As filed with the Securities and Exchange Commission on April 10, 2002
Registration No. 333-_____________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ELITE TECHNOLOGIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
TEXAS 6770 76-0252296
----- ---- ---------
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Identification No.)
Classification
Code Number)
Suite 1800, 3340 Peachtree Road N.E. Atlanta, Georgia 30326 (404) 812-5312
---------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Scott A. Schuster, President
3340 Peachtree Road N.E.
Suite 1800
Atlanta, Georgia 30326
Telephone: (404) 812-5312
Facsimile: (404) 812-5310
(Address, including zip code, and telephone number, including area code, of
registrant's agent for service)
COPIES OF COMMUNICATIONS TO:
Alexander E.Kuhne, P.C.
30400 Telegraph Road, Suite 357
Bingham Farms, MI 48025-4546
Telephone:(248) 644-4539
Facsimile:(248) 540-2661
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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, please check the following box and list
the Securities Act registration 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
--------------------------------
Proposed Proposed
Maximum Maximum
Title of Each Offering Aggregate Amount of
Class of Securities Amount to be Price Per Offering Registration
to be Registered Registered Unit Price Fee
---------------- ---------- --------- ---------- ------------
common stock,
$.0001 par value 93,837,663 $0.02* $1,876,753 469.18
*Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457c under the Securities Act of 1933 (the "Securities
Act") and based on the last trade price reported on the OTC Bulletin Board on
April 10, 2002.
**A filing fee in the amount of $469.18 was paid upon the filing of this
Registration Statement.
THE REGISTRANT HEREBY 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 SECTION 8(a), MAY
DETERMINE.
CROSS REFERENCE SHEET
This table sets forth the location in the prospectus of the information required
to be included in the prospectus in response to the items in Form SB-2.
Item of Form SB-2 Location in Prospectus
- ------------------- -----------------------
Item 1. Front of registration statement Outside front cover of prospectus and
outside front cover of prospectus.
Item 2. Inside front and outside back Inside front cover and outside
cover pages of prospectus. back cover of prospectus and
Additional Information.
Item 3. Summary information Risk Factors.
and risk factors.
Item 4. Use of proceeds. Use of Proceeds.
Item 5. Determination of offering price. Distributions of shares.
Item 6. Dilution. Not Applicable.
Item 7. Selling security holders. Selling stockholders.
Item 8. Plan of distribution. Distributions of shares.
Item 9. Legal proceedings. Elite's Business-Legal
Proceedings.
Item 10. Directors, executive officers, Information about Elite's
promoters and control persons History, Management, and
Principal Stockholders.
Item 11. Security ownership of certain Principal Stockholders.
beneficial owners and management.
Item 12. Description of securities. Information about the common
shares.
Item 13. Interest of named experts and Interest of Counsel, Experts.
counsel.
Item 14. Disclosure of Commission Elite's Management.
position on indemnification for
Securities Act liabilities.
Item 15. Organization within last Information about Elite's
five years. History.
Item 16. Description of business. Description of Business.
Item 17. Management's discussion and Management's Discussion and
analysis or plan of operation. Analysis of Results of
Operations and Financial
Condition.
Item 18. Description of property. Elite's Business-
Description of Property.
Item 19. Certain relationships and Transactions between Elite and
related transactions. its Management.
Item 20. Market for common equity Dividends on common stock and
and related stockholder matters. Related Stockholder Matters.
Item 21. Executive compensation. Elite's Management-
Compensation.
Item 22. Financial statements. Financial Statements.
Item 23. Changes In and Disagreements Changes in and disagreements
With Accountants on Accounting and with accountants on accounting
Financial Disclosure. and financial disclosure.
3
Preliminary prospectus dated April 10, 2002. Subject to Completion.
93,837,663 shares
ELITE TECHNOLOGIES, Inc.
COMMON STOCK
93,837,663 common shares are to be offered by Elite's existing stockholders for
their own account through their own stock brokers. This offering will begin on
the date of this prospectus and continue as long as this prospectus is in effect
or until all of the shares have been sold. Elite will not receive any proceeds
from the sale of these common shares by its existing stockholders. See
"Distribution by Selling Stockholders" at page 36.
An investment in Elite's common stock involves a high degree of risk. See,
"Risk Factors" beginning on page 7.
Elite's common stock has not been approved or disapproved by the U.S.
Securities and Exchange Commission or any state securities commission nor has
the Securities and Exchange Commission passed on the accuracy or adequacy of
this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is April 10, 2002.
Information contained in this prospectus is subject to completion or amendment.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sales of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such State.
4
ELITE TECHNOLOGIES, INC.
FORM SB-2
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY...................................................... 6
THE COMPANY............................................................. 7
RISK FACTORS............................................................ 7
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS................... 11
DESCRIPTION OF CAPITAL STOCK........................................... 12
USE OF PROCEEDS.............................. ......................... 12
DIVIDEND POLICY............................................. ......... 12
CAPITALIZATION......................................................... 12
SELECTED FINANCIAL DATA................................................ 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................. 14
DESCRIPTION OF BUSINESS............................... ................ 19
MANAGEMENT............................................................. 31
MANAGEMENT COMPENSATION................................................ 33
PRINCIPAL STOCKHOLDERS................................................. 34
DESCRIPTION OF SECURITIES............................................... 34
DISTRIBUTION BY SELLING STOCKHOLDERS........................................ 36
MARKET PRICE OF DIVIDENDS ON COMMON STOCK AND RELATED
STOCKHOLDER MATTERS........................................................ 38
SHARES ELIGIBLE FOR FUTURE SALE........................................ 38
LEGAL MATTERS....................... .................................. 39
EXPERTS................................................................ 40
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.................................................. 41
HOW TO GET ADDITIONAL INFORMATION........................................ 42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................ F-1
Elite has not authorized any dealer, salesman or other person to give any
information or to make any representations other than those contained in this
prospectus. Any person receiving any other information or representations should
not rely upon it. This prospectus is not an offer to sell the common shares and
it is not soliciting an offer to buy the common shares in any state or to any
person where the offer or sale is not permitted or where the person making the
offer or solicitation is not properly licensed. The state of Elite's affairs may
change after the date of this prospectus and of the information in it.
Until May 20, 2002 (40 days after the date of this prospectus), all dealers
effecting transactions in Elite's common shares, whether or not they are
participating in this distribution, may be required to deliver a copy of this
prospectus. Dealers participating in the distribution have an obligation to
deliver a copy of this prospectus when acting as underwriters, which could
include all dealers selling the common shares for existing stockholders.
5
PROSPECTUS SUMMARY
This summary highlights some information contained in this prospectus. You
should carefully read the entire prospectus, including the "Risk Factors"
section, the financial statements and the notes to the financial statements.
This summary does not contain all of the information that investors should
consider before investing in Elite's common stock. Elite is registering
93,837,663 shares of its common stock for resale by some of its stockholders,
including stockholders who have obtained the shares upon conversion of Elite's
convertible debt financing transaction. The selling price of the common stock
will be determined by market factors at the time of their resale.
Elite's common stock is listed on the OTC-Bulletin Board under the symbol
"ETCH". The last reported sale price of common stock on April 9, 2002 was $0.02.
Investing in Elite's common stock involves risks. See "Risk Factors" beginning
on page 7.
The Offering
Securities Offered This prospectus
relates to the offering of
93,837,663 shares of common
stock that are being
offered for sale or
conversion of convertible
debt financing
arrangements. See
"Description of shares"
under sub-captions
"Distributions by Elite"
and "Distributions by
selling stockholders."
Price Per Share Sales may be made at a
fixed price that may be
changed, at market prices
prevailing at the time
of sale, or at negotiated
prices.
Common Stock Outstanding 101,551,636 shares.
Use of Proceeds Elite will not receive any
of the proceeds from the
sale of shares by the
selling stockholders.
OTC Bulletin Board
Trading symbol ETCH
Risk Factors You should read the
"Risk Factors" section as
well as the other
cautionary statements
throughout the entire
prospectus, so that you
understand the risks
associated with an
investment in our
securities.
6
THE COMPANY
Elite was incorporated in Texas in June 1988 as CONCAP. Until July 1998,
Elite existed primarily as a development stage company created as a blank check
or blind pool company to be engaged in a search for a viable business operation
to acquire. In July 1998, CONCAP acquired, in a reverse merger, Intuitive
Technology Consultants, Inc. ("ITC"), a Georgia corporation founded in 1996. For
accounting purposes, ITC was treated as the surviving company even though CONCAP
was legally the surviving company. Following the transaction, former ITC
stockholders held seventy percent of the issued and outstanding common stock of
CONCAP. CONCAP then changed its name to Elite Technologies, Inc. on April 22,
1999. As part of Elite's acquisition strategy, Elite has completed the following
acquisition agreements throughtout its history. They are as follows:
o Scanlan Music, Inc. (Scanlan), as of November 5, 1998 in exchange of a
promissory note of $35,000,
o Temporary Help Connection, Inc, as of November 15, 1998 in exchange for
1,250,000 shares,
o Elevation Strategic Partners, Inc. (Elevation), as of March 31, 1999 for
1,000,000 shares and the assumption of debt of approximately $50,000,
o Virtual Enterprises, Inc. (Virtual), as of April 1, 1999 for 100,000
shares,
o Ace Manufacturing Group, Ltd. (AMG), as of March 15, 2000 for 2,000,000
shares and $250,000 cash,
o AC Travel, Inc., as of June 1, 2000 for 2,000,000 shares and $300,000 cash,
o International Electronic Technologies of Georgia, Inc., as of June 27, 2000
for 1,185,000 shares,
o Icon Computer Parts Corp. as of February 15, 2001 for 2,000,000 shares,
o World-Touch Communications, Inc., as of July 1, 2001 for 750,000 shares.
As of the report date of this filing the only operational entities, as
enumerated above, are International Electronic Technologies of Georgia, Inc.,
Icon Computer Parts Corp., and World-Touch Communications, Inc. Elite has
suspended operations of Scanlan Music, Inc., Temporary Help Connection, Inc.,
and AC Travel, Inc. due to decreased product and service demand and changed
economic conditions. Additionally, Elite has integrated the products and
services of Elevation Strategic Partners, Inc. and Virtual Enterprises, Inc.
into its other subsidiaries.
Elite's executive and production offices are located at Suite 1800, 3340
Peachtree Rd, Atlanta, Georgia 30326, its telephone number at that address is
(404) 812-5312 and its telephone facsimile number is (404) 812-5310. Elite's Web
site is at http://www.elitetechinc.com.
RISK FACTORS
Assumptions about future events used as a basis for certain statements in
this prospectus about future events may differ from actual future events,
causing the statements in this prospectus about future events to be inaccurate
and the results of future operations to be worse than suggested in this
prospectus. Elite makes statements in this prospectus about its possible future
based upon its current expectations. These statements are forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act and
Section 27A of the Securities Act and are subject to the safe harbors created by
7
those sections. Elite's actual future may be materially different from its
expectations described in this prospectus. Some of the words Elite uses to
describe its expected future are "believes", "anticipates", "expects",
"intends", "may", "will" and other similar expressions, but there may be others.
Also, any information described as forecasts, projections or future events or
circumstances and statements made with future-tense verbs are forward-looking
statements. Readers should realize that many of the possible future events
described in this prospectus are beyond Elite's control. Elite does not intend
to publicly publish any revisions to reflect events or circumstances occurring
after the date of this prospectus.
Unprofitable Operating History makes it difficult for potential purchasers
of Elite's common stock to evaluate their investment. Since Elite began
operations in 1998, Elite has not earned a profit in any period. Elite has
incurred a net loss of $29,075,847 for the year ended May 31, 2000, and a net
loss of $8,591,461 for the year ended May 31, 2001. Elite cannot give any
assurance it will be able to generate sufficient revenues to become profitable
in future periods. Without sufficient revenues, Elite will be unable to create
value in its common stock, which includes the shares offered by this prospectus,
and to pay dividends. Elite is subject to many risks, including risks related to
innovative business concepts, products and services. Elite's financial
statements are subject to a "going concern qualification", which means that
there is a substantial question as to whether Elite can remain in business. See
"Management's Discussion and Analysis" and "Description of Business."
Elite expects its limited liquidity and capital resources will make it
difficult to operate profitably. Elite has experienced limited liquidity and
capital resources and has financed its operations to date principally with
proceeds from sales of common stock for cash, services, and in payment of debts,
including part of the shares offered by the selling stockholders, and
collections of accounts receivable. Elite expects limited liquidity to continue
until Elite's operations generate a positive cash flow, of which there is no
assurance. Elite cannot give any assurance that it will be able to sell common
stock in the future or that it can obtain any other financing in the amount
needed for these purposes or, if it is available, that the terms of financing
will be acceptable to Elite. Elite will not receive any of the proceeds from the
sale of the shares by the selling stockholders.
Elite has experienced swings in its quarterly operating results which
contribute to its financial instability. Elite has experienced fluctuations in
its quarterly results. Revenues and gross margins in a particular quarter will
vary depending upon a number of factors, including:
1. General economic conditions;
2. The number and requirements of client engagements;
3. Employee hiring, utilization and turnover rates;
4. Changes in billing rates;
5. The amount of billing days;
6. The number, terms and size of acquisitions, if any, during a period.
Loss of key personnel could have a material adverse impact on Elite's
financial performance. Elite is significantly dependent upon the knowledge,
efforts and abilities of Scott A. Schuster, its founder, President and CEO, with
respect to the conduct of its current operations and implementation of its plan
to improve sales performance and achieve profitability, of which there is no
8
assurance. Elite is dependent upon Mr. Schuster because of his extensive
involvement with the development of Elite's current business. Elite's dependence
on Mr. Schuster is particularly important during the period prior to Elite
reaching a level of operations at which it has the financial ability to attract
and retain executive officers at market rates of compensation and benefits who
are not founders and major stockholders of Elite. The termination of employment
by Mr. Schuster for any reason while these circumstances continue could be
expected to have a materially adverse effect on Elite because Elite may not be
able to find a replacement for Mr. Schuster who has his level of dedication to
Elite, except for a person who would require a salary and benefits package which
at the present time would exceed Elite's financial resources. Elite is depending
upon Mr. Schuster as its founder and major stockholder for his dedication,
commitment and financial interest in Elite as a basis for his continuing
employment with Elite, regardless of its financial condition at any particular
time and its ability to pay full salary.
Minority stockholders will not be able to effect board changes even if they
are dissatisfied with management's performance. Mr. Schuster, who is a director
and CEO of Elite, owns an aggregate of 9,440,000 shares of Elite's common stock,
representing approximately 9.3 percent of Elite's total issued and outstanding
common stock. Mr. Schuster and other members of Elite's management hold an
aggregate of 23,454,250 shares of common stock, representing approximately 23.3
percent of Elite's total issued and outstanding common stock. Each issued and
outstanding share of common stock is entitled to one vote on each nominee for a
directorship. Elite's Articles of Incorporation do not authorize cumulative
voting for the election of directors. Any person who controls or can obtain more
than fifty percent of the votes cast for the election of each director will
control the election of all directors. Accordingly, it is likely the
stockholders who are also the directors and management of Elite hold a
sufficient number of votes to elect all of the directors of Elite and other
stockholders will not be able to elect any directors, even if they are
dissatisfied with management's performance.
Elite may not be able to establish and expand its information technology
and internet businesses which would have a material impact on the value of
Elite's common stock. Elite may not be able to successfully establish and expand
its information technology businesses. This risk is associated in part with
availability of capital or revenues to fund the costs of expansion of these
businesses and to some extent with Elite's ability to identify and employ sales
personnel who are capable of carrying out Elite's marketing plan under the
direction of management.
Termination of Elite's customer contracts would have a negative affect on
its earnings and performance. If client information technology requirements or
budgets were to decrease or their initiatives delayed and/or if such clients
were to seek alternatives to relying upon Elite's current service offerings,
Elite's revenues would decline. Many of Elite's engagements are terminable
without client penalty. An unanticipated termination of a major project can
result in an increase in underutilized employees and a decrease in revenues.
Elite may experience liability for employee and client actions which could
result in losses. Elite may incur liability through its placement of consultants
in client workplaces. Potential liability includes:
9
1. Errors and omissions;
2. Misuse of client proprietary information;
3. Misappropriation of funds;
4. Discrimination and harassment;
5. Theft of client property; or
6. Other criminal activity.
Although Elite has not experienced any such material claims, Elite cannot be
certain it will not experience such claims in the future. To reduce its
exposure, Elite maintains insurance covering general liability and errors and
omissions. However, insurance may not cover all such claims, and insurance
coverage may not continue to be available in an amount adequate to cover the
above liabilities.
If Elite is not able to make successful acquisitions, it may not be able to
expand its business or achieve revenues to be derived from acquisitions.
Management expects much of Elite's growth will be based on future acquisitions.
Competition for acquisition candidates may result in fewer potential
acquisitions, as well as less advantageous acquisition terms, including, but not
limited to, less advantageous price terms.
Elite's business strategy depends upon rapid growth which Elite may not be
able to manage successfully, if it is achieved. Elite cannot guarantee that it
will be able to expand and successfully manage its growth. Elite's ability to
grow will depend on a number of factors, including the following:
1. Competition;
2. Availability of capital;
3. Ability to maintain margins;
4. Ability to recruit and train additional qualified personnel; and
5. Management of costs in a changing technological environment.
Competition from better established and better financed companies could
harm Elite's chances for success. Elite's businesses compete against better
established and financed, larger and more financially stable enterprises. There
is no assurance Elite will be able to compete successfully against these types
of companies.
10
the future in the public trading market at or about the same time pursuant to
Rule 144 or pursuant to a subsequent registration statement under that Act could
have a depressive effect on the public market price of the shares.
The public market for Elite's shares has been limited which would delay the
time period over which purchasers of the shares could liquidate their investment
in the public market, requiring them to maintain all or part of their investment
over a longer period of time and subjecting their investment to greater
opportunity for price fluctuations. The public market for Elite's common shares
is thin. In other words, not many shares may be traded each day. In this case,
purchasers of the common shares may experience delays in getting out of their
investment.
Elite's share price has been volatile which could prevent purchasers of
Elite's shares from selling all of their investment at the price they desire,
with the probability of realizing a lower price on all or part of their
investment. Any public market for Elite's common shares may involve wide price
fluctuations. In this case, particularly coupled with a thin market, purchasers
of the common shares may experience significantly different prices when they
sell their common shares.
