As filed with the Securities and Exchange Commission on December 3, 2002
Registration No. 333-87208
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3 TO
REGISTRATION STATEMENT
ON
FORM SB-2
UNDER
THE SECURITIES ACT OF 1933
iNLiTE COMPUTERS INCORPORATED
(Name of Small Business Issuer in its charter)
DELAWARE 5045 98-0371107
-------- ---- ----------
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
UNIT 17, THE ARENA, RALEIGH COURT, CRAWLEY
WEST SUSSEX RH102PD UNITED KINGDOM
011 44 1293 526 060
(Address and telephone number of principal executive
offices and principal place of business)
KEVIN O'BRIEN
PRESIDENT
iNLiTE COMPUTERS INCORPORATED
UNIT 17, THE ARENA, RALEIGH COURT, CRAWLEY
WEST SUSSEX RH102PD, UNITED KINGDOM
011 44 1293 526 060
(Name, address and telephone number of agent for service)
COPY TO:
PAUL J. POLLOCK, ESQ.
PIPER RUDNICK LLP
1251 AVENUE OF THE AMERICAS
NEW YORK, NY 10020
(212) 835-6000
FAX NO.: (212) 835-6001
Approximate date of commencement of proposed sale to the public: AS
SOON AS PRACTICAL AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X] ___________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
464(d) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier registration statement for the same
offering. [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ] ___________
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount Proposed Proposed Amount of
Securities to be to be Maximum Maximum Registration
Registered Registered Offering Price Aggregate Fee (1)
Per Share Offering Price
Common Stock, par value $.001 per share 2,500,000 $0.31 $775,000 $72.00
(1) The registration fee has been calculated pursuant to Rule 457(c) under the
securities act as follows: 2,500,000 multiplied by $.3125, which is the average
of the most recent sales prices (rounded to the nearest cent) for shares of our
common stock issued in private offerings.
THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
PROSPECTUS
iNLiTE COMPUTERS
INCORPORATED
2,500,000 SHARES OF COMMON
STOCK
This prospectus relates to the sale of up to an aggregate of 2,500,000
shares of our common stock which may be offered for sale from time to time by
the selling stockholders listed on page 27.
There is currently no public market for our common stock.
WE URGE YOU TO READ CAREFULLY THE "RISK FACTORS" SECTION BEGINNING ON PAGE
4 WHERE WE DESCRIBE SPECIFIC RISKS ASSOCIATED WITH AN INVESTMENT IN INLITE AND
THESE SECURITIES BEFORE YOU MAKE YOUR INVESTMENT DECISION.
PER SHARE TOTAL
PUBLIC OFFERING PRICE: $0.31 $775,000
THE SELLING SHAREHOLDERS WILL SELL AT A PRICE OF $0.31 PER SHARE UNTIL OUR
SHARES ARE QUOTED ON THE OTC BULLETIN BOARD AND THEREAFTER AT PREVAILING MARKET
PRICES OR PRIVATELY NEGOTIATED PRICES.
SUBJECT TO COMPLETION
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THE SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 3, 2002.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY.............................................................. 1
RISK FACTORS.................................................................... 4
FORWARD-LOOKING STATEMENTS...................................................... 8
USE OF PROCEEDS................................................................. 9
MARKET FOR COMMON EQUITY AND DIVIDEND POLICY.................................... 9
CAPITALIZATION SCHEDULE......................................................... 10
MANAGEMENT'S DISCUSSION AND ANALYSIS............................................ 11
Results of Operations - Six months ended August 31, 2002 and August 31, 2001.... 12
Results of Operations - Years ended February 28, 2002 and 2001................. 13
DESCRIPTION OF BUSINESS......................................................... 16
MANAGEMENT...................................................................... 23
EXECUTIVE COMPENSATION.......................................................... 24
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.................................. 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................. 26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................. 26
DESCRIPTION OF SECURITIES....................................................... 27
SHARES ELIGIBLE FOR FUTURE SALE................................................. 28
SELLING STOCKHOLDERS............................................................ 29
PLAN OF DISTRIBUTION............................................................ 30
LEGAL MATTERS................................................................... 30
EXPERTS......................................................................... 31
WHERE YOU CAN GET MORE INFORMATION.............................................. 31
UNTIL _________, 2003 (90 DAYS FOLLOWING THE EFFECTIVE DATE OF THIS
PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATIONS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us and the securities being offered for sale by means of
this prospectus and our financial statements and notes to those statements
appearing elsewhere in this prospectus. The summary highlights information
contained elsewhere in this prospectus.
iNLiTE COMPUTERS, INCORPORATED
We are a single-source provider of information technology ("IT")
products, services and support to blue chip and mid-sized companies, colleges,
universities and primary schools, located in the United Kingdom. We are
authorized to resell IT products of industry-leading manufacturers, including
Toshiba, Hewlett-Packard, Compaq, Fujitsu and Intel, including personal
computers, servers, networking equipment and applications software. We also
provide related IT services including network consulting, workstation support
and temporary IT staffing services.
We have successfully developed our own range of computer hardware and
related products, which are marketed under the iNLiTE name. iNLiTE products are
designed specifically for workstation and server platforms and can be customized
to meet specific customer requirements. The range of systems is assembled from
brand name quality components which return a high level of reliability and
durability. iNLiTE products are now recognized within our target markets having
developed an impressive track record with a number of nationwide educational and
corporate organizations.
Our primary business objective is to become a leading single-source
provider of high-quality IT products, services and support in our target
markets. To this end, we intend: (i) to leverage our complementary businesses by
combining the expertise of our technical personnel with our strong product
procurement capabilities; (ii) develop and expand our iNLiTE name product
offerings; (iii) expand our anti-virus product offerings; and (iv) to broaden
our IT service offerings in order to provide additional sales opportunities with
new and existing clients.
We believe that we compete with our competitors by providing a
single-source solution for our customers' IT products and services needs and by
providing a wide range of high-quality services to the management information
systems departments and end-users of our corporate and educational clients. We
also believe that we distinguish ourselves from our competition on the basis of
technical expertise, competitive pricing, vendor alliances, direct sales
strategy and customer service orientation.
CORPORATE BACKGROUND
Our operating subsidiary, Copy Data Limited, was organized in 1995 under
the laws of England and Wales. Effective January 8, 2002, we changed the name of
our operating subsidiary to iNLiTE Computers Limited. Our principal executive
offices are located at Unit 17, The Arena, Raleigh Court, Crawley, West Sussex
RH102PD, United Kingdom. Our telephone number is (011) 44 1293 526 060 and our
facsimile number is (011) 44 1293 528 222.
-1-
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares.
RISK FACTORS
An investment in the securities involves a high degree of risk.
Prospective investors should carefully review the section entitled "Risk
Factors" beginning on page 4, as well as other information provided in this
prospectus.
-ii-
THE OFFERING
Shares offered by the selling stockholders... 2,500,000 shares of common
stock.
Shares outstanding prior to offering 9,000,000
Shares to be outstanding following offering 9,000,000
Offering Price $0.31. The selling
shareholders will sell at a
price of $0.31 per share until
our shares are quoted on the OTC
Bulletin Board and thereafter at
prevailing market prices or
privately negotiated prices.
Dividend policy.............................. We intend to retain any
earnings to finance the
development and growth of our
business. Accordingly, we do
not anticipate that we will
declare any cash dividends on
our common stock for the
foreseeable future. See
"Market For Common Equity and
Dividend Policy" on page 9.
-2-
SUMMARY FINANCIAL INFORMATION
The following summary financial information is taken from our Financial
Statements included elsewhere in this prospectus and should be read along with
the Financial Statements and the related Notes.
---------------------------------- -------------------------------
INCOME STATEMENT DATA: Years Ended February 28, Six Months Ended August 31,
---------------------------------- -------------------------------
2002 2001 2002 2001
-------------- ------------- ------------ -------------
Net Sales $ 7,269,536 $ 7,170,906 $ 3,596,704 $ 4,114,389
Operating Expenses 1,011,571 702,340 438,322 578,816
Interest Expense 72,118 67,120 31,672 27,399
Net Income (Loss) (336,387) (88,849) 56,335 (59,612)
Net Income (Loss) per Share of
Common Stock $ (0.04) $ (0.01) $ 0.01 $ (0.01)
Average Number of Shares 7,919,977 6,551,500 9,000,000 6,857,563
BALANCE SHEET DATA: FEBRUARY 28, 2002 AUGUST 31, 2002
---------------------------------- -------------------------------
ACTUAL AS ADJUSTED ACTUAL AS ADJUSTED
-------------- ------------- ------------ -------------
Total Assets $ 1,385,840 $ 1,285,617 $ 2,674,345 $ 2,544,452
Cash 1,237 1,237 1,830 1,830
Total Liabilities 1,287,546 1,357,323 2,527,635 2,567,742
Working Capital (Deficiency) (82,464) (252,464) (38,995) (208,995)
Stockholders' Equity (Deficit) 98,294 (71,706) 146,710 (23,290)
3
RISK FACTORS
The securities we are offering involve a high degree of risk,
including, the risks described below. You should carefully consider the
following risk factors that affect our business and this offering before
investing in the securities.
BECAUSE OUR OFFICERS AND DIRECTORS ARE NOT U.S. PERSONS, AND OUR OPERATING
SUBSIDIARY IS A UNITED KINGDOM COMPANY, YOU MAY BE UNABLE TO ENFORCE JUDGMENTS
UNDER THE SECURITIES ACT.
Our operating subsidiary is a United Kingdom company, our officers and
directors are residents of various jurisdictions outside the United States and
its United Kingdom counsel, Fox Hayes Solicitors, is a resident of the United
Kingdom. All or a substantial portion of the assets of our business and of such
persons are located outside the United States. As a result, it may be difficult
for investors to effect service of process within the United States upon such
persons or to enforce in the United States courts judgments obtained against
such persons in United States courts and predicated upon the civil liability
provisions of the Securities Act.
WE HAVE NEGATIVE WORKING CAPITAL AND MAY NOT BE ABLE
TO CONTINUE AS A GOING CONCERN
We have sustained net losses of approximately $336,000 and $89,000 for
the years ended February 28, 2002 and 2001, respectively, and have a working
capital deficiency of approximately $82,000 at February 28, 2002. These factors
raises substantial doubt about our ability to continue as a going concern. Our
ability to continue as a going concern is dependent upon positive cash flows
from operations and financing from the issuance of equity or debt securities. If
we are unable to generate positive cash flow from operations and secure
additional financing, we may be unable to meet our working capital and other
cash requirements.
IF WE ARE UNABLE TO CONTINUE AS A GOING CONCERN, IT IS UNLIKELY THAT WE WILL
REALIZE THE ASSET CARRYING VALUES REPORTED IN OUR FINANCIALS STATEMENTS
Our consolidated financial statements accompanying this registration
statement have been prepared assuming that the we will continue as a going
concern although there is substantial doubt concerning our ability to do so. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty and if we are unable to continue as
a going concern, we may not be able to realize the carrying value of our assets
if we are forced to liquidate our business.
WE HAVE A HISTORY OF OPERATING LOSSES AND MAY CONTINUE TO OPERATE AT A LOSS FOR
THE CURRENT FISCAL YEAR.
We incurred net losses of approximately $336,000 for the year ended
February 28, 2002, and $89,000 for the year ended February 28, 2001, resulting
in an accumulated deficit of approximately $464,000 at February 28, 2002.
Although we have improved our margins and reduced costs we may incur a small net
loss through our fiscal year ending February 28, 2003 because of poor
-4-
market conditions resulting in lower than anticipated sales in the first quarter
of 2003 coupled with anticipated traditionally lower sales in the last quarter
of the fiscal year.
THERE IS CURRENTLY NO MARKET FOR OUR COMMON STOCK AND A MARKET MAY NEVER DEVELOP
There is no trading market for our common stock although we intend to
seek a market maker to sponsor an application to have our shares quoted on the
OTC Bulletin Board. If we are not successful in having our shares included on
the OTC Bulletin Board, our shares will not be readily marketable. Even if we
are successful in our application, there can be no assurance that an active
trading market will develop. If no market develops, it may be difficult or
impossible for you to resell your shares if you should desire to do so.
