-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FrzcbfsfWRH2848yH246Eifw47XrN69L68pT44x3VSZq3vYaNGHWU89qRVwuisf9 Pp3Xpna3uPR9FqqjlcfFcg== 0001135745-02-000023.txt : 20020423 0001135745-02-000023.hdr.sgml : 20020423 ACCESSION NUMBER: 0001135745-02-000023 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020228 FILED AS OF DATE: 20020423 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELITE TECHNOLOGIES INC /TX/ CENTRAL INDEX KEY: 0000835909 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 760252296 STATE OF INCORPORATION: TX FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-17597 FILM NUMBER: 02617844 BUSINESS ADDRESS: STREET 1: 5050 OAKBROOK PARKWAY STREET 2: STE 100 CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 7705594975 MAIL ADDRESS: STREET 1: 5050 OAKBROOK PARKWAY STREET 2: SUITE 100 CITY: NORCROSS STATE: GA ZIP: 30093 FORMER COMPANY: FORMER CONFORMED NAME: CONCAP INC DATE OF NAME CHANGE: 19990826 FORMER COMPANY: FORMER CONFORMED NAME: ELITE TECHNOLOGIES INC/TX DATE OF NAME CHANGE: 19990825 FORMER COMPANY: FORMER CONFORMED NAME: ELITE TECHNOLOGIES INC/TX/ DATE OF NAME CHANGE: 19990830 10QSB 1 etchq22802.txt ELITE 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |X| For the Quarterly Period ended February 28, 2002 Or | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM December 1, 2001 TO February 28, 2002 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) 3340 Peachtree Place Suite 1800 Atlanta, Georgia 30326 (Address of principal executive offices) (Zip Code) 404-812-5312 (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 | | APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: February 28, 2002, 99,350,000 shares of Common Stock. - -------------------------------------------------------------------------------- ELITE TECHNOLOGIES, INC. Index to Quarterly Report on Form 10-QSB PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets- February 28, 2002 and May 31, 2001 3 Condensed Consolidated Statements of Operations-Three and Nine-Months Ended February 28, 2002 and February 28, 2001. (Unaudited) 4 Condensed Consolidated Statements of Cash Flows- Nine-Months Ended February 28, 2002 and February 28, 2001. (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 7 Report on Review by Independent Accountants 10 Item 2. Management's Discussion and Analysis of Financial Condition 11 and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II - OTHER INFORMATION Item 1. Legal Proceedings 20 Item 2. Changes in Securities and Use of Proceeds 20 Item 3. Defaults Upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports 20 Signature 20
ELITE TECHNOLOGIES, INC, AND SUBSIDIARIES Condensed Consolidated Balance Sheets February 28, May 31, ------------ ------- 2002 2001 ---- ---- (Unaudited) (Note) ----------- ------ Assets Current assets: Cash on hand and in banks $159,328 $80,450 Accounts receivable - net 544,649 639,979 Inventory 432,107 690,012 Receivable from officer 921,252 707,624 ----------------------------------------- Total current assets 2,057,336 2,118,065 Property and equipment, net 524,268 561,330 Excess of cost over net assets of businesses acquired, less accumulated amortization of $1,904,418 and $1,259,876 at February 28, 2002 and May 31, 2001, 3,818,324 5,523,017 respectively. Other assets 12,596 10,000 ----------------------------------------- Total Assets $6,412,524 $8,212,412 ========================================= Liabilities and Stockholders' Equity (Deficit) Current liabilities: Notes payable $242,395 $213,537 Accounts payable 2,110,351 926,905 Accrued expenses 222,032 163,475 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 18,870 12,000 ----------------------------------------- Total current liabilities 5,506,550 4,228,819 ----------------------------------------- Long-term liabilities: Convertible note payable 1,013,360 1,117,801 ----------------------------------------- Total liabilities 6,519,910 5,346,620 ----------------------------------------- Stockholders' Equity (Deficit): Common stock, $.0001 par value; 500,000,000 shares authorized; 99,350,000 and 61,812,434 issued and outstanding at February 28, 2002 and May 31, 2001, respectively 9,935 6,181 Additional paid-in capital 47,817,429 43,963,877 Accumulated deficit (47,934,750) (41,104,266) ----------------------------------------- Stockholders' Equity (Deficit) (107,386) 2,865,792 ----------------------------------------- Total Liabilities and Stockholder's Equity (Deficit) $6,412,524 $8,212,412 =========================================