Penny stock rules may inhibit the market for Elite's shares, in that
certain larger brokerage firms will not purchase Elite's shares for their
customers and it will be more difficult for brokerage firms handling the shares
to attract new customers for investment in the shares, making it more difficult
for a trading market in the shares to develop. Elite common shares are
classified as a "penny stock". A penny stock is any stock that trades at less
than $5 per share on the OTC Bulletin Board or in the Pink Sheets. Certain
larger stock brokerage firms have a policy of prohibiting the purchase or sale
of penny stocks in their customers' accounts. All stock brokerage firms
effecting purchase orders for new clients in penny stocks are required by
federal law to send a standardized notice to the new clients regarding the risks
of investing in penny stocks, to provide additional bid, asked, broker
compensation and other information to the new client, to make a written
determination that the shares are a suitable investment for the new client and
to receive the new client's written confirmation regarding the information on
which the broker's determination was made and the client's written agreement to
the transaction, unless the client is an established client of the firm, prior
to effecting a transaction for the client. The policy of individual firms and
the federal law requirement may inhibit the development of a public market for
Elite's common stock.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933 and is subject to the "safe harbors" created by those
sections. These forward-looking statements are subject to significant risks and
uncertainties that may cause actual results to differ materially from those
discussed in or suggested by such forward-looking statements. The
forward-looking statements within this Prospectus are identified by words such
as "believes", "anticipates", "expects", "intends", "may", "will" and other
similar expressions regarding the Company's intent, belief and current
expectations. However, these words are not the exclusive means of identifying
such statements. In addition, any statements, which refer to expectations,
projections or other characterizations of future events or circumstances, and
statements made in the future tense are forward-looking statements. Readers are
cautioned that actual results may differ materially from those forecasted in or
11
suggested by the forward looking statements as a result of various factors, many
of which are beyond the control of the Company. The accompanying information
contained in this Prospectus, including without limitation the information set
forth under the headings "Risk Factors", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business", identifies
important factors which could cause or contribute to such differences. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements, which may be made to reflect
events, or circumstances occurring subsequent to the filing of the registration
statement, of which this Prospectus is a part, with the Securities and Exchange
Commission. Readers are urged to carefully review and consider the various
disclosures made by the Company in this Prospectus.
DESCRIPTION OF CAPITAL STOCK
As of February 28, 2002, 101,551,636 shares of $.0001 par value common stock
were issued and outstanding. Holders of common stock are entitled to one vote
for each share of common stock owned of record on all matters to be voted on by
stockholders, including the election of directors. The holders of common stock
are entitled to receive such dividends, if any, as may be declared from time to
time by the Board of Directors, at its discretion, from funds legally available.
The common stock has no preemptive or other subscription rights, and there are
no conversion rights or redemption provision. All outstanding shares of common
stock are validly issued, fully paid and non-assessable.
USE OF PROCEEDS
Elite will not receive any of the proceeds from the sale of the shares by
the selling stockholders.
DIVIDEND POLICY
Dividends on the common stock can be paid lawfully only out of current and
retained earnings and surplus of Elite, when, as and if declared by the Board of
Directors. Elite has not declared or paid any dividends on the common stock and
there is no assurance dividends will be paid in the foreseeable future. The
payment of dividends in the future rests within the discretion of its Board of
Directors and will depend, among other things, upon Elite's earnings, its
capital requirements and its financial condition, as well as other factors that
the Board of Directors deems relevant. Elite does not expect to pay cash
dividends within the next several years based upon its plan to invest its
profits, if any, in expansion of Elite's business. Elite's transfer agent is Mr.
Garza of Securities Transfer Corporation.
CAPITALIZATION
The following table sets forth the capitalization of Elite at November 30, 2001.
This table should be reviewed in conjunction with the financial statements of
Elite and the notes thereto included elsewhere in this Prospectus.
At November 30, 2001
Long term debt, net of current maturities: $1,342,801
Equity:
Common stock, $.0001 par value, 500,000,000 shares authorized
84,362,434 shares issued 8,436
Additional Paid-in Capital 44,447,823
Accumulated (deficit) (43,972,917)
Total stockholders' equity 483,342
12
SELECTED FINANCIAL DATA
Elite's selected historical consolidated financial data presented below
were derived from its consolidated financial statements, which as of and for the
year ended May 31, 2001 were audited by Israel & Ricardo Blanco, as of and for
the year ended May 31, 2000 were audited by Kirschner & Associates, and as of
and for the year ended May 31, 1999 were audited by KPMG LLP.
The selected financial data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
consolidated financial statements, the related notes, and the independent
auditors' reports for the years ended May 31, 2001, 2000, and 1999, which
contain explanatory paragraphs that state Elite's recurring losses from
operations and net capital deficiency raise substantial doubt about Elite's
ability to continue as a going concern. The consolidated financial statements
and the selected data do not include any adjustments that might result from the
outcome of that uncertainty.
Statement of Operations Data
Six Month Ended
November 30, 2001 Years Ended May 31,
-------------------
(Unaudited) 2001 2000 1999
----------- ---- ---- -----
Revenue From Services(1) $6,764,606 $13,268,877 $298,230 $1,937,317
Cost of Sales $6,081,343 $11,194,532 -- --
Salaries,Wages and Benefits $525,541 $791,553 $571,121 $2,136,613
Other Operating Expenses $1,010,828 $1,161,671 $1,481,216 $1,654,167
Depreciation and
Amortization $679,206 $1,166,137 $547,512 $116,846
Stock Based Compensation $471,800 $2,859,444 $10,751,765 $827,431
Investment Banking Fees -- $3,036,760 $15,872,719 --
Write down of assets $799,051 $1,528,824 -- --
Operating Loss $(2,803,163) ($8,470,044)($28,926,103)( $2,797,740)
Other Expenses, Net $282 $101,945 $66,036 $90,624
Interest Expense $50,212 $7,472 $16,100 --
Interest Income -- -- $(13,192) --
Settlement on Rescinded
Acquisition -- -- $80,800 --
Loss before income taxes $(2,868,657) ($8,579,461)($29,075,847) ($2,888,364)
Income Taxes (15,000) ($12,000) -- --
Net Loss $(2,868,657) ($8,591,461)($29,075,847) ($2,888,364)
=========== =========== ============ ==========
Net Loss Per Share of
Common Stock: Basic
and Diluted (2) ($0.04) ($.24) ($1.41) ($0.26)
Number of Shares Used
in Computing
Loss per Share 77,132,434 35,138,193 20,631,704 11,150,355
13
BALANCE SHEET DATA
Six Month Ended
November 30, 2001 Years Ended May 31,
-------------------
(Unaudited) 2001 2000 1999
----------- ---- ---- ----
Total Assets $7,048,931 $8,212,412 $5,872,191 $2,331,198
Total Liabilities $6,565,589 $5,346,620 $3,174,935 $1,771,581
Working Capital(Deficit) ($2,816,734) ($2,110,754)($1,192,782) $1,082,175
Stockholders' Equity $483,342 $2,865,792 $2,697,256 $559,617
(1) Revenues shown include only revenue since date of acquisitions of the
subsidiaries, and do not reflect any revenue related to Temporary Help
Connection which were accounted for on filings prior to year end May 31, 1999 by
Elite because of the rescission of the acquisition further described in the May
31, 1999 "Notes to Consolidated Financial Statements."
(2) Since inception, Elite has not declared or paid any cash dividends on its
common stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data and Elite's Consolidated Financial Statements included elsewhere
herein.
Introduction
For the fiscal year ended May 31, 2001, Elite completed three acquisitions.
Elite accounted for all acquisitions as purchases which are reflected as such on
the Consolidated Financial Statements. This does not take into account the year
to date financial information of these acquisitions, but only provides for
results of operations since the date of acquisition of the individual companies.
14
RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 2001 COMPARED WITH YEAR ENDED MAY 31, 2000
Revenues. Revenues from operations for 2001 increased $12,970,647 over
2000. The increase in revenues related to the internal restructuring of the
business and the subsequent increase in resources available to fund existing
projects. In addition, three acquisitions were completed in 2001.
Cost of Sales. Cost of sales increased from zero to $11,194,532 as a
function of the type of sales and increased sales between periods.
Salaries, Wages and Benefits. Salaries, Wages and Benefits increased
$220,432 over 2000. This increase is a function of the three acquisitions that
took place during fiscal 2001 and the staffing requirements related thereto.
Other Operating Expenses. Other Operating Expenses decreased by $319,545 as
compared to the previous period. Such decreases were attributed to reductions in
legal and professional costs, and restructuring of the business.
Depreciation and Amortization. Elite depreciates its assets, including
goodwill, on a straight-line basis over three to five years. Depreciation and
amortization expense increased $618,625 over 2000. This is directly attributable
to the acquisitions completed in 2001.
Stock Based Compensation. Elite recorded $2,859,444 in stock based
compensation during the fiscal year 2001. This amount is down from $10,751,765
from the previous period and is due primarily from the decrease in the trading
price of the Company's common stock. Management expects to continue with a stock
based compensation bonus plan to attract and retain new talent for Elite.
Investment Banking Fees. Investment banking fees decreased by $12,835,959
over the previous period due primarily to the drop in trading price of the
common stock.
Write Down of Assets. Current year amount attributable to the write down of
goodwill that is deemed non-recoverable. See notes to the consolidated financial
statements for additional information.
Operating Loss. Operating losses decreased $20,456,059 as compared to the
previous fiscal period. This decrease stems, in part, to increased revenues as
well as a lower trading price for common shares that impacts the expense that is
recorded when investment banking and stock based compensation transactions
occur.
Other Expenses Net. Other expenses net increased by $35,909 or 54%.
Net Loss. Decreased by $20,484,386 over the previous year for the reasons
noted above.
YEAR ENDED MAY 31, 2000 COMPARED WITH YEAR ENDED MAY 31, 1999
Revenues. Revenues from operations for 2000 decreased 84.6% from fiscal
1999. The decrease in revenues related to the internal restructuring of the
business and the subsequent decrease in resources available to fund existing
operations during the restructuring phase. Two additional acquisitions in fiscal
year 2000 were completed.
Salaries, Wages and Benefits. Salaries, Wages and Benefits decreased 73.3%
from 1999. The decrease is due to terminations of staff related to the
15
restructuring of the company.
Other Operating Expenses. Other Operating Expenses decreased by 10.5% to
$1,481,216. This decrease was attributed to reductions in legal and professional
costs and other cost cutting measures.
Depreciation and Amortization. Elite depreciates its assets, including
goodwill, on a straight-line basis over three to five years. Depreciation and
amortization increased by 369% over 1999. This is attributed to the amortization
of goodwill recorded in connection with the acquisitions completed in 2000.
Stock Based Compensation. Elite recorded an additional $9,924,334 in stock
based compensation during 2000 as compared to fiscal 1999. Management expects to
continue with a stock based compensation bonus plan to attract and retain new
talent for Elite.
Investment Banking Fees. Investment banking services for fiscal 2000 were
specific to Buckingham Equities to assist Elite in financings and to Rapid
Release Research for investor relations and public relation services.
Operating Loss. Operating losses increased from $2,797,740 to $28,926,103
or a 934% increase. This increase is primarily a function of shares issued for
stock based compensation and investment banking services while considering the
fair market value of the same shares.
Other Expenses Net. Amount decreased 27% from $90,624 in 1999 to $66,036 in
2000.
Loss Before Income Taxes (Net Loss). Net Loss increased 907% due to reasons
mentioned above.
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 using internal professional staff on
projects in order 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.
16
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 results from profitable operations located in non-
federal income tax jurisdictions.
Net Loss: Net loss increased by $150,463 for the six-month period due to
the above aforementioned reasons.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are more fully described in Note 1 to our to
our consolidated financial statements. However, certain of our accounting
policies are particularly important to the portrayal of our financial position
and results of operations and require the application of significant judgment by
our mananagement; as a result they are subject to an inherent degree of
uncertainty. In applying those policies, our management uses its judgment to
determine the appropriate assumptions to be used in the determination of certain
estimates. Those estimates are based on our historical experience, terms of
existing contracts, our observance of trends in the industry, information
provided by our customers and information available from other outside sources.
Our significant accounting policies include:
Excess of Cost Over Net Assets of Businesses Acquired.
On goodwill established prior to 2002, the excess of cost over net assets of
businesses acquired (goodwill) is being amortized using the straight-line method
over five years. All goodwill transactions were effective previous to the
adoption of FASB issued Statement of Financial Accounting Standards No. 141,
"Business Combinations", and No. 142 "Goodwill and Other Intangible Assets". The
amortization period is based on, among other things, the nature of the products
and markets, the competitive position of the acquired companies, and the
adaptability of changing market conditions of the acquired companies. At each
balance sheet date, the Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate equal to the rate of return that would be required by the Company
for a similar investment with like risks. The assessment of the recoverability
17
of goodwill will be impacted if estimated future operating cash flows are not
achieved.
Inventories.
Inventories are stated at the lower of cost or market, cost being determined on
the first-in, first-out method. Reserves for slow moving and obsolete
inventories are provided based on historical experience. We evaluate the
adequacy of these reserves on a quarterly basis.
Revenue Recognition and Accounts Receiveable.
Revenue on product sales is recognized when persuasive evidence of an
arrangement exists, the price is fixed and final, delivery has occurred and
there is a reasonable assurance of collection of the sales proceeds. We
generally obtain oral or written purchase authorizations from our customers for
a specified price and consider delivery to have occurred at the time of
shipment. Revenue is recognized at shipment and a reserve for sales returns is
recorded. Revenues from service sales is recognized when the service procedures
have been completed or applicable milestones have been attained, as specified by
each contract and as costs related to the contracts are incurred.
LIQUIDITY AND CAPITAL RESOURCES
Elite's capital requirements have principally related to the acquisition of
businesses, working capital needs and capital expenditures for growth. These
requirements have been met through a combination of private placements and
internally generated funds. Although Elite incurred direct costs for
acquisitions, Elite completed these acquisitions primarily with stock.
Elite currently lacks the working capital required to continue as a going
concern and to achieve its acquisition program and internal growth objectives.
Management expects to enter into agreements for debt or equity funding in the
near future in order to meet the needs of internal growth and acquisitions.
Management believes that such agreements for debt or equity funding will be
sufficient to enable Elite to continue operating as a going concern. However,
there is no assurance that an agreement for such additional funding will be
consummated.
CONTRACTUAL OBLIGATIONS
Elite has contractual obligations to make future minimum payments under
short-term noncancelable lease agreements for a period of five months ending
July 1, 2002. This minimum monthly obligation equates to $5,037.97. Elite also
has interest payment commitments related to convertible debt agreements.
Substantially all of our long-term borrowings are unsecured and consist
principally of convertible debt obligations.
ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements", which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. Management believes that Elite has complied with the
guidance of SAB 101.
18
In January 2001, Elite adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended. The adoption of SFAS No. 133 did not have a
material effect on the Company's financial position or results of operations
because Elite is not currently using derivatives.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets". Statement 141 eliminated the use of the pooling-of-interests
method of accounting for business combinations initiated after June 30, 2001.
Statement 142, which includes the requirements to test goodwill and
indefinite-lived intangible assets for impairment, rather than amortize them,
will be effective for fiscal years beginning after December 15, 2001.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement requires entities to record the fair
value of an asset retirement obligation in the period in which it is incurred.
This statement is effective for fiscal years beginning after June 15, 2002, with
earlier application encouraged.
In September 2001, the FASB issued SFAS No. 144 on asset impairment that is
applicable to financial statements issued for fiscal years beginning after
December 31, 2001. The FASB's new rules on asset impairment supercede SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", and provides a single accounting model for the
disposal of long-lived assets.
QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management 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.
DESCRIPTION OF BUSINESS
OVERVIEW
Elite is a technology company primarily focused on the hardware
distribution and communications sector of the technology industry. Through its
subsidiaries, Elite offers information technology ("IT") products, services, and
solutions to small, medium and large enterprises. Elite seeks to generate growth
through strategic acquisitions, increased sales, and operational efficiencies
achieved through centralization and standardization of its subsidiaries'
business procedures .
From 1998 until 2000, Elite offered a variety of IT services, including IT
staffing, custom software development and integration, Internet hosting, content
and technical development, hardware sales and service, and content delivery
platforms. Elite also served as an authorized solution provider and application
19
developer for leading enterprise-level software products. During this period,
Elite expanded its products and services through targeted acquisitions and
internal growth.
As part of its acquisition strategy, Elite acquired AMG in April 2000.
Following this acquisition, Elite suspended most of its other operations to
focus on developing and marketing AMG's Internet "pay-by-minute" browser (kiosk)
products. As a result, revenues in Fiscal Year 2000 decreased to $298,230 from
$1,937,317 in Fiscal Year 1999. Despite this decrease, Elite positioned itself
to acquire additional companies to augment AMG's kiosk products, including
companies providing content, hardware and related IT services.
In line with its stated strategy, Elite acquired International Electronic
Technology of Georgia, Inc. ("IET"), AC Travel, Inc. ("AC Travel"), and Icon
Computer Parts Corp. ("Icon") in June 2000, June 2000, and February 2001,
respectively. IET and Icon distribute hardware through small, mid-sized, and
large resellers, including Sam's Club in Puerto Rico, a division of Wal-Mart
Stores, Inc. All three businesses were acquired to create synergy with AMG's
kiosk products and expand Elite's overall products and services base. By virtue
of Elite's aggressive acquisition pattern, revenues in Fiscal Year 2001
increased to $13,268,877, an increase of 4,300% over Fiscal Year 2000.
Since July 2001, Elite has acquired World Touch Communications, Inc.
("World Touch"), a provider of telecommunications products and services
including voice-over IP ("VoIP"), and has incorporated Intelligent Software
Solutions of Georgia, Inc. ("ISS") and Icon USA, Inc. ("Icon USA"). Through
World Touch, Elite has expanded into the telecommunications sector. Through ISS,
a Microsoft OEM distributor for the Carribean, Elite has developed a software
distribution outlet. And through Icon USA, Elite has added a domestic partner to
Icon, its Puerto Rico subsidiary.
Elite's objective is to become a leader in hardware and software
distribution and VoIP telecommunications delivery. Elite intends to grow through
strategic acquisitions that create added value for its existing subsidiaries,
increased sales that target burgeoning markets in Puerto Rico, the Carribean,
and Latin America, and increased operational efficiences that reduce costs and
increase productivity across its core businesses.
Elite has suspended operations of Scanlan Music, Inc., Temporary Help
Connection, Inc., and AC Travel, Inc. due to decreased product and service
demand and changed economic conditions. Additionally, Elite has integrated the
products and services of Elevation Strategic Partners, Inc. and Virtual
Enterprises, Inc. into its other subsidiaries.
INDUSTRY BACKGROUND - COMPUTER HARDWARE AND PERIPHERALS
Computer hardware sales were, for many years, the core profit center in the IT
industry. The focus later shifted toward software. This shift toward software
put pressure on smaller manufacturers and distributors, until such time as only
a handful of major manufacturers and wholesalers remained. Medium to large
wholesalers and distributors continue to thrive, especially ones that use
hardware provision as an entry into an organization's IT department to offer
additional goods and services. The worldwide IT products and services
distribution industry generally consists of:
20
* manufacturers and software publishers, which Elite collectively terms
suppliers or vendors, and which sell directly to distributors, resellers and
end-users;
* distributors, which sell to resellers; and
* resellers, which sell directly to end-users and, in certain cases, to other
resellers.
