -----------	----------- 		Total Liabilities				 9,889,829 	 9,104,311 Stockholder's Equity: Common stock, $.001 par value, 50,000,000 	shares authorized;12,454,000 	and 10,685,000 shares issued 			 12,454 	 10,685 Additional paid in capital				 24,607,550 	 22,456,731 Accumulated other comprehensive income 		 2,114,106 	 779,244 Retained earnings 	 				 18,706 	 1,242,883 Notes receivable for capital stock		 (4,146,527)	 (2,002,142) Less treasury shares, at cost	 		 (407,300)	 (407,300) 								 -----------	----------- 	Total Shareholders' Equity	 		 22,198,989 	 22,080,101 								 -----------	----------- 	Total Liabilities and Shareholders' Equity $32,088,818 	$31,184,412 								 ===========	=========== See Accompanying Notes 							3 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME 					 Three months ended	 Six months ended 	 					 May 31, 	 May 31, 					 ------------------	 ---------------- 	 				 (Unaudited)	 	 (Unaudited) 		 2001 	 2000 	 2001 	 2000 					 ----	 ----	 ----	 ---- Service revenue			$2,884,128	$3,001,272	$ 5,641,984	$ 5,693,674 Product revenue	 		 3,548,576	 3,007,862	 6,688,022	 6,269,051 					----------	----------	-----------	----------- Total net revenue		 6,432,704	 6,009,134	 12,330,006	 11,962,725 Service cost and expenses	 1,729,545	 1,752,941	 3,236,452	 3,357,672 Product cost and expenses	 3,085,470	 2,600,564	 5,528,001	 5,312,342 					----------	----------	-----------	----------- Total cost and expenses	 4,815,015	 4,353,505	 8,764,453	 8,670,014 Gross profit			 1,617,689	 1,655,629	 3,565,553	 3,292,711 Selling				 698,427	 482,948	 1,349,769	 1,031,815 General and	administrative 2,537,660	 1,109,678	 3,753,516	 2,052,606 					----------	----------	-----------	----------- Total operating expenses	 3,236,087	 1,592,626	 5,103,285	 3,084,421 Other income/(expenses) Interest income			 216,389	 165,115	 393,005	 331,268 Interest expense		 (41,013)	 (87,294)	 (92,828) (162,274) Other	 			 (412,481) 472,423	 (319,622) 488,564 					----------	----------	-----------	----------- Total other income 	 	 (237,105)	 550,244	 (19,445) 657,558 Income (loss) before income taxes 				(1,855,503)	 613,247	 (1,557,177) 865,848 Provision (benefit) for income Taxes			 	 (460,000)	 242,000	 (333,000) 338,000 					----------	----------	-----------	----------- Net income (loss)	 	 $(1,395,503) $ 371,247 $(1,224,177) $ 527,848 					==========	==========	===========	=========== Net income (loss) per share and common share equivalents: Basic net income (loss) per 	share				 $ (.12)	 $ .04	 $ (.11) $ .06 					 ========	 =======	 =========	 =======	 Diluted net income (loss) 	per share			 $ (.12)	 $ .04	 $ (.11) $ .05 					 ========	 =======	 =========	 ======= Weighted average number of 	common shares - basic	 11,518,600	 9,655,500	 11,109,000	 9,582,200 					 ==========	 =========	 ==========	 ========= Weighted average number of 	common shares - diluted	 11,803,500	10,418,200	 11,393,800	 10,356,000 					 ==========	==========	 ==========	 ========== See Accompanying Notes 							4 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MAY 31, 2001 AND MAY 31, 2000 			 					 May 31, 	 May 31, 									2001 	 2001 								 -----------	----------- 								 (Unaudited) (Unaudited) Operating activities: Net income (loss)					$(1,224,177)	$ 527,848 Adjustments to reconcile net income, (loss) to net cash provided by operating activities: Depreciation and amortization			 1,001,816		 528,745 Provision for losses on accounts receivable	 291,153		 47,674 Deferred income taxes				 (351,535)	 344,517 Loss on sale of land				 317,204		 - Receipt of stock for services			 (793,240)	 - 401(k) contributions				 83,362 	 59,498 Other assets						 466,456 (595,705) Changes in operating assets, net of acquisitions 	Accounts receivable				 557,040		 (738,910) 	Inventory						 (3,508)	 (183,784) 	Prepaid expenses and other assets		 288,406		 41,543 	Income taxes					 (129,833)	 - 	Accounts payable					 (137,587)	 672,768 	Accrued expenses					 310,052		 124,678 	Unearned revenue					 50,367		 (163,655) 								-----------		---------- Net cash provided by operating activities	 725,976	 665,217 								-----------		---------- Investing activities: Proceeds form sale of land			 399,734		 - Capital expenditures				 (27,943)	 (135,147) 								-----------		---------- Net cash provided by/(used in) investing 	activities						 371,791		 (135,147) 								-----------		---------- Financing activities: Principal payments on long term debt		 (1,902,977) (580,407) Other								 -		 (50,001) Proceeds from long term debt			 1,500,000		 38,300 Proceeds from payments on notes receivable	 192,816		 172,201 								-----------		---------- Net cash used in financing