Note: The consolidated balance sheet at May 31, 2001 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. See notes to condensed consolidated financial statements. 3 ELITE TECHNOLOGIES, INC, AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended February 28, February 28, ------------ ------------ 2002 2001 2002 2001 ---- ---- ---- ---- Revenues-net $2,301,035 $3,299,484 $9,065,641 $10,633,880 Cost of Sales 2,474,767 2,924,623 8,556,110 9,622,258 ---------------------------------------------------------------------------- Gross Profit (173,732) 374,861 509,531 1,011,622 Operating Expenses: Salaries, wages and benefits 278,034 166,740 803,575 405,966 Depreciation and amortization 285,874 410,314 965,080 1,177,302 Other operating expenses 375,674 (165,736) 1,386,502 703,899 Stock based compensation 527,001 - 998,801 - Investment banking fees - - - 1,584,031 Write down of non-performing assets - - 799,051 - ---------------------------------------------------------------------------- Total operating expenses 1,466,583 411,318 4,953,009 3,871,198 ---------------------------------------------------------------------------- Loss from Operations 1,640,315 36,457 4,443,478 2,859,576 Other Income And Expenses: Interest expense 23,356 1,777 73,568 13,877 Other expenses(income) - net 29,924 (10,342) 30,206 6,917 ---------------------------------------------------------------------------- Total other income and expenses 53,280 (8,565) 103,774 20,794 ---------------------------------------------------------------------------- Loss before income taxes 1,693,595 27,892 4,547,252 2,880,370 Provision for income taxes 3,870 - 18,870 - ---------------------------------------------------------------------------- Net Loss $1,697,465 $27,892 $4,566,122 $2,880,370 ============================================================================ Net Loss Per Share of Common Stock: Basic and Diluted ($0.02) ($0.01) ($0.05) ($0.05) ============================================================================ Weighted Average Number of Common Shares Used In Calculating Net Loss Per Share of Common Stock: Basic and Diluted 88,909,865 45,782,025 88,909,865 54,000,600 ============================================================================
See notes to condensed consolidated financial statements. 4 ELITE TECHNOLOGIES, INC, AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended Nine Months Ended February 28, February 28, 2002 2001 ---- ---- Cash flows from (to) operating activities: Net loss ($4,566,122) ($2,880,370) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,741,755 1,177,302 Write-down of non-performing assets - - Account receivable direct write off - - Stock based compensation 998,801 - Commitment to issue stock for investment banking services - 1,584,031 Decrease (increase) in: Accounts receivable 95,330 (1,436,566) Inventory 257,905 - Note receivable - 527,470 Other assets (2,596) (830,696) Increase (decrease) in: Accounts payable 1,183,446 687,276 Payroll taxes payable - (2,420) Accrued expenses and other current liabilities 87,415 (52,900) Income tax - - ---------------------------------------------- Net cash used in operating activities 204,006 (1,226,873) ---------------------------------------------- Cash flows from (to) investing activities: Purchases of property and equipment (5,156) (140,490) Acquisition of businesses - (175,000) Receivable from officers (213,628) (499,162) ---------------------------------------------- Net cash used in investing activities (218,784) (814,652) ---------------------------------------------- Cash flows from (to) financing activities: Proceeds from issuance of common stock - 666,578 Proceeds from issuance of long-term debt 225,000 1,302,185 Proceeds from (payment on) short-term notes - - Contributed capital - 251,567 ---------------------------------------------- Net cash provided by financing activities 225,000 2,220,330 ---------------------------------------------- Net increase (decrease) in cash 239,778 178,805 Cash and cash equivalents at beginning of period 80,450 (35,106) ---------------------------------------------- Cash and cash equivalents at end of period $159,328 $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 ==============================================
See notes to condensed consolidated financial statements 6 Elite Technologies, Inc. Notes to Condensed Consolidated Financial Statements February 28, 2002 (Unaudited) 1. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying un-audited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America or interim information consistent with instructions of Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended February 28, 2002 respectively may not necessarily be indicative of the results that may be expected for the year ended May 31, 2002. For further information, refer to Elite Technologies Inc, (the Company) consolidated financial statements and footnotes thereto included on the Form 10-K for the year ended May 31, 2001. Adoption of Accounting Pronouncements In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements", which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Management believes that Elite has complied with the guidance of SAB 101. In January 2001, Elite adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended. The adoption of SFAS No. 133 did not have a material effect on the Company's financial position or results of operations because Elite is not currently using derivatives. In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". Statement 141 eliminated the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. Statement 142, which includes the requirements to test goodwill and indefinite-lived intangible assets for impairment, rather than amortize them, will be effective for fiscal years beginning after December 15, 2001. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement requires entities to record the fair value of an asset retirement obligation in the period in which it is incurred. This statement is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. In September 2001, the FASB issued SFAS No. 144 on asset impairment that is applicable to financial statements issued for fiscal years beginning after December 31, 2001. The FASB's new rules on asset impairment supercede SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and provides a single accounting model for the disposal of long-lived assets. 7 Management does not believe the adoption of these statements will have a significant impact on the Company's financial statements. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated. Use of Estimates The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Basic and Diluted Loss Per Share The Company has adopted FASB Statement No. 128, "Earnings Per Share", which requires a dual presentation of basic and diluted earnings per share. However, because of the Company's net losses, the effect of stock options and warrants, if applicable, would be anti-dilutive. Accordingly, stock options and warrants are excluded from the computation of loss per share totaling approximately 88,909,865 at February 28, 2002. Inventories Inventories are stated at the lower of cost or market. Production costs are applied to ending inventories at a rate based on production capacity and any excess production costs are charged to cost of products sold. Accounting Policies In the opinion of management, the accompanying un-audited consolidated financial statements reflect all normal adjustments, exclusive of any adjustments that may be required as a result of going concern issues discussed further within the enclosed financial information. Management also believes that the enclosed information presents fairly the financial position of Elite Technologies, Inc., and Subsidiaries at February 28, 2002 and the results of operations for the three and nine months ended February 28, 2002 and February 28, 2001 and cash flows for nine months ended February 28, 2002 and February 28, 2001. The results of operations for the three and nine month periods ended February 28 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year ending May 31, 2002. The financial information as of November 30, 2001 should be read in conjunction with the financial statements contained in Elite Technologies, Inc. Form 10-K Annual Report for May 31, 2001. 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. 8 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 currently as income. Excess of Cost Over Net Assets of Businesses Acquired On goodwill established prior to 2002, the excess of cost over net assets of businesses acquired (goodwill) is being amortized using the straight-line method over five years. All goodwill transactions were effective previous to the adoption of FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations", and No. 142. 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. 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 carry forwards. 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. Actual and expected income tax expense can differ due to non-deductible expenses and different income tax jurisdictions. Payroll Taxes Payable Payroll Taxes payable include separate line items for both federal and state tax liabilities. The assumption of these liabilities 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. 9 Pro-Forma Financial Information Generally accepted accounting principles in the United States of America call for the comparative presentation and the relative pro forma effects on that of the preceding year. This was not illustrated here since World Touch Communications, Inc. maintains the status of a start-up company and was not operational in previous periods. Management's Plans The Company has incurred significant recurring operating losses during past reporting periods and carries a working capital and a retained earnings deficit that raises uncertainty about the Company's ability to continue as a going concern. Management's business philosophy is to increase market share by virtue of acquiring companies with inherent symmetry, autonomy and profitability. Management is actively pursuing new debt and equity financing arrangements. In addition, controls on operating efficiency and effectiveness are being considered. Management is continually evaluating capital budgeting opportunities and the Company's overall profitability. However, any results of their plans and actions cannot be assured. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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 sheets of Elite Technologies, Inc., and Subsidiaries (the "Company") as of February 28, 2002 and May 31, 2001 and the related consolidated statements of operations for the three months and nine months ended February 28, 2002 and February 29, 2001, and the related consolidated statements of cash flows for the nine months ended February 28, 2002 and February 29, 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 of 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, 10 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 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. Israel & Ricardo Blanco, C.P.A. Atlanta, Georgia April 8, 2002 Temporary Permit No. 694 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements The following should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Form 10-K, as filed with the SEC, for the fiscal year ended May 31, 2001. Other than historical and factual statements, the matters and items discussed in this Quarterly Report on Form 10-QSB are forward-looking statements that involve risks and uncertainties. Actual results and timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under Risk Factors in the Company's Annual Form 10-K as well as this filing Form 10-QSB and other documents filed by the Company with the Securities and Exchange Commission. In evaluating the Company's business, prospective investors should carefully consider the information set forth below under the caption Risk Factors in addition to the other information set forth herein. The Company cautions investors that its business and financial performance are subject to substantial risks and uncertainties. General Elite is a technology company primarily focused on the hardware distribution and communications sector of the technology industry. Through its subsidiaries, Elite offers information technology ("IT") products, services, and solutions to small, medium and large enterprises. Elite seeks to generate growth through strategic acquisitions, increased sales, and operational efficiencies achieved through centralization and standardization of its subsidiaries' business procedures. 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 has transferred most of its operations following the acquisition of ACE Manufacturing Group, Ltd, (AMG), on March 15, 2000. 11 From 1998 until 2000, Elite offered a variety of IT services, including IT staffing, custom software development and integration, Internet hosting, content and technical development, hardware sales and service, and content delivery platforms. Elite also served as an authorized solution provider and application developer for leading enterprise-level software products. During this period, Elite expanded its products and services through targeted acquisitions and internal growth. As part of its acquisition strategy, Elite acquired AMG in April 2000. Following this acquisition, Elite suspended most of its other operations to focus on developing and marketing AMG's Internet "pay-by-minute" browser (kiosk) products. As a result, revenues in fiscal year 2000 decreased to $298,230 from $1,937,317 in Fiscal Year 1999. Despite this decrease, Elite positioned itself to acquire additional companies to augment AMG's kiosk products, including companies providing content, hardware and related IT services. In line with its stated strategy, Elite acquired International Electronic Technology of Georgia, Inc. ("IET"), AC Travel, Inc. ("AC Travel"), and Icon Computer Parts Corp. ("Icon") in June 2000, June 2000, and February 2001, respectively. IET and Icon distribute hardware through small, mid-sized, and large resellers, including Sam's Club in Puerto Rico, a division of Wal-Mart Stores, Inc. All three businesses were acquired to create synergy with AMG's kiosk products and expand Elite's overall products and services base. By virtue of Elite's aggressive acquisition pattern, revenues in fiscal year 2001 increased to $13,268,877, an increase of 4,300% over fiscal year 2000. Since July 2001, Elite has acquired World Touch Communications, Inc. ("World Touch"), a provider of telecommunications products and services including voice-over IP ("VoIP"), and has incorporated Intelligent Software Solutions of Georgia, Inc. ("ISS"). Through World Touch, Elite has expanded into the telecommunications sector. Through ISS, a Microsoft OEM distributor for the Caribbean, Elite has developed a software distribution outlet. Elite's objective is to become a leader in hardware and software distribution and VoIP telecommunications delivery. Elite intends to grow through strategic acquisitions that create added value for its existing subsidiaries, increased sales that target burgeoning markets in Puerto Rico, the Caribbean, and Latin America, and increased operational efficiencies that reduce costs and increase productivity across its core businesses. Elite has suspended operations of Scanlan Music, Inc., Temporary Help Connection, Inc., and AC Travel, Inc. due to decreased product and service demand and changed economic conditions. Additionally, Elite has integrated the products and services of Elevation Strategic Partners, Inc. and Virtual Enterprises, Inc. into its other subsidiaries. The Company's principal executive offices are located at 3340 Peachtree Rd N.E, Suite 1800 Atlanta, Georgia 30326. Telephone: (404)-812-5312. The Company's Internet address is http://www.elitetechinc.com. RECENT DEVELOPMENTS The Company is continuing to invest internal resources into such practices of finding, then