BECAUSE WE FACE COMPETITION FROM ESTABLISHED COMPETITORS, WE MAY BE UNABLE TO
MAINTAIN MARKET SHARE AND ACHIEVE PROFITABILITY
Our primary competitors have significantly greater financial, technical
and marketing resources, and/or greater name recognition, including CCD, Compel,
Elcom in the corporate market and RM, Viglen and Elonex in the education market.
Each of these competitors has a longer operating history and greater overall
resources than we do. These companies also have significantly more established
customer support and professional services organizations than we do. As a
result, our competitors may be able to adapt more quickly to changes in customer
needs, offer products and services at lower prices than iNLiTE, devote greater
resources than iNLiTE to development and sale of IT products and IT services,
which could result in reducing our market share and prevent us from achieving
profitability.
BECAUSE WE RELY ON CONTINUED AUTHORIZATION TO RESELL AND PROVIDE MANUFACTURER
AUTHORIZED SERVICES, WE ARE SUSCEPTIBLE TO LOSS OF A SIGNIFICANT SOURCE OF
REVENUE IF CERTAIN MANUFACTURERS REVOKE SUCH AUTHORIZATION
Our future success in both sales of brand name products and related
service offerings depends on maintaining our status as an approved reseller of
such brand name products and our continued authorization as a service provider
with respect to those products. We maintain sales and service authorizations for
the brand name products of industry leading manufacturers including Compaq and
Hewlett-Packard. There can be no assurance that the manufacturers and
distributors of the products we resell will continue to authorize us to resell
and service those products. Without such sales and service authorizations, we
would be unable to provide the
-5-
range of products and services we currently offer. The sale of Hewlett-Packard
and Compaq products accounted for 10% of our total revenue for the year ended
February 28, 2002.
OUR INABILITY TO PROVIDE SUFFICIENT QUANTITIES OF OUR PRODUCTS BECAUSE OF OUR
DEPENDENCE ON HARDWARE AND COMPONENTS FROM KEY SOLE SUPPLIERS COULD RESULT IN
DELAYS IN THE DELIVERY OF OUR PRODUCTS
The hardware, components and equipment used in our products are
obtained from sole sources of supply. If our sole source suppliers or we fail to
obtain components in sufficient quantities when required, delivery of our
products could be delayed resulting in cancellation of orders for our products.
BECAUSE WE DEPEND ON THIRD PARTY MANUFACTURERS, ANY DISRUPTION OF THEIR
MANUFACTURING PROCESS COULD RESULT IN THE CANCELLATION OF ORDERS AND LOSS OF
CUSTOMERS
All of the computer hardware and system components for our private
label products are provided by our suppliers. The efficient operation of our
business will depend, in large part, on our ability to have our suppliers
continue to manufacture our system components in a timely, cost-effective manner
and in sufficient volumes while maintaining consistent quality. Any
manufacturing disruption could impair our ability to fulfill orders and result
in cancellation of orders and loss of customers.
BECAUSE WE OPERATE OUR BUSINESS ON THE BASIS OF PURCHASE ORDERS,
WE COULD LOSE A SIGNIFICANT CUSTOMER AT ANY TIME
We buy our equipment and primarily sell our products and services on
the basis of purchase orders. Many of our customers initially make a limited
purchase of our products and services for pilot programs. Although the sale of
the equipment and services for the pilot programs are final with no right of
return, these customers are under no obligation to purchase additional products
or services from us. As a result, our suppliers and customers do not have any
obligation to continue doing business with us and could stop doing business with
us at any time.
BECAUSE WE DEPEND UPON THIRD-PARTY DISTRIBUTION RELATIONSHIPS, WE COULD LOSE THE
ABILITY TO SUPPLY OUR CUSTOMERS BRAND NAME PRODUCTS AT ANY TIME
We are not a distributor of the computer hardware and related products
we resell and use in our products. We rely on the distribution arrangements of
our suppliers with the manufacturers of the hardware, components and software we
resell and use in our products. Our suppliers may not be able to increase their
number of distribution relationships in the future, maintain existing
relationships or obtain rights to new product offerings. Currently, our
suppliers act as distributors of computer hardware and related products for
various vendors, including:
- - Compaq
-6-
- - Hewlett Packard
- - Toshiba
- - Fujitsu
- - Intel
- - QDI
- - Kingston
Although we have been able to forge excellent relationships with a small number
of distributors, because of our limited resources, we are not able always to
open new credit accounts. If one of our suppliers is unable to supply or
unwilling to increase the level of our accounts payable, our ability to supply
our customers brand name products may be impaired and result in the loss of
significant customers and revenue.
OUR FAILURE TO GENERATE INCREASED BUSINESS FROM OUR CURRENT CUSTOMERS, COULD
HAVE A LONG TERM DEPRESSIVE EFFECT ON REVENUES
We need to generate repeat and expanded business from our current
customers. Many of our customers initially make a limited purchase of our
products and services for pilot programs. These customers may not choose to
purchase additional products or services from us. Because the total amount of
revenue we receive in any period depends in large part on the products we
previously sold, any downturn in our sale of products would result in decrease
of future revenues.
BECAUSE WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS FOR OVER A THIRD OF OUR
REVENUES, A LOSS OF ANY OF THESE CUSTOMERS COULD RESULT IN A SIGNIFICANT
DECREASE IN REVENUES
We have over 300 active customers but depend upon a small number of
them for the majority of our revenue. In the year ended February 28, 2002, Gehis
Ltd. accounted for 18% of total revenue and our top 8 customers for 48% of
revenue. The loss of one or more of these significant accounts could
significantly decrease our revenues.
BECAUSE WE DEPEND UPON A SMALL NUMBER OF KEY MANAGEMENT PERSONNEL, THE LOSS OF
SUCH PERSONS COULD RESULT IN OUR BUSINESS CEASING OPERATIONS
If any officers or the following key personnel cease employment with us
before we find qualified replacements, it would have a significant negative
impact on our operations. We do not have employment agreements with any of our
executive officers. Our success is dependent upon the personal efforts and
abilities of our executive officers, Richard Hands, Chief Financial Officer and
Kevin o'Brien, President.
-7-
BECAUSE INLITE CONDUCTS ITS OPERATIONS IN POUNDS STERLING, WE ARE SUBJECT TO
RISK FROM EXCHANGE RATE FLUCTUATIONS
Our transactions with suppliers and customers are effected in pounds
sterling, iNLiTE's functional currency. Our financial statements, included
herein, are reported in U.S. dollars. As a result, fluctuations in the U.S.
dollars to pounds sterling exchange rate may effect the reported financial
results of iNLiTE from one period to the next. iNLiTE does not actively manage
its exposure to such effects.
"PENNY STOCK" REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF
OUR COMMON STOCK
The SEC has adopted regulations which generally define "penny stock" to
be an equity security that has a market price of less than $5.00 per share. Our
common stock may fall within the definition of penny stock and subject to rules
that impose additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000, or annual
incomes exceeding $200,000 or $300,000, together with their spouse).
For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of such securities and have
received the purchaser's prior written consent to the transaction. Additionally,
for any transaction, other than exempt transactions, involving a penny stock,
the rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the SEC relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our common stock and may affect
the ability of investors to sell our common stock in the secondary market.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis" and
"Description of Business" are forward-looking. We generally identify
forward-looking statements by the use of terminology such as "may," "will,"
"expect," "intend," "plan," "estimate," "anticipate," "believe," or similar
phrases. We base these statements on our beliefs as well as assumptions we made
using information currently available to us. Because these statements reflect
our current views concerning future events, these statements involve risks,
uncertainties and assumptions. Our actual future performance could differ
significantly from these forward-looking statements. These forward-looking
statements involve a number of risks and uncertainties. Important factors that
could cause actual results to differ significantly from our expectations include
matters not yet known to us or not currently considered significant by us.
Actual results may differ significantly from those suggested by the
forward-looking statements for various reasons, including those discussed under
"Risk Factors."
USE OF PROCEEDS
The common stock is being sold by the selling stockholders for their
own account and we will not receive any of the proceeds of this offering.
Expenses we are expected to incur in connection with this registration
are estimated at approximately $170,000. The selling stockholders will pay all
of their underwriting commissions and discounts and counsel fees and expenses in
connection with the sale of the shares covered by this prospectus.
-8-
MARKET FOR COMMON EQUITY AND DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
We currently intend to retain future earnings, if any, to finance the
development and expansion of our business and, therefore, we do not anticipate
declaring or paying any cash dividends on our common stock in the foreseeable
future. Our payment of cash dividends, if any, will depend upon our general
financial condition and other factors deemed relevant by our board of directors.
There is currently no public market for our common stock.
-9-
CAPITALIZATION SCHEDULE
The following table details the capitalization of INLITE as of August 31, 2002:
ACTUAL AS ADJUSTED
------------ ------------
Short-term debt $ 1,538,122 $ 1,538,122
Long-term debt - -
Stockholders' equity (deficiency)
Preferred stock, $.001 par value; 1,000,000 shares
authorized; zero shares issued and outstanding - -
Common stock, $.001 par value; 50,000,000 shares
authorized; 9,000,000 shares issued and outstanding 9,000 9,000
Additional paid-in capital 553,552 383,552
Accumulated deficit (407,908) (407,908)
Accumulated other comprehensive loss (7,934) (7,934)
------------ ------------
Total stockholders' equity (deficiency) 146,710 (23,290)
------------ ------------
Total capitalization $ 146,710 $ (23,290)
============ ============
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of INLITE's
results of operations and financial condition. The discussion should be read
together with our audited financial statements and notes included elsewhere in
this prospectus.
Background and Overview
We are a single-source provider of IT products, services and support to
blue-chip and mid-sized companies, colleges, universities and primary schools
located in the United Kingdom. We were formed in 1995 as an authorized reseller
of computer hardware and software products, and since 1997 we also have been
developing our private label line of computer hardware and offering related IT
services. To date, most of our net sales have been derived from the resale of
brand name IT products however we have been increasing our emphasis upon the
sale of iNLiTE products.
We have arrangements with a variety of IT product aggregators including
Northamber plc, Ideal Hardware and Hugh Symons IT through which we acquire most
of our products and components for resale. These arrangements give us access to
an extensive range and number of products. In general, we order IT products,
including personal computers, servers, networking equipment, and applications
software from such suppliers on an as-needed basis, thereby reducing our need to
carry large inventories. For the year ended February 28, 2002, we acquired 12.2%
of our products for resale from Northamber plc, 16.5% from Ideal Hardware and
14.7% Hugh Symons IT, for an aggregate of 43.4% from three suppliers.
In general, there are no ongoing written commitments by customers to
purchase products from us and all product sales are made on a purchase order
basis. Furthermore, as the market for brand name IT products has matured, price
competition has intensified and is likely to continue to intensify.
In addition to the sale of hardware and software we offer network
consulting (including systems integration), workstation support, training and
temporary IT staffing services. Our network consulting, workstation support and
installation services are billed on a time and materials basis. Our training and
IT staffing services are fee-based on a per-day basis. The most significant cost
relating to the services component of our business is personnel expenses which
consist of salaries, benefits and payroll-related expenses. Thus, the financial
performance of our service business is based primarily upon billing margins
(billable day rates less the costs to us of such service personnel on a daily
basis) and utilization rates (billable day rates divided by paid days). The
future success of the services component of our business will depend in large
part upon our ability to maintain high utilization rates at profitable billing
margins.
-11-
Our cost of sales include primarily, in the case of product sales, the
cost to us of products acquired for resale, and in the case of services and
support revenue, salaries, benefits and payroll related expenses for billable
technical personnel. Our selling expenses consist primarily of personnel costs,
including sales commissions earned by employees involved in the sales of IT
products, services and support. These personnel include direct sales, sales
support and marketing personnel. Sales commissions are recorded as revenue is
recognized. General and administrative expenses consist of all other operating
expenses, including primarily salaries and occupancy costs for administrative,
executive and finance personnel.
We believe that our ability to provide a broad range of technical
services, coupled with our strength in satisfying our clients' IT product
requirements and our long-term relationships with large clients, positions us to
continue to grow the services component of our business while further
strengthening our product sales. As such, we anticipate that an increasing
percentage of our gross profits in the future will be derived from the services
and support component of our business. However, in the near term, we believe
that product sales will continue to generate a significantly larger percentage
of our gross profit, particularly due to our increased emphasis on marketing of
our iNLiTE range of computer hardware.