activities		 (210,161)	 (419,907) 								-----------		---------- Net increase in cash					 887,606		 110,163 Cash, beginning of period				 885,479		 1,060,434 								-----------		---------- Cash, end of period					 $1,773,085	 	$1,170,597 								===========		========== See Accompanying Notes 							5 FORM 10-Q CANTERBURY CONSULTING GROUP, 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 accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations. It is suggested that these unaudited consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's 10-K for the year ended November 30, 2000. In the opinion of management, all adjustments (which consist only of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows of all periods presented have been made. Quarterly results are not necessarily indicative of results for the full year. 	Description of Business 	----------------------- 	Canterbury Consulting Group, Inc., formerly Canterbury Information Technology, Inc., (hereinafter referred to as "the Registrant" or "the Company") is engaged in the business of providing information technology products and services to both commercial and government clients. Canterbury is comprised of six operating subsidiaries with offices located in New Jersey, New York, Maryland, Georgia and Texas. The focus of the Canterbury companies is to become an integral part of our clients IT solution, designing and applying the best products and services to help them achieve a competitive advantage and helping their employees to succeed. Our subsidiaries offer the following technology solutions: * systems engineering and consulting * web development * IT contractors and permanent 	 * technical and desktop applications staffing 					 training * management training programs	 * records and asset management systems * hardware sales and support		 * distance learning portals * software development			 * industry specific portals 	Principles of Consolidation 	--------------------------- 	The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All material intercompany transactions have been eliminated. 	Stock Based Compensation 	------------------------ 	The Company accounts for stock options under Accounting Principles Board (APB) Opinion No. 25- Accounting for Stock Issued to Employees. The Company discloses the pro forma net income and earnings per share effect as if the Company had used the fair value method prescribed under SFAS No.123-Accounting for Stock Based Compensation. 							6 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 		 ------------------------------------------------------ 					 (continued) 	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 the product is delivered and accepted by the customer. 	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 discounted 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. 							7 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 		 ------------------------------------------------------ 					 (continued) 	Earnings Per Share 	------------------ 	Basic earnings per share is computed using the weighted average common shares outstanding during the year. Diluted earnings per share considers the dilutive effect, if any, of common stock equivalents (options). 	Concentration of Risk 	--------------------- 	As previously discussed, the Company is in the business of providing 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. 	Comprehensive Income 	-------------------- 	During the three months ended May 31, 2001 and May 31, 2000, net comprehensive income/(loss) amounted to $1,624,000 and ($526,000) respectively. For the six months ended May 31, 2001 and May 31, 2000, net comprehensive income (loss) amounted to $1,335,000 and ($618,000) respectively. Comprehensive income consists of net income and net unrealized gains and losses on securities available for sale, and is adjusted quarterly to reflect current market value of these securities. 2. Segment Reporting ----------------- 	The Company is organized into four operating segments and the corporate office. The operating segments are: training and consulting, value added hardware reseller, technical staffing and software development. Summarized financial information for the three months and six months ended May 31, 2001 and May 31, 2000, for each segment, is as follows: 							8 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 		 ------------------------------------------------------ 					 (continued) For the six months ended May 31, Value Training Added and Hardware Technical Software 2001 Consulting Reseller Staffing Development Corporate Total - ---- ---------- -------- -------- ----------- --------- ----- Revenues	 $4,812,088 $6,560,599 $829,896 $127,423 $ -	 $12,330,006 Income before taxes		 94,875	 576,029 (176,759) 7,212 (2,058,534) (1,557,177) Interest income	 -	 - 		-	 -	 393,005 393,005 Interest expense 11,175	 33	-	 -	 81,620 92,828 Depreciation and amortization	 221,485	 6,962 11,492	 12,886	 748,991 1,001,816 Value Training Added and Hardware Technical Software 2000 Consulting Reseller Staffing Development Corporate Total - ---- ---------- -------- -------- ----------- --------- ----- Revenues	 $5,693,674 $6,154,486 $ -	$114,565 $ -	 $11,962,725 Income before taxes		 546,458	 427,685	-	 2,354	(110,649) 865,848 Interest income	 -	 - 		-	 -	 331,268	331,268 Interest expense	 -	 37 -	 -		 162,237	162,274 Depreciation and amortization	 272,631	 20,732	-	 10,733	 224,649	528,745 For the three months ended May 31, Value Training Added and Hardware Technical Software 2001 Consulting Reseller Staffing Development Corporate Total - ---- ---------- -------- -------- ----------- --------- ----- Revenues	 $2,533,820 $3,484,196 $350,308 $ 64,380 $	 -	 $6,432,704 Income before taxes 	 (106,737) 182,865 (125,715) 2,463 (1,808,379) (1,855,503) Interest income	 -	 - 		-	 -	 216,389 216,389 Interest expense 11,175	 -		-	 -		 29,838 41,013 Depreciation and amortization 110,382	 2,440 5,810 7,034	 620,346 746,012 Value Training Added and Hardware Technical Software 2000 Consulting Reseller Staffing Development Corporate Total - ---- ---------- -------- -------- ----------- --------- ----- Revenues	 $2,684,272 $3,262,774 - $62,088	 $ - 	 $6,009,134 Income before taxes 	 345,673 141,355 - (29,268)	155,487		613,247 Interest income	 -	 - 		-	 -		165,115		165,115 Interest expense 	 -	 18	-	 -		 87,276		 87,294 Depreciation and amortization	 137,947	 12,580	-	 6,233	 	118,803 	275,563 							9 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 		 ------------------------------------------------------ 					 (continued) 3. Property and Equipment ---------------------- 	Property and equipment consists of the following: 							 May 31,	 November 30, 							 2001		 2000 							----------	 ----------- Land, buildings and improvements		$ - 		$ 725,910 Machinery and equipment				 5,099,727		 5,085,176 Furniture and fixtures				 1,416,235		 1,413,289 Leased property under capital leases and leasehold improvements 			 661,535		 651,089 							----------		---------- 							 7,177,497		 7,875,464 Less: Accumulated depreciation 		(6,130,554)		(5,885,814) 							----------		---------- Net property and equipment			$1,046,943		$1,989,650 							==========		========== Depreciation expense for the period ended May 31, 2001 and May 31, 2000 was $120,000 and $159,000, respectively. 4. Long-Term Debt -------------- 							 May 31,	 November 30, 							 2001		 2000 							----------	 ----------- 	Long-term obligations consist of: 		Term debt				$1,500,000 	$ - 		Revolving credit line			- 	$1,859,620 	Capital lease obligations		 121,438 	 164,795 							----------		---------- 							 1,621,438 	 2,024,415 	Less: Current maturities	 (343,027)		(1,346,112) 							----------		---------- 	 	$1,278,411 	$ 678,303 							==========		========== 	The Company's outstanding amount owed under the revolving credit line with Chase Bank was refinanced in May, 2001 by establishing a commercial lending relationship with Commerce Bank, N.A. As of the date of the refinancing, approximately $883,000 was paid to Chase in full satisfaction of the Company's outstanding obligations, out of the proceeds of a $1,500,000 five-year term loan from Commerce. 	As part of the refinancing, the Company also secured a two-year $2,500,000 working capital line of credit collateralized by trade accounts receivable and inventory. As of May 31, 2001 and through the date of this filing, there have been no borrowings against the line. Both loans carry an interest rate of the prime rate plus 1%. 							10 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 		 ------------------------------------------------------ 					 (continued) 	The long term debt is secured by substantially all of the assets of the Company and requires compliance with covenants which include the maintenance of certain financial ratios and amounts. The Company is restricted by its primary lender from paying cash dividends on its common stock. 	Aggregate fiscal maturities on long-term debt, exclusive of obligations under capital leases, are approximately $150,000 in 2001; $300,000 in 2002; $300,000 in 2003; $300,000 in 2004 and $450,000 thereafter. 	The carrying value of the long-term debt approximates its fair value. 5. 