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 November 30, 2001
Or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM September 1, 2001 TO November 30, 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 | |
APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of
each of the issuer's classes of common equity, as of the latest practicable
date: November 30, 2001: 84,362,434 shares of Common Stock.
ELITE TECHNOLOGIES, INC.
Index to Quarterly Report on Form 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets- November 30, 2001 and May 31, 2001 3
Condensed Consolidated Statements of Operations-Three and Six-Months Ended
November 30, 2001 and November 30, 2000. (Unaudited) 4
Condensed Consolidated Statements of Cash Flows- Six-Months Ended
November 30, 2001 and November 30, 2000. (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Report on Review by Independent Accountants 9
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports 16
Signature 17
2
ELITE TECHNOLOGIES, INC, AND SUBSIDIARIES
Consolidated Balance Sheet
November 30, May 31,
2001 2001
(Unaudited) (Note)
----------- ------
Assets
Current assets:
Cash on hand and in banks $70,285 $80,450
Accounts receivable - net 434,167 639,979
Inventory 939,184 690,012
Receivable from officer 962,418 707,624
-----------------------------------------
Total current assets 2,406,054 2,118,065
Property and equipment, net 526,083 561,330
Excess of cost over net assets of businesses acquired,
less accumulated amortization of $1,618,544 and
$1,259,876 at November 30, 2001 and May 31, 2001, 4,104,198 5,523,017
respectively.
Other assets 12,596 10,000
-----------------------------------------
$7,048,931 $8,212,412
=========================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $279,545 $213,537
Accounts payable 1,854,804 926,905
Accrued expenses 160,537 163,475
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 15,000 12,000
-----------------------------------------
5,222,788 4,228,819
-----------------------------------------
Long-term liabilities:
Convertible note payable 1,342,801 1,117,801
-----------------------------------------
Total liabilities 6,565,589 5,346,620
-----------------------------------------
Stockholders' Equity:
Common stock, $.0001 par value; 500,000,000 shares authorized; 84,362,434 and
61,812,434 issued and outstanding at November 30, 2001 and May 31, 2001,
respectively 8,436 6,181
Additional paid-in capital 44,447,823 43,963,877
Retained (deficit) (43,972,917) (41,104,266)
-----------------------------------------
483,342 2,865,792
-----------------------------------------
$7,048,931 $8,212,412
=========================================
Note: The consolidated balance sheet at May 31, 2001 has been derived from the
audited consolidated financial statements at that date but does not include all
of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
See notes to condensed consolidated financial statements.
3
ELITE TECHNOLOGIES, INC, AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
August 31, November 30,
---------- ------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues $4,009,186 $3,630,818 $6,764,606 $7,334,396
Cost of Sales 3,597,518 2,968,113 6,081,343 6,563,351
----------------------------------------------------------------------------
Gross Profit 411,668 662,705 683,263 771,045
Salaries, wages and benefits 194,301 328,101 525,541 239,226
Depreciation and amortization 339,144 373,958 679,206 766,988
Other operating expenses 604,674 493,246 1,010,828 869,635
Stock based compensation 191,900 - 471,800 -
Investment banking fees - 1,584,031 - 1,584,031
Write down of non-performing asset - - 799,051 -
----------------------------------------------------------------------------
1,330,019 2,779,336 3,486,426 3,459,880
----------------------------------------------------------------------------
Loss from Operations 918,351 2,116,631 2,803,163 2,688,835
Interest expense 23,356 - 50,212 12,100
Other expenses - net - 1,713 282 17,259
----------------------------------------------------------------------------
23,356 1,713 50,494 29,359
----------------------------------------------------------------------------
Loss before income taxes 941,707 2,118,344 2,853,657 2,718,194
Income taxes - - 15,000 -
----------------------------------------------------------------------------
Net Loss $941,707 $2,118,344 $2,868,657 $2,718,194
============================================================================
Net Loss Per Share of Common Stock:
Basic and Diluted ($0.01) ($0.06) ($0.04) ($0.07)
============================================================================
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 77,132,434 41,578,630
============================================================================
See notes to condensed consolidated financial statements.
