SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): September 28, 2001
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
Table of Contents
USER TECHNOLOGY SERVICES, INC.
- - ------------------------------
Independent Auditors' Report..............................................F-1
Balance Sheets at December 31, 2000 and 1999..............................F-2
Statements of Operations for the Fiscal Years
ended December 31, 2000 and 1999.................................F-4
Statements of Stockholder's Equity/(Deficit) for the Fiscal Years
ended December 31, 2000 and 1999.................................F-5
Statements of Cash Flows for the Fiscal Years
ended December 31, 2000 and 1999.................................F-6
Notes to Financial Statements for the Fiscal Years
ended December 31, 2000 and 1999................................F-7
Balance Sheet August 31, 2001 (unaudited)................................F-14
Statements of Operations for the Eight Months
ended August 31, 2001 and 2000 (unaudited)......................F-16
Statements of Cash Flows for the Eight Months
ended August 31, 2001 and 2000 (unaudited)......................F-17
Notes to Financial Statements for the Eight Months
ended August 31, 2001 and 2000 (unaudited)......................F-18
CANTERBURY CONSULTING GROUP, INC.
- - ---------------------------------
Introduction to Pro Forma Statements (unaudited).........................F-21
Pro Forma Balance Sheet - August 31, 2001 (unaudited)....................F-22
Pro Forma Statement of Operations -
Fiscal Year 2000 (unaudited)....................................F-24
Pro Forma Statement of Operations for the Nine Months
ended in Fiscal 2001 (unaudited)................................F-25
Notes to Pro Forma Financial Statements (unaudited)......................F-26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Usertech/Canterbury Corp.
1600 Medford Plaza
128 Route 70
Medford, New Jersey 08055
We have audited the accompanying balance sheets of User Technology
Services, Inc. as of December 31, 2000 and 1999 and the related statements of
operations, stockholder's equity/(deficit) and cash flows for the years
then ended. 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 audits 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 provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of User Technology
Services, Inc. at December 31, 2000 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/BARATZ & ASSOCIATES, P.A.
December 12, 2001
F-1
USER TECHNOLOGY SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
- - ------
2000 1999
---- ----
Current Assets:
Cash $ 450,291 $ 552,674
Trade receivables, net of allowance for doubtful
accounts of $344,973 and $170,675 at
December 31, 2000 and 1999, respectively 3,359,952 2,863,032
Current portion of note receivable 50,000 75,000
Prepaid expenses 80,943 84,497
Deferred tax asset 94,928 -
----------- ----------
Total Current Assets 4,036,114 3,575,203
Property and equipment, net 278,215 681,532
Goodwill, net 2,065,815 2,604,711
Software costs, net 32,614 39,546
Note receivable, long term - 50,000
Deferred tax asset 83,270 78,456
----------- ----------
Total Assets $6,496,028 $7,029,448
=========== ==========
See Accompanying Notes
F-2
USER TECHNOLOGY SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
LIABILITIES AND STOCKHOLDER'S EQUITY/(DEFICIT)
- - -------------------------------------------------
2000 1999
---- ----
Current Liabilities:
Accounts payable $ 96,989 $ 148,114
Accrued expenses 625,005 896,655
Unearned revenue 102,365 178,291
Deferred income taxes - 10,666
Due to parent company 5,855,926 3,567,800
---------- ----------
Total Current Liabilities 6,680,285 4,801,526
---------- ----------
Stockholder's Equity/(Deficit):
Common stock, $.01 par value, 2,150,000 shares
authorized; 100 shares issued and outstanding 1 1
Additional paid in capital 5,499,999 5,661,289
Accumulated deficit (5,684,257) (3,433,368)
---------- ----------
Total Stockholder's Equity/(Deficit) (184,257) 2,227,922
---------- ----------
Total Liabilities and Stockholder's
Equity/(Deficit) $6,496,028 $7,029,448
========== ==========
See Accompanying Notes
F-3
USER TECHNOLOGY SERVICES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
---- ----
Service income $14,497,898 $20,554,826
Cost of services 10,815,996 17,726,736
----------- -----------
Gross profit 3,681,902 2,828,090
----------- -----------
Operating expenses:
Selling 2,109,130 2,425,728
General and administrative 3,696,663 2,452,328
Corporate administrative 530,524 731,873
----------- -----------
Total operating expenses 6,336,317 5,609,929
----------- -----------
Other expense:
Interest expense 465,039 490,943
----------- -----------
Loss before income tax benefit (3,119,454) (3,272,782)
