CANTERBURY
INFORMATION
TECHNOLOGY
INC.
1998 ANNUAL REPORT
CANTERBURY INFORMATION TECHNOLOGY, INC.
NASDAQ NATIONAL MARKET: CITI
Dear Fellow Stockholders
In fiscal 1998, Canterbury reported a profitable year, earning ten
cents per share. This profitability was expected since we reported
in 1997 that we had recorded the final charges and reserves
associated with the reengineering of our Company and its
subsidiaries.
In fiscal 1998, Canterbury's net cash provided by continuing
operations was positive for the fourth consecutive year. For the
fiscal years ending November 30, 1995, 1996, 1997 and 1998,
Canterbury reported total cash flow from continuing operations in
excess of $4,800,000. This figure is net of dollars spent to
expand CALC/Canterbury's technical training and consulting
division and to begin to develop CALC Web University, which is
projected to begin offering training courses over the Internet by
the fourth quarter of fiscal 1999.
As of the close of fiscal 1998, Canterbury's net worth was
$16,599,786 and our total assets were $25,700,415. Our bank term
debt, which had been $8,300,000 as a result of our purchase of
CALC/Canterbury Corp. in June of 1994 had been reduced to
$1,221,000 as of November 30, 1998. (As of August 1, 1999 our bank
term debt had been further reduced to $385,125.)
Subsequent events:
* In January 1999, ATM/Canterbury Corp, a wholly owned subsidiary
of Canterbury Information Technology, Inc., announced that Bank of
America had signed a contract to purchase a corporate license for
Master Trak software, including the Easy Imaging module. Master
Trak is a barcode records management system developed by
ATM/Canterbury. Using Master Trak to track the physical movement
of loan files increases efficiencies, and allows for uniform
internal help desk support within corporate record centers as well
as entire organizations.
* In April of 1994, Canterbury announced that it was initiating an
aggressive acquisition search and that we would only consider profitable,
well-managed companies that would add to the products and services we
can offer or would match our existing expertise. Although we have not
consummated an acquisition since 1997, we are now in the position to
actively search for acquisition candidates in the information technology
sector.
* In May, 1999, Canterbury reported that its wholly owned
subsidiary CALC/Canterbury Corp. planned to roll out its own
Web-based training content to be delivered under the auspices of
CALC Web University. Interactive online content is scheduled to
be available as early as the fourth quarter of fiscal 1999.
Through CALC Web University, the various Canterbury companies
intend to design both technical and management based courses that
can be can be available to anyone, anywhere in the world over the
Internet.
The Canterbury Management Team and Canterbury Board of Directors
will continue to explore every viable opportunity to attempt to
increase shareholder value.
Respectfully submitted,
Stanton M. Pikus Kevin J. McAndrew
President Executive Vice President
August 5, 1999
Medford, NJ 08055
Report of Independent Auditors
The Board of Directors and Stockholders
Canterbury Information Technology, Inc.
We have audited the accompanying consolidated balance sheets of
Canterbury Information Technology, Inc. as of November 30, 1998
and 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years
in the period ended November 30, 1998. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provided a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Canterbury Information Technology, Inc. at
November 30, 1998 and 1997, and the consolidated results of its
operations and cash flows for each of the three years in the
period ended November 30, 1998, in conformity with generally
accepted accounting principles.