4
ELITE TECHNOLOGIES, INC, AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(Unaudited)
Six Months Ended Six Months Ended
November 30, November 30,
2001 2000
---- ----
Cash flows from (to) operating activities:
Net loss ($2,868,657) ($2,718,194)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 679,206 766,988
Write-down of non-performing assets 799,051 -
Account receivable direct write off 4,720 -
Stock based compensation 471,800 -
Commitment to issue stock for investment
banking services - 1,584,031
Decrease (increase) in:
Accounts receivable 210,583 (1,403,355)
Receivable from stockholder (290,194) -
Inventory (213,773) -
Note receivable - 527,470
Other assets (5,192) (618,940)
Increase (decrease) in:
Accounts payable 927,899 2,142,536
Payroll taxes payable - (2,420)
Accrued expenses and other current liabilities (2,931) (53,244)
Income tax 3,000 -
----------------------------------------------
Net cash used in operating activities (284,488) 224,872
----------------------------------------------
Cash flows from (to) investing activities:
Purchases of property and equipment (18,940) (244,204)
Acquisition of businesses - (175,000)
Receivable from officers - (239,458)
----------------------------------------------
Net cash used in investing activities (18,940) (658,662)
----------------------------------------------
Cash flows from (to) financing activities:
Proceeds from issuance of common stock - 140,000
Proceeds from issuance of long-term debt 225,000 425,000
Proceeds from (payment on) short-term notes 66,008 -
Contributed capital 2,255 150,492
----------------------------------------------
Net cash provided by financing activities 293,263 715,492
----------------------------------------------
Net increase (decrease) in cash (10,165) 281,701
Cash and cash equivalents at beginning of period 80,450 (35,106)
----------------------------------------------
Cash and cash equivalents at end of period $70,285 $246,595
==============================================
See notes to condensed consolidated financial statements
5
Elite Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
November 30, 2001
(Unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying un-audited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America or interim information consistent with instructions of
Form 10-Q. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments consisting of a normal and recurring nature considered necessary for
a fair presentation have been included. Operating results for the three-month
and six-month period ended May 31, 2002 and November 30, 2001, respectively may
not necessarily be indicative of the results that may be expected for the year
ended May 31, 2002.
For further information, refer to Elite Technologies Inc, (the Company)
consolidated financial statements and footnotes thereto included on the Form
10-K for the year ended May 31, 2001.
Adoption of Accounting Pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101, Revenue
Recognition in Financial Statements, which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
Management believes that the Company has complied with the guidance of SAB 101.
6
In January 2001, the Company adopted the provisions of FASB Statement No. 133,
Accounting for Derivatives Instruments and Hedging Activities, as amended. The
adoption of FASB Statement No. 133 did not have a material effect on the
Company's financial position or results of operations because the Company is not
currently using derivatives.
In July 2001, the FASB issued Statements of Financial Accounting Standards No.
141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets.
Statement 141 eliminated the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. Statement
142, which includes the requirements to test goodwill and indefinite-lived
intangible assets for impairment, rather than amortize them, will be effective
for fiscal years beginning after December 15, 2001.
In August 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations. This statement requires entities to record the fair
value of an asset retirement obligation in the period in which it is incurred.
This statement is effective for fiscal years beginning after June 15, 2002, with
earlier application encouraged.
In September 2001, the FASB issued Statement No. 144 on asset impairment that is
applicable to financial statements issued for fiscal years beginning after
December 31, 2001. The FASB's new rules on asset impairment supercede FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and provides a single accounting model for
long-lived assets for the disposal of.
Management does not believe the adoption of these statements will have a
significant impact on the Company's financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant inter-company transactions and
balances have been eliminated.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the condensed consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Basic and Diluted Loss Per Share
The Company has adopted FASB Statement No. 128, Earnings Per Share, which
requires a dual presentation of basic and diluted earnings per share. However,
because of the Company's net losses, the effect of stock options and warrants,
if applicable, would be anti-dilutive. Accordingly, stock options and warrants
are excluded from the computation of loss per share totaling approximately and
77,132,434 at November 30, 2001.
Inventories
Inventories are stated at the lower of cost or market. Production costs are
applied to ending inventories at a rate based on production capacity and any
excess production costs are charged to cost of products sold.
7
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 within the
enclosed financial information. Management also believes that the enclosed
information presents fairly the financial position of Elite Technologies, Inc.,
and Subsidiaries at November 30, 2001 and the results of operations for the
three and six months ended November 30, 2001 and November 30, 2000 and cash
flows for six months ended November 30, 2001 and November 30, 2000. The results
of operations for the three and six month periods ended November 30,
respectively, should not necessarily be taken as indicative of the results of
operations that may be expected for the entire year ending May 31, 2002.
The financial information as of November 30, 2001 should be read in conjunction
with the financial statements contained in Elite Technologies, Inc. Form 10-K
Annual Report for May 31, 2001.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash overdrafts are classified as
current liabilities.
Property and Equipment
Property and equipment are carried at cost. Expenditures for maintenance and
repairs that do not significantly extend the useful lives of the assets are
expensed as incurred, while major replacements and betterments are capitalized.