Income tax benefit (868,565) (893,537)
----------- -----------
Net loss $(2,250,889) $(2,379,245)
=========== ===========
See Accompanying Notes
F-4
USER TECHNOLOGY SERVICES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY/(DEFICIT)
YEARS ENDED DECEMBER 31, 2000 AND 1999
Common Common Additional Total
Stock Stock Paid-in- Accumulated Stockholder's
Shares Amount Capital Deficit Equity/(Deficit)
------ ------ ------- ------- ----------------
Balance, January 1, 1999 100 $1 $5,499,999 $(1,054,123) $ 4,445,877
Additional capital
contributed by parent 161,290 - 161,290
Net loss for the 1999 Year - (2,379,245) (2,379,245)
----- ----- ---------- ----------- -----------
Balance, December 31, 1999 100 $1 5,661,289 $(3,433,368) $2,227,922
Return of capital to parent - - (161,290) - (161,290)
Net loss for the 2000 Year - - - (2,250,889) (2,250,889)
----- ----- ---------- ----------- -----------
Balance, December 31, 2000 100 $1 $5,499,999 $(5,684,257) $ (184,257)
===== ===== ========== =========== ===========
See Accompanying Notes
F-5
USER TECHNOLOGY SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
---- ----
Cash flows from operating activities:
Net loss $(2,250,889) $(2,379,245)
Adjustments to reconcile net loss to net cash
(used in)/provided by operating activities:
Depreciation and amortization 950,893 1,105,366
Loss on sale of equipment 9,449 6,275
Changes in operating assets and liabilities
(Increase)/decrease in receivables (496,920) 6,902,088
Decrease/(increase) in prepaid expenses 3,554 (31,054)
(Increase)/decrease in deferred tax assets (110,409) 59,979
(Decrease)/increase in accounts payable (51,126) 71,395
Decrease in accrued liabilities (271,649) (711,624)
Decrease in deferred income (75,926) (689,020)
----------- ----------
Net cash (used in) provided by operating
activities (2,293,023) 4,334,160
----------- ----------
Cash flows from investing activities:
Purchases of software (16,451) (33,608)
Proceeds from note receivable 75,000 75,000
Purchases of equipment (26,509) (235,511)
Proceeds from sale of equipment 31,764 49,051
----------- ----------
Net cash provided by (used in) investing
activities 63,804 (145,068)
----------- ----------
Cash flows from financing activities:
Increase/(decrease) in due to parent company 2,288,126 (4,080,059)
Capital contributions by parent company (161,290) 161,290
----------- ----------
Net cash provided by (used in) financing
activities 2,126,836 (3,918,769)
----------- ----------
Net (decrease)/increase in cash (102,383) 270,323
Cash, beginning of the period 552,674 282,351
----------- ----------
Cash, end of the period $ 450,291 $ 552,674
=========== ==========
See Accompanying Notes
F-6
USER TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
1. Operations and Summary of Significant Accounting Policies
---------------------------------------------------------
Description of Business
-----------------------
Usertech/Canterbury, Inc. ("the Company" formerly known as User
Technology Services, Inc.), is a twenty-three year old technology consulting
organization specializing in custom learning solutions for Fortune 1000
corporations, higher education institutions, public sector organizations and
mid-sized companies. Usertech/Canterbury trains its clients' employees in
the use of Enterprise Resource Planning (ERP) systems, such as PeopleSoft,
SAP and Oracle, as well as many other proprietary and client relationship
management (CRM) applications. Usertech/Canterbury designs training and
performance support programs that ensure users' early acceptance of new
information technology, and facilitate a smooth conversion to new systems and
business processes. To deliver these services, the Company promotes a
blended media approach, employing effective mixtures of process, people and
technology. Instructor-led training, coupled with e-Learning, help desk and
service center support allow for maximum results with the best return on
customer investment.
Revenue Recognition
-------------------
Staff Accounting Bulletin #101 (SAB 101) was recently issued by the
SEC. SAB 101 states that revenue recognition cannot occur until the earnings
process is complete, evidenced by an agreement between the Company and the
customer, there has been delivery and acceptance, collectibility is probable,
and pricing is fixed and determinable. If significant obligations remain
after delivery, revenue is deferred until such obligations are fulfilled.
The Company had followed these principles of revenue recognition prior to the
implementation of SAB 101. Therefore, SAB 101 shall have no impact on
revenue reporting. Revenues from consulting and service contracts are
recognized as services are rendered over the contract or service period.