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, 2001				$ 51,770 	Year ending November 30, 2002				 64,630 	Year ending November 30, 2003 and thereafter	 20,825 									-------- 	Total minimum lease payments				 137,225 	Less amount representing interest			 (15,787) 									-------- 	Present value of long-term obligations under 	 capital leases						$121,438 									======== 6. Securities Available for Sale ----------------------------- 	At May 31, 2001 and November 30, 2000, the Company held investment securities in two public companies. For one of these companies Canterbury has an ownership interest in the aggregate of approximately 18%. The market value of this investment at May 31, 2001 and November 30, 2000 at $6,214,800 and $3,294,000, respectively, and cost at May 31, 2001 of $2,538,000. Another security has a fair market value of $0 at May 31, 2001 and $22,000 at November 30, 2000, and a cost basis at May 31, 2001 of $0 after impairment writedown. Management has classified these investments as available for sale and are included in investments in the accompanying balance sheet. The Company did not sell any available for sale securities during 2001 or 2000. 7. Related Party Transactions -------------------------- 	Pursuant to the April 10, 2001 Board of Directors Meeting, the Registrant sold 575,000 restricted shares of Canterbury common stock to the following Officers and Directors as an incentive to continue and increase their efforts on behalf of the Company: 							11 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 		 ------------------------------------------------------ 					 (continued) 	Stanton M. Pikus 		200,000 	Alan Manin			25,000 	Kevin J. McAndrew		150,000 	Paul Shapiro		25,000 	Jean Z. Pikus 		100,000 	Stephen Vineberg		25,000 	Frank A. Cappiello	 50,000 	These shares of restricted common stock were purchased at the National Market Nasdaq closing price at the time of purchase with interest bearing, recourse notes to the Company. The notes carry an interest rate of 4.0% and are due and payable on or before April, 2006. The notes and accrued interest are collateralized by the shares being issued. Interest will be accrued and paid quarterly. Each recipient also has granted the Company a 15-day right of first refusal, in any sale of these shares. 	Pursuant to the May 16, 2001 Board of Directors Meeting, the Registrant sold 750,000 restricted shares of Canterbury common stock to the following Officers and Directors for various services: 	Stanton M. Pikus 		250,000 	 Alan Manin		40,000 	Kevin J. McAndrew		150,000 	 Paul Shapiro		50,000 	Jean Z. Pikus 		 75,000 	 Stephen Vineberg	50,000 	Frank A. Cappiello 	135,000 	These shares of restricted common stock were purchased at the National Market Nasdaq closing price at the time of purchase with interest bearing, recourse notes to the Company. The notes carry an interest rate of 4.0% and are due and payable on or before May, 2006. The notes and accrued interest are collateralized by the shares being issued. Interest will be accrued and paid quarterly. Each recipient also has granted the Company a 15-day right of first refusal, in any sale of these shares. The principal and interest for both sales may be paid in cash or the transfer of stock valued at 100% of the then current market price of any publicly traded company. There is no prepayment penalty on either principal or interest payments. 	During the first quarter the Company provided various consulting, web development, corporate finance and administrative services for a publicly traded organization. The value of the services performed totaled $421,240. The services were paid for with stock of the public company. During the second quarter the Company received 187,722 shares in full satisfaction of the $421,240 receivable. 	At May 31, 2001 the total notes receivable plus accrued interest for corporate officers, directors, corporate counsel and certain consultants totaled $4,146,500. The recourse notes are collateralized by the common stock and are reported as a contra-equity account. Interest rates range from 4.0% to 7.0%. 	During the quarter, certain officers and directors of the Company purchased a 33% ownership interest in a limited liability corporation which owns 100% of the stock of a corporation which has notes payable to the Company in the amount of $4,890,960 at May 31, 2001. 							12 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 		 ------------------------------------------------------ 					 (continued) Item 2. Management's Discussion of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Liquidity and Capital Resources - ------------------------------- 	Working capital at May 31, 2001 was $2,315,000, an increase of $495,000 over November 30, 2000. This increase was primarily the result of the bank refinancing completed during May, 2001. The Company was able to replace Chase Manhattan as its primary lender, and establish new and expanded credit facilities with Commerce Bank, N.A. As of the date of the refinancing, approximately $883,000 was paid to Chase, in full satisfaction of the Company's outstanding obligations, out of the proceeds of a $1,500,000 five-year term loan from Commerce. 	