10QSB 1 etch10qsb228.txt ETCH 10QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |X| For the Quarterly Period ended February 28, 2001 Or | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM December 1, 2000 TO February 28, 2001 Commission File Number: 0-17597 ELITE TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Texas 76-0252296 (State or other Jurisdiction of (IRS Employer Identification No.) Incorporation or organization) 5050 Oakbrook Parkway Suite 100 Norcross Georgia 30093 (Address of principal executive offices) (Zip Code) 770-559-4975 (Registrant's telephone number, including area code) 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. Yes | | No |X| The number of issued and outstanding shares of the issuer's class of capital stock as of February 28, 2001, the latest practicable date, is as follows: 47,710,369 shares of Common Stock $.0001 par value. ELITE TECHNOLOGIES, INC. Index PART I - FINANCIAL INFORMATION Item 1. Condensed Financial Statements: Consolidated Balance Sheet-February 28, 2001 and May 31, 2000 (Unaudited) 3 Consolidated Statement of Operations-Three and Nine Months Ended February 28, 2001 and February 29, 2000. (Unaudited) 4 Consolidated Statement of Cash Flow-Nine Months Ended November 30, 2000. (Unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6-7 Report on Review by Independent Accountants Item 2. Management's Discussion and Analysis of Financial Condition 8-10 And Results of Operations PART II - OTHER INFORMATION Item 3. Legal Proceedings 11 Item 4. Changes in Securities 11 Item 5. Defaults upon Senior Securities 11 Item 6. Submission of matters to Vote of Security Holders 11 Item 7. Other Information 11 Item 8. Exhibits and Reports on Form 8-K 11 Exhibit Index Signature 12
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) February 28, May 31, ------------ ------- 2001 2000 ---- ---- Assets Current assets: Cash and cash equivalents $143,699 - Accounts receivable, less allowance for doubtful accounts of $26,000 and $ 0 at February 28, 2001 and May 31, 2000, respectively. 1,436,566 - Note receivable on convertible debt obligation 527,470 Receivable from officer 788,246 289,084 Other current assets 860,696 30,000 -------------------------------------------------------- Total current assets 3,229,207 846,554 Property and equipment, net 584,000 31,004 Excess of cost over net assets of businesses acquired, less accumulated amortization of $ 1,364,186 and $ 597,198 at November 30, 2000, and May 31, 2000, 6,971,095 4,987,844 respectively Other assets 43,789 6,789 -------------------------------------------------------- $10,828,091 $5,872,191 ======================================================== Liabilities and Stockholders' Equity Current liabilities: Cash overdrafts $35,106 Notes payable $1,368,359 112,895 Accounts payable 1,210,813 523,541 Accrued expenses 61,392 114,292 Federal payroll taxes payable 929,468 931,888 State payroll taxes payable 321,614 321,614 -------------------------------------------------------- 3,891,646 2,039,336 -------------------------------------------------------- Long-term liabilities: Notes payable 100,000 Other long term debt 169,378 Convertible note payable 1,105,599 1,035,599 -------------------------------------------------------- Total liabilities 5,166,623 3,174,935 -------------------------------------------------------- Stockholders' equity: Common stock, $.0001 par value; 500,000,000 shares authorized; 47,710,369 and 34,275,720 issued and outstanding at February 28, 2001 and May 31, 2000, respectively 4,771 3,427 Additional paid-in capital 40,628,097 35,206,634 Retained earnings (deficit) (34,971,400) (32,512,805) -------------------------------------------------------- 5,661,468 2,697,256 -------------------------------------------------------- $10,828,091 $5,872,191 ========================================================
The Notes to Financial Statements are an integral part of this statement. 3 ELITE TECHNOLOGIES, INC., AND SUBSIDIARIES Consolidated Statement of Operations (Unaudited) Three Months Ended Nine Months Ended ------------------ ----------------- February 28, February 29, February 28, February 29, ------------ ------------ ------------ ------------ 2001 2000 2001 2000 ---- ---- ---- ---- Revenues $ 3,299,484 $ 115,013 $ 10,633,880 $ 778,010 9,622,258 Cost of Sales 2,924,623 55,013 -- ------------ Gross Profit 374,861 60,000 1,011,622 778,010 ------------ Salaries, wages and benefits 166,740 144,241 405,966 418,997 Depreciation and amortization 410,314 -- 1,177,302 -- Other operating expenses (165,736) 20,203 703,899 443,422 Investment banking fees -- -- 1,584,031 -- ------------ 411,318 164,444 3,871,198 862,419 ------------ Operating income (loss) (36,457) (104,444) (2,859,576) (84,409) ------------ Interest expense 1,777 -- 13,877 -- Other expenses/(income) - net (10,342) -- 6,917 -- ------------ (8,565) 20,794 ------------ ------------ ------------ Loss before income taxes (27,892) (104,444) (2,880,370) (84,409) ------------ Income taxes -- -- -- ------------ Net loss ($ 27,892) ($ 104,444) ($ 2,880,370) ($ 84,409) ============