Trade Receivables
-----------------
The Company provides an allowance for losses on trade receivables based
on a review of the current status of existing receivables and management's
evaluation of periodic aging of the accounts.
Concentration of Credit Risk
----------------------------
The Company provides its services to a wide variety of commercial,
governmental and institutional customers. Financial instruments which
potentially subject the Company to concentrations of credit risk are cash and
trade receivables. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, does not require collateral
from its customers. The Company has not experienced significant credit
losses. The Company maintains deposit accounts with high quality financial
institutions; at times, such deposits may exceed FDIC insurance limits.
F-7
USER TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Property and Equipment
----------------------
Property and equipment are stated at original cost. Depreciation and
amortization for financial accounting purposes is computed using the straight
line method over the estimated lives of the respective assets. The total
original cost for each class of property and equipment along with the
estimated life for each class is as follows as of December 31:
Estimated Life
2000 1999 (Years)
---- ---- -------
Computer equipment $ 1,534,887 $ 1,706,422 3
Furniture and equipment 312,626 329,819 6
Leasehold improvements 5,950 5,950 5
----------- -----------
Total Cost 1,853,463 2,042,191
Less accumulated depreciation (1,575,248) (1,360,659)
----------- -----------
Net Property and Equipment $ 278,215 $ 681,532
=========== ===========
For income tax purposes, accelerated methods of depreciation are used.
Maintenance and repair costs are charged to expense as incurred. The cost
and accumulated depreciation relating to property and equipment retired or
otherwise disposed of are eliminated from the accounts and any resulting
gains or losses are credited or charged to income.
Goodwill
--------
Goodwill is being amortized over 10 years. The original cost and
accumulated amortization of goodwill is as follows as of December 31:
2000 1999
---- ----
Original Cost $ 5,390,789 $ 5,390,789
Accumulated amortization (3,324,974) (2,786,078)
----------- -----------
Goodwill, net of amortization $ 2,065,815 $ 2,604,711
=========== ===========
Software
--------
Purchased software is being amortized over 3 years. The original cost
and accumulated amortization of software is as follows as of December 31:
2000 1999
---- ----
Original Cost $ 83,647 $ 67,196
Accumulated amortization (51,033) (27,650)
-------- --------
Software, net of amortization $ 32,614 $ 39,546
======== ========
F-8
USER TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Valuation of Long Lived Assets
------------------------------
The Company evaluates its long lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. If such evaluations indicate that the future
undiscounted cash flows of certain long lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their
fair values.
Income Taxes
------------
Income taxes are accounted for under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events
other than the enactment of changes in tax laws or rates. A valuation
allowance is recognized if, on weight of available evidence, it is more
likely than not that some portion or all the deferred tax assets will not be
realized.
Advertising Cost
----------------
Advertising costs are charged to expense as incurred. Advertising
expense for the years ended December 31, 2000 and 1999 was $182,077 and
$290,124 respectively.
Stock-Based Compensation
------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS No. 123) encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
employer stock-based compensation utilizing the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". Accordingly, compensation cost for stock options
issued to employees is measured as the excess, if any, of the fair market
price of the Company stock at the date of grant over the amount an employee
must pay to acquire the stock. SFAS No. 123 requires companies that continue
to follow APB No. 25 to provide a pro forma disclosure of the impact of
applying the fair value method of SFAS No. 123.
2. Related Party Transactions
--------------------------
The Company was a 100% owned subsidiary of Ceridian Corporation during
the years ended December 31, 2000 and 1999. During 2000, the Company earned
revenues of $814,778 from services rendered to Ceridian Corporation and
affiliates. No revenues were earned from related parties in 1999.
F-9
USER TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
The Company was charged general and administrative costs by Ceridian
Corporation related to various corporate services provided by the parent
company. In addition, Ceridian charged interest expense to the Company for
amounts advanced to or otherwise due from the Company. As reported in Note
3, the Company received federal income tax benefits from Ceridian through
utlilization of current federal net operating losses. Related party expenses
and income tax benefits for the years ended December 31, 2000 and 1999 were
as follows:
2000 1999
---- ----
Corporate administrative $ 530,524 $ 731,873
Interest expense $ 465,039 $ 490,943
Income tax benefits $(746,820) $(954,134)
3. Income Tax (Benefit) Expense
----------------------------
Deferred income taxes reflect the net tax effects of (a) temporary
differences between carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b) net
operating loss carryforwards (when available). Income tax (benefit) expense
consisted of the following for the years ended December 31:
2000 1999
---- ----
Current taxes:
Federal $(746,820) $(954,134)
State and local 27,798 600
--------- ---------
(719,022) (953,534)
Deferred taxes:
Federal (149,543) 59,997
--------- ---------
Net income tax (benefit) $(868,565) $(893,537)
========= =========
The federal income tax benefits were the result of the utilization of
the Company's current net operating losses by the parent company, Ceridian
Corporation in the annual filing of consolidated federal income tax returns.