Depreciation is computed principally using the straight-line method over the
estimated useful lives of the assets, generally five years for computer
equipment and furniture and fixtures, and three to five years for purchased
software.
Cost of property sold or otherwise disposed of and the related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized currently as income.
Excess of Cost Over Net Assets of Businesses Acquired
The excess of cost over net assets of businesses acquired (goodwill) is being
amortized using the straight-line method over five years. All goodwill
transactions were effective previous to the adoption of FASB issued Statement of
Financial Accounting Standards No. 141, Business Combinations, and No. 142. The
amortization period is based on, among other things, the nature of the products
and markets, the competitive position of the acquired companies, and the
adaptability of changing market conditions of the acquired companies. At each
balance sheet date, the Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operation.
The amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate equal to the rate
of return that would be required by the Company for a similar investment with
like risks. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
8
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Actual and expected income tax expense can differ due to
non-deductible expenses and different income tax jurisdictions.
Payroll Taxes Payable
Payroll Taxes payable include separate line items for both federal and state tax
liabilities. The assumption of these liabilities was part of the agreement to
acquire Intuitive Technology Consultants, Inc. The respective state and federal
tax liabilities have not been paid during previous periods due to cash flow
matters. Management has worked with the appropriate tax authorities and such
authorities have agreed not to impute any further interest or penalties on these
accounts.
Pro-Forma Financial Information
Generally accepted accounting principles in the United States of America call
for the comparative presentation and the relative pro forma effects on that of
the preceding year. This was not illustrated here since World Touch
Communications, Inc. maintains the status of a start-up company and was not
operational in previous periods.
REPORT ON REVIEW BY INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Elite Technologies, Inc., and Subsidiaries
We have reviewed the accompanying consolidated balance sheets of Elite
Technologies, Inc., and Subsidiaries (the "Company") as of November 30, 2001 and
May 31, 2001 and the related consolidated statements of operations for the first
three months and six months ended November 30, 2001 and November 30, 2000, and
the related consolidated statement of cash flows for the six months ended
November 31, 2001 and November 30, 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.
9
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
January 17, 2002 Temporary Permit No. 676
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
The following should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Form 10-K for the fiscal year ended May 31, 2001. Other than
historical and factual statements, the matters and items discussed in this
Quarterly Report on Form 10-Q are forward-looking statements that involve risks
and uncertainties. Actual results and timing of certain events could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
Risk Factors in the Company's Annual Form 10-K as well as this filing Form 10-Q
and other documents filed by the Company with the Securities and Exchange
Commission.
General
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,
10
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.
Elite has transferred most of its operations following the acquisition of ACE
Manufacturing Group, Ltd, (AMG), on March 15, 2000. Elite has acquired or
self-incorporated companies to fulfill the services of its divisions. As part of
Elite's acquisition strategy, the Company has completed 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, World Touch Communications, Inc., as of July 1, 2001, and incorporated
Intelligent Software Solutions of Georgia, Inc., as of September 6, 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 http://www.elitetechinc.com.
RECENT DEVELOPMENTS
During this reporting quarter Icon Computer Parts, Inc., has been selected as a
vendor by Sam's Club. Icon Computer Parts, Inc., a wholly owned subsidiary, will
be selling its computer systems, monitors, and peripherals to Sam's Clubs
located throughout Puerto Rico. The monitors and systems will be sold at Sam's
Club under Elite's own "Icon" brand name. During January 2002, Icon received
their first purchase order through this new business relationship with Sam's
Club.
During the previous quarter the Company announced Letters of Intent with the
following acquisition targets: Infoactiv, Inc., CenDyne, Inc., Source Code
Corporation and Integrated IT Solutions, Inc. By virtue of conclusions drawn
through Company due diligence practices it was determined that efforts to
acquire the above companies would be discontinued. Despite the non-closing of
the above transactions, the Company will continue to invest resources into such
practices of finding, then acquiring, plausible acquisitions targets in hopes of
promoting shareholder value. As of the report date of this filing, the Company
has no active Letters of Intent in place.
On September 6, 2001 the Company incorporated a new entity named Intelligent
Software Solutions of Georgia, Inc., (ISS). The formation of ISS is to provide
customers the distribution of packaged software applications and silicon chips,
memory, and computer chip products. Actual business of ISS commenced in early
October 2001. During the initial sixty days of operations ISS produced revenues
in excess of $200,000.
As referenced in the previously issued Form 10Q, period ended August 30, 2001,
the Company was to incur a charge to earnings currently, period ended November
30, 2001, with respect to non-performing assets as held by AC Travel, a
wholly-owned subsidiary. See enclosed financial statements and explanation of
"Results of Explanations" for further information on such matters.