acquiring, plausible acquisitions targets in hopes of promoting shareholder value. As of the report date of this filing, the Company has no active "Letters of Intent" in place. Effective February 18, 2002 Elite incorporated an entity named Icon USA, Inc. ("Icon USA). This company will act as a domestic U.S. partner to Icon Computer Parts, Corp, as located in San Juan, Puerto Rico. 12 Within this reporting period, Elite has consummated a contractual relationship with a company to provide purchase order and accounts receivable financing. This relationship was procured to assist in the financing of various mass merchant accounts. Initially, this financing relationship has been provided to several of Elite's subsidiaries, namely, Icon Computer Parts, Corp. and Icon USA. Management is currently contemplating extending the same financing options to Intelligent Software of Georgia, Inc. As a matter of significant subsequent events Elite has filed Form SB-2 Registration Statement as dated April 10, 2002. This document, in its final form, will register an additional 92,287,663 shares of Elite's common stock. As of the date of this filing, Elite has not received any letters of comments specific to Form SB-2 from the Securities Exchange Commission. Results of Operations RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED FEBRUARY 28, 2002 AS COMPARED TO THE NINE MONTHS ENDED FEBRUARY 28, 2001. The following table sets forth the amount of increase or decrease represented by certain items reflected in the Company's statements of operations in comparing the nine months ended February 28, 2002 (the 2002 period) to the nine months ended February 28, 2001 (the 2001 period):
Nine Months Ended February 28, Increase 2002 2001 (Decrease) ---- ---- ---------- Revenues-net $9,065,641 $10,633,880 ($1,568,239) Cost of Sales 8,556,110 9,622,258 (1,066,148) -------------------------------------------------------- Gross Profit 509,531 1,011,622 (502,091) Operating Expenses: Salaries, wages and benefits 803,575 405,966 397,609 Depreciation and amortization 965,080 1,177,302 (212,222) Other operating expenses 1,386,502 703,899 682,603 Stock based compensation 998,801 - 998,801 Investment banking fees - 1,584,031 (1,584,031) Write down of non-performing assets 799,051 - 799,051 -------------------------------------------------------- Total operating expenses 4,953,009 3,871,198 1,081,811 -------------------------------------------------------- Loss from Operations 4,443,478 2,859,576 1,583,902 Other Income And Expenses: Interest expense 73,568 13,877 59,691 Other expenses (income)-net 30,206 6,917 23,289 -------------------------------------------------------- Total other income and expenses 103,774 20,794 82,980 -------------------------------------------------------- Loss before income taxes 4,547,252 2,880,370 1,666,882 Provision for income taxes 18,870 - 18,870 -------------------------------------------------------- Net loss $4,566,122 2,880,370 $1,685,752 ========================================================
Revenues: Revenues from operations for the first nine months ended February 28, 2002 decreased by $1,568,239 over the same period of the previous year. This decrease is largely due to the economic effect of the terrorist attack of September 11, 2001. Cost of Sales: Cost of sales for the first nine months ended February 28, 2002 decreased by $1,066,148 as a function of sales falling approximately fifteen percent between compared periods. Salaries, Wages and Benefits: Salaries, wages and benefits increased by $397,609 due to the Company's strategy of internalizing professional staff to help defray consulting costs and increased staff requirements at Icon Computer Parts, Corp. Depreciation and Amortization: The Company depreciates its assets, including goodwill, on a straight-line basis over three to five years. This account decreased by $212,222 as a result of the write off on non-performing assets. Other Operating Expenses: For the nine months ended February 28, 2002, other operating expenses increased by $682,603 over the same period of the previous year. This difference stems, in part, from the operations of new companies World Touch Communications, Inc. and Intelligent Software Solutions of Georgia, Inc. and Icon USA, Inc. as well as increased staff requirements at Icon Computer Parts, Corp. Stock based compensation: The increase of $998,801 between periods stems from the issuance of restricted stock for services rendered during the nine-month period ended February 28, 2002. Investment banking fees: The decrease of $1,584,031 between periods resulted from the non-issuance of restricted stock to investment bankers during the nine-month period ended February 28, 2002. Write down of non-performing assets: This amount reflects the net write down of goodwill as it relates to AC Travel, Inc. Income taxes: This is a result from profitable operations as located in other income tax jurisdictions. Net Loss: Net loss increased by $1,685,752 for the above nine-month period due to the above aforementioned reasons. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 28, 2002 AS COMPARED TO THE THREE MONTHS ENDED FEBRUARY 28, 2001 The following table sets forth the amount of increase or decrease represented by certain items reflected in the Company's statements of operations in comparing the three months ended February 28, 2002 (the 2002 period) to the three months ended February 28, 2001 (the 2001 period): 13