The Notes to Financial Statements are an integral part of this statement. 4 ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statement of Cash Flow (Unaudited) Nine Months Ended February 28, 2001 Cash flows from (to) operating activities: Net loss ($2,880,370) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,177,302 Commitment to issue stock for investment banking services 1,584,031 Decrease (increase) in: Accounts receivable (1,436,566) Note receivable 527,470 Other assets (830,696) Increase (decrease) in: Accounts payable 687,276 Payroll taxes payable (2,420) Accrued expenses and other current liabilities (52,900) ------------------------------------------- Net cash used in operating activities (1,226,873) ------------------------------------------- Cash flows from (to) investing activities: Purchases of property and equipment (140,490) Acquisition of businesses (175,000) Receivable from officers (499,162) ------------------------------------------- Net cash used in investing activities (814,652) ------------------------------------------- Cash flows from (to) financing activities: Proceeds from issuance of common stock 666,578 Proceeds from issuance of long-term debt 1,302,185 Contributed capital 251,567 ------------------------------------------- Net cash provided by financing activities 2,220,330 ------------------------------------------- Net increase (decrease) in cash 178,805 Cash and cash equivalents at beginning of period (35,106) ------------------------------------------- Cash and cash equivalents at end of period $143,699 =========================================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $13,877 ------------------------------------------- Income taxes - ------------------------------------------- Acquision of businesses: Fair value of assets acquired, including goodwill $3,150,563 Fair value of liabilities assumed (425,000) Promissory note issued (2,550,563) Fair value of common stock issued - ------------------------------------------- Net cash paid for acquisitions $175,000 ===========================================
The Notes to Financial Statements are an integral part of this statement. 5 PART I Financial Information Item I ELITE TECHNOLOGIES, INC., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 28, 2001 (UNAUDITED) Accounting Policies In the opinion of management the accompanying unaudited consolidated financial statements reflect all normal adjustments, exclusive of any adjustments that may be required as a result of going concern issues discussed further in the financial information, necessary to present fairly the financial position of Elite Technologies, Inc., and Subsidiaries at February 28, 2001 and the results of operations for the nine months ended February 29, 2000 and February 28, 2001 and cash flows for nine months ended February 28, 2001. The results of operations for the three and nine month periods ended February 28, 2001 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year May 31, 2001. The financial information as of February 28, 2001 should be read in conjunction with the financial statements contained in Elite Technologies, Inc. Form 10-K/A Annual Report for 2000. Recognition of Revenue and Expense Web site development and consulting services are generally performed on a time and materials basis and are recognized as the services are performed. All other revenue and expense is accrued as incurred. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash overdrafts are classified as debt. Property and Equipment Property and equipment are carried at cost. Expenditures for maintenance and repairs that do not significantly extend the useful lives of the assets are expensed as incurred, while major replacements and betterments are capitalized. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets, generally five years for computer equipment and furniture and fixtures, and three to five years for purchased software. Cost of property sold or otherwise disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income currently. Excess of Cost Over Net Assets of Businesses Acquired The excess of cost over net assets of businesses acquired (goodwill) is being amortized using the straight-line method over five years. The amortization period is based on, among other things, the nature of the products and markets, the competitive position of the acquired companies, and the adaptability of changing market conditions of the acquired companies. At each balance sheet date, the Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. 6 Excess of Cost Over Net Assets of Businesses Acquired (Continued) The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate equal to the rate of return that would be required by the Company for a similar investment with like risks. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. Income Taxes The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Statement of Cash Flows The statement of cash flows for the nine months ended February 29, 2000 has not been presented. Generally accepted accounting principles require that a statement of cash flows be presented when financial statements purport to present financial position and results of operations. Record keeping limitations prevented certain accumulation of cash flow data. Accordingly, management is unable to present the statement of cash flows for that period, at this time. Payroll Taxes Payable Payroll Taxes payable includes a liability, the assumption of which was part of the agreement to acquire Intuitive Technology Consultants, Inc. Management believes it can continue to reduce the liability accordingly without adversely affecting the continuing operations of the company. Earnings Per Share Earnings or loss per share information has not been presented. Generally accepted accounting principles require that such information be provided directly on the statement of operations for all periods presented and included in pro forma