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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|X| For the Quarterly Period ended August 31, 2001
Or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM June 1, 2001 TO August 31, 2001
Commission File Number: 0-17597
ELITE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0252296
(State or other Jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
5050 Oakbrook Parkway
Suite 100
Norcross Georgia 30093
(Address of principal executive offices) (Zip Code)
770-559-4975
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |x | No | |
The number of issued and outstanding shares of the issuer's class of capital
stock as of August 31, 2001, the latest practicable date, is as follows:
75,012,434 shares of Common Stock $.0001 par value.
-------------------------------------------------------
ELITE TECHNOLOGIES, INC.
Index
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements:
Consolidated Balance Sheets-August 31, 2001 and May 31, 2001. 3
Consolidated Statements of Operations-Three Month Period Ended
August 31, 2001 and August 31, 2000.(Unaudited) 4
Consolidated Statements of Cash Flows-Three Month Period Ended
August 31, 2001 and August 31, 2000. (Unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 7
Report on Review by Independent Accountants 9
Item 2. Management's Discussion and Analysis of Financial Condition 10
And Results of Operations
PART II - OTHER INFORMATION
Item 3. Legal Proceedings 12
Item 4. Changes in Securities 12
Item 5. Defaults upon Senior Securities 12
Item 6. Submission of matters to Vote of Security Holders 12
Item 7. Other Information 12
Item 8. Exhibits and Reports 12
Exhibit Index
Signature 13
PART I
Financial Information
Item I
ELITE TECHNOLOGIES, INC., AND SUBSIDIARIES
Consolidated Balance Sheets
August 31, May 31,
2001 2001
(Unaudited) (Audited)
Assets
Current assets:
Cash on hand and in banks $214,093 $80,450
Accounts receivable, less allowance for doubtful
accounts of $80,000 at August 31, 2001 and
May 31, 2001, respectively. 803,165 639,979
Receivable from officer 865,277 707,624
Inventory 544,838 690,012
------------------------------
Total current assets 2,427,373 2,118,065
Property and equipment, net 495,688 561,330
Excess of cost over net assets of businesses acquired,
less accumulated amortization of $1,599,019 and
$1,259,876 at August 31, 2001, and May 31, 2001,
respectively. 5,189,123 5,523,017
Other assets 10,000 10,000
------------------------------
Total Assets $8,122,184 $8,212,412
==============================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable 389,863 213,537
Accounts payable 1,524,750 926,905
Accrued expenses 43,633 163,475
Federal payroll taxes payable 928,888 928,888
State payroll taxes payable 321,614 321,614
Reserve for acquisition 1,662,400 1,662,400
Income Taxes 12,000 12,000
------------------------------
4,883,148 4,228,819
Long-term liabilities:
Convertible note payable 1,117,801 1,117,801
------------------------------
Total liabilities 6,000,949 5,346,620
------------------------------
Stockholders' equity:
Common stock, $.0001 par value; 500,000,000 shares
authorized; 75,012,434 and 61,812,434 issued and
outstanding at August 31, 2001 and May 31, 2001,
respectively 7,501 6,181
Additional paid-in capital 44,159,707 43,963,877
Retained Deficit (42,045,973) (41,104,266)
------------------------------
Total stockholders' equity 2,121,235 2,865,792
------------------------------
Total liabilities and equity $8,122,184 $ 8,212,412
==============================
The Notes to Financial Statements are an integral part of this statement
.
3
ELITE TECHNOLOGIES, INC., AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Month Period Ended
August 31, August 31,
2001 2000
Revenues $4,009,186 $3,630,818
Cost of Sales 3,597,518 2,968,113
----------------------------------
Gross Profit 411,668 662,705
----------------------------------
Salaries, wages and benefits 194,301 328,101
Depreciation and amortization 339,144 373,958
Other operating expenses 604,674 493,246
Stock based compensation 191,900 -
Investment banking fees - 1,584,031
----------------------------------
1,330,019 2,779,336
----------------------------------
Operating income (loss) (918,351) (2,116,631)
----------------------------------
Interest expense 23,356 -
Other expenses/(income) - net - 1,713
----------------------------------
23,356 1,713
----------------------------------
Loss before income taxes (941,707) (2,118,344)
Income taxes - -
----------------------------------
Net loss ($941,707) ($2,118,344)
==================================
Net Loss Per Share of Common Stock:
Basic and Diluted ($0.01) ($0.06)
==================================
Weighted Average Number of Common
Shares Used In Calculating
Net Loss Per Share of Common Stock:
Basic and Diluted 63,512,571 38,475,720
==================================
The Notes to Financial Statements are an integral part of this statement.