The tax benefits receivable from the parent company were offset against
amounts due to the parent company.
Significant items comprising the Company's deferred tax assets and
liabilities are as follows at December 31:
F-10
USER TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
---- ----
Deferred Tax Asset/(Liability) - Current
- - ----------------------------------------
Differences between book and tax basis:
Trade receivables $29,400 $(60,143)
Accrued liabilities 65,528 27,948
Others - 21,529
------- --------
94,928 (10,666)
------- --------
Deferred Tax Asset - Long Term
- - ------------------------------
Differences between book and tax basis:
Property and equipment $63,526 $19,578
State net operating loss carryforwards 19,744 58,878
------- --------
$83,270 $78,456
------- --------
4. Supplemental Cash Flow Information
----------------------------------
Cash paid for interest and income taxes for the years ended December 31,
2000 and 1999 were as follows:
2000 1999
---- ----
Interest $465,039 $490,943
Income Taxes $ 22,347 $ 600
5. Stock Compensation Plans
------------------------
The employees of the Company participated in two stock compensation
plans of Ceridian Corporation, the parent company.
Stock options were awarded to eligible employees under Ceridian's 1999
Stock Incentive Plan. These stock option awards generally vested annually
over a three year period with 10-year terms and have an exercise price that
may not be less than the fair market value of the underlying stock at the
date of grant.
Ceridian's Employee Stock Purchase Plan provided the opportunity for
participants to purchase Ceridian stock at a price of 85% of the lesser of
the fair market value on either the first day or the last day of the
applicable three-month offering period.
As reported in Note 1, the Company has adopted the disclosure-only
provisions of SFAS No. 123. Therefore, no expense is recorded with respect
F-11
USER TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
to the stock option or employee stock purchase plans. A pro forma disclosure
of SFAS 123 compensation expense and other stock compensation plan
information is presented below.
2000 1999
---- ----
Pro Forma Effect of Fair Value Accounting:
Net loss as reported $(2,250,889) $(2,379,245)
Pro forma compensation expense 103,362 211,367
----------- -----------
Pro forma net loss $(2,354,251) $(2,590,612)
Weighted -Average Assumptions:
Expected lives in years (stock options) 4-8 4-8
Expected volatility 40.4% 37.4%
Expected dividend rate - -
Risk-free interest rate 5.0% 6.3%
Stock Options:
Shares 25,500 28,250
Fair value per share $7.52 $9.69
Employee Stock Purchase Plan
Shares 3,312 3,494
Fair value per share $4.90 $6.89
6. Commitments
-----------
The Company leases office facilities and office equipment under
noncancelable operating leases. Future minimum lease payments under such
leases were as follows at December 31, 2000:
Fiscal Years
------------
2001 $ 617,117
2002 591,808
2003 590,398
2004 290,521
Thereafter -
----------
Total $2,089,844
==========
Aggregate rent expense for the years ended December 31, 2000 and 1999
approximated $608,000 and $629,000 respectively.
7. Subsequent Events
-----------------
At September 28, 2001, Canterbury Consulting Group, Inc. ("Canterbury")
F-12
USER TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
purchased 100% of the outstanding shares of the Company from Ceridian
Corporation with an effective date of September 1, 2001. Canterbury paid
$2,350,000 in cash and issued a $1,200,000 note payable over three years to
Ceridian.
At August 31, 2001, Ceridian recapitalized the balance of the amount
due to the parent company of $6,256,834 to contribute additional capital to
the company.
In addition, pursuant to the Canterbury transaction, Ceridian
Corporation assumed a Company office facility lease effective September 1,
2001. This lease had a monthly rent cost of approximately $ 7,500 with a
lease term through June 2004.
Moreover, pursuant to the Canterbury transaction, the Company purchased
computer equipment from Ceridian Corporation by issuing a $364,703 note
payable over 31 monthly installments of $ 12,362 inclusive of interest at
3.75% per year.
During the first half of 2001, Company management completed and
implemented a business restructuring plan. The plan included cost-cutting
measures such as workforce reduction and an early termination of a facility
lease. The lease had a monthly rent cost of approximately $4,800 with a
scheduled lease term through December 2003. Total restructuring charges of
$3,149,500 were recorded in the first half of 2001 inclusive of a noncash
goodwill impairment charge of $1,931,000.