RESULTS OF OPERATIONS - SIX MONTHS ENDED AUGUST 31, 2002 AND AUGUST 31, 2001
REVENUES
Revenues are generated from sales of computer equipment, maintenance,
technical and consulting services. Total revenues for the six months ended
August 31, 2002 and 2001 were $3,596,704 and $4,114,389, respectively,
representing a decrease of $517,685 or 12.6%. This decrease was due mainly to
our continuing policy of withdrawing from the highly competitive corporate
market selling third party goods at minimal margins in favor of selling our own
brand products at more rewarding margins. Sales of iNLiTE branded products were
$2,424,795 in the six months ended August 31, 2002 compared with $2,145,671 in
the six months ended August 31, 2001, an increase of $279,124 or 13.0%. In the
same periods, sales of third party goods were $1,023,394 and $1,807,351,
respectively, a decrease of $783,957 or 43.4% in 2002 as compared with 2001.
Software sales and service revenue were $141,728 and $6,787, respectively, for
the six months ended August 31, 2002 as compared to $139,585 and $21,782,
respectively, for the six months ended August 31, 2001.
The educational market accounted for approximately $3,032,000 or 84.3%
of our total sales in the six months ended August 31, 2002 compared with
approximately $2,172,000 or 52.8% in the six months ended August 31, 2001. The
increase in sales of approximately $860,000 or 39.6% is due to greater sales
during the second quarter of 2002 to both existing and new customers. In the six
months ended August 31, 2002 our top three educational customers accounted for
sales of approximately $853,000 (23.7% of total revenues) compared with $487,000
(11.8% of total revenues) in the six months ended August 31, 2001. In the same
periods, our top three commercial customers accounted for approximately $316,000
(8.8% of total revenues) and $1,397,000 (34.0% of total revenues), respectively.
COST OF GOODS SOLD
Cost of goods sold consists primarily of the purchase of components and
complete products for resale and the payroll cost of personnel directly involved
in the assembly and installation of the products. Cost of goods sold in the six
months ended August 31 2002 was $3,070,375 or 85.4% of revenues compared with
$3,567,786 or 86.7% of revenue in the corresponding period of the prior year.
The percentage decrease was a direct result of our
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commitment to improving gross margins by concentrating on sales of iNLiTE
branded products versus sales of third party goods as mentioned above.
OPERATING EXPENSES
Operating expenses for the six months ended August 31, 2002 and 2001
were $438,321 or 12.2% of sales and $578,816 or 14.1% of sales, respectively.
The most significant changes were a decrease in selling and administrative
payroll of approximately $39,000 due to reduced sales commissions and reduced
head count, and a reduction of approximately $50,000 in professional fees.
RESULTS OF OPERATIONS - YEARS ENDED FEBRUARY 28, 2002 AND 2001
REVENUE
Revenues are generated from sales of computer equipment, maintenance,
technical and consulting services. Total revenues for the years ended February
28, 2002 and 2001 were $7,269,536 and $7,170,906, respectively, representing an
increase of $98,630 or 1.4%. The increase in revenue resulted from a combination
of increases in sales of the iNLiTE range of computer products and anti-virus
software and a decrease in sales of branded goods. For the year ended February
28, 2002, sales of iNLiTE computer products were approximately $3,468,000
compared to $2,204,000 for the year ended February 28, 2001, an increase of
$1,264,000 or 57.4%. The added revenue was generated primarily from customers in
the education market, sales to whom, accounted for 49.1% of total sales for the
year ended February 28, 2002 as compared to 32.5% for the year ended February
28, 2001. During the year ended February 28, 2002, we also expanded our listing
of products to include anti-virus software, this accounted for approximately
$773,000 or 10.6% of total revenue in fiscal 2002 as compared to none in fiscal
2001. For the year ended February 28, 2002 sales of branded goods were
approximately $2,954,000 compared to $4,967,000 for the year ended February 28,
2001, a decrease of $2,013,000, or 40.5% as a result of us selling more of our
own brand to the educational sector over the low margin branded sales to the
corporate market. Corporate customers accounted for 50.9% of net sales in the
year ended February 28, 2002 compared to 67.5% in the prior year. Service
revenue for the year ended February 28, 2002 was approximately $69,000.
COST OF GOODS SOLD
Cost of goods sold consists primarily of the purchase of components and
complete products for resale, and the payroll cost of personnel directly
involved in the assembly and installation of the products. Costs of goods sold
for the year ended February 28, 2002 was $6,522,234 or 89.7% of revenues, as
compared to $6,487,476 or 90.5% of revenues for the year ended February 28,
2001. The percentage decrease in costs of goods sold was a direct result of our
policy to improve the quality of our margins, sometimes at the expense of sales
volume. We have concentrated on selling our own brand of products to the
educational sector over the low margin branded sales to the corporate market.
The overall margin on sales continues to improve in the period since February
28, 2002.
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OPERATING EXPENSES
Operating expenses for the years ended February 28, 2002 and 2001 were
$1,011,571 or 13.9% of sales and $702,340 or 9.8% of sales, respectively. The
significant increase in operating expenses consisted of approximately $188,000
of increased selling and administrative payroll due to the recruitment of
additional sales and administrative staff, approximately $45,000 of additional
rent and associated costs because of the need for additional space, and
approximately $38,000 of increased professional fees relating to the rental of
additional premises and the resolution of a dispute with a former supplier.
LIQUIDITY AND CAPITAL RESOURCES
Our operations have been financed primarily through bank borrowings,
accounts receivable factoring and private offerings of our common stock in 2001
for which we received net proceeds of $500,000.
Net cash used in operations for the six months ended August 31, 2002
was $806,161 compared to $976,198 for the six months ended August 31, 2001. Net
cash used in operations in 2002 reflects a net income of $56,336 and an increase
in accounts payable of $198,443 offset by an increase in accounts receivable of
$1,134,751. Net cash used in operations in 2001 reflects a net loss of $59,612,
an increase in accounts receivable of $948,859 and a decrease in accounts
payable of $196,973 offset by an increase in accrued expenses and other current
liabilities of $159,808.
At August 31, 2002, we have a line of credit agreement with National
Westminster Bank plc of L150,000 (approximately $233,000 at August 31, 2002).
Under the terms of the agreement, we pay interest at 2.25% above the base rate
(6.25% at August 31, 2002) on all amounts up to L150,000 and 4.25% above the
base rate (8.25% at August 31, 2002) on all permitted borrowings greater than
L150,000. These borrowings are guaranteed by Kevin o'Brien, our principal
stockholder and executive officer (limited to L50,000) and Eric o'Brien, a
member of the Board of Directors and stockholder (limited to L160,000).
At August 31, 2002, we have a factoring agreement with IGF Invoice
Finance Limited for a L750,000 line of credit (approximately $1,163,000 at
August 31, 2002). The borrowings are based on a percentage of eligible accounts
receivable. Under the terms of the agreement, we pay interest at 2.25% above the
base rate (6.25% at August 31, 2002). Borrowings under the line are secured by
all of our assets and are guaranteed by Kevin o'Brien our principal stockholder
and executive officer (limited to L150,000).
Neither the agreement with National Westminster Bank plc nor that with
IGF Invoice Finance Limited impose financial tests upon the company.
At August 31, 2002 we had bank borrowings of $256,947 and negative
working capital of $38,995. We anticipate we will increase our capital
expenditures and lease commitments consistent with anticipated growth in
operations, infrastructure and personnel.
As of August 31, 2002 our principal commitment is an obligation of
approximately L422,000 (approximately $655,000 at August 31, 2002) in future
lease payments for our
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warehouse and office space under a non-cancellable operating lease with Eric
o'Brien, a member of the Board of Directors and stockholder.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
sustained net losses of approximately $336,000 and $89,000 for the years ended
February 28, 2002 and 2001, respectively, and has a working capital deficiency
of approximately $82,000 at February 28, 2002, which raises substantial doubt
about its ability to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon positive cash flows from
operations and financing from the issuance of equity or debt securities. Without
such financing, the Company may not be able to meet its working capital
requirements. The Company plans on improving its margins on products it
presently sells and reducing its overhead which should result in positive cash
flow and profitable operations. The Company is also seeking financing through
the issuance of equity securities.
We can continue to sell using existing resources but this will not
allow the us to realize our full potential. To do so we anticipate requiring
additional cash in the order of $600,000 this year to reduce short term
borrowings made to support the growth in working capital (accounts receivable
and inventory). We have added two people to our sales team since February 28,
2002 (annual cost of approximately $60,000) and expect to continue to need
further personnel as we seek aggressively to increase our sales and market
penetration based on the continued development of the iNLiTE range of computer
products and related services. We are considering a variety of funding
alternatives including the issuance of equity securities.
CRITICAL ACCOUNTING POLICIES
Inventory - Inventory is stated at the lower of cost (first-in, first-out
method) or market and consists entirely of finished goods.
Property and Equipment - Property and equipment is recorded at cost.
Expenditures for major additions and betterments are capitalized. Depreciation
of property and equipment is computed by accelerated methods over the assets'
estimated lives of five years. Leasehold improvements are amortized over the
lesser of the lease terms or the assets' useful lives.
Revenue recognition - The Company recognizes revenue as products are shipped to
the customer and installation is completed and accepted by the customer. The
Company does not consider installation essential to the functionality of the
equipment. The Company does not offer any rights of return or price protection
to its customers. Service revenue in connection with contracts purchased by the
customer is amortized on a straight-line basis over the life of the contract.
Service revenue on non-contract related products is recognized when the service
is provided.
Warranty - Estimated future warranty obligations related to certain products are
provided by charges to operations in the period in which the related revenue is
recognized.
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Use of estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Concentration of Credit Risk - Credit risk with respect to trade receivables is
limited because a large number of diverse customers throughout the United
Kingdom make up the Company's customer base. The Company controls credit risk
through its credit evaluation process, credit limits and monitoring procedures.
Bad debt expenses have been insignificant, and generally, the Company does not
require collateral or other security to support accounts receivable.
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DESCRIPTION OF BUSINESS
Overview
We are a single-source provider of IT products, services and support to
mid-sized companies, colleges, universities and primary schools located
primarily in the United Kingdom. We were formed in 1995 as an authorized
reseller of computer hardware and software products, and since 1997 have been
developing our private label brand of computer hardware and offering related IT
services. To date, most of our net sales have been derived from resale of brand
name IT product sales. For the year ended February 28, 2002, resales of brand
name products were 40.9% of total revenue and sales of iNLiTE name products were
47.2% of total revenue.
Industry Background
Many organizations have become increasingly dependent on the use of IT
as a competitive tool in today's business and education environments. The need
to access and distribute data on a real-time basis throughout an organization
and between organizations has led to the rapid growth in network computing
infrastructures, which connect numerous and geographically dispersed end users
via local and wide area networks. This growth has been driven by the emergence
of industry standard hardware, software and communications tools, as well as the
significant improvement in the performance, capacity and utility of such
network-based equipment and applications.
The acquisition, deployment and implementation of computer networks
has, however, become increasingly complex for large organizations due to rapid
and continual change in IT. Organizations must determine: (i) the type of PC
platform, computer peripherals, and software applications to purchase among a
vast array of product offerings; (ii) the optimal design of the network,
allowing for both the integration of new systems and the upgrade of and
migration from existing systems; and (iii) the level of ongoing support required
by the network and end users. As organizations rely more heavily on IT as a key
component of their operations and as end users demand the latest technologies,
management information systems departments must continually adapt to rapid
change and the increasing complexity of designing, implementing and maintaining
networks and related applications.
As a result of the rapid changes in the IT products market and the
risks associated with large capital expenditures, organizations increasingly
rely on companies which offer and have knowledge of a wide variety of networking
products and the ability to perform related technical services in a
cost-effective manner. Such organizations increasingly require MIS personnel
with diverse technology skill sets in order to effectively adapt to such
constant change. As a result, the costs of hiring, maintaining and continually
educating an MIS department have grown significantly as demand for qualified
personnel has intensified. These factors have motivated organizations to focus
their resources on their core businesses and seek the expertise of independent
providers of IT products and services.
Strategy
We believe that by working with a single-source provider of IT
products, services and support, organizations will be able to adapt more quickly
to technological changes and reduce
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their overall IT costs. Those companies which provide a broad range of product
and service offerings, including network consulting, workstation support,
training, installation and IT staffing services, as well as the ability to work
as integral members of their clients' internal management information system
teams, should be well positioned to capitalize on the anticipated growth of the
IT products and services industry.