Ernst & Young, LLP
Philadelphia, Pennsylvania
February 26, 1999
Summary Financial Information as of November 30, 1998
Cash and cash equivalents $ 287,274
Accounts receivable, net 1,141,544
Prepaid and other current assets 1,985,269
--------------
Total current assets 3,414,087
Property and equipment net 2,323,996
Goodwill, net 8,993,805
Deferred income tax benefit 2,712,919
Other non-current assets 8,255,608
--------------
Total assets $ 25,700,415
==============
Accounts payable and accrued expenses $ 588,843
Income taxes payable 63,217
Unearned tuition income 954,128
Current portion, long-term debt 1,738,565
--------------
Total current liabilities 3,344,753
Long-term debt and deferred tax liability 5,755,876
Stockholders' equity
Total stockholders' equity $ 16,599,786
--------------
Total liabilities and stockholders' equity $ 25,700,415
==============
Years ended November 30, 1998 and 1997
1998 1997
---- ----
Net revenues $12,122,879 $12,423,452
Costs and expenses 6,695,276 7,104,803
------------- -----------
Gross profit 5,427,603 5,318,649
Selling 1,984,836 2,032,510
General and administrative 3,798,612 4,318,455
------------- -----------
Total operating expenses 5,783,448 6,350,965
Other income (expenses)
Interest income 861,424 607,178
Interest expense (394,925) (490,552)
Other 470,849 (517,956)
------------ -----------
Total other income (expenses) 937,348 (401,330)
Income (loss) before income taxes
and discontinued operations 581,503 (1,433,646)
Provision/(benefit) for income taxes - (501,776)
Income (loss) from continuing
operations 581,503 (931,870)
------------ -----------
Discontinued operations
Loss from discontinued operations
(less applicable income taxes
benefit of $298,224) - (1,536,047)
------------- -----------
Net income (loss) $ 581,503 $(2,467,917)
============= ===========
Please refer to Canterbury Information Technology, Inc. financial
statements in the November 30, 1998 Form 10-K Report, audited by
Ernst & Young, LLP, for footnotes, schedules and further
information.
Summary Financial Information as of November 30, 1998
Cautionary Statement
When used in this Report and in other public statements, both oral
and written, by the Company and Company officers, the word "estimates,"
"project," "intend," "believe," "anticipate," and similar expressions,
are intended to identify forward-looking statements regarding events
and financial trends that may affect the Company's future operating results
and financial position. Such statements are subject to risks and
uncertainties that could cause the Company's actual results and financial
position to differ materially. Such factors include, among others:
(1) the Company's success in attracting new business and success of its
mergers and acquisitions program; (2) the competition in the industry in
which the Company competes; (3) the Company's ability to obtain financing
on satisfactory terms; (4) the sensitivity of the Company's business to
general economic conditions; and (5) other economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices. The Company undertakes no
obligations to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at November 30, 1998 was $69,000. This was a
reduction of $2,569,000 from the previous year. Two significant
factors caused this reduction. First, there was a
reclassification of $2,700,000 of deferred income tax benefit
from current to long term, to properly reflect the future
utilization of net operating loss carryforwards. Secondly, based
on the restructured loan agreement with Chase Bank, an additional
$865,000 of bank debt has been classified as current.
The Company's outstanding amounts owed under the term loan and
credit line with Chase Bank were due and payable at December 31,
1998. The Company and its lender have agreed to an extension of
these agreements through December 1, 1999 subject to satisfactory
documentation of the terms and conditions as agreed. The Company
will continue to use its best efforts to replace its primary
lender prior to that time.
Subsequent to November 30, 1998 the Company has paid $510,000 to
reduce its term loan from $1,221,000 to $711,000 as of March 12,
1999. The Agreement calls for the Company to make additional
payments in 1999 totaling $1,015,000 with the remaining balance
of $2,470,000 due December 1, 1999. The term debt and the
revolving credit line will accrue interest at prime plus 2.5% per
annum.
On March 10, 1999 the Company completed a Private Placement
Offering with non-affiliates for the issuance of 1,000,000 shares
of common stock and the issuance of 200,000 shares as a finders
fee, all with registration rights. The Company has received
proceeds of $600,000. The Company used $500,000 in proceeds to
repay amounts under the term loan. The remaining amounts are
intended to be used for further paydown of debt, general
corporate purposes and for working capital.
Management believes that positive cash flow contributions from
the Company's operating subsidiaries will be sufficient to cover
cash flow requirements for fiscal 1999. There was no material
commitment for capital expenditures as of November 30, 1998.