4
Consolidated Statements of Cash Flows
(Unaudited)
Three Month Period Ended
August 31, August 31,
2001 2000
Cash flows from operating activities:
Net loss ($941,707) ($2,118,344)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 339,144 373,958
Stock based compensation 191,900 -
Commitment to issue stock for investment
banking services - 1,584,253
Decrease (increase) in:
Accounts receivable (163,186) (1,036,924)
Inventory 145,173 -
Note receivable - 527,470
Other assets - (702,099)
Increase (decrease) in:
Accounts payable 597,845 1,966,469
Accrued expenses and other current liabilities (48,949) (85,000)
---------------------------------
Net cash provided by operating activities 120,220 509,783
---------------------------------
Cash flows from investing activities:
Purchases of property and equipment - (425,000)
Acquisition of businesses (5,250) (175,000)
Receivable from officers (157,653) (284,619)
---------------------------------
Net cash used in investing activities (162,903) (884,619)
---------------------------------
Cash flows from financing activities:
Proceeds from short-term notes 176,326 500,000
Contributed capital - 150,492
---------------------------------
Net cash provided by financing activities 176,326 650,492
---------------------------------
Net increase in cash and cash equivalents 133,643 275,656
Cash and cash equivalents (overdraft) at beginning of period 80,450 (35,106)
---------------------------------
Cash and cash equivalents at end of period $214,093 $240,550
=================================
The Notes to Financial Statements are an integral part of this statement.
5
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
Three Month Period Ended
August 31, August 31,
2001 2000
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest $23,356 -
Income taxes - -
Acquisition of Businesses:
Fair value of assets acquired, including goodwill - $2,275,562
Promissory note issued - (425,000)
Fair value of common stock issued (5,250) (1,675,562)
-------------------------
Net cash paid for acquisitions ($5,250) $175,000
========================
The Notes to Financial Statements are an integral part of this statement.
6
ELITE TECHNOLOGIES, INC., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AUGUST 31, 2001 (UNAUDITED)
Accounting Policies
In the opinion of management the accompanying unaudited consolidated financial
statements reflect all normal adjustments, exclusive of any adjustments that may
be required as a result of going concern issues discussed further in the
financial information, necessary to present fairly the financial position of
Elite Technologies, Inc., and Subsidiaries at August 31, 2001 and the results of
operations for the three months ended August 31, 2001 and August 31, 2000 and
cash flows for three months ended August 31, 2001 and August 31, 2000. The
results of operations for the three month periods ended August 31, 2001 should
not necessarily be taken as indicative of the results of operations that may be
expected for the entire year May 31, 2002.
The financial information as of August 31, 2001 should be read in conjunction
with the financial statements contained in Elite Technologies, Inc. Form 10-K
Annual Report for May 31, 2001.
Recognition of Revenue and Expense
Web site development and consulting services are generally performed on a time
and materials basis and are recognized as the services are performed. All other
revenue and expense is accrued as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash overdrafts are classified as
current liabilities.
Property and Equipment
Property and equipment are carried at cost. Expenditures for maintenance and
repairs that do not significantly extend the useful lives of the assets are
expensed as incurred, while major replacements and betterments are capitalized.
Depreciation is computed principally using the straight-line method over the
estimated useful lives of the assets, generally five years for computer
equipment and furniture and fixtures, and three to five years for purchased
software.
Cost of property sold or otherwise disposed of and the related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized as income currently.
Excess of Cost Over Net Assets of Businesses Acquired
The excess of cost over net assets of businesses acquired (goodwill) is being
amortized using the straight-line method over five years. The amortization
period is based on, among other things, the nature of the products and markets,
the competitive position of the acquired companies, and the adaptability of
changing market conditions of the acquired companies. At each balance sheet
date, the Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation.
7
Excess of Cost Over Net Assets of Businesses Acquired (Continued)
The amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate equal to the rate
of return that would be required by the Company for a similar investment with
like risks. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Payroll Taxes Payable
Payroll Taxes payable include separate line items for both federal and state tax
liabilities. The assumption of which was part of the agreement to acquire
Intuitive Technology Consultants, Inc. The respective state and federal tax
liabilities have not been paid during previous periods due to cash flow matters.
