10QSB 1 etch10qsb1015.txt ELITE 10-QSB -------------------------------------------------------------------------------- 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 August 31, 2001 Or | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM June 1, 2001 TO August 31, 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 |x | No | | The number of issued and outstanding shares of the issuer's class of capital stock as of August 31, 2001, the latest practicable date, is as follows: 75,012,434 shares of Common Stock $.0001 par value. ------------------------------------------------------- ELITE TECHNOLOGIES, INC. Index PART I - FINANCIAL INFORMATION Item 1. Condensed Financial Statements: Consolidated Balance Sheets-August 31, 2001 and May 31, 2001. 3 Consolidated Statements of Operations-Three Month Period Ended August 31, 2001 and August 31, 2000.(Unaudited) 4 Consolidated Statements of Cash Flows-Three Month Period Ended August 31, 2001 and August 31, 2000. (Unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 7 Report on Review by Independent Accountants 9 Item 2. Management's Discussion and Analysis of Financial Condition 10 And Results of Operations PART II - OTHER INFORMATION Item 3. Legal Proceedings 12 Item 4. Changes in Securities 12 Item 5. Defaults upon Senior Securities 12 Item 6. Submission of matters to Vote of Security Holders 12 Item 7. Other Information 12 Item 8. Exhibits and Reports 12 Exhibit Index Signature 13 PART I Financial Information Item I ELITE TECHNOLOGIES, INC., AND SUBSIDIARIES Consolidated Balance Sheets
August 31, May 31, 2001 2001 (Unaudited) (Audited) Assets Current assets: Cash on hand and in banks $214,093 $80,450 Accounts receivable, less allowance for doubtful accounts of $80,000 at August 31, 2001 and May 31, 2001, respectively. 803,165 639,979 Receivable from officer 865,277 707,624 Inventory 544,838 690,012 ------------------------------ Total current assets 2,427,373 2,118,065 Property and equipment, net 495,688 561,330 Excess of cost over net assets of businesses acquired, less accumulated amortization of $1,599,019 and $1,259,876 at August 31, 2001, and May 31, 2001, respectively. 5,189,123 5,523,017 Other assets 10,000 10,000 ------------------------------ Total Assets $8,122,184 $8,212,412 ============================== Liabilities and Stockholders' Equity Current liabilities: Notes payable 389,863 213,537 Accounts payable 1,524,750 926,905 Accrued expenses 43,633 163,475 Federal payroll taxes payable 928,888 928,888 State payroll taxes payable 321,614 321,614 Reserve for acquisition 1,662,400 1,662,400 Income Taxes 12,000 12,000 ------------------------------ 4,883,148 4,228,819 Long-term liabilities: Convertible note payable 1,117,801 1,117,801 ------------------------------ Total liabilities 6,000,949 5,346,620 ------------------------------ Stockholders' equity: Common stock, $.0001 par value; 500,000,000 shares authorized; 75,012,434 and 61,812,434 issued and outstanding at August 31, 2001 and May 31, 2001, respectively 7,501 6,181 Additional paid-in capital 44,159,707 43,963,877 Retained Deficit (42,045,973) (41,104,266) ------------------------------ Total stockholders' equity 2,121,235 2,865,792 ------------------------------ Total liabilities and equity $8,122,184 $ 8,212,412 ==============================
The Notes to Financial Statements are an integral part of this statement . 3 ELITE TECHNOLOGIES, INC., AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) Three Month Period Ended August 31, August 31, 2001 2000 Revenues $4,009,186 $3,630,818 Cost of Sales 3,597,518 2,968,113 ---------------------------------- Gross Profit 411,668 662,705 ---------------------------------- Salaries, wages and benefits 194,301 328,101 Depreciation and amortization 339,144 373,958 Other operating expenses 604,674 493,246 Stock based compensation 191,900 - Investment banking fees - 1,584,031 ---------------------------------- 1,330,019 2,779,336 ---------------------------------- Operating income (loss) (918,351) (2,116,631) ---------------------------------- Interest expense 23,356 - Other expenses/(income) - net - 1,713 ---------------------------------- 23,356 1,713 ---------------------------------- Loss before income taxes (941,707) (2,118,344) Income taxes - - ---------------------------------- Net loss ($941,707) ($2,118,344) ================================== Net Loss Per Share of Common Stock: Basic and Diluted ($0.01) ($0.06) ================================== Weighted Average Number of Common Shares Used In Calculating Net Loss Per Share of Common Stock: Basic and Diluted 63,512,571 38,475,720 ================================== The Notes to Financial Statements are an integral part of this statement. 4 Consolidated Statements of Cash Flows (Unaudited)