Results of Operations
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 2001 AS COMPARED TO
THE SIX MONTHS ENDED NOVEMBER 30, 2000.
The following table sets forth the amount of increase or decrease represented by
certain items reflected in the Company's statements of operations in comparing
the six months ended November 30, 2001 (the 2001 period) to the six months ended
November 30, 2000 (the 2000 period):
11
Six Months Ended
November 30,
Increase
2001 2000 (Decrease)
---- ---- ----------
Revenues $6,764,606 $7,334,396 ($569,790)
Cost of Sales 6,081,343 6,563,351 (482,008)
--------------------------------------------------------------
Gross Profit 683,263 771,045 (87,782)
--------------------------------------------------------------
Salaries, wages and benefits 525,541 239,226 286,315
Depreciation and amortization 679,206 766,988 (87,782)
Other operating expenses 1,010,828 869,635 141,193
Stock based compensation 471,800 - 471,800
Investment banking fees - 1,584,031 (1,584,031)
Write down of non-performing asset 799,051 - 799,051
--------------------------------------------------------------
3,486,426 3,459,880 26,546
--------------------------------------------------------------
Loss from Operations 2,803,163 2,688,835 114,328
0
Interest expense 50,212 12,100 38,112
Other expenses - net 282 17,259 (16,977)
--------------------------------------------------------------
50,494 29,359 21,135
--------------------------------------------------------------
-
Loss before income taxes 2,853,657 2,718,194 135,463
Income taxes 15,000 - 15,000
--------------------------------------------------------------
Net Loss $2,868,657 $2,718,194 150,463
==============================================================
Revenues: Revenues from operations for the first six months ended November 30,
2001 decreased by $569,790 over the same period of the previous year. This
decrease is substantially due to the reorganization of operations of
International Electronic Technologies of Georgia, Inc. The revenues of Icon
Computer Parts, Inc. remain strong and are expected to increase prospectively.
Cost of Sales: Cost of sales for the first six months ended November 30, 2001
decreased by $482,008 as a function of sales falling eight percent between
compared periods.
Salaries, Wages and Benefits: Salaries, wages and benefits increased by $286,315
due to the Company's strategy of internalizing professional staff to help defray
consulting costs.
Depreciation and Amortization: The Company depreciates its assets, including
goodwill, on a straight-line basis over three to five years. This account
decreased by $87,782 as a result of the write off on non-performing assets.
12
Other Operating Expenses: For the six months ended November 30, 2001, other
operating expenses increased by $141,193 over the same period of the previous
year. This difference stems, in part, from the operations of new companies World
Touch Communications, Inc. and Intelligent Software Solutions of Georgia, Inc.
Stock based compensation: The increase of $471,800 between period stems from the
issuance of restricted stock, for services rendered, during the six-month period
ended November 30, 2001.
Investment banking fees: The decrease of $1,584,031 between periods resulted
from the non-issuance of restricted stock to investment bankers during the
six-month period ended November 30, 2001.
Write down of non-performing assets: This amount reflects the net write down of
goodwill as it relates to AC Travel, Inc.
Income taxes: This a result from profitable operations as located in other
income tax jurisdictions.
Net Loss: Net loss increased by $150,463 for the above six-month period due to
the above aforementioned reasons.
Accounts payable: Accounts payable increased by $330,054 when compared to the
previously issued Form 10-Q, representing the reporting period ended August 31,
2001. This increase reflects increased growth of Icon and the addition of
inclusion of ISS.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 2001 AS COMPARED TO
THE THREE MONTHS ENDED AUGUST 31, 2000
The following table sets forth the amount of increase or decrease represented by
certain items reflected in the Company's statements of operations in comparing
the three months ended August 31, 2001 (the 2001 period) to the three months
ended August 31, 2000 (the 2000 period):
Three Months Ended
August 30,
Increase
2001 2000 (Decrease)
---- ---- ----------
Revenues $4,009,186 $3,630,818 $378,368
Cost of Sales 3,597,518 2,968,113 629,405
-------------------------------------------------------------
Gross Profit 411,668 662,705 (251,037)
Salaries, wages and benefits 194,301 328,101 (133,800)
Depreciation and amortization 339,144 373,958 (34,814)
Other operating expenses 604,674 493,246 111,428
Stock based compensation 191,900 - 191,900
Investment banking fees - 1,584,031 (1,584,031)
Write down of non-performing asset
--------------------------------------------------------------
1,330,019 2,779,336 (1,449,317)
--------------------------------------------------------------
Loss from Operations 918,351 2,116,631 (1,198,280)
Interest expense 23,356 - 23,356
Other expenses - net - 1,713 (1,713)
--------------------------------------------------------------
23,356 1,713 21,643
--------------------------------------------------------------
Loss before income taxes 941,707 2,118,344 (1,176,637)
Income taxes - - -
--------------------------------------------------------------
Net loss $941,707 $2,118,344 ($1,176,637)
==============================================================
13
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
increased 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. This decrease is due to
staffing efficiencies.