A variety of reseller categories exist, including value-added resellers
("VARs"), corporate resellers, systems integrators, original equipment
manufacturers ("OEMs"), direct marketers, independent dealers, reseller
purchasing associations, PC assemblers, and computer retailers. Many of these
resellers are heavily dependent on distribution partners with the necessary
systems, capital, inventory availability, and distribution facilities in place
to provide fulfillment and other services. Different types of resellers are
defined and distinguished by the end-user market they serve, such as large
corporate accounts, small- to medium-sized businesses ("SMBs"), or home users,
and by the level of value they add to the basic products they sell.
Distributors generally sell to resellers and purchase a wide range of
products in bulk directly from vendors. Characteristics of the local reseller
and vendor environment, as well as other factors specific to a particular
country or region, have shaped the evolution of distribution models in different
countries. According to a December 2001 IDC report, total worldwide IT spending
on hardware, software, and services was estimated at approximately $996 billion
for calendar year 2001. Despite the current economic downturn that has impacted
overall demand for IT products and services, distribution continues to serve a
significant role in delivering IT products to market in a low-cost manner.
The technology distribution industry has undergone significant
consolidation as a result of several factors. More restrictive terms and
conditions from vendors, reductions in the number of vendor-authorized
distributors, a high level of price competition among distributors, and evolving
vendor business models (e.g., direct selling to a fragmented market) have driven
several of the weaker competitors from the market. During 1999 and early 2000, a
number of significant players within the IT distribution industry substantially
exited or merged with other players within the distribution market. As a result
of this recent consolidation, the U.S. market is served by two major IT
distributors and a number of other smaller IT distributors. Markets outside the
United States, which represent over half of the IT industry's sales, are
characterized by a more fragmented distribution channel; however, consolidation
has taken place in these markets as well. Additionally, suppliers and resellers
pursuing global strategies continue to seek distributors with global sales and
support capabilities.
A number of emerging industry trends provide new opportunities and
challenges for distributors of IT products and services. For example, the focus
on driving efficiency in business models, and, in particular, in the supply
chain, provides distributors with an additional means to serve both suppliers
and reseller customers by becoming providers of IT supply chain services.
Furthermore, the growing presence and importance of fulfillment capabilities
also provide distributors with new business opportunities as new categories of
products, customers, and suppliers emerge. Data storage products, for example,
enjoyed increasing demand with the growing use of the Internet, data
warehousing, and e-mail, and the resulting need for faster dependable data
access and richer content. Finally, manufacturer-direct sales initiatives,
21
developed in an effort to duplicate the success of the direct sales business
model, have been widely adopted by large suppliers. Although the
manufacturer-direct model may remove distributors from their traditional role,
Elite believes that this direct sales model presents new partnership
opportunities, such as providing logistics and fulfillment services and
third-party products to suppliers and reseller customers.
INDUSTRY BACKGROUND - INTERNET KIOSKS
As a relatively new industry, Internet kiosks provide a specific product to
a specific marketplace. More than just a leisure activity, the Internet has
become a vital link to communications. In many instances, consumers (both
business and residential) have a need to gain access to the Internet while not
at a traditional "desktop computer". Although laptops continue to provide this
service, many instances arise where the convenience of a laptop with a modem
connection is not available. In this case, an Internet kiosk is the solution to
the need. Allowing a consumer to access the Internet, retrieve e-mail, shop,
make travel plans, or even play interactive games online, the kiosk unit
provides inexpensive access to a host of on-line services. Industry analysts
have estimated that the overall number of kiosks sold in the United States will
increase twenty fold from 21,000 in 1996 to 445,000 by 2003.
INDUSTRY BACKGROUND - VOICE-OVER IP (VoIP)
Voice communication is currently conducted primarily through telephone
lines operation by regional telephone companies. Despite substantial competition
among these carriers and their resellers, traditional forms of international
long distance voice communication remain relatively expensive. This heightened
cost is maintained because traditional voice communication takes place over
independent circuits that must be open throughout the conversation. As only one
conversation can be conducted over a circuit, the cost to complete the call is
relatively expensive. Additionally, traditional phone service customers pay a
universal fee and a federal excise tax totaling approximately 15%. These taxes
are not currently required of VoIP or Internet telephony companies.
VoIP stands for voice-over Internet Protocol. It is also called IP
telephony, next generation voice services, converged networks, and XoIP
(Anything over Internet Protocol). Whatever it is called, the basic technology
is essentially the same. In its simplest form, VoIP service involves the
conversion of electronic voice impulses by a speaker into digitized data, which
is subsequently compressed and transmitted over a private network. Upon reaching
its destination, this data is unscrambled and transmitted to the listener. By
sending this signal over a private network, voice data is transmitted such that
conversations can occur in real-time with toll-quality clarity at costs that are
well below those offered by traditional telecommunication companies.
International Data Corporation projects that the Internet telephony market
will surpass $11.9 billion in 2003, up from only $100 million in 1998. Two key
features are driving this growth: first, VoIP's relative cost-savings; second,
VoIP's enhanced services, including e-commerce, video, fax, online customer
support, voice-mail, and pages. This "one-pipe, multiple-services" functionality
provides a converged network that delivers significant savings and performance
for small, medium, and large enterprises.
22
THE COMPANY'S SERVICES
1. Hardware and Software Distribution
Elite markets computer hardware, networking equipment, and software through
four of its subsidiaries: International Electronic Technology of Georgia, Inc.,
Intelligent Software Solutions of Georgia, Inc., Icon Computer Parts Corp., and
Icon USA, Inc. These products are marketed to reseller customers throughout the
United States, the Caribbean, and South America who in turn market and sell
directly to end-user customers. Additionally, Elite provides supply chain
optimization by assisting its vendors in marketing their products through an
aggregated distribution outlet, providing a value-added compliment to products
that otherwise would be marketed alone.
Elite offers its customers aggregation of, and access to, a broad array of
products and services by distributing and marketing more than six hundred
products from dozens of suppliers, including many leading hardware suppliers,
networking equipment suppliers, and software publishers. Elite's broad product
offering includes:
* desktop personal computers ("PCs"), servers, and workstations;
* personal digital assistants;
* wireless devices;
* mass storage devices;
* CD-ROM, CD-RW, and DVD drives;
* monitors;
* printers;
* scanners;
* modems;
* networking hubs, routers, and switches;
* network interface cards;
* components;
* business application software;
* entertainment software;
* consumer electronics; and
* computer supplies and accessories.
In conjunction with Elite's distribution business, Elite provide various
services to customers, including technical support, warranty authorization and
approval, and tailored financing programs. Elite is focused on providing a broad
range of products and services, quick and efficient order fulfillment, and
consistent on-time and accurate delivery to its customers around the world.
Elite's distribution subsidiaries distribute products from leading computer
hardware vendors, network equipment vendors, and software publishers and include
products by companies such as 3Com, Adobe, APC, Cisco Systems, Epson,
Hewlett-Packard, IBM, Iomega, Intel, Microsoft, NEC/Mitsubishi Electronics,
Novell, Quantum/ Maxtor, Seagate, Sony, Symantec, Toshiba, Veritas, View and
View, and Western Digital.
Products are generally warranted by the manufacturers. Elite distributes
the products and allows return of defective products by its customers. Elite
does not independently warrant the products distributed by its subsidiaries;
however, it does warrant the following: (1) its services with regard to products
that it configures for its customers, and (2) products that
23
it builds to order from components purchased from other sources. Historically,
warranty expense has not been material.
2. Internet "Pay-by-Minute" Kiosks
Through its subsidiary, AMG, Elite designs, builds and markets an Internet
"pay-by-minute" browser (kiosk) to various distribution outlets for primary use
in hotels, airports and entertainment establishments. Elite sells a variety of
Internet kiosk units, customizable for their individual application and
environment. Elite markets its kiosks through direct sales, Web promotion
corporate sponsorship programs, and its hardware distribution subsidiaries. The
kiosks not only provide connectivity to the public, but also allow advertisers
and retailers to promote their offerings in an interactive format.
Elite specializes in Internet kiosks that function as public Internet
"pay-by-minute" stations. Elite's public Internet kiosks have two separate niche
markets: (1) automated business center; and (2) entertainment access.
Elite's automated business center provides a solution for business travelers
by allowing them to access e-mail, send or receive a fax, make color copies, or
surf the Internet. The target markets for these automated business centers are
frequently traveled business locations, such as hotels, suites, convention
centers and airports. Payment options include cash, credit cards and optional
coupons to make it easy to meet the versatile needs of today's traveler.
Automated business centers may also be coupled with a unique,
revenue-generating coupon program. A hotel with an advertising kiosk may issue
each guest $10 dollars in coupons to be used at the kiosk. While using the
coupons, a guest is offered various services sponsored by advertisers who pay
for their advertising space on the kiosk. The guest may print out these
advertisements for a small fee or for free, depending on the revenue plan of the
kiosk operator. The kiosk operator, in turn, receives revenues from those
companies advertising on the kiosk. Advertisements may offer directions,
discounts, phone numbers, or other information helpful to a typical business
traveler.
Elite's automated business centers currently offer the following
capabilities:
1. Internet browsing withi single click access to stock quotes, news, search
engines, and more; 2. Send and retrieve E-mail; 3. Send and receive fax
capabilities; 4. Color copy capabilities; 5. Full screen display advertising; 6.
Scroll bar advertising with web site links; 7. Daily usage log of transactions;
8. Automated monitoring of the browser software to ensure the application is
always running; 9. Daily automated re-booting of the automated business center;
10. Password protected operating system.
Elite intends to develop automated business centers with the following
additional capabilities:
24
1. Video E-mail;
2. Video conferencing;
3. Full screen display advertising with coupon program;
4. Internet usage destination log;
5. Word processing and spreadsheet capabilities;
6. Document editing capabilities;
7. Telephony capability.
The entertainment access Internet terminal caters to restaurants, coffee
shops, turnpike stations, auto service stations, grocery stores, shopping malls,
convenience stores, roller rinks, arcades, movie theaters, and museums. The
kiosk offers over two thousand single-click web sites. The entertainment access
Internet terminal is programmable, enabling custom programming, for the various
sites. It also includes on-line sports books, trivia, car manufacturers,
classifieds and dating services.
3. Telecommunication Services
Elite provides next generation voice solutions to small, medium, and large
enterprises through its recently acquired subsidiary World Touch Communications,
Inc. Built around World Touch's branded VoiceBay (tm) VoIP product lines, World
Touch offers end-to-end IP services ranging from carrier connectivity to
enterprise-wide deployment.
World Touch, a relative start-up in the telecommunications sector, markets
its quality VoIP solutions to international enterprises seeking to lower their
long-distance costs while accessing the benefits of next generation voice
services. Working with its customers, World Touch develops a customized VoIP
model built around one of its VoiceBay (tm) product lines. Based upon that
model, World Touch maximizes a variety of industry relationships to build a
dynamic VoIP package with excellent connectivity rates and reliable hardware and
software platforms.
World Touch's product lines are grouped into four trademarked categories:
* VoiceBay (tm) Carrier - a solution for service providers seeking quality
connectivity and termination diversity;
* VoiceBay (tm) Enterprise - a solution for companies, government agencies, and
educational communities implementing VoIP at the network center or the network
edge;
* VoiceBay (tm) At Home - a solution for consumers with reliable broadband
access offering softphone and IP phone dialup for low-long distance calls at
amazing rates;
* VoiceBay (tm) First Step - a low-cost, PC-based solution designed to introduce
customers to the benefits of VoIP without investing in additional hardware.
In addition to its VoIP product line, World Touch also offers customers
traditional call re-origination (callback), a service that allows international
telecommunication customers to make low-long distance phone calls using
U.S.-based telephone lines.
25
BUSINESS STRATEGY
Elite's core business strategy is to generate growth through through
strategic acquisitions that create added value for its existing subsidiaries,
increased sales that target burgeoning markets in Puerto Rico, the Carribean,
and Latin America, and increased operational efficiences that reduce costs and
increase productivity across its core businesses.
Elite continues to seek acquisition targets to grow its business through
the acquisition and roll up of synergistic companies that meet certain criteria.
These criteria includes:
1. A minimum revenue stream of $5 million annually;
2. Profitable or nearly profitable;
3. Strong management able to commit for a minimum of three years following
Elite's purchase of the company; and
4. Products or services in line with the general direction of Elite.
Other specific strategies designed to increase sales and increase
operational efficiencies include:
* Reduce Operating Costs Through Continuous Improvements in Systems and
Processes. Elite constantly strives to reduce costs in its business through
initiatives designed to streamline business processes and further increase
operating efficiency. These initiatives include centralization and
standardization of business procedures among Elite's core companies.
* Reduce Operating Costs Through Consolidation. In addition, Elite has
implemented restructuring programs designed to reduce operating expenses through
consolidation of facilities and streamlining of functional areas including
product management, IT resources, sales, marketing, operations, and other
administrative functions. For example, AMG shares warehouse facilities with IET.
Additionally, AMG's kiosk products are marketed through Elite's hardware
distribution outlets.
* Continue to Provide Outstanding Execution for Reseller Customers. Elite is
committed to providing superior service and improving timely and efficient
product delivery throughout its distribution network. Elite management work
directly with subsidiary companies to review customer expectations and ensure
customer satisfaction. Responsiveness to customers, processing accuracy, and
order fill rate are high priorities.
* Increasing Focus on Large Distribution Outlets. Elite has historically
provided greater focus and resources in supporting small and medium-sized
reseller customers. Elite intends to maintain its dedication to this segment
while increasing its focus on large distribution outlets. Elite has recently
begun offering products in Puerto Rico through Sam's Club, a division of
Wal-Mart Stores, Inc. Elite believes its increased focus on large distribution
outlets such as Sam's Club will create additional growth and profit
opportunities.
* Establish Market Share in Emerging Product Areas. Elite intends to target
emerging IT product and service segments in their developmental stages and
establish product expertise. This will allow Elite to keep its broad product
line current with emerging trends.
26
SALES AND MARKETING
Elite employs sales representatives who assist resellers with product
specifications, system configuration, new product/service introductions,
pricing, and availability. Elite's sales organization generally focuses on
resellers in the following market sectors:
* Value-added resellers, or VARs;
* Corporate resellers; and
* Direct and consumer marketers.
Elite's product management and marketing groups also promote sales growth,
create demand for vendors' products and services, and facilitate customer
contact. For example, marketing programs are tailored to meet specific supplier
and reseller customer needs. These needs are met through a wide offering of
services by Elite's in-house marketing organization, including advertising,
direct mail and fax campaigns, sales promotions, trade shows and other events.
Elite offers various credit terms to qualifying customers as well as
prepay, credit card, and cash on delivery terms. Elite closely monitors reseller
customers' credit worthiness through Elite's standardized information system,
which contains detailed information on each customer's payment history as well
as other relevant information. If Elite's receivables experience a substantial
deterioration in their collectibility, Elite's financial condition and results
of operations may be adversely impacted.
COMPETITION
Elite operates in a highly competitive environment, both in the United
States and internationally. Both the IT products and services distribution
industry and the telecommunications industry are characterized by intense
competition, based primarily on:
* price;
* product and services availability;
* speed and accuracy of delivery;
* effectiveness of sales and marketing programs;
* credit terms and availability;
* ability to tailor specific solutions to customer needs;
* quality and breadth of product lines and services; and
* availability of technical and product information.
Elite believes it can compete favorably with respect to each of these factors.
1. Hardware and Software Distribution
27
Elite's hardware and software distribution subsidiaries compete in the U.S.
against full-line distributors such as Tech Data, Ingram Micro Inc., and Synnex
Information Technologies, as well as specialty distributors such as Gates/ Arrow
in desktop and enterprise products, Daisytek in consumables, and Avnet in
industrial and enterprise products. The hardware and software distribution
industry has limited barriers to entry and is subject to rapid change. Many
national, regional and local companies, including full service agencies, serve
the industry and specialized temporary services agencies. In addition to the
competitors named above, Elite's competitors also include a variety of small and
medium-sized computer hardware manufacturers and distributors.
Competition in this industry is typically characterized by pricing
pressures, product availability and potential obsolescence, speed and accuracy
of delivery, effectiveness of sales and marketing programs, credit availability,
ability to tailor specific solutions to customer needs, quality of product lines
and services, and availability of technical support and product information.
Elite's ability to compete favorably is principally dependent upon its ability
to control inventory and other operating costs, react timely and appropriately
to short-and long-term trends, price its products competitively, increase its
net sales and maintain economies of scale. In the early 1990s, the United States
computer industry moved toward open sourcing pursuant to which vendors
authorized multiple distributors to sell to resellers on equal terms rather than
relying on exclusive relationships. As a result, the competitive environment has
become more intense, leading to accelerating industry consolidation and
declining gross margins.
2. Internet Kiosks
Elite's kiosk subsidiary competes against other kiosk companies located
both inside and outside the United States. These include Infotouch, Cyber Kiosk,
NetBooth, PC Kiosk, and Internet Media Group. Many of Elite's competitors in
this sector have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than Elite has.
Additionally, the kiosk industry is subject to rapid technological change. In
addition the companies named above, additional competitors may include small
regional entitities or international entities establishing a domestic presence.
Elite's ability to compete favorably in this rapidly evolving market depends on
successfully marketing of its kiosk units through direct sales, hardware
distribution outlets, and distribution partners. In addition, Elite must
differentiate its kiosks from its competitors through ongoing product research
and innovation.
3. Telecommunication Services
Elite's telecommunications subsidiary competes against other VoIP providers
and carriers including DialPad, InfoNet, DeltaThree, iBasis, ITXC, and
Net2Phone. These companies offer PC-to-phone or phone-to-phone services that are
similar to the services Elite offers. The long distance telephony market and, in
particular, the Internet telephony market, is highly competitive. There are
several large and numerous small competitors, and Elite expects to face
continuing competition based on price and service offerings from existing
competitors and new market entrants in the future. The principal competitive
factors in the market include price, quality of service, breadth of geographic
28
presence, customer service, reliability, network capacity and the availability
of enhanced communications services.
Many of Elite's competitors in this sector have substantially greater
financial, technical and marketing resources, larger customer bases, longer
operating histories, greater name recognition and more established relationships
in the industry than Elite has. As a result, certain of these competitors may be
able to adopt more aggressive pricing policies, which could hinder Elite's
ability to market its Internet telephony services. One of Elite's key
competitive advantages is the ability to route calls through Internet service
providers, that allows Elite to bypass the international settlement process and
realize substantial savings compared to traditional telephone service. Any
change in the regulation of Internet service providers could force Elite to
increase prices and offer rates that are comparable to traditional telephone
call providers.