Our primary business objective is to become a leading single-source
provider of high-quality IT products, services and support in our target
markets. To this end, we intend to pursue the following strategies.
Expand Offerings of iNLiTE Products
We have successfully developed our own range of computer hardware,
which is marketed under the iNLiTE brand. iNLiTE products are designed
specifically for workstation and server platforms and can be customized to meet
specific customer requirements. The range of systems is assembled from brand
name quality components which return a high level of reliability and durability.
The iNLiTE brand is now recognized within our target markets having developed an
impressive track record with a number of nationwide educational and corporate
organizations.
Leverage Complementary Businesses
We intend to continue to combine the expertise of our technical
personnel with our strong product procurement capabilities to provide
comprehensive IT solutions to mid-sized companies, and educational
institutional. Since our inception, we have operated as an authorized reseller
of IT equipment from leading manufacturers. We have established alliances with
major manufacturers of computer hardware and software so that we may provide our
customers with competitive pricing, ready product availability and value-added
services such as product configuration, testing, warehousing and delivery. We
have also developed related IT services and currently offer network consulting,
workstation support, training and temporary IT staffing services. We believe
that our ability to provide a broad range of technical services, coupled with
our traditional strength in satisfying our clients' hardware requirements,
enables us to strengthen long-term relationships with our existing clients and
affords cross-selling opportunities with new and existing clients.
Vendor Relationships and Procurement
During fiscal 2002 and 2001, iNLiTE had relationships with a variety of
distributors of brand name IT products. We were a reseller of selected product
lines and single components from major manufacturers, including Toshiba,
Hewlett-Packard, Compaq, Fujitsu, Intel, QDI and Kingston.
Competition
The markets for our products and services are characterized by intense
competition. We believe that the principal competitive factors in the market for
IT products and services include price, customer service, breadth of product and
service offerings, product availability, technical expertise, the availability
of skilled technical personnel, adherence to industry standards, financial
stability and reputation. Our competitors include established computer product
manufacturers, distributors, computer resellers, systems integrators and IT
service providers.
-18-
Many of our current and potential competitors have longer operating histories
and financial, sales, marketing, technical and other resources substantially
greater than those of iNLiTE. As a result, our competitors may be able to adapt
more quickly to changes in customer needs or to devote greater resources than
iNLiTE to the development and sales of IT products and the provision of IT
services. Such competitors could also attempt to increase their presence in our
markets by forming strategic alliances with other competitors or our customers,
offer new or improved products and services to our customers or increase their
efforts to gain and retain market share through competitive pricing. As the
market for IT products has matured, price competition has intensified and is
likely to continue to intensify and has resulted in continued industry-wide
downward pricing pressure. In addition, competition for quality technical
personnel has continued to intensify, resulting in increased personnel costs for
many IT service providers. We believe there are low barriers to entry into our
markets which enable new competitors to offer competing products and services.
We believe that we compete with our competitors by providing a
single-sourced solution for our customers' IT products and services needs and by
providing a wider range of high quality services to the management information
system departments and end users of our clients. We also believe that we
distinguish ourselves from our competition on the basis of our technical
expertise, competitive pricing, vendor alliances, direct sales strategy and
customer service orientation. Based on the level of our recurring business with
many of our large customers, we believe that we compare favorably to many of our
competitors with respect to the principal competitive factors set forth above.
PRODUCTS
Resale
We are a reseller of IT products of leading hardware manufacturers and
software developers. Such products include personal computers, servers,
networking equipment and applications software. Through established vendor
alliances with major aggregators of computer hardware and software, we provide
our customers with competitive pricing and value-added services such as product
configuration, testing, warehousing and delivery. We resell products of
industry-leading manufacturers of computer hardware, software and networking
equipment. Such manufacturers include:
Toshiba
Compaq
Hewlett-Packard
Intel
Fujitsu
In addition, our product configuration and testing services allow us to
customize orders to the needs of customers, thereby ensuring quality control by
minimizing the possibility of delivering defective or improperly configured
equipment. This is accomplished by our ability to provide uniform and consistent
configuration and loading of network and system applications.
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iNLiTE COMPUTERS
We have successfully developed our own range of computer hardware,
which is marketed under the iNLiTE brand. iNLiTE products are designed
specifically for workstation and server platforms and can be customized to meet
specific customer requirements. The range of systems is assembled from brand
name quality components which return a high level of reliability and durability.
The iNLiTE brand is now recognized within our target markets having developed an
impressive track record with a number of nationwide educational and corporate
organizations.
We have been encouraged by the success of the iNLiTE products and are
actively promoting these products both with established and new customers with
the intention of making it the highest growth sector within our company. For the
year ended February 28, 2002, 47.2% of our revenue was derived from iNLiTE sales
figure which was 30.5% at February 2001 with over 3600 units being supplied on a
yearly basis.
The production process of iNLiTE hardware includes rigorous quality
testing leading to minimal returns and failure rate. On-going product
development ensures that iNLiTE products provide the most up to date and current
technology. Component changes are carefully assessed and only implemented if
there is reliability, cost effectiveness and adequate product lifecycle.
Anti-Virus
We are an authorized reseller of anti-virus applications for Network
Associates International, a leading vendor worldwide of anti-virus products that
provides us access to margin healthy products and a unique selling cycle.
Anti-Virus software is deployed to networks to safeguard against virus
infection. As a result of increased electronic traffic being channeled through
intranets and the internet, virus infections can infect a high number of
networks within a very short time. The main route of infection has moved from
media to e-mail which because of the speed of infection requires proactive
decisions concerning the latest anti-virus inoculate software available. Close
contact with our vendor provides our staff with the highest quality of product
knowledge and sales training.
The market for anti-virus products is rapidly changing and requires up
to date products to satisfy customers' needs for inoculate and quarantined
anti-virus applications to protect networks. Virus applications sold by the
Company have two year term licenses between the manufacturer and customer,
therefore after two years the customer must review and renew to ensure network
security.
Network Management Services
A total turnkey solution mainly aimed at the education sector. The
principle elements offered are the supply, installation and configuration of
network systems together with on site and remote hardware support contracts.
ISP, bundling of ranger networked management and administration software is also
provided. The broad range of essential facilities for MIS within education
included within the overall package are:
-20-
1. Overview Network Management Services - designed to deliver a complete
range of installation, configuration and management facilities targeted at
easing the set-up of new MIS facilities and ongoing network management for our
clients in the education sector. We analyze the specific requirements of each
customer and provide a host of modular services that are designed to work in
conjunction with the client's existing MIS resources.
2. Ranger for Networks - a security and administration system that enables
the customer to run a secure, manageable and cost effective network without
compromising network performance or security.
Unlike restrictive security shells which impair the usability of the
Windows interface, Ranger allows a machine to be secured against unauthorized
changes while still maintaining the full "look and feel" of Windows. Network
management and monitoring tools provide live views of user, machine and network
activity, which combined with Ranger's remote control, activity logging, quota
management, account management and network analysis tools give the control
needed to effectively administer networks of all sizes. Ranger is designed to
run on Windows NT, 2000 and Novell networks.
3. Remote Diagnostics/Net Support Manager- enables connection to the
customer's LAN via remote connectivity thus enabling the Overview Network
Management Team to delivery a remote service which includes diagnosing faults,
assisting with the preventative diagnosis systems and walking the customer
through faults diagnostics and fix procedures. Net Support Manager actively
corrects software and system administration issues and offers a direct window
into hardware faults.
4. Ranger Remote Control allows teachers and support staff to display
their PC's screen on any or all of their students' PC screens without the need
for expensive video splitters or additional cabling. Teachers can view and
control students' screens remotely and project either their own or someone
else's screen around a room for interactive demonstrations. By allowing teachers
to monitor, interact with and assist students remotely, networks can be used for
whole-class teaching to interactively assist in the delivery, control and
assessment of ICT curriculum.
5. On-site Hardware Support of iNLiTE Products - Although the
manufacturers provide three-year support packages, we also provide an additional
optional warranty covering both personal computer and server platforms. As part
of this package, we are committed to delivering a proactive next business day
solution and ensuring that our customers have access to a level of support
reducing system down time to a minimum.
Network Management Services is a move forward for the company which is
continually seeking to add value and continued service rather than the simple
supply and installation of hardware units. We believe the sale of network
managing services provides us access to improved margins and we have targeted
the education sector as an area of maximum growth.
Technical Service and Support
We have developed an experienced and competent technical team and are able
to offer service and support for all of our products. There is increasing demand
for general IT resources, training and recruitment of skilled technicians. With
increasing frequency we are asked to supply temporary contract staff to support
customer's own internal resources and assist with
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peak installation and support requirements. We believe this valuable service
gives us a competitive edge and will become a profitable additional source of
income with significant margins. The intention is to further expand the
technical team ensuring a continued high quality of service.
Value Added Service
The core `value-added service' offered by iNLiTE covers the
reconfiguration of hardware which enables immediate implementation of systems
upon arrival and installation. Value added services are comprised of a host of
services including asset registry, support, systems drive imaging, software
registration, delivery and installation.
SUPPLIERS RELATIONSHIPS AND MANUFACTURING
Our major component, hardware and technology suppliers are listed below:
Northamber plc
KMS
Ideal Hardware
Hugh Symmonds IT
SALES AND MARKETING
We currently focus our sales and marketing efforts on mid-sized
corporations and educational institutions in our target markets through our
marketing staff. We believe that our sales and support personnel provide
effective account penetration and management, enhanced communications and
long-term relationships with our existing clients. To date, we have focused our
sales and marketing efforts on blue chip and mid-sized companies as well as
educational institutions located in the United Kingdom. Given the concentration
of corporations and educational institutions in such region, we do not
anticipate the need to expand the geographic scope of our sales and marketing
efforts outside of our traditional sales area in the near future.
Our marketing staff is responsible for coordinating the various sales and
technical personnel that may be required in soliciting a particular project. Our
marketing efforts include the creation and production of brochures,
telemarketing, direct mail programs, new business marketing, comprehensive
website detailing the range of products and services, targeted advertising
campaign using appropriate trade journals, educational papers, etc., attendance
at major trade exhibitions, traditional face to face approaches by the
experienced sales team, strategies, and sales presentation materials for
prospects. We are recently added a database to our website gives our customers
the ability to purchase our products and services online.
CUSTOMERS
During 2001/2, we had approximately 170 customers that purchased products
from us or utilized our technical services. Our major customers include:
Gehis Ltd. (Lloyds Chemists)
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Moss Pharmacy (Uni-Chem)
Vosper Thornycroft
Fleet Support Ltd
Vision Express
Wymondham College
Bridgwater College
Richard Huish College
Harrow College
Homerton College
Coleg Gwent
East Birmingham College
GOVERNMENT REGULATION
We have not been materially impacted by existing government regulation and
are not aware of any potential government regulation that would materially
effect our operations.
CORPORATE HISTORY
We incorporated in the State of Delaware on August 7, 2001 and acquired
our operating subsidiary, CopyData Limited, effective on August 9, 2001.
CopyData Limited was formed and commenced operations on September 25, 1995.
Effective January 8, 2002, we changed the name of CopyData Limited to iNLiTE
Computers Limited.
EMPLOYEES
We have 15 full-time employees. Of these, 2 are in management, 6 are in
sales/ marketing, 3 are in administration and 4 are in production/technical
services.
PROPERTIES
Our headquarters are located at Unit 17, The Arena, Raleigh Court,
Crawley, West Sussex RH102PD, United Kingdom, where we occupy approximately 3200
square feet of leased space under a lease that ends in April 30, 2018. Annual
lease rent under the lease is approximately $41,000.
Our administrative offices are located at Unit 15, The Arena, Raleigh
Court, Crawley, West Sussex RH102PD, United Kingdom, where we occupy
approximately 1800 square feet of space which we lease on a quarter to quarter
basis. Quarterly lease rent is approximately $6,400.
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We have additional storage facilities located at Unit 19, The Arena,
Raleigh Court, Crawley, West Sussex RH102PD, United Kingdom, where we occupy
approximately 600 square feet of space which we lease on a month to month basis.
Monthly rent is approximately $300.