F-13
USER TECHNOLOGY SERVICES, INC.
BALANCE SHEET
AUGUST 31, 2001
(Unaudited)
ASSETS
- - ------
Current Assets:
Cash $ -
Trade receivables 2,592,120
Prepaid expenses 39,806
Deferred income tax asset 46,808
----------
Total Current Assets 2,678,734
Property and equipment 494,228
Deferred income tax asset 27,694
----------
Total Assets $3,200,656
==========
See Accompanying Notes
F-14
USER TECHNOLOGY SERVICES, INC.
BALANCE SHEET
AUGUST 31, 2001
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
- - ------------------------------------
Current Liabilities:
Accounts payable $ 120,375
Current portion of long term debt 137,006
Accrued expenses 311,865
Unearned revenue 53,380
----------
Total Current Liabilities 622,626
Long term debt 227,696
----------
Total Liabilities 850,322
----------
Stockholder's Equity:
Common stock, $.01 par value 2,150,000
shares authorized; 200 shares issued
and outstanding 2
Additional paid-in capital 11,756,832
Accumulated deficit (9,406,500)
----------
Total Stockholder's Equity 2,350,334
----------
Total Liabilities and Stockholder's Equity $3,200,656
==========
See Accompanying Notes
F-15
USER TECHNOLOGY SERVICES, INC.
STATEMENTS OF OPERATIONS
The following Statements of Operations for the eight-month periods ended
August 31, 2001 and August 31, 2000, 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 period have been included.
Eight-months ended
August 31,
------------------
(Unaudited)
2001 2000
---- ----
Service income $ 7,075,411 $ 9,766,961
Cost of services 6,469,666 7,925,938
----------- -----------
Gross profit 605,745 1,841,023
Operating Expenses:
Selling 614,775 1,187,244
General and administrative 4,174,268 2,248,256
Corporate administrative 290,166 352,444
----------- -----------
Total operating expenses 5,079,209 3,787,944
Other Expense:
Interest expense 72,500 268,755
----------- -----------
Loss before income taxes (4,545,964) (2,215,676)
Income tax benefit (823,721) (753,330)
----------- -----------
Net loss $(3,722,243) $(1,462,346)
=========== ===========
See Accompanying Notes
F-16
USER TECHNOLOGY SERVICES, INC.
STATEMENTS OF CASH FLOWS
EIGHT MONTHS ENDED AUGUST 31, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
Cash flows from operating activities:
Net loss $(3,722,243) $(1,462,346)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 271,912 653,640
Loss on sale of equipment 1,603 4,638
Impairment of goodwill 1,931,000 -
Changes in operating assets and liabilities
Decrease/(increase) in receivables 767,832 (1,742,149)
Decrease in prepaid expenses 41,137 3,554
Decrease)/(increase) in deferred tax assets 103,696 (19,838)
Increase/(decrease) in accounts payable 23,386 (17,168)
(Decrease)/increase in accrued liabilities (313,140) 238,897
(Decrease)/increase in deferred income (48,985) 273,448
----------- -----------
Net cash used in operating activities (943,802) (2,067,324)
----------- -----------
Cash flows from investing activities:
Purchases of software - (9,160)
Proceeds from note receivable 50,000 75,000
Purchases of equipment (7,469) (28,315)
Proceeds from sale of equipment 31,831 34,566
Proceeds from sale of software 18,241 -
----------- -----------
Net cash provided by investing activities 92,603 72,091
----------- -----------
Cash flows from financing activities:
Capital contributions by parent company 6,256,834 -
(Decrease)/increase in due to parent company (5,855,926) 1,619,919
----------- -----------
Net cash provided by financing activities 400,908 1,619,919
----------- -----------
Net decrease in cash (450,291) (375,314)
Cash, beginning of the period 450,291 552,674
----------- -----------
Cash, end of the period $ - $ 177,360
=========== ===========
See Accompanying Notes
F-17
USER TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 2001 AND 2000
(Unaudited)
1. Basis of Presentation
---------------------
The financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the other financial
statements and footnotes thereto included in this Form 8-K/A.
2. Business Restructuring
----------------------
During the eight months ended August 31, 2001, management performed an
evaluation of the Company and implemented a business restructuring plan. The
plan included cost-cutting measures such as workforce reduction and an early
termination of a facility lease. Total restructuring charges of $3,149,500
were recorded in the first half of 2001 inclusive of a noncash goodwill
impairment charge of $1,931,000.