Three Months Ended February 28, Increase 2002 2001 (Decrease) ---- ---- ---------- Revenues-net $2,301,035 $3,299,484 ($998,449) Cost of Sales 2,474,767 2,924,623 (449,856) ------------------------------------------------------------ Gross Profit (173,732) 374,861 (548,593) Operating Expenses: Salaries, wages and benefits 278,034 166,740 111,294 Depreciation and amortization 285,874 410,314 (124,440) Other operating expenses 375,674 (165,736) 541,410 Stock based compensation 527,001 - 527,001 ------------------------------------------------------------ Total operating expenses 1,466,583 411,318 1,055,265 ------------------------------------------------------------ Loss from Operations 1,640,315 36,457 1,603,858 Other Income And Expenses: Interest expense 23,356 1,777 21,579 Other expenses (income)-net 29,924 (10,342) 40,266 ------------------------------------------------------------ Total other income and expenses 53,280 (8,565) 61,845 ------------------------------------------------------------ Loss before income taxes 1,693,595 27,892 1,665,703 Provision for income taxes 3,870 - 3,870 ------------------------------------------------------------ Net loss $1,697,465 $27,892 $1,669,573 ============================================================
14 Revenues: Revenues from operations for the third quarter ended February 28, 2002 decreased by $998,449 from $3,299,484 for the same period February 28, 2001. This decrease is largely due to the economic effect of the terrorist attack of September 11, 2001. Cost of Sales: Cost of sales for the third quarter ended February 28, 2002 decreased by $449,856 from $2,924,623 for the same period February 28, 2001. The decrease between periods is a function of a decline in sales volume of approximately thirty percent between periods. Salaries, Wages and Benefits: Salaries, Wages and Benefits increased by $111,294 from $166,740 for the same period February 28, 2001. The increase between periods is due to the Company's strategy of internalizing professional staff to help defray consulting costs as well as increased staff requirements in Icon Computer Parts, Corp. 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 $124,440 from $410,314 over the previous quarter then ended February 28, 2001 due to write down of non-performing intangible assets. 15 Other Operating Expenses: For the third quarter ended February 28, 2001 other operating expenses increased by $541,410 from $(165,736) for the same period February 28, 2001. This increase reflects significant net adjustments as made to the reporting period then ended February 28, 2001. Stock based compensation: The increase of $527,001 between periods is due to the issuance of Company stock to consulting personnel. Net Loss: Net losses increased by $1,669,573 from $27,892 for the same period ended February 28, 2001. The net change between periods is the cumulative function of all described changes as noted above. CRITICAL ACCOUNTING POLICIES Our significant accounting policies are more fully described in Note 1 to our to our consolidated financial statements. However, certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management; as a result they are subject to an inherent degree of uncertainty. In applying those policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources. Our significant accounting policies include: Excess of Cost Over Net Assets of Businesses Acquired. On goodwill established prior to 2002, the excess of cost over net assets of businesses acquired (goodwill) is being amortized using the straight-line method over five years. All goodwill transactions were effective previous to the adoption of FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations", and No. 142 "Goodwill and Other Intangible Assets". 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. 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. Inventories. Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method. Reserves for slow moving and obsolete inventories are provided based on historical experience. We evaluate the adequacy of these reserves on a quarterly basis. Revenue Recognition and Accounts Receivable. Revenue on product sales is recognized when persuasive evidence of an arrangement exists, the price is fixed and final, delivery has occurred and there is a reasonable assurance of collection of the sales proceeds. We 16 generally obtain oral or written purchase authorizations from our customers for a specified price and consider delivery to have occurred at the time of shipment. Revenue is recognized at shipment and a reserve for sales returns is recorded. Revenues from service sales are recognized when the service procedures have been completed or applicable milestones have been attained, as specified by each contract and as costs related to the contracts are incurred. LIQUIDITY AND CAPITAL