We believe the space occupied by our staff is adequate for our current
needs.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors, executive officers and other significant employees and
their ages and positions are as follows:
Name of Individual Age Position with company and subsidiaries
Eric O'Brien 66 Director and Chairman of the Board
Kevin O'Brien 36 Director and President
Richard Hands 62 Director, Secretary and Treasurer
ERIC O'BRIEN has been Chairman of the Board and a director of iNLiTE
since its formation in August 2001. From 1975 to 1997, Mr. O'Brien was the
principal owner and officer of Tristar Cars and Tristar Coach line, a VIP
transport business serving airline and corporate customers that was founded by
Mr. O'Brien. Under Mr. O'Brien's guidance, Tristar grew from a $380,000 per year
business with a fleet of 5 vehicles to a $19,000,000 with more than 300
company-owned vehicles. Mr. O'Brien sold a controlling interest in Tristar to a
syndicate of businessmen headed by Charles Dunstan in 1997. Mr. O'Brien has
served as a consultant to our operating subsidiary iNLiTE Computers Limited.
KEVIN O'BRIEN has been President and a director of iNLiTE since its
formation in August 2001. Mr. O'Brien has served as Chief Executive Officer to
our operating subsidiary iNLiTE Computers Limited since September 1995.
RICHARD HANDS has been Secretary and Treasurer of iNLiTE since November
2001. From May 1998 to October 2001, Mr. Hands served as a Senior Business
Advisor under the Business Link program of Sussex Enterprise in which capacity
he provided advice to a variety of small business enterprises. From August 1992
to October 1996, Mr. Hands was Group Managing Director for the AGI Group, a
manufacturer of electronic equipment for the defense industry.
The directors serve until the next annual meeting of stockholders and
until their respective successors are elected and qualified. Officers serve at
the discretion of the Board of Directors. Eric O'Brien, who serves as a director
and our Chairman of the Board is the father of Kevin O'Brien, a director, and
our President and Chief Executive Officer of iNLiTE.
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DIRECTOR COMPENSATION
We have no established compensation arrangements with our directors but
directors may be reimbursed for their reasonable expenses incurred in connection
with the attendance at board and committee meetings.
EXECUTIVE COMPENSATION
The following table details information for iNLiTE for each of the fiscal
years ended February 28, 2002, 2001 and 2000 concerning compensation of:
- all individuals serving as our chief executive officer during the
fiscal years ended February 28, 2002, 2001 and 2000; and
- each other executive officer or key employee whose total annual salary
and bonus exceeded $100,000 for the fiscal years ended February 28,
2002, 2001 and 2000:
SUMMARY COMPENSATION TABLE
Other Annual
Annual Compensation Compensation
Salary Bonus
Name and Principal Position Year ($) ($) ($)
Kevin O'Brien, President and 2002 $86,000 $0 $7500*
Chief Executive Officer 2001 $52,000 $0 $7500*
2000 $57,000 $0 $5000**
* Includes health insurance premium of $1,000 and $6500 for lease of a
vehicle.
** Includes health insurance premium of $1,000 and $4000 for lease of a
vehicle.
EMPLOYMENT AGREEMENTS
We have not entered into any employment agreements.
STOCK OPTION GRANTS IN LAST FISCAL YEAR. There were no grants of stock
options during the fiscal year ended February 2002.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
INDEMNIFICATION
Our Certificate of Incorporation and Bylaws provide that none of our
directors shall have any personal liability to iNLiTE or its stockholders for
breach of fiduciary duty as a director, except:
-25-
- for any breach of the director's duty of loyalty to iNLiTE or its
stockholders;
- for acts or failures to act not in good faith or which involve
intentional misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director obtained an improper
personal benefit.
As a result of this provision, iNLiTE and our stockholders may be unable
to obtain money damages from a director for certain breaches of his fiduciary
duty. This provision does not, however, eliminate the directors' fiduciary
responsibilities and, in appropriate circumstances, non-monetary remedies such
as injunctive or other forms of non-monetary relief will remain available under
Delaware law. The provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
Our bylaws also provide for the protection from liability of our directors
and officers to the fullest extent authorized by the Delaware General
Corporation Law. Protection from liability may include, if we so decide, the
right of the protected party to be paid expenses in advance of any proceeding
for which protection from liability is available, provided that the payment of
these expenses incurred by a director or officer in advance of the final outcome
of a proceeding may be made only upon delivery to us of a pledge in writing by
or on behalf of the director or officer to repay all amounts paid in advance if
it is ultimately determined that the director or officer is not entitled to be
protected from liability. In addition, our certificate of incorporation provides
that our employees and other agents may be protected from liability consistent
with the Delaware General Corporation law to the extent determined by our board
of directors in its sole discretion.
To the extent protection from liability for liabilities arising under the
securities act may be permitted to our directors, officers and controlling
persons of our company under the provisions described above, or otherwise, we
have been advised that in the opinion of the SEC, this type of protection from
liability is against public policy as expressed in the securities act and is,
therefore, unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We currently lease office and warehouse space located at Unit 17, The
Arena, Raleigh Court, Crawley, West Sussex RH102PD, United Kingdom, under a
Lease between Eric O'Brien and CopyData Limited, relating to Unit R17, Raleigh
Court, Priestly Way, Crawley, West Sussex, dated May 1, 1997. The lease
terminates on April 30, 2018. Annual rent under the lease is approximately
$41,000. As of August 31, 2002, our principal commitment is our obligation under
the lease for approximately L422,000 (approximately $655,000 at August 31, 2002)
in future lease payments for our warehouse and office space. Eric O'Brien, the
Lessor under the lease, serves as our Chairman of the Board and is Kevin
O'Brien's father. Kevin O'Brien is our President, Chief Executive Officer and a
member of the Board of Directors. Payments under the Lease for years ended
February 28, 2002 and 2001 were approximately $41,000 and $28,000, respectively.
This lease was negotiated at arms length and the rent equates to approximately
$13 per square foot per annum. The rent of our other unit in the same block from
a third party equates to $14 per square foot per annum.
We do not have nor are we considering any other contracts with related
parties. Should the occasion arise in the future we would follow the principal
of negotiation at arms length at appropriate market rates.
-26-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table details certain information regarding ownership of our
common stock as of December 2, 2002, and as adjusted to reflect the sale of the
shares offered by each person known by us to own beneficially more than 5% of
the outstanding common stock, by each person who is a director of the company,
by each person listed in the Summary Compensation Table above and by all
directors and officers of the company as a group.
The information contained in the table was provided by the persons listed.
The calculations are based on 9,000,000 shares of common stock outstanding on
December 2, 2002.
Percent of Shares Beneficially Owned
--------------------------------------
After Offering
Number of Shares Before if all Shares Offered
Name and Address Beneficially Owned Offering are Purchased
Kevin O'Brien 6,051,500 67.2% 67.2%
c/o iNLiTE Computers
Incorporated
Unit 17
The Arena
Raleigh Court
West Sussex RH102PD
United Kingdom
Eric O'Brien 150,000 1.7% 1.7%
c/o iNLiTE Computers
Incorporated
Unit 17
The Arena
Raleigh Court
West Sussex RH102PD
United Kingdom
Richard Hands 0 0% 0%
c/o iNLiTE Computers
Incorporated
Unit 17
The Arena
Raleigh Court
West Sussex RH102PD
United Kingdom
All Directors and Executive 6,201,500 68.9% 68.9%
Officers as a Group (3
persons)
-27-
DESCRIPTION OF SECURITIES
iNLiTE is currently authorized to issue 50,000,000 shares of common stock,
of which 9,000,000 shares are issued and outstanding, and 1,000,000 shares of
preferred stock, none of which are issued and outstanding. There are 28
shareholders of record.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share of
record on all matters which stockholders are entitled to vote, including the
election of directors. At our annual meeting, the stockholders elect the
directors by a plurality vote. Holders of our common stock are entitled to
receive, if authorized by the board of directors, dividends and other
distributions in cash, stock or property from our assets or funds legally
available for these purposes, subject to any dividend rights of holders of our
preferred stock. There are no preemptive, conversion, redemption or sinking fund
provisions applicable to our common stock. All outstanding shares of common
stock are fully paid and non-assessable. In the event of our liquidation,
dissolution or winding up, holders of common stock are entitled to share on a
pro rata basis in the assets available for distribution, subject to the rights
of the holders of our preferred stock, if any. Registered stockholders may
transfer their shares by surrendering to our transfer agent their share
certificates properly endorsed or accompanied by proper evidence of that the
shares have been transferred to them or that they authority to transfer the
shares.
PREFERRED STOCK
The Certificate of Incorporation of iNLiTE authorizes the issuance of
1,000,000 shares of preferred stock. No shares of preferred stock are
outstanding, and we have no plans to issue a new series of preferred stock. Our
Board of Directors may, without stockholder approval, issue shares of preferred
stock from time to time in one or more series and, subject to the limitations
contained in the Certificate of Incorporation and any limitations prescribed by
law, establish and designate any such series and fix the number of shares and
the relative rights, conversion rights, voting rights and terms of redemption
(including sinking fund provisions) and liquidation preferences. The issuance of
preferred stock, could, under certain circumstances, have the effect of delaying
or preventing a change in control of the company, but also may negatively affect
the rights of holders of our common stock by placing restrictions upon payments
of dividends to holders of our common stock or by diluting the voting power of
such holders.
TRANSFER AGENT
iNLiTE's transfer agent is Interwest Transfer Company, Inc., 1981 East
Murray Holladay Road, Suite 100, Salt Lake City, Utah 84117.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of common stock in the open market may
adversely affect the market price of our common stock. We have 9,000,000 shares
of common stock outstanding. Of the shares of common stock outstanding, the
2,500,000 shares offered hereby
-28-
will be available for immediate sale in the public market as of the date of this
prospectus, except that any shares acquired by our "affiliates," as that term is
defined in Rule 144 under the Securities Act, generally may be resold in the
public market only in compliance with the provisions of Rule 144 other than the
holding period required by Rule 144. All of the remaining outstanding shares of
common stock are restricted securities within the meaning of Rule 144 and may
not be sold unless they are either registered under the Securities Act or an
exemption from registration is available, or they are sold in compliance with
Rule 144.
In general, under Rule 144, as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned
restricted shares for at least one year, including a controlling person, may
sell within any three-month period a number of shares of common stock that does
not exceed a maximum number of shares. This maximum is equal to the greater of
1% of the then outstanding shares of iNLiTE's common stock or the average weekly
trading volume in the common stock during the preceding four weeks. Sales under
Rule 144 are also subject to restrictions relating to manner of sale, notice and
availability of current public information about us. In addition, under Rule
144(k) of the Securities Act, a person who is not our affiliate, has not been an
affiliate of ours within three months prior to the sale and has beneficially
owned shares for at least two years, would be entitled to sell those shares
immediately without regard to volume limitations, manner of sale provisions,
notice or other requirements of Rule 144.
SELLING STOCKHOLDERS
The following table details the name of each selling stockholder, the
number of shares owned by the selling stockholder, and the number of shares that
may be offered for resale under this prospectus. Because each selling
stockholder may offer all, some or none of the shares it holds, and because
there are currently no agreements, arrangements, or understandings with respect
to the sale of any of the shares, no definitive estimate as to the number of
shares that will be held by each selling stockholder after the offering can be
provided. The following table has been prepared on the assumption that all
shares offered under this prospectus will be sold to parties unaffiliated with
the selling stockholders. Except as indicated, none of the selling stockholders
has had a significant relationship with us within the past three years, other
than as a result of the ownership of our shares or other securities. The selling
stockholders have sole voting and investment power with their respective shares.
Percentages in the table below are based on 9,000,000 shares of our common stock
outstanding as of December 2, 2002.