3. Related Party Transactions
--------------------------
During the eight months ended August 31, 2001 and 2000 the Company
earned revenues of $180,395 and $347,791, respectively from services rendered
to Ceridian Corporation and affiliates.
The Company was charged general and administrative costs by Ceridian
Corporation related to various corporate services provided by the parent
company. In addition, Ceridian charged interest expense to the Company for
amounts advanced to or otherwise due from the Company. Related party
expenses and income tax benefits for the eight months ended August 31, 2001
and 2000 were as follows:
2001 2000
---- ----
Corporate administrative $ 290,166 $ 352,444
Interest expense $ 72,500 $ 268,755
Income tax benefits $(939,760) $(753,330)
4. Income Tax (Benefit) Expense
----------------------------
Deferred income taxes reflect the net tax effects of (a) temporary
differences between carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b) net
operating loss carryforwards (when available). Income tax (benefit) expense
consisted of the following for the eight months ended August 31, 2001 and
2000:
F-18
USER TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
Current taxes:
Federal $(939,760) $(753,330)
State and local 32,087 -
--------- ---------
(907,673) (753,330)
Deferred taxes:
Federal 83,952 -
--------- ---------
Net income tax (benefit) $(823,721) $(753,330)
========= =========
5. Supplemental Cash Flow Information
----------------------------------
At August 31, 2001, the Company purchased computer equipment costing
$364,703 from Ceridian Corporation through issuance of a $364,703 note
payable.
6. Commitments
-----------
As reported in Note 2, the Company implemented a business restructuring
plan during the eight months ended August 31, 2001. The restructuring
included an early termination of a facility lease. The terminated lease had
a monthly rent cost of approximately $4,800 with a scheduled lease term
through December 2003.
Pursuant to the Canterbury transaction reported in Note 8, Ceridian
Corporation assumed a Company office facility lease effective September 1,
2001. This lease had a monthly rent cost of approximately $7,500 with a
lease term through June 2004.
7. Long Term Debt
--------------
Pursuant to the Canterbury transaction, the Company purchased computer
equipment from Ceridian Corporation by issuing a $364,703 note payable over
31 monthly installments of $12,362 inclusive of interest at 3.75% per year.
8. Subsequent Event
----------------
At September 28, 2001, Canterbury Consulting Group, Inc. ("Canterbury")
purchased 100% of the outstanding shares of the Company from Ceridian
Corporation with an effective date of September 1, 2001. Canterbury paid
$2,350,000 in cash and issued a $1,200,000 note payable over three years to
Ceridian.
F-19
USER TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 2001 AND 2000
(Unaudited)
9. Major Customer
--------------
One customer accounted for approximately 11% of Company revenues for
the eight months ended August 31, 2001.
F-20
CANTERBURY CONSULTING GROUP, INC.
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma financial statements give effect to the September 28,
2001 acquisition by Canterbury Consulting Group, Inc. ("the Company"), of
100% of the outstanding shares of User Technology Services, Inc. from
Ceridian Corporation with an effective date of September 1, 2001, as if such
transaction had occurred at the close of business at August 31, 2001 for pro
forma balance sheet purposes and as if such transaction had occurred at the
beginning of the periods presented for the purposes of the pro forma
statements of operations.
A pro forma statement of operations is presented to combine the year
ended November 30, 2000 for Canterbury Consulting Group, Inc. with the year
ended December 31, 2000 for User Technology Services, Inc. In addition, a
pro forma statement of operations is presented to combine the nine months
ended August 31, 2001 for Canterbury Consulting Group, Inc. with the nine
months ended September 30, 2001 for User Technology Services, Inc.
Balance sheet pro forma adjustment references are reported in Note 1.
Statements of operations pro forma adjustment references for the fiscal 2000
year and for the nine month periods ended in fiscal 2001 are reported in
Notes 2 and 3 respectively.
The pro forma financial statements and accompanying notes should be
read in conjunction with a reading of the financial statements of Canterbury
Consulting Group, Inc. and User Technology Services, Inc.
F-21
CANTERBURY CONSULTING GROUP, INC.