RESOURCES Elite'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 Elite has incurred direct costs for acquisitions, Elite has completed past acquisitions primarily with stock. Elite currently lacks the working capital required to continue as a going concern and to achieve its acquisition program and internal growth objectives. Management expects to enter into agreements for debt or equity funding in the future in order to meet the needs of internal growth and acquisitions. Management believes that such agreements for debt or equity funding will be sufficient to enable Elite to continue operating as a going concern. However, there is no assurance that an agreement for such additional funding will be consummated. Inter-company Funding. All of the unsecured liquidity of Elite Technologies Inc. and Subsidiaries is raised by the parent company Elite Technologies Inc., (Elite). Elite then lends the necessary funds to its subsidiaries on an as needed basis. Elite's management regulates this inter-company exposure by generally requiring inter-company loans to have maturities equal to or shorter than the maturities of the borrowings of Elite. This ensures that the subsidiaries' obligations to Elite will generally mature in advance of Elite's third-party long-term borrowings. Elite generally funds the investments in subsidiaries with debt or equity capital. CONTRACTUAL OBLIGATIONS Elite has contractual obligations to make future minimum payments under short-term non-cancelable lease agreements for a period of five months ending July 1, 2002. This minimum monthly obligation equates to $5,037.97. Elite also has interest payment commitments related to convertible debt agreements. Substantially all of our long-term borrowings are unsecured and consist principally of convertible debt obligations. Risk Factors Impact Of Terrorist Attacks The terrorist attacks in New York and Washington D.C. in September of 2001 have disrupted commerce throughout the United States and other parts of the world. The continued threat of terrorism within the United States and abroad and the potential for military action and heightened security measures in response to such threat may cause significant disruption to commerce throughout the world. We are unable to predict whether the threat of terrorism or the response thereto will result in any long-term commercial disruptions or if such activities or responses will have a long-term material effect on our business, results of operations, or financial condition. To the extent that such disruptions result in delays or cancellations of customer orders, a general decrease in corporate spending, or our inability to effectively market and sell our products, our business and results of operations could be adversely affected. 17 Quarterly Fluctuations The company's operating results may fluctuate significantly from period to period as a result of a variety of factors, including product returns, purchasing patterns of consumers, the length of the company's sales cycle to key customers and distributors, the timing of the introduction of new products and product enhancements by the Company, technological factors, variations in sales by product and distribution channels, and competitive pricing and general economic conditions throughout the industrialized world. Due to the factors noted above and other risks discussed in this section, management believes that quarter-to-quarter comparisons of our operating results may not be meaningful. You should not rely on our results for one quarter as any indication of our future performance. Quarterly variations in our operations could result in significant volatility in our stock price and the market price for our common stock might fall. It is likely, in the future quarters, our operating results may be below the expectations of securities analysts or investors. If this occurs, the price of our common stock is likely to decrease. Our Ability To Raise Funds To Subsidize Operations Is Limited Our operating results to date have been net losses and have required cash from investors and loans from third parties and from related parties. Our ability to raise capital to fund future operations is limited and cannot be relied upon if present working capital funds are depleted. Additional capital may not be available on terms favorable to us, or at all. If we are unable to raise additional capital when we require it, our business could be harmed. In addition, any additional issuance of equity or equity-related securities to raise capital will be dilutive to our stockholders. We Have Incurred Significant Losses, And Our Failure To Increase Our Revenues Could Prevent Us From Achieving Profitability We have incurred significant losses since our inception in 1996 and expect to incur losses in the future. We have not achieved profitability on a quarterly basis. We will need to generate significantly greater revenues while containing costs and operating expenses to achieve profitability. Our revenues may not continue to grow, and we may never generate sufficient revenues to achieve profitability. Risk Related To Our Common Stock There may be sales of a