Three Month Period Ended August 31, August 31, 2001 2000 Cash flows from operating activities: Net loss ($941,707) ($2,118,344) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 339,144 373,958 Stock based compensation 191,900 - Commitment to issue stock for investment banking services - 1,584,253 Decrease (increase) in: Accounts receivable (163,186) (1,036,924) Inventory 145,173 - Note receivable - 527,470 Other assets - (702,099) Increase (decrease) in: Accounts payable 597,845 1,966,469 Accrued expenses and other current liabilities (48,949) (85,000) --------------------------------- Net cash provided by operating activities 120,220 509,783 --------------------------------- Cash flows from investing activities: Purchases of property and equipment - (425,000) Acquisition of businesses (5,250) (175,000) Receivable from officers (157,653) (284,619) --------------------------------- Net cash used in investing activities (162,903) (884,619) --------------------------------- Cash flows from financing activities: Proceeds from short-term notes 176,326 500,000 Contributed capital - 150,492 --------------------------------- Net cash provided by financing activities 176,326 650,492 --------------------------------- Net increase in cash and cash equivalents 133,643 275,656 Cash and cash equivalents (overdraft) at beginning of period 80,450 (35,106) --------------------------------- Cash and cash equivalents at end of period $214,093 $240,550 =================================
The Notes to Financial Statements are an integral part of this statement. 5 ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued) (Unaudited) Three Month Period Ended August 31, August 31, 2001 2000 Supplemental disclosures of cash flows information: Cash paid during the period for: Interest $23,356 - Income taxes - - Acquisition of Businesses: Fair value of assets acquired, including goodwill - $2,275,562 Promissory note issued - (425,000) Fair value of common stock issued (5,250) (1,675,562) ------------------------- Net cash paid for acquisitions ($5,250) $175,000 ======================== The Notes to Financial Statements are an integral part of this statement. 6 ELITE TECHNOLOGIES, INC., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AUGUST 31, 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 August 31, 2001 and the results of operations for the three months ended August 31, 2001 and August 31, 2000 and cash flows for three months ended August 31, 2001 and August 31, 2000. The results of operations for the three month periods ended August 31, 2001 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year May 31, 2002. The financial information as of August 31, 2001 should be read in conjunction with the financial statements contained in Elite Technologies, Inc. Form 10-K Annual Report for May 31, 2001. 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 current liabilities. 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 as 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. 7 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. Payroll Taxes Payable Payroll Taxes payable include separate line items for both federal and state tax liabilities. The assumption of which was part of the agreement to acquire Intuitive Technology Consultants, Inc. The respective state and federal tax liabilities have not been paid during previous periods due to cash flow matters. Management has worked with the appropriate tax authorities and such authorities have agreed not to impute any further interest or penalties on these accounts. Pro-Forma Financial Information Generally accepted accounting principles call for the disclosure of pro forma effects on acquisitions that occur during the year. Regarding the acquisition of World Touch Communications, Inc., effective July 1, 2001, this disclosure has not been reported since revenues and expenses are De minimus due to the entities start up status. 8 Israel & Ricardo Blanco, CPA's MEMBERS OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS AND COLLEGE OF CERTIFIED PUBLIC ACCOUNTANTS OF PUERTO RICO PO Box 2667 Bayamon PR 00960 Tel. (787) 785-1396 o Fax (787) 785-2970 E-mail: rickyblancocpa@att.net 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 August 31, 2001 and May 31, 2001 and the related consolidated statements of operations for the first three months ended August 31, 2001 and August 31, 2000, and the related consolidated statement of cash flows for the three months ended August 31, 2001 and August 31, 2000. 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 matter 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 accounting principles generally accepted in the United States of America. We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of May 31, 2001, 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 August 17, 2001, 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, 2001, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. Our report dated August 17, 2001, on the consolidated financial statements of Elite Technologies, Inc., and subsidiaries as of and for the year ended May 31, 2001, contains an explanatory paragraph that states that the Company's recurring losses from operations and net capital deficiency raise substantial doubt about the entity's ability to continue as a going concern. The consolidated balance sheet as of May 31, 2001, does not include any adjustments that might result from the outcome of that uncertainty. 