PRO FORMA BALANCE SHEET
AUGUST 31, 2001
(Unaudited)
Historical
---------- Pro Forma Total
Canterbury Usertech Adjustments Pro Forma
---------- -------- ----------- ---------
Assets
Cash $ 2,042,025 $ - $ (850,334)(a) $ 1,191,691
Accounts receivable,
net 3,591,446 2,592,120 - 6,183,566
Other receivables - - - -
Notes receivable,
current portion 419,789 - - 419,789
Inventory 372,121 - - 372,121
Prepaid expenses 188,963 39,806 - 228,769
Deferred tax benefit 91,412 46,808 - 138,220
----------- ---------- ---------- -----------
Total Current Assets 6,705,756 2,678,734 (850,334) 8,534,156
----------- ---------- ---------- -----------
Total Property and
Equipment 962,870 494,228 - 1,457,098
----------- ---------- ---------- -----------
Net goodwill 8,458,279 - 1,200,000(b) 9,658,279
Notes receivable 7,113,905 - - 7,113,905
Other assets 257,499 - - 257,499
Investments 2,727,072 - - 2,727,072
Deferred tax benefit,
long term 2,109,785 27,694 - 2,137,479
----------- ---------- ---------- -----------
Total Other Assets 20,666,540 27,694 1,200,000 21,894,234
----------- ---------- ---------- -----------
Total Assets $28,335,166 $3,200,656 $ 349,666 $31,885,488
=========== ========== ========== ===========
See Accompanying Notes
F-22
CANTERBURY CONSULTING GROUP, INC.
PRO FORMA BALANCE SHEET
AUGUST 31, 2001
(Unaudited)
Historical
---------- Pro Forma Total
Canterbury Usertech Adjustments Pro Forma
---------- -------- ----------- ---------
Current Liabilities:
Accounts payable $ 1,716,073 $ 120,375 $ - $1,836,448
Notes payable 297,934 137,006 125,393(c) 560,333
Unearned revenue 843,973 53,380 - 897,353
Accrued expenses 631,399 311,865 - 943,264
----------- ---------- ---------- ----------
Total Current
Liabilities 3,489,379 622,626 125,393(c) 4,237,398
----------- ---------- ---------- ----------
Notes payable 1,228,411 227,696 2,574,607(d) 4,030,714
Deferred income taxes 3,024,961 - - 3,024,961
----------- ---------- ---------- ----------
Total Long Term
Liabilities 4,253,372 227,696 2,574,607 7,055,675
----------- ---------- ---------- ----------
Total Liabilities 7,742,751 850,322 2,700,000 11,293,073
----------- ---------- ---------- ----------
Stockholder's Equity:
Common stock 12,431 2 (2)(e) 12,431
Additional paid in
capital 24,607,548 11,756,832 (11,756,832)(e) 24,607,548
Accumulated other
comprehensive income 111,325 - - 111,325
Retained earnings/
(accumulated deficit) 474,921 (9,406,500) 9,406,500(e) 474,921
Notes receivable for
capital stock (4,206,533) - - (4,206,533)
Treasury stock (407,277) - - (407,277)
----------- ---------- ---------- ----------
Total Stockholder's
Equity 20,592,415 2,350,334 (2,350,334) 20,592,415
----------- ---------- ---------- ----------
Total Liabilities
& Stockholder's
Equity $28,335,166 $ 3,200,656 $ 349,666 $31,885,488
=========== =========== =========== ===========
See Accompanying Notes
F-23
CANTERBURY CONSULTING GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended: November 30, December 31,
2000 2000
Historical
---------- Pro Forma Consolidated
Canterbury Usertech Adjustments Pro Forma
---------- -------- ----------- ---------
Revenues $29,734,589 $14,497,898 $ - $44,232,487
Cost of revenues 21,828,520 10,815,996 (85,668)(a) 32,558,848
----------- ----------- ----------- -----------
Gross profit 7,906,069 3,681,902 85,668 11,673,639
----------- ----------- ----------- -----------
Selling 2,377,340 2,109,130 - 4,486,470
General and
administrative 4,486,552 4,227,187 (1,422,900)(b) 7,290,839
----------- ----------- ----------- -----------
Total operating
expenses 6,863,892 6,336,317 (1,422,900) 11,777,309
----------- ----------- ----------- -----------
Other income/(expense)
Interest income 715,829 - - 715,829
Interest expense (346,457) (465,039) 286,252(c) (525,244)
Other 345,014 - - 345,014
----------- ----------- ----------- -----------
Total other
income/(expense) 714,386 (465,039) 286,252 535,599
----------- ----------- ----------- -----------
Income/(loss) before
income taxes 1,756,563 (3,119,454) 1,794,820 431,929
Provision (benefit)
for income taxes 698,348 (868,565) 351,910(d) 181,693
----------- ----------- ----------- -----------
Net income/(loss) $ 1,058,215 $(2,250,889) $ 1,442,910 $ 250,236
=========== =========== =========== ===========
Weighted Average Net Income
Number of Shares Per Share