Management has worked with the appropriate tax authorities and such authorities
have agreed not to impute any further interest or penalties on these accounts.
Pro-Forma Financial Information
Generally accepted accounting principles call for the disclosure of pro forma
effects on acquisitions that occur during the year. Regarding the acquisition of
World Touch Communications, Inc., effective July 1, 2001, this disclosure has
not been reported since revenues and expenses are De minimus due to the entities
start up status.
8
Israel & Ricardo Blanco, CPA's
MEMBERS OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS AND
COLLEGE OF CERTIFIED PUBLIC ACCOUNTANTS OF PUERTO RICO
PO Box 2667 Bayamon PR 00960
Tel. (787) 785-1396 o Fax (787) 785-2970
E-mail: rickyblancocpa@att.net
REPORT ON REVIEW BY INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Elite Technologies, Inc., and Subsidiaries
We have reviewed the accompanying consolidated balance sheet of Elite
Technologies, Inc., and Subsidiaries (the "Company") as of August 31, 2001 and
May 31, 2001 and the related consolidated statements of operations for the first
three months ended August 31, 2001 and August 31, 2000, and the related
consolidated statement of cash flows for the three months ended August 31, 2001
and August 31, 2000. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review on interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, with the exception of the matter described in the following
paragraph, we are not aware of any material modifications that should be made to
the aforementioned financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of May 31,
2001, and the related consolidated statements of operations, of stockholders'
equity, and of cash flows for the year then ended (not presented herein), and in
our report dated August 17, 2001, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information as set forth
in the accompanying consolidated balance sheet information as of May 31, 2001,
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
Our report dated August 17, 2001, on the consolidated financial statements of
Elite Technologies, Inc., and subsidiaries as of and for the year ended May 31,
2001, contains an explanatory paragraph that states that the Company's recurring
losses from operations and net capital deficiency raise substantial doubt about
the entity's ability to continue as a going concern. The consolidated balance
sheet as of May 31, 2001, does not include any adjustments that might result
from the outcome of that uncertainty.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed further in the
financial information, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Atlanta, Georgia
October 15, 2001, Temporary Permit No. 676
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this filing. Certain
statements, made in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations are forward-looking statements. The
forward-looking statements contained herein are based on current expectations
and entail various risks and uncertainties that could cause actual results to
differ materially from those expressed in such forward-looking statements. In
some cases, you can identify forward-looking statements by the use of certain
terminology, such as "may," "will," "should," "would," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "continue," or
the negative of such terms or other comparable terminology. Any expectations
based on these forward-looking statements are subject to risks and
uncertainties. These risks and uncertainties could affect the Company's future
financial and operating results and cause actual results to differ materially
from expectations based on forward-looking statements made in this document or
elsewhere by or on behalf of the Company.
Overview
ORGANIZATION
Elite Technologies, Inc. (referred to herein as "Elite" or the "Company") is a
full service technology company offering information technology ("IT") services
to small, medium and large enterprises. IT services involve the facilitation of
the flow of information within a company or between a company and external
sources. These services typically involve computer hardware, software and
"integration" efforts to allow diverse systems to communicate with one another.
Elite was founded as a Georgia corporation in 1996 under the name Intuitive
Technology Consultants, Inc. ("ITC"). In July 1998, ITC Acquisition Group, LLP,
consisting of management of ITC, acquired a majority interest, through a reverse
merger, in CONCAP, Inc. On April 22, 1999, the Company changed its name to Elite
Technologies, Inc.
Elite through its divisions offers a variety of services in fiscal year 2001.
Accordingly, Elite has transferred most of its operations following the
acquisition of ACE Manufacturing Group, Ltd, (AMG), on March 15, 2000. Elite has
acquired other companies to fulfill the services of its divisions. As part of
Elite's acquisition strategy, the Company has completed the acquisition
agreements with AC Travel, Inc., as of June 1, 2000, International Electronic
Technologies of Georgia, Inc., as of June 27, 2000, Icon Computer Parts Corp. as
of February 15, 2001 and World-Touch Communications Inc., as of July 1, 2001.
The Company's principal executive offices are located at 5050 Oakbrook Parkway,
Suite 100 Norcross, Georgia 30093. Telephone: (770)-559-4975. The Company's
Internet address is www.elitetech-usa.com.