SHARES NUMBER OF SHARES
OWNED PRIOR TO SHARES WHICH OWNED AFTER
THE OFFERING MAY BE SOLD IN THE OFFERING
--------------------- -------------- --------------------
NAME NUMBER PERCENT THIS OFFERING NUMBER PERCENT
- ----------------- --------- --------- -------------- ------ --------
Colin Frazer 200,000 2.22% 200,000 0 0
Robert Manning 200,000 2.22% 200,000 0 0
Richard Jones 200,000 2.22% 200,000 0 0
Ian Coupland 200,000 2.22% 200,000 0 0
Philip Drazen 200,000 2.22% 200,000 0 0
Ian Brill 200,000 2.22% 200,000 0 0
Stephen Jackson 200,000 2.22% 200,000 0 0
Nigel Manning 200,000 2.22% 200,000 0 0
Gillian Barrow 200,000 2.22% 200,000 0 0
-29-
SHARES NUMBER OF SHARES
OWNED PRIOR TO SHARES WHICH OWNED AFTER
THE OFFERING MAY BE SOLD IN THE OFFERING
--------------------- -------------- --------------------
NAME NUMBER PERCENT THIS OFFERING NUMBER PERCENT
- ----------------- --------- --------- -------------- ------ --------
Geraldine Levine 200,000 2.22% 200,000 0 0
Susan Marshall*** 200,000 2.22% 200,000 0 0
Acrobat Ltd.**/*** 300,000 3.33% 300,000 0 0
* All of the selling stockholders, with exception of Acrobat Ltd. and Susan
Marshall, acquired their shares in an August 9, 2001 Regulation S offering more
fully described in paragraph 2 of Item 26.
** Geraldine Jackson, a resident of the United Kingdom, has voting and
investment control over the 300,000 shares of iNLiTE common stock owned by
Acrobat Ltd.
*** On October 14, 2001, Kevin o'Brien sold 300,000 shares of our common stock
owned by him to Acrobat Ltd. and 200,000 shares of our common stock owned by him
to Susan Marshall, for an aggregate purchase price of $250,000. No commissions
were paid. Each of the purchasers in the private offering was a non "U.S.
person" as such term is defined in Rule 902(k)(1) of Regulation S. The sale of
these shares was exempt from the registration requirements of the Securities Act
as a transaction involving an offer and sale made outside the United States.
PLAN OF DISTRIBUTION
The selling stockholders, including any donees or pledgees who receive
shares from a selling stockholder named above, may offer their shares of common
stock at various times in negotiated transactions or otherwise, or on any
securities exchange where our common stock may be listed in the future.
The offering price for the shares has been determined by management
without the input of the selling stockholders and their representatives. The
selling shareholders will sell at a price of $0.31 per share until our shares
are quoted on the OTC Bulletin Board and thereafter at prevailing market prices
or privately negotiated prices.
The selling stockholders may sell their shares directly to purchasers or
may use broker-dealers to sell their shares. Broker-dealers who sell the shares
may receive compensation in the form of discounts, concessions, or commissions
from the selling stockholders or they may receive compensation from purchasers
of the shares for which they acted as agents or to whom they sold the shares as
principal, or both. The compensation as to a particular broker-dealer might be
in excess of customary commissions.
The selling stockholders and these broker-dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended. Any
commissions received by such broker-dealers and any profit on the resale of the
shares sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act of 1933.
iNLiTE has agreed to pay all fees and expenses in connection with
preparing and filing this prospectus and the registration statement of which the
prospectus forms a part. The selling stockholders will pay any brokerage
commissions and similar selling expenses, if any, attributable in connection
with the sale of the shares of common stock including stock transfer taxes due
or payable in connection with the sale of the shares.
iNLiTE has agreed to protect from liability the selling stockholders and
any underwriter of a selling stockholder against certain liabilities, including
liabilities under the Securities Act of 1933. The selling stockholders, each
individually and not jointly, will protect iNLiTE against certain liabilities,
including liabilities under the Securities Act of 1933. The selling stockholders
may agree to protect from liability any agent, dealer, or broker-dealer that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities under the Securities Act of 1933.
-30-
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus and
other legal matters relating to this offering will be passed on by Piper Rudnick
LLP, New York, New York.
EXPERTS
Our financial statements at February 28, 2002 and for the years ended
February 28, 2002 and 2001 appearing in this prospectus and in the registration
statement have been audited by Mahoney Cohen & Company, CPA, P.C., independent
auditors as indicated in their report (which contains an explanatory paragraph
describing conditions that raise substantial doubt as to our ability to continue
as a going concern as described in Note 3 to the financial statements) with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report.
WHERE YOU CAN GET MORE INFORMATION
This prospectus forms part of a Registration Statement on Form SB-2 that
we filed with the SEC under the Securities Act with respect to the shares and
contains all the information which we believe is significant to you in
considering whether to make an investment in our common stock. We refer you to
the Registration Statement for further information about us, our common stock
and this offering, including the full texts of exhibits, some of which have been
summarized in this prospectus. At your request, we will provide you, without
charge, a copy of any exhibits to the Registration Statement incorporated by
reference in this prospectus. If you want more information, write or call us at:
c/o iNLiTE Computers Incorporated
Unit 17
The Arena
Raleigh Court
West Sussex RH102PD
UNITED KINGDOM
011 44 1293 526 060
Attn: Kevin O'Brien
Upon the effectiveness of the Registration Statement of which this
prospectus forms a part, we will become subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended and will file reports and other
information with the SEC as required under the Exchange Act. Such reports and
other information filed by iNLiTE are available for inspection and copying at
the public reference facilities of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20459. Copies of such material may be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The SEC also
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants, that file electronically with the SEC.
-31-
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
-32-
iNLiTE COMPUTERS INCORPORATED AND SUBSIDIARY
Index
Page
----
Independent Auditor's Report F-1
Consolidated Balance Sheets as of February 28, 2002 and
August 31, 2002 (Unaudited) F-2
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
Years Ended February 28, 2002 and 2001 and for the Six Months Ended August
31, 2002 (Unaudited) and 2001 (Unaudited) F-3
Consolidated Statements of Stockholders' Equity (Deficiency)
for the Years Ended February 28, 2002 and 2001 and for the
Six Months Ended August 31, 2002 (Unaudited) F-4
Consolidated Statements of Cash Flows for the Years Ended February 28, 2002 and
2001 and for the Six Months Ended
August 31, 2002 (Unaudited) and 2001 (Unaudited) F-5
Notes to Consolidated Financial Statements F-7
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
iNLiTE Computers Incorporated and Subsidiary
We have audited the accompanying consolidated balance sheet of iNLiTE
Computers Incorporated and Subsidiary as of February 28, 2002, and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity (deficiency) and cash flows for the years ended February 28, 2002 and
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of iNLiTE
Computers Incorporated and Subsidiary as of February 28, 2002 and the results of
their operations and their cash flows for the years ended February 28, 2002 and
2001, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
3 to the consolidated financial statements, the Company has sustained net losses
for the years ended February 28, 2002 and 2001 and has a working capital
deficiency at February 28, 2002 that raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 3 to the accompanying consolidated
financial statements. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Mahoney Cohen & Company, CPA, P.C.
New York, New York
June 21, 2002
F-1
iNLiTE COMPUTERS INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS (Note 6)
February 28, August 31,
2002 2002
-------------- --------------
(Unaudited)
Current assets:
Cash $ 1,237 $ 1,830
Accounts receivable, net of allowance for doubtful
accounts of approximately $11,000 at February 28,
2002 and $12,000 at August 31, 2002 799,598 2,007,551
Inventory 271,338 264,177
Deferred offering costs 100,223 129,893
Prepaid expenses and other current assets 27,648 85,189
-------------- --------------
Total current assets 1,200,044 2,488,640
Property and equipment, net (Notes 4 and 7) 176,914 176,010
Security deposit 8,882 9,695
-------------- --------------
$ 1,385,840 $ 2,674,345
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank (Note 5) $ 215,784 $ 256,947
Due to factor (Note 6) 401,283 1,270,526
Current portion of capital lease obligations (Note 7) 11,119 10,649
Accounts payable 459,405 748,057
Due to stockholder (Note 8) 24,876 15,433
Accrued expenses and other current liabilities 170,041 226,023
-------------- --------------
Total current liabilities 1,282,508 2,527,635
Capital lease obligations (Note 7) 5,038 -
Commitments (Note 12)
Stockholders' equity:
Preferred stock - $.001 par value:
1,000,000 shares authorized; none issued and outstanding - -
Common stock - $.001 par value:
50,000,000 shares authorized; 9,000,000 shares
issued and outstanding 9,000 9,000
Additional paid-in capital 553,552 553,552
Accumulated deficit (464,244) (407,908)
Accumulated other comprehensive loss (14) (7,934)
-------------- --------------
Total stockholders' equity 98,294 146,710
-------------- --------------
$ 1,385,840 $ 2,674,345
============== ==============
See accompanying notes.
F-2
iNLiTE COMPUTERS INCORPORATED AND SUBSIDIARY
Consolidated Statements of Operations and Comprehensive Income (Loss)
Six Months Ended
Year Ended February 28, August 31,
------------------------------ --------------------------------
2002 2001 2002 2001
------------- ------------- ------------- --------------
(Unaudited) (Unaudited)
Net sales (Note 10):
Products $ 7,200,126 $ 7,170,906 $ 3,589,917 $ 4,092,607
Services 69,410 - 6,787 21,782
------------- ------------- ------------- --------------
Total net sales 7,269,536 7,170,906 3,596,704 4,114,389
Cost of goods sold 6,522,234 6,487,486 3,070,375 3,567,786
------------- ------------- ------------- --------------
Gross profit 747,302 683,420 526,329 546,603
Operating expenses 1,011,571 702,340 438,321 578,816
------------- ------------- ------------- --------------
Operating income (loss) (264,269) (18,920) 88,008 (32,213)
Other expenses:
Loss on disposition of property and
equipment - 2,809 - -
Interest expense 72,118 67,120 31,672 27,399
------------- ------------- ------------- --------------
Total other expenses 72,118 69,929 31,672 27,399
------------- ------------- ------------- --------------
Net income (loss) (336,387) (88,849) 56,336 (59,612)
Other comprehensive income (loss):
Cumulative translation adjustment (4,777) 6,102 (7,920) (1,112)
------------- ------------- ------------- --------------
Comprehensive income (loss) $ (341,164) $ (82,747) $ 48,416 $ (60,724)
============= ============= ============= ==============
Basic and diluted net income (loss)
per common share attributable to
common stockholders $ .(04) $ .(01) $ .01 $ (.01)
============= ============= ============= ==============
Weighted average number of shares
outstanding 7,919,977 6,551,500 9,000,000 6,857,563
============= ============= ============= ==============
See accompanying notes.
F-3
iNLiTE COMPUTERS INCORPORATED AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficiency)
Accumulated
Common Stock Additional Other Stockholders'
-------------------------- Paid-In Accumulated Comprehensive Equity
Shares Amount Capital Deficit Income (Loss) (Deficiency)
----------- ----------- ---------- ----------- ------------- ------------
Balance, March 1, 2000 $ 6,551,500 $ 6,552 $ - $ (39,008) $ (1,339) $ (33,795)
Net loss - - - (88,849) - (88,849)
Cumulative translation adjustment - - - -- 6,102 6,102
----------- ----------- --------- ---------- -------- ---------
Balance, February 28, 2001 6,551,500 6,552 - (127,857) 4,763 (116,542)
Issuance of Common Stock on
August 9, 2001 for cash
(at $.125 per share) 2,000,000 2,000 248,000 - - 250,000
Issuance of Common Stock on
August 9, 2001 for compensation
and services (at $.125 per share) 448,500 448 55,552 - - 56,000
Stockholder contribution - - 250,000 - - 250,000
Net loss - - - (336,387) - (336,387)
Cumulative translation adjustment - - - - (4,777) (4,777)
----------- ----------- --------- ---------- -------- ---------
Balance, February 28, 2002 9,000,000 9,000 553,552 (464,244) (14) 98,294
Net income (unaudited) - - - 56,336 - 56,336
Cumulative translation adjustment
(unaudited) - - - - (7,920) (7,920)
----------- ----------- --------- ---------- -------- ---------
Balance, August 31, 2002 (unaudited) $ 9,000,000 $ 9,000 $ 553,552 $ (407,908) $ (7,934) $ 146,710
=========== =========== ========= ========== ======== =========
See accompanying notes.