Historical net income per share:
Basic 10,027,700 $0.11
Diluted 11,028,500 $0.10
Pro forma net income per share:
Basic 10,027,700 $0.02
Diluted 11,028,500 $0.02
See Accompanying Notes
F-24
CANTERBURY CONSULTING GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended: August 31, September 30,
2001 2001
Historical
----------
(Unaudited) Pro Forma Consolidated
Canterbury Usertech Adjustments Pro Forma
---------- -------- ----------- ---------
Revenues $20,416,641 $ 7,902,830 $ - $28,319,471
Cost of revenues 14,680,439 7,016,133 (599,383)(a)(b)(c) 21,097,189
----------- ----------- ---------- -----------
Gross profit 5,736,202 886,697 599,383 7,222,282
----------- ----------- ---------- -----------
Selling 2,004,741 684,221 - 2,688,962
General and
administrative 4,686,535 4,528,333 (3,333,566)(a)(b)(c) 5,881,302
----------- ----------- ---------- -----------
Total operating
expenses 6,691,276 5,212,554 (3,333,566) 8,570,264
----------- ----------- ---------- -----------
Other income/(expense)
Interest income 618,118 - - 618,118
Interest expense (128,184) (72,500) (69,250)(g) (269,934)
Other (333,822) - - (333,822)
----------- ----------- ---------- -----------
Total other income/
(expense) 156,112 (72,500) (69,250) 14,362
----------- ----------- ---------- -----------
Income/(loss) before
income taxes (798,962) (4,398,357) 3,863,699 (1,333,620)
Provision/(benefit) for
income taxes (31,000) (773,534) (657,118)(h) (147,416)
----------- ----------- ---------- -----------
Net income/(loss) $ (767,962) $(3,624,823) $3,206,581 $(1,186,204)
=========== =========== ========== ===========
Weighted Average Net Loss
Number of Shares Per Share
Historical net loss per share:
Basic 11,529,700 $(0.07)
Diluted 11,796,900 $(0.07)
Pro forma net loss per share:
Basic 11,529,700 $(0.10)
Diluted 11,796,900 $(0.10)
See Accompanying Notes
F-25
CANTERBURY CONSULTING GROUP, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. Pro forma Adjustments - Balance Sheet
-------------------------------------
(a) represents the difference between the cash payment of $2,350,334 and the
$1,500,000 borrowed for the transaction.
(b) excess paid over net worth of $2,350,334. Equal to the three-year note
balance.
(c) represents the current portion of the assumed note payable for computers.
(d) the net effect of: $1,500,000 borrowed from Commerce Bank; $1,200,000
acquisition note less $125,393 reclass of current portion of note
payable.
(e) eliminating entry (acquired net worth).
2. Pro forma Adjustments - Statement of Operations Year(s) Ended in Fiscal
-----------------------------------------------------------------------
2000
----
(a) allocated building occupancy with parent company.
(b) allocated corporate expenses which would not be incurred with Canterbury
(goodwill amortization, general expenses and intercompany transfers).
(c) represents net adjustment - elimination of intercompany interest
allocation of $475,252; additional $84,000 interest expense on the
acquisition note and $105,000 additional interest expense on the
$1,500,000 borrowings for the cash paid to Ceridian at closing.
(d) effective tax rate for Usertech is 28% exclusive of $538,000 of
nondeductible goodwill amortization adjustment.
3. Pro forma Adjustments - Statement of Operations Nine Month Period(s) Ended
--------------------------------------------------------------------------
in Fiscal 2001
--------------
(a) allocated building occupancy with parent company of $106,382.
(b) allocated retirement benefits from Ceridian of $350,000.
(c) accrued vacation benefits of $143,000 were calculated as part of the sale
to Canterbury.
(d) restructuring charge of $3,149,516 was taken by Ceridian in early 2001 in
contemplation of the divestiture
(e) Ceridian corporate allocations totaling $184,050.
(f) goodwill amortization of $134,724 is eliminated (no goodwill was
purchased by Canterbury).
(g) represents net adjustment - elimination of intercompany interest
allocation of $72,500; additional $63,000 interest expense on the
acquisition note and $78,750 additional interest expense on the
$1,500,000 borrowings for the cash paid to Ceridian at closing. An
interest rate of 7% was to calculate the imputed interest expense.
(h) effective tax rate for Usertech is 34% exclusive of $1,931,000
nondeductible goodwill impairment charge.
F-26