Inflation was not a significant factor in the Company's financial
statements.
Cash flow from continuing operations for the year ended November
30, 1998 was $406,125. This was the fourth consecutive year of
positive cash from continuing operations. During the year, the
Company reduced its long term bank debt by $549,000. For the
past three years, the reduction in long term debt totals
$5,395,000.
General Description Of The Year 2000 Issue And The Nature And
Effects Of The Year 2000 On Information Technology (IT) And
Non-IT Systems
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have
date-sensitive software or embedded chips may recognize a date
using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in
similar normal business practices.
The Company began addressing the Year 2000 Issue in 1997 on a
decentralized basis at each of its subsidiaries. In 1998, the
Company began monitoring progress on a corporate level. Based on
assessments made since 1997, the Company determined that
modifications to or in limited cases replacement of computer
software and hardware was necessary to enable those systems to
operate properly after December 31, 1999. The Company presently
believes that with modifications to and replacement of existing
software and hardware, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or
are not completed timely, the Year 2000 Issue may have a material
impact on the operations of the Company.
The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing, and
implementation. To date, the Company has completed its assessment
of all systems that could be significantly affected by the Year
2000. The assessment indicated that most of the Company's
significant information technology systems could be affected,
particularly the Company's registration/scheduling and accounting
systems. The assessment also indicated that software and hardware
(embedded chips) used in these applications were also at risk.
The software developed and distributed by ATM/Canterbury is Y2K
compliant. The Company's other training services are not at
risk.
Summary Financial Information as of November 30, 1998 (continued)
Status Of Progress In Becoming Year 2000 Compliant, Including
Timetable For Completion Of Each Remaining Phase
The following estimates of completion percentages and dates are
based on the Company's best estimates. However, there can be no
guarantee that these dates can be achieved and actual results may
differ. For its information technology exposures, to date the
Company is approximately 95% complete on the remediation phase
and completed its software reprogramming and replacement by June
30, 1999. Once software is reprogrammed or replaced for a system,
the Company begins testing and implementation. These phases run
concurrently for different systems. To date, the Company has
completed 100% of its testing and has implemented 95% of its
remediated systems. Completion of the testing phase for all
significant operating systems was completed by April 30, 1999,
with all remediated systems fully tested and implemented by
September 1, 1999.
Nature And Level Of Importance Of Third Parties And Their
Exposure To The Year 2000
The Company has surveyed its significant vendors as to their Year
2000 compliance. Based on the nature of their responses, the
Company does not need to develop contingency plans.
Costs
The Company has utilized and will continue to utilize both
internal and external resources to reprogram, or replace, test,
and implement the software and operating equipment for Year 2000
modifications. Many of the program fixes were completed in
conjunction with other projects and had little incremental cost.
The Company estimates that incremental costs relating to Year
2000 projects to date approximate $25,000. These costs have been
expensed as incurred. The Company expects to spend less than
$50,000 on Year 2000 projects in fiscal 1999. Year 2000 costs are
difficult to estimate accurately and the projected cost could
change due to unanticipated technical difficulties, project
delays, and third party non-compliance, among other things.
Risks
Management of the Company believes that it has an effective
program in place to resolve the Year 2000 Issue in a timely
manner. As noted above, the Company has not yet completed all
necessary phases of its Year 2000 plan. Because of the range of
possible issues and the large number of variables involved, it is
impossible to quantify the potential cost of problems should the
Company or its trading partners not properly complete their Year
2000 plans and become Year 2000 compliant. Such costs and any
failure of compliance efforts could have a material adverse
effect on the Company. The Company believes that the most likely
risks of serious Year 2000 business disruption are external in
nature, including continuity of utility, telecommunication and
transportation services, and the potential failure of the
Company's customers due to their own non-compliance or the
non-compliance of their business partners. In the event the
Company does not properly complete its Year 2000 efforts or is
affected by the disruption of outside services, the Company could
be unable to take orders, distribute goods, invoice customers or
collect payments. In addition, disruptions in the economy
generally resulting from Year 2000 could have a material adverse
effect on the Company. The Company could be subject to litigation
for computer systems failure. The amount of potential liability
and lost revenue cannot be reasonably estimated at this time.