F-4
iNLiTE COMPUTERS INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
Six Months Ended
Year Ended February 28, August 31,
--------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss) $ (336,387) $ (88,849) $ 56,336 $ (59,612)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Stock-based compensation and services 56,000 - - 56,000
Depreciation and amortization 26,208 33,290 18,444 18,455
Loss on disposition of property and equipment - 2,809 - -
Change in assets and liabilities:
Accounts receivable 377,970 (485,467) (1,134,751) (948,859)
Inventory 238,773 (222,730) 32,001 2,219
Prepaid expenses and other current assets (17,838) (9,142) (55,009) (8,519)
Other assets 1,251 (2,960) - 1,283
Accounts payable (350,487) 325,464 246,594 (196,973)
Accrued expenses and other current
liabilities 82,575 (50,534) 30,224 159,808
----------- ----------- ----------- ------------
Net cash provided by (used in)
operating activities 78,065 (498,119) (806,161) (976,198)
----------- ----------- ----------- ------------
Cash flows from investing activities:
Proceeds on sale of property and equipment - 2,238 - -
Purchase of property and equipment (41,180) (80,901) (2,078) (17,039)
----------- ----------- ----------- ------------
Net cash used in investing activities (41,180) (78,663) (2,078) (17,039)
----------- ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from (repayments of) note proceeds -
bank, net (3,715) 193,170 21,408 161,066
Proceeds from (repayments of) factor, net (413,485) 434,856 832,506 546,855
Payments of capital lease obligations (13,397) (17,967) (6,987) (7,342)
Proceeds from (repayments to) stockholder, net (8,612) (38,683) (11,721) 43,871
Deferred offering costs (100,223) - (29,670) -
Proceeds from issuance of common stock and
contribution of capital 500,000 - - 250,000
----------- ----------- --------- ---------
Net cash provided by (used in)
financing activities (39,432) 571,376 805,536 994,450
------------ ----------- ----------- ------------
Effect of exchange rate changes on cash 3,456 5,375 3,296 (1,210)
----------- ----------- ----------- ------------
Net increase (decrease) in cash 909 (31) 593 3
Cash, beginning of period 328 359 1,237 328
----------- ----------- ----------- ------------
Cash, end of period $ 1,237 $ 328 $ 1,830 $ 331
=========== =========== =========== ============
See accompanying notes.
F-5
iNLiTE COMPUTERS INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows (Concluded)
Supplemental Disclosure of Cash Flow Information
Six Months Ended
Year Ended February 28, August 31,
----------------------- -------------------------
2002 2001 2002 2001
--------- --------- ----------- -----------
(Unaudited) (Unaudited)
Cash paid during the period for:
Interest $ 72,118 $ 67,120 $ 31,672 $ 27,399
Supplemental Schedule of Non-Cash Investing and Financing Activities
During the year ended February 28, 2001, the Company incurred capital lease
obligations of $35,323 for new equipment.
See accompanying notes.
F-6
iNLITE COMPUTERS INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited with Respect to the Six Months Ended August 31, 2002 and 2001)
Note 1 - Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of iNLiTE Computers Incorporated ("iNLiTE"), a U.S. holding company,
and its wholly-owned subsidiary, iNLiTE Computers Limited ("CopyData"),
previously named CopyData Limited, a U.K. company (collectively, the "Company").
CopyData is engaged in the supply of computer hardware and related products to
educational and corporate markets throughout the United Kingdom. The Company
operates as a single segment. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Acquisition
iNLiTE was incorporated in the State of Delaware on August 7, 2001
and merged effectively on August 9, 2001 with CopyData, a private company
incorporated in England.
Pursuant to this merger, iNLiTE issued 7,000,000 shares of its
common stock for all of the common stock of CopyData. As a result of this
acquisition, the sole stockholder of CopyData effectively acquired iNLiTE and
control thereof. In conjunction with the exchange of shares, the then
stockholder of iNLiTE gave 448,500 shares to certain employees and consultants
valued at $56,000, the fair market value at the date of issuance. Accordingly,
this acquisition has been accounted for as a reverse acquisition for financial
statement purposes and the accompanying consolidated financial statements give
effect to the merger for all periods presented. In addition, the then sole
stockholder sold 500,000 shares of his common stock to outside investors for
$250,000, of which he contributed the proceeds to the Company.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared on the basis of
accounting principles generally accepted in the United States of America.
Interim Financial Statements
The interim financial statements at August 31, 2002 and for the
six months ended August 31, 2002 and 2001 are unaudited; however, in the opinion
of management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation have been included. Results of interim periods
are not necessarily indicative of results for the entire year.
F-7
iNLITE COMPUTERS INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited with Respect to the Six Months Ended August 31, 2002 and 2001)
Note 2 - Summary of Significant Accounting Policies (Continued)
Foreign Currency Translation
The assets and liabilities of CopyData are translated into U.S.
dollars at current exchange rates on the balance sheet date and revenue and
expenses are translated at average exchange rates for the respective periods.
The net exchange differences resulting from these translations are recorded as a
translation adjustment which is a component of stockholders' equity. CopyData's
functional currency is the British Pound Sterling.
Inventory
Inventory is stated at the lower of cost (first-in, first-out
method) or market and consists entirely of finished goods.
Deferred Offering Costs
Professional fees associated with the registration of the
Company's common stock have been capitalized and will be charged to
stockholders' equity upon the effectiveness of the registration statement. If
the registration statement does not become effective, such costs will be
expensed.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major
additions and betterments are capitalized. Maintenance and repairs are charged
to operations as incurred. Depreciation of property and equipment is computed by
accelerated methods over the assets' estimated lives of five years. Leasehold
improvements are amortized over the lesser of the lease terms or the assets'
useful lives. Upon sale or retirement of property and equipment, the related
cost and accumulated depreciation are removed from the accounts and any gain or
loss is reflected in operations.
F-8
iNLITE COMPUTERS INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited with Respect to the Six Months Ended August 31, 2002 and 2001)
Note 2 - Summary of Significant Accounting Policies (Continued)
Revenue Recognition
Products
The Company recognizes revenue as products are shipped to the
customer and installation is completed and accepted by the customer. The Company
does not consider installation essential to the functionality of the equipment.
Revenue by category is as follows:
Six Months Ended
Year Ended February 28, August 31,
-------------------------------- --------------------------------
2002 2001 2002 2001
------------- ------------- ------------- --------------
(Unaudited) (Unaudited)
iNLiTE brand hardware $ 3,468,365 $ 2,204,377 $ 2,424,795 $ 2,145,671
Brand name hardware 2,954,015 4,966,529 1,023,394 1,807,351
Software 777,746 - 141,728 139,585
------------- ------------- ------------- --------------
$ 7,200,126 $ 7,170,906 $ 3,589,917 $ 4,092,607
============= ============= ============= ==============
The Company does not offer any rights of return or price
protection to its customers.
Services
Service revenue in connection with contracts purchased by the
customer is amortized on a straight-line basis over the life of the contract.
Service revenue on non-contract related products is recognized when the service
is provided.
Shipping and Handling Costs
The Company includes shipping and handling costs in cost of goods
sold.
Warranty
Estimated future warranty obligations related to certain products
are provided by charges to operations in the period in which the related revenue
is recognized.
Advertising Expenses
Advertising expenses are charged to operations in the period in
which they are incurred. Advertising expenses for the years ended February 28,
2002 and 2001 were approximately $5,000 in each year. Advertising expenses for
the six months ended August 31, 2002 (unaudited) and 2001 (unaudited) were
approximately $1,000 in each period.
F-9
iNLITE COMPUTERS INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited with Respect to the Six Months Ended August 31, 2002 and 2001)
Note 2 - Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Net Income (Loss) per Common Share
The Company calculates net income (loss) per share as required by
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 replaced the calculation of primary and fully diluted earnings
per share with the basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share exclude any dilutive effect of stock
options, warrants and convertible securities.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" ("SFAS 107"), requires all entities
to disclose the fair value of financial instruments, both assets and liabilities
recognized and not recognized on the balance sheet, for which it is practicable
to estimate fair value. SFAS 107 defines fair value of a financial instrument as
the amount at which the instrument could be exchanged in a current transaction
between willing parties. At February 28, 2002 and August 31, 2002, management
believes the fair value of all financial instruments approximated carrying
value.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). The statement
establishes accounting and reporting standards for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS Statement No. 133 - an
Amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays the effective
date of SFAS 133 to all fiscal quarters of fiscal years beginning after June 15,
2000. Since inception, the Company has not entered into arrangements that would
fall under the scope of SFAS 133 and related interpretations and amendments and
thus, the Company believes that SFAS 133 will not significantly affect its
financial condition and results of operations.
F-10
iNLITE COMPUTERS INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited with Respect to the Six Months Ended August 31, 2002 and 2001)
Note 2 - Summary of Significant Accounting Policies (Continued)
New Accounting Pronouncements (Continued)
In December 1999, the Securities and Exchange Commission (the
"SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB
101"). SAB 101 provides the SEC staff's views in applying accounting principles
generally accepted in the United States of America to selected revenue
recognition issues. The Company has implemented the guidance in SAB 101 for all
periods presented.
On June 29, 2001, Statement of Financial Accounting Standards No.
141, "Business Combinations" ("SFAS 141"), was approved by the FASB. SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Goodwill and certain intangible
assets, arising from these business combinations, will remain on the balance
sheet and not be amortized. On an annual basis, and when there is reason to
suspect that their values have been diminished or impaired, these assets must be
tested for impairment, and write-downs may be necessary. The adoption of SFAS
141 will not have an effect on the earnings and financial position of the
Company.
On June 29, 2001, Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"), was approved by the
FASB. SFAS 142 changes the accounting for goodwill and indefinite lived
intangible assets from an amortization method to an impairment-only approach.
Amortization of goodwill, including goodwill recorded in past business
combinations and indefinite lived intangible assets, will cease upon adoption of
this statement. Identifiable intangible assets will continue to be amortized
over their useful lives and reviewed for impairment in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The adoption of
SFAS 142 will not have an effect on the earnings and financial position of the
Company.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement is effective for fiscal years
beginning after June 15, 2002. The Company is currently assessing the impact of
this new standard.
In July 2001, the FASB issued SFAS No. 144, "Impairment or
Disposal of Long-Lived Assets," which is effective for fiscal years beginning
after December 15, 2001. The provisions of this statement provide a single
accounting model for impairment of long-lived assets. The Company is currently
assessing the impact of this new standard.
F-11
iNLITE COMPUTERS INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited with Respect to the Six Months Ended August 31, 2002 and 2001)
Note 3 - Going Concern
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
has sustained net losses of approximately $336,000 and $89,000 for the years
ended February 28, 2002 and 2001, respectively, and has a working capital
deficiency of approximately $82,000 at February 28, 2002, which raises
substantial doubt about its ability to continue as a going concern. The
Company's ability to continue as a going concern is dependent upon positive cash
flows from operations and financing from the issuance of equity or debt
securities. Without such financing, the Company may not be able to meet its
working capital requirements. The Company plans on improving its margins on
products it presently sells and reducing its overhead which should result in
positive cash flow and profitable operations. The Company is also seeking
financing through the issuance of equity securities. The consolidated financial
statements do not include any adjustments related to the recoverability and
classification of recorded asset amounts or the amounts or classification of
liabilities that might be necessary should the Company be unable to continue in
existence.
Note 4 - Property and Equipment
Property and equipment consists of:
February 28, August 31,
2002 2002
------------- -------------
(Unaudited)
Machinery and equipment $ 96,787 $ 107,819
Vehicles 48,322 70,117
Furniture and fixtures 28,314 30,906
Leasehold improvements 65,569 71,572
Capitalized equipment 49,572 36,725
------------- -------------
288,564 317,139
Less: Accumulated depreciation and
amortization 111,650 141,129
------------- -------------
$ 176,914 $ 176,010
============= =============
Note 5 - Note Payable - Bank
CopyData has a L150,000 (approximately $213,000 at February 28,
2002 and $233,000 at August 31, 2002 (unaudited)) line of credit agreement with
a commercial bank. Under the terms of the agreement, CopyData pays interest at
2.25% above the base rate (6.25% at February 28, 2002 and August 31, 2002
(unaudited)) on all amounts up to L150,000 and 4.25% above the base rate (8.25%
at February 28, 2002 and August 31, 2002 (unaudited)) on all permitted
borrowings greater than L150,000. These borrowings are guaranteed by the
principal stockholder (limited to L50,000) and another stockholder (limited to
L160,000) of the Company.
F-12
iNLITE COMPUTERS INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited with Respect to the Six Months Ended August 31, 2002 and 2001)
Note 6 - Due to Factor
CopyData has a financing agreement with a commercial factor for a
maximum L750,000 line of credit (approximately $1,066,000 at February 28, 2002
and $1,163,000 at August 31, 2002 (unaudited)). The borrowings are based on a
percentage of eligible accounts receivable. Under the terms of the agreement,
CopyData pays interest at 2.25% above the base rate (6.25% at February 28, 2002
and August 31, 2002 (unaudited)). Borrowings under the line are secured by all
of CopyData's assets. These borrowings are guaranteed by the principal
stockholder (limited to L150,000).