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. Atlanta, Georgia October 15, 2001, Temporary Permit No. 676 9 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. 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, Icon Computer Parts Corp. as of February 15, 2001 and World-Touch Communications Inc., as of July 1, 2001. 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 On July 1, 2001 the Company signed a stock purchase agreement with World Touch Communications, Inc. This newly acquired, start up, company provides an integrated suite of high quality, low-cost international telecommunications services to large and small businesses, including voice-over IP (VolP), call back, prepaid calling cards, and prepaid cell phones. This acquisition was structured as a stock for stock purchase and was accounted for utilizing the purchase method of accounting. The consideration for purchase was 750,000 shares of the Registrants common stock. See pro-forma financial statements for further analysis. As of the balance sheet date of August 31, 2001 the balance sheet of World-Touch Communications, Inc. was included as a consolidated subsidiary. Effective September 5, 2001 the Company announced that it signed a Letter of Intent to acquire 100% of Infoactiv, Inc. a Boston MA based company. Initial timelines were such that, pending due diligence procedures, a closing could take place by September 30, 2001. The Company has since received an extension through the end of October 2001. During the quarter then ended August 31, 2001 AC Travel, Inc. was unable to provide financial statements and supporting documentation to the registrant in a timely, and routine, fashion. Management determined that the best course of action was to omit the financial statements of AC Travel, Inc. from this Form 10-Q; thereby, treating AC Travel as an unconsolidated subsidiary. This situation having already occurred in the past, it was the Company's decision to terminate all previously employed members of AC Travel with an eye toward re-staffing the organization. It was not until a period post August 31, 2001 that the Board of Directors ratified an agreement to formerly discontinue the operations of this subsidiary. According, the Company will write down any amounts specific to the net assets of AC Travel during the second quarter then ended November 30, 2001. 10 RESULTS OF OPERATIONS THREE MONTH PERIOD ENDED AUGUST 31, 2001 AND AUGUST 31, 2000. Revenues: Revenues from operations for the first quarter ended August 31, 2001 increased by $378,368 from $3,630,818 for the same period August 31, 2000. This increase is primarily from increased market penetration. Cost of Sales: Cost of sales for the first quarter ended August 31, 2001 increase by $629,405 from $2,968,113 for the same period August 31, 2000. Increase between periods is strictly a function of increased sales between periods. Salaries, Wages and Benefits: Salaries, Wages and Benefits decreased by $133,800 from $328,101 for the same period August 31, 2000. The decrease is due to staffing efficiencies. Other Operating Expenses: For the first quarter ended August 31, 2001 other operating expenses increased by $111,428 from 493,246 for the same period August 31, 2000. The above changes stem from cost enhancements and an eye toward cost containment. Depreciation and Amortization: The Company depreciates its assets, including goodwill, on a straight-line basis over three to five years. Depreciation and amortization expense decreased $34,814 from $373,958 over the previous quarter then ended August 31, 2000. Stock based compensation: The increase of $191,900 between periods is due to the issuance of Company stock to both employees and consulting personnel. Investment banking fees: The decrease of $ 1,584,031 between periods is due to the non-issuance of Company stock during the current reporting period for purposes of investment banking. Net Loss. Net losses decreased by $1,176,637 from $2,118,344 for the same period ended August 31, 2000. The net change between periods is the cumulative function of all described changes as noted above. Considering the current economic slowdown, the Company expects a downtick with respect to revenues for the period ending November 30, 2001. Management is currently proactive in evaluating new marketing strategies to help mitigate this possibility. 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. 11 Part II OTHER INFORMATION ITEM 3. LEGAL PROCEEDINGS The Company is 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. None 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. None 12 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: October 15, 2001 Elite Technologies, Inc. By:/s/ Scott Schuster ------------------ Name: Scott Schuster Title: Chief Executive Officer 13