disclosures for acquired subsidiaries. Record keeping limitations prevented certain accumulation of common share data. Accordingly, management is unable to present per share data at this time. Pro-Forma Financial Information The unaudited pro-forma results of operations of the Company for the period ended February 28, 2001 as if the acquisition of Icon Computer Parts Corp., had been effective June 1, 2000 are summarized as follows: Unaudited ----------------- ----------------- Revenues - net $15,243,936 ----------------- ----------------- Net loss applicable to common shareholders $(2,547,039) ----------------- ----------------- Generally accepted accounting principles usually call for comparative presentation and the relative pro forma effects on that of the preceding year. This was not performed here since the inception of Icon Computer Parts Corp., was in June, 2000. 7 REPORT ON REVIEW BY INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Elite Technologies, Inc., and Subsidiaries We have reviewed the accompanying consolidated balance sheet of Elite Technologies, Inc., and Subsidiaries (the "Company") as of February 28, 2001 and May 31, 2000 and the related consolidated statements of operations for the first three and nine months ended February 28, 2001 and February 29, 2000, and the related consolidated statement of cash flows for the nine months ended February 28, 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review on interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, with the exception of the matters described in the following paragraph, we are not aware of any material modifications that should be made to the aforementioned financial statements for them to be in conformity with generally accepted accounting principles. A statement of cash flows for the nine months ended February 29, 2000, the previous year, has not been presented. As described in the notes to the consolidated financial statements, generally accepted accounting principles require that such a statement be presented when financial statements purport to present financial position and results of operations. Earnings or loss per share information has not been presented. Generally accepted accounting principles require that such information be provided directly on the statement of operations for all periods presented and included in pro forma disclosures for acquired subsidiaries. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of May 31, 2000, and the related consolidated statements of operations, of stockholders' equity, and of cash flows for the year then ended (not presented herein), and in our report dated November 9, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information as set forth in the accompanying consolidated balance sheet information as of May 31, 2000, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed further in the financial information, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Kirschner & Associates, LLP Marietta, Georgia April 25, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the Financial Statements and Notes thereto included elsewhere in this filing. Certain statements, made in this "Management's Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements. The forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. In some cases, you can identify forward-looking statements by the use of certain terminology, such as "may," "will," "should," "would," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of such terms or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties. These risks and uncertainties could affect the Company's future financial and operating results and cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by or on behalf of the Company. Overview ORGANIZATION Elite Technologies, Inc. (referred to herein as "Elite" or the "Company") is a full service technology company offering information technology ("IT") services to small, medium and large enterprises. IT services involve the facilitation of the flow of information within a company or between a company and external sources. These services typically involve computer hardware, software and "integration" efforts to allow diverse systems to communicate with one another. Elite was founded as a Georgia corporation in 1996 under the name Intuitive Technology Consultants, Inc. ("ITC"). In July, 1998, ITC Acquisition Group, LLP, consisting of management of ITC, acquired a majority interest, through a reverse merger, in CONCAP, Inc.. On April 22, 1999, the Company changed its name to Elite Technologies, Inc. The Company's charter was revoked on February 11, 2000 for the failure to file franchise tax returns in the State of Texas, however the Company is presently seeking to reinstate its charter. Elite through its divisions offers a variety of services in fiscal year 2001. Accordingly, Elite has transferred most of its operations following the acquisition of ACE Manufacturing Group, Ltd, (AMG), on March 15, 2000. Elite has acquired other companies to fulfill the services of its divisions. As part of Elite's acquisition strategy, the Company has completed the acquisition agreements with AC Travel, Inc., as of June 1, 2000, International Electronic Technologies of Georgia, Inc., as of June 27, 2000 and Icon Computer Parts Corp. as of February 15, 2001. Elite does not presently have any other definitive agreements to acquire additional companies and there can be no assurance that it will do so. The Company's principal executive offices are located at 5050 Oakbrook Parkway, Suite 100 Norcross, Georgia 30093. Telephone: (770)-559-4975. The Company's Internet address is www.elitetech-usa.com. RECENT DEVELOPMENTS Elite's objective is to establish itself as a leading provider of content solutions, hardware distribution, software development services, and kiosk manufacturing/distribution. The Company intends to utilize acquisitions to support the growth of its business, such as content and hardware providers. The Company intends to utilize the kiosk's content and advertising platform to serve as a means by which retailers and other connectivity solutions providers can access a viewer base with quantifiable online purchasing habits. 