GOVERNEMENT REGULATION
The primary area of Elite's business activities potentially affected by
present or future government regulation is its telecommunications services.
Voice-over-Internet telephony is currently unregulated by the Federal
Communications Commission (FCC). However, efforts to regulate this service may
increase. On May 16, 2000, the U.S. House of Representatives passed H.R. 1291,
the Internet Access Charge Prohibition Act. The bill prohibits the FCC from
imposing on Internet service providers any access fees to support the Universal
Service Fund that are imposed on telephone companies if the "contribution" would
be based on a measure of the time that telecommunications services are used in
the provision of Internet access service.
Despite the prohibition against access surcharges, the bill does allow the
FCC to charge access fees for Internet telephone services, regardless of whether
a telephone or other apparatus is used to place a call. The bill failed in
limiting the FCC to flat rate charges on Internet phone use. Thus, the FCC can
choose any method it wants, including a fee based on the per-minute usage by
consumers. Although no rulings regarding any limitations have yet been made by
the FCC, there is no assurance such regulations may not be adopted in the
future.
The FCC is currently considering whether to impose surcharges or other
common carrier regulations upon certain providers of Internet telephony,
primarily those that provide Internet telephony services to end users located
within the U.S. While the FCC has presently decided that information service
providers, including Internet telephony providers, are not telecommunications
carriers, various companies have challenged that decision. Congressional
dissatisfaction with FCC conclusions could result in requirements that the FCC
impose greater or lesser regulation, which in turn could materially adversely
affect Elite's business, financial condition, operating results and future
prospects.
The FCC has expressed an intention to examine the question of whether
certain forms of phone-to-phone Internet telephony are information services or
telecommunications services. The two are treated differently in several
respects, with certain information services being regulated to a lesser degree.
The FCC has noted that certain forms of phone-to-phone Internet telephony appear
to have the same functionality as non-Internet telecommunications services and
lack the characteristics that would render them information services.
29
If the FCC were to determine that certain Internet-related services
including Internet telephony services are subject to FCC regulations as
telecommunications services, the FCC could subject providers of such services to
traditional common carrier regulation, including requirements to make universal
service contributions, and/or pay access charges to local telephone companies.
It is also possible that the FCC may adopt a regulatory framework other than
traditional common carrier regulation that would apply to Internet telephony
providers. Any such determinations could materially adversely affect Elite's
business, financial condition, operating results and future prospects to the
extent that any such determinations negatively affect the cost of doing business
over the Internet or otherwise slow the growth of the Internet.
State regulatory authorities may also retain jurisdiction to regulate the
provision of intrastate Internet telephony services. Several state regulatory
authorities have initiated proceedings to examine the regulation of such
services. Others could initiate proceedings to do so.
The regulatory treatment of Internet telephony outside of the U.S. varies
widely from country to country. A number of countries that currently prohibit
competition in the provision of voice telephony also prohibit Internet
telephony. Other countries permit but regulate Internet telephony. Some
countries will evaluate proposed Internet telephony services on a case-by-case
basis and determine whether it should be regulated as a voice service or as
another telecommunications service. Finally, in many countries, Internet
telephony has not yet been addressed by legislation. Increased regulation of the
Internet and/or Internet telephony providers or the prohibition of Internet
telephony in one or more countries could materially adversely affect Elite's
business, financial condition, operating results and future prospects.
The other area of Elite's telecommunications services, call re-origination
(callback), is also an area of potential government regulation. Callback is a
service approved and supported by the FCC. The FCC has determined that
international callback serves the public interest by promoting competition in
international markets and driving down international phone rates. The FCC,
however, also recognized a foreign government's sovereign right to prohibit the
provision of callback within its territory. Under the doctrine of international
comity, the FCC prohibits U.S. carriers from offering the uncompleted call
signaling form of callback in countries that expressly prohibit callback. The
FCC has provided a reporting mechanism whereby foreign entities can demonstrate
that they have passed a law specifically banning callback. Elite offers callback
only in international areas where it is a widely accepted and legal means of
lowering international telecommunication costs. Increased regulation of
callback, either domestically or internationally, could materially adversely
affect Elite's business, financial condition, operating results and future
prospects.
INTELLECTUAL PROPERTY RIGHTS
Elite's success in the information technology services business will
depend, in part, upon its hardware and software deployment, methodology, and
other proprietary intellectual property rights. Elite does not hold any patents
30
or registered copyrights. Instead, Elite intends to rely on a combination of
trade secret, nondisclosure and other contractual arrangements and technical
measures, and copyright and trademark laws, to protect its proprietary rights.
Elite generally enters into confidentiality agreements with its employees,
consultants, clients and potential clients and limits access to and distribution
of its proprietary information. However, there is no assurance others may not
infringe on Elite's rights.
Although Elite believes its services and products do not infringe on the
intellectual property rights of others, other parties may nevertheless make
infringement claims against Elite in the future.
FACILITIES AND PERSONNEL
Elite's corporate office is located in the midtown Atlanta area. Other
operating locations are north of the downtown Atlanta area and owned real estate
located in Puerto Rico.
As of April 10, 2002 Elite employed twenty-two full-time employees and
consultants. Elite is not a party to any collective bargaining agreements and
considers its relationships with its employees to be satisfactory.
MANAGEMENT
The names, ages and terms of Elite's directors and executive officers are
set forth in the following table:
Director
Name Age Positions with Elite Since
Scott A. Schuster 38 Chairman of the Board
Chief Executive Officer 1996
David Aksoy 37 Director 1998
Stephan R. Ragsdale 36 Director 2000
Frank Noori 38 Director and Chief
Operating Officer 2000
David M. Peacos 40 Chief Financial Officer N/A
Justin Holbrook 30 Vice President of N/A
Mergers and Acquisitions
Each director is elected by holders of a majority of the common stock to
serve for a term of one year and until his or her successor is elected and
qualified, which is generally at the next annual meeting of stockholders. Elite
provides 250,000 shares of common stock for each year served as compensation to
each director. Officers serve at the will of the board. Elite may indemnify
directors and officers against damages that qualify, in the opinion of the
disinterested member(s) of the board, for indemnification under Texas law and
Elite's Bylaws. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted for directors, officers or persons controlling
Elite pursuant to Florida law, Elite has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
31
Scott A. Schuster is Chairman of the Board, Chief Executive Officer,
President and Director of Elite. He is a founder of CONCAP in 1998. Prior to the
formation of Elite, Mr. Schuster ran an IT consulting practice. Mr. Schuster has
over twelve years' experience in the IT industry. He has worked on and designed
IT solutions for the United States Postal Service, Delta Airlines, the Southern
Company (for the Atlanta Olympic Games of 1996), and many other Fortune 500
companies. Mr. Schuster's education consists of a high school education.
David Aksoy, M.D. has served as Director of Elite since 1998. Dr. Aksoy
currently works in private practice as a general practitioner at a facility
named Primary Care Network. Dr. Aksoy graduated from the University of Western
Ontario with a Bachelor's of Science Degree in 1985. He later graduated, in
1989, from the University of Western Ontario with a M.D. degree.
Stephan R. Ragsdale attended Covenant College during the late 1980's before
returning to Atlanta, Georgia during the early 1990's to launch his professional
career. Mr. Ragsdale was the co-founder in a business that was involved in the
automation of health care nationwide as hospitals and practitioners began the
process of converting practices and processing claims electronically. He also
maneuvered the company to be acquired by a public entity. Through his own
extensive travel, Mr. Ragsdale envisioned the need for an automated business
center. Mr. Ragsdale has been involved with two-start-ups in relation to the
automated business center. On March 15, 2000 Mr. Ragsdale sold one of his
businesses Ace Manufacturing Group, Ltd., (AMG), to Elite Technologies Inc. He
is currently involved in a start-up business utilizing his contacts in the
telecommunications industry. Some of his clients include Nortel, Lucent,
Sycamore, Ciena, and Agere OptoElectronics.
Frank Noori completed a double Bachelor's Degree in Computer Science and
Mathematics from Georgia State University in 1988, while holding a production
management job with an Atlanta based company, Mainstreet Advertising. He then
earned his Masters degree in Mathematics from Georgia Tech in 1992. From 1990 to
1992, he was also a part-time Professor's aid at the science and computer
department in Dekalb College in Atlanta. Mr. Noori started his own Corporation
in 1992, IET Startek, in Atlanta and later expanded the business in Tampa,
Florida and Columbia, South Carolina. Mr. Noori then managed three wholesale
computer distribution centers with annual sales up to $30 million. In July 2001,
he sold his business, International Electronic Technology of Georgia, Inc., to
Elite. Subsequent to this sale, he has accepted the position of Chief Operating
Officer at Elite Technologies, Inc.
David M. Peacos serves as Chief Financial Officer of Elite Technologies
Inc. Mr. Peacos began his sixteen-year career in public accounting in 1985 with
the firm Ernst & Young. Subsequent to work experience at Ernst & Young he
transitioned his career to a regionally based accounting firm. Eight years later
Mr. Peacos became partner of a public accounting firm located in Fort
Lauderdale, Florida. Mr. Peacos received a Bachelor's of Science Degree in
Financial Accounting from The University of New Haven in 1985 and a Masters of
Accounting Degree from Nova Southern University in 1992. Mr. Peacos has
successfully passed the Certified Public Accountant, "CPA", exam as well as the
Certified Valuation Analysis, "CVA", exam.
Justin Holbrook, age 30, has been involved in developing and implementing
technology solutions in the public and private sectors since 1995. As Vice
President of Mergers and Acquisitions of Elite Technologies Inc., he plays a key
32
role in evaluating the strategic positions of potential acquisition candidates
and their facility for integration into the Elite family of companies. Prior to
joining Elite in September 2001, Mr. Holbrook co-founded World Touch, LLC (later
World Touch Communications, Inc.) in early 2001. World Touch was sold to Elite
in July 2001. Mr. Holbrook received a B.A. from Georgetown University, magna cum
laude, and holds a J.D. from Harvard Law School.
MANAGEMENT COMPENSATION
The following table sets forth the compensation paid by Elite to its chief
executive officers and its one other highest paid employee receiving $100,000 or
more in annual compensation for each of the last three fiscal years and the
positions with Elite for which the compensation was paid.
Fiscal
Name Year Position(s) Salary
Scott A. Schuster 2001 Director and CEO $250,000*
2000 Director and CEO $250,000*
1999 Director and CEO $150,000
Stephan R. Ragsdale 2000 Director $45,000~
Frank Noori 2001 Director, COO $150,000
2000 Director $120,000
1999 N/A N/A
David M. Peacos 2001 CFO $73,000~
*Accrued per employment agreement but substantially waived due to the financial
condition of Company.
~Actual compensation paid.
Options
Elite did not grant any options to its management during the fiscal years ended
May 31, 2001 and May 31, 2000.
Employment Agreements
Elite currently has an employment agreement with Mr. Schuster. The term of
the contract is five years with a base salary of $250,000 annually and bonuses
equal to 1.5 percent of the net profits of Elite. The employment agreement also
provides for termination based on death, disability, voluntary resignation or
material failure in performance and for severance payments upon termination
under certain circumstances. The agreement contains certain provisions that will
preclude Mr. Schuster from competing with Elite for a period of two years from
the date of termination of employment. All Directors and other principal
employees of Elite have employment agreements that depict various company
benefits.
Transactions with Management and Principal Stockholders
The Company has made loans to various officers of the Company. These loans
are to be evidenced by an employment agreement and are payable in not more than
33
sixty monthly principal and interest installments starting with the first day of
the month following the month in which the loan is made, with interest at the
rate of three percent per year on the unpaid balance of the loan outstanding. In
the event of default of any installment of principal and interest when due, the
entire balance of principal and accrued interest becomes payable on demand. Mr.
Schuster's loan with accrued interest as of May 31, 2001, 2000, and 1999 is
$707,624, $289,084 and $215,583, respectively.
PRINCIPAL STOCKHOLDERS
The following table presents the names of Elite's directors and officers,
the number of shares and percentage which each of them owns before and after the
offering covered by this prospectus.
Number of Number of
shares Before shares After Percent
Name Sale of shares Sale of shares Before After
- ---- -------------- -------------- ------ -----
David Aksoy (1) 1,989,250 1,989,250 1.98% 1.98%
Stephan R. Ragsdale (1)3,425,000 3,425,000 3.41% 3.41%
Scott A. Schuster (1) 9,440,000 9,440,000 9.39% 9.39%
Frank Noori(1) 8,500,000 8,500,000 8.45% 8.45%
David Peacos (1) 100,000 100,000 0.10% 0.10%
All directors
and officers
as a group
(5 persons) 23,454,250 23,454,250 23.33% 23.33%
(1) All stock ownership by directors and officers is both beneficial and
legal. The address of all directors and officers is the address of Elite.
DESCRIPTION OF SECURITIES
The following section does not purport to be complete and is qualified in all
respects by reference to the detailed provisions of our certificate of
incorporation and bylaws, copies of which have been filed with our registration
statement of which this prospectus forms a part. Provisions of applicable Texas
law also govern our capital stock.
General
The authorized Common Stock of the Company consists of 500,000,000 shares, with
a par value per share of $.0001. A total of 84,362,434 shares of Common Stock
were outstanding at November 30, 2001.
Common Stock
Holders of the Common Stock, which includes the Shares, (i) have equal and
ratable rights with all holders of issued and outstanding Common Stock to
dividends from funds legally available therefor, when, as and if declared by the
Board of Directors of the Company; (ii) are entitled to share ratably with
holders of issued and outstanding Common Stock in all of the assets of the
Company available for distribution to holders of Common Stock, after
distribution of the liquidation preference on the Preferred Stock, upon
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
34
not have preemptive, subscription or conversion rights; (iv) have no redemption
or sinking fund provisions applicable thereto; and (v) have one vote on election
of each director and other matters submitted to a vote of stockholders. All
shares of Common Stock outstanding are, and those sold pursuant to this
Prospectus when issued and delivered against payment therefore, will be, duly
authorized, legally issued, fully paid and non-assessable.
Selling Shareholders
The following table presents the name of each existing stockholder who
owns less than one percent of Elite's outstanding common shares and who has a
right to sell common shares under this prospectus. These existing stockholders
have included the total number of 93,837,663 common shares for sale under this
prospectus. Elite will not receive any proceeds from the sales made by these
existing stockholders.
Holders of restricted stock to be registered for sale this Offering:
Name of Number of Number of
Selling shares Before shares sold Percentage
Stockholder Sale of shares this Offering Before After
Zaid Al-Sulamain 1,499,182 (C) 1,499,182 1.48% 0.77%
Faith Pickering 2,200,000 (A) 2,200,000 2.17% 1.13%
Michael Herman 2,200,000 (A) 2,200,000 2.17% 1.13%
Alicia Nakata 4,400,000 (A) 4,400,000 4.33% 2.27%
Arab Commerce Bank 1,538,888 (C) 1,538,888 1.52% .79%
Middlemarch Partners 750,000 (C) 750,000 .74% .39%
China Bay Holdings 3,761,980 (C) 3,761,980 3.70% 1.94%
Edwin Tennenhaus 1,700,000 (A) 1,700,000 1.67% .88%
Doug Symons 1,500,000 (D) 1,500,000 1.48% .77%
Mike Pontonio 250,000 (B) 250,000 .25% .13%
John DiPace 100,000 (B) 100,000 .10% .05%
Ellona Tannenbaum 400,000 (D) 400,000 .39% .21%
George A. Wardi 75,000 (D) 75,000 .07% .04%
New Millennium Ltd. 2,750,000 (D) 2,750,000 2.71% 1.42%
Cornelius Max Rockwell 1,750,000 (D) 1,750,000 1.72% .90%
Jackson Morris 1,750,000 (D) 1,750,000 1.72% .90%
Justin Wallace Herman 500,000 (D) 500,000 .49% .26%
Nicole Mogelli 75,000 (D) 75,000 .07% .04%
Randy Wear 2,923,327 (C) 2,923,327 2.88% 1.51%
Randy R.Wear Trust 800,000 (C) 800,000 .79% .41%
Symons International
Group (Florida) Inc. 2,000,000 (C) 2,000,000 1.97% 1.03%
Kirk D. Symons 1,000,000 (B) 1,000,000 .98% .52%
Second Generation
Investment Co. LLC 2,000,000 (B) 2,000,000 1.97% 1.03%
Alexander E. Kuhne 750,000 (D) 750,000 .74% .39%
(A) Represents stock issued for cash infusion.
(B) Represents stock issued for note agreement.
(C) Represents stock issued by virtue of convertible debentures.
(D) Represents stock issued for services rendered.
*John V. Whitman has a one-half interest in the shares being offered for sale by
Jackson Morris.
Holders of convertible debentures or other instruments providing for future
issuance of restricted stock to be registered for sale this Offering:
35
Name of Number of Number of
Selling shares Before shares sold Percentage
Stockholder Sale of shares this Offering Before After
Zaid Al-Sulamain 1,000,000 (C) 1,000,000 .98% .52%
Arab Commerce Bank 250,000 (C) 250,000 .25% .13%
Gordon Mogerley 500,000 (C) 500,000 .49% .26%
Middlemarch Partners 4,200,000 (C) 4,200,000 4.14% 2.17%
China Bay Holdings 7,000,000 (C) 7,000,000 6.89% 3.61%
Edwin Tennenhaus 5,714,286 (C) 5,714,286 5.63% 2.95%
Donald M. Hill 1,250,000 (C) 1,250,000 1.23% .64%
Mike Pontonio 1,250,000 (C) 1,250,000 1.23% .64%
Richard Sharpee 5,000,000 (C) 5,000,000 4.92% 2.58%
Resonance Ltd. 30,000,000 (C) 30,000,000 29.54% 15.48%
Pafco General 1,000,000 (C) 1,000,000 .98% .52%
(C) Represents stock to be issueby virtue of convertible debentures.
DISTRIBUTION BY SELLING STOCKHOLDERS
The selling stockholders are offering 93,837,663 shares for their own
accounts. Elite has prepared the registration statement and is paying the costs
of the registration statement of which this Prospectus is a part. Elite will not
receive any proceeds from the sale of the common stock by the selling
stockholders. Elite is solely responsible for the content of the registration
statement and of this Prospectus. Elite has not engaged an underwriter for the
Offering made by the selling stockholders. The selling stockholders have advised
Elite that none of them have engaged an underwriter for the Offering that they
are making. Generally, Elite expects the individual selling stockholders to
place their respective shares in their individual accounts at their own
securities brokers and request the entry of sell orders from time to time
against their stock positions.