The improved terms of the new loan greatly enhanced the current ratio of the Company, reducing current maturities of long term debt by over $1,000,000 from the year end, and over $1,200,000 from February 28, 2001. 	As part of the refinancing, the Company also secured a $2,500,000 two-year working capital line of credit collateralized by trade accounts receivable and inventory. As of July 15, 2001 there have been no borrowing against the line. 	The long term debt is secured by substantially all of the assets of the Company and requires compliance with covenants which include maintenance of certain financial ratios and amounts. The Company is restricted by its primary lender from paying cash dividends on its common stock. 	Management believes that positive cash flow contributions from the Company's operating subsidiaries and the availability from the line of credit will be sufficient to cover cash flow requirements for fiscal 2001. There was no material commitment for capital expenditures as of May 31, 2001. Inflation was not a significant factor in the Company's financial statements. 	Cash flow from continuing operations for the six months ended May 31, 2001 was $726,000. This represents an increase of $61,000 over the same period from the prior year. Strong collection of accounts receivable was the main reason for the improved cash flow performance. 	 MARKET RISK 	The Company is subject to market risk principally arising from the potential change in the value of its investments. 	The Company's investments in equity securities at May 31, 2001 of $6,215,000 is subject to changes in value based on changes in equity prices in United States markets. 							13 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 		 ------------------------------------------------------ 					 (continued) Results of Operations - --------------------- 	Revenues 	-------- 	Revenues for the three months ended May 31, 2001 increased by $424,000 (7%) over the comparable three-month period in fiscal 2000, due primarily to an increase in product sales at USC/Canterbury Corp. For the six months ended May 31, 2001, revenues increased by $367,000 (3%) due again primarily to higher product sales from USC/Canterbury. 	Costs and Expenses 	------------------ 	Costs and expenses for the three months ended May 31, 2001 increased by $462,000 (11%). This was due primarily to higher sales volume on products sold in fiscal 2001 versus fiscal 2000. The $94,000 (1%) increase for the six months ended May 31, 2001 was also due to the USC/Canterbury operations. 	Overall gross margins percentages for the quarter ended May 31, 2001 decreased from 28% to 25% due to the increase in product sales versus service revenues for the period. Overall gross margins percentages for the six months ended May 31, 2001 increased from 28% to 29% due to the increase in overall product margins for the six month period. 	Selling expenses for the six months ended May 31, 2001 increased by $318,000 (31%), over the same period in fiscal 2000. The increase was due primarily to the significant selling costs associated with DMI/Canterbury Corp. This subsidiary was not acquired until August, 2000 and hence was not included in the results of operations for the period ended May 31, 2000. 	General and administrative expense for the quarter increased by $1,428,000 (129%). There were a number of non-recurring charges made during the second quarter of fiscal 2001. $500,000 of the goodwill associated with the purchase of DMI/Canterbury last year was written off. This was done in response to the softening of the technical recruiting market caused by the recent downturn in dot-coms and other technology-based companies. 	The reserve for potential losses on accounts receivables was increased by $255,000, again in light of the weakened economy, especially in the technology sector. No direct charges against this reserve have yet been made. Unamortized debt issuance cost of $72,000 from the previous Chase debt was charged to expense. Other non- recurring accruals and write-offs totaling approximately $300,000 were also recorded during the second quarter. The six month increase in general and administrative expense of $1,701,000 (83%) can also be attributed primarily to the aforementioned non-recurring charges. 	