RECENT DEVELOPMENTS
On July 1, 2001 the Company signed a stock purchase agreement with World Touch
Communications, Inc. This newly acquired, start up, company provides an
integrated suite of high quality, low-cost international telecommunications
services to large and small businesses, including voice-over IP (VolP), call
back, prepaid calling cards, and prepaid cell phones. This acquisition was
structured as a stock for stock purchase and was accounted for utilizing the
purchase method of accounting. The consideration for purchase was 750,000 shares
of the Registrants common stock. See pro-forma financial statements for further
analysis. As of the balance sheet date of August 31, 2001 the balance sheet of
World-Touch Communications, Inc. was included as a consolidated subsidiary.
Effective September 5, 2001 the Company announced that it signed a Letter of
Intent to acquire 100% of Infoactiv, Inc. a Boston MA based company. Initial
timelines were such that, pending due diligence procedures, a closing could take
place by September 30, 2001. The Company has since received an extension through
the end of October 2001.
During the quarter then ended August 31, 2001 AC Travel, Inc. was unable to
provide financial statements and supporting documentation to the registrant in a
timely, and routine, fashion. Management determined that the best course of
action was to omit the financial statements of AC Travel, Inc. from this Form
10-Q; thereby, treating AC Travel as an unconsolidated subsidiary. This
situation having already occurred in the past, it was the Company's decision to
terminate all previously employed members of AC Travel with an eye toward
re-staffing the organization. It was not until a period post August 31, 2001
that the Board of Directors ratified an agreement to formerly discontinue the
operations of this subsidiary. According, the Company will write down any
amounts specific to the net assets of AC Travel during the second quarter then
ended November 30, 2001.
10
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2001 AND AUGUST 31, 2000.
Revenues: Revenues from operations for the first quarter ended August 31, 2001
increased by $378,368 from $3,630,818 for the same period August 31, 2000. This
increase is primarily from increased market penetration.
Cost of Sales: Cost of sales for the first quarter ended August 31, 2001
increase by $629,405 from $2,968,113 for the same period August 31, 2000.
Increase between periods is strictly a function of increased sales between
periods.
Salaries, Wages and Benefits: Salaries, Wages and Benefits decreased by $133,800
from $328,101 for the same period August 31, 2000. The decrease is due to
staffing efficiencies.
Other Operating Expenses: For the first quarter ended August 31, 2001 other
operating expenses increased by $111,428 from 493,246 for the same period August
31, 2000. The above changes stem from cost enhancements and an eye toward cost
containment.
Depreciation and Amortization: The Company depreciates its assets, including
goodwill, on a straight-line basis over three to five years. Depreciation and
amortization expense decreased $34,814 from $373,958 over the previous quarter
then ended August 31, 2000.
Stock based compensation: The increase of $191,900 between periods is due to the
issuance of Company stock to both employees and consulting personnel.
Investment banking fees: The decrease of $ 1,584,031 between periods is due to
the non-issuance of Company stock during the current reporting period for
purposes of investment banking.
Net Loss. Net losses decreased by $1,176,637 from $2,118,344 for the same period
ended August 31, 2000. The net change between periods is the cumulative function
of all described changes as noted above.
Considering the current economic slowdown, the Company expects a downtick with
respect to revenues for the period ending November 30, 2001. Management is
currently proactive in evaluating new marketing strategies to help mitigate this
possibility.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have principally related to the acquisition
of businesses, working capital needs and capital expenditures for growth. These
requirements have been met through a combination of private placements and
internally generated funds. Although the Company incurred direct costs for
acquisitions, the Company completed these acquisitions primarily in stock for
stock transactions. Management contents that such agreements for debt and equity
funding have been sufficient to enable the Company to continue operating as a
going concern. However, we expect to enter into further agreements for such
additional funding.
11
Part II
OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to operating a business,
including claims of discrimination, wrongful termination, and other similar
claims.
ITEM 4. CHANGES IN SECURITIES. None
ITEM 5. DEFAULTS UPON SENIOR SECURITIES. None
ITEM 6. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 7. OTHER INFORMATION. None
ITEM 8. EXHIBITS AND REPORTS. None
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: October 15, 2001 Elite Technologies, Inc.
By:/s/ Scott Schuster
------------------
Name: Scott Schuster
Title: Chief Executive Officer
13