Elite's stockholders are offering an aggregate of 93,837,663 common shares
for sale under this prospectus. This distribution is expected to begin at the
date of this prospectus and continue until all of the shares are sold, subject
to a current prospectus. Elite will not receive any proceeds from the sale of
these common shares by the existing stockholders. Elite has prepared and is
paying the cost of the registration statement of which this prospectus is a
part. Elite is solely responsible for the content of the registration statement
and of this prospectus. Elite has not made any arrangements with any securities
brokers to cover the sale of these common shares by the existing stockholders.
And, none of these existing stockholders have advised Elite that he or she has
any arrangements of this type. Generally, Elite expects these existing
stockholders to place the common shares that they own individually into their
individual accounts at their own securities brokers and request the entry of
sell orders against their stock positions. This will only be possible if a
public market develops for Elite's common shares. These existing stockholders
may sell their common shares in open market or block transactions or in another
manner in accordance with the rules of the OTC Bulletin Board. In some cases,
36
securities brokers may be the purchasers of these common shares. Or, these
existing stockholders may sell in private transactions. In any case, Elite
expects the sales prices to be related to the prevailing market prices. Any
compensation earned by a securities broker in the sale of these common shares
for an existing stockholder in the form of discounts, concessions or
commissions, including profits on resales, whether for the account of the
existing stockholder or as a principal for the securities brokers own account,
may be deemed to be "underwriter commissions or discounts" and the securities
broker may be deemed to be an "underwriter" within the meaning of the Securities
Act. Elite believes that the NASD's Rules of Fair Practice will cause this
compensation to be within the customary range for these types of transactions.
Regulation M Applies While Common Shares Are Unsold:
Any individual existing stockholder or group of existing stockholders
acting together, or any family member of an existing stockholder, should not
place any bid for, purchase or attempt to purchase, directly or indirectly, any
of Elite's common shares in the public market before he or she, or all of them
in the case of a group, have sold all of Elite's common shares he or she is
entitled to sell under this prospectus. Also, he or she should not attempt to
convince anyone else to bid for or purchase Elite's common shares in the public
market before he or she has sold all his or her shares covered by this
prospectus. To do so may violate Regulation M under the Securities Exchange of
Act. Any person who, directly or indirectly, bids for or effects any purchase of
the common stock for the purpose of pegging, fixing or maintaining the price of
Elite's common shares, practices known as "stabilizing", may violate Regulation
M if the action does not comply with Regulation M. Furthermore, no person should
engage in any activity that is fraudulent, manipulative, or deceptive under the
federal securities laws and regulations.
Prospectus Delivery Requirements
The existing stockholders selling their common shares under this
prospectus may be deemed to be statutory "underwriters", as that term is defined
in the Securities Act. These persons may be required to deliver a copy of this
prospectus at or before delivery of a confirmation for their sale of the common
shares. Elite will make copies of this prospectus available upon request in
sufficient quantities to satisfy such prospectus delivery requirements.
Information about Elite's common shares
Elite is authorized by its articles of incorporation to issue up to five
hundred million shares of common shares. Each share has a $.0001 par value. A
total of 101,551,636 common shares are issued and outstanding at the date of
this prospectus. Each of the outstanding common shares has the following rights:
1. To receive its equal share of dividends when the board decides to
declare them from Elite's funds that can be legally used to pay
dividends; 2. To receive its equal share of assets in a liquidation,
dissolution or winding up of Elite's affairs, after payment of all
debts; and 3. To one vote on election of each director and other
matters submitted to a vote of stockholders.
The outstanding common shares do not have a right to purchase additional
common shares when Elite issues more common shares or the right to convert into
any other type of security Elite may issue in the future. Elite is not required
to and has not set up any fund to repurchase the common shares. The common
37
shares now outstanding are duly authorized, fully paid and legal shares and
Elite will not be able to assess any payments against the common shares.
Elite's transfer agent is George Johnson of Securities Transfer
Corporation.
MARKET PRICE OF DIVIDENDS ON COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market quotations:
Elite's common stock is quoted on the OTC Bulletin Board "OTCBB" under the
stock symbol "ETCH". In November 2000, the Company's common stock was removed
from quotation due to failure to comply with NASD Rule 6530. From November 2000
until May 2001, Elite's common stock was quoted in the "Pink Sheets". The
following table sets forth the approximate high and low bid quotations for
Elite's common stock for each calendar quarter during the twelve months ended
May 31, 2001, and during the period subsequent to that date to the date of this
Prospectus. These quotations are inter-dealer quotations without retail markup,
markdown or commissions and may not represent actual transactions.
For the Fiscal Period Ended
May 31, 2000
Quarter Then Ended Low High
First 3.25 6.38
Second 0.14 3.88
Third 0.13 1.31
Fourth 0.27 2.75
For the Fiscal Period Ended
May 31, 2001
Quarter Then Ended Low High
First 0.31 1.43
Second 0.01 0.59
Third 0.01 0.31
Fourth 0.03 0.27
For the Fiscal Period Ended
May 31, 2002
Quarter Then Ended Low High
First 0.04 0.17
Second 0.02 0.06
Third 0.03 0.20
Elite had 560 holders of record of its common stock at the date of this
prospectus.
SHARES ELIGIBLE FOR FUTURE SALE
Sale of a substantial number of additional shares of common stock into the
public trading market following the Offering could adversely affect the
38
prevailing market prices for the common stock, as a result of an increased
supply in the number of shares available for trading.
Elite has an aggregate of 101,551,636 shares of common stock issued and
outstanding on the date of this prospectus. Of the total shares that would be
outstanding, of those shares are subject to the requirements of Rule
144 by virtue of being owned by "affiliates" of Elite and not being included in
a registration statement for resale by those affiliates. In general, under Rule
144 as currently in effect, a person who is an affiliate of Elite or who has
owned a "restricted security" for more than twelve months is entitled to sell in
"broker's transactions" or to market makers, within any three month period, a
number of shares that does not exceed the greater of (i) one percent of the then
issued and outstanding shares of common stock shares, or (ii) the
average weekly trading volume in the common stock during the four calendar weeks
preceding the filing of a Form 144 with the Commission with respect to the
proposed sale shares, at the date of this Prospectus). Sales under
Rule 144 and sales by affiliates are subject to the filing of a Form 144 with
respect to such sale and certain other limitations and restrictions. Elite may,
at any time, file a registration statement covering shares held by Elite's
affiliates and shares which are a restricted security, in which event the holder
thereof would be able to immediately sell such shares into the public trading
market upon the effective date of such registration statement.
LEGAL MATTERS
Elite is involved in various claims and legal actions arising in the
ordinary course of business. While the ultimate results and outcome cannot be
determined, management does not expect that the ultimate disposition of these
matters will have a material adverse effect on the Company's results of
operations or financial position. Actions involving Elite include the following
claims, all of which Elite intends to pursue vigorously.
o In June, 2000, a complaint was filed against Elite, Washburn International,
Inc. v. Elite Technologies, Inc., d/b/a Scanlan Music and Scott Schuster,
Civil Action No. 00-C-3504-4, State Court of Gwinnett County, Georgia,
alleging breach of contract in the amount of $23,934.63. Elite is currently
working toward an amicable resolution of this case.
o In June, 2000, a complaint was filed against Elite, Robert Half
International, Inc. v. Elite Technologies, Inc., Civil Action No.
00VS006826F, State Court of Fulton County, Georgia, alleging breach of
contract of $21,749.33. It is impossible to ascertain the outcome for
either party on their claims and defenses.
o In July, 2000, Elite filed a claim, Elite v. Prudental Securities
Incorporated Terry Kariotoglou and john Does 1-10, in the U.S. District
Court for the Eastern District of Michigan, Civil Action No. 00-73244,
alleging various claims for the improper sale of restricted Elite stock.
Kariotoglou subsequently counter- claimed against Elite alleging breach of
contract. Elite's claim against Prudential has been amicably resolved. It
is impossible to ascertain the outcome for either party on their remaining
claims and defenses.
o In August, 2001, Elite filed suit against a former employee, Elite
Technologies v. Angela Hardy Bordwell, Civil Action File No. 01-A-8708-1,
Superior Court of Gwinnett County, Georgia, to enforce a settlement
agreement that was mutually agreed upon at the time of termination. It is
impossible to ascertain the outcome for either party on their claims and
defenses.
o In November, 2001, a complaint was filed against Elite, Accountants on Call
v. Elite Technologies, Inc., a/k/a Elite Technologies, State Court of
Fulton County, Georgia, alleging an amount owed of approximately $8,105.99.
It is impossible to ascertain the outcome for either party on their claims
and defenses.
39
o In February, 2002, a complaint was filed against Elite, Avi Mirman v. Elite
Technologies, Inc., Index No. 02-03377, Supreme Court of the State of New
York, alleging breach of contract in the amount of $60,000. It is
impossible to ascertain the outcome for either party on their claims and
defenses.
Additional complaints have been filed against Elite's subsidiary, International
Electronic Technology, Inc., totaling approximately $120,000. These complaints
arise from disputes common to those occurring in the ordinary course of
business. They include:
o Pacific Magtron, Inc. v. International Electronic Technology of Georgia,
Inc., d/b/a I.E.T. Startek Computers, Civil Action No. 01-C-1190-2, State
Court of Gwinnett County, Georgia. The amount in controversy is $7,713.03.
o Mitsui-Soko (U.S.A.), Inc. v. International Electronic Technology of
Georgia, Inc., d/b/a I.E.T. Startek and Star Tek Computer, Civil Action
File No. 01-C-34493, State Court of Gwinnett County, Geogia. The amount in
controversy is $11,335.87.
o Decision Support Systems, L.L.C. v. International Electronic Technology,
Inc., Loudoun County, Virginia, Circuit Court At Law No. 23594. The amount
in controversy is $58,887.90.
o All Components Operations LP d/b/a All Components v. International
Electronic Technology of Georgia, Inc., a/k/a IET of Georgia, Inc., and
Frank Noori, County Court of Dallas County, Texas, at Law No. 1 Cause No.
CC-00-13210-A. The amount in controversy is $19,669.75, $3,278.29 of which
remains pursuant to a settlement of the principal amount owed.
EXPERTS
The consolidated financial statements of Elite Technologies, Inc. for the year
ended May 31, 2001, have been included herein and in the registration statement
inreliance upon the report of Israel and Ricardo Blanco, CPA's, independent
accountants, apearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The audit report covering the May 31, 2001
consolidated financial statements contains an explanatory paragraph that the
Company's recurring losses from operations raises substantial doubt about the
entity's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
that uncertainty.
The consolidated financial statements of Elite Technologies, Inc. for the year
ended May 31, 2000, have been included herein and in the registration statement
inreliance upon the report of Kirschner $ Associates, P.C., independent
accountants, apearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The audit report covering the May 31, 2000
consolidated financial statements contains an explanatory paragraph that the
Company's recurring losses from operations raises substantial doubt about the
entity's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
that uncertainty.
40
The consolidated financial statements of Elite Technologies, Inc. for the year
ended May 31, 1999, have been included herein and in the registration statement
inreliance upon the report of KPMG LLP, independent certified public
accountants, apearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The audit report covering the May 31, 1999
consolidated financial statements contains an explanatory paragraph that the
Company's recurring losses from operations raises substantial doubt about the
entity's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
that uncertainty.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
KPMG LLP had served as the auditors of Elite's financial statements for the
fiscal years ended May 31, 1998 and 1999. On July 25, 2000 Elite dismissed KPMG
LLP. On August 2, 2000, Elite engaged the firm of Feldman, Scherb & Co., P.C. to
audit its fiscal 2000 financial statements. Elite's Board of Directors ratified
the change to Feldman, Scherb & Co., P.C. on August 2, 2000. Feldman, Sherb and
Co., P.C., failed to complete the audit as they were hired to do by Elite, and
therefore, were terminated as of November 9, 2000. Elite had engaged other
auditors (On October 20, 2000) having realized that Feldman, Sherb may not
complete their assigned duties. As of November 9, 2000, Elite officially
appointed Kirschner and Associates, P.C., as auditors, thereby replacing
Feldman, Scherb & Co. In connection with the audits of the two fiscal years
ended May 31, 1999 and the subsequent period through July 25, 2000, there were
no disagreements with KPMG LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to their satisfaction, would have caused
them to make reference in connection with their opinion to the subject matter of
the disagreement.
The reports of KPMG LLP on Elite's financial statements for each of the two
fiscal years ended May 31, 1999 did not contain an adverse opinion, a disclaimer
of opinion or qualification or modification as to audit scope or accounting
principles. The reports did include an explanatory paragraph that described
substantial doubt about Elite's ability to continue as a going concern.
Feldman Sherb & Co., P.C., was appointed as audit firm of Elite
Technologies, Inc. on August 2, 2000. Kirschner & Associates was officially
engaged as audit firm on November 9, 2000. This change of audit firms was due to
lack of timely performance on the part of Feldman Sherb.
Throughout the engagement of Feldman Sherb, Elite repeatedly demanded from
Feldman Sherb the completion of the Company's audit. Feldman Sherb inexplicably
delayed the completion of the audit. Elite, substantially prior to the
termination of Feldman Sherb, unofficially retained Kirschner and Associates.
Kirschner and Associates was appointed official audit firm upon the termination
of Feldman Sherb, due to the reasons stated above. Feldman Sherb, during their
engagement with Elite, rendered no notification of disputes, scope limitations
or other adverse audit findings.
Following their termination by Elite in a written communication to the US
Securities and Exchange Commission, Feldman Sherb has claimed that they were
unable to satisfy themselves regarding the accounting of certain common stock
41
issuances and that verbal representations were in conflict with documentation
regarding these matters. Elite, in its written response to the US Securities and
Exchange Commission, disputes this claim and affirms that the documentation
provided was accurate and consistent with said verbal claims.
Feldman Sherb & Co., P.C., disagrees with the aforementioned statements.
However in its response to the 8-K filing by Elite, Feldman Sherb stated that no
dispute was raised.
Effective May 9, 2001 Kirschner and Associates P.C resigned from the audit
engagement. In connection with the audit for the fiscal year May 31, 2000, there
were no disagreements with Kirschner and Associates P.C., on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to their satisfaction,
would have caused them to make reference in connection with their opinion to the
subject matter of the disagreement.
The audit report of Kirschner and Associates P.C. on the Company's
financial statements for the year ended May 31, 2000 did not contain an adverse
opinion, a disclaimer of opinion or qualification or modification as to audit
scope or accounting principles. The report did include an explanatory paragraph
that described substantial doubt about the Company's ability to continue as a
going concern.
On July 20, 2001 Elite engaged the firm of Israel and Ricardo Blanco C.P.A
as auditors of record for the fiscal year May 31, 2001. The newly appointed firm
was chosen for its geographical location as well as their familiarity with Elite
as they have performed audit work on a wholly-owned subsidiary.
HOW TO GET ADDITIONAL INFORMATION
Elite is required to file reports and other information under the
Securities Exchange Act with the Securities and Exchange Commission in
Washington, D.C. pursuant to Section 15(d) of the Securities Exchange Act.
Anyone interested may inspect these reports and information without charge at
the principal office of the Commission, at Judiciary Plaza, 450 Fifth Street
N.W., Room 1024, Washington, D.C. 20549. Copies of the reports and information
may be obtained from the Public Reference Section of the Commission at 450 Fifth
Street N.W., Room 1024, Washington, D.C. 20549, upon payment of prescribed fees.
The SEC maintains a Web site that contains the registration statement related to
this prospectus and will contain reports and other information Elite will file
with the SEC. The Web site address is http://www.sec.gov.
Upon effectiveness of the registration statement, we will continue to be subject
to the reporting and other requirements of the Exchange Act and we intend to
furnish our stockholders annual reports containing financial statements audited
by our independent auditors and to make available quarterly reports containing
un-audited financial statements for each quarter of the year.
42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Financial Statements
May 31, 2001, 2000 and 1999
With Independent Auditors' Report Thereon
Report of Independent Auditors F-2
Consolidated Balance Sheets F-5
Consolidated Statements of Operations F-6
Consolidated Statements of Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Elite Technologies, Inc., and Subsidiaries
We have audited the accompanying consolidated balance sheet of Elite
Technologies, Inc. and subsidiaries (the "Company") as of May 31, 2001, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Elite Technologies, Inc. and Subsidiaries as of May 31, 2000, and
for the years ended May 31, 2000 and 1999 were audited by other auditors whose
reports dated November 9, 2000, except for Note 13(c) as to which the date is
February 21, 2001, and August 25, 1999, respectively, on those statements
included an explanatory paragraph that described the going concern uncertainty
discussed in Note 1 to the financial statements.
We conducted our audit in accordance with generally accepted auditing
standards of the United States of America. Those standards require that we plan
and perform the audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the 2001 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Elite
Technologies, Inc. and Subsidiaries as of May 31, 2001, and the results of their
operations and their cash flows for the year ended May 31, 2001, in conformity
with generally accepted accounting principles of 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
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to this matter are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Israel and Ricardo Blanco, C.P.A.
August 17, 2001
F-2 (Continued)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Elite Technologies, Inc., and Subsidiaries
We have audited the accompanying consolidated balance sheet of Elite
Technologies, Inc. and Subsidiaries (the "Company") as of May 31, 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Elite Technologies, Inc. and Subsidiaries and for the year ended
May 31, 1999, were audited by other auditors whose report dated August 25, 1999,
on those statements included an explanatory paragraph that described the going
concern uncertainty discussed in Note 1 to the financial statements.
We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 2000 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Elite
Technologies, Inc. and Subsidiaries as of May 31, 2000, and the results of their
operations and their cash flows for the year ended May 31, 2000, in conformity
with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to this matter are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The accompanying 2000 consolidated financial statements have been restated
following a review of valuation practices of the Company's common stock. As
discussed in Note 13 to the consolidated financial statements, the originally
prepared financial statements accompanying our report dated November 9, 2000,
have been restated to include the adjustments in accordance with generally
accepted accounting principles.
/s/ Kirschner and Associates, P.C.
Marietta, Georgia
November 9, 2000, except for Note 13 (c)
as to which the date is February 21, 2001
F-3 (Continued)
Independent Auditors' Report
The Board of Directors and Stockholders
Elite Technologies, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Elite Technologies, Inc. and
subsidiaries (the "Company") for the year ended May 31, 1999. These consolidated
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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Elite Technologies, Inc. and subsidiaries for the year ended May 31,
1999, in conformity with generally accepted accounting principles.
The consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to this matter are also described in
note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of the uncertainty.