Contingency Plans
The Company is currently in process of developing contingency
plans to address the above Year 2000 risks as necessary. The
Company plans to evaluate the status of completion of its Year
2000 efforts by September 1, 1999 and to determine what
contingency plans are necessary at that time. In the normal
course of business, the Company has contingency plans for
disruption of business events and intends to augment those plans
with specific Year 2000 considerations.
RESULTS OF OPERATIONS
Fiscal 1998 Compared to Fiscal 1997
Revenues
Revenues decreased by $300,000 (2%) in fiscal 1998 over fiscal
1997. As previously discussed, new information technology goods
and services are being introduced to our customers. This
strategy of becoming a more complete provider of information
technology services required the restructuring of the existing
sales force. This has caused, in the short term, some revenue
stagnation due to the recruiting, hiring and training process of
the sales staff. The Company believes that this current
investment will provide long-term benefits to the customers and,
hence, revenues.
Costs and Expenses
Costs and expenses decreased by $409,000 (6%) in fiscal 1998 over
the previous year. This most significant cause of this decrease
was the reduction in rent expense of $476,000 in 1998 versus
1997. The reduction was due primarily to the Company recognizing
in 1997 costs associated with terminating certain leases for its
management training company's facilities. During 1998, the
Company mitigated these costs, in part, through subleasing of the
facility which resulted in a change in estimate of the previously
recognized costs.
Selling expense decreased by $48,000 (2%) in fiscal 1998 over
fiscal 1997 due to reduced marketing expenses related to
CALC/Canterbury. During the year, the Company reduced the size
and frequency of the catalog schedule mailing. This was
accomplished by eliminating non-critical information contained in
the publication due to the increased use of the Web site to
research both class descriptions and dates.
General and administrative expense decreased by $520,000 (12%) in
fiscal 1998 over fiscal 1997. Decreased legal expenses of
$145,000, consulting fees of $194,000 and general public
company/corporate expenses of $42,000 comprise the bulk of the
reduction. The Company believes that the reduced level of these
expenses will continue into fiscal 1999.
Interest income for fiscal 1998 increased by $254,000 (42%) over
the prior year due to recognition of interest income on the
portion of the Company's revolving credit facility with Chase
Bank that was assumed by the owners of Landscape Maintenance
Services. This income was not recognized in fiscal 1997.
Interest expense decreased by $96,000 (19%) in fiscal 1998 versus
fiscal 1997. The reduction in outstanding borrowings on the term
loan is the major cause for this reduction.
CORPORATE INFORMATION
WEB SITES
Corporate canterburyciti.com
CALC/Canterbury Corp. calctrain.com
ATM/Canterbury Corp. atmcan.com
MSI/Canterbury Corp. msitrain.com
CORPORATE HEADQUARTERS
1600 Medford Plaza
Medford, New Jersey 08055
(609) 953-0044; (Fax) 609-953-0062
TRANSFER AGENT
American Stock Transfer Trust & Company
6201 Fifteenth Avenue
Brooklyn, New York 11219
AUDITORS
Ernst & Young, LLP
2 Commerce Square
2001 Market Street
Suite 4000
Philadelphia, PA 19103
SEC FORM 10-K
The Company's annual report to the Securities and Exchange
Commission on Form 10-K and other financial information such as
interim and annual reports to stockholders are available,
without charge to stockholders, upon written request to:
Canterbury Information Technology, Inc.
1600 Medford Plaza, Medford, New Jersey 08055
(609) 953-0044 Fax (609) 953-0062
Web site: canterburyciti.com
And are available on the Internet directly from the Securities
and Exchange Commission's Web site: edgar.com