substantial amount of our common stock, as permitted under Rule 144, by our existing stockholders and these sales could cause our stock price to decline. These issued shares, originally restricted shares, may be sold in the future without registration under the Securities Act to the extent permitted under Rule 144, Rule 701, or another exemption under the Securities Act. Insiders Will Continue To Have Substantial Control Over This Company And Could Delay A Change In Corporate Control, Which May Negatively Affect Your Investment As a result, these insiders and/or entities acting together will be able to substantially influence the outcome of all matters requiring approval by stockholders, including the election of and approval of significant corporate transactions. This ability may have the effect of delaying a change, which may be favored by other stockholders. 18 If We Fail To Effectively Manage Our Operations, Including Any Reductions Or Increases In The Number Of Our Employees, Our Operating Results Could Be Harmed. Primarily as a result of the economic downturn and slowdown in capital spending, particularly in the computer and communications industry, we recently implemented a number of cost-cutting measures, including reductions in our workforce. The impact of these cost-cutting measures, combined with the challenges of managing our geographically dispersed operations, has placed, and will continue to place, a significant strain on our management systems and resources. In addition, our ability to effectively manage our operations will be challenged to the extent that we begin expanding our workforce. We expect that we will need to continue to improve our financial and managerial controls, reporting systems and procedures, and will need to continue to train and manage our workforce worldwide. Any failure to effectively manage our operations could harm our operating results. Our Markets Are Highly Competitive, And If We Are Unable To Compete Successfully Our Revenues Could Decline, Which Would Harm Our Operating Results. Many of our current and potential competitors have significantly greater financial, technical, marketing, purchasing, manufacturing and other resources than we do. As a result, these competitors may be able to respond more quickly to new or emerging technologies and to changes in customer requirements, to devote greater resources to the development, promotion and sale of products, or to deliver competitive products at lower prices. We Depend On Key Personnel To Manage Our Business Effectively In A Rapidly Changing Market. Our future success depends, in part, upon the continued services of our executive officers and other key finance, sales, and support personnel. In addition, we depend substantially upon the continued services of key management personnel at our corporate office in Atlanta, Georgia. These officers or key employees are bound by employment agreements for a specific term. Our ability to continue to attract and retain highly skilled personnel will be a critical factor in determining whether we will be successful in the future. Competition for highly skilled personnel is intense, especially in the Atlanta area. We may not be successful in attracting, assimilating or retaining qualified personnel to fulfill our current or future needs. Our future success depends upon the continued services of our executive officers, particularly Mr. Scott Schuster, our Chief Executive Officer and President, who has been with the Company since inception, Mr. Frank Noori, our Chief Operating Officer, who joined us in June 2000, and Mr. David Peacos, our Chief Financial Officer, who joined the firm in June 2001. Concerning matters of risk management, Elite Technologies Inc. does not have replacement policies covering these key personnel. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is currently not exposed to any significant financial market risks from changes in foreign currency exchange rates or changes in interest rates and does not use derivative financial instruments. A substantial majority of our revenue and capital spending is transacted in U.S. dollars. However, in the future, we may enter into transactions in other currencies. An adverse change in exchange rates would result in a decline in income before taxes, assuming that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, such changes typically could affect the volume of sales or foreign currency sales price as competitors' products become more or less attractive. 19 PART II - OTHER INFORMATION Item 1. Legal Proceedings Certain litigation involving the Company is described in the Company's Form 10-K for the year ended May 31, 2001. Subsequent to the filing of Form 10-K May 31, 2001, no individual material developments have occurred with respect to such litigation Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports a) Exhibits: None b) Reports on Form 8-K. None 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. Date: April 22, 2002 Elite Technologies, Inc. By: /s/ Scott A. Schuster --------------------- Scott A. Schuster Director and Chief Executive Officer 20 -----END PRIVACY-ENHANCED MESSAGE-----