Note 7 - Capital Lease Obligations
Capital lease obligations consist of:
February 28, August 31,
2002 2002
------------ -----------
(Unaudited)
Capital lease obligation payable in
quarterly installments of approximately
$2,600, including interest of 17% and
maturing in July 2003; secured by
specific equipment with a carrying
value of approximately $20,000 at
February 28, 2002 and August 31, 2002
(unaudited) $ 15,878 $ 11,555
Capital lease obligation payable in
monthly installments of approximately
$500, including interest of 13% and
maturing in June 2002; secured by
specific equipment with a carrying value
of approximately $8,000 at February 28,2002 2,029 -
---------- ----------
17,907 11,555
Less: Amount representing interest 1,750 506
---------- ----------
16,157 10,649
Less: Current portion 11,119 10,649
---------- ----------
$ 5,038 $ -
========== ==========
Note 8 - Due to Stockholder
Amounts due to stockholder are non-interest bearing and due on
demand.
F-13
iNLITE COMPUTERS INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited with Respect to the Six Months Ended August 31, 2002 and 2001)
Note 9 - Income Taxes
The provision for (benefit from) income taxes and a reconciliation
of the United States income tax rate to the effective tax rate is as follows:
Year Ended February 28,
-------------------------------------------------
2002 2001
--------------------- ---------------------
Statutory U.S. income tax rate $(114,288) 34.0% $ (30,210) 34.0%
Income tax rate differential between the United
States and the United Kingdom 47,060 (14.0) 12,439 (14.0)
Change in valuation allowance 73,998 (22.0) 26,217 (30.0)
Other (6,770) 2.0 (8,446) 10.0
--------- ---- --------- -----
$ - -% $ - -%
========= ==== ========= =====
Six Months Ended August 31,
--------------------------------------------------
2002 2001
-------------------- ----------------------
(Unaudited) (Unaudited)
Statutory U.S. income tax rate $ 19,153 34.0% $ (28,941) 34.0%
Income tax rate differential between the United
States and the United Kingdom (7,887) (14.0) 11,917 (14.0)
Utilization of net operating loss carryforward (7,599) (13.0) - -
Change in valuation allowance - - 12,624 (15.0)
Other (3,667) (7.0) 4,400 (5.0)
--------- ---- --------- -----
$ - -% $ - -%
========= ==== ========= =====
The tax effects of temporary differences that gave rise to the
long-term deferred tax assets at February 28, 2002 and August 31, 2002
(unaudited) are as follows:
February 28, August 31,
2002 2002
------------ ------------
(Unaudited)
Net operating loss carryforward $ 106,432 $ 98,833
Less: Valuation allowance (106,432) (98,833)
------------ ------------
$ - $ -
============ ============
F-14
iNLITE COMPUTERS INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited with Respect to the Six Months Ended August 31, 2002 and 2001)
Note 9 - Income Taxes (Continued)
Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
At February 28, 2002, CopyData has a net operating loss
carryforward in the United Kingdom of approximately L374,000 (approximately
$532,000 at February 28, 2002) that can be carried forward indefinitely.
CopyData has fully reserved the tax benefit of the net operating loss
carryforward temporary difference because the likelihood of realization is
uncertain.
Note 10 - Concentration of Credit Risk and Major Customers
Accounts Receivable
Credit risk with respect to trade receivables is limited because a
large number of diverse customers throughout the United Kingdom make up the
Company's customer base. The Company controls credit risk through its credit
evaluation process, credit limits and monitoring procedures. Bad debt expenses
have been insignificant, and generally, the Company does not require collateral
or other security to support accounts receivable.
Major Customers
Sales to one and two customer(s) accounted for approximately 18%
and 35% of the total sales for the years ended February 28, 2002 and 2001,
respectively. Sales to one customer accounted for 10% and 20% of the total sales
for the six months ended August 31, 2002 (unaudited) and 2001 (unaudited),
respectively.
Note 11 - Pension Plan
CopyData has a non-contributory pension plan that covers its
executives. Contributions to the plan are made at the discretion of the Board of
Directors of the Company. Contributions during the year ended February 28, 2002
were approximately $1,500. Contributions during the six months ended August 31,
2002 (unaudited) were approximately $2,000.
F-15
iNLITE COMPUTERS INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited with Respect to the Six Months Ended August 31, 2002 and 2001)
Note 12 - Commitments
The Company leases its warehouse and office space from a
stockholder of the Company under a non-cancellable operating lease which expires
in 2018. The Company's future minimum lease payments, excluding escalation
charges, are as follows:
Year Ending
February 28,
------------
2003 $ 41,000
2004 41,000
2005 41,000
2006 41,000
2007 41,000
2008 and thereafter 416,000
--------
$621,000
========
Rent expense charged to operations for the years ended February 28,
2002 and 2001 was approximately $59,000 and $33,000, respectively. Rent expense
for the six months ended August 31, 2002 (unaudited) and 2001 (unaudited) was
approximately $28,000 and $27,000, respectively. Included in rent expense for
the years ended February 28, 2002 and 2001 is approximately $18,000 and $5,000,
respectively, and for the six months ended August 31, 2002 (unaudited) and 2001
(unaudited) is approximately $7,000 and $10,000, respectively, of amounts paid
to an unrelated party on a month-to-month lease.
F-16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth the estimated expenses payable in connection with
the preparation and filing of this Registration:
Securities and Exchange Commission
Registration Fee ........................... $ 72.00
Printing and Engraving Expenses.............. 10,000.00
Accounting Fees and Expenses................. 78,928.00
Legal Fees and Expenses...................... 75,000.00
Blue Sky Fees and Expenses................... 5,000.00
Transfer Agent's and Registrar's Fees and
Expenses..................................... 1,000.00
-----------
Total................................ $170,000.00
ITEM 25. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
iNLiTE is required by its By-Laws and Certificate of Incorporation to
protect from liability, to the fullest extent permitted by law, each person that
iNLiTE is permitted to protect from liability. iNLiTE's Charter requires it to
protect from liability such parties to the fullest extent permitted by Sections
102(b)(7) and 145 of the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law permits iNLiTE to
protect from liability its directors, officers, employees or agents against
expenses, including attorney's fees, judgments, fines and amounts paid in
settlements actually and reasonably incurred in relation to any action, suit, or
proceeding brought by third parties because they are or were directors,
officers, employees or agents of the corporation. In order to be eligible for
such indemnification, however, the directors, officers, employees or agents of
iNLiTE must have acted in good faith and in a manner they reasonably believed to
be in, or not opposed to, the best interests of iNLiTE. In addition, with
respect to any criminal action or proceeding, the officer, director, employee or
agent must have had no reason to believe that the conduct in question was
unlawful.
In derivative actions, iNLiTE may only protect from liability its
officers, directors, employees and agents against expenses actually and
reasonably incurred in connection with the defense or settlement of a suit, and
only if they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the corporation. Indemnification is
not permitted in the event that the director, officer, employee or agent is
actually adjudged liable to iNLiTE unless, and only to the extent that, the
court in which the action was brought so determines.
II-1
iNLiTE's Certificate of Incorporation permits it to protect from liability
its directors except in the event of: (1) any breach of the director's duty of
loyalty to iNLiTE or its stockholders; (2) any act or failure to act that is not
in good faith or involves intentional misconduct or a knowing violation of the
law; (3) liability arising under Section 174 of the Delaware General Corporation
Law, relating to unlawful stock purchases, redemptions, or payment of dividends;
or (4) any transaction in which the director received an improper personal
benefit.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities were issued by iNLiTE Computers Incorporated
within the past three years and were not registered under the Securities Act of
1933, as amended (the "Act"). All of these securities are considered to be
restricted securities for the purposes of the Act. All certificates representing
these issued and outstanding restricted securities of the company contain
appropriate text detailing their restricted status and the company has issued
"stop transfer" instructions to its transfer agent for these securities.
1. On August 9, 2001, we entered into a share exchange with the
stockholder of CopyData Limited, a company formed under the laws of United
Kingdom and Wales ("CopyData"), pursuant to which we issued 7,000,000 shares,
with a value of $875,000, of our common stock in exchange for 100 shares of
CopyData's capital stock, which constitutes all of CopyData's issued and
outstanding capital stock. All 7,000,000 shares of our common stock contemplated
by the exchange have been issued. Upon the consummation of the share exchange,
CopyData became a wholly owned subsidiary of iNLiTE. The issuance of these
shares was exempt from the registration requirements of the securities act under
Regulation S as a transaction involving an offer and sale made outside of the
United States. In conjunction with the exchange of shares, the then stockholder
of iNLiTE gave 448,500 shares to certain employees and consultants. All of the
persons who received shares were non "U.S. persons" as such term is defined in
Rule 902(k)(1) of Regulation S. The transfer by the sole stockholder of 448,500,
with a value $56,000, shares to certain employees and consultants was effected
pursuant to Regulation S. A total of fifteen investors participated in this
transaction.
2. On August 9, 2001 we issued 2,000,000 restricted shares of our common
stock to purchasers in a private offering to persons resulting in gross proceeds
of $250,000. No commissions were paid. All of the purchasers in the private
offering were non "U.S. persons" as such term is defined in Rule 902(k)(1) of
Regulation S. The issuance of these shares was exempt from the registration
requirements of the securities act under Regulation S as a transaction involving
an offer and sale made outside of the United States. A total eleven investors
participated in this transaction.
ITEM 27. EXHIBITS AND SCHEDULES.
* 2.1 Exchange Agreement dated as of August 9, 2001 between iNLiTE
Computers Incorporated and Kevin O'Brien
* 3.1 Certificate of Incorporation of iNLiTE Computers Incorporated filed
with the Secretary of State of the State of Delaware on August 7, 2001
* 3.2 By-laws of iNLiTE Computers Incorporated
* 4.1 Form of Common Stock Certificate of iNLiTE Computers Incorporated
II-2
* 4.2 Form of Preferred Stock Certificate of iNLiTE Computers Incorporated
5 Opinion of Piper Rudnick LLP
10.1 Corporate Banking Services - Advice of Borrowing Terms for Inlite
Computers Limited
* 10.2 Syncline Industrial Properties Limited and Raleigh Court (Discovery
Parle) Limited and Audio Connections Limited, Lease, dated 11th December 1998.
* 10.3 Counterpart Lease between Eric O'Brien and CopyData, relating to
Unit R17, Raleigh Court, Priestly Way, Crawley, West Sussex, dated May 1, 1997
* 10.4 Service Level Agreement between CopyData and Gehis Limited, dated
January 4, 2001
* 10.5 All Assets Debenture given by CopyData in favor of GLE Invoice
Finance Ltd. Regarding CopyData Limited, dated June 18, 2001
* 10.6 GLE Invoice Finance Ltd. Factoring Agreement, executed June 18, 2001
* 10.7 Form of Subscription Agreement
21 Subsidiaries of the Company
23.1 Consent of Mahoney Cohen & Company, CPA, P.C.
- -----------
* previously filed
ITEM 28. UNDERTAKINGS.
The undersigned Registrant undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or taken as a whole, represent a fundamental change in the
information detailed in the Registration Statement; and
(iii) To include any significant information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any significant change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be considered to be
a new registration statement
II-3
relating to the securities offered therein, and the offering of the securities
at that time shall be considered to be the initial bona fide offering of the
securities.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(c) "Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as express in the Act and is, therefore, unenforceable.
(d)(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 3rd day of December, 2002.
iNLiTE COMPUTERS INCORPORATED
By /s/ Kevin O'Brien
------------------------------
Kevin O'Brien, President
Each person whose signature appears below hereby constitutes and appoints
Kevin O'Brien his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying all that said attorney-in-fact and agent or his substitute or
substitutes, or any of them, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Kevin O'Brien Director and President December 3, 2002
- ----------------------------- (Principal Executive Officer)
Kevin O'Brien
/s/ Eric O'Brien Director and Chairman December 3, 2002
- ------------------------------
Eric O'Brien
/s/ Richard Hands Secretary and Treasurer December 3, 2002
- ----------------------------- (Principal Financial and
Richard Hands Accounting Officer)
II-5