The inclusion of expenses related to DMI/Canterbury for the three and six months ended May 31, 2001 also contributed to the increase in expenses. DMI/Canterbury was not acquired until the third quarter of fiscal 2000, and hence no expenses associated with this subsidiary were included in the previous years first or second quarters. 							14 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 		 ------------------------------------------------------ 					 (continued) Other Income - ------------ 	Interest income increased by $51,000 (31%) and $62,000 (19%) for the three- and six-month periods ended May 31, 2001, respectively, versus the same periods from fiscal 2000 due to the interest generated from the notes receivable for capital stock purchases made over the past year. 	Interest expense decreased for both the three- and six-month periods ended May 31, 2001 as compared to the previous year due to the significant reduction in outstanding bank debt over the past year. The three-month decrease of $46,000 (53%) and the six-month reduction of $69,000 (43%) are directly attributed to the aggressive paydown of bank debt to Chase Manhattan Bank. The total reduction from May 31, 2000 to May 31, 2001 totaled $1,632,000. The remaining Chase debt of $883,000 was paid off as part of the refinancing with Commerce Bank, which occurred in May, 2001. 	Other expense of $412,000 for the three months ended May 31, 2001 was the result of a loss generated by the sale of the Bedminster property of $317,000. The Company sold the property, net of expenses for $400,000. The carrying value of the property had been $725,000. The other significant component contributing to the net expense of $412,000 was a $75,000 impairment writedown of a security available for sale. The carry value of the security is now $0. 	Net income for the three months ended May 31, 2001 decreased by $1,767,000 due primarily to the aforementioned noncash, nonrecurring charges which occurred during the quarter. For the six months ended May 31, 2001, net income decreased $1,752,000 for the same reason. PART II - OTHER INFORMATION - --------------------------- Item 1 Legal Proceedings - ------ 		On January 8, 2001, the Registrant filed a complaint against Allied Consultants, Inc. and its three principals in the United States District Court, District of New Jersey Civil Action No. 01 CV-0070 for damages allegedly caused by these defendants in a failed acquisition negotiation based on over $85,000 spent on due diligence expenses expended on reliance of defendants' promise to abide by certain terms and conditions, which they failed to honor. The defendants have filed an Answer. The litigation is in its early stages, and therefore no opinion can be expressed as to the probability of success. Item 2 Changes in Securities - ------ 		None Item 3 Defaults Upon Senior Securities - ------ 		None 							15 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 		 ------------------------------------------------------ 					 (continued) Item 4 Submission of Matters to a Vote of Stock Holders - ------ 		On April 6, 2001 the Executive Management, Board of Directors and Shareholders voted to amend the Certificate of Incorporation to change the name of the Company from Canterbury Information Technology, Inc. to Canterbury Consulting Group, Inc. This name change became effective on April 30, 2001. Item 5 Other Information - ------ None Item 6 Exhibits and Reports on Form 8-K - ------	(a) Exhibits: None 		(b) Reports on Form 8-K: 		On April 18, 2001 the Company filed an 8-K notifying that the Shareholders approved the Board of Directors decision to amend the Certificate of Incorporation to change the Company's name from Canterbury Information Technology, Inc. to Canterbury Consulting Group, Inc. The Amendment to the Certificate of Incorporation was filed on April 18, 2001 and was implemented on April 30, 2001. 		On June 11, 2001 the Company filed an 8-K notifying that the Board of Directors resolved that Kevin J. McAndrew, Canterbury's former Executive Vice President, has been appointed President and Chief Executive Officer and will continue as Chief Financial Officer. Stanton M. Pikus, Canterbury's former President and Chief Executive Officer, would remain an employee of Canterbury on a full-time basis and would continue on with his duties as Chairman of the Board. 							16 FORM 10-Q CANTERBURY CONSULTING GROUP, INC. 					 SIGNATURES 					 ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CANTERBURY CONSULTING GROUP, INC. --------------------------------- (Registrant) By:/s/ Kevin J. McAndrew --------------------------------- Kevin J. McAndrew 					 President and Chief Executive Officer 					 (Chief Financial Officer and duly 					 authorized signer) July 23, 2001 							17