8 RECENT DEVELOPMENTS (Continued) On February 15, 2001 Elite signed a stock purchase agreement with Icon Computer Parts Corp., a computer parts/computer systems retailer located in Puerto Rico. The purchase price for all the capital stock of Icon Computer Parts Corp. was 2,000,000 shares of common stock. The company has recorded in this filing the revenues and expenses of Icon from February 15, 2001 through February 28, 2001. Such revenues and net income for this same period was $302,553 and $15,646, respectively. For the Quarter ending February 28, 2001, the revenue and net income for Icon was $1,855,688 and $117,852 respectively. See pro-forma financial statements for further analysis. As of the balance sheet date of February 28, 2001, the balance sheet of Icon Computer Parts Corporation was included as a consolidated subsidiary. On April 16, 2001, the Company filed Form 12b-25 specific to the filing for the third quarter ended February 28, 2001. The Company would like to augment the reasons for the filing delay to be that of solely the following: Item 1. The registrant was required per the SEC to re-file its 10-K for the year ended May 31, 2000 and 10-Q's for periods ended August 31, 2000 and November 30, 2000, respectively, which affected a change in the financials for the 10-Q's ended February 28, 2001. Item 2. Since the acquisition of Icon Computer, Parts, in Puerto Rico on February 15th, 2001, it has posed a challenge in acquiring the required financial statements in the form expected by SEC standards. Item 3. The registrant was unable to provide financial statements and supporting documentation in a timely fashion. Management determined that the best course of action was to omit the financial statements of AC Travel from this 10-Q; thereby, treating AC Travel as an unconsolidated subsidiary. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000. Revenues: Revenues from operations for the third quarter ended February 28, 2001 increased by $3,184,471 from $115,013 to $3,299,484 for the same period, 2000. Revenues for the nine months ended February 28, 2001, increased by $9,855,870 from $778,010 to $10,633,880 to the same period, 2000. The increase in revenues is related to (i) the internal restructuring of the business and (ii) the acquisition of subsidiary companies. Salaries, Wages and Benefits: Salaries, Wages and Benefits increased by $22,499 from 144,241 to $166,740 for the same period 2000. The increase is due primarily to the acquisition of subsidiary companies. Other Operating Expenses: For the third quarter ended February 28, 2000 Other Operating Expenses decreased by $185,939 from $20,203 to (165,736) for the same period 2000. The same expense for the nine months ended February 28, 2001, decreased by $56,414 from $760,313 to $703,899 for the same period 2000. The above changes stem from the restructuring of the business. Depreciation and Amortization: Elite depreciates its assets, including goodwill, on a straight-line basis over three to five years. Depreciation and amortization expense increased $410,314 over the previous quarter then ended February 29, 1999. The same expense for the nine months ended February 28, 2001, increased $1,177,302. Net Loss. Net losses increased by $2,795,961 from $84,409 to $2,880,370 for the nine-month period ended February 28, 2001. The change among period's stems from the issuance of investment banking fees specific to debt and equity financing arrangements. 9 LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements have principally related to the acquisition of businesses, working capital needs and capital expenditures for growth. These requirements have been met through a combination of private placements and internally generated funds. Although the Company incurred direct costs for acquisitions, the Company completed these acquisitions primarily in stock for stock transactions. Management contents that such agreements for debt and equity funding have been sufficient to enable the Company to continue operating as a going concern. However, we expect to enter into further agreements for such additional funding. 10 PART II OTHER INFORMATION ITEM 3. LEGAL PROCEEDINGS The Company is, from time to time, a party to routine litigation incidental to operating a business, including claims of discrimination, wrongful termination, and other similar claims. ITEM 4. CHANGES IN SECURITIES. The company issued securities in exchange for $175,000 in cash during the third quarter. ITEM 5. DEFAULTS UPON SENIOR SECURITIES. None ITEM 6. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 7. OTHER INFORMATION. None ITEM 8. EXHIBITS AND REPORTS ON FORM 8-K. Yes, Forms 8-K/A 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 25, 2001 ELITE TECHNOLOGIES, INC. By: /s/ Scott Schuster --------------------- Name: Scott Schuster Title: Chief Executive Officer 12 12