/s/ KPMG LLP
Atlanta, Georgia
August 25, 1999
F-4 (Continued)
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
May 31, 2001 and 2000
Assets 2001 2000
---- ----
Current assets:
Cash $80,450 $--
Accounts receivable, less allowance for doubtful
accounts of $ 80,000 and $0 at May 31, 2001 and
May 31, 2000, respectively 639,979 --
Note receivable on convertible debt obligation -- 527,470
Receivable from officer 707,624 289,084
Inventory 690,012 --
Other current assets -- 30,000
----------- -----------
Total current assets 2,118,065 846,554
Property and equipment, net 561,330 31,004
Excess of cost over net assets of businesses acquired,
less accumulated amortization of $ 1,259,876 and
$597,198 at May 31, 2001, and May 31, 2000, respectively 5,523,017 4,987,844
Other assets 10,000 6,789
------------ -------------
$8,212,412 $5,872,191
============ =============
Liabilities and Stockholders' Equity
Current liabilities:
Cash overdrafts $ -- $35,106
Notes payable 213,537 112,895
Accounts payable 926,905 523,541
Accrued expenses 163,475 114,292
Federal payroll taxes payable 928,888 931,888
State payroll taxes payable 321,614 321,614
Reserve for acquisition 1,662,400 --
Income Taxes 12,000 --
------------ -------------
4,228,819 2,039,336
------------ -------------
Long-term liabilities:
Notes payable --
100,000
Convertible note payable 1,117,801 1,035,599
------------ --------------
Total liabilities 5,346,620 3,174,935
------------ --------------
Stockholders' equity:
Common stock, $.0001 par value; 500,000,000 shares
authorized; 61,812,434 and 34,275,720 shares issued and
outstanding at May 31, 2001 and 2000, respectively 6,181 3,427
Additional paid-in capital 43,963,877 35,206,634
Accumulated deficit (41,104,266) (32,512,805)
------------- --------------
2,865,792 2,697,256
------------- --------------
$8,212,412 $5,872,191
============= ===============
See accompanying notes to consolidated financial statements
F-5 (Continued)
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended May 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Revenues - net $13,268,877 $298,230 $1,937,317
Cost of Sales 11,194,532 -- --
Salaries, wages and benefits 791,553 571,121 2,136,613
Stock based compensation 2,859,444 10,751,765 827,431
Depreciation and amortization 1,166,137 547,512 116,846
Other operating expenses 1,161,671 1,481,216 1,527,500
Investment banking fees 3,036,760 15,872,719 126,667
Write-off of assets 1,528,824 -- --
-------------- -------------- --------------
Operating loss (8,470,044) (28,926,103) (2,797,740)
Interest expense 7,472 16,100 --
Interest income -- (13,192) --
Settlement on rescinded acquisition -- 80,800 --
Other expenses, net 101,945 66,036 90,624
-------------- -------------- --------------
Loss before income taxes (8,579,461) (29,075,847) (2,888,364)
Income taxes (12,000) -- --
-------------- -------------- --------------
Net loss $(8,591,461) $(29,075,847) $(2,888,364)
============== ============== =============
Net Loss Per Share of Common
Stock:
Basic and Diluted: $(0.24) $(1.41) $(0.26)
============== ============== ==============
Weighted Average Number of
Common Shares Used In Calculating
Net Loss Per Share of Common
Stock :
Basic and Diluted 35,138,193 20,631,704 11,150,355
============== ============== ===============
See accompanying notes to consolidated financial statements
F-6 (Continued)
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended May 31, 2001, 2000 and 1999
Additional Retained Stockholders'
Common Stock paid-in earnings equity
Shares Amount capital (deficit) (deficit)
Balances at May 31, 1998 10,619,170 $1,062 $134,938 $(548,594) $(412,594)
Issuance of common stock
in acquisitions 850,000 85 1,649,915 -- 1,650,000
Stock based compensation -- -- 827,431 -- 827,431
Issuance of common stock
in private placements,
net of issuance costs of
approximately 50,000
shares and $352,000 1,102,500 110 852,390 -- 852,500
Commitment to issue common
stock for investment
banking services -- -- 126,667 -- 126,667
Contributed capital from THC -- -- 289,277 -- 289,277
Other capital contributed -- -- 114,700 -- 114,700
Net loss -- -- -- (2,888,364) (2,888,364)
------------ ------ -------- ------------ -----------
Balances at May 31, 1999 12,571,670 $1,257 $3,995,318 $(3,436,958) $559,617
Stock based compensation 6,962,500 696 10,751,069 -- 10,751,765
Issuance of common stock in
acquisitions 2,312,500 231 3,559,215 -- 3,559,446
Issuance of common stock in
private placements 840,050 84 840,916 -- 841,000
Issuance of common stock for
investment banking services 10,339,000 1,034 15,871,685 -- 15,872,719
Issuance of common stock in
settlement of rescinded
acquisition 1,250,000 125 80,675 -- 80,800
Contributed capital from AMG -- -- 107,756 -- 107,756
Net loss -- -- -- (29,075,847) (29,075,847)
------------ ------- ---------- ------------ -----------
Balances at May 31, 2000 34,275,720 $3,427 $35,206,634 $(32,512,805) $2,697,256
Stock based compensation 6,286,000 629 2,858,815 -- 2,859,444
Issuance of common stock in
acquisitions 5,185,000 518 1,935,150 -- 1,935,668
Issuance of common stock in
private placements 3,300,000 330 927,795 -- 928,125
Issuance of common stock for
investment banking services 12,765,714 1,277 3,035,483 -- 3,036,760
Net loss -- -- -- (8,591,461) (8,591,461)
----------- ------- ---------- ------------ -----------
Balances at May 31, 2001 61,812,434 $6,181 $43,963,877 $(41,104,266) $2,865,792
=========== ======= ========== ============ ===========
See accompanying notes to consolidated financial statements
F-7 (Continued)
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended May 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Cash flows to operating activities:
Net loss $(8,591,461) $(29,075,847) $(2,888,364)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,166,137 547,512 116,846
Provision for doubtful accounts 80,000 -- --
Stock based compensation 2,859,444 10,751,765 827,431
Commitment to issue stock for investment
banking services 3,036,760 15,872,719 126,667
Settlement of rescinded acquisition -- 80,800 --
Write down of assets 1,528,824 -- --
Decrease (increase) in:
Accounts receivable (719,979) 285,309 (5,975)
Inventory (690,011) -- --
Other assets 26,789 38,798 (38,312)
Increase (decrease) in:
Accounts payable 403,364 277,730 195,327
Federal payroll taxes payable (3,000) 302,473 186,842
State payroll taxes payable -- 70,437 161,367
Deferred rent expense -- (97,496) 55,910
Accrued expenses and other 49,183 80,350 33,942
Income taxes 12,000 -- --
----------- ---------- -----------
Net cash used in operating activities (841,950) (865,450) (1,228,319)
----------- ---------- -----------
Cash flows from investing activities:
Purchases of property and equipment (371,952) -- (7,922)
Acquisition of businesses -- (250,000) (15,000)
Receivable from officers (418,540) (73,501) (130,584)
----------- ---------- -----------
Net cash used in investing activities (790,492) (323,501) (153,506)
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 841,000 852,500
Proceeds from issuance of long-term debt 82,202 608,129 --
Repayment of long-term debt (100,000) (68,000) --
Advances from factoring company, net -- (177,124) (43,434)
Proceeds from (payment on) s/t notes 100,642 52,797
Other capital contributions -- -- 114,700
Contributed capital 2,754 107,756 289,277
Increase in cash overdrafts (35,106) (175,607) 190,855
Decrease in related party advances -- -- (22,073)
Increase in reserve for acquisition 1,662,400 -- --
----------- --------- ----------
Net cash provided by financing activities 1,712,892 1,188,951 1,381,825
Net increase in cash 80,450 -- --
2001 2000 1999
Cash beginning of year -- -- --
---------- ---------- ---------
Cash end of year $80,450 -- --
========== ========== =========
Supplemental disclosures of cash flow information Cash paid during the year for:
Interest $7,472 $16,100 --
=========== ======================
Income taxes -- -- --
=========== =========== ==========
Acquisition of businesses:
Fair value of assets acquired $3,903,302 $3,809,446 $1,790,903
Fair value of liabilities assumed (5,752) -- (90,903)
Promissory note issued (300,000) -- (35,000)
Due to shareholders (1,662,400) -- --
Fair value of common stock issued (1,935,150) (3,559,446)(1,650,000)
========== =========== ==========
Net cash paid for acquisitions $-- $250,000 $15,000
========== ============ ==========
Additional debt financing:
Note payable stockholder $-- $100,000 $--
Convertible note payable 82,202 1,035,559 --
Less receivable on convertible debt -- (527,470) --
========== =========== ==========
Proceeds from issuances of long term debt $82,202 $608,129 $--
========== =========== ==========
See accompanying notes to consolidated financial statements
F-8 (Continued)
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2001, 2000 and 1999
1. SUMMARY OF SIGNIGICANT ACCOUNTING POLICIES
a) Description of Business
Prior to April 2000, Elite Technologies, Inc. offered diverse services in
IT Staffing, Custom Software Development and Integration, Internet Hosting,
Content and Technical Development, Hardware Sales and Service and Content
Delivery Platforms. The Company also served as an authorized solution provider
and application developer for leading enterprise-level software products. These
services were marketed to small, medium and large enterprises.
Elite suspended these operations in April 2000 in connection with its
acquisition of Ace Manufacturing Group, Ltd. (AMG). Subsequently, Elite acquired
all the outstanding common stock of International Electronic Technology of
Georgia, Inc. (IET) and Icon Computer Parts, Corp. (Icon) in June 2000 and
February 2001, respectively. Also, the Company acquired the outstanding common
stock of AC Travel, Inc. (ACT) in June 2000, a travel agency. The current
composition of the core business is described in the Business Acquisitions Note
to the consolidated financial statements.
AMG designs, builds and markets an internet "pay by the minute" browser
(kiosk) used primarily in hotels, airports, and entertainment establishments.
Elite intends to utilize AMG to acquire additional companies to augment the
internet kiosk business as marketed by AMG, including companies providing
content, hardware and other related sectors of commerce.
IET and Icon are engaged in the wholesale distribution of computer parts
and assemblies throughout the United States, Latin America and Puerto Rico.
Further marketing of the Internet kiosk will be done through these technology
industry distribution channels.
b) Basis of Financial Statements Presentation
The consolidated financial statements include the accounts of Elite
Technologies, Inc., and its subsidiaries (the "Company"). All significant
inter-company balances and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet, income and expenses for the period, and disclosure of contingent
assets and liabilities. Actual results could differ from those estimates.
Business combinations, which have been accounted for under the purchase
method of accounting, include the results of operations of the acquired business
from the date of acquisition. Net assets of the companies acquired are recorded
at their fair value at the date of acquisition. Relative to the Financial
Accounting Standard Board (FASB) Standards number 141 and 142 issued after June
1, 2001, the Company has evaluated the recoverability of goodwill and has
written off those amounts with no discernable future benefits.
F-9 (Continued)
c) Recognition of Revenues and Expenses
Prior to the suspension of operations, revenue related to the placement of
temporary and permanent employees was recognized upon the delivery of the
service. Contract revenue from software development and implementation was
recognized under the percentage of completion method. Web site development and
consulting services are generally performed on a time and materials basis and
are recognized as the services are performed. Revenue stemming from the sale of
computer parts and assemblies are recognized when delivery has occurred and
there is a reasonable assurance of collection of the sales proceeds.
d) Inventory
Inventory is valued at cost, first in-first out method, not in excess of
market. Inventory is substantially comprised of individual computer parts.
e) 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 in income currently.
f) Excess of Cost Over Net Assets of Business 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.
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.
g) 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.
F-10 (Continued)
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. Income tax expense in 2001 resulted
from profitable operations in other income tax jurisdictions; therefore, net
operating loss carry forwards cannot be applied.
h) Stock Option Plan
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations, in accounting for its fixed
plan stock options, in lieu of the fair value approach recommended by the
Financial Accounting Standards Board in its Statement No. 123. Under the
intrinsic value method, compensation expense would generally be recorded on the
date of grant only if the current market price of the underlying stock exceeds
the exercise price.
i) Financial Instruments and Risk
Based on their short maturities and interest rates estimated to be
available to the Company, management has determined that the carrying values of
all financial instruments approximate fair value at May 31, 2001 and 2000.
Management has evaluated the Company's credit risk. Financial instruments,
which potentially subject the Company to concentrations of credit risk, consist
primarily of temporary cash investments and accounts receivable.
The Company maintains banking relationships in Atlanta as well as in Puerto
Rico. These banks are for general operations, payroll, and short-term
investments. The FDIC insures cash balances up to $100,000.
j) Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
k) Comprehensive Income
On June 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. The Company has no "other
comprehensive income" to report for the years ended May 31, 2001, 2000 and 1999.
F-11(Continued)
l) Net Earnings (Loss) Per Common Share
Basic earnings (loss) per common share available to common stockholders are
based on the weighted-average number of common shares outstanding. Diluted
earnings (loss) per common share available to common stockholders are based on
the weighted-average number of common shares outstanding and dilutive potential
common shares, such as dilutive stock options and convertible debt.
Options to purchase 4,000,000 and 2,250,000 shares of common stock at May
31, 2000 and 1999, respectively, were excluded from the computation of diluted
earnings per share because they were anti-dilutive. Convertible notes payable,
if converted, would generate savings in interest costs of $84,000 and $82,848 in
2001 and 2000, respectively. The effect of the pro forma improvement in net loss
exceeds the pro forma increase in the number of the shares. Accordingly, the
loss per share of $0.24 and $1.41 rather than $0.09 and $1.38 in 2001 and 2000,
respectively, is disclosed on the face of the Company's statement of operations,
since the effect of the conversion would be anti-dilutive.
m) Industry Segments
The Company's operation with significant activity for the year ended May
31, 2001 was in the technology industry. Travel agency operations were marginal
during the year. For the years ended May 31, 2000 and 1999 the core business was
specific to IT staffing services.
n) Management's Plans
The Company has incurred significant recurring operating losses for the
year ended May 31, 2001 and carries a working capital and a retained earnings
deficit that raises uncertainty about the Company's ability to continue as a
going concern. Management's business philosophy is to increase market share by
virtue of acquiring companies with inherent symmetry, autonomy and
profitability.
Management believes that this philosophy has been evidenced by the current
acquisition of IET, Icon, AC Travel, Inc., and Ace Manufacturing Group, Ltd.
Management is actively pursuing new debt and equity financing arrangements. In
addition, controls on operating efficiency and effectiveness are being
considered. Management is continually evaluating capital budgeting opportunities
and the Company's overall profitability. However, any results of their plans and
actions cannot be assured. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
O) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Net cash overdrafts
are included in the liabilities section of the Company's balance sheet. Changes
in cash overdrafts are shown in the financing section of the Company's statement
of cash flows.
F-12 (Continued)
2. FORMATION OF THE COMPANY
Intuitive Technology Consultants, Inc. ("ITC") was incorporated on August
9, 1996. On June 2, 1997, Phoenix International Industries, Inc. ("Phoenix")
acquired 100% of the outstanding shares of ITC by issuing 1,500,000 shares of
restricted common stock valued at $320,000. During the period that ITC was owned
by Phoenix, the former owner of ITC was an employee and director of Phoenix.
Effective June 1, 1998, Phoenix and the former owner of ITC agreed to reverse
the transaction. As a result of the rescission, 100% of the common stock of ITC
was delivered to the acquiring entity in exchange for the return of 1,413,000
Phoenix common shares, a cash payment of $60,000 and notes payable of $290,000
to Phoenix. The notes payable were to reimburse Phoenix for alleged
inter-company amounts receivable from the Company. Under provisions of the
purchase agreement, the notes payable have been reduced to $-0- due to
misrepresentations and breaches of contract on the part of Phoenix. Pushdown
accounting has not been applied to the acquisition of ITC by Phoenix or to the
unwinding, because the transactions were not considered "arms-length" with third
parties.
On July 8, 1998, ITC was acquired in a reverse merger with Concap, Inc.
("Concap"). Former ITC shareholders received 7,200,000 shares of Concap common
stock in exchange for all shares of ITC and gained control of Concap. Since ITC
was a private operating company and Concap was a public shell company (i.e.,
public company with no operations), the merger was accounted for as if ITC was
the acquirer. On April 30, 1999, the Company changed its name to Elite
Technologies, Inc.
3. BUSINESS ACQUISITIONS
a) Temporary Help Connection, Inc. ("THC")
Effective November 15, 1998, the Company acquired a one hundred percent
(100%) member interest in Troxtel Holding Company, LLC d/b/a Temporary Help
Connection ("THC"), a Michigan company, in exchange for 1,250,000 shares of the
Company's common stock. In addition, the Company agreed to provide to THC
accounts receivable financing of up to 75% for approved accounts. THC is engaged
in the business of light industrial temporary staffing.
Due to misrepresentations and breaches of provisions of the purchase
agreement on the part of THC, on April 12, 1999, the Company "unwound" the
acquisition of THC as provided for in the purchase agreement. Litigation arising
out of this transaction, which asserted claims against THC's former owner, for
among other things, fraud and breach of contract, has been settled.
Since the acquisition of THC was unwound, no assets, liabilities, or
results of operations of THC are included in the accompanying consolidated
financial statements. THC's cash receipts, which were remitted to ITC in excess
of cash disbursements, made by ITC on behalf of THC during the period of THC's
control by the Company have been credited to additional paid-in capital.
Stock issued as part of this transaction, which was being held in escrow, was
issued and sold pursuant to a court order. The proceeds were used to satisfy
$80,800 in litigation costs.
F-13 (Continued)
b) Scanlan Music, Inc. ("Scanlan")
Effective November 5, 1998, the Chairman of the Company acquired all of the
issued and outstanding shares of Scanlan Music, a retail seller of musical
instruments, in exchange for a promissory note of $35,000. On November 9, 1998,
the Chairman assigned all rights, titles, and inventory of Scanlan as well as
the promissory note to the Company. The acquisition was treated as being made by
the Company using the purchase method of accounting and, accordingly, the net
assets acquired have been recorded at their estimated fair market value at the
date of acquisition. During the year ended May 31, 2001 management suspended
operations of Scanlan Music, thus, any related accounts, including goodwill,
were written off.
c) Elevation Strategic Partners, Inc. ("Elevation")
Effective March 31, 1999, the Company acquired all of the issued and
outstanding shares of Elevation Strategic Partners, Inc., a Delaware company, in
exchange for approximately 1,000,000 shares of the Company's common stock
(valued at $1.50 per share) and the assumption of debt of approximately $50,000.
Elevation is engaged in the business of incubating and growing technology and
Internet based companies. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the net assets acquired have been
recorded at their estimated fair market value at the date of acquisition.
Goodwill of approximately $1.550 million resulted from this March 1999
transaction concurrent with the Company's issuance of 1,000,000 shares. During
fiscal year ended May 31, 2000, an additional 62,500 shares were issued which
correspondingly created goodwill of approximately $319,000. This transaction was
instituted as a hedge because of the declining stock market price of Elite
Technologies, Inc. Effective May 31, 2001, management suspended operations of
Elevation; thus, any related accounts, including goodwill, were written off.
d) Virtual Enterprises, Inc. ("Virtual")
Effective April 1, 1999, the Company acquired all of the issued and
outstanding shares of Virtual, an internet portal that allows users to plan a
wedding with links to various vendors in the industry, in exchange for 100,000
shares of the Company's common stock (valued at $1.50 per share) and the
assumption of debt of approximately $41,000. The acquisition was accounted for
using the purchase method of accounting and, accordingly, the net assets
acquired have been recorded at their estimated fair market value on the date of
acquisition. Goodwill of approximately $190,000 resulted from this transaction.