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.
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.
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.
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
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stock transactions. Management contends 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.
Risk Factors
Impact Of Terrorist Attacks
The terrorist attacks in New York and Washington D.C. in September of 2001 have
disrupted commerce throughout the United States and other parts of the world.
The continued threat of terrorism within the United States and abroad and the
potential for military action and heightened security measures in response to
such threat may cause significant disruption to commerce throughout the world.
We are unable to predict whether the threat of terrorism or the response thereto
will result in any long-term commercial disruptions or if such activities or
responses will have a long-term material effect on our business, results of
operations, or financial condition. To the extent that such disruptions result
in delays or cancellations of customer orders, a general decrease in corporate
spending, or our inability to effectively market and sell our products, our
business and results of operations could be adversely affected.
Quarterly Fluctuations
The company's operating results may fluctuate significantly from period to
period as a result of a variety of factors, including product returns,
purchasing patterns of consumers, the length of the company's sales cycle to key
customers and distributors, the timing of the introduction of new products and
product enhancements by the company, technological factors, variations in sales
by product and distribution channels, and competitive pricing and general
economic conditions throughout the industrialized world. Due to the factors
noted above and other risks discussed in this section, management believes that
quarter-to-quarter comparisons of our operating results may not be meaningful.
You should not rely on our results for one quarter as any indication of our
future performance. Quarterly variations in our operations could result in
significant volatility in our stock price and the market price for our common
stock might fall. It is likely, in the future quarters, our operating results
may be below the expectations of securities analysts or investors. If this
occurs, the price of our common stock is likely to decrease.
Our Ability To Raise Funds To Subsidize Operations Is Limited
Our operating results to date have been net losses and have required cash from
investors and loans from third parties and from related parties. Our ability to
raise capital to fund future operations is limited and cannot be relied upon if
present working capital funds are depleted. Additional capital may not be
available on terms favorable to us, or at all. If we are unable to raise
additional capital when we require it, our business could be harmed. In
addition, any additional issuance of equity or equity-related securities to
raise capital will be dilutive to our stockholders.
We Have Incurred Significant Losses, And Our Failure To Increase Our Revenues
Could Prevent Us From Achieving Profitability
We have incurred significant losses since our inception in 1996 and expect to
incur losses in the future. We have not achieved profitability on a quarterly
basis. We will need to generate significantly greater revenues while containing
costs and operating expenses to achieve profitability. Our revenues may not
continue to grow, and we may never generate sufficient revenues to achieve
profitability.
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Risk Related To Our Common Stock
There may be sales of a substantial amount of our common stock, as permitted
under Rule 144, by our existing stockholders and these sales could cause our
stock price to decline. These issued shares, originally restricted shares, may
be sold in the future without registration under the Securities Act to the
extent permitted under Rule 144, Rule 701, or another exemption under the
Securities Act.
Insiders Will Continue To Have Substantial Control Over This Company And Could
Delay A Change In Corporate Control, Which May Negatively Affect Your Investment
As a result, these insiders and/or entities acting together will be able to
substantially influence the outcome of all matters requiring approval by
stockholders, including the election of and approval of significant corporate
transactions. This ability may have the effect of delaying a change, which may
be favored by other stockholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is currently not exposed to any significant financial market risks
from changes in foreign currency exchange rates or changes in interest rates and
does not use derivative financial instruments. A substantial majority of our
revenue and capital spending is transacted in U.S. dollars. However, in the
future, we may enter into transactions in other currencies. An adverse change in
exchange rates would result in a decline in income before taxes, assuming that
each exchange rate would change in the same direction relative to the U.S.
dollar. In addition to the direct effects of changes in exchange rates, such
changes typically could affect the volume of sales or foreign currency sales
price as competitors' products become more or less attractive.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Certain litigation involving the Company is described in the
Company's Form 10-K for the year ended May 31, 2001. Subsequent to
the filing of Form 10-K May 31, 2001, no material developments have
occurred with respect to such litigation.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
a) Exhibits:
None
b) Reports on Form 8-K.
None
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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: January 17, 2001 Elite Technologies, Inc.
By: /s/ Scott Schuster
-----------------------
Name: Scott Schuster
Title: Chief Executive Officer
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