Effective May 31, 2001, management suspended operations of Virtual; thus, any
related accounts, including goodwill, were written off.
e) Ace Manufacturing Group, Ltd. ("AMG")
Effective March 15, 2000, the Company acquired all of the issued and
outstanding shares of AMG, in exchange for 2,000,000 shares of the Company's
common stock (valued at $1.66 per share) plus $250,000. The acquisition was
accounted for using the purchase method of accounting and, accordingly, the net
assets acquired have been recorded at their estimated fair market value on the
date of acquisition. Goodwill of approximately $3,490,000 resulted from this
transaction.
F-14 (Continued)
f) International Electronic Technology of Georgia, Inc. ("IET")
On June 27, 2000 the Company entered into an agreement to acquire 100% of
the outstanding shares of International Electronic Technology of Georgia, Inc.,
in exchange for 1,185,000 shares of the Company's common stock. In August 2000,
the Company issued the 1,185,000 shares of common stock called for in the
agreement. This transaction was accounted for using the purchase method of
accounting and resulted in goodwill in the amount of approximately $815,000.
g) Icon Computer Parts, Corp. ("Icon")
On February 15, 2001 the Company entered into an agreement to acquire 100%
of the outstanding shares of Icon Computer Parts, Corp., in exchange for
2,000,000 shares of the Company's common stock. Pursuant to the purchase
agreement of Icon an adjustment to the original purchase price may occur if the
trading price of Elite's Common stock falls below $1.00, one year post the
original closing date, February 15, 2001. Reserve for acquisition amounting to
$1,662,400 resulted from this event. Conversely, should the trading price be in
excess of the aforementioned price, this payable will be removed entirely. This
transaction was accounted for using the purchase method of accounting and
resulted in goodwill in the amount of approximately $1,410,000.
h) AC Travel, Inc.("ACT")
On June 1, 2000 the Company entered into an agreement to acquire 100% of
the outstanding shares of AC Travel, Inc. in exchange for 2,000,000 shares of
the Company's common stock and $300,000 in cash. The Company has advanced
$175,000 on the agreement. This transaction was accounted for using the purchase
method of accounting and resulted in goodwill in the amount of approximately
$1,065,000.
The results of operations of the acquired companies have been included in
the Company's consolidated statements of operations beginning on the following
dates: Scanlan-November 5, 1998, Elevation-March 31,1999, Virtual-April 1, 1999,
AMG-March 15,2000, AC Travel June 1, 2000, IET-June 27, 2000, and Icon-February
15, 2001.
i) Pro-Forma Financial Information
The un-audited pro forma results of operations of the Company for the year ended
May 31, 2001 and 2000 as if the acquisition of IET, AC Travel, and Icon had been
effective on June 1, 2000 and 1999 are summarized as follows:
2001 2000
Un-audited Un-audited
Revenues-net $17,879,877 $10,109,225
Net loss applicable to common shareholders
$(8,241,461) $(18,775,847)
Basic loss per share $(0.23) $(0.67)
Diluted loss per share $(0.23) $(0.67)
F-15 (Continued)
The un-audited pro forma results do not necessarily represent results which
would have occurred if the acquisitions had taken place on the dates indicated
nor are they necessarily indicative of the results of future operations.
4. ACCOUNTS RECEIVABLE
An allowance for doubtful accounts is maintained at a level which
management believes is sufficient to cover all potential credit losses including
potential losses on receivables sold. The activity in the allowance for doubtful
accounts for the years ended May 31, 2001, 2000, and 1999, is as follows:
Balance at Reductions Balance at
beginning Charged taken against the end of
of period to expense allowance period
1999 $13,000 $106,559 $(93,559) $26,000
2000 $26,000 $-0- $(26,000) $-0-
2001 $-0- $80,000 $-0- $80,000
5. PAYROLL TAX LIABILITIES
The amounts shown as due for federal and state payroll taxes payable on the
Company's balance sheet are primarily amounts due from prior years and the first
quarter of the year ended May 31, 2000. Management is meeting current payroll
obligations and is pursuing a plan to fulfill its past obligations to federal
and state governments.
6. DEBT AGREEMENTS
o Stockholders' Financing
As of May 31, 2000, the Company's current liabilities include notes payable
of $112,895. This debt was assumed in conjunction with the acquisitions of
Elevation and Virtual and remains unpaid at May 31, 2001 and 2000, respectively.
There are no note agreements establishing terms for repayment of these debts in
as much as the debts were immediately payable pursuant to the relative stock
acquisition agreement.
As of May 31, 2000, the Company's long-term liabilities include $100,000
payable to a stockholder. Interest is being accrued at the applicable federal
rate. The note is payable on demand. Management's understanding of stockholder
intentions is that no demand will be made within the current year.
o Other Financing
The Company's long-term liabilities also include $1,117,801 of 8%
convertible debentures. The Company entered into a financing agreement with a
lending source on March 27, 2000. The total financing package included an
authorized issue of $3,000,000 of convertible debentures.
F-16 (Continued)
Conversion into common stock was based on a formula of the lesser of $2.00 per
share or 75% of market value.
The original stated maturity date was March 31, 2001, with interest accruing
quarterly. The initial financing phase was to have been for $2,000,000, out of a
total of $3,000,000, and to have been separated into two distinct parts. The
Company received the first part of approximately $508,000 during the year ended
May 31, 2000. However, the second phase was not properly funded and escrowed.
On June 29, 2001 the Company renegotiated the terms of the convertible
debt, allowing for payment of the principal expiring on January 31, 2003. Also,
at creditor's option, the outstanding principal amounts can be converted to
common stock at a maximum of 1/18 monthly and a discount price of 70% of the
common stock market price at the redemption dates. In anticipation of such
conversion, the Company is registering 30,000,000 shares for sale this Offering
in the name of Resonance Ltd.
7. PROPERTIES AND EQUIPMENT
Property and equipment consists of the following assets, with estimated useful
lives shown parenthetically:
2001 2000
---- ----
Building (20 years) $375,000 $--
Computer equipment (3-5 years) 85,301 74,416
Purchased software (3-5 years) 33,449 32,430
Furniture and fixtures (3-5 years) 279,804 26,579
Vehicles (3-5 years) 37,087 --
------------- ------------
810,641 133,425
------------- ------------
Less accumulated depreciation 249,311 102,421
------------- ------------
$561,330 $31,004
============= ============
8. OPERATING LEASES
Lease expense for the years ended May 31, 2001, 2000, and 1999 was
$117,287, $107,360, and $282,000, respectively. This space was utilized for
office and warehouse purposes. Comparable amounts are expected to be incurred
during 2002. The building, as denoted above, was purchased in January 2000;
however it was not an asset of the Company until the purchase of Icon occurred
on February 15, 2001. Occasionally, equipment is also leased on a short-term
basis.
9. RECEIVABLE FROM OFFICER
The Company has made loans to a certain officers of the Company. These loans are
to be evidenced by an employment agreement and are payable in not more than
sixty monthly principal and interest installments starting with the first day of
the month following the month in which the loan is made, with interest at the
rate of three percent per year on the unpaid balance of the loan outstanding. In
the event of default of any installment of principal and interest when due, the
entire balance of principal and accrued interest becomes payable on demand.
F-17 (Continued)
During the year ended May 31, 2001, the Company has extended additional
borrowings to the officer. Management is electing to waive the current default
restrictions at the present time.
10. WRITE-DOWN OF ASSETS
During the year ended May 31, 2001, the Company adopted a plan to write
down some assets whose future benefit was deemed to be non-recoverable. These
amounts amounted to $1,528,824 and consisted primarily of goodwill that was
written off amounting to $1,195,115.
11. INCOME TAXES
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
May 31, 2001 and 2000 are estimated and presented as follows:
2001 2000
---- ----
Deferred income tax assets:
Net operating loss carry forwards $2,911,846 $3,196,911
Other, net 16,000 595,899
---------------- ---------------
Total gross deferred income tax assets 2,927,846 3,792,810
Less valuation allowance 2,927,846 3,787,333
---------------- ---------------
Net deferred income tax assets -- 5,477
Deferred income tax liability -- (5,477)
---------------- ---------------
Net deferred income tax asset (liability) $ -- $ --
================ ===============
Deferred income tax assets as of May 31, 2001 have been fully offset by
valuation allowances. The increase in the valuation allowance during the years
ended May 31, 2001 and 2000 was $3,891,421 and $2,259,118 respectively. The
valuation allowances have been established equal to the full amounts of the
deferred tax assets net of deferred tax liabilities, since the Company is not
assured that it is more likely than not that these benefits will be realized.
At May 31, 2001, the Company had estimated operating loss carry forwards
for income tax purposes of approximately $5,700,000 which are available to
offset future federal and state taxable income, if any, through 2021. Due to the
separate return limitation year rules of the consolidated return regulations, it
is estimated that the use of approximately $943,000 of loss carry forwards is
restricted.
F-18 (Continued)
In addition, due to changes in the ownership of various members of the
consolidated group, the use of an additional $468,000 of losses is restricted by
virtue of Internal Revenue Code Section 382 limitations.
11. STOCKHOLDERS' EQUITY
a) Completion of Reverse Merger
As a result of the reverse merger completed on July 8, 1998 (see note 2),
the equity of the Company reflects the historical equity of ITC retroactively
restated to reflect the 7,200,000 Concap shares issued in the merger. In
addition, the common stock and additional paid-in capital accounts have been
adjusted to reflect the par value of the outstanding stock of Concap after
giving effect to the shares issued in the merger.
b) Stock Options and Stock Based Compensation
On July 15, 1998, as part of an employment agreement, an officer of the
Company was granted the option to purchase 2,000,000 shares of common stock at
an exercise price of $.10 per share. Of the stock options, 1,000,000 were
scheduled to vest on August 31, 2000 with the remaining options vesting on
August 31, 2001. The options expire one year from the vesting date.
On March 15, 1999, as part of an employment agreement, another officer of
the Company was granted the option to purchase 250,000 shares of common stock at
an exercise price of $.10 per share. Of the stock options, 125,000 were
scheduled to vest on August 31, 2000 with the remaining options vesting on
August 31, 2001. The options expire one year from the vesting date.
During the year ended May 31, 2000, employment agreements granting the
option to purchase stock shares at an exercise price of $.10 per share were
forfeited and cancelled.
The Company applies the provisions of APB Opinion No. 25 and related
interpretations in accounting for stock options. The Company recognized
compensation expense of approximately $827,000 in connection with options
granted during the year ended May 31, 1999 as the exercise price was less than
the market price of the stock on the date of grant. A summary of the status of
the employment stock option plans at May 31, 2001, 2000, and 1999 and the
changes during the years then ended is presented below:
2001 2000 1999 Weighted
Shares Shares Shares Average
Underlying Underlying Underlying Exercise
Options Options Options Price
------------ ---------- ---------- -----------
Beginning -- 2,250,000 -- $.10
Plus:Granted -- -- 2,250,000 .10
Less:Forfeited -- (2,250,000) -- .10
------------ ---------- ---------- -----------
Outstanding,end
Of year -- -- 2,250,000 $--
============ ========== ========== =========
F-19 (Continued)
The weighted average fair value of options granted during 1999 and on the date
of the grant was $1.38 per share using the Black Scholes option-pricing model
with the following weighted average assumptions: expected volatility of 58.65%,
expected dividend yield of 0%, risk-free interest rate of 5.5%, and an expected
option life of 3.25 years.
In addition, the Company has a separate plan awarding stock based
compensation. In June 1999, the Company issued 612,500 shares of restricted
common stock to six employees as an incentive for these employees to continue
employment. In June 1999, the Company also issued 300,000 shares of common stock
to a consultant for future consulting services and issued 250,000 shares of
common stock to a former ITC stockholder. The Company applies the provisions of
APB Opinion No. 25 and related interpretations in accounting for this
compensation. The Company recognized stock based compensation expense of
$2,859,444, and $10,751,765, for the fiscal years ended May 31, 2001, and 2000,
respectively.
c) Investor and Private Placement Activity
In June and July 1998, a former officer of Concap purchased 400,000 shares
of common stock of the Company for $200,000.
In April 1999, the Company entered an agreement to issue shares of the
Company's common stock in exchange for investment banking services. The Company
recorded expense and additional paid-in capital for the pro rata share of the
fair value of services performed was $3,036,760, $15,872,719, and $126,667 for
the years ended May 31, 2001, 2000, and 1999, respectively. The fair value of
the total agreement was determined based on the fair value of shares of the
Company's common stock committed to be issued as part of the agreement.
In April 1999, the Company commenced the sale of its common stock in a
private placement offering. As of May 31, 1999, 652,000 shares of common stock
had been sold for $652,500, net of issuance costs of approximately $352,000 and
50,000 shares of common stock issued to the investment banker. During the year
ended May 31, 2000, 840,050 shares of common stock were issued through private
placement with $84 and $840,916 credited to common stock and paid-in capital,
respectively.
d) Investing and Financing Transactions
In June 2000, the Company sold additional shares of its common stock in
private placement offerings. Approximately 3,300,000 shares of common stock were
sold at $0.28 per share.
On June 27, 2000 the Company entered into an agreement to acquire 100% of
the outstanding shares of International Electronic Technology of Georgia, Inc.,
in exchange for 1,185,000 shares of the Company's common stock. In August 2000,
the Company issued the 1,185,000 shares of common stock called for in the
agreement.
On June 1, 2000 the Company entered into an agreement to acquire 100% of the
outstanding shares of AC Travel, Inc. in exchange for 2,000,000 shares of the
Company's common stock and $300,000 in cash. The Company has advanced $175,000
on the agreement.
F-20 (Continued)
e) Other Capital Contributions
For the year ended May 31, 1999, an officer of the Company contributed
$114,700 to the Company to fund operations. This contribution has been reflected
as additional paid-in capital since it is required to be repaid in common stock
of the Company based on the fair value of the stock on the date of the
contribution, commencing two years from the date that the contribution was made.
For the year ended May 31, 2000, $107,756 of paid-in capital resulted from the
acquisition of AMG.
12. MAJOR CUSTOMERS
For the years ended May 31, 2000 and 1999, two customers accounted for
approximately 62% and 71% of total revenues and cash collections, respectively
in both years. There were no customers during 2001 on which the Company had
significant economic dependence.
13. OTHER EVENTS AND CONTINGENCIES
a) Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. While the ultimate results and outcome cannot be
determined, management does not expect that the ultimate disposition of these
matters will have a material adverse effect on the Company's results of
operations or financial position. Actions involving the Company include the
following claims, all of which the Company intends to pursue vigorously.
On November 27, 2000, a complaint was filed against the Company. This
complaint was settled for approximately $19,700.
On January 6, 2000 a complaint was filed against the Company alleging
breach of contract in the amount of $10,000. The Company answered timely denying
liability. It is impossible to ascertain the likelihood of success of either
party on their claims and defenses.
On June 1, 2000 a complaint was filed against the Company alleging breach
of contract in the amount of approximately $24,000. The Company answered timely
denying liability. It is impossible to ascertain the likelihood of success of
either party on their claims and defenses.
On June 26, 2000, a complaint was filed against the Company alleging breach
of contract in the amount of $28,256. Counsel believes it is impossible to
ascertain the likelihood of success of either party on their claims and
defenses.
In August 2001 the Company filed a suit against a former employee to
enforce a settlement agreement that was mutually agreed upon at the time of
termination.
b) Compliance Review
Management received a compliance review letter from the United States
Securities and Exchange Commission (SEC) dated November 20, 2000.
F-21 (Continued)
The principal provisions of the letter involve interpretation of valuation
practices of the Company's common stock issued subsequently to May 31, 1999 as
seen by management and contrasted with the views of the Commission.
Management believes a per share price established by a concurrent private
placement of $1 per share, less discounts for restriction and volume, is the
appropriate measure. The SEC mandated a price per share commensurate with that
of freely trading shares as of the date of specific transaction with the
application of significantly limited discounts as the correct measure.
The following schedule summarizes the major differences between management
and the Commission as impacting the Company's financial position as of May 31,
2000, and the results of operations for the year then ended.
Form 10-K and Form 10-K/A and
financial statements financial statements
as originally filed as revised
Stock based compensation $ 904,125 $ 10,751,765
Depreciation and amortization
437,622 547,512
Investment banking fees 1,481,250 15,872,719
Net loss (4,726,848) (29,075,847)
Loss per Share (0.23) (1.41)
Goodwill, net of amortization
2,609,609 4,987,844
Total assets 3,493,956 5,872,191
Additional paid-in capital
8,479,400 35,206,634
Retained earnings (deficit)
(8,163,806) (32,512,805)
Stockholders' equity 319,021 2,697,256
c) Acquisition of World Touch
Subsequent to May 31, 2001 the Company acquired, in a stock for stock
transaction, WorldTouch Communications. This transaction was accounted for
utilizing the purchase method of accounting. This company just commenced
operations and provides an integrated suite of high quality, low-cost
international telecommunications services to large and small businesses,
including voice-over IP (VOIP), and callback (call re-origination). This
acquisition falls outside the current acquisition strategy of the Company in
that World Touch has just commenced operations and is a start-up company.
d) Selected quarterly financial statement data-Un-audited
Unaudited 1st 2nd 3rd 4th
Quarterly Financial Data
For the year ended May 31, 2001
Revenue 3,630,818 3,703,578 3,299,484 2,634,997
Operating income (loss) (2,116,631) (645,396) (36,457) (4,142,736)
Net income (loss) (2,118,344) (660,942) (27,892) (5,784,283)
Net income (loss) per share (0.03) (0.01) (0.01) (0.19)
Dividends declared -- -- -- --
Market price
High $ 1.43 $ 0.59 $ 0.31 $ 0.27
Low $ 0.31 $ 0.01 $ 0.01 $ 0.03
Unaudited 1st 2nd 3rd 4th
Quarterly Financial Data
For the year ended May 31, 2000
Revenue 377,997 400,013 60,000 (539,780)
Operating income (loss) (273,680) 180,556 (104,444) (28,728,535)
Net income (loss) (273,680) 180,556 (104,444) (28,878,279)
Net income (loss)per share (0.01) (0.02) (0.03) (1.35)
Dividends declared -- -- -- --
Market price
High $ 6.38 $ 3.88 $ 1.31 $ 2.75
Low $ .25 $ 0.14 $ 0.13 $ 0.27
F-22 (Continued)
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 three
months and six months ended November 30, 2001 and November 30, 2000, and the
related consolidated statements 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 of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, with the exception of the matter described in the following
paragraph, we are not aware of any material modifications that should be made to
the aforementioned financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We previously audited, in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of May 31,
2001, and the related consolidated statements of operations, of stockholders'
equity, and of cash flows for the year then ended (not presented herein), and in
our report dated August 17, 2001, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information as set forth
in the accompanying consolidated balance sheet information as of May 31, 2001,
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
Our report dated August 17, 2001 on the consolidated financial statements of
Elite Technologies, Inc., and subsidiaries as of and for the year ended May 31,
2001 contains an explanatory paragraph that states that the Company's recurring
losses from operations raise substantial doubt about the entity's ability to
continue as a going concern. The consolidated balance sheet as of May 31, 2001,
does not include any adjustments that might result from the outcome of that
uncertainty.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed further in the
financial information, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Israel and Ricardo Blanco, C.P.A.
Atlanta, Georgia
January 17, 2002 Temporary Permit No. 694
F-23 (Continued)
ELITE TECHNOLOGIES, INC, AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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
Accumulated 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.
F-24 (Continued)
ELITE TECHNOLOGIES, INC, AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
November 30, November 30,
2001 2000 2001 2000
Revenues $2,755,420 $3,630,818 $6,764,606 $7,334,396
Cost of Sales 2,483,825 2,968,113 6,081,343 6,563,351
----------------------------------------------------------------------------
Gross Profit 271,595 662,705 683,263 771,045
Salaries, wages and benefits 331,240 328,101 525,541 239,226
Depreciation and amortization 285,874 373,958 679,206 766,988
Other operating expenses 460,342 493,246 1,010,828 869,635
Stock based compensation 279,900 - 471,800 -
Investment banking fees - 1,584,031 - 1,584,031
Write down of non-performing assets 799,051 - 799,051 -
----------------------------------------------------------------------------
2,156,407 2,779,336 3,486,426 3,459,880
----------------------------------------------------------------------------
Loss from Operations 1,884,812 2,116,631 2,803,163 2,688,835
Interest expense 26,856 - 50,212 12,100
Other expenses - net 282 1,713 282 17,259
-------------------------------------- --------------------
--------------------
27,138 1,713 50,494 29,359
----------------------------------------------------------------------------
Loss before income taxes 1,911,950 2,118,344 2,853,657 2,718,194
Income taxes 15,000 - 15,000 -
----------------------------------------------------------------------------
Net Loss $1,926,950 $2,118,344 $2,868,657 $2,718,194
============================================================================
Net Loss Per Share of Common Stock:
Basic and Diluted ($0.03) ($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.
F-25 (Continued)
ELITE TECHNOLOGIES, INC, AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(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) provided by 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 taxes 3,000 --
-----------
Net cash (used in) provided by operating activities (284,488) 224,872
-----------
Cash flows from 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 financing activities:
Proceeds from issuance of common stock -- 140,000
Proceeds from issuance of long-term debt 225,000 425,000
Proceeds from 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
F-26 (Continued)
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-QSB. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments consisting of a normal and recurring nature
considered necessary for a fair presentation have been included. Operating
results for the three-month and six-month periods ended 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.
In January 2001, the Company adopted the provisions of FASB Statement No. 133,
"Accounting for Derivative 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.
F-27 (Continued)
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
the disposal of long-lived assets.
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
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.
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.
F-28 (Continued)
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
On goodwill established prior to 2002, the excess of cost over net assets of
businesses acquired (goodwill) is being amortized using the straight-line method
over five years. All goodwill transactions were effective previous to the
adoption of FASB issued Statement of Financial Accounting Standards No. 141,
"Business Combinations", and No. 142 "Goodwill anf Other Intangible Assets". The
amortization period is based on, among other things, the nature of the products
and markets, the competitive position of the acquired companies, and the
adaptability of changing market conditions of the acquired companies. At each
balance sheet date, the Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operation.
The amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate equal to the rate
of return that would be required by the Company for a similar investment with
like risks. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
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.
F-29 (Continued)
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.
Management's Plans
The Company has incurred significant recurring operating losses at May 31, 2001
and carries a working capital and a retained earnings deficit that raises
uncertainty about the Company's ability to continue as a going concern.
Management's business philosophy is to increase market share by virtue of
acquiring companies with inherent symmetry, autonomy and profitability.
Management is actively pursuing new debt and equity financing arrangements. In
addition, controls on operating efficiency and effectiveness are being
considered. Management is continually evaluating capital budgeting opportunities
and the Company's overall profitability. However, any results of their plans and
actions cannot be assured. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
F-30 (Concluded)
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Registrant may indemnify a director and must indemnify an officer who is
made party to a proceeding because he is or was a director or officer against
liability incurred in the proceeding if he acted in a manner he believed in good
faith not opposed to the best interests of the Registrant and, in the case of
any criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. A director or officer's conduct with respect to an employee benefit
plan for a purpose he believed in good faith to be in the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirements of Texas law regarding indemnification. The Registrant may not
indemnify a director or an officer in connection with a proceeding by or in the
right of the Registrant in which the director or officer was adjudged liable to
the Registrant or in connection with any other proceeding in which the director
or officer was adjudged liable on the basis that personal benefit was improperly
received by him. Indemnification in a proceeding by or in the right of the
Registrant is limited to reasonable expenses incurred in connection with the
proceeding. To the extent a director or officer is successful on the merits or
otherwise in the defense of any proceeding to which he was a party, or in
defense of any claim, issue or matter therein, because he is or was a director
of the Registrant, the Registrant must indemnify the director or officer against
reasonable expenses incurred by him in connection with the proceeding. The
Registrant may pay or reimburse the reasonable expenses incurred by a director
or officer in advance of final disposition of a proceeding, provided the
director furnishes the Registrant with written affirmation of his good faith and
a written undertaking to repay any advances if it is ultimately determined that
he is not entitled to indemnification. The Board or special legal counsel must
make a determination in each case of indemnification of a director, but not of
an officer, that indemnification is permissible in the circumstances because the
director has met the required standard of conduct. Article 8.5 of the
Registrant's Bylaws also contains provisions for indemnification of directors
and officers.
Item 25. Other Expenses of Issuance and Distribution.
SEC Registration fees $ 469*
Costs of printing and engraving $ *
Legal fees $ *
Accounting $ 15,500^
Listing fees $ *
Other $ *
-------
Total $ 15,969
=======
^Estimated
*Filed by admendment when known
Item 26. Recent Sales of Unregistered Securities.
The following information covers the Registrant's unregistered sales of
securities within the three-year period ended on May 31, 2001 and the interim
period subsequent thereto.
Elite entered into an agreement to issue shares of Elite's restricted common
stock in exchange for investment banking services during the fiscal years ended
May 31, 2001, 2000, and 1999. The actual shares distributed for these services
were 12,765,714 shares, 10,339,000 shares, and zero shares, respectively. Elite
recorded expense and additional paid-in capital for the pro rata share of the
fair value of services performed of $3,036,760 $15,872,719 and $126,667 for the
years ended May 31, 2001, 2000, and 1999, respectively. The fair value of the
total agreement was determined based on the fair value of shares of the
Company's common stock committed to be issued as part of the agreement.
Elite entered into an agreement to issue shares of Elite's restricted common
stock in exchange for stock based compensation during the fiscal years ended May
31, 2001, 2000, and 1999. The actual shares distributed for these services were
6,286,000 shares, 6,962,500 shares, and zero shares, respectively. Elite
recorded expense and additional paid-in capital for the pro rata share of the
fair value of services performed of $2,859,444 $10,751,765 and $827,431 for the
years ended May 31, 2001, 2000, and 1999, respectively. The fair value of the
total agreement was determined based on the fair value of shares of the
Company's common stock committed to be issued as part of the agreement.
In April 1999, Elite commenced the sale of its restricted common stock in a
private placement offering. As of May 31, 1999, 652,000 shares of common stock
had been sold for $652,500, net of issuance costs of approximately $352,000 and
50,000 shares of common stock issued to the investment banker. During the year
ended May 31, 2000, 840,050 shares of common stock were issued through private
placement with $84 and $840,916 credited to common stock and paid-in capital,
respectively.
In June 2000, Elite sold an additional 3,300,000 shares of its common stock in a
private placement offering at a sales price of $0.28 per share.
On June 27, 2000 Elite entered into an agreement to acquire 100% of the
outstanding shares of International Electronic Technology of Georgia, Inc., in
exchange for 1,185,000 shares of the Company's common stock. In August 2000,
Elite issued the 1,185,000 shares of restricted common stock called for in the
agreement.
In June 2000, Elite acquired AC Travel, Inc. AC Travel is a wholesale and retail
travel agency. The purchase price for all the capital stock of AC Travel was
2,000,000 shares of restricted common stock.
In February 2001 Elite acquired Icon Computer Parts of Puerto Rico. The Company
paid 2,000,000 shares of restricted common stock for the acquisition of Icon.
Pursuant to the purchase agreement of Icon an adjustment to the original
purchase price may occur if the trading price of Elite's common stock falls
below $1.00, one year post the original closing date. Due to shareholders
amounting to $1,662,400 resulted from this event. Conversely, should the trading
price be in excess of the aforementioned price, this payable will be removed in
its entirely.
In July 2001, Elite purchased World Touch Communications, Inc., World Touch is a
provider of telecommunications services, including long distance callback and
Voice Over IP (VOIP) internationally. The purchase price of World touch was
750,000 shares of restricted common stock.
During the May 31, 2000 fiscal year, Elite sold 2,312,500 shares of its common
stock to seventy-six investors for cash at an average price of $0.34 per share,
or an aggregate of approxiately $2,600,000 in gross proceeds. Elite has relied
upon Section 4(2) of the Securities Act and Regulation D there-under in selling
the shares without registration under the Securities Act.
During the May 31, 2000 fiscal year, Elite issued 1,250,000 shares of its
restricted common stock in payment for the settlement of a rescinded
transaction. The shares were valued at an aggregate of $80,675. Elite has relied
upon Section 4(2) of the Securities Act in issuing the shares without
registration under the Securities Act.
The following table presents the name of each existing stockholder who owns less
than one percent of Elite's outstanding common shares and who has a right to
sell common shares under this prospectus. These existing stockholders have
included a total number of 93,837,663 common shares for sale under this
prospectus.
Holders of restricted stock to be registered for sale this Offering:
Name of Number of Number of
Selling shares Before shares sold Percentage
Stockholder Sale of shares this Offering Before After
Zaid Al-Sulamain 1,499,182 (C) 1,499,182 1.48% 0.77%
Faith Pickering 2,200,000 (A) 2,200,000 2.17% 1.13%
Michael Herman 2,200,000 (A) 2,200,000 2.17% 1.13%
Alicia Nakata 4,400,000 (A) 4,400,000 4.33% 2.27%
Arab Commerce Bank 1,538,888 (C) 1,538,888 1.52% .79%
Middlemarch Partners 750,000 (C) 750,000 .74% .39%
China Bay Holdings 3,761,980 (C) 3,761,980 3.70% 1.94%
Edwin Tennenhaus 1,700,000 (A) 1,700,000 1.67% .88%
Doug Symons 1,500,000 (D) 1,500,000 1.48% .77%
Mike Pontonio 250,000 (B) 250,000 .25% .13%
John DiPace 100,000 (B) 100,000 .10% .05%
Ellona Tannenbaum 400,000 (D) 400,000 .39% .21%
George A. Wardi 75,000 (D) 75,000 .07% .04%
New Millennium Ltd. 2,750,000 (D) 2,750,000 2.71% 1.42%
Cornelius Max Rockwell 1,750,000 (D) 1,750,000 1.72% .90%
Jackson Morris 1,750,000 (D) 1,750,000 1.72% .90%
Justin Wallace Herman 500,000 (D) 500,000 .49% .26%
Nicole Mogelli 75,000 (D) 75,000 .07% .04%
Randy Wear 2,923,327 (C) 2,923,327 2.88% 1.51%
Randy R. Waer Trust 800,000 (C) 800,000 .79% .41%
Symons International
Group (Florida) Inc. 2,000,000 (C) 2,000,000 1.97% 1.03%
Kirk D. Symons 1,000,000 (B) 1,000,000 .98% .52%
Second Generation
Investment Co. LLC 2,000,000 (B) 2,000,000 1.97% 1.03%
Alexander E. Kuhne 750,000 (D) 750,000 .74% .39%
(A) Represents stock issued for cash infusion.
(B) Represents stock issued for note agreement.
(C) Represents stock issued by virtue of convertible debentures.
(D) Represents stock issued for services rendered.
*John V. Whitman has a one-half interest in the shares being offered for sale by
Jackson Morris.
Holders of convertible debentures or other instruments providing for future
issuance of restricted stock to be registered for sale this Offering:
Name of Number of Number of
Selling shares Before shares sold Percentage
Stockholder Sale of shares this Offering Before After
Zaid Al-Sulamain 1,000,000 (C) 1,000,000 .98% .52%
Arab Commerce Bank 250,000 (C) 250,000 .25% .13%
Gordon Mogerley 500,000 (C) 500,000 .49% .26%
Middlemarch Partners 4,200,000 (C) 4,200,000 4.14% 2.17%
China Bay Holdings 7,000,000 (C) 7,000,000 6.89% 3.61%
Edwin Tennenhaus 5,714,286 (C) 5,714,286 5.63% 2.95%
Donald M. Hill 1,250,000 (C) 1,250,000 1.23% .64%
Mike Pontonio 1,250,000 (C) 1,250,000 1.23% .64%
Richard Sharpee 5,000,000 (C) 5,000,000 4.92% 2.58%
Resonance Ltd. 30,000,000 (C) 30,000,000 29.54% 15.48%
Pafco General 1,000,000 (C) 1,000,000 .98% .52%
(C) Represents stock to be issued by virtue of convertible debentures.
Item 27. Exhibits.
Exhibit Number Description of Exhibit
5.1 Opinion of Alex Kuhne(1)
23.1 Consent of counsel (included in Exhibit 5)(1)
23.2 Consent of Israel and Ricardo Blanco, C.P.A. (1)
23.3 Consent of Kirchner & Associates, P.C. (1)
23.4 Consent of KPMG LLP. (1)
24.1 Power of Attorney (set forth on signature page of the
Registration Statement).
27.1 Financial Data Schedule.
(1) Filed by Exbibit.
*Filed as Exhibits to reports filed pursuant to the Securities Exchange Act of
1934, as amended, under Commission File No. 0-17597
EXHIBIT 5.1: OPINION RE: LEGALITY
Alexander Kuhne, P.C.
30400 Telegraph Road, Suite 357
Bingham Farms, Michigan 48025-4546
April 10, 2002
By Telephone Facsimile
Board of Directors
Elite Technologies, Inc.
Norcross, Georgia
Re: Registration Statement on Form SB-2
Gentlemen:
I act as legal counsel for Elite Technologies, Inc., a Texas corporation, (the
"Company"). I have been asked to provide an opinion letter in connection with
the registration under the Securities Act of 1933, as amended, (the "Act") on
Form SB-2 ("Registration Statement") for the offer and sale of up to 93,837,663
shares of the Company's common stock, $.0001 par value per share.
Based upon my review of the corporate documents provided to me,including but not
limited to the Company's Articles of Incorporation, appropriate records of
proceedings of the Company's Board of Directors, subscription documents, the
Company's audited balance sheet for the year ended May 31, 2001 and un-audited
balance sheet for the six months ended November 30, 2001 and such additional
records as I deem appropriate, it is my opinion that the Stockholders' Shares
included in the Registration Statement are legally authorized, duly and validly
issued, fully paid and non-assessable.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and the reference to me therein under the caption "Interest of
Counsel."
Very truly yours
/s/ Alexander E. Kuhne
- ----------------------
Alexander E. Kuhne
EXHIBIT 23.1 CONSENT OF COUNSEL (INCLUDED IN EXHIBIT 5.1)
EXHIBIT 23.2 CONSENT OF ISRAEL AND RICARDO BLANCO, C.P.A.
The Board of Directors
Elite Technologies, Inc.
We consent to the inclusion in the Registration Statement on Form SB-2 of Elite
Technologies, Inc. dated April 10, 2002, our report dated August 17, 2001
related to the consolidation balance sheet as of May 31, 2001 and the
consolidated statements of operations, stockholders equity and cash flows of
Elite Technologies, Inc. and subsidiaries for the year ended May 31, 2001. We
also consent to the reference to our firm under the caption "Experts" in the
accompanying Prospectus.
/s/ Israel and Ricardo Blanco, C.P.A.
- ------------------------------------
Israel and Ricardo Blanco, C.P.A.
Certified Public Accountant
April 10, 2002
EXHIBIT 23.3 CONSENT OF KIRSCHNER & ASSOCIATES, P.C.
The Board of Directors
Elite Technologies, Inc.
We consent to the inclusion in the Registration Statement on Form SB-2 of Elite
Technologies, Inc. dated April 10, 2002, our report dated November 9, 2000,
except for Note 13 (c) as to which the date is February 21, 2001 related to
consolidated balance sheet as of May 31, 2000 and the consolidated statements of
operations, stockholders equity and cash flows of Elite Technologies, Inc. and
subsidiaries for the year ended May 31, 2000. We also consent to the reference
to our firm under the caption "Experts" in the accompanying Prospectus.
/s/ Kirschner & Associates, P.C.
Certified Public Accountant
Marietta, Georgia
April 10, 2002
EXHIBIT 23.4 CONSENT OF KPMG LLP
The Board of Directors
Elite Technologies, Inc.
We consent to the use of our report dated August 25, 1999, with respect to the
consolidated statements of operations, stockholders' equity and cash flows of
Elite Technologies, Inc., and subsidiaries for the year ended May 31, 1999,
included herein and to the reference to our firm under the heading `Experts' in
the prospectus.
/s/KPMG LLP
Atlanta, Georgia
April 10, 2002
Item 28. Undertakings.
Rule 415 Offerings
The undersigned registrant hereby undertakes:
(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 in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (230.424(b) of this chapter)
if, in the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; (iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(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.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
In accordance with 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 of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Atlanta,
State of Georgia on April 10, 2002.
Elite Technologies, Inc.
By: /s/ Scott A. Schuster
Director and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this The
following persons in the capacities signed registration statement and on the
dates stated.
Signature Capacity in which signed: Date signed:
- --------- ------------------------- ------------
/s/ Scott A. Schuster Director and April 10, 2002
- --------------------- Chief Executive Officer
Scott A. Schuster
/s/ Frank Noori Chief Operating Officer April 10, 2002
- --------------- and Director
Frank Noori
/s/ David Aksoy Director April 10, 2002
- ----------------
David Aksoy
/s/ David M. Peacos Chief Financial Officer April 10, 2002
- -------------------
David M. Peacos